Podcast appearances and mentions of james absolutely

The following is a conversation with Erin Kenney, the CEO of Nutrition Rewired. Erin is a registered dietitian with a Master's in nutritional science. She's done an amazing job in building a business that helps people take control of their lives through modulating their diet, improving their gut health and ultimately looking after the gut microbiome. Today's conversation was far-reaching. We talked about fibre, We talked about gums, we talked about artificial sweeteners, carbohydrates, fats, proteins, and supplements. This was pretty much an A to Z of what to do to look after your gut health, what works and what doesn't.  I wanted to take this opportunity to thank all of the listeners and supporters of the podcast for everything you've done to help us build the name, and the brand, and to get the message out there around microbiome being critically important and gut health being important for wider body health. Timestamps: 00:00:00 Introduction 00:01:19 How Erin became interested in gut health 00:04:32 Biggest impacts on Erin's health 00:06:09 Stress and gut health 00:09:22 Does caffeine give us energy? 00:14:46 Bone broth instead of coffee 00:16:06 Coffee and our liver 00:16:48 Taking control of gut health 00:18:42 The role of a good breakfast 00:21:55 Lean muscle mass and women 00:23:07 Importance of protein 00:26:32 Role of supplements 00:29:35 Creating an optimal regime 00:32:33 Ketogenic diets 00:38:34 SIBO 00:46:24 Microbiome testing 00:49:00 Vitamin D 00:51:51 Green powder supplements 00:55:19 Heavy metals 01:01:38 Artificial sweeteners 01:05:58 Gum instead of gluten 01:10:18 Palm oil 01:12:20 Nutrition Rewired   Full Transcript: [00:00:00] JAMES: The following is a conversation with Erin Kenny, the CEO of Nutrition Rewired. Erin is a registered dietitian with a master's in nutritional science. She's done an amazing job in building a business up that helps people take control of their lives through modulating their diet, improving their gut health and ultimately looking after the gut microbiome. [00:00:24] JAMES: Today's conversation was far reaching. We talked about fiber, We talked about gums, we talked about artificial sweeteners, carbohydrates, fats, proteins, supplements. This was pretty much a A to Z of what to do to look after your gut health, what works and what doesn't. I really appreciated how simply Erin put lots of complicated topics for the listener. [00:00:49] JAMES: She podcast so that might explain why she was such a good guest. This is an amazing episode for anyone who's wanting to enter into this field, but we also digged into some [00:01:00] technical aspects, and I learned a lot over the course of the conversation. This is Inside Matters. My name is Dr. James McIlroy. I hope you enjoy it. [00:01:16] JAMES: So how did you get interested then in gut health? [00:01:19] ERIN: It was a very selfish Journey for me, I, from a very young age, struggled with digestive issues. They had to take me off of being breastfed when I was a baby and got on to formula fed. And, you know, I was struggling with a ton of digestive issues. And basically they just slapped me with a diagnosis of lactose intolerance. [00:01:42] ERIN: And basically what most of my childhood, struggling with horrible pain, horrible bowel movement. I will honestly say that a majority of my childhood was spent in the bathroom because Of how bad things were with my gut and [00:02:00] I really didn't have much help, you know, it was kind of just, you know, let's watch out for dairy and let's watch out for, you know, triggers and things like that, but it was kind of just, you know, take elodium and, and hope for the best. [00:02:13] ERIN: So, fast forward, you know, as I started to get older, I was a full time athlete, I was, you know, in high school, and really wanted to start taking care of myself. I struggled with mental health issues, I lost my father to his battle with mental health struggles, and it started to connect with me that on the days when my stomach was at its worst, my mental health was also at its worst. [00:02:42] ERIN: And so I was starting to make these connections and, you know, learn and, Spent a lot of time on Google, which, you know, we all know is not a reputable source of information. But nonetheless, I was, I was interested in, in seeking alternative ways to help [00:03:00] support my body. And when I went to college, I didn't really know what I wanted to major in. [00:03:05] ERIN: And I thought, you know, nutrition sounds like something that I could use some support with, considering everything that I'm going through and. You know, the things that I've read online and from there on out, it was just about healing myself. I learned, you know, after being on a decade of medications from birth control to fix the hormone imbalance, from PPI's to address the chronic acid reflux, you know, it was just being thrown medication after medication because doctors were just treating symptoms. [00:03:40] ERIN: So I, I've dedicated all my time to researching about, you know, the gut microbiome and nutrition. And then I was in school for nutrition. And I started following people in the field who were talking about these things, talking about the gut microbiome, talking about how nutrition impacts mental health. I [00:04:00] just lit up, you know, it was, it was like, for the first time in my life, someone was speaking to me and, you know, I felt validated too, for so many years, it's like, oh, it's just all in your head, you just gotta, you know, stop eating dairy, and I have now, Basically built a business on helping individuals get to the root cause of their digestive issues and imbalances because of everything that I went through. [00:04:25] ERIN: So I'm incredibly passionate about what I do and I'm just really excited to chat with you today. [00:04:32] JAMES: So what were some of the key things then as you went along your own journey that made the biggest impact to your own health? [00:04:39] ERIN: I will highlight a very important one that I think a lot of people don't consider and that's stress. [00:04:45] ERIN: It's Uh, you know, there was a lot of stress in my life and I was kind of putting that on the back burner as something that, yeah, you know, I'm stressed, I'm, you know, working out intensely and doing all this stuff, but that [00:05:00] can't, you know, that's not going to make a huge difference. So I really had to prioritize stress as one of them. [00:05:06] ERIN: Diet, as we all know, you know, is incredibly important. My diet was Not supportive of what I needed for my body. I played around with a plant based diet, and I have no shame for anybody who is, who loves their plant based diet, but for me it was not the right fit. I needed a plant forward diet, but I also needed protein. [00:05:30] ERIN: I needed to really hone in on, like, focusing on diversity of what I was eating. I was eating a lot of the same things over and over again. I think a lot of us can get into a rut pretty easily with that. And then I learned, you know, how much diversity our gut needs in terms of the microbiome. So stress, diet was huge. [00:05:50] ERIN: And then I had to address imbalances. I had small intestinal bacterial overgrowth because I was On proton pump inhibitors long term, I had yeast [00:06:00] overgrowth. Uh, so a lot of these things I learned from stool testing and I was able to Going [00:06:09] JAMES: back to the stress then. So how do people identify if their stress levels are too high? [00:06:15] JAMES: And you mentioned exercise, maybe exercise is a double edged sword. If you do too much, it might be actually a big stress on your body. So what are your tools and tips then for stress management? I guess a little bit is good for you, right? But too much is detrimental. [00:06:31] ERIN: Sure. Yeah, we call that eustress, right? [00:06:33] ERIN: It's that, that, that period where you're kind of in that Goldilocks sweet spot where stress is, is beneficial. It helps us grow. It's good for inflammation. But in terms of my own journey, I, I would love to say that I had this like, you know, lovely revelation of your stress and you need to pull back. It was. [00:06:53] ERIN: One of those moments, I say this to clients all the time, it's if you listen to your body when it whispers, you don't have to hear [00:07:00] it when it screams. And I was at the screaming point where I was running seven to ten miles a day and You know, I got to a point where I couldn't barely even walk because I was just like so obsessed with how exercise made me feel, how good it was for my mental health. [00:07:16] ERIN: So I was basically forced in to loving yoga. It wasn't love at first. It was a, it was, it was not love at first. It was a rocky relationship to begin with, but I thought this is the only thing I can do. Yoga is the only thing that I physically can do that's going to support my mental health and I just fell in love with it. [00:07:37] ERIN: And to this day has always been an incredible stress management technique for me because not only do I get to move my body, but I'm doing it in a way that's not inflammatory. I'm doing it in a way where I'm, I'm like feeling everything of what's going on in my muscles and how tight I am and breath, right? [00:07:57] ERIN: I'm breathing. So a lot of times [00:08:00] people will say, I'm just not good at meditation. And I'll say, well, have you tried yoga? Have you tried walking or yoga? Like those are also forms of meditation because you have to focus on your breath. If you're in a down dog position and you're sweating and you're tired, the only way you're going to get through that pose is that you're going to breathe. [00:08:20] ERIN: So meditation has been, meditation and yoga have been incredible assets to my healing journey, but also just the way that I Manage my stress now and also just the awareness of what is my threshold for stress and what are some of the signs that come up for me when I know I've hit my breaking point and become more irritable towards the people that I love. [00:08:45] ERIN: My sleep starts to suffer. My digestion starts to go off a little bit. So these are kind of my. Red flags of, Hey, Aaron, let's check in with yourself. You might be doing a little too much. So are those [00:08:59] JAMES: [00:09:00] the sort of whispers then before the screams, the irritability, the sleep? Yeah. [00:09:05] ERIN: And for females to even males, people think, yeah, changes in hormones, like you'd notice changes in your menstrual cycle or your libido, like those types of things can, can also take a hit when you're dealing with chronic stress. [00:09:22] JAMES: Cause I guess a lot of people think, Oh, well. You know, I'm a little bit tired today. I'll just drink more coffee or I'm a little bit sore today. I'm just gonna train more But what you're saying is maybe you need to just slow down to perform [00:09:34] ERIN: better. Exactly. And I also love to talk to clients about how caffeine actually works. [00:09:41] ERIN: Caffeine doesn't give us energy. It actually blocks these adenosine receptors in our brain. And these adenosine receptors are like those little whispers of us hearing the signal that we're tired. And once that caffeine wears off, those [00:10:00] adenosine receptors don't go away. They're still there to then tell our brain, hey, we're really tired. [00:10:07] ERIN: So I always Tell people that, that you're not giving yourself more energy by loading up on caffeine, you're decreasing your perception of how tired you are, which is allowing you to push through something, whether it's a workout or a long, you know, night at work. And over time, especially your body is going to shut down. [00:10:33] JAMES: As an avid coffee drinker, I'm sort of running through my head, am I drinking? I'm not listening to the whispers, but have you got recommendations then for your clients around coffee and caffeine, like some rules or suggestions in terms of when to drink, how much to drink? Cause that could be really interesting for the listeners on Inside Matters. [00:10:52] ERIN: My number one tip is that, and I say this to clients, you have to eat a full breakfast before you have your [00:11:00] cup of coffee. And when we do this experiment, sometimes my clients will say, after I had, [00:11:10] ERIN: they'll say, I didn't, I didn't even want my cup of coffee after I had my breakfast. And it's because we're not using artificial fuel, right? We're eating. Some nice eggs with, you know, some sweet potatoes and avocado and, you know, we're energized and now we don't have this craving for a stimulant. And I'm not shaming caffeine completely, especially coffee. [00:11:36] ERIN: There's numerous health benefits in addition to the microbiome, but it's, it's evaluating that relationship with it. And so. So I always say, no coffee until you've had a, a, a full breakfast. Coffee does not count as breakfast. I tell them no caffeine after noon. Uh, the researcher, Michael, is it, oh, Matthew Walker. [00:11:58] ERIN: He talks about [00:12:00] metabolism of caffeine and, you know, the half life and how long that caffeine can stay in your system. And You could be laying in bed at night if you had your cup of coffee at 3 p. m., and you're still metabolizing it in the middle of the night, impacting your quality of sleep, and then the cycle just starts again, right? [00:12:18] ERIN: You wake up, you're exhausted, you're groggy, and that's because That's You know, that the later in the day that can impact your sleep. [00:12:27] JAMES: So someone maybe like me who wakes up in the morning and finds a way over to the coffee. I know myself. It just, it's like part of the routine and I kind of love it to be honest, but so someone's addicted to that morning routine and they come to you and they become a client. [00:12:45] JAMES: How do you get them to break that cycle and get into the routine of. I don't know, maybe cold shower and then they come in, they've had their breakfast, then they have their coffee. Is it a slow process or do you just say, right, that's it, cold turkey. [00:12:58] ERIN: I'm never, [00:13:00] I'm never militant with my clients ever because I'm also human and the I also understand that, you know, when we make changes, that they don't need to happen overnight and it certainly doesn't usually feel good to our nervous system or mental health wise when someone says, just cut it out. [00:13:17] ERIN: And now, don't get me wrong, I've got clients that are all or nothing and they just, when I tell them generally what I've just told you, they'll say, forget it, I'm cutting it out. I want to do this, I want to do it perfectly, that's type of person. Right. So when we, when we start, you know, I, I get to know what their relationship is like. [00:13:36] ERIN: I had a client one time and she had this, you know, whole setup in her house. The whole side of the wall was dedicated to coffee. So for the client like that, we're going to say, okay, you know, let's. Maybe switch to a decaf or switch to, you know, less of a serving and put more, you know, almond milk in it to just cut down on the, on the portion. [00:13:56] ERIN: And then we, we work our way towards, uh, maybe after [00:14:00] breakfast, but there's lots of alternative things that you can do to still have that routine. So I'll, I'll just give my example. I drink a bone broth, hot chocolate in the morning and that bone broth, hot chocolate. It doesn't, you know, contain loads of caffeine. [00:14:16] ERIN: It's still got the gut health benefits. It's still bitter because of the cacao. And so I drink that it's got 20 grams of protein and it's warm and it's, it still gives me that so people can find, you know, there's all these like, you know, medicinal mushroom type of blends and things like that. So if you can find something that you like. [00:14:36] ERIN: That isn't that, you know, bursts of caffeine and acidity to your stomach on an empty stomach, then that might help the transition be a little bit easier. Thank [00:14:46] JAMES: you so much for that example. Mark, who's one of the hosts here at the podcast studio has bone broth and cayenne pepper. Okay. There you go. In the morning. [00:14:56] JAMES: Yep. And bizarrely, I was speaking to him on Tuesday because we're [00:15:00] planning for the week and we're talking about you. Um, and I said, cause he was drinking in the same type of Yeti coffee mug as me. And I was like, Oh, nice mug. Like you're one of the good guys. Um, is that a coffee? He explained that no, it was just his bone broth and it's part of his routine to get, you know, great nutrition and in the morning and it's still warm. [00:15:18] JAMES: And as you say, it sort of feels like a coffee, but it's not really a coffee. So. Um, I'm going to go for it. I'm going to start my day with some bone broth. [00:15:27] ERIN: I expect a report back. I'd love to hear from you. [00:15:31] JAMES: I'll give you a report. I can't promise to stop the coffee. That's not the goal. I might go from two shots to one shot. [00:15:39] JAMES: I think two shots to one shot. That's success. You know, you mentioned the health benefits of coffee. It's really interesting. I've had several people come on. So one of them was Professor Debbie Shawcross, who's like a leading authority on, on liver health, basically saying drink more coffee because for some reason it's protective [00:16:00] against, um, cirrhosis and, uh, non alcoholic fatty changes. [00:16:05] JAMES: So there's, there's something in there, isn't there? [00:16:06] ERIN: This, I think there's so many, there's so many asks. Aspects of it. I think, you know, you and I are big into gut health, right? So we're probably gonna always look at it from a gut health lens. And, you know, my scientific brain goes to, well, you know, coffee helps people have a bowel movement, right? [00:16:22] ERIN: It stimulates the liver and digestion. And if we're having regular bowel movements and, and stimulating that process, that's great for the liver, right? We don't want, that's good. You know, sluggish digestion. So just one of the many, I mean, there's, there's antioxidants in there, there's. The polyphenols that feed beneficial bacteria and you know, the liver and the gut are most certainly connected. [00:16:48] JAMES: So could you maybe walk the listeners through some of the other things you try and help your clients with? So you mentioned stress, diet, maybe we can unpack diet a little bit more because that must be huge. We hear. In terms [00:17:00] of. You know, taking control of your health and your microbiome and your gut. [00:17:04] ERIN: Sure. Yeah. As a dietician, you know, people expect that we just focus on food and we, we often do. There's not usually one client that comes in that there's not something diet related that we're talking about and everyone's starting at different ends of the spectrum, right? Some people have no knowledge that. [00:17:23] ERIN: You know, they're not even getting nearly enough protein. They're not eating any vegetables, you know, that, that kind of standard American diet where a lot of processed foods, you know, a lot of refined grains that aren't providing any fiber or nutrition. So there's so many different ends of the spectrum of things that we work on. [00:17:41] ERIN: And then you have, you know, clients who have overgrowth or SIBO, like SIBO, for example, small intestinal bacterial overgrowth, and they're eating super clean. You know, air quote clean, where they're not touching your processed food. They're loading up on fiber because they've been told, [00:18:00] fiber, fiber, fiber, if you want better gut health, eat more fiber. [00:18:04] ERIN: And that's making them feel worse. So there's that end of the spectrum where we have to. obviously address the underlying root cause, but we need to simplify their diet, make it easy for them to break things down a little bit, give their gut some rest. And then there's the other spectrum where, you know, I have a woman come to me and she's eating one egg for breakfast. [00:18:25] ERIN: And I'm saying, where's your protein? She said, well, I haven't had an egg for breakfast. I said, well, one egg is six grams of protein. We need 25 or 30 grams of protein to start our day. Right? So there's, there's all these missing links. [00:18:42] JAMES: We've talked about breakfast quite a lot then because as you know, within the sort of wellness health sphere, there's this debate around intermittent fasting and it sounds like you're very much in favor of, you should have a really great nutritious breakfast with macronutrients to set you up [00:19:00] for the day. [00:19:01] JAMES: Is that the case? So you're big, big on breakfast for you and your clients. [00:19:06] ERIN: So for me, yes, I, I've always tried to adopt that my philosophy on my own nutrition and what I think makes me feel best is not going to determine what I think is best for a client. And I think that's really important. I think a lot of, you know, health professionals, it's, you know, they find something that works for them or works for some of their clients and then everyone should do it. [00:19:28] ERIN: Now. Do I often, would I recommend intermittent fasting to people? No, it wouldn't be my first recommendation for the majority of people that I work with. I have worked with clients and most of those clients end up being males who do really well with intermittent fasting. Maybe it's males or oftentimes it's women who are post menopause and they have specific goals, maybe related to body composition and hormone balance. [00:19:55] ERIN: And they found that these practices of intermittent fasting in whatever [00:20:00] fashion make them feel really good. A lot of these are CEOs of companies that like, they love the focus aspect of it during the day. And, you know, so I'm just going to come in and I'm going to work with them and say, Well, if this works for you and you're not, Uh, binge eating at night and feeling like you're deprived during the day and you're getting good nutrition and you're fast, you're feeding window, then I'll work with you. [00:20:23] ERIN: We'll work with where you're at. But the majority of my clients, you know, especially those that are female and they're still cycling, this can really disrupt their hormones. It can disrupt their ability to work out during the day. And so we have to really personalize that if it's going to be part of the protocol and, and the research that I've seen, my biggest concern is the body composition. [00:20:46] ERIN: I've seen the loss of muscle mass be a potential and I think that's a huge issue for a lot of people, right? We all need nice lean muscle mass and if fasting, you know, if we continue to see research that [00:21:00] fasting negatively impacts our lean muscle tissue, I don't love [00:21:04] JAMES: that. Yeah. I mean, intuitively it makes sense, right? [00:21:08] JAMES: You stop consuming calories, you've got no protein intake, therefore there's no amino acids moving around. So it kind of makes sense that your body is going to look for energy. Yeah. And I guess muscle is, is, is a target is probably less desirable than, than fat and certainly your glycogen stores kind of make sense that it forms part of that source of energy that we need. [00:21:32] JAMES: Our bodies are incredible. I'm just on the muscle mass thing. Oh yeah, absolutely. And on the muscle mass thing then, you know, I guess maybe some women listeners might think. It doesn't really apply to me. You know, that's for men that lift and train and work out, but that's not the case, is it? It's, it's just as important, maybe even more important. [00:21:54] JAMES: I, [00:21:55] ERIN: I'm a, I'm not a buff woman. Okay. I, I [00:22:00] get, you know, up to 130 grams of protein per day. And I'm not, you know, what, what people, a lot of women would think I would turn into by eating as much protein as I do. But I will tell you. Some things about me is that I'm very strong, very strong in the gym. I have a good lean body mass My hormones are balanced. [00:22:20] ERIN: I don't have cravings for sugar throughout the day. Those are the things that protein does for us. And so I think we need to understand that from a, you know, biochemical aspect, protein is essential. It is protective. It increases our metabolism. It's the only macronutrient that has a higher thermic effect of food like that. [00:22:41] ERIN: That's incredible. So we, you know, just old school recommendations that always seem to sneak their way into further generation. [00:22:50] JAMES: So, um, how does someone know, I mean, if they're not got the benefit of working with an expert dietitian like you, how do they know if they're on the right track for protein? And in [00:23:00] addition to like the actual macronutrient gram per day recommendations, how important is the source of protein for people? [00:23:07] ERIN: Hmm, that's a great question. So we have two different types of protein. We have a complete protein, which is basically a protein that combines all of the essential amino acids, which amino acids are the little building blocks of what protein is. And essential, meaning our body needs them to survive and to produce the daily functions and live optimally. [00:23:30] ERIN: So that's, that's an essential amino acid. That's a, that's a complete protein. Those Food sources are things like meat, fish, eggs. These are animal proteins. And then you have the incomplete side where we have incomplete, and these are going to be plant based foods. There are a few plant based foods that are complete proteins, but the majority, things like beans and lentils, these are not complete proteins. [00:23:55] ERIN: So they're just missing a few of those amino acids that we need for [00:24:00] essential daily living. Now, this doesn't mean that non complete proteins are not beneficial, but the requirement of how much you would need per day slightly goes up because the digestibility, how able we are to digest these proteins, is not as efficient, you know, if you were to eat eggs or a piece of fish, for example. [00:24:24] ERIN: So my approach is try to get some really good quality complete proteins in your diet and also get some incomplete protein sources in your diet, like lentils and beans and nuts and seeds, if that's something that works with, you know, your individualized physiology. But this idea that everything has to be a complete protein, I think is also, you know, too far left because, you know, bone broth isn't a complete protein, but it's still an excellent source of protein. [00:24:53] ERIN: And I'm still going to have, you know, salmon for dinner, and I'm going to hit my Total, you know, amino acid needs for [00:25:00] the day, if you will, [00:25:01] JAMES: and the total amino acid needs for the day. How does one calculate what they may or may not need? [00:25:07] ERIN: That's a great question. So the amino acids themselves, you could use something like I think chronometer might do this on a very, you know, specific level. [00:25:17] ERIN: I don't know if it goes that into detail, but we look at the total grams of protein as a dietitian, you know, so we're looking for Usually around 1.2, up to two kilograms, sorry, grams per kilogram per day of protein for each person. So the minimum, like the USDA requirements for protein, we're talking 0.8 grams per kilogram per day for a person. [00:25:43] ERIN: Uh, however you need to convert that, but it's what 0. 8 is not a recommendation I use for any of my clients. We're always going above that, especially when my clients are more active or they're looking to optimize their body composition. We're looking closer to like, uh, up to one [00:26:00] to two grams per kilogram. [00:26:03] ERIN: So that's your, that's your goal is to really figure out like what is that number for you based on your body weight and then how can you spread that throughout the day. You know, you don't have to completely spread it evenly, but I usually just tell people to make it easier. Get 25 to 30 grams at each meal and then adjust, you know, add to that to meet your needs and then add snacks where appropriate. [00:26:27] ERIN: But that's a good baseline if they're kind of starting from ground zero. [00:26:32] JAMES: That's an amazing summary of protein. Thank you so much. How do supplements fit into that? And I'm asking you in the context of this minimally processed versus like ultra processed food debate we have all the time. So some people say, Oh yeah, whey protein supplement contains the essential amino acids. [00:26:50] JAMES: Go for it. But other people say, Whoa, it's so processed you shouldn't have it. So what are your thoughts then, um, on supplements and How do [00:27:00] they fit in? [00:27:01] ERIN: I think supplements can be great. I think they have a time and a place and you know, a lot of the time is convenience is, is a big reason, you know, for somebody that has a protein goal of 180 grams per day. [00:27:15] ERIN: You know, meeting that might be really challenging if they're not throwing in some whey protein into a smoothie or a shake. Whey protein is excellent. Yes, it's processed, but so is your oatmeal and your brown rice and your ground meat. Like everything is processed. And if you choose grass fed, you know, protein powder, a whey protein powder with minimal ingredients that maybe just has whey, maybe some, you know, sweetener and something to Add some salt or whatnot. [00:27:43] ERIN: But if you have like a three ingredient protein powder, it's high quality grass fed, and you add that to your smoothie, you're doing wonderful things for your body. So I think it, it really comes into when you see these, you know, those, you know, body building companies always start these protein [00:28:00] powders and it's , you know, strawberry cheesecake or cookie dough. [00:28:03] ERIN: Yeah. And. I used to eat these. I'm not, I'm not saying I've never tried them. They do taste good. They do. They taste just like they say they do, or at least when you're, you know, eating healthy, they do. And, you know, that's when we get into the long list of ingredients. We see, you know, binders and gums and artificial sweeteners. [00:28:24] ERIN: And we see, you know, things that can really not make us feel good, especially from a gut health perspective. So a good quality You know, one that's been maybe tested for heavy metals, things like lead that can be common in plant based protein powders, arsenic. If we get a good quality protein powder, minimal ingredients, uh, high quality testing, ask for the certificate of analysis from the company. [00:28:51] ERIN: Then, you know, you're, you're, you're gonna help yourself out if you're struggling to get your protein intake. Thank you for [00:28:57] JAMES: that. I've, I've got so many things written down to ask, you know, I'm [00:29:00] actually not even sure where to start. Fibers, gum, sweeteners, heavy, heavy metals, other macronutrients. Before I jump into sort of more supplements and sweeteners and the heavy metals, I'd kind of like to. [00:29:16] JAMES: Round off the diet piece with you more generally. So maybe talk a little bit about fiber, um, fruit and veg, talk about carbs and fats. Yes. You know, when you're working with all your clients and for yourself as well, how do you build like an optimal diet? Big question. [00:29:35] ERIN: Yes. No, it's, it's a great one. How do you create like an optimal regime? [00:29:38] ERIN: Absolutely. So we start with again, base, like we kind of find this base for people to start. And that's where the three meals per day comes in. You know, if someone's not used to eating breakfast, we're going to try to get them to start eating breakfast, lunch, and dinner, or we can call it meal one, meal two, meal three, whatever your schedule is like. [00:29:56] ERIN: And at that meal, we're aiming to get again, that 25 to 30 grams of [00:30:00] protein. We want to hit. half a plate of vegetables that are colorful, usually like darker leafy greens tend to be an area that a lot of people struggle. So we try to look for those dark pigments. And then the other portion of that, usually I say like a fist of carbohydrates minimum at your meal. [00:30:18] ERIN: And we try to choose carbohydrates every meal and we try to choose carbohydrates that are more complex. So things like. higher fiber carbs. So if you're looking at a label, you're going to see fiber there. But if you're just in the produce section and you're looking at carbohydrate sources, potatoes have fiber, both sweet and white potatoes. [00:30:37] ERIN: Uh, things like quinoa, plantains, bananas. These are all sources of carbohydrates that are very nutrient dense. If a client's more active, those carbohydrates Intakes might go up. We might be consuming more carbohydrates per day. Um, and then fat is, is incorporated into those meals. We, we try to focus on healthy fats, particularly omega [00:31:00] 3 fats. [00:31:00] ERIN: So things like wild caught salmon, we're looking at things like mackerel, sardines, herring. These are omega 3 rich fats that we have to get two to three servings per week. So we've got three meals per day, protein, vegetable, carbohydrate, healthy fats included. And then, then we kind of go from there. We say, okay, are you working out? [00:31:22] ERIN: Okay, well, we need a pre workout, post workout routine. And how can we adjust there? Um, you know, you're training for a marathon. Okay, your carbohydrate needs go up significantly. We're going to have to adjust that. But once we have that base, you know, and, and You don't have to focus so much on the grams of fiber, although we are aiming for about 25 to 35 grams per day, if you're choosing complex carbs, if you're choosing half your plate of vegetables, then you're likely going to hit your fiber needs for the most part. [00:31:53] JAMES: It's going to happen, right? It's going to happen just by default, you know, because it's quite difficult to [00:32:00] find the fiber on the foods and to figure out. [00:32:04] ERIN: Yeah. And if you're focusing on it, we're [00:32:08] JAMES: sorry, there's a bit of a, a bit of a, a like you. Please continue, please. [00:32:13] ERIN: No, no. I was just going to say, so if you're focusing on getting the majority of your foods from less processed foods, then you're again, likely to hit those fiber goals because you're going to be choosing those types of fruits and vegetables and things like that that just naturally come with, you know, the, the benefit of the fiber. [00:32:33] JAMES: Absolutely. I'm going to just push you a little bit, um, on. Ketogenic diets and people even go more extreme and they have these um, carnivore diets. They're great. And you've been quite clear in your recommendation around you should have some carbohydrate with each meal. So, could we just unpack that a little bit and what some of the, you know, why is that part of your recommendation versus, you know, just eat meat and [00:33:00] veg, for example? [00:33:01] ERIN: Mm hmm. So, the, the main focus there is blood sugar balance and this is something that people think this is a discussion just reserved for people who have, say, diabetes. You know, oh, well, you know, they gotta watch their blood sugar and, you know, gotta make sure they don't eat too many carbohydrates. But the reality is, is we all should care about blood sugar. [00:33:22] ERIN: Blood sugar impacts our cardiovascular system. It impacts our mental health, it impacts our hormones, it impacts our muscle growth and maintenance. So having stable blood sugar throughout the day is absolutely key to optimal performance, energy, all those things that we're talking about. And so being able to get a steady adequate amount consistent throughout the day is going to allow that blood sugar to just kind of have this nice little up and down throughout the day. [00:33:52] ERIN: And we're going to stay within this nice range that the body likes to stay in for optimal health. When you go get your blood work done and you get your [00:34:00] hemoglobin A1C tested, that's your report card of how well you've been managing That blood sugar over the past three months, how well you've been staying within that range. [00:34:10] ERIN: And when you don't eat carbs for breakfast, and you don't eat carbs for lunch, and then you have a carb dinner, you're more likely to see a larger spike in those blood glucose levels. Again, this isn't the case for everybody. If somebody has been on a low carb diet, and they've maintained that, and their blood sugar is great, and they're feeling awesome, I'm so happy for them, and I would support them in that way. [00:34:34] ERIN: But for the majority of us, We have these habits where our carbs are not distributed properly. We're not eating the right amount. We're either eating too much in one sitting, not enough at one sitting, and we're wondering why we're craving sugar all the time, and why we're tired all the time. And if we just got high quality carbohydrates at every meal in adequate amounts, not overdoing it, not underdoing it, [00:35:00] we might find a really healthy balance. [00:35:02] ERIN: And not to mention, the trouble with those low carb diets is the number one symptom is constipation. Because These carbohydrates feed our beneficial bacteria. I probably see 10 to 15 stool tests per week, and any time I see someone come in with a carnivore, keto, low carb diet, they have very low beneficial bacteria. [00:35:30] ERIN: And it is pretty much causation, right? We can pretty much assume that the correlation there is because they're not So, my theory, you know, the, the keto diet, it's originally designed for, for medical purposes, and it's incredible for, you know, patients who are diagnosed with a, a type of epilepsy, and it has, been proven to And, uh, yeah, I mean, I don't [00:36:00] think that the majority of the United States needs to be on a carnivore or ketogenic diet, especially long term. [00:36:08] ERIN: We don't really know the long term effects of eating, you know, a ketogenic carnivore diet. it's, You know, I suspect that a lot of people that have found that they feel so good on those diets could be because they have an underlying gut imbalance, and now they're not feeding it with any fiber, any carbs, and that's kind of maintained their symptoms, so they feel really good. [00:36:36] ERIN: And that's, that's just a theory, it's just my thought, you know, that a lot of people find those diets because they're looking for relief and to feel good, and Ultimately, we all want to feel good, right? But if we're not addressing a root cause, then that, that's a, that's a problem, especially if it, it forces you to be on that restrictive of the diet. [00:36:57] ERIN: I [00:36:57] JAMES: mean, the way I like to describe the carnivore diets [00:37:00] to some people is you're essentially starving your microbiome. Yeah. It's not getting anything that it needs, really. I mean, there's, there's some microbes that can metabolize amino acids, um, and, and maybe some more complex chains and proteins, but it's, as you mentioned, it's really the fibers. [00:37:23] JAMES: It's the complex carbohydrates that they really, truly need. [00:37:27] ERIN: Yeah, there's, there's a few specific bacteria that the few specific bacteria, the Fecalobacterium Presnitzii. Uh, the aphromancia, these are two keystone, I'm sure you're familiar with them, they're two keystone bacteria in our gut. And one of the things that they thrive on is polyphenol rich foods. [00:37:47] ERIN: Polyphenol rich foods are going to be things like our berries, our, you know, pomegranates and grapes and those, those dark pigmented. fruits and, uh, leafy green vegetables, which wouldn't essentially be [00:38:00] allowed on some of those diets. And those are keys on species for protecting our gut lining for protecting us against things like inflammatory bowel disease. [00:38:10] ERIN: So I just, I don't know how you could convince me that a diet void of all these amazing foods and mentally for myself, I could never, you know, that's just. No, it's not for me. [00:38:26] JAMES: I've got a note to ask you about your diet and your routine in this totality, but just like to explore this, this fiber concept a little bit more. [00:38:34] JAMES: So one of the things that you said at the start, which I think was absolutely fascinating and you just touched on that again with people getting relief. I think maybe you're talking about the SIBO and how things are just going a bit crazy and counterintuitively, whilst perhaps in someone who doesn't have SIBO and who's functioning correctly otherwise, fibre is brilliant. [00:38:57] JAMES: For them, who've got too many bugs in the [00:39:00] upper GI tract, maybe fibre's not so good. So maybe you can walk the listener through that and Also, how you help these people get them to a state where maybe they can tolerate [00:39:08] ERIN: fiber again. Yes. And, and this would go for, you know, certain condition as patients who have inflammatory bowel diseases. [00:39:16] ERIN: Well, you know, if they're dealing with a lot of chronic inflammation, again, fiber is hard to break down. And that's part of what makes it good for healthy individuals, is that it's hard to break down. We don't digest a good majority of it, therefore it feeds our beneficial bacteria. But for those who are struggling, those who really find that, you know, they start to eat. [00:39:37] ERIN: a salad and it completely destroys them or, you know, the thought of any sort of vegetable on their plate is a nightmare. Then we're basically going to go forward and do some sort of testing. So the gold standard for the the SIBO is going to be a breath test. We're going to be testing for three types of gases, methane, hydrogen, and hydrogen sulfide. [00:39:58] ERIN: And then we're [00:40:00] also probably going to do a GI map to look at overgrowths in the colon, the lower part of the digestive tract as well. And If that person has a lot of overgrowth, then typically the course of action is going to be some sort of antimicrobial. And that could be either you could go to your conventional medicine doctor and you could choose to go that route, or you could choose to take the more natural route and use things like berberine, allicin, grapefruit seed extract, neem. [00:40:32] ERIN: These are all natural antimicrobials that have been shown to be very effective at, killing off harmful bacteria, both in the small intestine and the large intestine. And it's not just as simple as killing them off, right? We want to figure out what else is going on. You know, are they super stressed all the time? [00:40:50] ERIN: Do they have low stomach acid? Are they on a proton pump inhibitor, which is again, further reducing their stomach acid. We also want to look at the whole picture so [00:41:00] that this doesn't happen again. Cause the number one thing with SIBO is that people have reoccurrence because they just go in. They say, let's kill this off, but they don't address the fact that they have motility issues, thyroid issues, you know, stress that is just like, unbearable, and then they wonder why it comes back. [00:41:21] ERIN: So that's the, that's the big thing with addressing the gut is that we don't, we don't hone in on one specific thing. It's not as simple as like, oh, vitamin D is low, we, we increase it or. You know, it's, it's okay. So how did we get here? This is your gut is like a forest, right? You go into a forest and you just pull one thing out. [00:41:39] ERIN: You still have the whole forest there. [00:41:42] JAMES: So how do you then in your practice help your patients with SIBO? Do you recommend the berberine, the grapefruit extract, that kind of thing? And have you had good success with people? [00:41:52] ERIN: Yes. Yes. So I, those are the herbs that I like to use. Those are a few of the evidence based herbs that have been very [00:42:00] effective with my patients. [00:42:01] ERIN: And I've seen a lot of my clients get better with just a few rounds of these. Some, they do one round and we've addressed everything else and they're totally better. Some of my clients have had to go through two or three rounds of it to really fully get rid of it. But we'll retest it. We'll continually see those levels go down and down and down. [00:42:21] ERIN: And it's just, it's amazing to, to see people feel better. You start to see. Their iron labs start to go up because they start absorbing their nutrients, their vitamin D levels start to go up, you know, it's, it's a fascinating, you know, uh, progression of how people can be impacted by, by SIBO and for so long, you know, the, the, the statistics show that about 70 people who are, who are diagnosed with IBS actually have SIBO and they'll go their whole lives not knowing that because they're just going to say, well, I've got IBS. [00:42:56] ERIN: It's gotta, you know, be careful, follow a little FODMAP diet, and they don't ever [00:43:00] think to look further. And most doctors, some of them don't even, you know, we were talking about belief systems. Some of them don't believe that SIBO is a thing when it's clinically documented. So [00:43:12] JAMES: still to this day, to this day, for sure, it's still not widely accepted amongst the medical community. [00:43:20] JAMES: And some of the things you're talking about in terms of. Using these, you know, natural means rather than the classical antimicrobials. Also, we're just not there yet, I don't think. What's your [00:43:32] ERIN: experience? Yeah. And there's a lot of great doctors out there, especially gastroenterologists. And uh, I can't give you a long list of them, of great doctors that I know, but I can give you, um, you know, some experiences from clients who their doctors are, are really open to, they have a good understanding. [00:43:52] ERIN: You know, they, they see this in their practice every day. Uh, a lot of the doctors that say they don't believe in it, you know, they're, they're a [00:44:00] little outdated, right? They haven't been keeping up on the research. They have not been seeing patients and, and truly hearing them for what their symptoms are. [00:44:08] ERIN: And I think that, that there actually is, uh, a large amount of. Uh, physicians out there who are, are truly taking it seriously and treating and they're very, you know, there's a lot of doctors who are very quick to treat for, for SIGO with antibiotics and they do recognize how important it is. But, you know, it's just unfortunate that there are some out there that are leaving patients, you know, feeling very defeated. [00:44:35] JAMES: And with regards to the herbs that you recommend, is there like, this is the entrepreneur in me now, just my mind's going, is there like, you know, one supplement that has all the key elements in terms of all the herbs that have been beneficial or do you ask your patients while just. Maybe try a bit of the, the grape for effect, maybe try a bit of the berberine and see what happens. [00:44:56] ERIN: Yes, that's a great question. There, there are [00:45:00] formulations of herbs out there that are designed or supplements out there that are designed specifically for SIBO. So they'll usually have a combination of. You know, some of those more broad spectrum antimicrobials, I typically use them in a more isolated fashion because I love using tinctures. [00:45:18] ERIN: I like to try to reduce the amount of pills that a client will take. So oftentimes, you know, it will be like. Three times a day, you're doing your drops of oregano, your drops of neem, and then we'll do a berberine in a pill form. And, you know, we do that for a course of four to six weeks, and then we reassess symptoms. [00:45:35] ERIN: But there are, there are formulations out there. There's ones that are even more broad spectrum that, you know, are gonna have additional things like wormwood in them, and Uh, you know, things that can address yeast and candida, you know, knowing that those things can sometimes coexist, but the benefit of my practice is that I'm able to test with coins and I'm able to see, like, okay, how can we really hone in on this and instead of doing [00:46:00] this broad, you know, formulation, we do something much more specific to what you need. [00:46:05] JAMES: Yeah, my brain was just ding, ding, ding, ding, ding. And also, I was wondering That's just how it works in my brain. The, the tests that you do, I'm also fascinated. So I'm, I'm very familiar with the hydrogen sulfide, hydrogen methane, because Um, and terabiotics is actually going to be doing a clinical trial, uh, in the IBS area. [00:46:24] JAMES: So I've been reading all about IBSC IBSD, post infectious SIBO and so on. Um, but I wondered because what you're talking about, it's fascinating, it's, it's a combination of the breath test. It's a combination of the stool test. So do you have providers that you go to and that you trust to give you the right kind of data, or do patients come to you having done a microbiome test? [00:46:46] JAMES: Like at home. Mm hmm. [00:46:48] ERIN: Yes. So the majority of, of what I will have clients do with their providers is have their standard colonoscopy, endoscopy, get their blood work done. If they [00:47:00] can get, you know, the things that I like to see, like the ferritin, iron, B12, vitamin D. Uh, so I'll usually have them do that just because it's covered by insurance, right? [00:47:09] ERIN: We try to save clients as much money as possible knowing that these types of cases can be, you know, more intensive and, and costly. And so the stuff that we will do together, luckily as a dietician, we have, uh, different resources where I have an ordering physician on my team who can order the labs for me. [00:47:30] ERIN: And I've been trained to evaluate and interpret these labs over the past 10 years. And so I get these results, we sit down, we go over them together, and you know, we either work with their physician or just on our own, depending on how willing their, their other providers are. We try to work as a team to help this client get better in whatever way that looks like for them. [00:47:54] JAMES: Got it. Thank you. I just wondered if there was like a. Best in class microbiome testing service [00:48:00] that you just thought was unbelievably good. That gave you so many insights. Yeah, [00:48:04] ERIN: I, yes, much more simple. I will answer that more simply here. So the, I love the GI map. I've been using the GI map by diagnostic solutions for several years. [00:48:16] ERIN: I also love, uh, Jenova. That's another really great one. Um, sometimes that might be a better fit for a client based on kind of their symptomatology. But those are really the two main ones. And then, you know, the breath test, I use the TrioSmart because they do all three of the, the, the breath gases versus, you know, if you go get it done in your conventional doctor, they're likely just going to test for the hydrogen and the methane and they might miss the hydrogen sulfide. [00:48:46] ERIN: No affiliations with the brands. Thank you. [00:48:51] JAMES: Thank you for that. Um, you got quite excited when you talked about vitamin D, iron, and ferritin. Can you just like maybe unpack that a little bit? Why is that so important? [00:49:00] [00:49:00] ERIN: These are basic, you know, labs that should be run for all of us. And I laugh about it because it's so frustrating how it's like pulling teeth with providers that you want to know what your vitamin D levels are. [00:49:14] ERIN: Especially when we're in New England over here. So we're not getting UVB rays from the sun to produce vitamin D on our skin for a very large portion of the year. And also just scientifically knowing that 90 percent of Americans are deficient in vitamin D. Vitamin D impacts our hormones, our mental health, our risk for inflammatory bowel disease, everything. [00:49:35] ERIN: It quite literally impacts everything. Uh, so vitamin D, I always have clients advocate for that. And if it's not done over here in the U. S. as a standard blood panel. Iron is another one. Iron typically is tested, but ferritin, the storage form of iron, is not always tested. And this can tell us a lot about inflammation in the body. [00:49:56] ERIN: This can tell us a lot about our body's ability to absorb [00:50:00] iron. So that one is another one. Especially, I work with a lot of athletes, especially endurance athletes, and they tend to be very low in ferritin. And so, you know, if a provider saw, oh, in 2017, your iron looked good, they're not going to test it again. [00:50:15] ERIN: And, you know, hello, it's 2024. Things can change pretty quickly. So, I like ferritin. I also like B12. Both B12, ferritin, vitamin D can tell us that there maybe is malabsorption going on related to SIBO. So, these are things that are common deficiencies that I see in my practice. You know, we should just be knowing regularly what our values are. [00:50:39] JAMES: Got it. Are there any other blood tests that you recommend for the sort of general person? Um, and I'm assuming you recommend vitamin D supplementation. [00:50:49] ERIN: Yep. If you are deficient in vitamin D to a point where, you know, you're getting into the twenties and lower. You're not going to be able to eat food and get your values back [00:51:00] up. [00:51:00] ERIN: You're going to need to supplement unless you're living in a place where it's very sunny And it's very clear that you've been hibernating and lathering the sunscreen and then you can change that habit But the majority of people in order to get their vitamin D levels back up will need to supplement So that's really important for people to know and you always want to take vitamin D 3 plus K 2 K 2 It prevents us from absorbing too much calcium into our, um, the vascular system, which can increase your risk for cardiovascular disease. [00:51:32] ERIN: So vitamin D3 plus K2, always have that combination together and just make sure that you're advocating for it. If you have a deficiency in vitamin D, you're going to need to supplement. There's very few food sources of vitamin D. And those really aren't likely to move the needle if you have a deficiency. [00:51:51] JAMES: And on the subject of supplements, do you recommend anything else? Like, for example, a greens powder, which are all the rage at the moment. [00:51:59] ERIN: Yeah, [00:52:00] I, I don't recommend those supplements. You know, there, there's, um. There's some out there, you know, there's ones that I've taken that I feel really good on, you know, the, the athletic greens was a big, it, it blew up and I, you know, they sent me a sample and I thought, oh, you know, this is like another greens powder and I'll be honest, I felt really good. [00:52:20] ERIN: You know, I'm not going to lie to people. I felt really good when I took it. And that could be due to the fact that it's basically like a multivitamin. And it's got adaptogens like ashwagandha, which I love ashwagandha. And, you know, it was great. I was taking it for a little while. And then, you know, consumer labs came out. [00:52:38] ERIN: They, they independently tested all of these greens powders. And they found higher levels of lead in a lot of them, which something that just naturally occurs in the soil. You know, plants are growing, they absorb these heavy metals from the soil. And lead is not good for us. As someone might imagine, that getting lead in, in [00:53:00] higher doses regularly, ideally we want no lead. [00:53:03] ERIN: But we're always going to be exposed to some level of heavy metals. But when you take something and you concentrate it down, that means you're going to get a larger dose in a small serving. And so, you know, certain brands that I mentioned, like You know were above the limit that I would consider safe to consume on a regular basis for optimal health And so I wow, you know stopped using that and I you know, I I really caution My clients to be using these powders You know, even if they are passing heavy metal testing, you know, they're, they're not a replacement for food. [00:53:36] ERIN: You know, if someone's really struggling, they might offer some assistance. There are certain fruit and vegetable capsules out there that have passed heavy metal testing, you know, don't have any fillers in them. Um, the brand like Juice Plus, for example, over here in the U S you know, they, they seem to kind of pass with flying colors. [00:53:55] ERIN: So I would say. You know, I think of someone like my grandmother who, you know, [00:54:00] she maybe eats, like, two meals a day, if even that, and she doesn't touch fruits or vegetables. She might be a good candidate for someone to take these fruit and veggie capsules, just to get something in her body, but For the majority of us, you know, we don't need 17 different, you know, powders and vitamins in one sitting. [00:54:20] ERIN: First of all, it's really tough for our body to absorb that all in one. So you've got that aspect of it, where are you really getting all the nutrients out of it? Number two is the heavy metals. And number three is there's typically lots of additives to them, artificial sweeteners and flavors and, and things like that. [00:54:37] ERIN: So I, I don't, you know, I don't recommend them, but I'm sure there are times and places for, for those and in people's lives, but the majority of us should be just focusing on high quality foods from our diet. Aaron, this [00:54:50] JAMES: has been such a, an educational journey for me, uh, in addition to the listener, cause I also. [00:54:55] JAMES: take AG1 once or twice a day and have done for quite a long time. [00:55:00] Also a powder called Vibey Greens. And I had no idea about the heavy metal piece. Just no idea. And to be honest with you, I actually don't know that much about heavy metals and how they can impact on health. So could we talk about that for a little bit? [00:55:19] JAMES: Like How do we know if we're have, you know, if we've got too many heavy metals, what's the health and impacts of heavy metals? And then if there's too many and it's having an health impact, what do we do? [00:55:35] ERIN: So heavy metals. Each different type of heavy metal, from lead to arsenic to cadmium, those are two very those are three very common heavy metals that we typically see in supplements, powders, even chocolate. [00:55:49] ERIN: We see high levels of lead, unfortunately. Big chocolate fan over here, so, trust me, I'm not Nooooo! You're like, you're taking away my coffee and now my [00:56:00] chocolate. No, but what's going [00:56:01] JAMES: on here? But again, my AG1 and coffee, now my [00:56:04] ERIN: chocolate. So again, like I will use AG1 if I know I'm going out and I'm going to have a really long run. [00:56:10] ERIN: You know that that's that's the kind of thing I'm trying to really educate clients on is like I'm not taking it every day But I'm not never using it because I like the way it makes me feel I'm also consuming chocolate regularly But I'm choosing brands that are at least not the highest in lead and I'm moderating my intake But I probably eat chocolate at least three to four times a week. [00:56:31] ERIN: Like I'm not gonna lie. It's just You know, you can't avoid all of these things, but you know, there are some that are avoidable that are just, you know, we're getting too much and that could be impacting certain people. So you know, heavy metals can impact all of our organs. A lot of them can accumulate in our body and it's really hard to get rid of. [00:56:49] ERIN: Some are actually impossible to get rid of. So the kidneys can be affected. The gut can be affected. The liver, right? We can have this buildup of these heavy metals. And then on top of [00:57:00] that, if you have an unhealthy gut, then you're more likely to have these accumulate because if you have that intestinal permeability where things can move from your gut into your blood because you have leaky gut, you're in a, you're in a worse shape to be consuming these heavy metal, you know, containing products. [00:57:17] ERIN: But generally speaking, they have, they have widespread impact on our health from our brain health to our, our organ function. And over time, this can be very serious for people and it's, it's hard to say, you know, okay, look for these symptoms, it's, it's, you know, the, the, this happens slowly. So this could be you show up with dementia or Alzheimer's when you're, you know, 50 years old and you don't realize how much of something you've been consuming. [00:57:43] ERIN: But there's testing that you can do. There's hair mineral analysis testing that can look at heavy metals, which can be really helpful. Um, you know, mercury is another one that will accumulate in the body. And even just reducing your high mercury fish can really help your body, um, [00:58:00] work more efficiently. [00:58:01] ERIN: And then, you know, you can kind of go back to working in moderation versus. Eating high mercury tuna for lunch every day, for example, so this is a very big stressor for me is like we need to think about moderation. We don't need to fear monger people into being afraid of consuming chocolate or, you know, things like that. [00:58:18] ERIN: It's education, making better choices. And then if you are someone who has really poor detox, methylation issues, like MTHFR mutation, poor gut health. We might need some extra support with heavy metals, so we might use certain, like, green algaes to help just pull heavy metals out of your system. Um, we might use things like NACL cysteine, which, you know, helps upregulate glutathione levels in the body. [00:58:43] ERIN: You know, these are things that, essentially what we're doing is we're working on chelating, um, things like charcoal and, and algae, green algae vegetables. And then we're working to support the liver and, and, and all those other Um, up regulation processes that naturally happen in the body and then we [00:59:00] support the gut and we support sweating and we make sure our bowels are moving and, you know, we make sure nutrient deficiencies are addressed and that helps us just ensure that we're, you know, well oiled machines that can handle, you know, the daily toxins that we're always going to get no matter what, right? [00:59:16] ERIN: We're always going to get these things, but how can we educate ourselves, make better choices and reduce our total heavy metal load? [00:59:27] JAMES: What are some of the signs and symptoms that someone might have if they're sort of high and heavy [00:59:31] ERIN: metals? So kidney, you know, kidney issues can be a big one. Um, having, you know, kidney. [00:59:37] ERIN: So if you're doing blood testing or things like that, if you're, you know, consuming a lot of brown rice, very high in arsenic, um, that's something that over time, especially with smaller kids, you know, they're even more sensitive to these levels of arsenic, for example. Um, but, but kidney issues, liver issues, brain, um, if you're noticing, like I said, you know, early signs of Alzheimer's, dementia, [01:00:00] Parkinson's disease, uh, there's even, this is not my expertise, but, um, you know, a lot of dieticians who focus on the autism spectrum disorder, ADHD, um, a lot of discussion around how they have a harder time with detoxification and, and Some heavy metal accumulation. [01:00:17] ERIN: And so, you know, refer to them for more information on that. But I've learned from other dieticians about how that can be, um, you know, a way that these types of things can show up, um, gut issues, you know, you know, heavy metals can really disrupt the gut, the gut microbiome. So. Again, there's not really like obvious symptoms for a lot of people that you would say, Oh, that's, that's gotta be heavy models. [01:00:40] ERIN: Sometimes it's, you know, your body just kind of slowly not functioning optimally and not realizing that your total toxic burden is just too high. [01:00:50] JAMES: Gosh, it just made me wonder, I mean, imagine how many people with autoimmune disease, for example, may actually just be too high in, in these heavy metals. [01:01:00] It's again, I think it's one of these things where the traditional classical medical community probably aren't that interested. [01:01:08] ERIN: Yeah, unfortunately not. And you know, it's, it's, it's a, it's a very broken system overall. And, you know, I wish I had, I wish I had the solution. I wish that I could say that I could see things getting better in the future. But I think when you involve finances, when you put money into the, the picture, you know, it, the, yeah. [01:01:30] ERIN: The priority of healthcare, uh, preventative care really just. Yeah, [01:01:38] JAMES: I'm with you. So I'm going to bring us back now to some of the things I've wanted to discuss with you. Um, artificial sweeteners is top of the list. So as a dietitian and expert in gut health, what are your thoughts and recommendations relating to artificial sweeteners? [01:01:55] JAMES: Because I think this is one of the ones that comes up the most when you speak to people. Yeah. You [01:02:00] know? [01:02:00] ERIN: So what are your thoughts? Yeah. So I've, you know, I'

Caller James absolutely takes it to The Cat

It's the launch weekend of Elden Ring and the podcast crew is getting together to discuss it: McCoy: A Dark Souls (and From Software) veteran Zoe: Recently trained on and defeated Dark Souls 1 (and a large bit of 2) Rafael: I'm not exactly sure, I should ask him. But certainly played a lot of these games before. Elena: Has watched like a bunch of souls game dog. Like 2, 3, Bloodborne, Sekiro. That's a lot. James: Absolutely brand new to the series but desperately wants to hear what all the fuss is about. As you can see, we are literally all over the spectrum of Elden Ring skill. But one thing is for sure, no one knows what to think yet but we are actively trying to figure it out. Oh boy, it's here.

In this episode of the Web3 Marketing Debate Show, James and Joseph debate whether you should use paid social media or non-paid/organic social media. James is on the paid social media side and Joseph is on the non-paid side. Should you use social media to grow your brand, gain new customers and build your business faster? Obviously we know the answer is yes but is it best to use paid or non-paid methods? Find out what Web3 think in episode four of this great marketing debate. Paid vs organic social media episode show notes James: Hello, everyone and welcome to another episode of the marketing debate show. I'm your co-host James Banks. Joseph: And I'm your co-host Joseph Chesterton. James: And today we will be debating another red hot subject, which is non paid social media versus paid social media. So I'll be taking the paid social media side of the ring, and Joseph will be taking the non-paid organic social media side. Well, without further ado, let's start the debate. So, Joseph, what out of the two out of paid social media verses non-paid social media, why is non-paid or organic social media work better than paid social media? Why is that working the best right now of the too? What's your opinion? Joseph: The thing is, with social networks, they rely on content. So if you're creating content, then obviously that content is what they require. Non paid or organic social media content is number one because the platforms rely on users using the platform to then market to. Yeah of course, there's sponsored or paid posts on social media, but without non paid social content, then the platform simply won't work because it would just be a whole bunch of ads, and that's it. Obviously you have to go to the right platform and your business can reach an infinite number of people on social media. Obviously, they need to go the right platform like, for example TikTok, that's best for millennials and Facebook, possibly the older demographic as well as young. As long as you're content appeals to the audience that you are targeting, then they will engage with it. They'll like, they'll share and they'll subscribe, and then eventually obviously, sell whatever it is you're selling, as long as the content that you're creating is engaging and people are interacting and liking your content, then algorithms will like that and show more of your content so you don't actually need to then pay to keep your rankings or keep your brand in front of the customers that you're targeting. That's why non-paid social media is what's best right now. Obviously, you've got your opinion on paid, James. James: Joseph. I think you're caught in a time machine in the year 2014 because the fact of the matter is organic reach on Facebook for businesses has been killed and they've killed it on Instagram, and they're killing it now. They're starting to kill it now on Linkedin. This is how these platforms work. They give heaps of free organic reach. No, you don't have to pay for it. They get everyone using it, everyone loving it. And when they hit a critical mass and an inflection point, then they pull the organic reach plug out of the system, which then forces the people to have to pay for it. Or forces the businesses to pay for it to be taken seriously. I think the elephant in the room is which one is best for making money. And if you want to use social media to make money, you have to be running paid ads. Relying on organic reach only means that you're going to reach the same, you know, relatively the same amount of audience, with the same amount of message. Growing out and reaching new people at scale, at targeted scale, there's no better or efficient way to do it other than doing it with the paid advertising platforms. Plus it is what the whole objective, the commercial objective of these social media tools is, too get... Oh how they make money is through their advertising networks. So of course they're going to favour and sort of manipulate and manoeuvre businesses into doing it in exchange for them to be able to actually reach new people. So I think it's hands down the only way where if you want to be looking at the context of making money. Brand building something separate and we can address that next. Actually, that's a whole different ball park. But under the subject of making money, you need to pay to play with these platforms. That's very clear. That's very obvious. On the flip side, however, why would, talk to us about brand building, which way is best for building a brand? Is it the paid approach? Is it the organic, non paying approach? What's your opinion, Joe? Joseph: Well, you did mention pay to play. Obviously, there is a certain aspect to social media where you can pay to get in front of your audience. But if you are in the right platform at the right place where your target market are hanging out, so to speak, then content and non-paid ways is a perfectly viable way to grow your business and build your brand. It's not about whether you pay or don't pay. It's about being consistent and getting in front of your target audience wherever they are. To do that, you need to keep your brand presence active and you need to be in front of your target market. All these platforms have metrics where you can view how your content is performing and you use these metrics to improve your content. As long as you're tracking what people are clicking on, what age, what location, All the different metrics and you're continually utilising these platforms, then you can easily build a brand and a huge following from posting content. Just look at all those instagrammers. They don't pay to play. They get paid to play. James: Absolutely because they grew their following back when you could do it organically. And now that they're reaping in the rewards after that Instagram pulled the plug on the platform for new profiles that really genuinely struggle that don't have a pre-existing audience to actually grow to have something of substantial reach. However, in your defence. Ultimately, and this is starting to bring everything together is that organic posting is still the way to go forward with building not only building a brand presence but also remaining front off mind with the audience that's already actively following you, and is already actively engaged. Perhaps they found you and discovered you through your paid advertising efforts. Found you engaging enough to follow you. Then the organic content is what then keeps them engaged. So you don't just become a brand that they forget overnight. It keeps them engaged in, perhaps potentially then down the track. They convert into customers for your business. So in summary and again, no surprises here is ultimately it isn't an either or play here. Businesses that want to win the social media game ultimately need to be firing on both cylinders. That is, having a good organic social media content marketing strategy that's optimised for maintaining and increasing the brand presence with the audience that you're targeting and also using paid social media to not only increase your audience reach. But then also position middle of the funnel content, such as things such as opt-ins, webinars, things that you can then use those details and bring it into your sales funnel to then, for a percentage of the people that opt in, there's a chance that they could convert into leads and customers for your business. So being able to combine both strategies together is where businesses win, that's what we do here at Web3. And this is what we help businesses achieve and succeed online is by bringing both together to a unified strategy that helps grow the business at the end of the day. Allrighty, well, that is another episode of the Web3 Marketing debate Podcast. I hope you learned something new, and we'll be in touch real soon. Joseph, what are we, whats a teaser for the next episode that you can share? Joseph: Yeah, hope you enjoyed that episode. Next episode will be talking about landing pages. Whether you use a third party software or your use WordPress. That's what we'll be debating. See you next week. Find out more about this episode here https://web3.com.au/paid-vs-organic-social-media/

James: This is James Kandasamy from Achieve Wealth through Value-Add Real Estate Investing Podcast. Today I have Ashley Wilson from Philadelphia. Ashley is a specialist in Asset and Construction Management; she is an asset manager and also taking care of construction as well. So it's going to be a very interesting discussion. She has a GP in 350 units and also have invested as an LP and working on deals on her own as well, which is awesome.  Hey Ashley, welcome to the show.  Ashley:  Thank you so much for having me.  James: Good. Have you been on podcasts before?  Ashley: Yes.  James: Okay. A lot of podcasts?  Ashley: Yes.  James: Okay, good. So it looks like you're going through that podcast circuit, I guess, right? Ashley: Yes. I have been on the podcast circuit for a little while now, yeah. James: Good. So a lot of times when I bring guests into my podcast show, I usually bring operators, which are people who buy deals, who does the raising money, who does the asset management as well and who also do the rest of the investor relationship as well. A lot of times some people do not do third party property management or in house property management. They are not [inaudible 01:18] integrated, but some are. You are special because now you are an asset manager, right? And you also do construction. Can you tell us a bit more about your role as an asset manager and construction manager? Ashley: Absolutely. So what I like to tell people about operations on multifamily is operations are very important in a down market, they are the most important and what I like to specialize in is everything from once a property goes under contract, even prior to that looking at the numbers, making sure that we account for how things actually happen, as opposed to just accepted statistics in multifamily in terms of underwriting, because every market is different and the way in which you operate a property can be vastly different from market to market.  So being very well versed on what things work within a specific market accounting forward within underwriting, then verifying it during the due diligence process and then ultimately operating according to the business plan, or if the business plan needs to be adjusted to make better value for the property and an ultimately a better return for the investors is what I enjoy doing the most, the property, the real estate component of multifamily is what excites me. I know some people really enjoy networking with investors and going to dinners and doing all of those things while that can be very exciting, it's really exciting to me, the property and how much money I can squeeze out of a property. That's what I enjoy doing. James: Got it. I'm an asset manager as well so I really appreciate what you're saying because you can go around and raise money from people. You do a lot of advertising marketing too to get people to give money to invest and a lot of people give up on that, right? But once you close on the deal, executing the business plan is the harder part, right? It's not closing the deal. It's easy to close the deal, especially pre-COVID and market-speak. There's so much money chasing multifamily. There's so much Bootcamp and so many people who want to invest right, everybody has this formal effect, right? But you're right, I mean, executing the business plan is hard, right?  And I've seen a lot of people who were very motivated before closing because they tell all the fun story but after closing, they're very quiet or they don't really talk about their performance on their property, right? Nobody really declares about their property performance because it's hard to really do post closing execution, right?  So let's talk about when do you come? I mean there's asset management fee and some passive investors, especially new one who comes in, ask me, why are you taking asset management fee, right? Why not an asset manager which is the same as the property manager? Can you differentiate between that? I can add my things and differentiate property management and asset management. Ashley: Yes. So there are a couple of questions there. I think that investors seeking an answer to. The first being the difference between the two positions, property managers and asset managers, a lot of times when you speak to people who own multifamily, they see that a property manager works for an asset manager. I do not see that the same way, I see it as we're a team and we work together and the only way you can achieve your business plan optimally is working in conjunction in partnering. And ultimately the asset manager has a different number one client that they're answering to, they're answering to the investors, the property managers they're answering to the tenants and they're making sure that the property is the best property for that particular tenant, that demographic and if someone doesn't really understand everything that a property manager is doing, a property manager, in my opinion, is comparable to a teacher. They have more things on their plate than they have hours in a day. They are doing marketing; they're doing general service complaint calls, et cetera for the property. So they're managing the current tenant base while also trying to attract a new tenant base and also trying to execute a business plan for the ownership group. It is very difficult to do especially in terms of the metrics, the national metrics for number of property managers per unit; typically it's one inside one outside's per a hundred units. So for example, a hundred unit property would have one interior, a property manager, and then one maintenance person on-site for every hundred units you have. That can happen on a property that is a stabilized asset, but a lot of times, especially the properties that I go after their value add assets. So there are things firing on all cylinders because there's deferred maintenance that we're tackling, there are tenants that should not be in the property that was put in the property probably by pre-released ownership so they're really trying to tackle a lot of different things. The asset manager, on the other hand, answers to the investors. The asset manager is the person responsible for protecting your investment, they're responsible for maximizing every single dollar that's placed in that apartment, we want to try to get two times that dollar three times that dollar up, ten times that dollar, that's what we're trying to do, every single investment we make on a property. So what we're doing is we are the added layer of protection. We're looking to make sure that the day to day operations are not only executing that business plan that you have in place but also maximizing the investment. And I say that, and it sounds like a broken record, but truly that is what an asset manager does and there are so many things to make sure that you're doing from vetting contractors, making sure that you're getting the best price on the renovation too. It's very strategic when you're doing renovations, how you should do the renovations, how much you should do, how little you should do, what rents you can charge, what's the absorption rate, what is the market comparables in that market that you can push the rents? There are so many different components, I could probably talk for an hour alone on just different components that I look at even on a daily basis, let alone on a weekly or monthly or quarterly basis. So to me, it's a full-time job and that is why personally I've been able to execute business plans a lot faster than, you know, I've had two properties where I've had to execute a business plan on the first property. It was a two-year business plan with a refi in year three, and I was able to execute it all under budget within a year. So I think that's pretty impressive and then on my most recent property, it was a four-year business plan that after we executed the renovation over four years, then we were at the end of three years, we would refinance in year four and we were able to execute the business plan in actually less than a year and also under budget. So that is the difference between having someone oversee your investment on the asset manager side and work in conjunction with the property management team. I've been very blessed to have an incredible property management team that I work with on these properties. So for us now we have systems in place to make it even easier to execute everything we do. James: Got it. So let me summarize what Ashley just mentioned, right? So asset managers basically approve, execute property budgets. They look at property financial reporting and making sure that budgets are met and at the same time they also have to make sure that you are able to execute what you thought in the beginning, whatever performer and whatever the original sponsor has planned for that and they have to make sure they hit that, but as for the budget as well, right? So do you work any part of it as part of the investor side of it like investor tax document and any other things on the investor portal and all that, or is it all that a sponsor takes care of it and asset managers on the asset? Ashley: Well, I also am a sponsor, I sign on loans, I'm not just doing asset management and I've also brought my own investors in, on deals as well. So in terms of being fully involved, 60 knots of whether or not we execute a cost segregation study, getting the K ones out, getting all the information, I provide all the reports to the investors. I'm the one who creates all the reports for the investors. So really I'm doing soup to nuts and I do it in a very granular fashion. So I'm a full-time real estate investor. I think there are a lot of opportunities for people to get in multifamily while working at W2 and there's a point in which you absolutely need to transition. I don't know how someone could keep up with all the work that you need to do for an asset manager of a larger property. When you are also juggling a W2 on maybe a more stabilized asset you could probably do that, but in terms of the volume, if you want to scale, ultimately what you would be looking to do is to do it full time, which is what I do. So in terms of prepping everything that the investor needs for whether it's preparing their taxes or doing things for the property, I just really make sure that I'm the glue that puts all those pieces together. James:  Got it. So let's go a bit more technical here, right? So you have a plan from the sponsor, right? So when you're working as part of the sponsorship team as well, and now you said, Ashley, you're going to asset manage this, right? And we talk about absorption rate and renovation progress, right? So let's go into each one of those and you say like four to five key indicators that you look at. Can we just quickly summarize that? What are the four to five key indicators that you look on either daily or weekly basis? Ashley: Okay. So first I also wanted to mention that despite how many properties I have, I also consult with other sponsorship groups. What they'll do is they'll bring me in and I will basically audit their property and I will point out all the things that they could improve upon. So there are things that I look at when I'm auditing other sponsors deals and then they're also things that I look at on a daily basis for my property, I can speak to the things that I think probably most people who asset manage. They don't have the time to look at things on a daily basis so they're probably looking at it more on a weekly basis. So I'll share what I look at on a weekly basis because what I look at daily versus what I look at weekly what I look at monthly and quarterly are completely different. So what I look at on a weekly basis is obviously I'm going to look at my traffic, I'm going to look at my occupancy, I'm going to look at move-ins and move-outs, I'm going to look at work orders. How many of those emergency work orders, categorizing the work orders, time of resolution, and then in terms of repeat work orders and or the reviews of the work orders. So in terms of whether or not someone would give the work order a five-star review or one star, those are things I'm looking at. I'm also looking on the traffic side- where's my traffic originating from, my source and what's my conversion rate on those sources. So that way, I know very thoroughly, which traffic sources are working, which traffic sources aren’t. I also look at it on a weekly basis specials within the market to make sure that my property remains competitive. I look at my renewal rate; I look at a lot of different things. I'm trying to see if I'm remembering every single aspect of everything that I look at, but ultimately what I'm trying to do is I'm looking at the property in such a detailed fashion as if I was operating the property with boots on the ground. So that way I can make little adjustments immediately when I see that there's a need, as opposed to waiting until let's say, for example, I've plugged a lot of money into a marketing campaign that I don't see working, three weeks in, I'm going to yank that marketing campaign as opposed to keep it running for six months and lose that investment when I could have plugged it into a resource, it's giving me a higher conversion rate and higher traffic. So that's really the things that I'm looking at. I'm looking at how to influence the people who are coming into the property and how to influence the people to stay at the property. James: Got it. So let's talk about renovation per unit, right? I mean, before you close on the property, I mean, let's say for example, 5,000 per unit, right? And post-closing, how's that 5,000 per unit budget being tracked? How do you know that it's very effective in terms of your rent growth and your annual growth and meeting your business plan? Ashley:  So when I go into a property, I know exactly what I'm going to do to that unit and day one, I pick every single finish that I want for that property. So that's inclusive of if I'm going to change the flooring, I pick out the exact flooring I want, I pick out the paint, I pick out everything and then what I do with my management company is because I'm not located in Texas and my properties are located in Texas, we've implemented systems where we have a tracking system so it initiates what units are available to be renovated and what condition they're in and then we put together a package on what that particular unit needs. So I know to a penny, how much that unit costs to be renovated and then ultimately what I do is then I track the progress of the unit through pictures before pictures storing and after pictures. So I can see the progress of the unit and then I can see what the total cost of the unit, if there are any change orders, typically I don't have change orders unless there is something extremely grave at the property that is unexpected but I've been in construction long enough to know I'm raised by a general contractor who had his own business for over 40 years. I'm very well versed in construction that I know how to negotiate prices, I also have a lot of contacts so I can get prices down pretty well so in terms of verifying afterward, I then confirm the cost for the unit and then I have my own tracking system to ensure that I stay below budget and that's how I've been able to stay below budget on all of my projects. James: So let's go into that process, right? So now you have a unit that you're going to renovate and I presume the property manager is the one that is going to give you the budget on the progression of whatever being spent on that unit. Is that right? Ashley: Well, what I do is I package it. So I know, for example, there are two things in construction. It all comes down to labor and material. I know how much material it's going to cost me and we have a checklist on what that individual unit needs so I already know upfront what the material is going to cost me and then what it comes down to is what the labor is going to cost me and in terms of the price per labor, everyone should know how much it costs to switch out an outlet, how much it costs to switch out a fixture, how much it costs to paint a room. I know all of these numbers. So if someone says to me, okay, this unit costs this much and it's over budget I can then question them and say, why is it over budget? And they'll say because our guys spent three more hours, so why did they spend three more hours on this unit versus another unit? Oh, well there were some issues. Well, you walk that unit in advance, you knew what the unit condition looks like and let's say it's painting, you knew like unless I replaced like a put up a whole new wall or took out a wall and I reframed it like you knew what the estimate was, you knew the square footage of the wall that you were going to paint. We have it priced for rooms. So it's very easy for me to argue, because I know it's such a granular level that I can get the price down and that's how I confirm that I stay on budget is to know all of the prices to that level. James:  So you are assuming that, or maybe you already have a really good crew, which is working as what was planned, right? Otherwise, you're going to always question then why you guys are late because that's another variable, right? You have to schedule, right? I mean, you have your materials of labor cost, but they can take forever to finish one unit. How do you keep track of that one unit renovation? Ashley: So we have, in terms of scheduling, we have certain times in which we release a certain amount of units and then they get them to renovate. I have worked with contractors for years now, across all different types of properties-single-family, multifamily. And if one thing I have learned across along that process is that when you work with someone for the first time, you're not going to give them an entire job, you're going to give them a piece of a job and they're going to have to prove themselves to get the rest of the job. These contractors, when I have large multifamily properties, they want the entire job. So they're going to work very diligently at the beginning and hopefully throughout the entire project, but most likely they're going to work very diligently at the very beginning. So I will give them a little piece of what I need them to do in terms of the grand scope, but I'm not going to give them the whole scope of the project initially when I have no track record with someone. So I'll give them a little piece of the pie at the beginning. If they prove themselves, I'll give them a little piece more. If there are any issues upfront, I just pull that crew and get a new crew immediately. So I minimize my risk of loss and I minimize my risk of loss of time. So it's a loss of time and a loss of dollar amount and honestly, time is also equitable to dollar amount too. So that way I just minimize the risks across both. James: Yep. Well, that's exactly what we do as well. I mean, we usually hire for a few new projects. We hire like two, three crews, and give them a small portion and see who's doing the best and kick out the other two and keep one and keep on giving them the work, which is a good validation of what we do too, right? Thanks for that and how do you work with the property managers onsite? Because you can't be on site, so you need a lot of communication unless the contractor is giving you the data directly to you through some kind of Excel spreadsheet or you're having meetings with them. So you're doing both. Ashley: Yes, both. So first before I got into real estate, I worked in pharmaceuticals, I worked in clinical research and development and I worked on global clinical trials. So I worked on studies all over the world and I had to leverage technology. So my entire professional career, entire working career has always been in a virtual capacity. I had become very well versed on how to work remotely and I've put into play different things to make it very advantageous for me to work remotely by leveraging technology, I've taken that same approach and applied it to multifamily. Before I got into multifamily, I built up a very successful high-end flipping business in the suburbs of Philadelphia, Pennsylvania and I did that whole business while living in Europe. So even though I lived in Europe, I created a flipping company while living back in the States, I've taken the same approach and I've done the same thing in Philadelphia suburbs now back living in the States and my properties are in Texas.  So to be honest with you, it was a lot harder when I was working in Europe, creating the flipping company that I'm faced with today. I already had all of the systems that I built up on the flipping company, and I've just been able to apply them on the multifamily side of things. Unfortunately, there's only an hour time difference as opposed to I had anywhere between a six to nine-hour difference because at one point I was living in Russia. So it's been very easy for me to make that transition. I have never had any single time where I said, oh, I wish I was like right down the street from the property, because the way in which I react and manage would not change by being on the property, you don't need to be physically at the property. Now, do I still go down to the property? Yes. I go down to the properties quarterly to check on the property. Also, I think there's much to be said about the relationship that's built between your onsite team and the ownership group and I think it's really paramount if you want to run a successful business, which multifamily is real estate and business. So I don't discount that, but I definitely think that your operations, as long as you have an excellent team, which we make sure that we always put a really great team in place that you still can be successful.  James: How do you test rent growth based on the rehab? Ashley: In terms of how much I can push the rent prior to completing the project or afterward for absorption? James: For absorption. So basically, there's a certain limit of rent growth based on the rehab that you're doing, right? So how do you test that? How much you can get based on the rehab that you're doing? Ashley: So I'm huge into understanding the market demographics. So what I do is I spend a lot of time researching market comparables. I look at if I was a prospective tenant, what properties would I look at and why, what property would attract me, would I be willing to pay an extra $10 more for property A versus property B? And what are their amenities? We live in an amenity based society right now where people love the bells and whistles that properties provide. They love having a pool, they love having laundry in their unit, they love having like in Texas carports or garages, there are certain amenities that based on the market draw people in and that changes by market. That doesn't mean just because you're in Texas everyone wants a carport, some places they don't care. They're not going to pay extra for, you really need to understand your market very thoroughly and then compete with what that market wants.  If the market is a tech-based market, maybe you should implement thermostats that are able to be controlled with your phone or laundry facilities that are able to be controlled by your phone. If you're not in a tech-based market if you're in maybe a secondary tertiary market, I'm not saying all the secondary tertiary markets, but I'm just saying, if you're not, as close to a major MSA or primary market, they might not be as well versed in technology and they might not see why they would pay extra. It's really about understanding the market, understanding what is renting in a market, what properties have high occupancy, what their rents are at, what their specials are at, what amenities they have, and then trying to compete on that level. I walk the other properties. So when I go tour the area, I always make sure to tour other properties and see what their unit interiors look like, what their exteriors look like. I want to secret shop these properties because I want to understand what a prospective tenant is looking at. I want to understand how they are greeted by their staff. I want to understand if a market is Hispanic speaking, let's say right, and they want someone to greet them in Spanish and they want Texas, TAA contract in Spanish, like a Texas Apartment Association contract in Spanish, these contracts. So they're very little things, the devil's in the details. It's really important that you understand the details of the market. And then you ensure that you are exploiting them on your property. So people want to live on your property. You're providing a better value than competing properties, and that's how he tests it. So then I can see, okay, this property, they're not doing granite counters, but they're getting a hundred dollar rent bump over what we had initially projected. So we don't need to go with granite counters, maybe our business plan had granite counters in it and we don't need to go with granite counters because I know the market will pay a hundred dollars more, even despite the fact that they have granite counters. So some people like to over-improve. It's no different in flipping people do the same thing in flipping all the time. You really need to understand not how little you can put in to get the maximum value, but in a sense, that is true. James: I mean, follow up question to what I asked just now is like, for example, let's say an ownership group, come to you to do consultation and they said, hey, we plan for 3000 per door until rehab, and we want to get $150 a rent bomb and that was all planned and now you are coming in, how do you communicate to them that that $3,000 is not going to get 150 rent bump? I mean, have you been in that kind of situation? Ashley: Yes. I have been in that situation and I've been in this situation where I've been given a business plan and I went down and did due diligence with this ownership group as a consultant and I said, hey, this is not what you want to do. You want to do X, Y, and Z and you're going to get this rent bump instead and it's a better return on your investment. So I think it's very hard to argue with numbers, right? So I understand underwriting very thoroughly and all I have to do is take their underwriting and plug in what I think the business plan should be and show them their underwriting versus mine and ultimately I think that kind of speaks volumes to speak in that language most people who are in multifamily, I would say, are very proficient with mathematics and finance and understanding underwriting, especially if they're the key principle. So if you're dealing with the key principle, the operator you really just have to speak their language and ultimately they should want the best return on their investment. So I've never had anyone disagree with the strategies I've recommended. No one has really taken it negatively at all. James:  If they already closed on the deal and you're coming now, and you think that it's not realistic Ashley: In terms of it not being realistic and squeezing the dollar out that really comes into a lot of people don't bring on a construction manager and I think that's a huge shortcoming on a team. I think that a lot of people try to shortcut that position because they think they can outsource construction management to a third-party vendor. I think third party vendors when you hire a construction manager, they're paid off of the cost of the total construction and, therefore, they are not motivated by the same reasons that your team is motivated, which is to get the highest return for your investment. So ultimately my suggestion to them is that they need to bring on a construction manager if they don't want to bring on me, which I'm not doing this to sell myself, I'm doing this to help people. I find the more people I help, it comes back to me. I never have to worry about it. So I just say to them that I recommend bringing a construction manager who is motivated by the same reasons as them. I get approached often to be compensated as a construction manager from a flat fee and my comment back to them is if I take this, then I'm a hypocrite because what I'm telling you is that you should bring someone on who is motivated by the same reasons. The only way you will find someone who's motivated by the same reasons if they have a piece of the GP equity, because then the more work they do and the more they put into it, the more they get on the back end and that's why you should have someone on the construction management side. And the reason I propose having someone on the construction management side is those are the type of people who not only can negotiate something, but I've used this example in other podcasts where I call it the porch deck scenario or whatever you want to call it. But basically what I'm saying is that you can go to a property and on the property, you have a patio and on that patio, it's a second-floor patio and when you do the due diligence, you have a contractor come in and say, all of these have to be ripped down and they have to be report and the framing has to be redone and you need new posts, a new joyce, and new concrete slap, okay. That is one way to fix it, right? But there's another way to fix it. And that contractor is not doing you just service by telling you that they're doing it because when they do their due diligence, they are not giving you advice based off of a hold period. They're not assuming that you're going to hold the property. They probably don't even know how long you intend to hold the property for whereas a member of your team is going to know, okay, we're trying to access this property in three years or exit this property in five years and really what could happen instead is you share up one of the posts or two of the posts, and you have all these cracks on the patio, but really it's a facade and it could be just resurfaced and it'll get you through maybe five to ten years, but you plan to exit the property in three years so it won't be that big of a deal and it won't be that big of a risk and you're talking the difference between maybe a 3 to $5,000 repair job versus 500.  So by having someone who not only understands the process of construction but understands the different mechanisms in which to solve problems and negotiate. That's what you're looking for in a construction manager. You're not looking for someone who's just good at managing construction and knows a very high level of construction. You're looking for someone who really knows the details of construction because that is the way they provide the most amount of value to you. I mean, there's a reason why I've been able to save hundreds of thousands of dollars on cap X budgets, hundreds of thousands and it's because I know construction like this, and I'm not just saying like, toot my own horn. I'm saying you should seek someone if you're not going to seek me, you should seek someone like me who is going to save you hundreds of thousands of dollars and get the project done faster because at the end of the day if I can hit my business plan after year one versus year three or year four, that's a different exit opportunity or a different other capital event, which is a refi. So that gets your money back to your investors. It could drastically change your returns. It gives you a better track record. I mean, ultimately that is your ACE in the hole, so to speak of executing your property. James: Got it. Yeah. Very interesting. I mean, construction manager or which whoever managing that construction budget it can give us a lot of benefit in terms of reducing costs and exiting the plan as quickly as possible, right? I mean who should be hiring a construction manager at how many units or what kind of project should they be hiring a construction manager? Ashley: I'd like to say that someone on your team should be well versed in construction. If you plan to have any property that is multiunit even on a duplex or quite small multifamily, you want to make sure that you are either connected with someone or know someone, because the example that I like to always say to anyone who has ever owned a house, if you own one house, a single-family residence, right? And you've owned it for a year; I don't know anyone who can tell me they've owned a single-family residence for a year without needing some sort of work on that house, something. So when you extrapolate that across a hundred plus units across a three to five-plus year hold, you are magnifying, the need for someone of that skill set.  So maybe on the smaller properties, it's easy to like outsource it but when you get to larger properties and especially when you're taking in investors, I think it becomes more important that you safeguard that person's investment. That's why I think it's really important. It's an added layer of protection for people, whether its college funds for their kids, retirement money, generational wealth, it doesn't matter the reason you want to protect their investment. I forgot your second part of that question. James: Well, the second part is like I'm missing that second part as well, but let's go to the next question because that was a long answer, but I have a follow up question to you. I mean, in terms of the most valuable value add, right in multifamily, I mean, you have done quite a number of construction projects on multifamily. What do you think is the most valuable value add for high ROI? Ashley: Before I got into multifamily, I used to think that the interiors were the most important part of the value add, because I thought that where someone lives, where they sleep at night, where they're raising their family I was like, okay, that makes the most amount of sense, but the more I'm in multifamily and just in real estate in general, I am more of an opposite opinion, which I think the exterior matters way more than the interior and I see that across multiple markets, I think if you were asking me for a specific market, what's the best ROI. That might be a different answer, but in terms of just a general blanket statement, I think people are really concerned of the impression that they give off. And I can tell you that I see market after market, where the exteriors are stunning and the interiors are horrific, and they have the highest occupancy and they're able to collect the highest rent bumps in the market and then alternatively, I've seen beautiful interiors, but the exteriors are really dated and those are typically the ones that are maybe a little bit more challenging, but they are definitely not competing with the other properties and I think people don't tend to look to do the exterior because the exterior costs more and it's a huge gamble and they don't see the added value but ultimately if you focus on the exterior, you impact the entire property. If you focus on the interior, you're only impacting one unit at a time. So the bump in ROI is only when you complete an individual unit whereas bringing people on the property, to begin with, can be sometimes the hardest part. That's why even on single-family, they always say the exterior matters more than the interior, getting someone to visit that property, getting someone to tour it, they want to buy it. It's all about the facade. It's all about this illusion of the lifestyle that someone's living. James: Maybe it's social proof, I guess, right? You live in a nice house too. You can show it to others, I guess, right? That's my apartment, looks really nice, but who cares about the inside, I guess, right? And I've seen a lot of times owners who have been doing this very long time. When they buy a deal, they just do exterior and they say interior somebody else can do it and they sell it quickly after they do the exterior. I mean, that's a very interesting perspective that you're able to get high occupancy. You may not get a high rent bomb, but you may get high occupancy and stable demographic if you have a nice exterior, but the rent bomb comes from the inside, I guess, right? Interiors as well so I think the valuable side is more on the exterior side because that brings in people, right?  Ashley: Absolutely.  James: Got it. So let's go to your personal side of it. I mean, as part of your venture into single-family and multifamily do you have a proud moment that you can never forget? One proud moment that is going to be living with you throughout your life. Ashley: I'm really just proud of the people I work with and I partner with. I have gone through some really challenging things with apartments and when I talk with other people, when I talk to owners and operators, who've been in multifamily for 10 plus years, they haven't even gone through half the things that I have gone through. And in the moment I'm like, Oh my God, what do I do? And a bit frustrated. But I think that experience has propelled me to the position that I'm in today and the fact that I've been through a fire, I've been through a gas leak and a line where it's a replaced an entire line, I've had to replace the entire sewer line from the building out to the street, I've been through multiple plumbing leaks, I've been through roofs coming up, I've been through incidences with the police being involved, I've been through a whole new rebuild of an apartment and a whole host of other things- depleting occupancy to 60% and then building it up to hopefully over 90, in less than a year is another thing I'm going to be really proud about and I'm just proud of the people that I work with. I'm really proud of the fact that we take a team approach, we're never pointing fingers and I also like to think of it if I had this same opportunity to mastermind with these same people, how excited I would be. So just because I'm the one who's actually living in the moment of what we're talking about in the quote-unquote mastermind, I should just think about it from a different perspective. Think about it as I'm having such a great opportunity to learn from the best people in the business and people who are really supportive. I think that opportunity is something I will never forget for the rest of my life, that I've had this amazing opportunity to connect with people and to learn from people and to help other people. It's just been something that I'm really excited about and the other thing I'm excited about is something that I do on all of my properties is I really connect with the community. I'm not into changing a property; I'm into changing a community. That is my goal on every single property that I'm a part of is to have an impact on the overall community, to whether it's by partnering with local nonprofits or school systems or helping provide food or gifts to children at holidays really it's important to me that you can be successful at business a lot of different ways, but to be successful and help someone's life is much more rewarding. So I really get a lot of joy out of creating change in a community, along with helping my investors either build or preserve their wealth for whatever reason they were doing it for. So I just really enjoy helping people. James:  Yeah, absolutely. I mean, we are all about helping people. We like to improve the community and really, we have a lot of initiatives that we do in our properties- we give school backpacks when they go back to school, we do many libraries follow communities. So we do a lot of things for our communities. I mean during COVID-19, we have a lot of people who lost their job and don't have food, we usually buy food for them, right? I mean, that's what you and I think the same, I guess, right? I mean, you can make money in many ways, right? But helping people, kind of come with you to the grave, right? So awesome, Ashley. So why don't you tell our audience about how to get hold of you and how to get in touch with you? Ashley: Absolutely. You can follow me on badashinvestor.com on the website or badashinvestor on Instagram, my website badashinvestor.com. It actually links to all of my other companies. So if you're interested in learning about multifamily, I have a link there. My multifamily company is Bar down Investments. So it's very easy. All the traffic just goes through badashinvestor.com. James: Oh, that's a nice catchy name. Awesome. Thanks for coming on the show.  Ashley: Thank you so much for having me.  James: Absolutely. Thank you. Bye.

James: Hi audience and listeners this is James Kandasamy from Achieve Wealth through Value at Real Estate Investing podcast. Today I have Anton Mattli from Peak Multifamily who is one of the leading multifamily financing agencies. Anton is a CEO of a big multifamily funding. He graduated from Zurich Business School. He's from Switzerland originally, love Switzerland for the view of it and he has been advising family officers’ high net worth individuals and has done billions and billions of dollars of loans. Anton and I was discussing before this interview started saying it's not fair for lenders to declare how many billions they have done because that can be a lot of money but the experience level and the knowledge and the acumen of the industry matters a lot when you're doing financing. Hey Anton, welcome to the show. Anton: Yeah. Hi James. Thanks for having me. James: Absolutely, absolutely. Actually we are having, originally I planned to have a meeting with you to talk about what could happen similar to 2008 crisis because we have been talking about it for past few months, but now we are in the middle of corona virus recession, I would say and we are in the first or second week of this happening. So basically we don't have to predict what the recession can be, but we can predict what are the outcome from this event could be. I think a few months ago you and I have a lot of discussions about how the market would turn, how dangerous is the market right now in terms of operators or sponsors or syndicators buying things because overleveraged, overpriced and all that. What were your thoughts before this Covid19 recession came about and how was your state of mind in terms of how the economy was and how everyone was buying deals and we'll go into the details on Covid19 and what's happening now? Anton: Sure. As you write on the operator side have seen quite a number of deals that for me personally didn't make sense but I didn't know a deal was financeable from a lender perspective, from a debt service called [02:36unclear] particularly when it's an agency loan, does not necessarily mean that it's a good deal from an equity investor perspective. Even though we were able to finance some of these deals with a number of them I would not have felt comfortable to invest in those deals. There were plenty of deals that still made a lot of sense, so don't get me wrong, it's not all of them, but there were only the number of deals that in my view, didn't make sense over the last two years, only have increased dramatically compared to before. At the same time we have also arranged bridge loans and as you probably know, bridge lenders, they're extremely active. They have taken a major activity uptake over the last few years.  So there was a lot of competition in the bridge lending space, which meant that you were easily able to get 80% of cost for your C class property and sometimes in really tough locations and bridge loans make perfect sense when it's a true value-add deal. When it's not really a value add and it's mostly to do with soft rehab, but you feel that you get the agency loans when you need it and you go with a bridge loan, then I think it was much more problematic. So with that obviously we have seen quite a number of these bridge loans and deals that I believe particularly in the current environment will likely struggle. Because this bridge lenders they are not like the agencies and that came down now with the forbearance offer. Don't expect that from bridge lenders. James: Yeah, I know. It's crazy. Now I feel so happy. I'm all in [04:41unclear] for the past one and a half year I've moved to [04:45unclear]. So are you saying on the bridge side there is no forbearance or what's happening on the bridge side with the Covid19 crisis right now? Anton: Well as a general rule, bridge lenders have never been; some of them, the good bridge lenders they have always been willing to make adjustments when they see that a borrower is behind of the original plan, the ones that are really in there as a partner, they have been willing to cooperate and I think those lenders, and they are not really that many among all the bridge lenders that are out there, they will continue during these times to help a borrower to get through that time. But the majority of bridge lenders are not maybe staying, very often it's not their own money so they essentially have orders behind that that they buy into and they have kind of an obligation to fulfil that loan agreement to the letter and their investors demand that they fulfil their obligation as per the loan agreements.  So some of them are very aggressive just by nature and the others have to force from the investors they have the loan funded from do actually go into enforcement or you can call it loss mitigation as the nice term sounds with these loans very forcefully and very quickly.  So now maybe the [06:25unclear] is a little bit of a shine of positive light here that they may say, look, yes, we could foreclose right now, but maybe it's not a good time to do the foreclosure now anyhow so let's just go through another couple of months and then see if we want to foreclose. But it's still in my view that just kicked the can down the road for a very brief period of time until they go all way in with their loss mitigation process.  James: But I think it only depends on what's happening in April, right? I mean, we have another 10 more days to go [07:03unclear]. But in general, I am already seeing even in my properties, they are residents who are declaring that they can't pay and this $3000 a door family units. I'm not sure, as you mentioned they're going to use it for rent or is it one time? I'm not sure for how many months is that? But the thing is the delinquency will be higher. So I believe the sponsors or syndicators who are halfway to value add and right now they are not done with the value add. So their value add might be struggling. If it goes below certain level, they're going to be stuck because it's going to be negative and as you mentioned, bridge lenders are or private people. They have the obligation to whoever gave them the money.  Anton: That's right. Yeah. So if you have already a property that is, let's say a third empty because you planned all your rehab, even if you do rehab, a lot of tenants that you now can attract and so you would have to attract them with very aggressive terms. If you find them and then you still know that at that level that you need to be based on your performance, which the lender wants to essentially base their decision on to release more rehab money for future doors. So then essentially that rehab money sits with the bridge lender, you have not performed as per the loan agreements. So if you want to go ahead further, you need to inject more equity. James: Yeah. It's basically... Anton: It's kind of a vicious cycle. James: Yeah, it's a downward spiral because now I believe on the bridge sites, a lot of loan are based on LTV, loan to value and they're going to assume the values are going to drop. Because now your rent is going to drop [08:54unclear]. Anton: Yeah. It's a combination of loan to value, but as you go through the draw process, it's more driven by some amount of collections that you need to achieve and why and then the dead deals that you need to achieve with that. So it's a little bit of a different measuring sticks. But at the end of the day, it doesn't really matter what you use, it's maybe hard to achieve these points that you need to meet at some point in the timeline, then you property is not performing and so the reality is all these bridge loans they typically have very aggressive timelines to start with. So if you fall behind just by a couple of months, it can become very problematic. When it says after six months we should achieve this and you are essentially behind by two or three months and it continues to go in the same direction as you fall behind once you are at the enrolment then, and so long. So I would say the ones that have enough cash on their own that they can inject as needed, they will be fine. So the ones that suffer the most are the sponsors that just kind of get by with their own personal financials and they don't have the ability to inject a couple of hundred thousand as needed to get the ball rolling at the property. James: Yeah. But it is tricky, right? Right now, I mean most sponsors can use this Covid19 and burn the equity and get out or they can keep on injecting and try to; because no one knows what's going to happen in the next six months. So it's a gamble. A lot of sponsors or syndicators need to take whoever on the bridge loan if they need to continue injecting more money or give it back to the bridge lender. But right now they have a valid reason. They can say the whole world is collapsing. I'm getting out now.  Anton: Yeah. If you're a syndicator. So you essentially can ask your investors, look, we are in really deep trouble. Do we want to inject more money? Generally I would say what typically should happen is that you do a capital call and if no one wants to do it, then you would have to lend yourself or you come up with the equity yourself. But in most instances it's not equity, but it's more a loan by the partners. But again, that all requires that the channel partners actually have the cash available if we lend to the property and a lot of them I've seen out there they don't have that capacity. So they'll be very interesting. Obviously that always assumes that things really get bad but we don't know yet. Maybe it's a miracle and all that stimulus money somehow entices these tenants to pay the rent. Obviously I hope for you and for everyone else who operates properties that that's going to happen. But based on history I don't think that that is really going to happen. I think last night I do have Brian on and he was referring to the situation during the hurricanes in Houston and that's a perfect example I would say but you cannot compare with 2008, I think we all agree with that, but certainly what happened with Harvey and the flooding is probably much better comparison. Because everything had to be shut down. It was very localized, but it had to be shut down. As Brian correctly mentioned like the properties across the board suffered with delinquencies. So I would say we will likely see that we just do not know yet how big the percentages by asset class and by location. I think it will depend a lot on locations obviously places like the Northeast, the greater New York City areas only suffer more. Same thing in Washington State, in Texas we would have to see how bad it is. Obviously we have also the additional element of oil and gas that has laid a massive negative role here for us in Texas, particularly for the property owners in Houston and we don't even have to talk about Midland and Odessa. But even in Houston it's only something that will in addition to Covid19 will have a negative impact on these properties. So it will be very fascinating to see how the performance looks like in the next a few months. James: Yeah, I'll get a good indication in the next 10 days. But we are already getting our property managers to start probing with tenants and who's having trouble and all that. So we are compiling that, trying to understand and trying to work with them. Some kind of payment plans. That's what Texas apartment association or we call it TAA has given us guidance. But I think a lot of it depends on which sub market you are in. I mean, I know sometimes we use and it depends on and then people think, okay, my property's good but there's a lot more details to it. So whether you have a base manufacturing in that area or not, or whether you are CTO or whenever you invest it's a lot of its service industry or not a service industry is dead right now. Las Vegas, we used to be the best place to invest before two weeks ago, but up until now, the whole Las Vegas is closed down. I'm sure you people don't have money there because they are both more leisure business and gambling, hotel business. So basically there's no money, so within two weeks, things change now. So compared to places where there's a lot of manufacturing happening, this diversity of employment, you can still reduce the rent slightly and then you still get people who can pay because they are still being employed. Anton: That's right. Yeah. Yeah. And if you're right next to an Amazon logistics center, you're probably good. James: Correct. Correct. Correct. Absolutely. Absolutely. I am still getting rent right now, up to now for the past two, three days, I'm still getting rents for April, so that's a good sign but ours is all automated. It's all virtual. So probably they already set up, the ACH is all coming online, but we'll know more in the next 5 to 10 days, where it's very interesting times. But as I say, I mean last time, everybody was doing very well because the market was doing very well. Right now no sub market location becomes very important and the good thing is whoever has this agency load, I think they have many ways to weather this; either take the forbearance or just ride it through because your loan is there. But guys with short term loan, this is very, very tricky right now and you talked about the bridge loans and all that. Do you see the same issue with loans on credit union, the banks, small banks and all that? Do you think they still have issues similar to bridge loan guys? Anton: No. I mean, what we have seen was actually so far has been very positive where particularly these small credit unions and banks have been very cooperative in finding solutions better rates for barons. And that seen before it started. Why it's almost like, okay, we understand, we are reaching a now a tough period of time and that you're willing to either modify it along to stretch it out to lower the right. So they feel very at least a good number of them that we have heard back from, from various borrowers have had a very good experience there. James: Got it, got it. So are they being managed by a FHK well? The small banks and credit unions? Anton: No, it's all balance sheet based. So these are really the easy loans to long straddle which unite the loans and then secured the heist then too, they are in the same boat as I would say all the other loans that are out there. I'm talking the ones that typically it's more the small loans somewhere in the $300,000 to maybe 2 million, 3 million range. So not really the large lumps, they are some exceptions there but they are loans that are not a significant burden on their balance sheets and it's much better for them to work out these existing lumps that they have on the balance sheet that are on the basis of still that we sound them just going through a hard time but they are willing to work it out with the borrowers. So that's really for the ones that are on balance sheets and the ones that really have had success, the borrowers or the ones that have already very good established relationships with these banks. So they know the owners or the branch manager and that brings us back to that relationship. Now is more important than ever. Whether you do a new loan now or whether you already have an existing loan, the way you will have managed your relationships, whether it's your tenants, whether it's your property management company, whether it's your lender. Now that all comes back to you but if you treated them badly, they will remember if he treated them well, they are more willing to work with you. James: Yeah. And just for the audience, I mean, if you guys read my book, Passive Investing in Commercial Real Estate, I did very, very specifically mentioned that bridge loans may not be the best loan during the market peak. I'm not sure how many people read my book, but I did mention it there and that was written like two years ago. As I say, I stopped doing it just for my peace of mind and I want to make sure that I protect my investors’ money as much as possible than doing these flips at the end of the cycle and giving them; taking  large risk and trying to do a flip at the end. I rather go on a much better, safer bet with the better finance strategy. So when was this triggered to you? I know we are talking about; I think we are like two weeks into this crisis right now. But this happens so quickly. When did you feel like, okay, we are in trouble right now because you and I spoke and we had like 12 different reasons why the market can go bad. We have Brexit, I don't know if we have 12 things. I can't remember what the exact things. We had so many things we laid out what could go wrong, but I believe this is completely out of the norm. A medical health issue, a virus infection that's causing everybody to stay at home. I mean, is that right? When did you start to think that, oh my God, this could be the next recession? Anton: Yeah, I mean, we have seen already pressure in the system for a while, where we have seen that already [21:06unclear] was an issue and in the banking system we have seen it already last fall and we have seen it in January and February. Just because of the all whole world view that we have reached a point where everyone is getting more concerned. But it was still possible with the fad essentially doing all these liquidity measures in the past, as soon as there was the slightest view that there might be a little bit of a slowdown. So they were able to essentially put as much liquidity into the market as they needed to. Now, I would say the current situation and where we are now on the lending side really has started just about two weeks ago. It's not that it really built up. Obviously everyone was watching what was happening in China and then slowly in Europe. And as it was building up in Europe, suddenly the clouds came out. But you may recall at that point the treasuries dropped significantly. The fed already dropped the rates once and that actually resulted in some of the best time to borrow and to refinance. So that we had maybe a period of two weeks, maybe three weeks. But I think it was just around two weeks. Then we were able to get essentially 10 year and 12 year loans at close to 3%. I know someone that was not arranged through us, but I know someone who bought the rate that was below 3%, I think it was 2.94 or something like that and that lasted really just for a brief period of time until two weeks ago and everyone realized we have a problem and that problem really just was shown again in the market that there was no liquidity. And the fed will stay in coming out with their one and a half trillion injection where they said we are going to buy as much treasuries as we need and we are going to buy commercial papers and that still didn't do anything to the market. And then so the spreads started to do tighten on the agency loans at that point and then we were up into the mid two, three, 3% in Olin rates. And then this weekend and the lamps, as you may recall last weekend, that we, the fed announced that they are now buying also agency NBS for as much as it is needed. So now obviously the hope was there that they would provide the contents to the market that was so much liquidity that they are willing to put into the market that no investor in these NBS should be concerned and that that would stabilize at least the multifamily market. Always leave a half note to say that they will buy all the commercial mortgage backed securities like hospitality or retail based NDS. But it still did not help when it came to the agency side. And I would say that was probably the biggest surprise so then that deal ended on Sunday and then on Monday the agency spreads actually went up by 75 to 100 basis points. So, even though they announced it that they will buy us many agency mortgage backed securities as the market needs to get the liquidity in the market, obviously they didn't believe it and spreads moved up even further and we all still in the same situation today.  So if you wanted to get into new agency loan today with the new Fannie loan, ten year Fannie loan, your rate will be at four and a half percent for a large Fannie loan that passed some form of, as we call it, permission-based, like with affordability elements to it. If there was no affordability element to it, you're probably closer to 5%; and that's coming up from just three weeks ago when we were at the low threes. That's all grim because the markets, there are no buyers out there, so no one is able to price right now. Obviously the hope that that will be sorted out and I think as market participants see how the impact on multifamily is going to be in April or May it will calm down because then they understand how big that impact is and are able to determine where the priority should be, but until then, it's essentially there is an old one that is buying. That puts Fannie and Freddie in a very difficult position because obviously they are obligated to buy that loan from a lender that originates that loan and then they need to securitize it and sell it. They do not want to keep it on their book.  Even if they keep it on their book, they still have half the credit risk transfer buyers that they are going to so they're good. Fannie score has always been that they will find and Freddie too that they find other risk participants and in order to find them, the loans need to be priced so that these risks, participants are willing to buy whatever share of risks that they are participating in and right now, no one is willing to take that risk. James: I know it is crazy. I mean where we are looking at to do deals or to refinance should wait a few more weeks or because, I don't know, a few more weeks or months or what do you [27:43unclear]? Anton: Yes. I think for refi is in my view is easier. Why? Because you are not really under immediate pressure unless you're really in a very difficult financial situation. But then it's probably the last thing to consider refinancing now. I would wait on the refinancing side until the market has calmed down. Why would you want to now deal with an interest rate that is four and a half to 5% when the 10 year treasury holders are under 1%. If the market calms down, there is a reasonable expectation that the spread narrows again and that you're back down. Maybe not to the three and a half, but maybe in 4% or four and a quarter. It is such an uncertain time, but in my view it just doesn't make sense to campaign and apply for refinancing. Also the other point is since your future collections are still taken into consideration. If you apply today, a lender may underwrite your T12 up to March and everything looks great and as April and May and June come in and if the drop is pretty significant, that will impact your loan proceeds at that point too. So not only have you applied for a loan potentially at a very high rate but now with the loan proceeds are getting customers. There is so much uncertainty that in my view just doesn't make sense right at this point unless it's an absolute emergency to do so. When it comes to acquisitions I mean it needs to be a blazing deal in my view to even consider an acquisition. Because you have the same situation. How you negotiate with a seller? What clauses can you put into a contract in terms of occupancy and in terms of collections that a seller would feel comfortable with, but you are also comfortable with? Because that's really what you should do, in my view, if you go under a new contract, you should say that the occupants who need to be at certain level and the collections need to be at a certain level. And if not, then it's going to be through a re-trade.  If you don't have that, then I think the risk is just too high. And on the other side with the loan, it's essentially the same thing. So yes, you can apply for that loan, but unless you have these clauses in that PSA, you'll run the risk that you go in for a higher price. You should reprice the seller, but you cannot. But the loan amount is still being cut. So my recommendation is if you find that deal the first step is we need to get these clauses with the seller and the PSA. And if you have these clauses the way out, then you need to decide whether it's worthwhile to spend, let's say 20,000 in loan application fees and all that that you may lose. But that's ultimately the session that depends on that you feel that deal is so good. So I wouldn't say don't do it, but have these clauses in that PSA that allows you to re-trade with the seller that essentially then reflects the lower loan proceeds that you would likely get the occupancy and collection slow. James: Got it. Got it. Got it. Yeah, and also, I think it's a very tricky situation. You want to raise money but I'm sure if you find a deal, which is screaming good and you fear an experienced operator, you probably can raise the money. But it's just so uncertain right now and I don't know whether you probably already know this, I heard Fannie Mae right now is asking everyone to put like 12 months principle and taxes and insurance into escrow, I guess, right? Anton: Yes. Up to 18 month. It depends on the tier, if you're on tier two; it's up to 18 months. It's massive. At least I say it's cap that 10% of the loan amount, it's a massive amount. So obviously what does that mean? Now you need to raise more money. So you've likely also, I would say there haven't really lowered the LTV or increased that service, Coleridge recline that may come too but I would say it's more on a deal by deal basis anyhow now but let's assumes they are still in place that you still get can get these maximum leverage and the same service coverage. Just the fact that you have full these escrow that you need to build is a on top of the higher interest rate deal, which means that you need to get the lower price from the seller, there is just no way around. James: Yeah. Yeah. I think Fannie is just saying we are actually out of the market, but if you can meet this, we maybe come back. Let me just basically break it down. Anton: Yes, that's right. Yes. Yes. So actually that's always the conventional Freddie side and Fannie on the Freddie SPL side. I mean there has nothing being communicated officially, but there are solely some rumours that Freddie may stop any new origination for a certain period of time just to see their things all settled. So it will be again, the next few weeks will be extremely fascinating to watch how the market participants will from tenants to operators to lenders respond and right now we just do not know, but it's already extremely difficult even to get an agency loan into place that makes sense. But also would say it's really dangerous if someone still seek quotes from brokers and lenders that come in at the three and a half percent, because I guess they often threaten you or just to get the borrowers into the door knowing that it will be re-traded. That is another thing that borrowers really need to be acutely aware of. Do not trust any quote until you have it validated and validated, ask the broker, ask the lender multiple times, is that still valid?  Again, what we said just a couple of days ago is already outdated. It's important to be really on top of it and know what the current situation looks like. So maybe just to go quickly back to the forbearance discussion. Obviously it's a very attractive program. It's good news when you have agency loans, but I still would caution to use that forbearance and just would, because you can. Both Fannie and Freddie obviously they have implemented it.  It came down from FHA, so it was not really Fannie and Freddie that wanted to do it, but it's essentially a government driven decision that it's necessary and I think it's the right thing to do and it's a very good backstop for all the operators. However, if you operate the property in a good fashion or take it if you have owned the property already for a year or two years you should have enough operating reserves to get through a month or two without having already to suffer so much with let's say a 20% or even 30% collection loss that we needed to go back to the lender and ask for forbearance.  Now could you do it? I would say you probably could, but generally speaking I would say you really should only go back when you see that you are getting close to the 1.01105 of that service cover and essentially make a case, look, it's all bad at my property. I have a collection drop for 40% or whatever it is, I need your help. But if let's say the drop is 10% or even 15%, even 20% and you go right now to Fannie and Freddie they may agree to it, but I think it will be a negative Mark with them down the road when you go for a new loan that they feel that you really haven't attempted to work out the solution on your own first before you lend to them. So I will just to be a little bit careful there in how quickly you want to pull that trigger.  James: Yeah. Yeah. And also forbearance is not free. You have to make sure you don't even meet the person for 90 days or whatever time that you're getting that forbearance.  Anton: Yeah. That's actually an interesting part. So with Fanny, it's actually not just the 90 days. If you have that forbearance, so you're allowed essentially you have that 90 days and then you can pay it back over a stretch off twelve months without any late fees and interest charge on it. Now, Fannie has communicated that you are not allowed to extend the 90 days of forbearance, which is obvious, but also that you're not allowed to be late until you bring the loan current, which includes that 12 month of repayment period if you choose to scratch it out for the 12 months. Now, Freddy so far only refer to the 90 days. I suspect that they just forgot to mention that by the way, you need to bring it current. So I have seen it on Facebook and in some other places where people say, well, Freddy is easier because you only need to have 90 days. The eviction is halted and then you can do it again.  I suspect Freddy will probably also come out and announce that you need to bring the loan current and only then are you allowed to run your evictions again. So in other words if you want to or if you need to go back to normal that your property allows to do action, the property manager, you essentially do pay after these 90 days, then if you do not and you want to stretch out for an another three month or all the way up to 12 months, you essentially have potentially 15 months at your property. They cannot do any of evictions at all.  James: How do they track whether you're doing evictions or not?  Anton: I don't know how they... James: There's no way to? Anton: Well always a way that they can, I'm pretty sure that they all have access to the local court system and validate that you have not filed any evictions.  James: Got it. Great. Yeah, but somehow it may trigger bad [39:49unclear] if you go and not follow the agreement [39:53unclear]? Anton: That's a good question.  James: You can only say you violated our agreement, so... Anton: Maybe it's not triggering the bad [40:02unclear] but don't go back to Fannie or Freddie if you didn't follow these rules to the dot.  James: Okay. Got it. Got it. So it's just so crazy. So I mean are you already seeing that a sponsors and syndicators are getting bridge letters for people on bridge? I mean it's still very early right now to say?  Anton: No, we haven't seen anything, what we have seen is that the number of bridge lenders walked away from their loans at the last moment, I mean there are several bridge loans that we know of. Lucky for us it was none that we were arranging, but I know of a number of a sponsors that had bridge loan commitments in place that are supposed to close within a week to two weeks and the bridge lender said sorry we cannot fund. So these are situations that have happened already. It's more that lenders essentially have pulled out, but we haven't heard anything yet on existing loans that are in place by then. It's really too early. We need to see how April comes in and I would say probably takes until May until things get really bad, if a property has a massive loss of collections.  James: Based on your experience, because you have gone through 2008 and you have been in the industry for a very long time. Let's say right now Covid19 is gone within one month, so everybody start going to work, what will the impact be as we move forward to the financial market? Because that's a big shock happened in the financial market. There are a lot of people, who didn't have income for one or two months, is there a downward spiral or are we a good back again, the sun shines and everything goes back to normal. Where do you see it? What would happen? Anton: I wish I had a crystal ball, but I think the harder we land over the next few months. I think the quicker the upturn is going to be, but I still feel that they probably will take 18 months to two years until we are truly stabilized. I know some feel that everything will jump back up again right afterwards. I think the damage to consumer confidence will still be a lingering around for quite some time. Yes, there is that pent up demand for some items, but places will still suffer particularly the small businesses, some of them really are suffering tremendously and some of them are not able to come back and also I think a lot of the service employees, restaurants will be very slow in hiring. It also the reason to keep wages lower so it's the impact I think on the GDP or we probably go through obviously little jump up very quickly, again, form from a deep drop, but this year it definitely will be negative in my view but Goldman Sachs talks about roughly 3.8% for the year after a 25% drop. I think Morgan Stanley in talks about a 30% drop, who knows? But I think when you look back on 2008, also when you look back into the savings and loan crisis I haven't been around for the actual savings and loan crisis in the past but I was when I first started out in New York in banking, I was involved with a lot of the workouts of loans that went through in the early nineties that were caused during the savings and loan crisis in the 80's. So it still took several years to get out of that. And as we have seen in 2008 it took a long time to get back running. Yes, it was a very different situation then, but here the shock, in my view, is so much faster and also it's at the global level, the global economy is suffering so much and a lot of the US companies are dependent on global rate too. So everything just will take much longer to recover. That's my personal view and again, I think it probably will take two years, 18 months to two years just to fully stabilize.  James: Got it. Got it. So yeah, that's a lot of discussion about, H=hey, this is going to be a sharp V. So we go down very quickly we're going to come back and everything is normal. Even the government saying our economy's going to be roaring back again and everybody go back, it's normal again, but what you're saying is in terms of recovery, a lot of us businesses, global trade, yes, impacted, maybe the hiring would be slowed down because the profit has been lost I guess. They want to be careful, I guess. But for example, let's say a restaurant has been closed down for two months, so the third month they open again, back to business again. So do you think that will be slower in terms of hiring as well? I mean, because they're back in business. I mean they probably have two months of rent that they didn't pay.  Anton: So it won't be very interesting to see how the human behavior is going to be at that point. So particularly the first six months to nine months. So you have seen that if all the governors at federal level to say now we all clear, obviously the virus is still lingering. So I think people will still practice a little bit more of that social distancing. Everyone is a little bit more careful. Personally I feel air travel will probably not pick up nearly as fast. Why? Because everyone feels why should I want to be in that airplane with other people next to me, I cannot really walk away. Also I think launch events will have a much harder time to come back. It's really hard to tell but I just feel based on all the downturns we have gone through. Very often people say, well it comes back fast and I think the initial recovery undoubtedly will be extremely strong. I think there is no doubt about that because we are essentially shut down to a large extent so it has to come back drastically. But really come back to the confidence level, where we were before I think it will take much longer.  James: So you're talking about consumer confidence?  Anton: Yes, yes and business confidence.  James: Got it, got it, got it. Yeah, I mean I read somewhere that consumer confidence is the most important indicator for any economy or any crash or any recovery. If that comes up, everything comes up; if that goes down, everything goes down no matter what you do that consumer confidence in terms of probably spending money and doing events and taking flights and so. So for example, let's look at class A, B and C renter’s base plus B and C is a lot of service industry. People are on pay check, pay check. I don't know I'm just thinking this quickly, they may be okay. So about third month, fourth month we are back in business. I mean, unless they are wage is lower than say impacted them but if their wage is the same they probably have that wage coming back to them again. Maybe they are scared. Maybe they want to go to a lower rental amount. Maybe, I do not know. But I think still the impact to the flights and to the big companies it's going to be more because now this is a global trade. So could that be the A-class renters are more impacted compared to B and C in the long run? I'm not sure. I'm just thinking this quickly.  It depends on how fast it comes back and what is the wage they are getting and how confident they are buying.   Anton: It think when you look at most people that live in any class properties they have really decent jobs and always leave some of these jobs are now being lost or at least they are in a furlough, so they are not getting paid right now. So they can collect their unemployment; and I would say if they cannot afford it then the A class, they may move down to the B class. So that's where I would see people that struggle in these shops do not get back that I need to move down into B. I just do not see that someone who is in an A class will be willing to go into a C class property. So I would say they would probably rather move somewhere else than into a C class property. I feel kind of the same for the people that live in B class properties that moving into a C class property is for them in my view, is also kind of the last resort. Now the big question is how the residential market will evolve. We haven't even talked about that, will there be a massive dropping in prices in the short term, because no one now in some markets can even see properties.  James: Are they getting forbearance as well, the single family houses?  Anton: I think when you are a residential and not active at all in in the single family space but my understanding is if it's your own primary residence, you get forbearance you can apply for forbearance too but not for less than property. But I think I'm more wondering how it would work for someone who is in the B class property would they have an opportunity potentially then buy a property and if still not able to buy your single family home. Whether they will be able to rent a single family home instead. I just do not feel, and again, some people say that doing the last downturn, a lot of people move down from A to B and from B to C, it's hard to track. I do know that really believe anyone has been able to properly track that, but based, at least on what I have seen during that time, there was not really much movement. There was a lot of moves from A to B because of that pricing point, but it's still a decent quality property. When you are used to an A class property, but they have not really seen much coming from a B class to a C class. But again, I'm not an expert in this light there may be economist out there that have studied this.  I just feel that these movements are really happening. Now when it comes to the service employees I agree with you. Once they start back up, they need to employees right away. There is no doubt about that and that thing that's really in my view is kind of that positive flight for C class properties at the end of the tunnel. Once the shutdown is over and restaurants are able to operate again and stores are able to operate and all the other service type related business including hotels they have a job again.  James: Provided they don't have a negative wage growth, I guess which could happen as well.  Businesses may be covering this, but this is, I mean, within two miles, if I'm an operator, if I'm a restaurant, I will hire back the same people. I mean I have two options, either pay them the same amount before they leave or I pay them slightly lower. I just don't hire, that's the option [53:36unclear].  Anton: So there the question again is how many restaurants are able to reopen. So we just don't know if it's just for another month or two month, I would say the majority are able to cover the loss and go back to normal afterwards or go back to business. But a lot of them I think will without some form of a bailout, wherever that comes from will probably not be able to reopen. So that's fair. That question comes in. It's there all sort of pressure, at least in the short term on wages that whoever is in the service business now does not have as much choices as they've had pre-Covid19.  James: What about the construction loan? What's happening in that space? I mean people with construction that is ongoing right now. From what I understand, the construction loan is also a loan where if the value of the building that you're constructing drops, they may ask whoever the developer is to put in more money right now, could they be in trouble as well?  Anton: Yeah. They haven't really seen that yet. It probably depends on what phase you're in, in that construction loan. If you're in the early phases or just started the earth movements or started with going vertical and you're still in year last to start your lease up, I don't really see that that impacts it that much. If you're already doing your lease up period span, I think you need to go back to your lender and find out how you can extend that loan. You'll see, usually you may have to do three years, two and a half to three years of the construction before you go into perm and you may not need another six month to complete that lease up, but if you're early or right in doing the construction I would say it shouldn't be such a big issue because when you consider the leverage for most of these loans is relatively low anyhow. Value at your 60, 65 of cost, maybe 60, 65 to value if it's a more an established sponsor. So the leverage is not really in most senses, it's not that high to start with. So I don't think that these lenders will be holding back. I'm more concerned about, again, the harm on the construction lenders that are out there too.  James: [56:31unclear] Anton: Yes. So where you are in your eight, nine, 10% construction loans, so these players I'm more concerned about. James: Is there a chance for the construction loan guys to say, okay, I'm not funding anymore because they go on draws based on the progress of construction. Is there a chance they said, okay, we are done. We are no more funding you; we are out, even though they have signed the commitment because they probably don't have the money. I mean it’s all come from some pool of money?  Anton: Yeah. I would say you have that risk. The law to the player I would say the less likely it is. I would say if you have a strong bank, a bank will continue to do lends, if you have a life insurance company that has provided that, they're likely will continue to lend and have the access to the funds but if it's a private lender then that would be probably more concerned that they are able to continue to fund the draws.  James: Yeah. That's interesting because I think in 2008 that's what happened. A lot of construction projects. Everything stopped because everybody ran out of money.  Anton: I mean, it could happen, we do not know but at least so far we haven't seen it where they have come to a complete halt. And again, the private space I do not know, but suddenly the institutional space hasn't come to complete halt yet.  James: Got it. So the other thing that I want to just give some education to the listeners is how a loan can be made from non-recourse to recourse. And I know since we talk offline in the past crash or you had that one of the function that you are familiar with or you are doing is like lenders are trying to figure out how to make deals from non-recourse to recourse. What are the potential ways that that can happen? I mean, we know we talk about this [58:48unclear] agency loans.  Anton: So obviously I think most of your lessons that for now have that [58:54unclear] which essentially means that if you cause fraud or gross negligence, then that loan can turn into a personal recourse and one of the examples for this kind of obvious when it comes to the property operations, when it comes to gross negligence can be that you are not maintaining the insurance. That can be, even if you forget about it, that's gross negligence. So even if it's unintentional, it's still gross negligence. If you do not verify that the insurance meets all the agency requirements, particularly when you might change the insurance from one to the other and the somehow you feel, oh, I get a better rate and then suddenly you get that better premium, but you may not meet all the requirements of the loan insurance requirements. So these are kind of the obvious things like this now will all be [1:00:10unclear]. James: But usually the agency have the specialized insurance department to verify all insurance requirements met whenever we change the insurance provider?  Anton: Well, yes they should. It's essentially the service server is supposed to track this but it's still up to you to verify that you would actually need these requirements. You cannot say well the service from that lender didn't save me anything so I'm fine, that's not the way it works. It's really important that with an insurance change, always leave if you'll get the approval from the insurance person that the lender or whoever they are hiring and gives the green light and it's a different story, but that's not as you are in a loan, that's not necessarily happening, I'm not talking about when you apply for the loan, but more down the road when you make changes to that insurance.  James: Yeah. Yeah. I mean, my experience has been like they are very, I mean, even I've made changes to my insurance and the insurance department is so particularly they go into every line item, they make sure we are reading it. So there could be some of those lenders, which is not doing a detailed job, I guess.  Anton: Yes, that's why and it really varies from lender to lender how detailed they are now. What a lot of people do not realize and that's something that we have to discussed offline is that  your representation and your order, guarantor representations when you apply for that loan are also part of that bad boy car found. So what that means is that if you or any of your guarantors make a representation when you apply for that loan, that can ruled as inaccurate. And I'm not talking about, oh, I put in a value for a property that I felt was a million and it's only 900,000 or 800,000. I'm talking about a gross misrepresentation of your financial strength, of your experience but particularly your financial strength that can be triggering that bad boy carve out and we have seen that in the past.  You need to understand why particularly when it comes to Fannie, what a lot of people do not know is that each Fannie lender has a loss share agreement with Fannie. So they take a loss. If Fannie takes a loss, they take a loss too. And though they have that first loss arrangement. So they have an interest of loss mitigation. And obviously if the property somehow will not pay back the loan plus all the accrued charges they need to look through all the solutions. Then one of the items is that they will have a in house or external lawyers look at all the representations that were made pre-application to approve that loan or aside from all the documentation that was submitted throughout the loan being in place.  So it's very important that you trust your partners that they are or not lying. We have seen it a lot, a lot of people claim that they are accredited investors and they are participating in deals that are a 506 deals and because we don't need to verify that you are an accredited investor with these 506 deal offerings but then they suddenly then pop up and do their own or attempt to do their own syndication and then you suddenly realize, well you are not really an accredited investor.  James: But that's not really a loan thing, that's more of a system guideline?  Anton: No, that's not a loan thing. I completely agree. But that is just an example of another thing to read, most people they are so desperate to get into deals, particularly on the GP side, so many times they are stretching the truth or into deals that they are sometimes stretching the truth of what the true situation. So it's really important to ensure that all the partners and guarantors that you have on board, that they are not grossly misrepresenting their situations. Whether it's experience, financial strength, that everything on the REO schedule is really true. No one is really verifying this.  James: Oh yeah, no one read that in detail.  Anton: No one is looking at tax returns. So there is solely a risk that someone can inflate their balance sheet and their experience tremendously without being verified.  James: Got it. Alright Anton, why don't you let our audience and listeners know how to get hold of you?  Anton: Yeah, sure. So my email address is anattli@peakmff.com and that's probably the easiest to reach May also then when you're on Facebook or LinkedIn, just type in my name and then I will pop up. It's a pretty unusual name, so you should find me there and I would say that's the easiest to reach me.  James: Awesome. Thanks for coming on the show. I think this is a really, really timely show in terms of discussing the loans and all that. So sometimes when nothing happens, when we talk about how risky bridge loans are, nobody really cares. No passive way to look at what a sponsor is taking loan; they just look at the numbers and did that. But keep in mind, I did write it in my book like two years ago. So if you have read it, I mean, there's a lot of resources out there as well. You would have been warned about it,  there is nothing wrong is just market risk, sometimes you make a lot of money doing bridge loans as well, but it just depends on the market cycle and the sponsor and the syndicator, how strong they are as well. I mean, there's a lot of sponsor who's going to write this bridge lending uncertainty as well, fine. But just for anybody to be aware of, I guess. Thank you very much Anton. Anton: Yep. Thank you James. 

James: Hi audience and listeners, this is James Kandasamy from Achieve Wealth Through Value-add Real Estate Investing. Last week, we had Ivan Barratt, who owns almost 3000 units, almost $300 million assets and he's doing a lot of deals in the Midwest cities and the States. So today we have Reed Goossens from Wildhorn Capital. Reed owns with his partner Andrew Campbell, who's also a friend. They own like almost 1800 units valued at $250 million and they've been it doing almost four and a half years. Hey Reed, welcome to the show.  Reed: Good day, James, thanks for having me, man.  James: Thanks for coming. I mean I was on your show like a few years back. And you know, it's great to have you back here and I know you guys are doing a lot of deals in central Texas, like where my backyard is. I also do Austin and San Antonio, so it's going to be a good discussion on what do we see in the market, right?  Reed: Exactly, exactly.  James: So did I miss out on something in your introduction? Reed: No, not at all. You've hit the nail on the head. I'm sure a lot of people have heard my story. An Australian guy, moved to the United States back in 2012. My background is in instructional engineering. I moved here to be an expat and just to live in New York City and you know, all these years, seven, eight years later, I have found financial freedom through investing in US real estate and I moved here with little funds, no established network. And my whole shtick is that if I can move here halfway across the world and make it happen, then so can the average American sitting, you know, get off the fence and start investing in real estate because it truly is the, you know, in terms of the Western countries, it's the premium in terms of Western countries for yield and commercial real estate. And we can get into that in a minute. But yeah, that's really my background. James: Yeah, it's very interesting. I think sometimes people who have never lived outside of the US knows how much you can achieve in the US. Your own sweat equity, right? You can really work hard and come up and live and they have to really go outside and see how difficult is it to come up. And you can work day in, day out and you can work 24/7 you know, for seven days. There's always a limit your progress. Right? Reed: Exactly. Exactly. No, 100%. James: So let's go back to the market that you guys are focusing, right? Austin and San Antonio, right? So why did you choose these two markets? Reed: Yeah, so historically, originally back in four and a half years ago, we chose central Texas. I chose central Texas, it had moderate cap rates compared to, I live in Los Angeles, California. I live on the coast, very compressed cap rates, looking for something with a little bit more moderate cap rates. At the time, I was, you know, Koji paid a couple of deals with some preexisting partners. I had my systems from underwriting to deal sourcing. I sort of had that down pat. But what I didn't have down pat was a business partner, boots on the ground and that's where I met Andrew Campbell and we formed a partnership. I was getting involved in underwriting deals in Dallas and San Antonio, not in Austin as yet, you know, that will morph into that in a little bit, but in the beginning, it was just like underwriting small deals, you know, between 50 and 100 units. But what I was missing was the boots on the ground, the broker relationships. And so, what I needed was a partner like Andrew who was there, who was in the thick of it, who could go and you know, hang around the hoop and bug brokers while I sort of underwrote deals and did sort of the more the back end operational stuff. And we found a partnership back in 2007-15 I think it is. And yeah, the rest is sort of history.  We underwrote a lot of deals in the beginning, people took a bet on us in terms of, you know, brokers taking a bet on us and then we got their first deal done. And that morphed too quickly in the second deal and now going on nine deals. So it really came, it stemmed from the fact that I was needing to get a business partner who could take some of the workload off me and do something that I had a skill set that I didn't have, which was boots on the ground, access to brokers, access to deals and walking assets and I really focused on the operational side on the backend. So yeah. James: So can you give some advice to our listeners on, I mean, I know you say you needed boots on the ground, so you looked at the market and, I mean, I'm trying to help some of our listeners who are trying to do like what you're trying to do, right? You are in California, you have a partner here in Austin, Texas. And how did the discovery of that partners and boots on the ground, because it's not like I find a guy in Austin and I'm good with it. There must be some qualities in him.  Reed: Yes.  James: And how did you assess that?  Reed: Let's just rewind the clock. I'd been doing deals prior to meeting Andrew when I was living in New York City, when I first moved to LA, when I first moved to the United States. I flipped a few houses in Philadelphia and I had a business partner on that and it was sort of a JV more than a business partnership. I had people tell me that that particular person not to be named, wasn't the best partner to work with. You know, he was unorganized and blah, blah, blah. And looking back on it, he kind of was and it didn't go that great. Well, I'm no longer in business with that gentleman, but it was, I tell you that story because it's a learning curve, right? My first flip deal in Philadelphia didn't go very well. But between him and I, the old business partner, we were able to get the deal over the line. We didn't lose any investors money. And you know, we then parted ways after that because we just realized we wanted different things in life. But I say that because when you're looking for a partner, you need to understand that there's going to be some times you're going to get into partnerships that may not necessarily jive because you're hungry to get deals done and you're hungry to get the business off the ground. But when you first get started, the thing that attracted me to Andrew and what he attracted to me was we had skill sets that complemented each other. And I think that's the most important thing is the skill sets to complement each other. Because if you don't have those skill sets, then what's the point? And actually, you don't wanna be working on the same thing. So, I saw in him that he had a skill set that I didn't have and he saw in me a skillset that he didn't have; complementary skill sets are really, really important. Also, just the fact that both of us wanted to grind. We were not afraid to roll up the sleeves and work hard. At the time when I met Andrew, he was working a full-time job, I was working a full-time job and we were hustling on the weekends. He had kids, I don't have kids as yet, but you know, he had all these other external factors and so did I, in terms of, my mom was sick in Australia. All this stuff was happening and really, but we still knew that our North star was to get financially free and create a business. And years later, we've achieved that, which is awesome. But when it boils down to it is we are business partners first and friends second. I view Andrew's one of my better friends now, but that's because we came through business partnership, right? Andrew also runs a different crowd than I do. He's very much in the, you know, play golf and all this stuff where I'm more of the go surfing. If you're watching this video, go surfboard in the background. You know, I'm very, very different. Ying to his yang and we did a presentation last week at the best ever conference in Denver, my sorry, in Keystone, Colorado. And what we were talking about where was that real estate is the art and science, right? Real estate form is an art and there's a science of it. Andrew is very much the art and I'm the science behind it. So it's the marriage of two different polar opposites that can really make a successful business and partnership work. So all that type of stuff is like you have to assess what you're good at, right? You have to assess your pros and what you're bad at and do what you don't want to do. But you have to also realize that being in this game of real estate investment, you know, whatever size you do, whether it be from flipping houses all the way through to doing large commercial multi-families like what we do, James, you and I, you have to realize that you need a team. And having someone, a copilot, a co-captain sitting right next to you, bearing taking some of the responsibilities and taking some of the pressure off you as an entrepreneur and business owner, it's so vital. It's paramount to the growth because you will grow by bringing on a partner that works and is harmonious with. Then, you know, looking back, I wouldn't be sitting here today talking about 1800 units and a quarter billion dollars worth of assets under management if I didn't go out and find Andrew, vice versa. He wouldn't also be sitting in the same position if he didn't find me. So it's a combination of seeing what you're good at, what you lack at and seeing if you can find someone that can meet you halfway in the middle and that you can get on and you have those similar goals and visions, but you also can work hard to achieve a goal. James: Got it, got it. So I mean when you guys, I mean, I'm trying to go into this partnership because I think a lot of people are trying to get a partner to partner with them and they just need to know how does a successful partner look like when you were like, cause you guys are very successful in partnering up. So how was that discussion? I mean somebody brought up, okay, let's find out, we partner up. Right? So, and what was the other person saying? Because sometimes people say, Oh, well, I'm not sure yet. Right? So there's not going to be like, let's partner up and everybody's going to be partnering.  Reed: Look, let's not beat around the bush here, it is like dating. If anyone's been out in the dating world, same fricking thing. [09:46crosstalk] a few times. I guess Reed: Exactly. [09:48crosstalk] a few people before you get into bed with someone and skews the crass. But you know, it's an interpersonal relationship. It's a feeling you get from the other person that, Hey, this person could work. Now, it could've gone badly, but it's the same, you know, when you do go out on a date, you get an energy from that person, you can feel that they want the same thing that you want. You have conversations, you get to know one another. It wasn't just like, Hey, let's partner. It was over a period of, you know, three to six months that Andrew flew out to LA with his wife. He got to meet my wife. I flew out to Austin, I met his kids. It was a courtship, you know, similar to how you would date someone. And through that, we were able to have candid conversations about where we're headed, the goals and really align with, you know, he'd lost his mom through cancer, I'd lost my mum through cancer. So we had some very much some things that aligned. Plus also the fact that we could hustle and we could grind and graft hard. You know, that was a plus. And we had complementary skill sets. It sort of was ticking a lot of boxes. But at the end of the day, the first couple of deals, we were very much Reed and Andrew. It was RSN, which was my old company and Wildhorn and we took down this first couple of deals, really as individuals but you know, using our entities to partner in case something did go wrong and we can just, okay, look, we'll sell the deals and we'll go our separate ways.  Over time, that morphs into one banner, one marketing arm and that's where RSN falls away and we went with Wildhorn because he was based in Texas and we became more of a partnership. And look, I'll tell you here today James is that partnerships also don't last forever. You know, Andrew and I have had conversations. I'm from Australia originally. I know that in 10 years' time when I'm 43 years of age, I want to have some investments back in Australia. Andrew might not be involved in those deals but for right now, we're looking to double the portfolio in the next three to five years and we're looking to make some successful exits. And that's all I can promise, right? I don't know what's going to happen in 10 years. The biggest thing for me, James, is that I picked up the book Rich Dad, Poor Dad back in 2009 and, you know, we just finished 2019. So a decade later, I'm sitting on a podcast with you telling you about my assets under management. I had no fricking idea that I would be doing that 10 years later. And so what the message is, don't plan your 10 years ahead, work right now. What's in front of you. See what doors open, which is, you know, Andrew and I are having a really successful partnership and relationship and we're going to double our portfolio next three to five years and just be okay with that. And don't worry, the future will figure itself out from there. You know what I mean? Because you can overestimate what you can achieve in a year, but you can underestimate what you can achieve in a decade. And so my whole story, my main message to people out there is when you do look at partnerships, understand that they morph over time. They may come together for five, 10 years and they might go apart and that's okay. That's how businesses evolve. That's how entrepreneurs evolve as human beings. And you have to also, not sacrifice but surrender to that and understand that that might change in the future and that's okay. Right? Because as you know, multifamily isn't very hot right now. It's everyone, every man and their dog is in there so you might have to pivot and change different business structures. James: I mean, absolutely. That's really good conversation there. But some of the key nuggets I want to recap, right? I mean, a lot of people talk about a partnership is always complementary skills, but it's not that, right? I mean, that's one thing, that's just one part of it but there's a lot of core values. I mean, you and your partner have a lot of core values similarity and take time to discover that, right? I mean, based on your family stories and based on your goal because you can find a partner with complementary skills, but who may not want to hustle. He may not have the goal that you want. I mean, there are certain aspirations that anyone who's hungry for achievement want and you know, he expected the same on this partner and I'm sure you guys found that.  So let's go back to the market that you have chosen in central Texas and I'm sure people have learned it's not only a compromise, it's a lot more than that and you guys have to discover it. And one more thing I want to recap on the partnership is the way that you guys set up your company, right? Two of you guys, I remember the RSN Capital Group, if I'm not mistaken and Andrew has his own and you guys kept it separate, which is really good. That's how I would recommend to anybody who wants to do a partnership. Keep the entity separate, put it into one LLC and buy a deal and in case something doesn't work out, you can always fade it out. Right. So yeah, I've seen a lot of people where on day one itself, create one LLC and hold partners on one LLC and they can never split up when something happens. Right. So, awesome. So let's go to the market. You chose central Texas, you found your first deal. Did you find the deal first or did you analyze the submarket first? Reed: All of the above. I was looking in Dallas, I was looking in San Antonio. I was just really seeing what... I was underwriting a lot of deals. Before that first deal came to me back in 2000...sorry, leading up to that point was when Andrew and I met then we went and underwrite like a hundred deals before we go that first deal under contract. But if I look at the why behind central Texas, you also gotta understand where I come from and I made this speech last Thursday night at the best ever conference, I come from a country in Australia and you have to put it in context, right? Because part of my special power, part of my superhero, part of my special sauce that I bring to Wildhorn Capital is my international perspective. And the reason that is so special is though I can look at things through a different lens. So what do I mean by that? Well, I compare just to Australia and America, right? Australia and America, the land of mass, I'm talking about excluding, let's ignore Alaska for a second, but just those two landmasses, they're roughly the same size, give or take. However, in Australia, we can only inhabit about 18 to 19% of our land because the rest is a desert. And so everything is full. Everyone is forced into major cities. Everyone's forced to the coast. And so we have a small population, we only have 24 million people. Unlike here in America where you can inhabit North to South, East to West and you have 300 million people so we don't even have 1/10th.  The reason I'm bringing all this up is because I grew up in an area where we have a high demand but low supply environment, right? What does that mean when you have high demand, low supply environment? You have low cap rates. In major markets in Australia, in major markets in other Western countries, commercial real estate cap rates are sub 3%. I'm going to spout off some big names, but you look at London, you look at Sydney, you look at Hong Kong, you look at Singapore, office space and then there's probably the only thing that is a common thread between all of them. Office space in those markets are sub 3% maybe even 2%; where you can buy office space in New York City or LA or now even Austin for full cap.  And so when you've got these international perspectives of like, wow, I've come from a market where historically there's been low cap rates for decades because of supply and demand and I see the same thing happening in central Texas where the GDP of all of Texas is greater than that of all of Australia. I'm doubling down on that and that market, because a place like Austin, Texas has now transitioned from a boom-bust town into a tier-one market like Los Angeles, like Sydney, like Singapore, like London. Where dirt is trading for as much or even more as the coastal market. So when you have high demand like you do in Austin, low supply coupled with a very high barrier to entry for new product, which means buying dirt, getting an approved construction, doubling down on existing assets in a market like Austin means that coming to the recession in the next couple of years, you'll be able to ride that out because you have a high demand and a low supply.  I also come from a country where we have not had a recession in over 27 years because of, obviously physical policy, the way in which we invest our pension funds is a lot deeper than that. But again, I say this all to give you the lens that I look through when I'm looking at different assets. One other thing that not many people know, multifamily does not exist in Australia because of the lack of financing vehicles. We only have 25 million people. We have four or five major banks. Those four or five major banks do not lend money on a new apartment construction unless you've pre-sold X amount of units, which is a combo market. So they lend on a build to sell, not a build to own. Right? And so when you don't have those sophisticated financing vehicles as you do here in these States, you know, Freddie Mac, Fannie Mae interest only for 10 years, Ameritrade over 30 years, the fact that multifamily doesn't even exist in Australia when I first moved here coupled with population GDP growth, seeing markets transition from a boom-bust into a high demand, low supply environment, seeing markets transition into, it's a high barrier to entry for new product, all those things add to why I would double down in a market like that into help me ride out the next 10 years.  Because remember James, the last 10 years that we've had just had, since 2009, has been the best 10 years for multifamily, probably in history, right? We're not going to see the next 10 years are not going to be the same. And so as an investor, as an operator, you need to look for markets where there's true growth. Now, you compare Austin to New York and San Francisco and LA, money is still being invested in those markets because of the demand. So people still invest in these coastal markets because of the longterm gains that they are going to make. And a lot of people have made a lot of money in a short term period over the last 10 years and I think that's going to be the same trend moving forward. And that isn't completely incorrect. And if you think that's going to happen, you need to go invest in something else, in my opinion, James: It's crazy on how much the tide has gone up or the past 10 years and everybody thinks multifamily is the same, right? It's a commodity now, but it's not. I mean, at some point the wage growth is going to hit some limitation and you're going to have a problem, right? So you have to be really ready as when you say; that's really awesome. And the other thing about Austin though, other than coastal cities, a lot of coastal cities are getting rent control, whereas Austin, I don't think that we'll ever get a rent control. Even those20:30unclear] city, but it's in there. Reed: Yeah. Even if that was to happen, people still make a lot of money in places like LA, New York, San Francisco, they're making a lot of money and it's because of the value of the dirt. And everyone's got to realize you buy real estate for the value and now that is what is intrinsically is going to grow over time. The fact that when I first moved to this country, I noticed that land, at least in LA, in New York and San Francisco, land is key. You're right, it's what holds the value that, the asset depreciates over time, but in central Texas, the asset is more valuable than the land, that's slowly starting to change, right? As demographics changes, people move as population grows, as GDP grows, all that sort of stuff in terms of supply and demand; that then means that dirt is worth more, right? Dirt is where the value is. And if you hold it for a long period of time, I'm talking seven to 10 years, you're going to do just fine. James: I was happy to know that. You know, I'm not sure whether you'd known, Tim Ferris moved to Austin like a few months ago, a few years ago. I need to find out why. I mean, I listen to his podcast and his podcast is awesome, right? So, let's go to underwriting. So let's say you get a deal today, right? What are the things, what are the sniff test that you do before you look into the second level details? Reed: Yeah, look, stiff test, it's a hard thing for a sniff test these days because there's so much more to this story. It goes back to the art and the science of underwriting. Back in the day, five, six years ago, yeah, you can do back of the napkin and  does it make sense? Yes. Does it not make sense? No, because you had so much, you had a cap rate that was moderate and you had an interest rate that, you know, was a Delta of maybe 200 basis points you could get cash flow. Today, it's not like that; that spread between interest rates and cap rates have compressed, right? Its cash flow becomes harder to achieve, thus you need to understand the story and that's where the art comes into it, not necessarily the science. So I still look for a spread between going in cap rate or a stabilized cap rate and interest rates. I want to make sure there's at least a hundred basis points in there and that's growing over time and when I model it out over five or seven years, that continues to grow. But I also want to see now, I'm looking at deals where there's other opportunities. So, we are about to buy a deal south of the river in Austin, Texas. It's the lowest cash flowing deal we've ever put out. And we're oversubscribed to that deal because of the location. Now what you don't know, if you looked at just at the numbers on that thing, you think, Oh God, it's a really low cap rate, but you don't realize that if you don't know the story behind what's happening in that area, 600 units are going to be completely demolished and taken offline in the next 24 months. So do you think that's going to have an impact on our rents and the occupancy? Of course, it is. But how do you underwrite to that? You can't, you've got to underwrite it if it's a value add multifamily.  This is where the story comes in and where you need to go bigger than the sniff test because this is what market we're in. Also, we know that this land that we're buying, we're buying 12 acres where the density could be doubled on this plot of land. It can go from 294 units, we could go and put 500 units on it. Now whether you go and execute on that as a different thing, but that could be an exit option for someone in the future for a developer to buy if all these investments in the South of the river there near the Oracle is to come to fruition. Then again, I'm seeing very similar trends as if I'm looking at an ally or a New York market. So these are all the things that I look at now and you have to go deeper. You have to do more than just a sniff test because we're not in those days anymore. We're in a different market and we have to spend time. I have four analysts that work for me and they spend a minimum of three to four hours on any one deal. Andrew is the guy that makes sure he feels out the deals that we see but if he thinks that there's a bit of a something a little bit more to sniff out and he's got a little bit more an art to it, than the science, then we will dive deep into it and we'll spend three or four hours underwriting it. And it still might not work at that point, but we've gone and exhausted all avenues to make sure that it isn't a deal that works for us. James: So, what you're saying is you have stopped looking for the normal cash flowing value-add deal. You're looking more for the path of progress and you know the story behind the deal as the future appreciation I would say, future potential in that deal., I guess. Reed: Future potential because your whole podcast name is called increasing your wealth through adding value, right? You may add value by entitling the land to have a bigger a density on it. That is adding value.  James: Absolutely. Absolutely.  Reed: Any way you add value but historically it's been all, we'll put lipstick on a pig and hopefully it looks good. So that's gone, right? There are still those markets out there. There's still these deals out there. You can still find them and don't get me wrong, but when you become more sophisticated when you become more advanced in your underwriting when you become more experienced, you start seeing different trends and why the big guys, and let's not beat around the bush here, I've worked for big developers in LA, in New York, and they don't have podcasts, they don't have books, but they own half of Beverly Hills. The reason the way the big dogs are, they're still buying these pieces of dirt, they're still buying these trophy assets and putting it in. They're still selling to rates, they're still selling to insurance companies and making a lot of money and you've never heard of their names. So I've come from that background and that is where exactly how my mindset has now shifted to start understanding the pennies dropped, ah, and now I know why those guys do what they do is because of the value which the supply and demand curve, we go back to that a lot, that demand is high and supply is low. James:  I mean it's very interesting, look at things differently. And I met someone the other day who was buying land on a, it's called a submerge land, land under the Lake. And she was saying, Oh, I sell that. I say, how do you sell that? So it's a very interesting story on when a boat comes, you know, you need to dock on your land, even though it's under the water, but they can still sell it. Mixed with different kinds of people, go out of this, the normal value add, I would . To see those kinds of things. So yeah, it's absolutely, you know, it makes sense to do creative stuff as long as you're doing it in the right market. Reed: It does all come down to market and it does all come down to just reacting to the market. Right? You got to react and you go to, as entrepreneurs, we're riding the wave, the wave of change is ever-evolving. And so we have to be ready to look at things through a different lens to not be ignorant of other options that you can do to your property. Because you know, it's about being creative, just be creative with the piece of land and you can figure out many different ways in which you can make money from it. So it's just understanding that rather than just plugging, implying and you know, buying at a six cap and getting interest rates at a full cap and having all this cashflow and yada, yada, yada. There are still those deals out there, they're a lot harder to find and thus you need to be a little bit more educated in terms of the value that you bring to your asset now coming into, you know, a new economy that we're in. James: So do you see some of the investors who are used to getting cashflow and doing value add on the rent and all that, do you see some of the investors dropped out? I mean they don't buy into the idea or you think a lot more people buy into the idea or you just finding different people buying into the ideas? Reed: Last year we rolled out and we were the first ones in the industry to do it in the multifamily industry, at least in our little circle, the AB structure, we brought that to market first. We closed on a deal first. The way we do that is by offering 25% of the equity has 10% preferred return paid current. And that means that you can satisfy those cashflow customers or investors with that class A bucket. Class B bucket that they have an accruing pref but they get all the back end. They get 70% of the backend so they're looking for the equity multiple and we then divide it out the investor group into two pots. We can now see who wants what but what it does mean is that if we buy a deal that cashflow is 2% out of the gate, which is pretty much a lot of deals only cash flow very little out of the gate, you can pay that 10% pref straight up to 25% of the equity.  If you have 25% of the equity not participating in the backend, then that juices the IRR to the class B. All these things we are doing in terms of structure because we are reacting to the market and because we're not just blindly going along and not getting any deals done because, oh, it doesn't work like it used to work. Well, we're changing the way in which we structure ideas. We're changing the way in which we underwrite ideals to back into making sure we're appeasing our investors that have some cashflow, a bucket but we've also got the equity appreciation bucket and having honest, candid conversations with our investors that, hi, if you give me 100,000 bucks, does it really matter if I give you seven grand every year? Is that going to change your life or does it more matter that you give me $100,000 and in five or six years' time, I'll give you back $250,000? Is that more valuable to you?  When you have those conversations with those investors, they start thinking differently. And people that they think, Oh, the pref isn't being met, oh, that means it's a bad deal. No, it just means that the deal is getting out of the gate into different velocities where another deal is. And so looking at the longterm play, real estate, James, is a longterm play, not a get rich quick. And that's why I say a lot of people have done so well with their money in the last 10 years. They've doubled, triple their money in three to five years and I think that's still the norm. Well it's not and that's where you have to readjust your expectations. And that's where, again, my international perspective where I've come from a country where if you double your money in 10 years, you're doing just fine. The longterm play is what real estate is and people sometimes lose that vision of what longterm means and they think long term is three years. James: Yeah, that's true. Sometimes people are just so used to what they make in the past 2012 to 2017/18, keep on looking for the same yield and you know, that kind of deal is no more existing.  Reed: And investors appreciate being candid. Investors appreciate having those open and honest conversations. And why would you take a lower return? You're taking a lower turn because it's risk-adjusted. You're not investing in a tertiary market or a secondary market where it may get really rattled if they have another recession, you're investing in lower risk, and thus you have to adjust your expectations when you go and invest in a market like Austin with lower risk, low margins. James: Yeah, yeah, yeah. Risk-adjusted return is something that a lot of people don't understand. I mean if you're making 6% in an awesome market compared to you're making a projected 8% I would think is projection in the beginning, maybe before you invest, everything's projection, right? Someone tells you they're going to give you a 20% IRR in a tertiary market compared to someone's going to give you a 10% IRR in a solid market. That 10% is actually much better than the 20%  because the risk is lower.  Reed: The risk is lower. But also you look at like if you want no risk, go put your money in a treasury, the 10 year treasury and that's what 1.32% if you want zero risk, go do that. And if I'm offering you six or 7% return, I think I'd rather place my money. So backed by physical real estate where you can have all the tax depreciation, no other investment holds up. So obviously the stock market is doing very, very well, but you have to also combat apples to apples and that is, you know, one is risk, two is volatility, three is tax depreciation and four is access to capital. And so all those things play into effect when you think about real estate versus other ways in which you can make money in this world. So yeah. James: Yeah. I think I saw the way you guys structure the class A and B, where you have one person class A is like flat 10% or in a certain percentage, I can't remember the number. Reed: It's flat 10% but the class side does not participate in the back end and then you've got class B that has an accruing 7% pref and you catch up upon sale but they get 70% of the back end. And those investors are more focused on the equity multiple rather than the cash flow. And thus, you're splitting the bucket but you still offer them both. The investors can still have some in A and some in B, but you limit the cost A to 25% of the equity. So it helps, you know, juice the IRR. James: And does the class A, the 10%, get paid from day one itself?  Reed: Correct.  James: Okay. Okay. Reed: You can do the math, right? So if you have $1 million of equity, 25% of $1 million of equity is $250,000. 10% of $250,000 is 25 grand, a year. Now, $1 million in equity, that's probably going to buy a $4 million property. You think a $4 million property could cashflow in any one year, 25 grand? I think it could. Yeah. So that's where the special souls comes in because you're paying 10% on 25% of the equity. So thus your cashflow out of the gate can be lower and you can still hit that 10% preferable. James: Yeah. So do you see...we trying to get filled up fast. I know one has a smaller pool, the other one's bigger, right?  Reed: So, we also have a higher barrier to entry on the class A so we have $100,000 minimum. And we have a lot of people wanting class A. The thing is we tend to see costs, on the first deal, it got filled up really quickly. On the second deal, it was a little bit more equal, you know? So, but here's the other thing, class A investor is if my deal, I'm not hiding anyone from it and it's the truth, they get paid first, right? So if I go and refi and I hold it for five years and I decided I'm not going to sell, I'm actually going to refi, well, I can refi it and pay all my investors costs I owe their money and they're out of the deal. And I can replace class A with cheaper, cheaper debt, right?  Cause if I'm paying them 10% of their money and I can get debt at full percent, then I've just essentially, you know, taking them out of the deal. Now there's a risk there that they're out, right? And I have investors saying, well you could just come along and do that. It's like yes I can. That's part of, you know, real estate and debt stacks. Right. I can just replace as the value of the asset grows, I can replace the debt and I could potentially have a debt number that could take you all out of the deal. They've gotta be okay with that. But they sit in a safer position, they sit just behind the debt. They don't sit in class B, they sit in class A side.   James: Got it. Got it. So it looks like if you look at class A and you are saying is much more attractive. A lot of people compared it to class B [inaudible] right. Can you hold on, let me just fix my staff cause I didn't want this to be half. Okay, good. So forget about it. So let's start again. So class A has a lot more attractiveness to it and compared to class B because class A people get 10% flat, I guess, right?  Reed: Well, yes and no, there's pros and cons for both. I just explained the class A that yes, I sit at and I have a 10% pref, but their cap did it at a certain return. They cannot earn any more than 10%.  James: And you can buy them out at a refi? Reed:  I can buy them out at any stage and if we smack the deal out of the park and 20% IRRs, they share none of that because they want to sit in a safer position. And that's where class B, yes, you're sitting behind class A, but you get all the profits, you know, we split all the profits, profit sharing at the end. And so again, you have to understand capital stacks and you have to understand risk in relationship, just capital stacks in order to really grasp your mind around the AB structure. It's pretty simple once explained. And I can show you a diagram if for any investors who might be interested in it, but again, it's just a different way of looking at it and I come from the ground up construction world. I've built a lot of ground up multi-family. This is exactly how multi-families constructed a finance. Your debt, you have a mez equity piece, you have equity, and then you have the GP and it's just capital stack and math. So it's very basic, once you get your head wrapped around it. And probably a lot of people scratching their heads thinking, Oh my God, what's he talking about? James: No, no, for me, it's pretty simple. I mean, I think it makes sense. I mean there's risk in both classes and you take that risk. I mean, even in my book about, you know, different investors want different things. Some people just want cashflow, 10% flat cash flow. Some people really want the equity. I mean, it depends on their life cycle, where they are in your life cycle. Reed: And so as an operator, I've got to continue offering that. And the way I've offered it in terms of how deals and now underwriting is, that's how I've split the baby from the bathwater as they say. You know, I've split it and made sure that I can serve as both the type of investors who one wants cash flow, the other one wants longterm appreciation. James: Got it. Got it, got it. So, Reed, let's go to more personal stuff. I mean, can you name like top three things that you think is your secret sauce to success? Reed: That's a hard one. Look, there are no secrets. Hard work is...let's talk about secrets. Hard work is so underestimated. I moved to this country. I didn't have a job. I was an engineer. I literally dawned on a suit and I knocked on 50 different engineering joints and engineering companies until I found a person to say yes. I'm not afraid of hard work. Am I lucky? Have I got a bit of luck in this? Sure. I'm lucky that I was born into a really awesome family that, you know, I come from a blue-collar working background, I've got blue-collar work ethic. I'm not afraid to roll up the sleeves and get my hands dirty. I'm also not afraid to back myself. I think that's another key to success is like you've got to learn and you've got to be okay with betting on yourself. And I remember when I first took that plane from Australia, I quit my job, my well paying job in Australia and I moved to the United States to give it a crack. As I say, you know, I was betting on myself. I was betting that I can figure this out. I might not have had the answers at that point, but I knew that I was resourceful enough to figure it out and I have. And so those two things, there's a little bit of luck in there, but it's also hard work and learning to back yourself; are really too important skill sets, life skill sets that that people need to learn. And I've developed that through going and backpacking around the world with, you know, $2,000 in my pocket, you know, understanding the value of a dollar and stretching a dollar. You know, people ask me all the time, well, what advice could you give to a 20-year-old? Go backpacking, go to a third world country, go backpacking for two years, come back and then you go find yourself, you go in the university of life, figure it out, go understand a little bit of the street ways and then come back and you'll get started. I think going out and widening your horizon, taking off the blinkers and experiencing other cultures, otherwise how people live their lives is all parts of learning and why I that I've been very lucky that I was able to travel and I paid for my own travel. I've saved my own money. I was able to go out and do it and experience different cultures, take on their advice, take on the wisdom and internalize it and spit it out and say this is what I want to do with my life. So a couple of pieces of advice of success there. James: Yeah, absolutely. Now I realize why people go backpacking and never really understand, but you made it very clear, right? Cause you really like on the street with a shoestring budget and you're talking to different people, you're talking to normal people. Reed: You get a skill.  I'll tell you a story. I was in South America, this is 10 years ago and I had a rule. I was backpacking by myself. The most invigorating thing I've ever done in my entire life, James i,s to backpack by myself. I had no one to answer to, I would meet someone at a hostel or a group of people and say, this is awesome, let's go. But you get really bloody good at determining if you're going to be, you know, you only have 30 seconds to make an impression and I'm going to either have to have a beer with you or I'm not gonna have a beer with you. And it was very quick, that skill became very, very quick. I had a rule that when I was backpacking by myself, you know, if I go into a bar and I hadn't met someone within three drinks, I'll move to another bar. I never left that first bar because it was always about putting yourself out there, being vulnerable, talking to other backpackers and getting that interpersonal skills really sharpened and really honed in. And that's part of what you learned from backpacking.  James: That's very interesting. That's the perspective that you get when you go backpacking. Let's go to another one more aspect of your life. Is there a proud moment in your life that you can never forget until the end? One proud moment that you're really, really proud that you think, I'm really proud of myself. Reed: I think getting that first job in New York City, getting that first job, getting that visa, I was proud that that was, I did it. Like that was the coming to America story. In order to stay, I needed a visa, I needed a job. And so that proud mate, if I got that job, it meant that that was, you know, talk about doors opening. That was the first door that I could unlock. And that then meant that there's a bunch of other doors behind it. But that meant I could stay and I could figure it out. And that was the first proud moment that I think, it was, you know, again, I was literally walking the pavements, knocking on doors because in 2012 you know, putting your resume out into the indeed.com or whatever just was useless. I needed to go knock on doors and say, Hey, here's my resume. I'm more looking for a job. And a lot of people said no, but it takes that one, yes. And that one yes can change your life. So that one yes for the job that meant that I could stay in the United States. It meant I can continue the journey.  James: Got it. Got it. So one other question from one of the passive investors is like, is there any advice that you would give to passive investors that are investing in a syndicated commercial real estate? Reed: Yeah, I think the biggest thing is you have to have an alignment of interest, trust, and transparency but do you get on with the operator? Because the number one thing that passive investors want to invest in is they don't actually invest in the deal, the deal is sort of second secondary, right? The first thing is the person. Who re you investing with, who is your partner that you're going to go into this deal with, who is the operator who's going to take control of this asset? And if you don't like them or you don't have that energy that I spoke about earlier, then don't invest with them. And it's very easy to figure out who you like and who you don't like. And again, this is a world, of  life is short and you want to do business with people who you like and you want to be with, right? That's the whole point of why we do this business. And it goes both ways, both from the operation point of view, my point of view, and also from the passive investor point of view, we're all in this business to make money. Let's do it with people that we like. So I think that's the short of it. James: So Reed, why don't you tell our audience and listeners how to get hold of you and how to Reed: Yeah, sure. So I've got for those listeners who like to read, I've got two books. I've got the Investing in the US which is on Amazon. It was a bestseller last year. You can find that and I've also got 10,000 Miles to the American Dream, a story of financial freedom. So those two books are on my website or on Amazon. You can go to reedgoossens.com, that's www.reedgoossens.com. Everything's up there. My podcasts are up there, my blogs are up there. If you have any questions, you can click on little links and stuff. And I always offer people or listeners, if they're coming through LA and they want to meet up for a beer or lunch, I'm always interested to meet up and talk shop. You just got to email me at info@reedgoossens.com and just give me enough heads up and let me know when you come through town. James: Awesome. Great. Welcome. And thanks for coming into the show and I'm sure you added tons of value. Reed: Thank you very much, mate.  James: Alright, bye.  

James: Hey audience and listeners, this is James Kandasamy from Achieve Wealth True Value Add Real Estate Investing Podcast. Today I'm happy to get Ivan Barratt into our show. Ivan is a multifamily owner-manager syndicator who specializes in large apartment complexes in the Midwest and he has been doing it since 2015 with over $18 million in equity, with more than 3000 units as the primary GP. And he has grown his company, which is Barratt Asset Management to be best in class two time inc 5,000 private equity and management firm. And he focuses a lot on equity, finance, acquisitions, and companies' strategies. So currently managing over 300 million in assets, comprised of almost 3,500 units. Hey Ivan, welcome to the show Ivan: James, so good to see you, dude. I always love talking to you man. It's good to be on the show officially. James: Absolutely. I know we postponed it a few times so this is going to be very, very valuable to me and to my listeners as well. And so, Ivan, let's get started. How did you get started, right? Let's quickly go through it. How did you get started and how did you end up with $300 million in assets under management? Ivan: Yeah. You know, for me it all started with one duplex that I house-hacked back in 2000. I'd wanted to be in real estate my whole life. My dad is in real estate. He was an attorney, always owned rental properties on the side. A couple of entrepreneurial uncles on both sides of my family that owned apartments, gas stations, car washes, all kinds of businesses. So at a really early age, I wanted to be an entrepreneur and I wanted real estate because I thought, gosh, why would I want a real job when I could just go out on a lot of property and do whatever I want and watch the rent cheques just come in. So I went to school, went to college, went through business school, got a degree in real estate finance, got out, house-hacked a duplex. For the first eight years, I worked for a mentor in mostly development, but also property asset management. All kinds of different jobs that I got to have that I got to where I working for this real estate developer. And most importantly, I got a front-row seat to the great financial crash in 2008 at a really young age, a huge gift. I learned. I wasn't as smart as I thought. I learned that I was doing real estate the wrong way and that's when I really started modeling multifamily companies. Because I'd always wanted to own apartments, but I also saw that in a downturn, those multifamily companies got bigger, they got stronger, they acquired more assets because of the way they were financed. And so that really was the impetus to get me started in my own pursuits. Then I actually started in 2010 as a property management company first because I knew that if I could figure out the property management game and doing that for others, that when it was time to buy bigger deals for myself, I would have a higher likelihood of success of execution. So I started buying a few small deals at the same time, was managing for other clients. Anything I could get my hands on where I didn't have to carry a gun and I was doing everything. Started from the bottom, then started being able to buy larger apartment deals. And when I say large, I mean, my first apartment deal was six units and about 35 and a 30. Then I said I'd never do another small deal again and I bought 15 cause it was just too good to pass up. And then from there, I started syndicating. I did my first syndication of 60 units and I bought 112 and all the while, still managing for other people as well. That was really how we grew the company in those early days. Once we got to onsite staff size properties, there was really no turning back, pretty addictive. Fast forward to today, we still do some management for others but we mostly manage our own assets now. And we are far and above are our biggest clients. And that's the shorter version of where I come from and how I got here. James: Got it, got it. So is this 3,500 units, is it all you? I mean, your company or you guys do fee manager part of it or how does that? Ivan: Yeah, so I own about 3000 units. We're down to about 500 units that we manage for others, it's not really a focus moving forward. We still have a few close partnerships that we like managing for. But really the way I've built and designed my company is not to be a profit center of property management, more to be an execution machine for my own wealth strategy. And so I think you and I've talked about this before, you know, on the property management side, I could be Scrooge and I could really be tight and I could probably make a 15% margin but instead, we focus those dollars into our culture, our people, growing leaders within the organization, having fun. Property management is not easy. You know, having great events and really trying to create this beautiful machine of people that want to come to work, want to do a good job, want to stick around a while and believe in what we're doing. We call it the band fam. James: Awesome. Awesome. So let's go deep into the, you know, how you got started and it's just so interesting, right? I mean, you had that vision to start from property management first and then added assets, which is, you know, how like even like Ken McElroy started, right. He started being a property manager first. Ivan: Ken McElroy was a huge influence in my career. Yeah. Huge influence. I read his book very early on and that was one of the key influences for starting my management company and figuring that out first. James: Yeah. And I think he had mentioned it many times. I mean, for the audience who doesn't know who's Ken McElroy. He is one of the largest owners of multifamily in the US. I mean, he is an advisor to Robert Kiyosaki and he's a big guy, well-known guy, a well-respected guy in the multifamily industry. And he mentioned very clearly in his book, right? I mean, to get started, you probably want to work for someone or go work as a property manager. And I don't think so many people are following it because people think it's just buying assets and letting it ride through a, it's okay. But what did you learn from that experience? And starting from property management and going into as an owner as well. Ivan: You know, this is 2011, 2012, I've got 70 units and I am everything. I'm the busboy, the cook, the maitre D. I'm the leasing agent. I'm the property manager. I'm the rent collector. I had a little bookkeeper that came in every other week cause I didn't want to screw that up. So I literally did everything first and learned to be efficient with it and also learn, you know, strengths and weaknesses and made a lot of mistakes. I've finally just decided early on that I knew I was gonna make a lot of mistakes and that was just part of it. I finally figured that out in my mid twenties, that being an entrepreneur is a lot about failing forward, making mistakes and learning from those mistakes and not quitting. It's not a calm, okay sort of method, but it's the backstory to a lot of successful entrepreneurs. So I just copied what those who had been there before me had done. James: Got it. Got it. And I mentioned it in my book, I mean, across all commercial real estate, multifamily is a really, really good asset class but the hardest part in multifamily is property management, right? I mean, managing that 300 or 100 units income stream from different people is just the hardest. I mean, you'd rather buy an office, have three tenants, professional tenants and you're done. Ivan: Yeah. Multifamily is the best asset class for return on investment on the planet until you move in the people. James: Yeah. Until you move into the hard job of multifamily, which is basically the property management and, you know, you'll figure it out. You'll figure it out beginning in itself that, you know, property managers, I mean, you want to start from property management and going into asset management. I mean, you and I know that you really don't make money in property management. It's basically a time-consuming job. Ivan: The most important one, but very, very time-consuming. The most important job, James: Absolutely, the most important and we do it for control, right. For control of our value... Ivan: Oh, absolutely. I couldn't imagine hiring a third-party manager for my own assets. It's just the way we do things and the amount of control we have, the ability to move pieces around. For instance, we had one property that was suffering a little bit. We were still trying to get the right management team in place. We took our best leasing agent in the entire company and we moved her across the state to do her thing at an asset that needed her assistance. And that's very easily done when you control the management side of it. If you're out there and you're just another number to a third-party company that's a far more difficult solution to get. They're not necessarily going to give you their best people or move around their best people. James: Yeah. And I also think property management is the best way to make deals, numbers work in this market cycle, right? Where the market, it's not like appreciating like what it used to be in the past five years. Ivan: You're giving away my best secrets, James. James: I know. Ivan: How we get our value-add picture to work is a big part of it is being able to manage these units efficiently and knowing exactly what it's going to cost to run them and finding inefficiencies and reducing expenses. It's one of the three legs on the stool right now for making deals, achieve target returns. No question. James: Absolutely, absolutely. I think that's very important for...that's why we do vertical integration. Because deals at this stage of the market cycle, where everything is overpaid and people are bidding for high prices for everything and it's just so hard to do, you know, if you're doing it third-party. Ivan: No question. James: So, yeah, I mean, to be frank with you, in the last one month, I have like four guys, four friends who are syndicators, who never had a third party. I mean never had their own property management. They called me for a meeting. They say, Hey, how can we do our own property management company? And I asked why and they said, Oh, you know, all these guys are not good. All this third party, what I told you guys like two years ago, right? And I say, do not do it. But they say, no, we are going to do it. Right? So I mean, yeah, if the market is 150% and your property management is 70% capable, market is 150%, your property management company capabilities are mask off by the market. Right? But if it's the other way around, right now, I don't think the market's at 150% probably is 90 80% right? But now you know, everybody's getting undressed on how capable they are. Now, everybody's like scrambling to go and say, now they're seeing all the weaknesses of all the third-party property management companies. Right. Ivan: Agreed. James: Yeah, absolutely. Absolutely. So come back to deals that you buy in the Midwest. So is it you are in Midwest and is that why you buy in that market? Ivan: Well, I'm lucky. I live in a place that's really great to invest in right now. Midwest, it's steady. The markets we look at have been growing on average 3% a year for 35 years. They don't boom, but they don't bust either. And so, we like a lot of these tertiary and secondary markets in the Midwest that have also successfully decoupled from the Roosevelt economies of old and have government education. Health care is big. There's some blooming in the tech space, R and D, there's some big insurance companies, financial services. So there are these markets like Indy is a great example that hasn't quite seen the boom that some other markets have, but they've just continued to steadily grow, which is really good on a five to seven-year hold period if you can find the right assets inside those markets. James: Yeah. Midwest I mean, I'm not sure where I read it, but essentially the whole Midwest is very stable in terms of economy, right? Ivan: Yeah, it really has become that way. And also in the B, B plus rental cohort, the percentage of rent income is still in the mid to high 20% range versus a lot of hotter markets where it's higher than that. So I would see that as a sign that there's still room to grow rents if you're good at picking growing submarkets within those markets. James: Got it, got it. Yeah. If you're able to identify the submarkets within the market itself.  Ivan: The submarket within the submarket, within the submarket, right? James: Well that's what real estate is.  Ivan: Hyperlocal.  James: Hyperlocal. Yeah. And I'm sure you being local, you would be able to know a lot of areas on your own and then you'd be able to figure it out things. So what are the States are you investing right now in Midwest city? Ivan: So far we're in Indiana, Ohio, Illinois, we've got lots of submarkets in these areas that we are targeting. And then from there, there are certainly other States we've got our eye on, here in the Midwest as well. James: So, the deals that you are getting from this Midwest, is it through brokers or how are you guys, through relationships or how's that? Ivan: At our level...so our typical deal is going to be somewhere in the 30 to $40 million range and all those assets are controlled by the brokers. If you try to circumvent them and start going direct to sellers, they're really not going to keep you on their deal flow list. So we use the brokers to our advantage and we get a lot of off-market deal flow from our beloved brokers. We've closed a lot of transactions with them. They know we're a great company to do business with. We never retrade, we close quick. And so, we ended up being on the shortlist when they've got a seller that may be willing to transact but doesn't necessarily want to go full bore on market. James: Got it, got it. So let's say today a broker sent you a deal, right? So what would you look for in that deal that may be attractive for you? Ivan: Yeah, so we're looking for newer assets that are late 90s, early two 2000s. We'd like some stability because our fund dictates that the property can pay monthly cash flow to the LPs starting within 30 days of closing. And we liked that cashflow to be current to the preferred return of 7%. So it's got to have cashflow, day one. And then we still want to see some upside from value add, bringing in our management team, like you and I just spoke of, to manage it more efficiently, but also to make some improvements. If it's the mid-90s, it likely can stand some amenity upgrades and some cosmetic upgrades to the units. So we're looking for, for those two pieces.  And then third, we want a market where the rent is still growing, jobs are coming in, it's a good school district, you've got population growth. So those three components. If those add up to a reasonable expectation of 15, 16, 17, 18% IRR on a five to seven-year hold, we'd like it. We underwrite it to attend. So, if we're holding it more than seven years, we want to do two and a half, three and a half X equity multiple net, or we really want to harvest every five years if we can. James: So how do you determine the exit cap rate? I mean, I know you can't really determine the exit cap rate but in the Midwest States, how would you underwrite, what is the market cap rate plus how many...? Ivan: Yeah, I know there's a lot of talk right now about exit caps and what makes sense. We always just provide a cap rate sensitivity analysis. So we show what it looks like if the cap rate goes up every 25 bips, we show what the return looks like. It's our suspicion that cap rates are maybe a little bit lower than they will be over the long run, but not as much as you'd think. The spread right now between the 10 year treasury, which is at 150 today (actually it's a little less than 150 thanks to the coronavirus) and say a cap rate on buying out of five and a half or six, you're talking about 500 basis points spread in some cases.  In 2008 when the economy crashed, the spread between the 10 year and commercial cap rates was 50 75 basis points. So if you think about the spread between what you get for leaving your money in a 10 year bond and what you get for putting your money in multifamily is still very, very fast. So I don't see that spread going up unless interest rates go up a lot and there's a growing consensus that interest rates aren't going up anytime soon, the debt would just get too expensive. There are too much deflation and global slow down in the macro global economy to force rates up. They're actually continuing to have to ease and keep rates down. And so, I am certainly in the school of thought that we are going to look much more like Japan over the next decade. We're not going to have a lot of negative GDP but we're not going to have a lot of positive growth either. So rates will stay fairly low and there will be a demand for risk assets that offer a healthy spread above the 10 year. So that being said, you know, I probably went down a rabbit hole, maybe a little too deep, but with that being said, you know, we're typically looking at 50 basis points on the exit at five years but we don't get too caught up into that. We never show our pie in the sky and projections to our investors. We never show what we think the maximum rent we're going to return is. For example, I just bought a 272 unit deal, a fantastic deal I'm excited about in the submarket called Greenfield, Indiana, it's inside the Indianapolis MSA, third fastest growing County in my state. And I just have been organically raising, for instance, closing $150 a door on renewal and I'm painting and carpeting. James: That's awesome. Ivan: So I'm not really worried about my exit cap on that deal. You know what I mean? The thing is if cap rates, this is the other reason why you and I get 10 year, 12 year agency debt is because if there's this point in time where cap rates spike, I'm not selling, I'm going to hold the property in cashflow. Just think about it, James. If cap rates are going up, it's because of inflation. Interest rates are going up to fight inflation. Agree? James: Yep, absolutely.  Ivan: Well, if inflation goes up, rents are going up too. And the best part about apartments is that we get to reset our rents every month and every year. And so if I don't have to sell at this little point in time and I can raise my rents and wait for things to stabilize and cash flow along the way, I shouldn't be as worried about an exit in a specific year. Where people should be worried about exit cap are these shorter terms bridge loan deals where they're banking on a big rent increase in a refi or a sale two years from now or three years from now. I think that's taking on a measure of risk that would be a little more than I'd be willing to buy it off. We locked in that agency debt early. James: Yeah. Yeah. I've been doing my agency, all my deals has moved to agency, you know, for the past two years I've stopped doing bridge loans just because of the exact reason that you are talking about and yeah, I agree. Bridge loan do have some risks. Some people like it because they think they can flip it but you don't want to flip at the end of the age of the market now [21:51crosstalk]  Ivan: It can also flip the other way on you. James: Yeah, exactly. I mean, bridge loans and turning around huge deep value add needs a lot of skills and you are really banging on the market timing right now. There are a lot of factors to put in. I mean it's like a flipping a house, you're flipping an apartment. So is that how you started from the beginning itself, where you have trained your investors to focus on the cash flow of the deal? And a lot of my investors now, they want like annuity, just give me a cash flow. I don't really look at the pop the bag and it just give me an annuity because you know, six to 8% return cashflow is an awesome return. Right? And it can be much more awesome going down there. Ivan: Yeah. So, how we work with our investors is first, we educate them on how we mitigate the downside. Why we do agency loans, why we lock in for a longer period of time and we plan to hold it. Why we're buying a little bit newer of an asset versus what we were buying in different stages of the market cycle. Then we look at the yields of the property and we look at with them, like you just said, look at this asset. If nothing else works, it's still going to yield seven, eight, 9%. And then we're looking at what's the potential upside down the road, in that order because people do want to see cash flow first and they don't want to lose money. And it's nice to be in a situation where if the stock market is down 30% or if it's 2008 2.0, we might not be selling anytime soon, but we're still going to be cash flowing. Whereas, other parts of their portfolio will be hammered. James: Correct. At that time, that seven to 8% would reap some really, really good return. I mean, you are basically getting it now and you're just maintaining it throughout your market up or down cycle. Ivan: And it's harder but that's why we look for deals that have that seven, eight, 9% cash flow very quickly. And we pay monthly on our distributions is because I like monthly cashflow. I know you do and investors you do. James: Yeah. But is that how when you started like six units, 30 units, 35, is that how you were looking at the apartment? The perception of change. Ivan: No. [24:17inaudible] 2010-2011. When I bought that property, it was bank-owned, REO so that those were heavy value add deals. So early on, I was learning how to reposition a property. Because that was the market cycle that we were in, the stage of the market cycle at that time. And so, I started off buying those, I bought some C properties and Bs and we're looking for more of those heavy value-add deals. And as the market changed, we changed with it. James: Got it. That's very interesting. That's the part that I did. I did a lot of deep value-adds and you know, prove ourselves. I mean, deep value-add takes a lot of skills. I mean, even value-add takes a lot of skills or how fast the turnaround or how we manage a contractor, how you manage your finances, how do you manage your scope of work and the schedule itself. It's very complicated, right? I mean, a lot of people would have done it by skill. A lot of people could have done it just because the market appreciated, not to say because they did the job itself. Ivan: I'm sure you are excited for those deep value-add deals to come back one day down the road. But today a deep value-add deal, we just underwrote one. There was a moderate value-add, maybe $15,000 a door and if everything went according to plan, we would make a 15 IRR. James: Then what's the point of doing deep value-add? Right? Ivan: What's the point? Right. Because I just bought a 1998 vintage deal. It's fully occupied. And I just told you I raised rents organically already and that's going to do a 17. And so, there's so much demand and there are so many buyers trying to crowd in and buy these so-called value-add deals that we've gone to a different strata within our space to find value. And then, when those value-add deals, get back up above a 20 IRR, I'll start taking another look at them. James: Got it. Got it. Got it. So you have changed your strategy just because of the market cycle, and you think that is what the investors want, and you still get, I mean, a lot of investors who had even one, three, 4% return, right? So if you're able to give them like, you know, 15% IRR or 17% IRR, they would be ecstatic. Ivan: Yeah, in my opinion, I've got to be mindful of the market and work within my marketplace. There's opportunities in every stage of the cycle. But you have to go right with the market, not against it. James: Yeah. So how are you competing with big institutional players? Because they look for this 1990s, 2000, and they'd be able to look at the same deals that you are looking at. Right? Ivan: Yeah. It's very hard. It's very hard. I'm very lucky that I started this several years ago. And that I've got a reputation and a track record with the biggest brokers in my region which are all national brokers. And we lose a lot, we lose a lot to big guys. I've just lost a deal yesterday for a deal, I loved it, at 41 million and some out-of-town buyers who've done it for 44 million so they can have it. A lot of times it's off-market. And then some of these submarkets that we're keenly interested in are off the radar of some of the bigger fish from out of town. And that's really how we're finding a lot of value. We know where the emerging markets are, the old Dave Lindahl approach, right? We know how to spot an emerging market and that's a key to getting that value. That's really, in my opinion, one of the only ways that you can get those returns up to where they need to be to continue to please your existing investors and attract new ones. James: So let's go into details on how do you identify emerging market. Can you give like top three things that you look for to identify this as an emerging market? Ivan: You know, there's a lot to it. I'm lucky that I'm in an area that I want to be in, but we're looking at infrastructure improvement is a big one. We're looking at population growth, job announcements. Have the developments. So example in Indianapolis, I know where the growth is going. I know where the good submarkets are that it'll be the big suburbs of tomorrow. Infrastructure is probably one of the biggest ones. For instance, we're buying in a market right now or they're building a brand new federal highway over the Ohio river that is going to bring more jobs and more commerce. Right?That's just a few of the nuggets James: I think the local knowledge and the local connections, right? Just, just the local knowledge itself is just very powerful. Ivan: Yeah. But it's not as hard as people think to find. I mean, if you're looking at the entire map of the United States and you're like, okay, I got to find an emerging market, that's going to be tough. But if you can start to focus in on an area and say, okay, what's like one rung out, where's the growth going? Where are the new big infrastructure projects planned? Where are the good schools out in those areas where people are moving to, where the housing starts, right? Housing brings commercial, commercial brings jobs and jobs bring multifamily. James: Got it. Yeah, it's very interesting to see where is the path of progress and just go and target that where the big fish is not really looking at.  Ivan: And then if you're buying below replacement costs and you're doing it right, you should have a rental range that gives you an economic moat between what a new construction project would have to deliver and would have to charge in rent. So if I'm in an area, like I told you about Greenfield and Indianapolis, I'm in that area and right now my target rental rents are maybe 1150, 1175 target rents after renovation. If I know in that market that somebody wants to come in next door and their rents have to be $1,400- 1,500 a month just to get a shovel in the ground then, I've got a decent defensive asset. So new supply, in many cases for me, isn't as dangerous. It's actually, it can be a good thing. James: Got it. Got it. Yeah, that was my question because in 1990 2000 vintage, sometimes can be competing with a new supplier.  Ivan: Yeah. You really got to make sure your Delta is three, four, five, $600, especially if you're buying A-minus like me. It used to be the difference between A-minus and A-plus was maybe $200 and now in a lot of markets, it's 500, 600, 700, maybe a thousand. And so, if you can figure out where to enter that market and have a large spread between you and new construction, you're much more insulated from A-plus concessions. James: Yeah. Got it. Got it. So apart from getting good loans, because right now, the interest rates are pretty low, apart from the buy itself, you're probably buying at a certain price that you think you can hit the investor target. How do you do value-add? I mean, what do you look for in this 1990s, 2000 vintage that is common. What are the biggest value-adds that you see that is your favorite? Ivan: Oh, that's none of your business. James: Come on, man, reveal the secret. I have to work hard on 1980s, 1970 probably. I want to go to 1990. What are the things, apart from the price, apart from the loan? Ivan: Well, listen, I'll give you a nugget. James: Yeah, you can give a few. Ivan: A lot of operators are spending way too much freaking money on unit improvements. James: Okay. Ivan: Okay. And so because we're vertically integrated because we're property managers and we know everything going on on the front lines, in the trenches, we know where we're going to get an ROI. We know that maybe granite countertops don't get us the ROI but really nice Formica does. We know that a yoga studio...in redoing a 90s fitness center with new equipment and a little yoga studio, it's going to get us a much better ROI than stainless steel appliances, for instance. So it's just knowing your market, it's knowing really the ROI on those improvements and how they impact rent and it's different everywhere you go. It's not like you can just take what I say, go do it anywhere. You have to know in that market what works. James: So is it by doing market surveys where you look for, I mean, in terms of...? Ivan: Well, remember we don't have to survey the market here because we are in the market. We manage the properties. We have leasing agents all over the Midwest that are giving us instant, realtime feedback, right? James: Yeah. Yeah. Ivan: But with that said, we shop our competition. So, because we control our management company and we're part of the apartment association, it's a very tight family in the apartment industry and we really hire from within most of the time because it's such a specialized job. And so, my team can call anybody on any apartment project anywhere in the Midwest and say, hey, it's Cat from Band. Can I shop you today? And they do the same to us and we all trade information on what's working and what's not. And that's really one of the really cool things about property managers, we help each other, right? James: Yeah. Yeah, absolutely. Absolutely. I mean, it is a very small... Ivan: No here is what we do: We shop ourselves, we secret shop ourselves. We're very upfront with our competition. When one leasing agents calling my competitor and saying, Hey, can we trade what's working, what's not? What are you guys renting for? But then we secret shop our own people and they get scored on how they do by outside sales consultants. James: So, you talk about two things. One is the amenity where certain amenities are desirable, where you can raise rents because it's more desirable. The second thing you talk about is the efficiency within the pipeline of property management. Ivan: Listen, nobody uses the gym but it still sells people on renting. James: Yeah, I know. It's crazy, right? I mean, right now I'm being more cautious about what I spend on a gym because I know people may not use it. So I know there's a gym…  Ivan: Yeah but it's the wow factor, James. Oh, you've got a yoga studio. Maybe I'll do yoga now. I've been meaning to do yoga. The year goes by, I never did any yoga but I rented from that guy, James. James: And I see my property managers using the gym, not my residents. That's okay, you need everybody to be healthy.  Ivan:  #culture. James: So let's talk about amenities. How do you decide on which amenities are more attractive? Ivan: It's all a functional market. And, again, it depends on what marketplace that we're talking about. So we're looking,  we will redo pool furniture. Bark park is an easy one to put in if it's not already there, we're typically redoing the gym. A lot of times we're redoing the clubhouse with new paint, new furniture, maybe a couple of computers. Again, things that sometimes we will never use, but just to give that wow factor when they come in to be able to close them on living there. James: So do you increase, like, I mean, you'd be mentioned in the beginning, $100-150 per door just by adding amenities and better management, I guess. Ivan: Yeah. It doesn't always work out that well and usually that 150 is coming from multiple areas. We're raising certain fees so maybe the owner hasn't raised pet fees or water fees since they bought the property. I get bad reviews on my website because we raised water fees to market, you know, but that's just part of it. It'll come from organic rent increases, which is where we're just raising the rent on turn. And then it comes from quick cosmetic improvements to the units, on turn as well. Paint, countertops maybe new cabinet hardware. We rarely ever take out the cabinets. Maybe new switch plates, maybe some new flooring in the kitchen and bath. Very light improvements. James: So among the things that you mentioned just now, what do you think is the most valuable improvements that is the biggest bang for the buck that all your residents love? Ivan: Yes. James: Which one? You've mentioned like five or six, which ones? Ivan: I've given you more nuggets that I should, man. I feel exposed to you. I feel like I got to tell you these things, but no, no. I'm like, keep this to myself. You know, it depends. Sometimes it's organic, right? We bought a couple assets where it was a big company. They own 5,000 units, but they still ran it like a mom and pop and they were like 20 years old and they never raised rents. If people don't move out, they don't renew them and increase them; we do. Another property, it was the amenity package that really started getting more income in other properties. So it's all those things and it's property by property, which one's going to move the needle the most. But typically you need all those components to get into that target rent. That 125, 150, 175, it's going to help you achieve your target returns over the whole period. James: Got it. Got it. So yeah, that's very interesting. So let's go back to whatever you mentioned just now to the demand of the property, which are the residents. Do you think the residents in this 1990s vintage, 2000 year apartment residence is harder than class C, 1960, 1970 residence. How did you manage? Was it more maintenance? Ivan: In some ways, it's less maintenance but in other ways, the tenants can also be the residents. We don't call them tenants anymore, James; the residents. James: Yes, exactly. Ivan: The residents can be more demanding, have higher expectations. See you've got to have the right people there that are used to managing that particular product with the income of the residents that live there. So yeah, some people would misunderstand and thinks that A-plus is easier because everything's new and shiny and oftentimes A-plus is extremely management intensive because of the expectations of the residents. So in some ways easier and in some ways not. James: Yeah, someone told me, a regional manager told me that A or A-plus residents are much harder to manage because they have all this ego that they can pay. They expect a lot of things from the property management company and sometimes their delinquency can be high because they say, I can pay next week, you don't have to really come up... Ivan: We find the collections are usually better. James: Okay. Got it. Got it. So let's go to financing. So on top of agency debt you also do hard debt,  right? And why did you choose some of the deals to be under hard loans? Ivan: It's a great way to take a ton of risk off the table. It's a 35-year amortization and it's full and meaning, you can hold that note for 35 years without having to refinance yourself. So you take a lot of risk off the table. The interest rates are somewhat lower, although Fannie and Freddie have gotten very competitive in the last couple of years. It allows you to get an 85% loan to value on after repair value, so you can finance a lot of improvements as well, which is great in some circumstances. So if you want to hold the deal a while, like 10 years or more, HUD can be a good alternative. It's also very compliance heavy. There are audits, there are physical audits of the property, so you really have to know what you're doing.  We like it just simply for risk management. So we have several assets that are HUD. Big myth is that HUD means it's an income subsidized project and that's actually incorrect. HUD finances A, B, C, D assets. Their mandate is to help provide rental housing so it's available to a lot more people. A lot more assets than people may recognize. It's certainly not for everyone, but in certain circumstances, I think it's advantageous. We locked in our last HUD deal November of 2018, a $34 million deal. Locked in with HUD, our all in note rate is 313. James: And I remember November 2008, the interest for agency debt was pretty high cause I did lock in some deals at that time and I think that was, I think, November, December is when it picked up and it came down again. Ivan: Yeah, it was luck, we were able to catch the bottom of that treasury dip, which helped but it was still lower than the agency. James:  I know HUD like a six months once distribution, where you can take out the money. How do you do distribution to your investors when you have that kind of limitation? Ivan: That's one of the downsides of HUD. You can only distribute every six months. That's why we don't use it very often. It's a different investor profile. Some investors want to be defensive. They want to have their money in something and they want to have leverage but they want to have downside protection. So HUD works really well but it does not provide the same sort of cashflows that agency and Freddie do, which is why we typically use the agencies. For instance, I think I said earlier with our fund, it distributes monthly; I couldn't do that with HUD. James: Got it. Got it. Hey, Ivan, let's go to a personal side of you, right? Why do you do what you do? Ivan: You know, for me, multifamily and growing BAM as a business is a lot of fun. Because the bigger it gets, the more fun I get to have and it's a great business for designing the life I want and designing the business in a way that it's the life I want for myself, my wife, my family. And so I liked the wealth and the freedom with real estate. Yeah, that's the crux of it. James. I've got some big goals and being a good dad and a good husband and a good member of my community and leaving behind the legacy. And for me, owning real estate and owning a business to operate it, is the path. James: Would you do this for another 20 years? Ivan: You know, it's funny, I got to sit down with an older guy on the banking side of our business of multifamily. He took his bank public. I dunno what he's worth, but it's over half a billion dollars. He's probably approaching 70. And he says, Ivan, you don't stop; you just play the game at a higher level. And I can tell you he's having a lot of fun, has a lot of freedom, has a lot of time with the grandkids, travels wherever he wants for as long as he wants, with whomever he wants. So I don't see myself retiring in the traditional way, I want to continue to just play the game at a higher level. James: Yeah, it is so fun to keep on improving things. Ivan: Yeah. And I like to tell young entrepreneurs this and people that are newer to the business, if you're getting bigger and you're not having more fun, you're not doing it right and you need to refocus on your people and your process and so that you can scale it. Because none of us can just keep working harder. It's unsustainable. James: Correct. Yeah. That's one of the challenges that we are having and we are trying to grow and you know, it's becoming harder to find that process and people especially to replace what we do. And we have set an expectation on how things should be done, but not everybody is gonna work like what we do. Ivan: The first coach I hired four years ago, all we focused on was figuring out what my one thing is that if I spend most of my time on that, I will be successful and then finding the right people to do everything else. And then the hardest part is from a guy that started myself and did everything myself, the hardest part but the key is getting out of their way once you hire them. James: That's really hard. And you're right, that is the hardest part. Ivan: I think Tim Sarah(?) said it best. James, he wrote some articles about letting little bad things happen and that's key. Excuse me, I thought I was going to sneeze. Learning to let people make mistakes even when it costs you money and letting them learn and fail forward just like you had to do, it's very freeing. And when you have a management company and you've got fees coming in every month, it becomes a little bit easier to start to let those little bad things happen. Let people fail forward, let them learn and make sure they're not just coming to you for the answers all the time. James: Got it. Got it. Yes. The art of delegation and managing people. So it's just so hard to master, right? Ivan: Well, if you get the right people, there's far less management. You get the right people in the right seats. That's a big part of it. James: Yes. Yes. I agree with you. Let me ask you one more thing. I mean, you started from six units to now, almost 3000 units. So I mean, you have gone through a lot of experiences. Tell me one proud moment that you can never forget that you were really, really proud of yourself. Where you think, Hmm this is something I will never forget in my life, what is that moment in your real estate career? Ivan: Oh, so real estate category? James: Yes. Something related to real estate. Real estate family, I mean, anybody, just a human interaction. What is that one moment where you think that, 'I'm very, very proud that I did this and I can never forget this until the day I die'? Ivan: So it was one of our first bigger deals, it was only 89 units. I think I bought that one after I bought [48:53crosstalk] Yeah, I bought 112. I had already bought 112 units. And so I almost passed on this deal. It was only 89. I'm like, I don't want to do a deal that's only 89 units. And it was in kind of a rough area that we thought was maybe emerging. We kind of looked at each other or like my partner and me, like six months ago, this deal would have been huge for us, why are we turning our nose at this deal? We should do it. And we did the deal, we got it at a good price and people thought we were crazy. And it was a little bit difficult to raise the money. And we bought it from a construction guy that had already done all the heavy lifting on the value. So people thought, right, what's left to do because this guy already improved it physically, but we had the suspicion that we could manage it better. And two years later, we sold it for almost $2 million more than we bought it for, ended up selling it at a two and a half X to our investors in two years, a little over two years. And that was my first like really big home run. And I remember thinking, gosh, we almost didn't even do this deal. James: Yeah. So what did you guys do in that deal to make that much money since it's already done..? Ivan: We got a much better manager in place. We got a really good maintenance guy in there and of course, we asset managed them and we were able to raise rents, we got occupancies up. We reworked the utility bill back to make more revenue there. So the cap rate on that one didn't compress all that much on the sale. It wasn't just like the market went up. We just got in there and turned around the NOI because this guy was really good at making all these physical improvements and he was a terrible manager. And so we got all that straightened out and a couple of years later, had a big win to show for it. James: Awesome. Awesome. Yeah, I remember my third deal was like, everything's done, well, I was trying to find out what's wrong with this deal and it was a smaller deal from what I used to do, trying to really analyze what's wrong. Something is wrong but it ran in and out of contract like five times and the seller was really frustrated, so he wanted someone to close it so that's where I came in at that time. So Ivan, why don't you tell our listeners how to find you, how to get hold of you or your company? Ivan: I'm all over the internet. The easiest way to find me and my team is probably Ivan barratt.com. B A R R A T T If you Google Ivan Barratt, you can find ivanbarratt.com. Barratt Asset Management. Ivan Barratt Education, which is a site I put together for accredited investors, but they all cross-pollinate. So you find one, you'll find them all. I'm all over LinkedIn. Okay. And then if you want to talk, 317 762 2625 James: Is that your cell? Ivan: That is my scheduler to get you on the phone with me.  James: That's going to be, I was surprised. It sounds like a cell phone, but it's not. Awesome, Ivan, thanks for coming over. Hope you enjoyed it. Ivan: I had so much fun, man.   James: I learned so much from you and I'm super happy to know you and thanks for coming in and add value. Ivan: Yeah, I'm sorry to miss you in New Orleans. I can't make it. I'll see you at the next one, dude. I always enjoy our conversations and I gave my banker a ton of crap, thanks to you. I appreciate that. James: Oh yeah, absolutely. I gave you that tip.  Ivan: Oh, yeah. James: All right, so thank you.

James: Hi, listeners and audience, this is James Kandasamy from Achieve Wealth True Valued Real Estate Investing Podcast. Last week, we had Rich Fishman(?) with 8,000 units. Almost half of which he owns by himself and he had bought over 20 years across five to six different states. And he gave us an outstanding overview of what happened during the crash of 2008. Was it true that everybody needs a roof above their heads? And that's what a lot of gurus are telling us in multifamily or is it true that multifamily has the lowest default rate? You will definitely need to listen to that podcast. Because he went through the whole downturn with all his multifamily(s) and came back up after the cycle and he gave a lot of awesome perspectives. Today, we have Kevin Bob. Hey Kevin, do you want to introduce yourself? Kevin: Hey James, I'm excited to be here. Yeah, I'll give you the quick overview for sure. So, I have been investing full time in real estate going for on 20 years now and I got started like a lot of folks did with single-family investments. It was just what my mentor was doing. It's what he was good at and what he taught me and so I didn't reinvent the wheel. I did exactly what he told me to do and that evolved into multifamily investments and other types of commercial real estate. That led me up to the crash of 2008. That's a very challenging time. It kind of was reborn in 2011, 2012 and was introduced then to mobile home parks. Which is what we focus on today. So, for the past seven years now, we've been solely focused on mobile home communities. We own parks in thirteen different places throughout the US and that's our niche of choice as of now. James: Awesome. Awesome. I mean, Kevin is being very humble. So, just to give you guys some background when I was in my W2 job, one of the first podcasts that I listened to was Kevin's podcast. I mean, the podcast is called Real Estate Investing for Cash Flow With Kevin Bob and it's an awesome podcast. It focuses a lot on commercial real estate and I really learned a lot when I was in W2 and I was listening to it in the car. Are you still doing the podcast, Kevin? Kevin: I am. Absolutely. I do two podcasts. So, I do the Real Estate Investing for Cash Flow Podcast and then about three and a half years ago I thought it was a good idea to start a second podcast as if I wasn't busy enough already. And I started the Mobile Home Park Investing Podcast, which is specific to that topic. James: Got it. Got it. Kevin: James, I remember the first day we met. Not to interrupt you but I always joke with you every time I see you because I got a weird memory. I forget a lot of things but I remember the odd things and I do those free Friday calls. I've been doing it for like five years now. And I remember that's how you and I originally met. It was during one of those 30-minute calls on a Friday and I don't recall why I remember this part of our call but I had been making lunch with my Bluetooth in while we were talking about a multifamily deal that you were taking down in San Antonio, Texas. James: Yeah, it was my second deal. I was buying 174 and have you found it on our yellow letter marketing campaign. It is very interesting because when you had your podcast, you announced it that you're giving thirty minutes of your time and I was like, ‘Wow, that's awesome. I'm going to talk to a celebrity.’ Right now, I do offer like fifteen minutes of my time for whoever wants to talk to me. You just have to send me an email at jamesatachieveinvestmentgroup.com. We're not big celebrities.  We're just normal people. Kevin: I get as much value from those calls as the person on the other side. That's how I like to think and you just never know who you're going to meet on the other end of the phone, right? I mean, that's how I that's how you and I met. You just never know and so I think that you have to keep that normalcy in your life and I enjoy those calls. I’ve met a lot of great people on the way. James: Surprisingly, I still remember the day you called me and the moment you called me. I'm not sure why but that was like probably five, six years ago. And I don't remember my other calls. Kevin:  Yeah, yeah. I have been on for five years. Yeah. James: Yeah, that's awesome. Awesome. So, I mean, I want to dive deeper into mobile home parks. I can see you have like a 150 million real estate transaction. Is it all mobile home park? How many parks do you own right now? And can you give those kinds of details? Kevin: No, we don't have. Our current portfolios are not 150 million. That's just that's like my transaction for the principal. You know, investments over the years. James: Thanks for being honest, Kevin. Because a lot of people misuse those big numbers to do their marketing and then we find out they don't have anything. They're probably on a passive investor and that's really awesome that you're being very upfront with that. Kevin: Yeah, I’m the majority principal in the parks we own as far as on the GP side and things like that. So, we'll get that clarity out there as well. James: Awesome. Kevin: We're not really sellers. So, to answer your questions about what we own today. We've been teetering around like the 2,000 mark. We go above it. We go below. We have a park that going to be closed in a week and a half. We sold a park earlier this year and then we're going be selling one in probably February next year. That's in contract currently. We got one that we're closing on in 45 days, which is 215 lots and so we keep teetering around this 1900-2000 mark. We've really been evolving our portfolio by selling off some of the smaller properties and by selling off some of the properties that we don't really have an interest in scaling in a particular marketplace or maybe it's just one that just doesn't fit our model moving forward. I don't know how else to answer it other than that. So, that's where we're at today. We're really long-term cash flow investors, though. That really is our business model. It just as far as the selling side of things I like to take advantage of an opportunity when it arises. That's one thing I did not do before 2008. I never would sell anything and it came back to bite me at that point. So, I am not a seller. However, I will sell when the timings right the price is right. James: Yeah. Yeah. Let's talk about that experience. Because I heard about that in your podcast and so you are doing single-family homes before 2008 and you were doing very well. Kevin: And multifamily but mostly single-family was our focus. That was our business model. It's what we were very competent at. We had acquired a few hundred multifamily doors over the years almost by accident. We didn't really put much effort into it because deals would just come our way like small multifamily stuff. Thirty-six units forty-eight-unit type properties that we just kind of threw into our rental pool. However, the biggest part of our model and the thing that took the most time and energy was a single-family. You know, buying the single-family rental properties and managing a portfolio across multiple different counties was just very inefficient. And it's unfortunate because I think we just got very complacent with our model. You know, we were we felt we were really good at it and we never took the time to be honest with ourselves about how inefficient that was and that we should have just taken our efforts and converted them over to multifamily at that given moment. I think that we would have fared through the downturn a lot better. The single-family properties… it wasn't really the single family that sunk us during the downturn. It was a whole mixture of ingredients. You know, Florida was ground zero for the crash. A lot of our properties, not only did they lose within a year but they also were upside down. Our leverage point on the front side was originally somewhere in between the 65% to 68% range. So, we were very low leverage. Most of them were upside down underwater within a year. Another big thing in Florida that really was a major impact on us was there were a lot of speculative single-family builds happening back then. I don't know if you remember back in that heyday. I guess you could say that was back when a new build property in like Vegas or Phoenix or Southwest Florida would literally flip three times before it was ever even occupied. Before it was ever finished. It was crazy. There was like thousands of new home builds happening in Southwest Florida for a population that wasn't really coming in. So, the big nail in the coffin for us back then was a lot of these builders that had these properties who weren't selling and they started renting them out. And so now, they started pulling the populations away from our rental properties and they offered better incentives. Because what they had was a new product. So, we had an occupancy issue. We were under wonder water value and like it's just a perfect storm and it was ugly. It wasn't fun at all. And the banks at that point weren’t willing to work with us. This was like a year within entering into this downturn. The banks didn't have loss mitigation departments. They weren't prepared for this and so we struggled with a majority of our lenders to even do work out deals or loan modifications. James: Yeah, I read some books about how the lenders can be nasty during the downturn but now they're super nice. Kevin: I think they got a lot more flexible. Because they had to. In the first year of the downturn, no one knew how bad it was really going to get. It was like ‘Are we at the bottom? Are we at the bottom?’ I feel like that question was asked for many years before it's like, ‘wow, it's 2011 and it's still messed up like things are still fairly bad.’ You know, I think it took the bank's a while to realize that and they even put the infrastructure in place to manage all these defaults. It was a disaster for the banks as well. I mean, they had more defaults than… they had to build entire departments within their companies to manage this onslaught of default. So yeah, it was a challenging time for everybody. James: Do you think you could have done better if you had a lot of non-recourse loans? Kevin: Yeah, absolutely. I mean, as far as my personal assets being attacked and things of that nature absolutely. And I think there is also a lot more flexibility with the non-recourse lenders to work with a borrower because they have quite a bit of leverage. You know, another thing that hurt us pretty badly on our part was a lot of our apartment properties and a lot of the commercial loans and a lot of times we would package up like eight to ten or twelve single-family properties and put a commercial loan on and it takes money out. That was kind of our model. A lot of that debt was shorter-term recourse debt. It was five years,you know, either resets or five-year balloons, twenty-year [inaudible10:23]. What happens we didn’t default on multifamily. However, after all the credits were going bad on the single-family stuff and we started having issues there. We couldn't get new loans when the time came due for them a couple of years later. We couldn't get any debt in place. We had to sell things for basically fire sale prices and give them away. We basically either gave it back to the bank or did some minor workouts, did short sales or had to sell at fire-sale prices. It is what it is. I learned a lot from that period and things move on and I've learned a lot from it. And I think I'm a stronger investor and a better investor nowadays because of it. James: Absolutely. Absolutely. So, you brought up three or four cities that are very, very high growth right now.  We’re at the late stage of this cycle. Which is similar to 2008 before that. They are Phoenix, Las Vegas and Florida, right. So, do you think we're in the same stage right now because they are one of the highest growth rental rates for multifamily? I would say I'm not sure how much you would be able to compare multifamily at that time.    Kevin: I think the reasons behind the crash back then are a little different. I mean, back then the lenders were so loosey-goosey. Because anyone could get a loan and I mean anyone. Even a waiter who just started the job yesterday. Who had no provable income could get a loan on a property. You know that that's one thing that hasn't gone back to the way it used to be, lending restrictions are still very tight. So, I don't think that we have that fear. I'm not an economist and by no means am I an expert here but I don't think our fear should be related to anything that was similar to back in the 2007, 2008 crisis and what caused that. So, I'm not sure what it could be. I know that there's a huge demand for multifamily. There’s a pent-up demand for supply still in a lot of these markets based on population growth. I think that the bigger risk lies and like A class stuff or like some new developments as far as like, you know, the game of musical chairs. It’s about who's ultimately left holding the bag. I think that what you do as far as like BNC grade apartment complexes are very similar to our business and that as long as you provide a clean, safe and high-quality product at affordable prices. There's always going to be a demand for it no matter what happens. I'm a firm believer in that and that's played out time and time and time again and that you were making mention of the last guest you had on. I'm going to give listen to the show but what was his take? You know, what did he tell you was the ultimate outcome of his multifamily holdings through that downturn? James: Yeah, it was very hard for him during that downturn. I mean, He has to cut down a lot of it and if I remember correctly the default rate was pretty high. It was like almost 8% where a lot of people did lose their property to the banks. Kevin: I wonder if that was because they were over leveraged but I'm not talking about him though. I was talking about the operators. See that's it leading up to that recession and the last time people were overpaying for apartment complexes and if you recall one of the big the big hot trends were buying an apartment and doing a condo conversion. So, you saw people buying apartment complexes for valuations that had no relative nature to the actual NOI that was in place. It was all based on a pro forma exiting out as individual condos and a lot of those condo things failed miserably. Anyway, how did the guy you interviewed fare? James: I think he was not talking about condo conversion. He was just talking… Kevin: I mean as far as multifamily investments. How did he fare? How did his investment go? James: He did say that it was pretty bad for him and for a lot his friends and who were buying at that time. Kevin: Specific markets or…? James: Across the country and he has been down twenty years right now. I mean, he has like a thousand units right now. The key thing is I mean everybody says ‘everybody needs a roof over their head.’  But he's a says that people become creative on how to get a roof above that they’re head. They double up. They live in their basement. So, it's not like everybody's going… Kevin: Yeah. Well, I think another thing that changes is  the quality of your prospect changes as well. You know, people lose their jobs. People miss payments on their credit cards.  They get bad credit. They get into this revolving cycle or downward spiral. And so, although everyone does need a roof over your head, the quality of that prospect might change. It might actually deteriorate over time but what you can really get to fill that unit which a lower quality resident typically is going to equate in a higher turnover, rate higher expense and maintenance costs associated with running that property. So, I think that there are other factors that are derivative of a downturn  even though everyone does really need a roof over their head. James: Do you think the optimism that you had or the entire market had before 2008 crash like in 2006…  I'm sure everybody was optimistic. Nobody knew about the subprime mortgage. Because nobody really knew in detail, right? Do you think that the optimism that people had during those few years before the crash is the same as now? Kevin: There's some Deja vu that I've had and I think maybe a lot of that has to do with even just watching like social media feeds and things of that nature. A lot of the kudos and congrats are given to folks just because they like buy a property and that’s only a part of it. James: They just started running. They haven’t done the marathon yet. Kevin:  It not what it looks like today but it’s can you execute the plan accordingly? What does it look like three years from now? Because you bought something doesn't mean that you've won yet. It's easy enough to get on the front side. So, that's a different form of that optimism. James: Social media has increased the FOMO syndrome. Kevin: Yeah, that's it. Success seems to be equated on social media to actually just doing a deal. Whatever it means to get the deal done: overpaying for it, over raising investor capital, putting capital your investors capital risk. I mean buying bad markets and I think that was a very similar sentiment that was shared by a lot of people back prior to the crash. ‘If we don't buy now, there's like anything left. We’re going to get priced out of every market and then will never own real estate. Let's buy whatever we can. Let's get that 95% loan.’ So again, the lending standards have not gone back to what they were then. Which was a big cause of that crash. But I do think that there's some Deja vu that I've had.  You know, the FOMO thing… the fear that you’re missing out, that's real. We've seen things be much more competitive over the past year. We bought nine properties last year and we wound up buying two this year. So, we did get side-tracked a little bit this year with building a property management company. And we that's another discussion but even then, I don't think we would have bought more than maybe three or four properties. If that was our sole focus but we're very conservative. I think we had seven or eight deals in contracts that we ended up killing… for various reasons.  There just a lot of hairy things out there and you can make money with hairy deals but you got to really know what you're getting a deal go to. James: Yeah, exactly. I mean, that the experience of going through the crash will make you’re really a conservative person, right? Because people have never gone through it [inaudible17:59] including me. I didn't go through it. So, I didn't know how painful it was, right?  But I do read a lot of publications and try to feel the fear at that time. I mean, you can be too much of an optimist. I'm not so engaged in the height of optimism right now. So, you did single family and you went through this 2008 crash and suddenly you started doing mobile home park. Why that mobile home park asset class and why not go back to the single-family apartments? Kevin: Well, it's a great question. So, I answer the second part of that question first about why not go back to like single family properties. You know, I finally had an internal point of reflection probably like two years after the crash started. There were a couple years where it was pretty challenging to even think about what was happening in my life. So, there were a couple years, I don't like to say that I put my head in the sand and buried it. But somewhere around, 2010 to 2011 I would go through like a reflection point in my life where I tried to look back and just really be honest myself like, ‘what I should have done differently.’ What I ultimately felt went wrong and I came to a quick realization and I kind of knew it back then.  You know, you're comfortable and complacent you know we should have made the switch. Our model is very inefficient with the single-family properties. You know, running multiple maintenance crews and management crews amongst many different counties. You know, having a home here, a home over there, home over there, hundred something that way. It was incredibly inefficient and it was very hard to scale. You know like just going out and trying to buy one by one by one and buying a hundred and twenty, a hundred and fifty, two hundred single family properties is a lot of work. That’s two hundred individual closings. That takes a lot of effort to make that happen. And you'll being honest with myself, I knew that those same efforts could have been multiplied like 10 x but by actually putting that effort into multifamily and that multifamily is much more efficient to operate. It could truly provide that cash flow and help me get back on top much faster than trying to go back into the single-family space. I didn't have an interest in the single-family. It was what I was taught at a young age and I rolled with it and I did really well with it. And then now, I felt more grown-up and it was time to make a big change in my life and I knew multifamily is going be it. And so I went on this exploration journey, knowing that it was going to be multifamily. What I wanted to do, James, I wanted to go back and talk to everyone. I went on a six-month binge of interviewing and talking to everyone I could, locally and on the phone, who have either been in the multifamily and made it through the crash and you'll just get a sense from them how things have changed today?  How the landscape has changed? I always spoke to those who just got their start. You know, what's their perceived notion of the next couple of years? What the lending environment look like? Where are they finding opportunities? Where was the risk? I just wanted to get an update because I basically stepped away for years from real estate. And things had changed over those three or four years, right? And during this period, I was introduced to a guy named Randy through a mutual friend. And Randy had mobile home parks here in Florida. He owned three of them. He had been a banker for thirty years and I like meeting new people. So, I said ‘let's grab lunch. You’re local to me. So, let's grab lunch.’ And we did. I didn't go there with the intent of like, ‘I want to learn about mobile home parks.’ I just wanted to meet someone new who had been quite successful in their life. And that after like a two-hour lunch with Randy I walked away, saying ‘I'm going to buy a mobile home park.’ I need to either prove or disprove all these great things that Randy had to say about this niche and this asset class. And that's what I did. It took me about 12 months.  I bought a park up in Atlanta. We still own it today. It was a small part of a highly distressed Park and I bought that one and then I bought a second one and I bought a third one. I just spent a couple of years of my own money proving the concept. And then ultimately once we proved the concept and went full cycle on a few things. I went out and actually built a business out of it.  Where we started hiring multiple team members and investors into the game and that's where we're at today. James: What were the top three ‘aha’ moments from that discussion with Randy in that one-hour lunch that you had with him? Kevin: Yeah, and this isn't to compare multifamily to mobile home parks. I mean, but this is what he told me. This is how his conversation went with me. He was like ‘You know, the bottom line being C class apartment complex is great. Everyone needs to roof over their head.’ Just like we talked about. Affordable housing is in high demand and that demand… James: And what year was this? Kevin: This is in 2011. James:  2011 which is supposed to be one of the lowest and best times to buy. I guess, right? Kevin: Yeah, absolutely. Absolutely and so he went on to say that one of the big challenges with multifamily that he found in his career, and he wasn't a multifamily guy but from a theoretical standpoint was the turnover and you're turning 50 to 60% of your tenant base every 12 to 18 months. In mobile home parks, he's like, ‘95% of our residents owner their homes and it costs a lot of money for them to move their homes.’ So typically what happens, Kevin, is if they want to sell that home or they want to go somewhere else move. They don't move their homes. They just put their home up for sale and they move and go buy a home somewhere else. And basically, you never lose that lot rent. That lot rent continues to come in day after day and you don't have that down period like you might have an apartment and you don't have to that make-ready costs like you might have an apartment. So, that was one of the big ones. Another big one that really piqued my interest was the just really the barrier to entry and that there's really no new supply coming in the marketplace. You know, municipalities don't like our asset class. It's got a bad stigma attached to it. And so, no new parks being built and so if you find a good quality park in a great market, you don't have to worry about competition coming down the road. It’s not going to happen. It's just not a chance of it happening. James: It's not like a straightaway somebody can just come and build something in front of you. Kevin: Right. Right. Exactly. So, that was a big one. I liked that and then another big thing that he sold me on was just the management side of things. You know when the residents own their own homes you're not maintaining the roof, you’re not maintaining their plumbing, you're not maintaining their electrical. You’re not maintaining anything whatsoever that happens to their unit. They just like a homeowner, they call that vendor. They call the HVC company. They call the roofer. They call the plumber to fix it. You're not in charge of that. Our only requirement is to maintain the infrastructure. So, the roads, the water and sewer lines leading to the houses and the electrical infrastructure and that's pretty much it. And so I was like, ‘Wow, that's interesting.’ So, like low turnover, fairly lower management responsibility and very rarely is there ever a point in time where you have a down unit or a lot that's not paying you rent. So, the fourth, you asked me for three but the fourth big thing that really sold me on it was He's like Kevin there's a lot of first- and second-generation park owners still out there. Either they built these parks or their father built these parks and now they're aging out. All of these parks were built in the 50s and 60s and 70s and these owners are getting very old. You know, like five years ago the statistics were that 85% of Park owners only owned one Park. And so, to me that means they're a mom and pop, right? They're not a big professional or institutional operator. And so, his point that he made was that these individuals have been working these parks not like you or  I, where we run them like a professional company,  but with their bare hands. They are working these things from day to day. And they're either getting old or their health is becoming an issue. They're getting tired and they're aging out of these things at a very fast rate. And so, there's the opportunity to get in and run it like a professional. You know, get markets up to the market rate in the area and run it more efficiently and do a better job of collections and whatever they might be doing wrong there. So, that was a big thing that piqued my interest as well is working through that ‘mom and pop’ generation and finding opportunities that had a lot of meat left on the bone. Those were the big ones he threw at me and many others as well. But those are some of the big ones that just really sold me. I was like, ‘I’ve got to learn more about this.’ James: Yeah, that's awesome. When I learned about mobile home park, I went for like some three-day class and I really learned it. I love it. I mean, it's a really good asset class and I didn't want to do it because I believe in focus. I mean sometimes as entrepreneurs, we are like, ‘Oh, mobile. Oh, that's so cool. The self-storage let's go do this.’ Kevin: Shiny objects. James: And I realized that to be really good at something you have to have focus. So, that's the one thing I wrote in my book, right? Whenever a passive investor chooses your sponsor make sure that your sponsors focusing maximum to asset class. There are so many details in this asset class but with this market being hard a jack of all trades can’t really make money. Kevin: True. James: Some of their mobile home parks are a bit small, right? I mean, it used to be like 3 million for like a hundred parks or something like that. So, we were like all in doing like large deals and we thought, ‘Okay, we're just going to stick with apartments and stay focus and make sure we get good at it.’ So, that's important, I think. And so, at a very high level can you explain how the cash flow is generated in a mobile home park? Kevin: Yeah, absolutely. It's pretty straightforward. You know, we own the entire community and in a perfect world, this is how we’d like to own the community, where we own zero of the home. So, let's just give an example: we have 149 space mobile home park in Buffalo, New York. In that community, we own zero of the homes that are in there. There are 140 of those lots that are occupied with residents. Who again, they own their roof above their head and they pay us on average $428 a month in lot rent. They also pay their water and sewer; you bill it back for the trash usage. So basically, our job in that community is to maintain the roads and make road improvements as necessary. We cut the common areas of the grass. We trim trees throughout the community. Just making sure that the community or the subdivision is up kept and their responsibility is to pay us for the renting of the lot that they're homes are sitting on. That's it. We make money in that manner. That is the sole source of our revenue. Now I’d say, ‘In a perfect world, we don't own the homes.’ Unfortunate, we're not in a perfect world, James, are we? So, we have our portfolio of approximately two thousand lots that we own and it changes every day. In somewhere between two hundred and fifty and two hundred and seventy of the mobile homes and some parks we own zero homes and in other parks around twenty. It just really depends on how that older owner who we bought it from was operating it. And so, our goal with those homes that we own is to get out of the ownership as fast as possible. And so, what that means to us is that we'll go in and we'll do a very nice builder-grade renovation on them. We’ll sure make everything is operating as it should and make them look good and ultimately try to sell them at a breakeven or we'll even lose money on the homes if we can find a cash buyer, who will come in and purchase. Who we know once they own it outright that they will be a very sticky resident and they'll end up staying there for a very, very long time. And so, our goal is really good to get it back to the lot rental model. Because at that point our management and our maintenance responsibilities are incredibly minimal. James: Yeah, let me try to summarize this for the audience. It’s like a parking lot for a car, right? But it’s Just a car that doesn't have a wheel to move. Kevin: We’re the home parking lot specialists. James: You make a lot of money, right? Because I just own the land, right. The earth is one of the best business on earth. Kevin: Yeah, that's a good way to put it. We are definitely a parking lot.  Except the homes are very expensive to move… I don't want to say that's a great thing about our resident base because that's not the best way to put it. But typically we cater to workforce housing. That's what we have. You know, so good hard-working blue-collar folks. And the average single-wide cost about 5-6000 to move and reset in another the community and a double-wide 10-12,000 and the average folks who live in our communities do the average do not have that type of money lying around to move their home but some of them. And so normally, like I said what happens is that they sell it. Just like you would sell a stick-built home. They put it up for sale and someone else buys it and that person comes in and takes over the lot rent responsibility. So, it's a beautiful thing. James: Yeah, it's a beautiful thing. So, just in terms of the lot itself are there any other issues with the city? Or do you just own the whole lot? Kevin: Issues with the city meaning…? James: So basically, you own the entire park. So, that whole thing is an SL real estate, right. Kevin: That's correct. James: The city doesn't own any of the things inside. Kevin: Sometimes, every park is a little different. We have a few communities where the main road going through it is owned by the town or the city and we own the park. So, they maintain that one road. We have other communities where the water company direct build the water and sewer lines. So, when that park was built the local municipality handled the water and sewer and they literally put the lines and they own them. And we're not responsible for water leaks or anything like that. In most communities, we own the lines but there are some communities that are just anomalies. They are kind of stand alones, where we don't have to maintain them. Every park is different but normally, we own everything. For the most part, we own everything in the park and we have to maintain it. James: So, do you get a lot of depreciation because you just own the land? Compared to like multifamily? Kevin: You do. You do. You know, we did a bunch of cost ex studies last year and we were actually pretty shocked. In fact, Tom Wheelwright from Rich Dad Advisors… I didn't know that he's good friends with the person who does our cost ex studies. He personally reached out to me because he had never looked at a study from a mobile home park before and she shared one of ours with him. And he's like, ‘You got to come to my show. I'm actually baffled at the amount of depreciation that you guys able to gain.’ So, the infrastructure… So, all the improvements in the land. Most of the value of that property because we're not buying the homes. Most of the value is in the improvements of the properties. Because a lot of our property that we're buying it’s not like a path of progress. I mean, the dirt itself isn't worth the money. It's the infrastructure that's there that is really worth the money. And so I don't want to just off the cuff share with you some of the cost ex studies but it's a fifteen-year depreciation schedule.  And I think we've been able to, on a couple of our deals, depreciate it like upwards of 60% of the actual purchase price within the first year. So pretty significant. James: [inaudible34:57] the bonus depreciation. Kevin: With the bonus depreciation. James:  Got it. Got it. So, is it fifteen years or is it similar to like twenty or fifteen? So, mobile home parks[inaudible], okay. That's something that I didn't know. That's very interesting, Okay. That's really good and what about what is the primary value at the mobile home park? Kevin: Yeah, there are a couple big ones. I kind of classify them as like low hanging fruit, middle hanging fruit and then the high hanging fruit. Which is hard to get to. The low hanging fruit for us are simple operational changes. You know, the heavy payroll. We will go in and…  they’ve basically got their family members and their cousins and their brothers on payroll and we'll go in and chop it down to what it really needs to be. That's very low hanging fruit for us. Some other low hanging fruit for us are just your rent increases. There have been many communities that we have purchased that literally have not had a rent increase in fifteen years or twenty years that’s a long, long time. And so that's very low hanging fruit. Medium hanging fruit to us would be controlling the water and water sewer and other utility expenses. So, a lot of these parks when they were built back in, back in the day, water and sewer weren’t expensive utilities. They just weren't. It was included and was factored into the lot rent. You know, the infrastructure was new back then. So, there weren't leaks or wasn't waste or anything like that. Over time the infrastructure gets older and leaks that happen. People tend to abuse water. Water and sewer are expensive in most parts of the country. And that's normally a very large line on the PNL expense statement. And so, we'll go and we'll basically buy individual water sub-meters. They’re pretty advanced meters that are digital and have remote reads. And then we will install them to a lot and will essentially start building the residents back for their own usage. Proportionately speaking we will do the reads each and every month build them back. So, number one: we'll save anywhere from 20% to 40% of usage because people now get responsible very quickly when have to pay for it. And then they'll all those savings basically good to our bottom line. So, it costs us a little bit of money but typically in a normal-sized Park, we will recoup that entire investment of the water meters within like 12-14 months. It's pretty quick. And then the high hanging fruit of the value-add side is infilling of new homes on to vacant lots and so a lot of communities that we own they might have some vacant lots of them. Some more than others. So, I'll give an example: we buy a mobile home parks 100 lots in size. It's got eighty that are occupied with trailers that are paying. The other twenty they were fully developed when the park was built. They've got infrastructure there. However, they do not have a mobile home sitting on them. We've got dealers license in every state that we own a park in and so we can buy wholesale from the retailers and the manufacturers. And we’ll go buy brand new home inventory and we'll bring it in and will basically create a retail program and find buyers for those homes to infill those lots. So, we'll buy the homes. We’ll bring them in. So, I say that's high hanging fruit because it's very capital intensive. It costs money to purchase a home and that money is tied up until you sell that home. So, there are different programs out there that help you to facilitate that but it's still very capital intensive. And there are a lot of logistics involved with moving homes in and setting them up and things like that. So, those are the big ones of how we add value to communities. James: Got it. Got it and I believe the mobile home park homeowners compared to multifamily which are renters, right? So, it’s a completely different mindset when it comes to pride of ownership. Kevin: That's it. That's it. That's why we try to convert them to a homeowner as fast as possible. I mean, you still have your homeowners who you have to kind of kick in the butt every once in a while, to keep your house in order, to keep the yard in order. We’re pretty strict with our screening processes and for the most part, the homeowners within our communities have pride of ownership and take care of their units quite well. James: Got it. Got it. Got it. So, let's go back to the property management side of it. Because I remember when I was listening to your podcast about five years ago, you were always saying or the apartment guys had it easy. Because they have their own property management. They are more professional. Finally, after five years you are going to be moving your property management company under yourself.  You going to self-manage, right?   James: Yeah. So, you guys do have it easy. All you have to do is pay it and just hand it off. Buy it and... Yeah, joking. I know there's more to it than that. So, up until a little over a year ago, we managed all our own assets in house. And unfortunately, the property management side of any business there's a certain size to where you can actually break even and we were nowhere near that size. And so, it was a losing endeavor for us. And so, sometime in the middle of last year we were introduced to a property management firm…. we’d never considered property management in the mobile home park space. Only because we were always told that the options of the companies that were out there were poor, very poor. And I was told so by many different people, many different veterans of the industry and so we never really explored it. And so, we always manage it ourselves but last year we were in contract to buy a property up in Michigan. It was in receivership and the bank had engaged this management company, a national management company, a property management company that were mobile home park experts in the business forty years. They were engaged to actually manage the day to day of this thing while it was in receivership. We were buying a note on this thing and we got introduced to this property management company. We got to see them in the real world. James: [barking] My dog has been like a... Alright, Kevin. So, one thing that I got to know since a long time ago is apartments have an easy way of getting into third party property management and buying it and giving it to third party property management. More recently, you have been trying to get your own property management company or maybe you already done it. So, can you explain why that is? Kevin: Yeah. Yeah. So, in our space it is not the norm to hand off to a third-party management company. I think we're like the redheaded stepchild or the anomaly of the real estate industry. Because pretty much every other asset class multifamily, office, retail, all of them have multinational property management companies and lots to choose from, right. They can choose from many different people in the space, best in class things of that nature. I had always been told in the mobile home park space by many industry veterans that it just doesn't exist here that there are only a handful of property management companies and most of them aren't very good. So basically, in the initial years of us owning parks, we managed it ourselves. However, in order to build an appropriate property management company that's profitable, you have to have a certain scale and we were never there two years ago. We just weren't large enough. And so, it was kind of a losing endeavour for us. We're okay with it. But it was prohibiting our ability to grow at the scale that we wanted to. We were good at finding great opportunities and we were good at raising capital. The roadblock was actually the operations of all these different parks were buying.   And so just by happenstance, we were buying a note on a distressed property up in Michigan and it was in receivership. And during that transaction, we got introduced to the management company that was running the show and it was this large group. They've been in this space for 40 years. They are the largest fee manager in our business and they've had a footprint nationwide. And I saw them first-hand and it seemed like they were doing a great job within the first couple of months of us being introduced to them and of them managing this asset that was not yet ours. And so, I flew up and met their team and flew my team up to meet their team. I got to see their operations. I got to learn about them and everything seemed great. I mean, I was impressed. Again, they had a lot of experience… way more experienced than us in this business. They knew everyone in the industry. They knew all the intricacies of the business. They had different departments to manage those things whereas we were basically were trying to wear a million different hats. And it seemed like a perfect match made in heaven. And so, after another month or two of kind of testing them out on this asset. We were buying this and we said ‘You know, let's hand them the majority of our properties and let's see how they do.’ And we kind of did it like two different chunks. And long story short, they're great guys. However, no one's going to ever manage your property like you would. No one's ever going to care as much as you do. And so within four or five months, we started seeing some pretty readily available signs that things were not going as planned. The promises weren't coming true. You know, decisions that should have taken three minutes to make were taking three months to make. Everything was moving like a snail's pace and nothing was getting done and we were actually regressing and it was frustrating. However, what happened during these first six months of us being with them is that we literally acquired like another nine properties. So, we doubled in size. So, unfortunately, it wasn't as easy as us making a decision saying, ‘Hey, we're going to give you our thirty-day notice and we're going to take it back in house.’ Because we surely did not have the infrastructure now to actually manage our assets because we literally doubled in size in a short period of time. And so over the last six months, we've been kind of behind the scenes building out a legitimate property management company with systems and processes and in hiring new team members. We didn't want to bring it back in and fumble. We want to make sure that we brought it back in, we basically built our own best in class operation that we could do it better than anyone else. Whether it be for ourselves or current assets or new assets that we were buying. If we woke up one day and we ended up going crazy. We thought that we wanted to do a third-party management for other people that we would be best in class. I don't think that's going to happen. But that's what we've done over the last five or six months and that's actually side-tracked some of our acquisitions we've only bought two properties this year. We probably could have bought a lot more but anyway I guess long story short, James, is I'm somewhat envious of you guys in the multifamily space. Because there's a bar that set with property management companies and if one company is doing poorly you’ve got other options to go to and typically they kind of keep each other in line a lot of times. And I know that they’re still never going to treat your property like you would yourself personally. However, You've got options and things that might not be working with one company you know that you could probably actually go and get served correctly at another company. We just didn't have that option. We just didn’t have that option. This was the once and done. There were other companies out there but these are the best in class and I'm like, ‘If these are the best in class, we got to build our own. Because there are other options for us.’ That's what we did. We brought it back and so that just happened on November 1st. That’s when we actually truly brought everything that had migrated back in was November 1st. So as of the time of this recording, it was like six weeks ago. James:  Got it. Got it. So yeah, it's a different ballgame, right?  of course, it's going to slow down in terms of acquisitions because now you're also managing the property management. But I think overall, in the long run, it’s much better for you. Right? Kevin: Absolutely, at the end of the day the amazing strides that we've made just in the construction side of our business and the marketing side of our business as far as like sales are concerned…like we've done more in the past two months then was completed in the past year. I'm not even joking. It's been absolutely amazing. So, I'm excited. I’m like, ‘Hey if I'm going to screw up, I want it to be my fault. I don't want it to be someone else's fault that our properties aren't performing.’ I'm okay taking accountability if they're not performing if it's me that's running the ship or driving the ship, right? But if it's another company and they're doing a poor job and we can't control it. I've got issues with that. So, that's kind of where we're at. James:  And I also think that when the market turns people with their own vertical integration will have a lot more leverage in terms of control, right? I mean a lot of property management companies are doing a mediocre job right now but they escape because the markets are super strong right now. Kevin: That's right. The market props everything up. James:  When the market turns then we will know how good they are. Because now we have to be answerable to our investors and we have to go to third party. So, one other thing that I want to touch on about the way you do business a lot of times you raise money and not deal by deal but you use fund model. Can you explain what's a ‘fund model’? And why is that beneficial? Kevin: Yeah, to keep it somewhat simple… I mean, it's really not much different than your deal-specific syndications other than the fact that we've got multiple properties that we're putting underneath that fund umbrella versus just one individual property. So, an investor is going to get their investment diversified amongst multiple properties and possibly multiple different markets rather than just one. So, simply put that really is the only true difference between probably how our business operates and how your business operates. The reason that we decided to go that route happened about three years ago…We were going into the end of the year and we had just founded Sunrise Capital Investors. As like a formal company, rather than just me and buying parks on my own. And we had a pretty stout pipeline and a lot of deals kind of fell apart. And we were like, ‘Oh, we only have two deals now. They're going to either going to close January or February next year. This is due to individual deal-specific raises.’ That's fine. And then all sudden like within like two weeks somehow all these other deals came back to life and we all of a sudden had five deals that absolutely looked like they're going to close. We had like four to five money that went hard and anyway we're like, ‘Okay, well now we have five and they're all going to end up dropping like in the same like week or two. Logistically speaking, it'd be an absolute nightmare to try to do five deals specific syndications. Because of the paperwork and logistics behind it and then the legal costs associated with it and that just didn’t make any sense.’ They're going to close right at the same time.  I think there's more of a benefit for our investors to give them diversification amongst all five of these versus just one. You know, one individually. And so we didn't know what the feedback was going to be and we put it out there and it was well-received. So, it was great for us. It gave us a little bit more flexibility on the buying side. Gave them risk diversification amongst multiple different assets and markets and so it's been a win. So, we did really well with that. That was kind of our test fund and you're last, actually about eighteen months ago, we launched our second Fund. Which is a little bit larger fund twenty-million-dollar fund and it did the same thing. So you know, we're a little different, though.  A lot of funds… a lot of institutional funds will go out and they'll get really aggressive. They'll raise all the money. Let's say it's 100-million-dollar fund to go out and raise I'll spend all their time and energy raising 100 million dollars. And once they've got the commitments for, let's say, maybe 75% or maybe more than that. Then they'll actually start going to buy it. You know, once that money's there and the costs of capital is very high. We didn't want the money sitting around idle. And so, we just continued our building our pipeline and we would only bring money in tranches. So, we'd only bring enough in during that fundraising that we actually knew we're going to need or the next like two months to close deals. So, although it was an eighteen-month buying period over the last fund, we would raise it in tranches. Which meant our investor capitalism is sitting around idle, not collecting a return. We weren't occurring pref on money on millions of dollars that were sitting being around idle. And it just held us accountable and it held everyone accountable which I like. Our interests were very much aligned with one another. James:  So, you basically do capital calls whenever you need the money.  Kevin: That’s it. That's it. James:  These are good capital calls, not the other bad capital calls.  Kevin: Right. Exactly. Like the verbal soft commitments are there. And some of them might not come through but the majority of them do.  You know, I think about 5% drop out of folks. James:  So, you basically make a verbal commitment. And when you have a deal, you say now let's make it hard. Kevin: Yeah, absolutely and each one of these two funds that we started, we actually already had deals and contract going into them. So, it wasn't like we were raising a blind pool like, ‘Oh, here's what we're going to do. We're going to raise this much money, and then we're going to buy.’ It's like we got X amount of properties in contract right now. So, while there might be more properties in this fund, you can physically see and see the performers in each one of these. These are going to be properties that are in this fund. So, there's something tangible there. That's another thing so different about us and how we do these funds. We don't go into it blind. Where we're just raising money and then we're going to go do what we say we're going to do. We're actually doing it simultaneously but we've got deals coming in. We've got deals in contract money hard--- James: ‘Semi blind’ I would call it. Kevin: Call it ‘semi-blind.’ That's a perfect way to put it. It sounds like a rock band. James:  Right, right. Right. Alright, Kevin, can you give some advice to people who are trying to start up in this business in real estate or even in mobile home park? Kevin: Yeah. Yeah. Trying to get started up I'd say go try to mute a little bit of social media because everyone's on social media now, but I’d try to mute a little bit of that and go find the one individual girl or gal who is actually doing what you want to do. They can prove to you that they're doing what you want to do.  They're an actual GP. They're not they don't have five thousand units of very minimal shares as an LP and they're touting that. I know that's happening a lot out there. So, you know try to mute all that crap because I know it gives people anxiety. You know, like social media gives people anxiety because they see how everyone else is doing deals and ‘I’m like stuck here I can't get going.’ Just try to mute it out. Silence it and go find the James. Find guys like me.  We're very good with our time. We’re not going to just give everything away for free per se. We only have like so much time today but like find an authentic individual like us,  I don’t want to tout ourselves here, who will actually like give you some real advice that can give you some proper guidance or at least give you some nuggets get on your way and let all that other noise go. Because I think that that that that bottlenecks people a lot. That fear of missing out man. That anxiety creates just this internal turmoil of like, ‘I'm missing out’ and then like you get nothing done right. You’re like, ‘I'm going all these conferences and I'm reading all these books. I'm doing all these things.’ And you feel like a… James:  And you pay big money to some gurus out there. Kevin: Yeah and I think that a lot of folks’ mistake that with like productivity of …attending things like that. It's great. I do it all the time. You do it obviously. We're part of a mastermind together. But like you've actually got to like at some point get granular and you actually have to take some risk and take that leap. It's easier to do when you know someone like you or someone like me or there are other people like us. That one person who you can just kind of lean on and get some general advice from and get the real picture from as well. You know, what's real and what's not.  James:  Absolutely, absolutely. Kevin, why do you do what you do? Kevin: Why I do what I do? I really enjoy it as far as investing in real estate, I really enjoy it. I mean, I love the people I work with. I love our team here. I really enjoy being active and so everyone likes different parts of the deal like as far as what I do I'm not an Excel junkie. Not like my other partner he'll sit in from an Excel platform and run the model many different ways over like five hours. I want to shoot myself when I think of that. I'd rather be out in the field, I like executing on the plan. I like taking something from what it is today and actually seeing the end result of our hard work and effort over a period of six to twelve to eighteen, twenty-four months. And I also like seeing the smiles on the faces of residents. When we take something that's been blighted and actually make improvements to it. Especially folks who have lived there for many years. That's pretty rewarding to be seeing that kind of stuff. Especially, you get the one residence like, ‘God, I’ve been in for twenty years and this place over the last ten years was just scary and I didn't want my family to come over. Now, I have dreamt of the day that it will be the back to its former glory.’ And I like that kind of stuff. So, I like the lifestyle that that real estate provides, right? I get to spend a lot of time with my wife and my kids and friends and family and things like that. James:  Absolutely and was there any proud moment towards your real estate career that you can never forget? That will stay with you.  Is there one proud moment that you were like I’m so proud of myself. Kevin: Yeah, actually there is one. It was the very first mobile home park that we bought. If you got time, I'll tell the story. It's probably two- or three-minutes story but anyway, I'll try to keep it short. We were buying a very, very distressed park in Atlanta, Georgia. It was in a good little town but it was in the southern part of Atlanta. Which was got hit really hard with the recession and was slower to recover because there were a lot of the new developments that were out that way.  Anyway, we're buying this park that had been receivership for two years. It was fairly poor condition. Lots of squatters, all kinds of bad stuff happening there. The chief of police and the mayor's office were right across the street like a catty-corner. They had to drive past this place every day and we got it tied up and it was a small enough town and corporate town that we actually got a meeting with the mayor and this entire city council including the chief and everyone. And we went in there with his grand plan of how we're going to literally spend hundreds of thousands of dollars to clean this place up and to improve it and make it a proud part of their community.  And we gave this big sales pitch to the mayor's like this really tall guy with a bald head and the handlebar mustache. He is a really mean looking guy and this was in Georgia. He had like a rifle on the wall and a fox. He was a  very intimidating guy but he let us talk. Everyone's kind of looking like shaking their heads. I thought we were like getting their acceptance and he let us talk for fifteen minutes and then he looked at us and he said, ‘If you guys buy that park, you're wasting your money.  Get out of my town. I've been trying to shut that thing down for years now and I'm not going to stop until it's completely closed down. So get the hell out of here. Take your money somewhere else.’ So, we walked out of that room and we and I looked at my partner I said, ‘What do you think we should do?’ Because we weren't getting financing, we were paying all cash for this thing, too. Because it wasn't financialable. So, it was like basically all the money we had at that point. We bought it anyway. ‘So, let's buy it. I mean what are they going to do? Listen, let's just show them what we're going to do. I mean, how are they going to truly stop us, right? Let's do what We're going to do. We know we're going to clean the place up. He doesn't believe us but let's prove them wrong.’ We did that cleaned it up. We became really good friends with code enforcement officer that's kind of that was our like our foot in. We got her gift cards and made her like us and it was a very very open with our communication to her. So, if there was ever an issue, we addressed it right away.  Anyway, twelve months later I got a call from Mayor Bobby Carter's that his name and we got a call from him and I answered I didn’t know it him and he said, ‘This is a Mr. Bobby Carter.’ He has a southern accent. He said, ‘I just want to take a moment to apologize. I want to apologize for the way I treated you guys. I want to apologize for thinking that you wouldn't be able to execute on the beautiful plan that you have done over here.’ It was a long apology and he's like, ‘I just want to take a moment today. I've been meaning to call you over the last six months as I've seen progress being made but it's a year later and this place is great and actually, one of my staff members lives there.’ James:  He was holding it off until he had to tell you. Kevin: That was pretty cool. He literally wrote me a letter then he wrote a letter of recommendation to another Mayor who we were having an issue within another state in another town. Basically, saying like, ‘I thought mobile home parks were the problem. I thought this and the other and that's not the case. And these guys proved me wrong.’ And that's pretty cool. I'm pretty proud of that one. James:  Yeah. It's a big change especially with one of your first ones.  Kevin: He was the very first one. James:  You must have been really scared. I like how come the is not behind your back. Kevin: Well, we could lose that money either. I didn't have much at that point. In 2012, I was pretty broke back then. So, I had to make the money work. James:  That must be the fuel that launched your rocket and your motivation I guess. Kevin: Yeah, that's it. James:   So, why don't you tell our audience how to get a hold of you and your company? Kevin: Yeah, the best place to reach me personally is my website, Kevin Bob. You can find me on LinkedIn and Facebook as well. As far as our company if you want to learn what we're doing in the mobile home park space, you go to sunrisecapitalinvestors.com and get signed up there as well. We don't have an offering open today but get signed up. We have a secure portal and get updates from us when you know we have deals coming about and things of that nature. But other than I'm not too hard to track down. So, it’s pretty easy to find me on iTunes. I've got a couple of podcasts as we've mentioned earlier. You can find me in many different places. And now you can also find me on Jame’s show. James:  Yeah. So, thanks for coming. It was an awesome podcast. It was a lot of value that you gave us and I'm happy to have you on my show. Kevin: Thank you. Thanks for having me, James. And it's been a pleasure knowing you. I appreciate all you do with the podcast. I know how much work it is to put these things out. So, thank you for taking the time to get back to everyone. So much appreciated.  

James: Hi audience and listeners, this is James Kandasamy from Achieve Wealth True Value-add Real Estate Investing Podcast. Last week, we had Scott Hendricks who is a wealth manager and he covered a whole slew of topics ranging from 1031, being a broker-dealer, how someone can be a broker-dealer to raise money legally. He also covered DSTs - Delaware Statutory Trust and some of the items of Opportunity Zone. So it was a very, very interesting topic where I learned a lot and I'm sure if you go back and listen to that, it's going to be very, very educational as well. Today I have Yonah Weiss from a medicine spec. Yonah is a business director and a medicine specs. She is focused on a lot of things but primarily Yonah focuses on cost segregation and bonus depreciation, which gives us a huge tax benefit for a lot of commercial asset class investors. Hey, Yonah, welcome to the show. Yonah: Thank you very much, James, for having me. It's a pleasure to be on your show. I love your show. It's one of the most, I'd say, one of the highest quality podcasts in the industry. James: Absolutely. Absolutely. I mean, I've been doing this for the past six to eight months and recently, I don't know it, it's a surprise to me as well that, you know, one of the I think radio public they selected this show as one of the top 24 shows for real estate investing in 2019 which is a very big surprise for me. So I'm happy that people are finding value in this podcast and I'm learning as well. So, Yonah, you have been in a lot of podcasts in many, many podcasts so I definitely want to cover cost segregation, bonus depreciation, but I want to go a lot deeper into a lot of other aspects of your personal growth and of the tax code itself. So hope you're ready for this. Yonah: Let's do it. James: Okay. Awesome. Awesome. So at a very high level, can you define depreciation? Yonah: Depreciation, in fact, usually means something going down in value. But for our intents and purposes, because we're talking real estate here, it's actually just a borrowed term. It's a tax deduction. It's a tax write off based on the fact, on the principle, that things go down in value as time goes on. So the IRS gives you, as a property owner, a tax write off of the entire value of your property over a certain number of years and that write off is called depreciation. James: Okay, got it. Got it. So it becomes much sweeter when the depreciation is just a paper loss, rather than actually losing the value of the building. Yonah: Exactly, exactly. So it's different from, an appraisal standpoint, you know, an appraiser might look at the property and be like, it actually has a lesser value because it is this many years old. So that's the difference when we're just talking kind of theoretical. James: Got it. So clarify me if I'm wrong. Only in the US, we get depreciation for a property that already been built and used for like 20-30 years. When someone buys it again, he gets a fresh depreciation start. Is that right? I mean, all other countries are like if you build new, they consider it getting old and it's depreciating. Is that true? Yonah: Right. Yeah. I mean, I can't say for sure because I'm not really well versed in every other country's tax laws. But yeah, the US tax code is based on, even if it's a used property, you can actually take the tax write off, which is actually interesting because a lot of people don't know this. You can actually use depreciation on properties in other countries if you're a US taxpayer. So if you own, let's say, a large property in India or wherever and you're paying us taxes, you can actually take the depreciation deductions from that property on foreign soil. It's a very little known fact, but it has to go on a different schedule. It's called the ADS, the Alternative Depreciation Schedule, which is a little longer instead of 27 years, it's 40 years. But yeah, that is something unique as well. James: Oh, I think that's probably a new fact for a lot of people because a lot of people have properties in other countries. So, do you know the details on how do you get the depreciation or you just have to work with a CPA and some tax consultant or how is that? Yonah: Yeah, I mean like all of your depreciation, it should go on your schedule with listing the property and then it just has to be filed on a different schedule. Meaning it's like I said, it's called the alternative depreciation schedule instead of the regular, which is called the modified adjusted, the regular schedule and the macro schedule, which we go on for most things like 27 and a half years for a residential, 39 for commercial. So it's important to just note that and work with the CPA, who knows how to do that because yeah, you can get extra tax deductions. James: And is this depreciation only for a brick and mortar assets? Is there any other assets? Like if I buy a goal, if I buy, I mean land, of course, there's no depreciation, right? There are only for buildings, which is a true brick and mortar. Is there any other investment vehicle that has depreciation other than real estate, which is the brick and mortar? Yonah: Well, there are other types of properties like equipment and things like that that maybe commercial owners might have, which have depreciation deductions. It's different than the regular depreciation, which we discussed in real estate. It's under a different code. The 179 deductions, which you know, will apply to a lot of commercial equipment and stuff like that that you can use that deduction to write off business equipment and things like that. Or even if you know large, you know, software, you know, any type of business, an asset that you're buying is not necessarily property that can be deducted and depreciated. James: Got it, got it. So, yeah, that's very interesting because depreciation is one of the most powerful word for real estate investing. I mean, compared to stocks and bonds and, you know, buying a goal. I mean real estate is something that, you know, this has been created by the tax code to say that....do you know why they do that? Is it because all the people in Congress invest in real estate that's why they kept depreciation as it is? Yonah: That's my theory. James: Thanks for being honest. Yonah: It hasn't been corroborated, I haven't done any independent studies or anything like that, but yeah. You know, it makes sense to me. It sounds like even a little corrupt just like speaking about it, but you know, somebody would like to say, cause it adds to the economy, like real estate, the businesses, you're going to be adding jobs and housing and et cetera, et cetera. But yeah, at the end of the day, you know, keeping the rich richer is something that the government has an interest in. James: So, yeah. I mean, this is one of the secrets that when I was working W2 and I didn't know about it and I didn't know how much, you know, it impacts your savings, your tax savings. Right? So it becomes a huge fact if you're able to depreciate to get some tax savings in and it's all on paper. There's no real stuff that's being depreciated. And real estate is a huge beneficiary of this depreciation, right? Yonah: Exactly. James: So what is the reason why land can't be depreciated? Yonah: So I guess because land never really goes away. And land is kind of a constant status. So, you know, you buy a property and the property...see, it's interesting, this schedule that the IRS set up, that all stuff and we're going to talk about cost segregation, breaking those things down into different categories and different schedules. You know, each type of asset has a different lifespan. And there are so many different categories, right? So you have stuff that fits into a 39-year category, stuff that fits into a 27 and a half your category, you have 20 years, 15 years, you know, 10 years, seven-year and all of these different things. And there are lists, you know, in each one of these categories, the land is the one thing that's constant that you know, it's always going to have value regardless. And when you buy a property, even the tax assessor, the county assessors are going to understand that you're buying land and you're buying the improvements on that land. And the improvements can include, buildings, it can include landscaping, it can include the personal property that we're going to break down further with a cost SEG. But yeah, land is just one of those constants that don't change. You can't write that off. James: Okay. Okay. I'm just thinking about whether... I mean maybe people don't like land. Maybe the people in Congress don't like land. That's why they say, okay, forget about land, let's go and do the building. Yonah: Maybe it's also because I mean if you think about it, the fact that we're paying property tax on our land is really an admission to the fact that the County really owns the land. Meaning we're really just renting the land in a way. Even though you own a property and you own that and you have the title to that property, but how can the County like tax you on it? Because you know, at the end of the day it's still part of that County, right? It's still part of that governance. And so maybe that's why you don't actually get the tax write off for something that, you know, in all intents and purposes is only being kind of lease from you. James: Got it. Makes sense. Usually, have, when I look at the County records and we land and implement improvements, the building is on top of the land, right? So usually - I don't know, I'm so well-well-versed with Texas, I'm not sure about other States - but usually, it's like 80 or 90% is the building and 10% to 20% is the land. Is that generic across all the States? Yonah: I'd say it's pretty average. Like meaning the national average. However, there are places where the land is going to be valued at a much higher level. For example, California is crazy. I mean the land values in California, I've seen up to 60% like literally, which is crazy. So obviously, the more the land value is, the less the improvements made, the less you can actually depreciate if you're basing that ratio. So yeah, so in certain cities like New York City also, like sometimes the land value is going to be higher, just because like that land is worth a lot more. James: Oh, it's worth a lot more and you can't depreciate, which is the absolute reason why everybody should invest in Texas and Florida at mid-city, not in the coastal side of it because the land is more expensive and they don't really give any depreciation schedule. That's a really good point. I never really thought about that. So yeah, that's another reason why, you know, people should be investing in places where the land is more expensive. I mean it's like 50% right off the hole. Okay. Interesting. So coming back to, you know, can you define how does depreciation gives a tax benefit for an investor in real estate? Yonah: So again, depreciation is a write off, right? Income tax, write off. Income tax write off means if you make $100,000, normally you're going to be taxed on that $100,000. If your tax rate is, you know, 39%, you've got to pay $39,000 to the government. Depreciation is the deduction so also, you know, if you have kids, there are all sorts of deductions that you can take. But depreciation is just a deduction right off the top. So let's say your depreciation deduction from your property is $50,000. So guess what? That's you just cut your income tax liability in half. So now you're only going to have to pay taxes on the 50,000 because 50,000 was your deduction. If you took that off your income tax liability, you're left with 50,000 to pay tax on, you're going to only have to pay 19 and a half instead of 39. James: Got it. So I mean, for the audience who's listening, I mean, in real estate you know, I mean in general, in investment real estate, there are two worlds; one is the investment world and the other one's the tax world. So whatever we are talking right now is what happens in the tax world, right? In the investment world, of course, you get the cash flow and you're going to spend it, right? It's like normal. You're not losing money, right? Whereas the tax world, the IRS tax code is meant to incentivize a lot of real estate investors. So they do this virtual depreciation, which is basically you're not really losing money, but they're saying you're losing money on paper and they say you are basically not paying taxes for that income. Yonah: Right, right. Which is crazy. In my opinion, this is probably one of the craziest rules in the tax code. To trump that - not to use any puns or anything like that - To trump that rule is the real estate professional status. Which is crazy. I mean, these rules are just, they're made for the wealthy. James: The ones who invest in real estate, I would say. Right. So let's go back to a lot more details into this depreciation, which is getting a write off on a yearly basis. And so, whatever cash flow we get, let's say your depreciation's more than cash flow, you're basically not paying taxes on it. Yonah: Exactly. Exactly. And that's really going to be the goal. And that's one of the things that cost segregation, right? And the bonus depreciation especially can help to accomplish that. Whatever cashflow that you have, whatever income that you're making, it's, hopefully, going to be tax-free income. James: So however, I mean on every year you're taking depreciation but when you sell, you're still doing a depreciation recapture. So can you explain to me how this whole, whatever you took in the past, let's say five years, you're recapturing it back on a sale? Was the whole benefit was just pushed to the sale or what happened? Yonah: All right, so a few things happen when you sell property. Number one thing happens, there's capital gains tax, which means if you made a profit on that sale, right? You bought it for a hundred, sold it for 200 you got a gain. You have to pay tax on that gain. There's also something called depreciation recapture tax. Okay. And again, this is tax, it's not recapturing and you're not paying back, you're just being taxed on the amount of depreciation that you took over the course of ownership. So there are different rates at which that depreciation recapture is taxed at. One rate is commonly capped at 25%. That's like at the capital gains rate, which is for real property, which is for the real estate. However, there is another rate which is going to be taxed at ordinary income rates, which is on a personal property, which is stuff that we're taking with the cost of depreciation but a lot of people don't think about and it's actually taxed at a higher rate and you're taking it more upfront. What ended up happening is, just to break it down very simply, we're taking huge deductions in their early years of ownership so that we're basically tax-free. Yes, that does mean that when it comes time to sell, we're going to get hit with tax on the backend. But in the interim, in that meantime, from the time you bought it until the time you sold it, hopefully, all of that money you're keeping cash-free and assume it's tax-free, that cash is now worth a lot more. This is called the time value of money. It's worth a lot more because you can now use it, you can reinvest it, you can make more compound interest on that money then having to pay it later on. Also, it's your money. So there's this kind of misconception - I'm just going to digress here for a second. I'll come back to the depreciation recapture tax. There's a misconception that you have to pay taxes. And I think this comes to us from being in the corporate world where we get our paycheck and taxes are automatically deducted as if it's not our money. So real estate is a way that we're making money, all that cash flow, but we're not taking off the top to give to Uncle Sam. We're keeping as much as we can because it's your money. It's not money you have to pay tax on. You only have to pay tax when you have that tax liability. When you have to pay. But if you have more deductions then it's your money to keep. Yes. So part of the real strategy, real estate is kind of differing, pushing off to a later date. And one of the reasons why that is is because there are other strategies down the road that can help to negate that taxes as well. So it's better to pay fewer taxes now and deal with it later because later on, you may have other strategies on sale that you wouldn't have had now upfront. And one of those things is a 1031 exchange, which you can now defer capital gains tax and you can differ the depreciation recapture tax also. There's another strategy that is less known but probably more powerful than a 1031 exchange. And this is called the partial asset disposition, which allows you to claim a lesser value on property that you dispose of because it has less value than it did when you bought it. Okay. Which means like this, if I bought a property for...and it comes in specifically with personal property. So your furniture; let's say you buy this table, this desk I'm sitting at, it costs $10,000. Now, I bought it for $10,000 in five years from now if I'm depreciating it, on a five-year schedule and with cost segregation, then really this has zero tax value. It's no longer, on paper, it's no longer worth anything, right, James? James: Yep, absolutely. Yonah: When I sell this table with this desk, I can actually write on a tax form that I am disposing of this personal property. It no longer has value to me. Maybe it has $100, something minimal, just nominal. Now I only pay the depreciation recapture tax on what's left on the remaining $100 value. So again, this only can happen when you're selling a property. This is only something or you're disposing of it. If you also renovate it, you can write that off also. But this only happens....understand that this is a strategy that we can only take later on. James: Oh, okay. So what you're saying is even though you have depreciated 100% on top of like taking like 25% of that 100% at sale, now instead of paying 25% recapture, maybe the recapture amount as much lower because some of the things you can say, Hey, this is completely useless right now. Yonah: Even though it's not. But from a tax perspective, it is because you've depreciated it. It's already been used now. So that means even on the depreciation recapture tax at a later date can actually be pushed off. I'll mention another great strategy, which is if you're a real estate professional and now you can use your depreciation or your losses to offset your active income as well. Once you've offset that active income, you can now use that to offset other taxes like capital gains tax or depreciation recapture tax. So for goodness sakes, if you have huge losses from this property and then you go and sell the property, guess what? You may actually be able to negate all of the tax that would have come from the losses themselves. James: Absolutely. I mean that's what we do, right? So as an elected professional, right. And that's what most of the people who are doing a large real estate transaction, including a lot of people in Congress, is doing. It's all meant to reduce their taxes or pay no taxes or defer it for later on time. But I want to understand one thing, I want to understand one thing. So at a sale, from what I know, you have to do a 25% recapture. But you say that 25% recapture that's also another part of the recapture, which is at a different rate level. Can you explain what is the 25% recapture and what is the other part and how do you split within these two? Yonah: Yeah, without getting too complicated, because there are actually different, there's like sliding scales and there are different rates involved. But generally speaking, there's what's called the unrealized gain, the depreciation recapture on the property itself, which you haven't appreciated and so that's on a 25%. And then you have personal property, which is on the ordinary income rate. James: Okay. And when you talk about personal property, can you give some examples of what does that personal property...like say for an apartment, in a multifamily building. Yonah: Right. So, again, if you're doing cost segregation, basically anything that you're segregating out you know, most of that stuff falls into the personal property category. So, you know, cabinets, carpeting, fixtures, appliances, all that stuff. James: Oh, got it. Got it. So, okay, we're going to go to cost segregation, then hopefully, it will be more clear. So all these times we only talk about depreciation, which is fundamental things in the whole tax incentive for real estate, right? So now, comes what you call the B grade, I guess. Right? And earlier we were like at a C grade, now we're at the B grade and we're going to go to the A-grade, which is bonus depreciation. Let's talk about B grade. What is cost segregation and how does it fall on top of depreciation? Yonah: Oh yeah. It's not really on top of, what it's doing is separating out the property into these different lives. So if we go back to our original example, the depreciation you're getting, you're able to write off the entire value of the building over a 27 and a half year span for apartments. For other commercials, it's on a 39-year schedule. That means you buy a property for $1 million, you can now write off, subtract some for land, 10%, 20% for land, and then the remaining $800-900,000, you can now write off as a tax, write off a paper loss a little bit every single year. Cost segregation allows, according to the tax code, you can have an engineer come to the property and actually allocate every tiny detail of that property into different categories which depreciate on faster scales, on faster rates. So you have stuff that depreciates on a five-year schedule, as I mentioned, all that personal property, furniture, fixtures, appliances, carpet and cabinets, all that stuff; if you put on a five year schedule, that means that you can literally take and write that entire value off, take as a tax deduction in those first five years instead of lumping it all together. With the entire million dollars, you're going to take 20%, let's say $200,000 and now, take that as a write off in the first five years. James: Got it. Got it. So just to give some education for the audience. So depreciation on real estate, especially on residential real estate is usually it goes across 27.5 years. And then what you're saying, cost segregation, they say, Oh, not everything in this building is 27.5 now we have windows, we have appliances, we have carpet, which we want to depreciate, for example, in five years. Then that's driveway where they say, Oh, it's seven-year depreciation. And then I can't remember what's the 15 years, can you give me some examples? Yonah: Right. 15 years is going to be anything that's considered land improvements. And land improvements includes landscaping, asphalt, parking lots, anything outside of the property that's not considered land, but like fencing, if you have a swimming pool, all that stuff, the concrete, all of that is on a 15-year schedule. James: Got it. So they split it into five, seven, 15 and they start depreciating. So very interesting. So does it matter whether you are doing this cost segregation on a major rehab project; with this project, there's no rehab? Yonah: You can definitely get more benefits when you're doing a rehab. Because when you are adding any money to the property, that money being added in the capital expenditures, it's going to be added to that basis. Meaning added to the books and now going to depreciate that amount of money as well because that's going into the property. So, again, if you bought this building for $1 million and then you went and added another $500,000 in renovations, that $500,000 now gets depreciated as well. So you can cost segregate that as well and break that up into the different components. James: Oh, interesting. I didn't know that. I mean we do a lot of rehab projects and I just never understood whether we should do more rehab will be better. But what do you think just increases the value and you get a bigger depreciation compared to... Yonah: And not only that, we're not going to get ahead of ourselves cause now we're not at the A level yet, we're going to come back to that. You can do the bonus depreciation on the rehab as well. James: Got it. Got it. So very interesting. So does it matter if I buy a small 50 units and depreciate versus buying 300 units and depreciate for any investors in these deals? Yonah: You know, what do you mean 'does it matter'? James: Well, I mean whether you get more benefit out of it or not. I mean, let's say, you invest 100,000 into this deal, does it matter if I invest 100,000 into small 50 units versus putting 100,000 and do 300 units? Yonah: It's going to be pretty much within the same scale because multifamily properties in general if they're the same type of style, the percentages are going to be pretty similar within a window. So anywhere between, I'd say, 20 to 35% is going to be your general cost segregation, the reallocation of the assets, the faster lives. So you know, there are going to be, each property is going to be different, but generally speaking, it's going to be pretty similar. James: Okay. So it's basically based on percentage and the scale. Yonah: Right. James: Okay. I never understood that. Yonah: So if it was a million-dollar property and you're putting $100,000, you have 10%. If it's a $10 million property, you put 100,000, your percentage of ownership is going to be a lot less. James: Correct. Correct. Yeah. Because I have some investors who say, I only invest in 300 plus unit and I never understand why. So, because sometimes, I mean, a lot of times on a smaller property makes a lot more money. And sometimes they just want to do the bigger one. So I always think that there must be some kind of tax benefit that they're doing it. But at the end of the day it's just a percentage of whatever equity that you are getting. Yonah: Correct. James: Got it. Got it. So is there any tips and tricks for multifamily investors or any value add investors when they're rehabbing their project? For example, I met someone the other day where they say you are able to write off the address plate of a unit. Like, say unit one or two. If that address plate is on a metal, they say that you can write it off as part of tax depreciation. Whereas if you go and you know, put a sticker or coughed out the number, you're not able to, that was a huge thing for me. Is that true? I mean, do you get some kind of benefit when you do that? Yonah: I mean that is true. Again, that's part of the five-year assets that engineers could come and recognize what that is. And there are tons of things like that. You know, whether it's going to be what type of flooring you're putting in. James: Okay, let's go into that flooring. What flooring will give you the biggest bonus? Yonah: Alright. So carpeting is five-year property. Vinyl flooring is a five-year property. But if you're going to do real tiles, for example, that's considered actually part of the structure so it's going to one of the 27 and a half year component. James: So doing carpet and vinyl would be beneficial than in tiles in cost segregation/depreciation (?) Yonah: Much more. Yeah. Cause that's actually one of the high-value components if you think about it in each unit. Like, think about how much you spend on flooring. James: Yeah, absolutely. Flooring is one of the biggest expenses, especially on a major rehab. So that's a really good benefit that I never really thought of because I do have properties with tiles and I would think about converting it. And, of course, we don't do it for the sake of getting depreciation but it's just a bonus, I guess. What else is there that comes out to you that you think, Hey, to get these small benefits of depreciation, you guys should look at that. What else is in a value-add rehab? Yonah: Mmm.. James: What about appliances? White versus black appliances, does it matter versus stainless steel? Yonah: Always go with the black. James: It looks better, depreciates more. No, I'm just joking. Yonah: Yeah. I would say just be studious. Be careful with what you're spending. Make sure that, you want to consult a tax advisor who is savvy in this area because you may be leaving a lot of money on the table. You may be leaving huge tax deductions that you may be able to get. And one of the great things about depreciation is that again, we're taking the right off of the entire value of the property, even if you didn't even spend that from your own pocket. Meaning you took that on a loan, you took leverage to buy that property. The bank's money you get the tax write off for, James: Oh, that's awesome. Yonah: You think about it, you buy a million dollar property, you put down, maybe 200-250 your own money, but you're getting a tax write off of $1 million, which is crazy. So too with the construction, with the renovations, you may get 100% financing for those construction costs and you can write the entire thing off as a tax write off. James: Got it. Got it. That's very interesting. So let me ask you one more thing though. If I have a choice, for example, a roof, it's part of the structure, right? So if I have a choice to ask the seller to replace the roof before we close on the deal or should I do it after we close on the deal? Does it make a difference in terms of who gets the depreciation? Yonah: I mean, obviously, not from a depreciation standpoint per se because either way, you're going to get the deduction because if you buy the property, you're buying the roof as well as part of the property. If you then go and spend your money, then it's money that you're spending from your own money or from the bank's money, whatever, and then you're going to depreciate that as well. So the roof happens to be part of a structural component, which is not gonna be eligible for bonus depreciation or you know, cost segregation, it's just going to be part of the main structure of the building, which depreciates at a later time. So it's not necessarily something that's going to get more more benefit per se. James: Unless the roof is increasing your price at closing. I guess, right? Yonah: Obviously, right. And if you have you deferred maintenance on that end that you can benefit from. James: Got it. Got it. Very interesting. A lot of strategies that we can do when we're doing a value-add project. Which I think is important to understand because some things can make a lot of difference in terms of your tax benefit. So I want to go a bit more detailed into the five, seven and 15 years, right? So because of this, let's say you're depreciating a lot of the five years, a depreciation on max later schedule, right? And let's say you keep this property for two years, right? After two years you decided, okay, I'm going to sell it off versus keeping it more than around five years, right? So what's the benefit? What's the threshold of benefits of that depreciation versus depreciation recapture that you are getting on how long you hold the property? Yonah: Again, the threshold when you're going to look at property to property on an individual basis you really have to kind of look at it in a bubble and it's difficult to do. I mean, you may want to do that because the investors are involved, et cetera, in that regard. But even before I answer that, I like to just kind of take a step back and realize that the real benefit of real estate is when you're going to be constantly buying more, right? Because whatever's going to happen to this property, the taxes in this one can potentially be deferred and be pushed off with the next property I buy. And so, that's a viable strategy. Again, we also have to take a step forward and look at each property on an individual level as if like, this is the only property I'm ever going to buy. And so if that being said, if it's the only property you're only gonna buy, so you have to see, is this going to benefit me? If I hold this for two years, I'm going to take this depreciation upfront and therefore I'm going to get the tax free cash flow in the first two years. And then when I sell, I'm going to have higher taxes to pay then. So again, that calculation is going to obviously going to come up at that point. I would say that you should really take that into consideration. You know, if you're going to have two years old versus a three-year-old, or a five-year-old again, the cash flow is the main key to this puzzle. And then, if you are refinancing, which is another possibility, then that money coming from the refinance is also tax-free. It's not a taxable event, which means that that money that's coming back to your investors, which you may decide to pay out proceeds from the refinance to the investors, will actually increase their returns as well. So it's all part of like a bigger calculation. James: Okay. Awesome. So let's go to number A, the king of depreciation now, which was because of the introduction of the tax act 2017. The introduced bonus depreciation for used property. So usually bonus depreciation is only built for new properties, right? So can you explain how that was born and what's the motivation behind it and how does it work to become A grade depreciation? Yonah: Yeah, so bonus depreciation, 100% bonus depreciation I should say, you know, came about on used property. That means that it used to be only if you built a new building. You did new construction, you were able to take a tax write off of the depreciation of anything that depreciates under a 20-year schedule. So again, that goes back to all this stuff. We're going to segregate, the cost segregation, the 15-year land improvements, the five-year assets, which are all personal property, et cetera. All of that stuff can now be eligible for bonus depreciation. Now, when you're doing a new build, it used to be only 50% of that. I mean, you could take a 50% in the first year, you could take a deduction of that depreciation. Then came the new tax code and said not only to 50, we're going to move it to 100%, which means you can take 100% of all of that depreciation and write it off in the first year. Okay. And used property, meaning even if it's an old property, you're buying it for the first time. So this is really going to take depreciation to a whole new level. It's going to take the first year, you know, instead of like on that million-dollar property, instead of a $30,000 tax write off for regular depreciation. And then you're gonna move it up with regular cost segregation, maybe to 60 or 70,000, comes bonus depreciation and potentially you're going to get like a $200-250,000 write off. James: Yeah, absolutely. Absolutely. And what's the motivation of the government passing this tax law? If you know. Yonah: I didn't come here to discuss politics. James: Okay. We have to get away from that. So there must be some reason. Yonah: I think it has to do with the stimulation of the economy, right? The more tax write-offs, the more money can go back into investing, creating jobs, create more housing, et cetera, et cetera. James: But it's limited until 2023 if I'm not mistaken. And after that from 100% becomes, I can't remember, 50%? Yonah: It goes to 80% and starts phasing out every year until it's gone. James: Awesome. Awesome. Yeah, I mean it's surprising for me because I did a lot of bonus depreciation for most of my properties. I think all of it is last year and everybody like almost like right off their capital. And when they looked at their K1 and everybody was surprised that, I mean a lot of people understood what it is, but there were a lot of new people who are asking me, what happened to my money? Did you disappear? Absolutely. Everybody was asking for it because a lot of them got like almost 90 to 100% write off. And I had to explain to them about the bonus depreciation and all that. So yeah, I'm going to be doing a webinar soon, I think, in the next few weeks. I'm not sure when is this episode going to be aired. Probably we'll pass the webinar, but if any of you are interested in getting that webinar link to register, cause I'm going to get a CPA to translate all this bonus depreciation into how passive investors will get the benefit out of it because there's a lot of ethicalities when it comes to tax codes. And I want to get a CPA who specializes in real estate professionals and how does this whole thing benefits everybody in investing in real estate, including passive investors who are not real estate professionals. Cause a lot of times real estate professionals, well understood, but people didn't want to know how does passive investors get the benefit out of real estate investing. All of that will be in the webinar, it's going to be a very interesting webinar. So can you tell our audience how to get all of you? Yonah: The best way to find me is actually LinkedIn. That's my home base. That's where I hang out and spend most of my time. But seriously, you can reach me, my email is a great way to contact me, YWeiss@madisonspecs.com. So SPECS is actually an acronym for specialized property engineering cost segregation. So that's our firm. And yeah, especially if you have a property you're looking at and you want to see what the potential benefits would be, we do an upfront analysis so you can just kind of see what those numbers, the potential tax benefits would be. Whether you're under a contract with a property that bought a property, owned property for years, you can see that. So yeah, happy to do that and please connect with me on LinkedIn. James: Yeah, absolutely. Absolutely. And before I let you go, when is the best time for someone to engage cost segregation firm? Is it before they go under contract? When they're looking at a deal after they close on the deal? Yonah: Usually you know, after they close is the best, I mean to engage, obviously you can reach out to me for that estimate. Even when you're under contract, it's probably the best time, but you know, you're wanting to get it done if you need it in the first year, which not everyone needs it in the first year. You may buy a property that's totally not profitable, you have no income. You don't need this. But yeah, if you want to get it done in the first year, the sooner the better. Because again, you need this for your tax filing and especially if you have investors, you can just send out K1, you need to get that out earlier on the year. The sooner the better, you can get it done. James: Oh, interesting. I usually start the first year itself, but what you're saying is when you need the depreciation, I guess. So, yeah, absolutely. Awesome. Yonah, very nice to have you on our show and I learned a lot and I'm sure our audience learned a lot. We go so much into the detail of, you know, one of the biggest benefit of investing real estate on top of the cash flow that you get. So the depreciation and the cost seg, and now the A-class depreciation of bonus depreciation. Absolutely. Thank you very much. Yonah: Thank you, James. It was my pleasure and we will see you soon. James: Absolutely. Thank you.

James:  Hi audience and listeners, this is James Kandasamy from Achieve Wealth True Value and Real Estate Investing Podcast. I'm excited to let you guys know that last week we had Mark Kenny from King Multifamily and we discussed a lot of interesting stuff about some of the different markets that he's been buying. They have been buying like in five different markets. Tennessee, Alabama, Georgia, Texas, and Florida. And it's very interesting to see, apart from Texas and Florida, which are, you know, more popular markets and how do they underwrite deals in Alabama and how they underwrite deals in Tennessee, you know. So it's a very interesting episode, I would encourage you guys to listen to that as well.    This week we have Scott Hendricks from Current Investment LLC. Scott is a wealth manager and we're going to be covering different topics such as a DST or Delaware Statutory Trust, which is another alternative for 1031 exchange. You're going to be talking some things about 1031 exchange. And we're also going to be talking about qualified opportunity zones investments and some of the broker-dealer licensing such as series seven licensing, which is really important for people who want to raise money using broker-dealer license. Hey Scott, welcome to the show.   Scott: Hi James. Thank you very much.   James: Awesome. Awesome. So did I miss out anything? Do you want to fill in the introduction with anything else that I missed out about yourself?   Scott: No, I, I appreciate that. I have been an Austin based wealth manager, financial advisor for about eight years now. I have a series seven, which is the general securities license and I have a series 66, which is called a combined uniform state license. I also am licensed with my clients in California and Arizona and Wyoming in addition to Texas. And I am affiliated with a broker-dealer firm known as Kelton and Associates. They're based in Tampa, Florida. But my business current investments are based right here in Austin.   James: Awesome. Awesome. Awesome. I really want to quickly get into the series seven being a broker-dealer because there's a lot of capital out there. There are very, very few deals nowadays. And what's happening is a lot of people trying to raise money, you know trying to be a money raiser, but there's a lot of advice that's coming from the SEC attorneys that, you know, you have to do it the right way. And there's a lot of discussion about why not I become a broker-dealer? So can you define what is a broker-dealer, which is basically a licensed person who's allowed to legally raise money? What is a broker-dealer?   Scott: Sure. So a broker-dealer in my case is basically the...I think of it as kind of my back office. The back office that supports registered representatives like me with performing my transactions for my clients, maintaining regulatory oversight and supervision of my activities, ensuring that I receive ongoing training. They handle the registrations with the government entities that oversee all securities business in this country. And you're correct, there are a wide range of licenses that govern various aspects of all of this activity. They are now regulated by an organization known by its acronym, FINRA, which is simply the financial industry, regulatory authority and finra.org is the website where anyone who would be interested in learning about these licenses or possibly even obtaining one of these licenses could go and look at the menu of the different licenses that FINRA overseas. Some of which are for broker-dealers, some of which are for general securities representatives like myself, some of which govern the transacting in your liquid securities and private placements, which are often the kinds of opportunities that I believe you're describing where it is necessary to raise funds.    I don't remember the specific numbers of all of those licenses. There are about two dozen types of licenses that FINRA supervises. And I would encourage your audience if they were interested to learn more about that to go to FINRA, finra.org.   James: Got it. So how difficult is it to get a series seven license? I mean how long does it take? How difficult is the exam? What do you need to be good at kind of thing? Can you explain?   Scott: Well, you know, interestingly I got my license eight years ago. I know some things have changed as far as the cost. The costs have gone up a little bit. They're still reasonable. Most of these licenses can be obtained for a few hundred dollars, a filing fee, purchasing the study materials, scheduling the exam. I would say the process takes anywhere from three to six months. There are no prerequisites so you do not have to have a finance degree from college, you don't have to work in the financial industry. You can simply if you purchase the application for the license, study the material, take the test and pass the test, you'll obtain one of these licenses.   James: So do you need to know a lot of financial terms? Is there a lot of math? Is that calculus involved?   Scott: I wouldn't have passed if there was very much calculus. No, there's no need to know a lot of math. It certainly helps to be familiar with, I would say intermediate financial concepts. Certainly, basic concepts like, you know, interest compounding, time of the value of money cost basis, rates of return; fundamental financial concepts that anyone who wishes to invest or is already an investor should be familiar with. But there's no set list of previous academic or experience requirements that one must have before taking one of these FINRA exams.   James: Got it. So basically the cost is less than a thousand dollars. You say $300 eight years ago.   Scott: Again, I'm a little out of date, but I would say yes, you can still apply for any of these federal licenses for less than I would even say, you know, three to $500.   James: Got it. Got it. And so you say three to six months you go to the exam, it's not that difficult, you need to know basic financial concepts, which I think is important. You're going to be advising people about their money and what's the rate of return.   Scott: It's a designed course of study to maintain the credibility of the industry, the level of professionalism and the basic knowledge base that the regulatory bodies in this country want professionals to maintain for the benefit of their clients.   James: So when you are taking a series seven and becoming a broker-dealer, why would one person want to be a broker-dealer?   Scott: If you want to oversee agents, if you want to essentially work with a group of agents, representatives, who will assist you in putting together investment opportunities and seeking investors, seeking clients, raising funds a broker deal or license, which I'm going to go out on a limb and say a broker-dealer license is probably more difficult to obtain, a little bit higher barrier because of that nature. That a broker-dealer is more of an office in charge of a number of representatives who then go into the field and work directly with clients.   James: So are you saying broker-dealer has someone under them who works with the clients?   Scott: They could. There's no reason why a broker-dealer could also not be an individual as well. But it is a different level of licensing required to have broker-dealer credentials than it is to have securities representative or securities agent credentials as I do.   James: Oh, got it. Got it. So series seven will get you into the securities agent level and there's another level where you're to become a broker-dealer, I guess.   Scott: That's reasonably accurate. Yes. So series seven, again, a series seven is called general securities license that enables me, authorizes me to transact in marketable securities for individual clients or businesses. So I am authorized to recommend and Franz deck that is initiate the buying and selling of stocks, bonds, mutual funds, exchange-traded funds, registered private placements and in that last case to accredited investors. So it opens up a range of investment transactions that I am authorized to both recommend to clients and then assist them in transacting in those assets. A broker-dealer could essentially be in a position to put together deals, to put together or review outside deals that then they would approve an authorized to their representatives to go out and seek investors, recommend them to investors   James: Got it. Great. I think the structure is similar to like in real estate agent versus broker, either the broker has somebody working for them.   Scott: I wish I thought of that. That's a great analogy. I think that's very comparable. Yes.   James: Got it. Got it. Very interesting. So I didn't even know that; I thought broker-dealer is a person, I mean, can be a person, but it's usually like a company where a lot of agents work for them and these agents get the series seven licensing. Okay. Got it. Got it. So I presume if you want to do fundraising for your lifetime, then you want to get a series seven licensing and be part of a broker-dealer.    Scott: You know, I would advise anyone interested in being licensed in the securities industry to get a series seven. The series seven is almost the gateway licensed to a range of other licenses. Some of these other licenses do require that the individual have a series seven as a prerequisite. And as I mentioned earlier, there are licenses that are specific to illiquid private placement types of investments. So if I was interested only in raising money for let's say for startups or for venture funds or for passive real estate portfolios or deals, I would encourage that person to go get the series seven but then also look for one of the more specific licenses that delve more deeply into the specialized knowledge required for those kinds of specialized  investments tailored to the accredited investor.    James: Oh, got it. So series seven is just basic and then there's a lot more specific to the niche, I guess.   Scott: Yes. Now, the series seven enables me to do both, but the accredited investor deals that I am able to recommend to clients must first be approved by my broker-dealer.    James: Okay, got it. Got it.    Scott: If I had one of these more specialized licenses, I might be able to go out and self approve or do my own independent due diligence and then recommend a particular investment to an accredited investor.    James: Got it.    Scott: As such, right now I need to go to my broker-dealer and say, Hey, here's a good deal. It looks like it would be right for one or several of my clients. And then asked my broker-dealer to scrub it, do their due diligence and then if they approve it, I would be authorized to go raise funds for it.    James: Got it. Got it. So if one of our audience who wants to raise money for commercial real estate, you know, as syndication or multifamily, so they can get a series seven license and go and work for a broker-dealer.  And in that while they work, they can propose to raise money on specific multifamily or any other commercials syndication, I guess to the broker-dealer and the broker-dealer needs to approve that, then he can go and raise money for that part of their syndication. Okay. Got it.    And I mean, if it's not confidential, do we know how do these agents get compensated in terms of percentage? What is that range if it's not confidential?    Scott: No, it's not really confidential. In my case, it's not confidential. In fact, it all has to be completely transparent and disclosed to the investor. So, for example, on a non traded REIT,  if I was to recommend a real estate investment trust to a client that had previously been approved by my broker-dealer, I would earn a commission. In most cases where the investment is illiquid, I'm not gonna put that into a fee-based account. It's a standalone transaction that might complement that particular investor's portfolio. If they agree, I would disclose my commission and my commission generally runs between about four to 6% on the deal. Again, it's very comparable to what a real estate agent might earn on the sale of a property. But I'll disclose my commission, if the investor wishes to proceed, then I'll help them invest and I'll earn a commission on that transaction.   James: So four to 6% of the money being invested, is that right?   Scott: Correct.   James: Got it. Got it.   Scott: You know, four to 6% of the investor's contribution I would earn as a commission, a percentage of that, I would share with my broker-dealer, my back office. The way we think about it with these securitized real estate deals is if you invest $100, you know, $94 of your investment goes into the ground.   James: Got it. Yeah, I understand.   Scott: You know, approximately a 6% sort of transactional cost. Speaker: Got it. And do you get paid in the beginning or do you get at the end or during the transaction or how does that..?   Scott: It really varies depending on how the deal is structured. It really varies. In many cases, my commission will be earned upfront, but there are certain deals where, where my commission may be considerably less upfront but I'll get an annual payout over the life of the time that the investor holds that deal. It really just depends from a deal to deal.   James: And it's a one time commission. Right? That's it. Right?      Scott: In most cases.    James: Yeah. So I think what some people are doing is basically they're getting a GP percentage, which can be a lifetime, I mean, of that investment. But this is slightly different. Did you get a commission flat fee of 4-6% in the beginning? I mean, not at the beginning, in most cases.    Scott: Right. Yeah. Most of my business James is fee-based portfolio management. So I may work with a client who has a portfolio of stocks and bonds and I'll earn a percentage of that account value over the time that I manage it on behalf of my client. It's in these cases of the one time a private placement transaction like a REIT or a Delaware statutory trust, where I'll simply earn a one-time commission. And then the investor will then own a passive property, a passive asset that will generate passive income for that client. But if they also have hired me so to speak or work with me to manage their other portfolio, that may be on more of a percentage-based or a fee-based relationship.   James: Got it. Got it. So is it public information on which agent or which broker-dealer is doing better than others like the stock market, in terms of performing for their clients or is it all private?   Scott: You know, that's one of those questions that can always only be answered with the words 'It depends.' It's really difficult when you come down to investing for individuals and let's say for business owner clients to compare performance. Because each and every investor has so many different goals and different risk tolerances and different timelines that it makes it very difficult. It really is apples and oranges to compare the performance of an entire book of business; either held by an advisor like me or overseen by a broker-dealer. It almost makes no sense to try to compare rates of return or performance simply because each and every investor has a unique objective.   James: Absolutely. Absolutely. I agree. I mean, that's a really good comment. I mean, returns are one thing, right? But risk profile off the investors and you know, how risky is the deal itself is another factor. And everybody has their own taste or flavor that they want to take on when they want to invest. So, awesome. Awesome. And why does an equity investor want to come to a broker-dealer versus going to a private syndication model and invest privately?   Scott: I think a lot of it has to do with the extra risk that you are mitigating by looking for investments that have already been registered with the securities and exchange commission and have been scrubbed; that is, have been researched thoroughly by a professional organization. And you know, there are certain things like just the credibility of the track record of successful deals that it has offered to clients that have exited; all the kinds of things you might look into with a private syndication deal. But for some investors that extra assurance of knowing that it has met the registration requirements of the securities and exchange commission and has been scrubbed and approved by a registered and licensed broker-dealer.   James: Got it. Got it.   Scott: That basically, that does that for a living. That does it, you know, hundreds of times a year looks at deal, memoranda and all of the documentation that goes into assuring investors that the deal is sound. And while you can never completely eliminate risk in any deal, I think that there's a certain risk premium that is reduced with registered and professionally researched opportunities.   James: Got it. Got it. Got it. Although I think I want to just clarify one thing. So usually the investor's equity is paid out of their equity, right? I mean the broker-dealer or the agent fees in this model are paid out of the equity. Whereas in the syndication model, a lot of times people who you know will become part of the GPS as one of the functions to raise money. They get the money from the GP, not from the passive investor. So that's one big distinction, right, because...   Scott: It is, that's correct. That's correct.   James: It makes a difference as well. So, in terms of the profile of customers who come and look for broker-dealers and agents who work with broker-dealers, I mean, is it like a lot of family offices, a lot of institutions, or is it a lot of private equity investors? How would you say in terms of percentage?   Scott: I think the answer is yes. And again, every wealth manager's business is different. In my case, I primarily work in the area of regulation D filed, liquid or a passive real estate and other types of deals. I generally am working with high net worth individuals.   James: Okay.   Scott: High net worth investors who are accredited and are simply looking to add or complement their existing portfolio with passive income through real estate, through business development companies. I also transact in oil and gas, master limited partnerships. So it's the investor in my case who is looking to diversify our portfolio and derive passive income at a rate that is more favorable than they would get in the bond market these days or certainly more favorable than they would get in something like a bank insurance CD or savings account. And perhaps doesn't have the inclination or the experienced to go in and evaluate real estate from private syndication that others might feel that they do have. So I'm able to offer for the less experienced real estate investor, the kinds of opportunities to derive passive income without the expertise that it might take to evaluate a syndication deal.     James: Yeah. Yeah. Okay. Makes sense. Yeah. The professionalism, of course, makes a lot of difference compared to someone you know, coming on from a weekend boot camp. So very interesting. So, yeah, I mean that's really good.   Scott: There are always different paths.    James: Yeah, absolutely. Absolutely. And so coming back to 1031 and DSTs - Delaware statutory trust. So 1031 is, you know, a lot of people know what 1031; where it's basically an exchange mechanism within real estate to a much larger real estate offer, same kind where someone has to identify like three deals within 45 days of closing of the current deal. And they can defer the capital gain and they can defer the depreciation recapture back to the new deal which they should close within six months. Am I right? Did I miss out some?   Scott: You know, that's pretty good. Everything you said is correct. I would simply add, and the way I like to describe it, a 1031 transaction is it's taking advantage of a section of the tax code and that's all 1031 is. It's simply a section of the internal revenue code that allows a real estate investor to sell a property or multiple properties and exchange the proceeds into other real estate, either a single property or multiple properties that can be either active or passively owned and differ all taxes that might be paid as a result of be the capital gains, depreciation recapture. There are a few other taxes that may come into play. For example, if you're in a state that has a state capital gains tax like California, that can also be deferred under the federal a tax code section 1031. But you're correct about the timelines there.   There are pretty strict timelines that must be met in a 1031. And I often tell groups of real estate agents and investors that 1031 is widely known. A lot of people know about it, but it still kind of has some stigma or some intimidation factor about it that prevents it from being widely used. And so part of what I try to do is help my clients and others understand the 1031 process. The primary thing they're going to gain is what they might have otherwise paid in taxes, they can keep inequity and reinvest into other real estates. You mentioned that in many cases an investor will trade up with the 1031, going into the larger holding in real estate. I also see a lot of clients who spread out their investment and diversify into other classes o rfeal estate or into other geographic areas that they may not have owned previously. So it really is a wonderful way, four real estate investors to both diversify, expand, and differ the tax liability in the process of building a portfolio of real estate.   James: Very interesting. But It's within the real estate asset class, right? Can they go from a real estate, you know, equity a 10 31 into something else other than real estate?   Scott: Not as of the end of 2017. And this is something that may be new to your audience. So with the last tax bill, I think it was called the tax cut and jobs act passed by the government in Washington back at the end of 2017, the rules of 1031 were limited. Whereas, previously investors were able to exchange property in maybe in a non-real estate asset. For example, if you owned a, I like to use the example, if you owned a classic car collection, you could sell your antique automobile and exchange the proceeds into real estate or into more cars or fine jewelry and still do it under section 1031. All of that went away at the end of 2017 and left only real estate tangible property is now the only asset class that can be exchanged under the tax deferral section of 1031.   James: Okay. So that's something new. I didn't even know that previously before 2017 you can exchange from other than real estate to other than real estate even though now you know, we all are real estate people so it's all within real estate, which is good.    Scott: And you also hear another common misconception about 1031. The 10 31 exchange is also sometimes commonly called the like-kind exchange. Like-kind is a phrase that is used in the actual language of the tax code. And a lot of investors, and frankly a lot of real estate agents confuse the phrase like-kind as meaning that if you sell multifamily, you must buy multifamily. Or if you sell a commercial property, you must buy a commercial property. That is not the case. Like-kind is very broadly defined by the IRS. Meaning, if you sell anything that has a physical address, a tangible property, you can buy any other category of tangible property. So if you sell a block of single-family homes that you've held as a rental property, you can go buy a warehouse or if you sell a self-storage property, you can go buy a ranch. So it's really any kind of property. It can be exchanged for any other kind of property,[31:24unclear] since 2017, as long as we're talking real estate.   James: Okay. So let me clarify that because we had some kind of sound issue there. So after 2017 we can go and exchange, even though it says like-kind, but you can go within a different asset class, like buying from single-family to a ranch or from multifamily to single-family. Okay. So if you still within real estate, you are good I guess. Right?    Scott: That's right.    James: Got it, got it. Got it. And I think one of the common strategies that a lot of you know, generational real estate investors use is basically to buy real estate and keep on exchanging until they die. And when they die, they gave it to their kids as a gift and where the cost basis starts all over again. And that's the generational wealth Passover, right? Is that true? I mean, did I say it correctly?   Scott: Yeah, it is. And really the 10 31 exchange is, I believe a terrific way to build a real estate legacy. If the investor has heirs or hopes one day to pass a legacy of real estate on to their heirs, 10 31 exchange is an excellent way to do that. Because as long as you continue to sell and then buy real estate under the rules of section 10 31, there's no limit to the number of times you can do it. And as long as you continue to do it, you have deferred your tax liability each time. If at any time you chose to cash out and simply sell your holdings and take the cash and walk away, you're going to owe the tax and in fact, you're going to owe the cumulative tax that you have been deferring. So there actually is with 10 31 a fairly strong incentive once you've begun the process to just keep doing it.   And if you keep doing it until your time is up and you have heirs waiting in the wings, you will upon the date of death of the original owner, that owner will leave to their heirs a legacy of real estate that upon the date of death is stepped up in cost-basis. That's the term that the auditors use such that the cost-basis will then become equal immediately to the market value as of that point in time. And as I like to say, the heirs, if they don't wish to hold on to the real estate, they conceivably could turn around the day after the funeral and go sell everything and pay virtually nothing in capital gains or depreciation taxes.   James: Got it. So that is an awesome tip there. You can use real estate to not pay tax and make tons of money and, of course, your kids are your heirs, they inherited that and they will make the money. But it's a big way to give your wealth that you have created to your heirs, right. And without paying any taxes   Scott: Right. And, again, it, it would then be up to that next generation whether they want to continue to own that real estate and continue to enjoy the benefits of passive income and all the other benefits of owning real estate in a portfolio. Or as I said earlier, if they chose to get out at that time because of the step-up in cost basis, it would potentially eliminate or virtually eliminate all of the capital gain tax liability.   James: Got it. And also the depreciation recapture, right?   Scott: The appreciation recapture as well. Now of course, if there's an estate tax, depending on the size of the portfolio that is inherited, an estate tax may still come into play. But that's an entirely different situation.   James: Estate tax. Okay. Got it. Got it. Got it. So let's come to DST - Delaware statutory trust. And I know some people say this is similar to 10 31. Can you explain what this and why we should use this compared to the normal 10 31?    Scott: Absolutely. So a Delaware statutory trust is not widely known. I've been familiar with these opportunities for about 4-5 years now and I've spoken to many real estate groups, investor groups, agents, attorneys, CPAs. The Delaware statutory trust, in short, is the only form of passive real estate that is eligible as replacement property in a 10 31 exchange. So let me expand on that. A Delaware trust is often compared to a REIT. It's very different from a REIT in many important ways, but it is a legal form of ownership set up around a property, around a physical property, and then offered to investors who may invest in a fractional percentage of the underlying property via the trust.  Because a Delaware trust must own physical property, the IRS recognizes it as another way an investor could engage in a 10 31 exchange. In other words, the 10 31 is just the process of selling and then swopping or buying other real estates. You could either as an investor buy an active property or properties, you're going to be the landlord and hold the deed and be responsible for the rents and the tenants and the repairs. Or you could own a fractional interest in a Delaware statutory trust. You would be a passive investor. The sponsor of the trust would have all management and landlord responsibilities, but as a fractional investor, you would derive your proportionate share of the income. And because there is underline real property in a Delaware trust, the IRS allows these types of trust as an eligible investment via section 10 31.   And so here's really how it works and this is kind of the main core, I think, of the benefits of the Delaware statutory trust, In section 10 31 exchanges, the investor sells a property that begins, as you alluded to earlier, that begins a 45 day calendar, a 45 day clock. That investor has 45 days to identify, in most cases, up to three properties that they intend to reinvest in. Now, they don't have to invest in all three. They could identify one primary property and two backups or two properties and one backup. But they've got to have those properties identified in the first 45 days.    A Delaware statutory trust makes an excellent backup property because it's passive, for one thing. It's open to investment. It's not going to fall out of escrow during the first 45 days as sometimes real properties do. In other words, it's not going to go off the market. If that were to happen with the investor's primary or secondary property and the deals weren't going to close there, if they have named a Delaware trust as a third or as any of their backup properties, their money could then roll back into that trust as an investment and that would effectively secure their 10 31 transactions from start to finish. So Delaware statutory trust makes great backup properties in that first 45 day identification period.   Secondly, in cases where an investor is selling a property and buying a property for less, or actually buying a less expensive property, maybe a value-add property that they want to improve and they're going to have some leftover cash from the deal that they sold, a Delaware statutory trust makes a great way to capture or invest that leftover cash and still secure 100% of the transaction, the 10 31 transaction, from tax. So as a simple example, if you're selling a million-dollar property and the property you want to buy is 850,000, you've got 150,000 leftover. It might be hard to find another real property for 150,000 in some markets. So a Delaware trust comes along as a great way to park or invest that residual leftover cash securing 100% of the 10 31 proceeds from taxation, at least deferring 100% of the tax liability and giving the investor now two different properties.   One is the primary property for 850 that they wanted to buy and fix up or be the landlord over. The other is the 150,000 fractional interest in a passive investment that they will have no work responsibilities to maintain, but they'll be receiving a passive income from that trust. And then the final way that I think Delaware trusts are powerful is if the investor is simply wishing to continue to own real estate but really wants to get out the landlord business entirely. And that would be someone who maybe has been an active landlord for a better part of their investment career, wishes to continue to hold real estate because it's a great asset. Why not? But doesn't want to be a landlord anymore. So they may sell all of their active real estate properties, declare their intent to do a 10 31 exchange and then pick two or three Delaware statutory trust to put 100% of the proceeds into. They now have switched from being an active to a 100% passive investor.    Someone else does the work of the landlord that is the sponsor of the trust. They began to receive the mailbox money or the passive income, still own real estate as part of their portfolio and they've effectively deferred all of what would have been their tax liability from selling their active holdings. And another wonderful thing about two more points about a Delaware trust. You can do a 10 31 exchange out of a Delaware trust. So when the underlying property in the trust sells, which signals the liquidation of the trust, the investor will be notified with plenty of time. They can then declare another 10 31 and take their proceeds out of the Delaware trust, which may have appreciated over that time and they can take those proceeds and swap them into some other property. They can either go into another trust or they can go back into the active real estate market if they choose to. Or of course they have the option to simply cash out, take the cash, and at that time they would incur the tax liability.    And then the other benefit of a Delaware trust is you do not have to do a 10 31 exchange to invest in a Delaware trust. Delaware statutory trusts are open to cash investors. So it's a good way for an accredited investor, which you must be. In order to invest in a Delaware trust, you must be an accredited investor, but you do not have to be bringing money into the trust via 10 31, you could be a cash investor. But once you're in a Delaware trust as fractional owner with either your cash investment or your 10 31 proceeds, you can then when the trust liquidates do a 10 31 exchange. So a Delaware trust provides a good way for a real estate investor who wishes to be passive, doesn't have a property to sell but wants to in the future be able to do a 10 31 exchange. As long as they've got cash and they are accredited, they can invest in a Delaware trust.    And then you know, three to five to sometimes seven years down the road when the trust liquidates, they'll be eligible to do a 10 31 exchange and defer any potential tax that they might have otherwise paid.   James: Wow. I didn't know so many things about DSTs. This is very eye-opening for me. It's like a syndication but it's a tax-protected syndication, right?   Scott: It's a way to take 10 31 money; money coming out of a 10 31 deal and put it into an investment open to up to 500 individual investors typically, which is far more than something like a tenant in common where you're limited to only 35 investors. Delaware trust, yes, you're a fractional owner of a real estate portfolio that is managed by a sponsor who acts as a trustee and you basically, your only job is to go to the mailbox and receive your checks.   James: Got it. Got it. Yeah, I was trying to bring that up. Tenants in commons is another way I thought Delaware strategize is similar to tenants in common. Because in tenants in common is where everybody puts their 10 31, everybody has their own LLCs, all different entities, but they work as one. But you brought up a good point. There's a limit on 35 tenants in common that can be done but DST is 500 people.   Scott: And an important distinction to make there is that with a much higher cap on the number of investors, you're able to fractionally own much larger institutional scale types of real estate. So you may be able to be a fractional investor in a downtown Dallas office tower that's in a Delaware trust, whereas 35 investors, it would be difficult to pull together the 35 investors who could afford to purchase a multimillion-dollar property. But with a Delaware trust, you often are a fractional investor in a property portfolio that could potentially be worth tens or even hundreds of millions of dollars. So access to a larger scale institutional type of property is one of the benefits of what the DST has versus a tenant in common.    And then the other one, now some will see this as a negative, some may see it as a positive. With a tenant in common, each one of the up to 35 investors has a vote. They have some control over the upkeep and the sale or the management of that property. And as you know, when the property is going to be sold, you've got to get the unanimous vote of all 45 investors. With the Delaware trust, the investor is 100% passive. They do not have any say, any control over the management of the property. That's entirely the responsibility [48:05unclear] of the sponsor. They also do not have any control or voice over when the property is going to be sold. So if that appeals to an investor, in other words, if they say, I don't want I have to vote or to have to go get the other 34 people to vote, I just want to be passive, a Delaware trust is a good option compared to [48:31unclear]    James: But what is the average return of Delaware statutory trust?   Scott: So again, that varies. It varies from you know, market conditions and from the difference of Delaware trusts that are available. Typically what I have been seeing lately are rates of return between about five and seven and a half to 8% and that's cash on cash. So cash on cash or nominal right of return is let's just say six to six and a half percent in the midpoint. So while that is not typically a strong rate of return compared to private syndication or even compared to a lot of tenant in common deals, you have to look at the other benefits.    One, again, access to larger institutional scale properties. The fact that the Delaware trust is going to be a registered program, sponsored and regulated by oversight bodies. And then three, although this is also the case with the other types of real estate investment, the sponsor of the Delaware trust in rules similar to REITs. If they are taking depreciation on the underlying property, that tax credit has to be distributed to their investors. So while the nominal rate of return might be 6%, that is the cash on cash return, in many cases, the investor is going to see some portion of that cash dividend be already after tax. In other words, it's going to receive the benefit of that depreciation tax credit that the sponsor is taking. So depending on the investor's tax bracket, their effective rate of return is going to be higher than their nominal rate of return, given that some portion of that distribution is after tax money.   James: Got it, got it, got it. But let's say for example 6% cash in cash, is it including the sale of the property or is there such thing called the sale because they are physical assets under this DST, right?    Scott: Yeah, no, you're right and I thank you. I should be clear. That is the cash flow. Let's say that, again, rates of return I'm typically seeing now average, I would just say average around 6% for this example. That is the cash flow. So that's the annualized cash flow that the investor is going to receive in monthly checks. Obviously one 12th of that amount in monthly check is the underlying property where they have their principal. If that underlying property appreciates over the life of the trust and is sold at a value greater than it was acquired for, the investor is also going to receive their prorated share of that appreciation. So the aggregate return is, I like to call it, or the total return is if the property appreciates is definitely going to be higher than the cash flow rate of return.   James: Okay. So do you have that kind of sample numbers on roughly what's a performer?   Scott: I can refer generically to some of the deals that I've seen. So let's say if an investor puts $100,000 as, let's say in this scenario where I described leftover cash; if they've sold a million-dollar property and they want to do a 10 31 and buy a $900,000 property and put that residual 100,000 into a Delaware trust, I'm just gonna use a number typically four to five, six or seven years. And again, during this time, the investment is illiquid. The investor cannot get their money back on their own schedule. They have to wait until the sponsor finds a buyer and sells the underlying property. But most real estate investors understand the concept of illiquidity.    So if they've put 100,000 into a Delaware trust and five years down the road, the sponsor finds a buyer for that property and sells it at 25% gain, 25% in an appreciation, the investor is going to get their 100,000 back, they're going to get 25,000 for their proportionate share of the 25% gain. And during the five years they've held it, they've collected, I'll use the 6% rate of return as an example, they've collected $6,000 a year in monthly distributions at a 6% rate of return. So they've in effect received in a very simple example, their $100,000 back. They've gotten $30,000 of cashflow over five years and they've received a $25,000 gain or appreciation on their original investment.   James: Got it. Got it. Got it. Interesting. So, yeah, I mean, it depends on the structure of syndication, right? Usually, you know, like for me, we allow people to buy and sell their shares. You know, within the investment period, but it looks like DST doesn't give that flexibility.   Scott: A DST and you know, again, it's important for me to also say that with DSTs, there are still risks involved. You can lose money as you can with any type of investment. The illiquidity of the investment is something that the investor has to be informed of and understand that if they are an investor in a DST, they're at the mercy of the sponsor for the holding period. Now, while the disclosures require that I tell investors it's a five to seven year hold time with no option to exit. Typically with the market right now being what it is, I have seen DSTs liquidate sooner then five to seven years. It's simply varies from yield to deal.   James: And what is the fee that the sponsor takes in DST?   Scott: That again, it varies from deal to deal. Typically there's a 1% a dealer or sponsor fee, at closing. And again, as I mentioned earlier, I do earn a commission on investment that goes into a DST, it can range from anywhere from four to 6%. And, again, it's in the same ballpark as if you were working with a real estate agent and buying the physical property or working with yield syndicator and buying into syndication.   James: Very interesting. I mean, I didn't know this vehicle exists and this is very powerful in terms of 10 31 money specifically. Why? Because you know, and I was thinking that you always have to go in 10 to 200 to go to larger properties, but it looks like you can buy smaller properties and take the remaining and put into DSTs I guess. Right?   Scott: Yeah. It's really a part of my message that using a DST is a great way for an investor to diversify if it is in their interest. First of all, the primary reason anyone would undertake a 10 31 is to defer the tax. But a DST allows that investor to diversify into different types of property, both in terms of asset class or asset and active and passive real estate. So they can begin to sort of put more chest pieces onto the chest board, I guess and look at passive investment, active investment, lodging, self-storage, multifamily, single-family industrial, commercial; build a real estate portfolio that is truly diverse in terms of geography, asset category and the active and passive of ownership status.   James: Got it. So let's quickly talk about qualified opportunities zone. I mean, there's so much of details into opportunity zone. I don't think we have time to go into a lot of details there. But at a high level, what is qualified opportunity zones investment, how is that different from a normal 10 31 and DST and you know, investing into opportunity zones?   Scott: So qualified opportunities zones were also part of this same tax act that passed at the end of 2017. They are a fairly new concept or fairly new opportunity for investors. And the case can be made that opportunity zones were written into law because investments that were not real estate were excluded from section 1031 eligibility. So an opportunity zone is a geographic region of the country and there are a thousand or more opportunities zones all over the country where the local authorities have designated a desire to have investment flow into those zones from investors. They may be, you know, below market regions of cities or communities where the thought being that if investment dollars float into these areas, we would have more healthy economic development.    Qualified opportunity zone investors may use gains from a sale of an investment other than real estate, whereas with 10 31, all you can exchange is real property. So, for example, if an investor has a stock portfolio and it's gone up in value, they want to sell their stock portfolio, but they'd rather not pay the capital gains tax that that's going to incur, they could invest the gain from that sale into a qualified opportunity zone, differ the tax liability, invest in a a property or real estate or real estate fund that's building projects in that zone and then they would enjoy a certain tax benefits due to the deferral of their original gain. If they maintain that investment in the opportunity zone for 10 years, they could then cash out and take their money and pay no tax. So one of the important differences between a 10 31 exchange and an investment in an opportunity zone is to put it simply, you don't have to die in order to cash out tax-free.   James: But do you get 100% tax being erased?   Scott: Not in the first case. You're correct. It really is complicated and we could probably have a whole separate episode on all of that opportunity zones. There are really two appreciation events that are subject to favorable tax treatment when it comes to talking about opportunity zone investments. The first one is the gain that the investor realized on the sale of their asset, whatever it may be that they want to put into an opportunity zone. So if they sold real estate that had gone up in value or sold stock, or I'll go back to my classic car example, and had an investment sale that would have been subject to capital gains tax, they can defer that tax up to seven years by putting that investment into an opportunity zone. Now, it is only a seven-year deferral. So after seven years, the investor will owe a portion of the tax they would have owed on the original sale of their investment.    It will only be, in the case of a seven-year deferral, it'll only be 85% of the tax they would have owed. So it is truly just a deferral. You do have to come up with tax payment, at least 85% of the tax you might have owed seven years ago. In year seven, that tax bill does come due to the IRS. But understand now we're talking about two different investments. The investment that was sold to make the original opportunity zone investment, the tax four, which is deferred seven years. So it might be a benefit to an investor's cash flow and then the investment within the opportunity zone itself. And if that investment turns out to have been a good one, and the real estate or the property or the project in the opportunity zone appreciates over 10 years -hold time- and the investor then cashes out of that opportunity zone investment that will be exempt from capital gains tax.    So it's that second investment in the opportunity zone that if it is a winner, if it appreciates over 10 years, the investor has the potential to cash out with their gain and owe zero capital gains tax.    James: Got it. Got it. Very interesting. So let me summarize. 10 31 DST and qualified opportunity zone. So 10 31 let's say I have a million-dollars, where I want to defer my tax and my depreciation recapture, I just buy another asset, right? A larger asset or multiple assets, but it should be a larger value than all of it get deferred. And to the next asset, if I don't want to pay tax, I have to, you know, keep on doing 1031 until I die and pass it to my heirs. That's the 10 31.  So DST is basically you asked it's the same as 10 31, but it's more of passive investment.    Scott: Let me, let me jump in there and clarify it. A 10 31 is just a transaction. It's a way to sell and then buy real estate and defer the tax, not pay tax during that transaction. A DST is an asset. It's a kind of an investment. It is a passive real estate investment that can be a part of the equation of the 10 31 transaction.   James: Got it. Okay. Yeah, that makes sense. And qualified opportunity zone is basically, it's the same as 10 31, but you're deferring your tax for seven years and on the seventh year, your bill is due to the IRS, but you get 15% forgiveness.    Scott: You basically get a discount based on discount on the tax that you would have owed in year one. You'll owe 85% of it by the time year seven comes around. And so again, that was the tax you would have owed on whatever it was you sold to make the opportunities zone investment.    James: Got it. Got it. So the original tax difference, you only pay 85% after year seven, right? So you get 15% forgiveness. But I think the bigger thing in an opportunity zone is whatever deal that you're investing in an opportunity zone that's completely free in terms of capital gain after 10 years.   Scott: Yeah. Right, right. If the investment you have made in the opportunities zone does well and it goes up in value and 10 years down the road you have the opportunity to exit, you'll owe no tax.   James: Okay. That's very interesting because that's another investment where you don't pay tax at all. And if you're doing most of the time you definitely make money, right. If you go through the construction phase and you're past that I guess. Right.   Scott: Well, I will say that opportunity zones are new. There are a lot of risks involved. We don't have time probably to go into them here, but yes, there are a lot more considerations to making a potentially successful opportunity zone investment, but in the basics, I think you've got it correct.   James: Yeah, yeah, yeah. I've heard about so much of details on opportunity zone that you're to be really careful whether it's a qualifies opportunity zone and, you know, there's so many things, right. So awesome.    Scott: And you know, James, this is a good opportunity for me just to mention as kind of a way of a disclaimer. I am not an attorney and I'm not a CPA. And one of the most important pieces of advice I give to my clients is if you're doing any of these complicated real estate transactions, check with your lawyer, check with your CPA to make sure that you've gotten all your questions answered before you write the check.   James: Yeah. I think the purpose of this podcast and talking about so many things of this is just educational and just letting people know there are options out there. Which is very important because I was not aware of DSTS and you know, there are so much of details of the, you know, opportunity zone. So it was very eyeopening for me, so thank you very much. I appreciate it. Why not you tell our audience how to get hold of you if they want to get hold of you?   Scott: You bet. Sure. again, I'm Scott Hendricks. My company is called Current Investments. My website is currentinvestments.net. That's all one word, current, like the flow of water and then investments plural.net. You'd be welcome to send me an email or give me a call. My email is Scott@currentinvestments.net. My phone number...Do you typically, do your guests share their phone number?   James: That's up to you.   Scott: Okay, well that's fine. I don't mind at all. My phone number in Austin is  512 563 2134    James: Awesome. All right, Scott, thanks for coming in. I learned a lot of things. I'm sure my audience and listeners learned a lot of things and that's it. Thank you.    Scott: It was fun. James. Thanks very much.

James: Hey, audience and listeners, this is James Kandasamy from Achieve Wealth True Value-add Real Estate Investing. I'm here today with Mark Kenny, who's the founder and I'm not sure, the president or what's the title?   Mark: Yeah, well my wife and I together so we might have different opinions but...   James: Okay. Both of you run the King multifamily. But before that, before we go into the hot topics that we're going to discuss with Mark, make sure that you guys look at last week's episode where we had KK Singh being interviewed. KK has moved from a business owner. He used to own gas stations and laundry mat and now he's become a multifamily investor, which is a very, very interesting concept. Because I think any business owner, anybody who wants to know how that business is run and why he's using multifamily, why did he go into multifamily? And he didn't even pay tax last year just because of the multifamily investment. So you guys want to check out the last episode.  But let's come back to this episode. Hey Mark, welcome to the show.   Mark: Thanks for having James. Great to see you again.   James: Awesome. Also, I'm happy to have you on the show. So, Mark, he's a GP, almost like 5,200 units, out of that 2000 units where he's basically the primary active asset manager and he's also GP on another 3,200 on top of the 2000 units. And he goes across multiple markets, which is very interesting for me. I want to go a bit deep dive into that. You know, he's in Texas, he's in Alabama, he's in Tennessee, he's in Florida and I believe that's what I covered. Right. Mark?   Mark:  Georgia, as well.   James: Georgia. Okay, got it. Got it. Atlanta. Right. So yeah. So Mark, did I miss out on something about yourself? Do you want to tell the audience about yourself?   Mark: No, I mean, yeah, real quick. So I grew up in Michigan. I'm in Dallas now, so not too far away from you, James. But I was a CPA for a while, did IT consulting, which you and I traded some stories about that before about the IT side and I started buying small multi-family when I was 22, I was a senior in college. About two to four units and then my brother and I...I didn't know what syndication was. Syndication is the fancy word for raising money from other people for the most part and pooling it together to buy properties. I didn't know what that was. So I started buying two to four units. And then my IT business was doing pretty well. That was, I really had no time. I always, I'd say 80, 85 hours a week and start really doing the math.   I was probably 90 to a hundred hours a week and a lot of weeks. And you know, frankly didn't have any time for my wife, caused some issues and so she basically said, you need to do something different than what you're doing. And I said, well, yeah, I will. But you know you have to deal with me and we both love real estate. So we started buying larger properties through syndication. I invested passively first in a syndication with a friend of mine, said it makes a lot of sense and you know, why don't I look at doing it myself and that's what we started doing back in 2013.   James: Got it. Got it. It's very interesting about your story when you're working on a W2 job, especially in the IT tech industry. I mean, it's a lot of work, we put in long hours, right? It's a constantly changing sector, right? The industry is consistently changing. We are always driven by schedule and I was just talking to, Shanti, who's my wife and all and how our life has changed when we used to be in W2 every day, like Fridays when we can really open up our time, open up because from Monday to Friday we are like so busy working like [03:55unclear]  focused and where I used to work, we used to work remote as well. So after five, six o'clock we used to work like, you know, we have lunch, we have dinner, and we continued working with the offsite team. So life never ends. And now with real estate, it's so much of a difference. Now you own your own time and you're out on what to do and we can, you know, my traveling time in Austin is like 11 to 2. That's it because it's a bit of traffic.   Mark: Yeah. It's interesting, right? I mean, I actually started my own IT business 2008 so I didn't even have a W2 job since 2008. But I got in a situation where, you know, any project that came up and any unrealistic timeframe that was out there, I would do it. I would make the dates. So that's what allowed me to get more and more projects. I had a number of Fortune 100 companies as customers, but so even though I have my own business back then, I still didn't have the luxury of time. You know, I was always going somewhere, always doing projects and yeah, I'd be up, I sleep three hours a night, like consistently, that's all I would sleep.   James: I mean, you don't have to go by numbers, but did you make like almost a similar amount of money compared to what you made in real estate? I mean, it's a time versus money investment, right?   Mark: It's a great question because when I first started looking at syndication, I said I'm not going to be able to replace my IT income. And I truly, it was a mindset. It really was. I really did not think I'd replaced my IT income. It was pretty, pretty high at the time. And after three projects that I did in multifamily I stopped doing IT. I had not replaced my IT income at that point in time, but it was enough to live and live, you know, decent. And then we've done, you know, we've done 37 projects, whatever now. But I didn't think I was gonna replace IT. But yeah, we've far surpassed it. I mean a lot frankly, and the time we have, and I don't have to ask anyone to go anywhere or you know, things like that, you can turn it on and off if you want to. Where in IT, if you're not working, not making any money, you don't have that passive income.   James: So you have a very interesting life cycle because you were working in IT, a W2  job and then you went to do your own business but still in IT. And now you are completely a full-time real estate investor. So, so in terms of time wise, I mean from what we're discussing, I mean, real estate investment gives you the best return of time, right? I mean, you get really good pay and at the same time, your time is like, really low.   Mark: There is no comparison. You know, you mentioned about talking to your wife a higher life is different. I mean, my life has, you know, 180 degrees different for the better than when it was before. I was on the verge of, you know, I'm not sure, you know, Tammy, my wife wasn't only happy because of my work schedule and now we got to work full time together. Just like you get to work with your wife, which is great. And the time, you know, if I want to go somewhere and you can get to the point with multifamily or any real estate investment, you get enough of it. If you choose to go sit on the beach, which I don't want to do, frankly I don't but if you choose to go and do that, you get in a position to do that for sure. With IT, I wouldn't be able to, I had to keep working projects in order to make money.   James: Yeah. But can we go back to your mindset when you are working, not as a business owner, when you are working in IT? Because I sometimes analyze my own mindset when I was working, because when I was working in IT, I did look at Robert Kiyosaki's book and I could not read like a few pages because it just doesn't make sense to me, we are so busy working. What is this guy talking about business. And after a few pages I put it down and I forgot about it until recently I started reading it and I was just surprised that that book changed a lot of people, real estate investors' life. But I don't know, I think when you are working you're really, really working, you really don't care about the business side of it and I mean, I think it's up to your circle, right? Who are you mixing with?   Mark: That's a great point. I know when I worked originally at KPMG Consulting and I worked for SAP you know, did some Salesforce consulting and things like that. And you're looking at other people that are older than you at the time I started out, it was, you know, early twenties when I started out. And look at other people that are partners, for example, and you have this image, you're like, that's my lifestyle. I'm going to be traveling all the time and I'm going to be working seven days a week, which is what I did. And you know, and then, you know, some point in time, not everyone gets to the point where I was, where my point was. And my wife was pretty much ready to leave me if I didn't do anything. And that was a big eye-opener for me. But you're right, you get trapped in that circle of influence, right? And everyone's doing the same thing. And at that time, I aspire to be a partner and I would've made partner, I mean, made a manager in two years and things like that. But I would have been miserable, frankly. I would have been.   James:  So compared to the job security, I mean, I don't know whether there's job security in any job or not because there is no job security, right? I mean, when I was a manager, I used to hire and fire people very quickly just because of non-performance, right? So there is no job security, right? I mean, I use to work on a semiconductor industry for like almost 20 years and we thought we were going to retire there but we realize you know, during different economic cycles, the company doesn't really, you know, honor your loyalty.  I mean, there's no such thing. They have to make a business decision, they'll let you go if they need to let you go. There's no such thing as a company is going to be keeping you forever.    Mark: Right, right. That's true.    James: Right. So yeah, coming back to real estate venture. So 2008 was when you got into IT and when did you start your real estate venture?   Mark: Syndication; 2013 is when I first started investing passively and invested in a few deals. And about that time I started looking at syndication, but it took me almost a year to get my first deal. And it was partly, I was looking at other things too; self-storage and building custom development, you know, homes and things like that, franchises. I looked at everything. I was looking for something to get me out of the bad situation I was in. But it still took us about a year to get our first deal.   James: So did you stop work and start into real estate? Was it a step function or was it like a...   Mark: It is gradual; for me, it took me three deals. So I'm thinking, let me see, 2014 is when I think I got my first deal, I don't remember exactly. But by '16 I had stopped doing IT.   James: Got it. Was that a painful transition from a business owner to a real estate investor?   Mark: No, it really wasn't for me anyway. You know, I've always had a big fear of money and you know, I wish I did, but I always did cause growing up and things like that. But we had enough money set aside to where, you know, I looked at it, if I had to go back and do IT, I had so many connections at a time, I could get a job pretty much, you know, right away. I didn't want to, but I was like, okay, well, I have a transition I'm making here, but if I fail, that was my mind, if I failed at doing this and after taking a year to find my first deal, I was pretty skeptical. And then we started getting the traction. So I was like, Hey if I need to go back, I can do that. I don't want to do it. But if I do, I can support the family. The transition wasn't hard for me. We were buying at that time only in Dallas, so I really wasn't having to travel outside Dallas. Yeah. So it was a pretty easy transition.   James:  Got it, got it. So as I was talking about that, you had like three different lifecycles, right? You're a W2 employee, you're a business owner and then you become a real estate investor and you are a CPA. So I'm going to ask you, similar to CPA question, how was your tax advantages comparing these three life cycles?   Mark:  Okay. So you know, even though I'm a CPA, I haven't practiced for 20...   James: But at a high level, was there any tax benefit between...   Mark:  Oh yeah. Without a doubt. When I had the IT business, you know, I was actually paying taxes quarterly. I was getting hit hard. I mean, I was making decent money. Now, in the last two years, we haven't paid any federal income tax like zero. And in fact, it's negative. So people were like, Oh, you didn't make any money. No, we make money. But from the tax benefit we received through depreciation and cost segregation and bonus appreciation, we pay zero federal income tax. So, I mean, think about people listening to this, if you didn't have to pay taxes, how much more money you'd have in your pocket and what you could do with that?   James: Absolutely.  Yeah. Yeah. I have a chart that shows how a $2 double for the next 20 years. And you know, at a 25% rate, that $2 becomes 72,000 after 20 years because you're taxed 25% every time you double, right? But if you don't have tax, that $2 becomes almost like $11 million, you know.   Mark: Oh, boy, Oh my goodness.    James: So the tax does impact your compounding savings. And if you don't look at it, you may not know. I mean, when I was working, I never really looked at tax because as I say, we are busy working. We just look at net pay coming to the thing. I mean taxes, like it's not nice for me. But when I look at that kind of chart, you know, it does make a lot of difference in terms of, Hey, you know, it does impact your overall savings. You know, if you compounded for not [13:53unclear]  you see a big difference, millions of dollars of difference.   Mark: Oh yeah. And like you mentioned, when you have a W2 job, it just comes out, you notice it, you don't like it. But when you have your own business, my own IT business, you have to write check every quarter you really notice it. And then you're like, I made that much money this quarter and where did it all go? And now I have to write a check for, you know, X number of dollars. And you know, you're just scratching your head and you're frustrated and stressed out. But with real estate, it's literally zero.   James: So did you have employees under you when you have a business?    Mark: All 1099.  James: Okay. So if you have an employee, then you're to pay tax for them too, I guess. So that's double taxation   Mark: That's exactly right.   James: Okay. So W2, I mean, I don't know. I have a chart that shows W2 people are paying almost 70% of the tax in this country. So this country is supported by people who are in W2. They are the ones who's paying taxes. They're the ones building the roads, the bridges, and all the infrastructure. Right? The 30% is from the other people who are earning less than 30,000 or people who are earning more than 500,000 and above.   Mark: Yeah.    James: Right? I mean, people who are earning more than 20,000 to pay a lot of taxes. But in general, if you look at it, the big bulk of it is paid by our W2 employees.   Mark: Right. Makes sense.    James: Just because you can't run away.    Mark: You can't. There are no savings, no tax shelters.   James: Absolutely. I'd say real estate investors, all kinds of you know incentive in the tax code to not paying taxes. So coming back to your real estate venture in multifamily, and you skipped over buying single-family and you went direct to multifamily.   Mark: We did. I mean, multifamily, two to four units when I was 22. Yeah. So it was smaller for sure. It made more sense to me, frankly. I don't remember, I actually didn't look at any homes. I don't know why I'd go back and think about that. Why I didn't start looking at any single-family homes. To me, we looked at two to four units at a time.   James: Well, I mean if you look at cashflow, two to 14 definitely make a lot more sense in terms of cash flow. Right? Maybe that's what it is. And how many two to four units did you own before you come to multifamily?   Mark: We had like 17 units total.   James: Okay. 17 in two to four units, I guess. Smaller multifamily. And do you think that helped you when you scale up?   Mark: It did. Because I know you manage, right? You and your wife manage. When we did the smaller properties, we self-managed and we took care of things and evicted people. So it definitely helped from that perspective. I didn't like the process, it's not something I want to do now, but it also, even though it's drastically different how you evaluate four units and below and in five units and below is drastically different, people can argue all day long steps are almost identical, right? You identify your criteria, you go drive by a property, contract, blah, blah, everything's the same. So it helped for sure. Plus just kind of, you know, getting comfortable with buying your first deal is the hardest. So once you start, you know, I bought like whatever it was, you know, five deals, six deals, I don't remember the number, exactly.  It gets you more comfortable. So when you go buy a larger property, it's bigger numbers. So it is concerning whatever I had already done, you know, like six transactions before that time, even though they're small, it helped.   James: Got it. Got it. I mean, in a way, it helps because I mean, you know at least how to read the lease and you probably know how real estate section happens, right?   Mark: Your first time signing for your first deal, usually you're most likely going to be pretty freaked out, right? You've done six smaller deals. It's still, then when you start doing bigger deal, then it's the money. Right? The only thing that concerned me, you know, I have to say only it really was the, you know, brain capital to the deals. I had no concerns about how to underwrite the deals that I knew how to do that or how to find deals or talk to brokers or loan. It was always about, you know, the capital. That was my biggest concern.   James: Okay. Okay. But do you think that's still an issue in this market cycle?   Mark: Yeah. I'm always concerned about capital. You know, we have like eight deals under contract right now. You know, so we've never not closed a deal, but you know, that's the one thing that's still stressing me out sometimes, frankly.   James: Yeah. Because you need to figure out whether you have big enough investor base too in all those eight deals.    Mark: That's right.    Mark: Okay. Got it. So coming back to this, no multiple markets that you have, I mean, do you want to explain on how did you get into this so many markets? I mean, I think some of it is you've partnered with some of your students, right?   Mark: Well, originally I was just buying pretty much with one other person off in Dallas. Dallas, and at least, in my opinion, was definitely getting more expensive and it's even more expensive now. I have a twin brother that moved to Atlanta so I used to visit him and Atlanta has a lot of similarities to Dallas. Dallas is yet, and it may never be, but it definitely has a lot of similarities. So I started traveling there. I looked at properties for about a year and a half before we got our first deal. And I just really like the market. That kind of was if my brother wasn't there, I don't know if I would be in Atlanta, frankly. I don't know if I would have thought about going there. When I'm going there, I see a lot of activity, new buildings, new development cranes, things like that. So it was an attractive market.    And then, so that's Texas and you know, kind of the Atlanta area. And then we started looking in the Southeast. This is a general statement. Some of the brokers cross different estates sometimes too. They might, if they have a license, they can actually sell in multiple States and they might say, Hey, now, we're in Tennessee, we have a project here, we have a project up in Arkansas now, which we don't own anything there yet. So these brokers started giving us deals and I started checking out different markets. And really, the way I got into the other markets as far as initially was I would have brokers in Dallas typically reached out to other brokers in other markets and make an introduction for me. And that kind of gives you instant credibility and they're going to typically give you the best of the best of brokers to work with in another market. And that's how we got involved in other markets.   James: Got it. So how did you choose this market? I mean, except for Atlanta where you said your brother was there, you initially went there because of Atlanta, but now you are like in five different markets. Tennessee, Alabama, Florida. I mean, now, how did you choose these markets and why these markets?   Mark:  Yeah. A friend of mine who I've done a lot of deals with, he had bought a smaller deal in Memphis and I never would have considered Memphis. And some people don't like Memphis. We own a lot there. We've done really well there. But Memphis also has, you know, even though [21:05 unclear] job growth population growth, things like that, it's okay, but not like Dallas, of course. But the rent growth has been going up. They're putting, you know, several billion dollars in investments of downtown. But that particular city also has something called a pilot program, which we've done multiple times. Where you can go in, you buy a multifamily property, you have to put a certain amount of capital into it. It's a lot. And then you'll get your property taxes cut in half and then they're frozen for 20 years. So I mean, as you know, property taxes is typically one of the largest, right?  [21:44unclear]  I can freeze them for 20 years. Cash flow is going to typically be pretty nice on it.    James: Hmm. So you're basically taking advantage of that particular program. What about the other States that..."   Mark: Yeah, Florida, I always looked, I like Florida just because of probably the weather initially and when we were in Atlanta we started looking in Florida as well. And Florida has, I mean, some areas like Miami that as you probably know are extremely expensive, just not going to buy there. But I also have a cousin, multiple cousins actually live in Florida and so I heard different things from talking to them. And then some of the brokers we were talking to like in Georgia and stuff like that, had some properties in Florida and a property came up and the first time we're looking at properties there. I liked the properties in Jacksonville and we have a few properties there now. And it was one of those markets, again, similar to Atlanta, job growth, population growth, rent growth. It doesn't have to be off the charts, frankly.    Some of the markets where it's so off the charts, it's just too expensive to buy in, the yields. You can't get the returns. And then with Alabama, it was a guy that had a deal and was looking to partner and I partnered with him on a few deals. He had deals there in Alabama. And then we have another one right now, a guy in our coaching group that has a deal in Alabama as well. He's closer over by there as far as that's where he'd been looking. So usually it's through some sort of relationship. Somebody either already lives there or someone is looking there and then it kind of gives me an opportunity to check the markets out.   James: Got it, got it. So basically if you have boots on the ground as part of your program, that's an advantage definitely. Right?    Mark: It is for sure.   James: But don't you find, you know, establishing broker relationship in that kind of market it's harder because you, I mean they did not know you, right?   Mark: It is, there's no question. I mean, you know, I think that's why it took us so long to get into Atlanta. We had a really hard time breaking in there. And then once we got in there, you know, it was just one brokerage firm in Atlanta that we closed 11 deals in like 18 months with. We've definitely had their attention. With that first deal., I went to Florida. I mean, I was banging my head against the wall because we couldn't get any traction with brokers there. I would say, you know, you just keep sticking with it, but there's no question, you know, if you're an outsider, don't live there and you've never bought a deal there, you're at a disadvantage. You can use things like, Hey, your track record and you can have brokers that I know.    So when we got a deal in Florida, our first deal, it was with a brokerage firm that I had bought a deal in Dallas with and the broker in Dallas had called me about it. So he, you know, if you want to say put a good word in for us. So a lot of these brokers talk as, you know, it's very small world. Yeah. And I don't think we would've gotten that deal in Florida if I had not bought a deal without a broker, you know, brokerage firm if you want to stay in Dallas, I think we would have probably not been selected for that deal.   James: Got it. So let's go a bit more detail into that step by step. So let's say today somebody, you know, in your circle or one of your students come, Hey, you know, I found a deal in Florida, right? Somewhere in Florida, right? So what are the things that you would do to underwrite the deal?   Mark: Yeah. You know, the underwriting different aspects of it, forget the reports and stuff for a second. But you know, even financing terms can be drastically different across the country. Some of the pre-review cities and stuff like that start at 65%. So you want to first understand, don't assume we're getting 80% leverage in three or five years IO in every single location because it's different. So understanding first, the insurance can be drastically different. You know, if you're on a coastal area, it can be a lot higher than all the other areas and understand kind of the fundamentals there.    Taxes, you know, do they get reassessed? And that can be through, we have a tax consultant we use, but also you can typically just call the County and the County will tell you kinda how the taxes will be reassessed and when. You know, in Memphis, that's every four years so that's important to know. They only reassess every four years. And then we'll get like a report, whether it's Yardi or CoStar. Those are paid reports. We'll also use things like some free...we have a number of links on our analyzer that take you to things like crime and the school districts things like that. Those are all links we have on that. But overall, nothing beats having someone on the ground, you know. So if you can talk to other people there and talking to lenders, you know, lenders have the biggest investment in a deal than anybody as a general statement where they have more money involved. So try to understand from lenders to kind of how some of the properties are performing there, it is important. In the report, as I said, it's only as good as the report. It is good data. A lot of it's based on, you know, actual transactions that have happened, but I'm trying to get someone like a broker or property management company. So if we have a property management company you know, David Shore is multi South in Memphis and he's in seven other, he's actually in seven other States.   Once we built that relationship, then we start asking him questions. He'll tell us, don't even look at that deal, it's not a good deal. This deal maybe you can look at, you know, 95% of deals he tells us not to look at there. So having some boots on the ground can't be replaced. It might take you a while to do that. It's typically going to be like a management company or maybe, you know, a broker, but you know, brokers in to sell, you know, they wouldn't, don't get paid unless they sell a property. So kind of all the different aspects. Reports talking to people, visiting the area, trying to understand what happened before in the past. Those areas are all good ways to kind of get more Intel on the property.   James: So you basically look at location, crimes, making sure how are you underwriting your tax records.    Mark: The tax is huge.   James:  Every state is different.   Mark: Yeah. Every state, county; city even sometimes. So we have like I say a tax consultant, but we have found really if you call the County and tell them the property what you're doing, they'll tell you how they reassess and they'll give you a good number. And we've only had like a couple of occasions where it hasn't really given us the information we want. Generally speaking, we always get the information we need from the County.   James: Got it. Got it. So who have told you the most knows? I mean like who say don't touch that deal most of the time? Is it a property management company or is it the tax consultant or insurance company?   Mark: Property management company. Without a doubt. It may be they don't want to manage it.   James: Well how do you know they just don't like that property. Maybe it's just because...   Mark: I know you self-manage. We have found in almost every submarket we ran with a management company, even if they don't manage a property today, they're like, we manage that property five years ago and you know like in that, you might have some Intel. We got a property here where a number of properties in Dallas I've looked at and our management company managed it. So I called the guy and said, Hey, what's up with that? And he'll say, you know, it had like $200,000 of plumbing issues or whatever it might be. But usually someone that's large in a submarket, they know the property or they at least know you know the area well enough to give you some really good Intel and it seems to amazed me where people are like, well, THE manageMENT company says we can push rents like $75, I think we can do it like by 125. it's like there's no basis for that. Like why do you think you can do that?    You can push your management company and ask them questions and things like that. You know, if I go try and do a comp for a property myself, I don't fit the demographics, I'm probably not going to get a good comp. Have a management company do it for you. They'll actually send people out there that fit the demographics. They'll actually get you comps and pictures and things like that. Go into some of these reports...I get called all the time from, I won't name them, but these providers of data call me all the time. I don't talk to them. And half time the information you get, you don't even know if it's right. It's coming through there. So, yeah.   James: So how do you know the management company that is calling is not the current management company?   Mark: Yeah, it's happened before. You know, you can ask the broker who managed it today. They'll tell you because it could be for sale and the property management company doesn't even know it. And if you call them and tell them, Hey, I'm looking at this property for sale, then they're going to be pretty upset.   James: Yeah. I've looked at out-of-state as well at one point. And I realized management company gives me the best quick data. They can tell me a lot of things about a state compared to anybody else, right. Because they know the pain of managing it. So yeah, I would say they are one of the best resources to call if you're looking at out of state investment. So after that, what do you do? I mean, you already looked at taxes, you already looked at the property, so it's all good. So what do you do next?   Mark: So then we'll underwrite it. Usually using, you know, we have a quick analyzer. We have a much more detailed analyzer. In the detailed analyzer, we're going to go through every expense category, like line by line, compare them to the, you know, T12. We'll try to get two independent property management budgets so we get that. And then our analyzer also has industry standards based on property, class, and size. We'll tell you what the standards are for every single category. Which is very helpful to see if something's out of whack. You know, I just had an example. Somebody not in a group, if someone's sent me something, it was two properties. It was over 300 doors together and they had payroll at $750 a door. I'm like, no, it's not going to happen. Or we're going to share the property manager on-site across the two properties and might not for 300 plus units, we're not going to, not very easily.  So I said, okay, so does the management company say they're okay with that? No. And if they did, what happened was that if you have to get rid of them and now you're going to bring in another management company, they're going to be at $1,200 a door. It just happened, another one today actually on something where they're getting charged two and a half percent on 80 doors. I said that's pretty low, two and a half percent. I'm not saying it's impossible, but you need to probably bump that up because just because one management company said they'll do it for that, if they're not your management company anymore, then you're going to be paying more.   James: Yeah. Yeah. You can't underwrite just because one person said it. I mean two and a half is really low compared to any industries. Whenever I see sponsors or syndicators showing me a deal, I mean, not many people should me their deals, but I do get to see some people still.  I mean, when they say they want to share management, that is an indication that you know that deal doesn't have that much upside. They have to do really, really creative weird stuff. They will share this, share that, we have to do. [33:15 unclear] covered parking. We have to do washer dryer and that's all that really small amount of upside. And that is not a good deal.    Mark: That's just the gravy. You're exactly right. I mean, you know it, right? You manage your properties and people are like, I'm going to share. I was like, you're not going to. I mean, if you think it was that easy, don't you think all the management companies would do it?    James: You're going to compromise a lot of things when you share management. And as I said, when you're going to that extent to really justify your upside in the deal, that means the deal is really not a good deal.   Mark: Well, James, I have people who'd be like, we're going to put in like wifi and charge this and they're trying to put that in an underwriting and I'm like, yeah. First of all, you might not be able to because of the cable contract. Right. You might not be allowed to, and second of all, let's just assume you're able to do that, is that needed in your analysis to make the deal work? I sure hope it doesn't. You know, it doesn't mean that.    James: Those who are learning this business, the biggest bulk of the deals that work is when you can bump up rent and you can reduce expenses if you can do these things is a big thing. So if you see any deals that you can, majority of your upside comes from here. You know, I don't look at adding more one or two washer and dryer, adding parking, adding wifi. That's what you said or sharing management. That's all right. Really the deal doesn't work at all. I think the sponsor's just trying to squeeze all kinds of juice and tell you that it's going to work, but in reality, it is really, really hard to make all that work. I mean that all that is just a bonus. If it works, it's good.   Mark: Yeah, that's exactly right. And your total expenses, you could go up because the property taxes, but you know some of your points of your own, you reduce the expenses. I mean there are huge savings in water lots of times for operators. You can go in there and do repair and maintenance. We see lots of times you do as well, I'm sure were people are putting capital items in repair maintenance and they're like $1,400 a door per year. I mean that's a really high, right? So they're just putting stuff up there. If you go in and get a loan you're able to put capital in there and maybe do roofings and a/c and things like that, you can most likely bring your repair maintenance down more to industry standard. So for looking for those things, but if you don't know what those standards are, you know, you don't have any gauge.   James: Sure, sure, sure. So we don't have to talk about your detail and analysis that you do, but on the sniff test that you have a quick analysis. So one of the few things that you would look at to, you know, kick out a project   Mark: Return wise, I'll look at, you know, we still shoot for like a 10% cash on cash return, which is getting harder   James:  10% with the IO on year one, I guess.   Mark: Yeah. Overall or if the product is a five-year project, 10% cash in cash, 15% plus IRR and 100%; 100% is getting harder on five years, frankly for a lot of properties, closer to six.  In some markets, it's more than that, but usually we try to stay in six and below to double the money. And then I'm looking at other things like, you know, what cap rate are they using? You know, on their exit, how they get the current cap rate, the broker. I mean, I had someone, no joke, in Florida called me and said- it wasn't Miami, by the way- they said, Oh, the broker told me the cap rate is 3 and a half. You know what I mean? So those types of things, right. So you can make any deal work. It's on a piece of paper,   James: Just change the exit cap rate.    Mark: Exactly right. I have an example, I do in our workshop where I'm like, you know this, and then you do the cap rate down to two, what does it do? And then, you know, other things are going to be more round, you know, total income growth over the first couple of years. What does it look like? You know, I'll see sometimes people think we're going to grow income 30%. I'm not saying it's impossible to do that, but I see a property as, you know, 92% occupied and you go up 30%, your total income in a year is pretty high so you need to have justification for that. So basically we look at a lot of different gauges, break-even occupancy, break-even reds and then the financing. You know, people don't understand financing well enough. Lots of times as far as what the hell they're going to do that.   James: It can make or break a deal. Right? So let's look at like the rent growth and the exit cap rate, right? So how do you differentiate these rent growth and exit cap rate on this like five different markets there?   Mark: Well the market cap rates, so we always start with the submarket cap rate, doesn't matter which property it is. And we have different ways to get that through reports and things like that. And then we put an escalator on it, an annual escalator, and it'll be different between ABC assets. And we have some ranges there. Some markets actually, you know, Dallas has gotten compressed so much on class C, you know, it was like eight and a half percent in '13. Now, it's like five cap for a lot of properties and you don't know if it's ever gonna go back. So we'll usually use you know, minimum 0.1 up and then up to a 0.2 for a year. So it could be, you know, full a hundred basis points on a five-year exit and a lot of it's depending on the property and location.    I mean some of them, some of the markets that the cap rates the banks compressed there but they haven't compressed as much as like Dallas. I mean they might've been..I'll just make an example, say Dallas eight and a half. Now it's five and the market there might have been seven and a half and now it's six. So it went down, you know, one and a half percent total. But we'll actually, we'll look at the property, the type of property that, you know, the age of it as a class and then the demographics and we'll add an escalator on an annual basis for it. So each year it escalates up.   James: But how do you decide that? So for example, I think in Texas a lot of people uses 3% rent growth, right? Even though some cities are different.   Mark: Well, no, for rent growth we usually use 2%. This is across the board, across all markets after year two. Your first two years as you know, you might have come in and you're increasing rents, rephase revenue in and things like that. After year two, the general statement is going to be 2%.    James: What about expenses?    Mark: Two.     James: Okay, so 2% income growth. 2% on year two onwards I guess. Which makes a lot of sense. I mean, you're not really counting for the first year for value add.   Mark: Right and it might be higher. I mean some people were like in Dallas, you know, seven and a half percent rent increase growth for a while. And people were like, I'm like, but that's like today, one point in time it's proved where, you know, Dallas rent increases have gone down considerably. It's still a great market, I like the market. I don't really buy here right now, but you can't count on today. Or someone will say, Hey, the economic vacancy is 6% and I'm like, yeah, but I mean, good for them. But you can't count on that.    James: You can't count on that. Yeah. Yeah. So yeah, I mean, yesterday there was a national multifamily trend report which shows I mean Dallas is below national average in terms of rent growth, right? So San Antonio and Austin, Austin has been always higher than national rent growth but San Antonio is higher than national rent growth. I never seen that San Antonio being higher than Dallas. I mean it's just cities change. You have to be really conservative in your underwriting.    Mark: I think people are like, enough is enough, right? When rents go up, you know, seven plus percent for a few years in a row, people are like, you know. And it doesn't mean it's a bad, bad market. I mean, there are 150,000 people a year here that moved to, [41:07unclear] you know, net. So there's great jobs and population growth. I've been arguing that for a while. It doesn't matter all those things happen. At some point in time, people will say enough is enough.    James: Yeah. People can't pay anymore.   Mark: In a 2% increase in their wage or whatever they get in 7% in rent, you know, four years in a row, it has a big impact on them.   James: Absolutely. Absolutely. But how do you like for example, in your experience, because you're working on multiple markets, right? I mean apart from Texas, which has seen a good rent growth, I mean, I think even Florida is seeing a good rent growth. I do not know what other markets house in Tennessee, Alabama and I think...   Mark: Georgia is good as a whole. I mean some markets and we bought in a place called Gainesville, Georgia, not Florida. The property has done phenomenal. But that's a secondary market for sure. It's about 45 minutes from Atlanta, but it's like, you know, a 7% rent growth right now. Same with Dalton, Northeast, you know, almost close to Chattanooga rent growths. Florida, like you said, is high; parts of Georgia is definitely high. Alabama and Tennessee, I would say are mediocre, frankly, they're just going to be average. Now, Memphis in general, the random amounts are lower, but the rent growth there is quite high right now from a percentage standpoint. But you know, the starting with rents, half of Dallas, wherever it is, right. So it's proportional, but the percent of rent growth in Memphis is actually quite high right now. The last I saw, it was in the top 10 in the country.   James: Oh really? Okay. Okay. And what about the exit cap rate? Right. So usually, I mean the usual underwriters, people use like one, to 0.2 more than what the market is. Do you use the same exit cap rates in the other markets?   Mark: We take the current and we'll add...so let's say the current was a six cap, we'll add 0.1 per year, 0.20 per year. And in some cases like to your point, and so like that's to the end of five years, you would've gone from a six to a seven. And in some markets, yeah, we'll be, you know, if we're going to be doing a 0.15 in a certain market and we're like, well, maybe this market isn't quite as attractive or in the past it hasn't performed quite as well, we might do the 0.20. At the end of the day, I mean, as you know, nobody knows what the cap rates going to do. We can all guess. And the important thing to consider is that you know, the cap rate has no impact on your cash flow per se. It's really more of a capital event like a refi or a sale, things like that. So if you can still cash flow and you know, get good returns, then you know, you wait to sell when it makes more sense to sell.   James: Correct. What about a loan wise? Have you guys been doing a longterm agency debt or you've been doing some short term loans as well?   Mark: We do about a third of the deals we do prior bridge, but not necessarily short term is still up to five years. So it's not short term really. And the rates are attractive and there's, you know, a lot of advantages too. Bridge and some disadvantages, but there are a lot of advantages. I like them, especially in the big value add deals from what you have to get them. And then we do Fannie, Freddie, and then a number of bridge frankly.   James: Got it. Got it, got it. So I mean, you work with a lot of you know, students who are trying to come up in this industry, right? So can you describe one characteristic of a student who made them really successful you know, sponsor on their own?   Mark: Okay.  Characteristic is, I mean, you know, if you want to say grit, not giving up, but as far as a whole, it's getting really good at something that really, you know, one skill set. You don't have to know everything about multifamily necessarily to get started. You have other people there to help you. But getting really good at something that's a value to somebody else. And it sounds like, okay, that's kind of obvious. Well, we've seen it work time and time again where someone, all they do is pretty much come in and just find deals. That's where the specialty is. They don't want to raise money or sign the loan or know things like that. But I think it's being patient, you know, when you have to wait a year, potentially. I waited a year to get my first deal. That's a long time, you know, to wait. And then you look back on it, it's like, that's not a long time to wait when you started buying more deals or you're like trying to do something new and you're spreading, you know, 12 months before you get a deal that can be frustrating. So just being patient.   James: Yeah. Especially when people are already committed, I'm going to do this.    Mark: Yeah, some people give something up to do it.   James: Yeah. I mean, I really just remember there's not much deals out there. So, you know, finding that one deal that makes sense takes time. Right. It's not easy, If it was easy, everybody would do it.   Mark: That's right. That's right. Okay.   James: So coming back to your personal side of it. I mean, is there any proud moment in your life that you think I would remember that moment? That one particular moment in your experience in your real estate venture?   Mark: Yeah.  That's a great question actually. I would say when I got that third deal and it closed because I had already decided if I close that deal, I was going to stop doing IT. So when I got that third deal and said, Hey...my son kept asking me cause I kept looking for deals when he's like, if you get that deal, can you stop doing IT? Cause he was seeing me work so much. And so when I got that that was huge for me, for my family.   James: Got it. That was a transition point of view, getting away from IT to real estate, I guess.    Mark: Right, right. And making the decision, like you said, to do it full time.     James: Yeah. It's a hard decision, especially if you're already used to a certain industry. And what has been, you know,  paying your bills, right.    Mark: Paying your bills, which is great. And you know, the other thing, unfortunately, when I was doing IT, that was kind of my self-worth. That's where I got my value. I wasn't really good at a lot of things, but for some reason, my mind just worked that way. And so I got my self-worth out of my job. So to give that up, you know, it is a big thing. And you don't know how successful you're going to be or not in your new adventure. So, but I mean, the best decision I ever made.   James: Yeah. I mean, you brought up a good point. Sometimes that whole industry, what you study for, define you 20, 30 years in your life and suddenly, you are changing your complete identity. I mean, it's a big thing, right? I mean, a lot of people do not want to do that. If they're known as engineer or a CPA or the IT guy, they don't want to know, what! Suddenly this guy's doing real estate.     Mark: Oh yeah. I mean, my CPA said, what are you doing? He did. Now he doesn't say it anymore. He did. He said, what are you doing? You're making a lot of money doing IT, why are you not doing it anymore? I mean, you know, he couldn't even comprehend it.   James: Yeah. And I have to mention this; when I was in IT, when I was an engineer, you know, I always think that people in IT, people who are engineers are really smart guys. So these are the smartest guys because that's what your circle is, right? Your circle of friends is there. You think this guy's smart solving problems. And I mean, I did my MBA, it was really eye-opening because I realized there are a lot smarter guys than me with a lot more money in the financial industry. So that was a big aha moment. And that's where I realized that you know, you have to go into business to make a lot more money. And there are a lot of other smarter guys in other smarter professions out there that make a lot more money. And so, I mean, before I forget what is the most valuable value add that you've seen in all your deals? What would you do in case your rehab budget got cut into half in a deal?   Mark: Oh, you mean from a CAPEX?    James: Capex wise, yes.   Mark: You know, one, people need to be...if the property looks like junk outside...I've been in properties that look good on the outside and they're not that great on the inside. But you need something outside to kind of attract you. And it could just be paint, you know, something so it's not dreary and dark, dark colors, you know, but using something a little bit more attractive color-wise for paint. Landscaping, simple stuff to do. It's basically thinking about what does a tenant see? When people say I'm going to do, you know, electrical work and you know, things like that. It's like the plumbing, stuff like that need to be done, but tenants don't see that. So first start with the outside and see what the tenants, you know, whether they go up to the office and it's kind of decked out.   Sometimes we'll spend a lot of money around the office to kind of put a lot of landscape in there and make it really nice, exterior wise. Interior, I mean, paint, it's pretty easy to do. Flooring is huge just from a maintenance standpoint. So if you can do it, but as you know, it's not that cheap to do floor and then we'll like resurface countertops. I wouldn't do cabinets and stuff like that if you don't have the budget for it. I wouldn't do appliances unless they need them. You're not going to get the bang for the buck for that. Again, people will see paint, they'll see flooring and they'll see like maybe surface countertops, paint the cabinets, things like that. But some people have really high aspirations. They want to do all these things, but at the end of the day, you're not living in the property so don't outdo the market. I won't be the first guy to prove something in a market, I let other people prove it first. But I would say for sure start with the outside. We start like with landscaping and paint, stuff like that. People can see that.   James: Got it, got it. Awesome. Mark. So we're at the end of the podcast. Do you want to tell our audience and listeners how to get hold of you?   Mark: Yes. An email address is Mark@thinkmultifamily.com and love the chat with anybody and I really, really appreciate you spending time with me today, James.   James: Sure, sure. Absolutely. Thanks for coming over. You had a lot of value. And I really like going across markets here because sometimes it's hard to find someone who has done deals in different markets, right. Because it's important. A lot of people want to do markets everywhere. I mean, there are deals everywhere so you just have to buy it right and you have to analyze it right. And, you know, just make sure the numbers work and the location works. Yeah. Awesome. Thank you, Mark.    Mark: All right, James. Appreciate your time.    James: Absolutely. Thank you. Bye.

James: Hi, audience and listeners, this is James Kandasamy from Achieve Wealth, True Value at Real Estate Investing podcast. Today I have KK Singh, KK Singh is a big figure in our social media circles, especially in the multifamily and multi-families syndication. KK used to be a Microsoft Certified System Engineer. I like to call it MCSE because it's a pretty well known designation for system engineers and the Microsoft world; and KK also owns multiple businesses including gas station convenience stores, a Laundromat, and also he started a real estate with a 40 single family residential in Indiana. And currently he's an investor in almost 3000 units as a LP, and in some of it is a GP across all States in the US. And he also has done agriculture, commercial and residential property in India. And also, business experience, almost 10 to 19 years in the US, and is also looking for expansion opportunity. Hey KK, welcome to the show. KK: Hello. Thank you very much James for having me on your show. James: Sure, absolutely. Absolutely. So, KK let's get started with our show. I mean I got to know you like almost two years now. So you have been doing very well in terms of multifamily investing and especially you started as a passive and now you're going more into the GPU, but I want to go before that. So you are on a later part of your cycle and you did a lot of different businesses, Laundromat and gas station convenience stores. And so I want to go into that business before we go into multifamily. And then after that I want to compare that business to multifamily. And why did you, at this stage of your life, why did you want to do multifamily? Because there's a lot of people who want to really learn these different businesses. Like I always wonder how gas stations work. I always wonder how convenience stores work. How does a Laundromat work? And do they really make more money than what I'm doing right now in multifamily? So you are the best person to really tell us and our audience what are the different aspects of this business. So let's start with, I mean, you own gas station convenience store and Laundromat. So tell us about these three businesses. I mean, how does the business work? How much do people make? Even in that business, what are the values that you always see that it's very awful? KK: Well, I came to United States, as you said, Microsoft Certified System Engineer and I lost my job after 9/11. And it was just about six months before I came. So I had a job for about six months and I lost my job and my friends were in the gas station business in Indianapolis and they offered me a partnership in the business and they asked me to come and join their business. And so I decided, since I had no options, I decided to join their business as a partner. It was a gas station in Indianapolis. So I started managing that, I automated there, put it up because everything they were doing on papers with pen and paper. So I was a computer professional, so I did everything into computers. And soon we lost the lease because the owner did not renew the lease on that property. So I had learned the business because I had it for about a year. So I bought a gas station here in Fort Wayne after about a year and a half since I came to United States.   James: So, before we go to the other business, how does a gas station make money?   KK: Well, the gas station owners make money mostly on the inside sales. They don't make money on the gas. James: Oh, you don't make money on the gas? KK: But you don't make money on the gas. And most of the money is made on the convenience store side. So, first I bought one gas station and soon I had other people join me buying gas stations. Here I was, the first Punjabi to buy a gas station here in Fort Wayne. And soon I brought some of my friends, my relatives to buy gas stations here. So we formed a group and we started buying in bulk. And that way we made more money, we got more rebates; we got more kickbacks since we were buying in bulk. James: So the rebate and discounts that you get that's on the fuel price? KK: No, on the inside sales, mostly on the... James: On the inside sale?    KK: Yeah.   James: So, why does every gas station have different pricing in terms of fuel? KK: Because you have the right to price your own gas, whatever you want to. Some people like to make 5 cents; some people like to make 3 cents. Some people like to lose money on gas. James: So, I mean we are always wondering, I mean I'm sure I thought every gas station owner was trying to make some profit because every gas station has different pricing. So do they try to take it back on making more money by increasing the gas price slightly? I'm sure there's elasticity in terms of customer demand versus the gas price. KK: Well the street price is who rules the gas prices, the street pricing. So some people like to bring the customers in by losing money on the gas.   James: Oh.   KK: Or making less profit on the gas and they want to bring the customers to their lot and then bring them inside to the convenience store where they can make 35% instead of pennies. James: Interesting. I thought there will be some money being made on the gas, but looks like what you're saying is it was so little money, you may not make money or you lose money... KK: I've lost more money because 90% people these days use credit cards. And then on top of that, you end up paying credit card fee as well. James: Oh, so you have to pay, but is the price inside of convenience store slightly higher than what you get from Walmart or Walgreens or CVS? KK: Yes. Yes. That's why they're called convenience stores because they are for convenience. But, yeah. So it's like they have to pay for the convenience. James: Yeah. Which makes sense, I mean, I'm giving you space and the gas for almost all on my costs. Right. And now you come and pay a bit more on the convenience of, probably people don't care because it's convenient for them. That's absolutely right. That makes a lot of sense now because I always wondered this. So, is the gas station business being impacted with some of the electric costs that's being popular nowadays? KK: Well, we never made money on the gas anyways, so I don't think it's going to affect the people still going to buy their food and drinks and chips and candy and the cigarettes. So they do still come. I own an electric car myself but still, I stop at gas stations to...   James: Buy things   KK: Buy coffee, buy candy, and buy something. James: I think the location of it is much more convenient. I think that's how like even Buc-ee's, I'm not sure whether you know Buc-ee's in Texas they're very big. They have a lot of gas stations, like hundred gas stations outside and it's a big convenience store. KK: Yup. Yup. James: Okay. Okay. That makes sense. Yeah. So it's like a big, slightly more expensive because it's very convenient.   KK: Correct.   James: Okay. So what about a Laundromat, how does that work? KK: Well, I had this lot sitting by my gas station for a long time. It was a vacant lot and I thought of buying it and utilizing it and this neighbourhood needed a Laundromat. There was a little lot like a block away from my gas station. There was a Laundromat, which were the old beaten up Laundromat, it had like 20 years old machines. So I thought that I can utilize this property and I did some creativity and bank that lot at a very low price. And I built a Laundromat from ground up with the best machines that they come, bigger machines. So immediately after I opened that Laundromat, the other one closed because it was all, nobody wanted to go there. So, and Laundromat is a good business too because you don't need the employees, so it's unattended. So I have a girl that comes in the evening and cleans up and somebody will go from the gas station and clean up or if there's any problems. So this is kind of a passive income. James: So you still have the Laundromat until now? KK: Yes, I do. And we are building another one. James: Oh, that's awesome. That's awesome. So is this the machine with a speed queen? KK: No, [10:00 unclear] machines. James: [10:02 unclear], okay. Okay. KK: We have bigger machines, like 90 pounders, 60 pounders, 50 pounders. Yeah. James: I mean, the reason I ask about speed queen, because in my properties, I'd probably own a Laundromat as well, but indirectly, right, in all our apartments, I think 90% of our apartments, we own our own machines. So, we like to buy new machines, but this is for residential. So it may not be... KK: [10:28 Inaudible] is good too.   James: Okay. Okay.   KK: But that store is good for Laundromat, commercial and it's very simple to operate, and it's a sturdy machine as well. James: Got it. And have you ever tried to sell these gas stations and the Laundromat? KK: No. James: Okay. So you're keeping it for passive income? KK: I have a system in place and they are an automatic, autopilot, I mean. So, because I have partners in all my gas stations, they run the gas stations and I stay home. James: Okay, good. That's true passive income right. KK: Yeah. James: Now, the reason I asked you whether you sold is because I want to know how this business is being valued. KK: No, I haven't never sold any gas station. I have always bought gas station, and I would still buy a gas station if I get a good deal. James: So if it's passive income, why not you buy nationwide? KK: No, it's not passive income, it's not. It's passive income for me because I have my friends and family as partners who run the businesses for me. It's not passive income and I don't, people call me all the time and ask me if they can buy a gas station and rent it out and make more money than single family or real estate, no, it's not like that. James: So it's not as a, what I'm trying to say I guess is...   KK: It's not at all passive. It's just autopilot for me because I've done this for so many years and I have brought in partners and some of them are even my employees that I have partnered with. James: So they are the one who is active and you are investing money and for you it's passive. So it's not really passive income, but because you are a silent partner, you get passive income, I guess.    KK: Right. Correct.   James: So after that, how did you buy 40 single family residential? KK: Well. the seller was from our community, he met me at the church and he said, I want to sell my property that he had for several years. And I told him that I know somebody in Indianapolis that I can refer to. And he said, no, I want to sell them to you. And I said, no, I have never done this and I'm not going to get into the rental business, toilet and all that kind of stuff. He said, I will give you a good deal and I will teach you for a year how to do it. So that attracted me and I came home and talked to my nephew and at that time I didn't even know about [13:10inaudible] it is. So, I talked to my nephew, we calculated, we didn't get any financials or anything from him and we were comparing, I went online to the city website and check the prices compared to what he was offering us. So I liked the pricing of everything. I said, yes, the very next day I said, yes, we will buy your houses. And we went ahead and bought, we never hired an attorney. We just wrote up purchase agreement on my computer and we bought those 40 single family houses and then he started helping me. But he had done this for about 40 years now. So, but he was all old school, everything was on pen and paper. I didn't like that idea. So I had a lot of other stuff going on. I said, no, I would do it myself. So I bought some books, I went online, did some research and started managing myself and I still manage those 40 single families myself. James: That's a very inspiring story, right? Because where you going from zero to nothing, I mean to learning about how to operate 40 single family residential. So how did you learn to make that business in single family residential from the guy who's selling you, he's old school? So now you are a Microsoft certified system engineer. You are going to think on how to put everything into computer. What was the first website or resource that you used to start managing this 40 single family residential?   KK: Well, first of all, I started researching about the property management software and I did some research on the property management softwares and I found [15:06unclear].com the best software for my purpose. And the pricing was good, the features were good. And I signed up for a demo, I took a demo and liked it and I moved all my properties to [15:21unclear] James: I used [15:23unclear] as well for my single family residential, even though I only own like two right now, but we went through a few iteration of property management software for single family and then settled on [15:33unclear], which is pretty good for the single family and [15:38inaudible] management. KK: Correct. Correct. James: So you are in Indiana? So have you ever thought about looking other places for real estate or you wanted to do that? KK: No, I do my multifamily almost, I have one in Indianapolis and all others are out of Indiana. James: Got it. Got it. KK: So, right now I'm doing the 10th view as a general partner and I did seven deals as a passive investor. So all of them but one is in Indiana and all of them are out of Indiana. James: Okay. So I want to go to that transition where you were doing Laundromat, gas station and 40 single family residential, so, how did you get introduced to multifamily apartments? KK: Well, when I bought these single family houses and I went online to, I started researching on bigger pockets and read some books and I realized that it's not scalable and especially there's no tax advantage. That's why we bought these properties. We thought, oh, we can save money on tax. Because we were paying a lot of tax, we had a lot of cash-flow from the gas stations, so we were paying a lot of tax. But with buying single family, we ended up paying more tax because we made more money. So, I thought, no, we were here to save on taxes, so this is not the way to do it. So I started researching and finally as I learned about the syndication process and cost segregation, how people save money on the tax. So we started and I actually started investing passively and never thought I'm going to be active investor at that time because I had so much going on and I have like 15 companies. So, I thought, okay, I will keep doing it. But I'll keep investing my passively and get K-one losses and wash off other passive incomes. That's was my original plan, but when I started learning about multifamily and I learned that I have so much passion about multi-families, so why not do it actively? James: Yeah, no. So I want to go through the thought process here. So, what year was it that you discovered multifamily? KK: 2015. James: 2015, which is like what? Four years ago. KK: Yeah. Four years ago. James: And you say syndication, right? So even when you introduced to multifamily, did you look at buying a multifamily without syndication? KK: Yes, we did. We did four times. James: So you did buy some multifamily without syndication? KK: No, we didn't buy any. James: Oh you didn’t... KK: Because we were thinking of buying the same way we bought these houses. James: Got it. KK: So we didn't even know how to do underwriting, how to calculate the profit and loss. So we thought, okay, we bought these houses for so much and these are like just two room, one bedroom apartments so this should be half the price of the houses. That's how we started and we offered four alloys. First we started with the 32 unit and we went all the way to 96 units to buy, but every time we were overbid by others and we didn't know that we have to do underwriting and all that stuff that I realized after giving four alloys that we, no, this is not the way to do it. We need to start underwriting and they are not priced as the houses are, they are priced based on the net operating income. Then I started learning all that in 2015, and as I was learning, I was investing passively as well.   James: Got it, got it.   KK: I still kept investing and a couple of my partners started investing along with me too. So, we invested all over the nation in first three years, 15, 16, 17, and in 18 I decided to go at it. James: Why you didn't from single family, you were thinking of buying the large multifamily, which is like 40, 50, no, 90 units, right? Why you didn't look at duplexes, triplexes and fourplexes. KK: Oh, I taught duplex, triplex is the same thing as single family because we had the money, we had the resources, we could get the loan, we had the network, so we thought we can buy 30, 40 units. We never thought of buying smaller properties. James: Okay, so you wanted to go big because you think you can do it. It's just that you didn't have the knowledge on how do people underwrite this commercial properties? KK: And that I learned, that I learned soon after being overburdened, four of those alloy's that we did present. So I decided to learn and then I learned a lot and I attended several boot camps and took some courses, read a lot of books, listened to a lot of podcasts. So actually I had a passion for it. So I was spending like five, six hours a day, maybe even more, maybe eight hours a day. Just learning about multifamily. For six months, I never slept before midnight for six months. James: For six months you didn't sleep before midnight because you were so wowed with this multifamily.   KK: Yes. That's when I was learning about it, listening to podcast, every night I would listen to podcasts, read something about it, so I spent a lot of time learning this process James: And you said multifamily was more interesting compared to buying more gas station, Laundromat and the single family because of the tax advantage. That's what you're saying. So you need something to offset your passive business, I mean, active business income, I guess. KK: Well, I had a lot of passive income as well. Because I was not active in all the gas stations. I was passive in some gas stations and we own real states of several gas stations, and those LLC owned properties. And so our operating companies were paying rent to the real estate company. So that was my passive income as well. James: Oh. That's an interesting strategy there. So why not buy like a strip mall or warehouse or industrial warehouse or South storage? KK: I don't like anything else but multifamily. James: Why? Did you look at that [22:30inaudible]? KK: Yes, I did look at it; it's on my criteria as well. The second think I would ever buy would be storing units or the mobile park, but I would never go to commercial or anything because I know people need at least a roof to live somewhere. James: Okay, got it. So you think there's a definite need for a residential? KK: Yeah, because of the technology, you never know. Did you see the strip malls, commercial buildings closing industries, moving to Mexico, China, India and all those countries? But they can't move apartments to China. James: That's right. That's right. KK: But they have to live here. So, that's the only, I get a lot of other offers, but I am very, very strictly multifamily person. James: Yeah. Yeah. So let me give you some education to the listeners. So, what KK was talking about is the tax advantage that you get in multifamily, especially with something called depreciation, which is a paper loss which offset, which shows your income. Even though you're making cash-flow from a positive cash-flow from your operation in apartments depreciation is going to be more, most of the time it's going to be more than your cash-flow, which means you are, it shows as you're losing money, which means you probably don't pay any tax on your cash-flow; and sometimes net cash flow minus depreciation do come out positive, but the amount will be low because now you have depreciation. And in single family residential houses, you still do have depreciation, but it's divided by 27.5. But in commercial, which is apartment, you've either been doing divide by 27.5, you can still do 27.5 but you can also do something called cost segregation, which means they segregate each part of the building and commercial into five years, seven years, 15 years and 27.5 years? They separate the windows to seven years. I don't know what exactly the schedule is, but example windows took seven years, the driveway took 15 years. Frauding took five years. And what they do is they save all this 15 years for all five years, everything is segregated. And all this depreciation is accelerated in the first five to seven years and 15 years. And even the first five years it's like 30% of total depreciation. So, the number of, the amount of depreciation you get in apartments is like, it can be huge because of this cost segregation. And now with the tax law that we have in 2017 from 2017-2023 you have something called bonus depreciation, which means you are going to take all the 15 years schedule of depreciation, you're going to depreciate it in the first year, which used to be only available for new development. Which makes sense, new developments; everything done you'd appreciate 15 years into it. But now the new tax law have given leverage for the properties that has already been built. But this advantage only available until 2023 and after that it starts reducing to 50% instead of a hundred percent depreciation become 50% and depreciates less, and in other commercial real estate, like strip centre and warehouses and all that, is not depreciated by 27.5, it's depreciated by 39 years. So you can... James: 39 and a half? KK: Come again. James: 39 and a half. KK: 39 and a half. Okay. Thanks for clarifying, I thought it's 39. So 39 and a half, and what happened is you get much lower depreciation, they can do also cost segregation, but you know, you're going to get less number. And it makes perfect sense for farmers because of the Maslow hierarchy of needs as well. Everybody needs a shelter to stay.  And especially because of those appliances they have, the kitchens, the counters, kitchens, fridge, the microwave and the stove, those things get depreciated in the very first five years. And you can get all that in the very first year. James: Yes, yes, correct. Correct. So that's an awesome tax strategy in apartment and that's what we call this multifamily apartment. So let's go ahead. So, you said you started learning how to value the apartment and at 2015 you learned the trick about how to trade. So, why not at that time you go and buy apartments, why did you go passive? KK: Well, at that time I was still managing the Laundromat and one gas station myself. And after about two years in 2017, my son-in-law, my daughter got married in 2015 and her husband came to United States in 2017. I asked him, he was a competitive engineer too, I asked him what he wants to do and he said I want to be in the business. He owned a gas station in Canada as well. So he migrated from Canada. So he started doing what I was doing. So, I was only managing these 40 single family houses and most of my stuff was on autopilot, so I had nothing else to do. I decided to go active. So that's when I started looking to do syndication myself. James: Okay. No, but my question was, like I mean after you learn all the tricks on how to underwrite multifamily, right, why did you still go with a passive investment KK: That's why, because I was busy managing my gas station, single family houses and Laundromat myself.   James: Oh. So, now your son-in-law is taking care of that, now you, okay. Got it. Got it. Got it. Now you have all the time to really be an active sponsor, I guess. KK: Correct. James: So, okay. Okay. How did you make that transition from being a passive to active? Because that's a day and night skills. KK: And you should know that too because you are sitting on this side right hand side and Jeff Green well he was sitting on my left hand side and San Diego mastermind. James: Oh, I must have influenced you. KK: Yeah. Something came, I pulled some of your power and Jeff offered me to be a general partner on his deal. James: That must be my [29:08inaudible] KK: Yeah. So I said, okay, I will be your general partner. I raised money for his deal to close. So that was my first transition and I was so much motivated by meeting all those people that like the mastermind in San Diego last March when I did the deal.   James: Yeah. That's very interesting. Sometimes this mastermind brings, the proximity is power. You have people who are doing it and you know that you can do it if you have the right support. And sometimes, certain words and certain discussions can motivate you to progress. So it's very, very powerful concept of mastermind. Sometimes people thinks that you go from mastermind, you are wasting time. You're talking but there are always influencers, especially in a small setting compared to going into like this large conferences where you go and just network, right. This is not so contagious, but in a small group setting, it can be contagious and that's good, so you are able to, yeah, I know when we were in the mastermind we were talking about, you are passive and I didn't know that was the time that you were transitioning. You decided to transition from GP. KK: That same day I did it and he emailed me all the information and when I was coming from San Diego, I was looking at the costar report, underwriting and everything on the plane from San Diego to Chicago all night. James: I have to give credit to myself too. KK: Yeah. The credit goes to you too. James: That's good. That's good. I hope so. I mean, I'm sure you would have some calling to or for you as well. But I've been, I'm happy to help out as well. So, KK, what was your discovery when you, from a passive investor, I mean, you were of before, let's assume that mastermind was a transition period. At that point before that you were a passive investor, your mindset is completely different. You just want to invest passively. You didn't want to do any active role, maybe its fun, it's interesting, but you just didn't want to do it. But once you step over into the GP side where you partner with another sponsor. So how do you think your mindset has changed from passive to become an active? KK: Well, my mindset changed back in 2017 because I had learned so much. I was thinking, why don't I put all this knowledge to work? Why I am just investing passively. But as I told you that when he took over, so I was completely free. And I stayed home and there was not much, and I have so much of my single family management on autopilot that I spend about nine hours a week. So I had nothing else to do, and I decided to move on to, and I started looking on deals before my mastermind, I did start looking deals and I did some [32:19inaudible] the properties and I did give some alloys as well, and I learned the business practically by doing it. And then it was, I think a miracle happened when you did something at the mastermind that I got a deal. And I also learned that it is teamwork. It's not something that I can do myself. It is teamwork. So I think that was a great opportunity for me when Jeff offered me that deal and they were in, they were very close to the closing. So, I raised the money in about three days and became a member of his asset management team where I learned a lot as well. And after that I did a one deal with Radcliff and Robert in Lexington, Kentucky in May, we closed that in May and now I'm a general partner on a deal with Viking Capital on a 92 unit, a B class asset in Marietta, Georgia, North of Atlanta. James: Got it. So let's assume KK, so now you have moved to become more on the active side, right? Part of the asset management team. So if I split you into two, your best friend is your older, KK Singh as the passive investor and now is the right one. The right side, KK is the active investor, what would you turn to your passive investor, best friend and say what are the advice that you want to give to your KK Singh a passive investor on how to invest smartly as a passive investor? Since now you know both sides. KK: Well, even when I was a passively investing, I was learning continuously because the very first deal I didn't know much about multifamily. So I just invested to see how it works. So I just wrote a check to Ivan Barrett for 50,000 and I invested in his deal in Dayton, Ohio, but after that I realized that I need to learn about the passive as well. And I like reading a lot, listening, and reading and so I started learning how to invest passively and I prepared a list of like 42 questions, which I was asking. And then I started investing with Joe [34:53inaudible] in his deals in Dallas and I didn't want to put all eggs in the same basket. So I tried some other syndicators other markets as well before I finally decided to go active. James: Got it. So, out of that 40 questions that you have in your passive investor checklist, and don't worry, I'm not going to ask you to do all the 40 questions, but is there any like five to 10 questions you think all passive investors should ask before investing in any deals? James: I think the most important thing is in this all the syndication process is the operator. So I always even tell my investors the same thing that I did myself. I always looked at the operator. Who is the operator? Who is their team? Do they have an office? Do they have a complete set up? And then do they have a track record? Have they gone through a full cycle? So I always look at that first, even as a passive investor, even as a general partner, I do the same thing; and the second thing is the market. What market is the property in? So does that property market have a rent growth, continuous rent growth? Does that market have a continuous population growth? Are the companies moving to that area? Is it a bigger like population over 200,000? I don't invest in smaller cities. So those are the second things, and then I move onto the property. Is it really a value added property? Every property sale, value add property, sometimes there's no value at all or there is no rent growth. I have seen like people wrote, right, 300 rent bump. Do you think the previous owner was dumb? So he was $300 below market. It doesn't happen all the time. So I prepared a list of questions. I learned how to do all the comps, sales comps, rent comps, and I do get my investor do the same thing as well. James: Got it. So what you're talking about is operators, the second is the market, third is the deal, which is absolutely the right priority. So let's say for a new passive investor, how do they find about, before we go there, can you define what's an operator is? KK: Well operator is the guy who finds a deal, brings it under contract, signs the loan or brings the team together, or if they already have the team, and then after the closing they operate, they make sure they are performing as for performer, the property management in place is working, doing a good job. And they are giving the reports quarterly or monthly, whatever information to the investors and also paying the investors as promised. James: So how can a passive investor know about the operator? I mean, without asking the operator directly because sometimes it's hard to know. I mean, as I say, a new passive investor comes, sometimes they are very shy to ask a lot of questions because they are worried that they will not get into the deal. But is there any other way that a new passive investor can find out about the operator without asking the operator directly? KK: Well, they shouldn't be shy. I even asked the operator if you die, I go that far, if you die.   James: Absolutely. KK: Yeah. I mean, I don't mind if somebody asks me if you die, where are we going to ask for our [38:57inaudible] or money? I mean, it's obvious if somebody could die in a second. Yeah. So there has to be some things in place that if somebody dies who's going to take care of. So I think that should be and I have uploaded those 42 questions on my Tenex Facebook group several times and Radcliff has those 42 questions on his website. I think passive investors should download there as well. But I can tell you how people find me. They follow me everywhere on social media. They check my profiles and they listen to my podcast and then they approach me, oh we know you for a year or two; I saw your video live or podcast. So they probably know everything before they come and contact me unless they are referred to me by someone who is already in my investor or my friend. So they trust me too. James: Yeah, I mean that's true. I mean once you are... KK: I'm very active on social media so people know what I do. James: Yes, yes, yes. Correct. Correct. Correct. So what about market? Can you tell the audience, especially passive investor, any specific resources they can go and see before investing in the market? I mean, I know you said you do not want smaller cities, you want big cities, but what else they should look for in a market before they even invest even passively? James: Well they should, first of all, we talked about the operator and then the market research is very important. They should look at there are so much free services available, ctdata is one of them. James: ctdata.net? KK: ctdata.com   James: dot com, okay.   KK: Dot com and they can go there at least or just write down population and there will be a population of so and so city. They'll get so much information and there's another world review website that it will automatically pop up under the CTdata and you can go there, research the market, sub-market and even the neighborhood.   James: So have you seen any deals that was presented to you as a, I mean when you are a passive investor, when you presented to you that you think are this guy, he didn't underwrite the deal as conservatively as he is claiming. I mean, everybody claims their underwriting yes. KK: All the time. Right. All the time. James: It's like a value add. Right. All deals are value add. Same thing, all lead sponsors, all our sponsors are saying all their deals are written conservatively, they fill up quickly. KK: Some people are very smart to write their OMs and they'll write it in such a way that a passive investor who's not very literate about the multifamily. And if they don't have time to do their own research, they can fall in that net very easily because they are written so smartly. So they don't understand. And they don't spend much time either. James: Yeah. But how do you, can you give us a few example where you were able to cut some, I would say... KK: The biggest one is the comps. James: It's the comps. Okay. KK: And the second thing is the rent growth. Sometimes they'll write 3% rent growth and they will say, oh, it's very conservatively written. And I have been managing these houses since 2014 I have never seen 3% going up every year. I mean there has to be some year when it's going to be down, it might go up to 3% again, but all five or seven years or 10 years, whatever the whole time is. They don't go up all the time. And another thing is the vacancy. A lot of times they will write the vacancy or we can, we're going to have it 95% occupied, but when you look at the four star report or others resources, the market occupancy is at 90%. So how can you do it 95% if the market is at 90%? So some of those assumptions they make are sometimes very aggressive. James: So you say rent comp, and use also talked about the comps? So you're talking about the rent comp that they are projecting? KK: Rent comps, rent comps, they are projecting this and sometimes I've seen on the OMs, they are not comparing apples to apples. They're comparing one bedroom to three bedrooms and then they'll say, oh, there is a threat, $315 rent bump. You're not comparing apples to apples.   James: Do you think they make a mistake or they just...? KK: They intentionally do it and nobody can challenge that either because they don't, they say nothing there that it is three bedroom compared to one bedroom. So that OM doesn't say that we are comparing one bedroom. It's just going to say that apartment has this rent and this apartment has this rent. And they'll show you that there is a $300 bump which is not true. So far, I never seen a bump more than $150. James: And even 150 is difficult to get, so yeah KK: No more than $150. I have seen up to $150 which is also, as you said, by renovating, adding like $500, $600 to the unit, you might be able to raise the rent by a hundred or $150 maximum. James: Very interesting. So was there any aha moment as a active sponsor, as active person, more on the GP side now that you think like in the past six to eight months that you think, oh, I've learned something new about multifamily. Can you share it with the audience? KK: I always learn every day, every day I get some new experiences. I learned new things from sometimes even from people who know nothing about multifamily, but sometimes they teach you with, and I am very motivational and I'm motivated myself. I try to motivate my members in my Tenex group as well. Like every day you learn, in this business, every day you learn some thing new. James: So, I mean, so you had been pretty successful in investing into multifamily and now you're going more into the GP, so what do you think is the most I would say secret sauce to your success? KK: First of all, and I would also suggest to your audience, which I didn't do, but I didn't have to pay the price, but somebody might end up paying the price. I would say invest in yourself, that means learn the process yourself before you invest in any real estate, it could be single family, multifamily, any kind of real estate, do your homework first and don't be scared to spend some money on yourself, your personal development and learning and boot camps. Those are really helpful and I will, when I started learning at bigger progress, bigger progress always said that you don't have to have a coach, you don't have to attend any boot camps and everything. But when I got out of that mindset, I said, no, I got to go checkout some boot camps. It doesn't matter if I have to spend some money. And I realized that I learned a lot, I got motivated a lot. And also when I was holding myself accountable to do something. So, it's before that it was flow free flow. So, whatever I could do, if I got a deal, I would go ahead and make an appointment. Go look at that deal and end up there. But I think these things help, these Facebook groups, these masterminds, these boot camps, there are all these real estate, multifamily events, all of them help.   James: Got it. So it helps in terms of giving you some guidance to move ahead or give you some motivation or how does, or give you some knowledge? KK: So, as long as you have knowledge, you feel very comfortable doing something. James: Got it. KK: If you get out of your comfort zone and have knowledge and once you have the knowledge, you feel very comfortable doing anything. If you don't have knowledge, you always in fear, you get scared, or what if I do this? What if I can't raise the money? What if I, so there's lot of questions. Once you have the knowledge, you know that you will be able to do this. If you have a good deal, the money will come. And I hear a lot of people saying they're on Facebook as well, that a lot of people say that if you have a deal, money will come. We have a deal, but we can't raise the money. So that means something is wrong with your deal. James: Especially on this market cycle, where there's a lot of capital chasing the small number of deals, the true deals, I mean there are a lot of deals, but most deals are 98% of the deals doesn't really underwrite well as what it used to be. KK: I was looking at underwriting yesterday, this property had since 2015, the occupancy is 60,000 and all of a sudden now it's on sale it's at 90%. I looked at the costar report. I said what? Within the last three months, it went up to from 60% to 90%. James: Hey, hold on, hold on, hold on. KK: Okay. I looked at this deal yesterday and since 2015 I looked at the CoStar report and since 2015 the occupancy was at 60% and then the last four months it went from 60% to 90% because now it's on sale. James: On sale. Yeah, correct. Correct. You have to be very, very careful about these kinds of deals. I mean, unless it's an experienced operator, you are ready to go and turn it around; otherwise it's just going to be difficult to once you take over.   KK: And I think they already offered a little bit more money, but now the broker wants them to raise their price. I said, don't even raise a penny. Whatever you have offered is already on the higher side, but a lot of times they want that kind of money and they can get, because somebody else will pay. And I told this guy that somebody else will pay more, but they're going to be in trouble. James: Correct. Correct. Right. I mean, market is saving a lot of people out there right now. Right. People have all paid in bills and made a lot of mistakes in the underwriting. But market has been saving a lot of them for the past nine years. I mean, a rising tide raises all ships, so it's okay to make mistakes now, but it may not be okay when the market turns. Because now you'll see who is in trouble once the tide comes down. So, you have to be very, very careful right now KK: The market is at such speed now, tending to slow down. So it, people should be very careful and they should do their sensitivity analysis as well. Do the stress testing on their deals to make sure that they will survive if the market sort turns a little bit. James: So KK, can you, is there any proud moment in your life, in your business life that you think you cannot forget? That's going to be that if you really think you know, the next 10 years, one proud moment that you think that you always really proud that you did something. KK: I think I have been always proud of what I did because I do my homework before I do anything. I've spent a lot of time researching when I built a Laundromat. I had spent about a year the same way and I am very proud that I spent that time and I'm making a lot of money on that Laundromat and it's a very successful business. James: So you do, I mean, you're proud that you're doing a lot of research before you entering into a new venture. So... KK: Correct, correct. James: And if you want to let our audience know how to find you KK: Oh, I am very easy to find. They can go to Facebook and I have a Facebook group, Tenex multifamily investment group, and we have a little over 3000 members in about six months. I think we started the group at the same time. James: Yeah. You started late but you are slightly ahead of our group right now. KK: Yeah. And that's where they can find me. They can ask me questions and every Tuesday I have a zoom calls where they can come and join us and learn something, network. And they can ask me questions as well face to face, every Tuesday, nine o'clock Eastern time. And the zoom link is always in the Tenex Facebook group and then they can reach me through our website as well growrichcapital.com, or they can call me on my cell phone, 260-341-1964. James: All right, sounds good. So KK thanks for coming for the show. You add a lot of value. I like to, I mean I think I really found a lot of nuggets because you moved from different, different businesses to multifamily. I think that was very helpful because a lot of listeners could be doing other businesses and always wonder why not that business, why not this business? Right. And then why multifamily? So you, I think you summarize it pretty well and I think you, I think I did get a golden nugget of a few golden nugget when you move from passive to active, right? And how that transition worked out and your thought process when you go to that whole process. So appreciate you coming on board. Thanks for coming and that's it. KK: Thank you very much for having me, James. James: Yeah, most welcome. Thanks KK. KK: Love to be back on your show again, sometimes when I'm a bigger syndicator James: You are already a big syndicated. Thanks KK. KK: Thank you. Thank you.      

Zach sits down with two-time Paralympian James Roberts to continue and expand upon our discussion centered around being disabled while other. He talks about the role that sports and physical activity played in helping him become more of himself and transition to navigating the professional world. He also emphasizes the importance of being authentic to yourself and so much more. Connect with James on LinkedIn, Twitter, Instagram and Facebook, and visit his website!James has a podcast - click here to check it out! You can also subscribe to his YouTube!Stop by Living-Corporate.com!TRANSCRIPTZach: What's up, y'all? It's Zach with Living Corporate, and oh my goodness. So first of all let me shout out our listeners, okay? So shout out to my listeners in the States and my listeners--our listeners, right? 'Cause we actually have some international reach. You know, we got folks in Nigeria, stand up. We got some folks in the UK. Stand up. We have folks just all over that actually listen to Living Corporate, so I'm really excited about that, and I bring this up now, I bring up our reach, I bring up our international listeners, because of our guest today. Today we have with us James Roberts. So James Roberts is a public speaker, a motivator, a consultant, but many of the folks who know him know him by his athletic feats as he is a Paralympian who participated as recently in the 2012 Olympics. So we have him with us today, and we're really excited that he's on the show. What's up, James? How are you doing?James: I'm very well, Zach. How are you?Zach: Man, I'm doing really well. So first of all, again, excited we're able to finally link up. We've been trying to do this for, like, a year, you know what I'm saying? We finally got it done. Objective completed.James: Well, I think some things are worth waiting for.Zach: Come on, now. [both laugh] No, I 100% agree with you, and, you know, I'm really excited to have on the show. You know, we don't--we talk about non-white experiences on Living Corporate, right? And we talk about that from whatever it may be. So if you're non-white and first-generation, if you're non-white and LGBTQ, if you're non-white and non-binary. Like, we talk about all types of non-majority experiences, and we've only really to date had one really talk about being non-white and disabled, and so I'm really just thankful that we were able to make the time for you to be on the show today. So for those of us who don't know you, right, can you tell us a little bit about yourself?James: Well, I'll start right at the beginning, Zach. My upbringing is even probably slightly different to even where I live now, being in the UK, because both of my parents were in the Armed Forces. My father was in the U.S. Air Force and my mother worked for NATO, which is the North Atlantic Treaty Organization. So I have a slightly different upbringing to probably, well, people the same age as me growing up in the UK. I probably have a better understanding--obviously I had diversity impact my young childhood. I probably have a better, I would put it, understanding, a better tolerance of other people, because having grown up with a multitude of nationalities--I wouldn't even want to try and count how many that was--and I think that had a bearing on be it my young childhood from obviously--well, with the disability, but I think when you're as close to the fire--and I'll use that analogy as it being your life, you're living it day in day out--you never see things as black and white. You probably see it like a multitude of grays. Well, it's not adverse for me, and this probably comes back to be it how my parents and probably to a certain extent my family orientation, it's very much old school. It's "You're gonna sink or swim," and it's going back to probably the business sense of it. That's probably a good one because it puts you in a good place and doesn't--you don't really see things as a predicament because it's like, "Well, I've got two options. I can either learn or adapt, or I sink and I quote-unquote drown." So I think it's a good analogy to use moving forward.Zach: No, absolutely. So let's talk a little bit about your disability if you don't mind. Can you talk about your disability and what it is specifically?James: Absolutely. I come at it from two perspectives now because I like to keep it simple for people to be able to visualize, and obviously people can relate to what is an impairment of an imputation because it's become more and more commonplace in the media, in newspapers, social media, et cetera, where as mine's a little bit more complex than that. And honestly I've got to think off the top of my head in terms of what bones I'm missing. Mine is obviously more complicated than that, but off the top of my head--let's see if I can get it right now. I'm missing my femur, [which is] the top portion of the leg, and I have a small tibia and fibula, which would be--well, normally in your ankle, and that is attached to my hip. So mine's is kind of like--how would I describe it? Probably, like, a leg in reverse. I've got half of it, but it would be the half that you wouldn't expect.Zach: And that's what prompted the amputation, correct?James: No, no. It's more of a--you could say it's a birth defect, but we don't actually know what's the root cause of it, but I coin it as an amputation because it's, be it from the periphery when I have an artificial leg on or a fake leg, however you want to put it, people can relate to that because it's similar to what an amputee would have. So without having to--well, I would say it's a lazy way of describing it, but most people can relate to it. "Well, I know what an amputation visually looks like. I know what looks like in the flesh," and you don't really have to think, where as if I go into explaining my disability, okay, for the people outside of the medical field or should I say within the medical field, they would understand every technical term that's coming out of my mouth, so I probably play it to the layman's terms to be a little bit easier for the general populace.Zach: So can we talk a little bit about--so it's interesting. I've had discussions with people who sometimes they'll frame physical disabilities or just disabilities of any kind as something to conquer and get over as opposed to a part of who you are, right? Can you talk a little bit on how you think about your disability as it comes to you working, as it comes to you just navigating life? Like, do you see it as something to conquer, or do you see it as just part of who you are, as James?James: I think that's a very good question, Zach, because I could come at it from two perspectives now. And you're probably surprised there. I can come from either side of the argument. I think when I have put out content, it's been misconstrued at times how I've put it, be it--what did I put more recently? You could say the disability was adverse. I had a chip on my shoulder and an ax to grind, and I play around with that at times, and I see the funny side of it. But when I use that, and I'll probably go back to a story more specifically. It would probably be when I was a teenager. That I was very--probably trying to, to a certain extent, find myself. I wasn't probably on reflection of--and I think about it at this point in my life, I wasn't content with me as being James. I saw the disability as a hindrance, problemsome... just a pain in the ass, really, because I wanted to be nothing but an able-bodied individual. I wanted nothing but not having this disability, but I think where I kind of had a light-bulb moment, and this kind of continues on from the story, is I was very--how would I put this?--not comfortable with probably my identity. I would want to hide it away. I would wear jeans, trousers, at any moment I could, even when it was hot and I was sweating, and I wouldn't be comfortable outside of a sporting arena, where as on the flip side of that--and it still perplexes me to this day--I would be content to be shown ever-present in a sporting field, but I think that comes down to--it probably helps being a coach because I can identify--it's probably I was content and confident in that arena, but I was still trying to find myself on every aspect of society, be it school, and the outside perspective of what--sport in a sense is a bubble, but I think as I've got older and started probably not to care what people thought of me because at the end of the day you're gonna get people that loathe you and like you just as much, but the people that's gonna like you is for you to be as authentic and genuine that you can be. So once I kind of probably put myself in that position to be vulnerable and only to a certain extent story-tell, I've started to kind of give people the true identity of who I am. I'm not trying to mask the facts of who I am. I'm not trying to be a different person for a different environment, be it I'm a certain way for my friends and family, I'm a different person for obviously teammates, and I'm a different person in my business. I try to encapsulate being, well, one person for all three. It's difficult, but I think I'm getting there. So that question that you asked, Zach, am I comfortable with being James? I think it's taken time to be able to be at one and be at peace with who I am, and this probably comes back to a good question that was asked--not just me, but a different array of people within an amputee group--it kind of asked, "Well, what are you most proudest [of], or what are you most positive about what's happened to you having acquired the amputation or being born with one?" And I put, "Well, mine is slightly different, but if it hadn't been for the disability," well, obviously as we're talking now, this would probably not have happened. My sporting career, for all sakes and purposes, probably wouldn't have happened if I'm honest. Okay, it was an aspiration when I was a young kid to want to be an athlete, but once I got to be a teenager it's like you wanting to either do soccer or play basketball is very unrealistic with having a disability. What path can you take to do--to kind of go down another route and probably progress that way? So from a sense of a Paralympic sport, disability sport, it kind of fell in my lap from that perspective. So to be able to live to no uncertain terms a lifelong dream that I had when I was younger was probably a godsend, I would put it as.Zach: No, I hear you. So can we talk a little bit more about that and talk about the role that, like, sports and physical activity played to help you become more of yourself and how that then transitioned to help you navigate the professional world?James: Absolutely. Coming down to it, I think there is a--very much from what I've learned from sport, and I could probably take away from it [as] my younger self as well is that--and what's transpired into business is--obviously that's what I alluded to with the adversity--is looking at things from a different perspective. Using one--well, a quote that's not really a quote, but somebody was saying to me not too long ago from the RNLI in the UK, [which] I'll say is the Coast Guard, they kind of asked me, "What do you do to survive in terms of if you've got yourself in a spot of bother or in deep, deep water? Cold water?" And I'd seen the advertisement for it, so I knew exactly what they were talking about. So you look to obviously stop and try and relax, where as I think you probably could take a precedent from that--and going back to what I was talking about of me being a young child and my family throwing me into the deep end, obviously that's me, metaphorically speaking, doing exactly that. It's relaxing. It's taking everything on board and not succumbing to problems, difficulties, and to a certain extent becoming overwhelmed and kind of floundering. You start to panic kind of mentally because "I've never been put in this situation. What do I do? Do I kind of push against the current?" And obviously if you start doing that you're gonna be in--you're gonna be in a spot of bother. You're gonna start panicking even more. You need to just relax and wait for things to come. Okay, from a business perspective, patience isn't always a virtue. It's very difficult, because I think we've got into a mentality in the present world now where "I'm not willing to wait for the result. I want it right now," because we're in a society that is fast-moving. "If I don't get it now, I'm gonna be behind my friend down the street, my good friends," and you feel that you're on the back foot from the off, where as I think if you have that mentality of be consistent and look at it from that perspective, as you're in it for the long run as opposed to the sprint and you start to leverage things that way, slowly but surely I think you're gonna be in a better position to be I would call it--not success, because I was talking to Shawn Harper the other day, and he was kind of telling me, "Well, do you want to be successful or do you want to win?" And I think this is where sporting people can find a commonality with winning, because obviously it's black and white. You're either on one side of the coin or you're not. You either win or you lose, where as I think success is to a certain extent manipulated. It's very much what society is dictating is success. Well, what is reality television telling you what it looks like? Be it it's very gimmicky, it's very misrepresented, where as I think if you look at it from the previous, with winning, it's all about you have a common goal. And if I use, like, a business analogy to make the point more clear-cut. Business is talked about as teamwork. Well, that's complete garbage, because why would you want to help somebody succeed in a company where your objective isn't the same? Where as I think you look at it as a more sports-oriented goal [and] everybody's pushing in the same direction. There you go. Now you have actual teamwork because everybody is striving to go in the same direction, be it if we use American football, everybody's on the same page. They're all in it for be it the Super Bowl, the National Championship, where as if you kind of single out individuals in an actual organization, "and I want you to do this, this, this," it's gonna become very cutthroat. It's like, "Well, I don't have the organization's best intentions at heart. I want to do it for me." You get very fixated on yourself as opposed to the success of the organization.Zach: So can we talk a little bit about challenges in being disabled while also being black? Like, you know, have you seen any challenges that you've had to face that are unique to your identity compared to your white counterparts?James: I have to really, really think hard about this one. Not really, but then that's probably glossing over the fact that there is gonna be discrimination, prejudice anyway. I don't have the problem of be it other black individuals within even the UK, be it if they're from African descent, they're gonna be stigmatized from the very get-go by just submitting a CV to an organization because their name per se doesn't fit. I have very much--if you don't see my color of my skin, just seeing some ink on a paper, you would assume that I'm possibly white. So that notion of stigmatization, prejudice, discrimination due to race, I don't think it's possibly being put at my feet. The disability on the other hand? Possibly, but then that's me being speculative and reading between the lines with be it not getting--well, being passed over for job interviews and whatnot, and that's the reason why I went into self-employment. It's like, "Well, if I"m not gonna be able to join the rat race and have a 9-5 job, why don't I go and work for myself?" And it is a brutal reality as that's probably down to the fact that I'm disabled, but a lot of the jobs have been very much sport-related. I'm very much around development of sport. Well, who better than somebody who's been there and done it to be put in that role? So I think it's--without speaking to those individuals it's quite difficult. You can learn how to operate a spreadsheet, you know, making numbers tick over to conform to whatever you want to show to hierarchy that obviously a program is working. We can learn that. I'm young enough to be able to put those steps into practice. But the other thing you can't learn. It's very much, well, God-given. It's something I had to work at and put countless hours in to be successful. So to be passed over for that basis, it's very frustrating because you're thinking, "Well, that's knowledge that I think--" This is probably to a certain extent where I make my point very poignant--I think, coming back to Shawn Harper again, it's where I think the Western world views--well, I'll use the analogy of old people or the elderly and the older population as once they hit retirement age they're kind of worthless, where as from an argument's sake you could probably put that to minorities, people with disabilities, because they fall on the outliers of what is the majority. "Well, you're not productive enough. You're not worthy." It's kind of to a certain extent worthless to the general populace, where as what he said with the people in being the Far East and the Eastern philosophy, they look at it as reproduction. It's their way of giving knowledge back and kind of being, you know, those people who have got wisdom, where as I'm thinking, coming back to my point with me talking about being passed over for jobs because of disability, that's missing a trick I think from that basis of that's me being able to give the athletes that are willing to be able to put in the work and want to get to the next level, be it from a sporting perspective, where they can learn from be it mistakes I've done. "Well, this is what I did. This is what you shouldn't do. You don't need to have those pitfalls and actually have that adversity. You can learn from my mistakes and get that wisdom and kind of piggyback on my attributes and my accomplishments and be able to be a better athlete, where as I think--where I'm gonna come from with that [is] I think maybe organizations gloss over the fact of that.Zach: No, absolutely. So look, this has been a great conversation, and I appreciate you taking the time to, like, hang out with us today. If you had any advice for those who are disabled, what advice would that be?James: I would say be authentic to yourself, because I think be it--in the United States it'd probably be even more problematic--you don't conform to any I'm gonna say quote-unquote box. You're kind of--you're being told you must conform and be to one box, but I think you need to be authentic to yourself, and once you're comfortable with that, I think you're obviously in a better place to be able to respect yourself. And it comes back to--and I think anybody can take heedings from this as well... you can't please everybody. The only person really you need to be pleasing is yourself.Zach: Man, I 100% agree with you. Thank y'all so much. This has been Zach on the Living Corporate podcast. You've been listening to James Roberts, Paralympian, public speaker, coach, and listen, appreciate y'all. Please continue to listen to Living Corporate. We're on every streaming platform. Follow us at Living Corporate @LivingCorp_Pod, Instagram @LivingCorporate. You can just email us at livingcorporatepodcast@gmail.com. If you have any questions you'd like to reach out to the show, hit us up right there or check out the website at living-corporate.com, please say the dash. Again, this has been Zach. Peace.

James: Okay. So let's get started.  Hey audience, this is James Kandasamy from Achieve Wealth Podcast. Today, we have Tim Bratz from Legacy Wealth Holdings. Tim is a multi-family syndicator/sponsor who owns almost 3200 units almost valued at 250 million dollars in value. Hey Tim, welcome to the show. Tim: James, I appreciate you having me, buddy, thank you.  James: Absolutely. Happy to have you here. I've been trying to get you on the show for some time and we have been playing tag on the appointments. That's good. So, can you tell me which market are you focusing on right now?  Tim: I'm actually in six different markets, six different states. I'm pretty heavy in the Southeast. Majority of my property, about 70% of my properties are in South Carolina and Georgia, but I'm also in Ohio which is where I live. And then I'm also in Texas, Oklahoma and I got a couple of vacation rentals down in Florida as well. James: Okay. Without going too much into detail just quickly, how did you start? And then how did you scale to 3,200 units within how many years?  Tim: Yeah. Well, I mean, I was going through college when the last market cycle was going gangbusters. So 03 to 07, I'm going through college, everybody said if you wanna make money get involved in real estate. I ended up moving out to New York City because my brother was living out there. And I became a commercial real estate agent for businesses. You know, so I broker leases and I brokered a lease that was 400 square feet in Manhattan. It was $10,000 a month and so I was like the wrong side of the coin. I need to be owning real estate not brokering it. So I got into a lot of the residential stuff. I think a lot of investors get into real estate because of the lure of passive income and residual income, but then many of us get stuck doing this transactional stuff of flipping houses and wholesaling. And I went through that same phase, you know, I thought I had to stockpile my own cash. I didn't understand that you could syndicate, that you could raise private money and bring in equity partners and how your sponsors to then cosign on loans. I didn't know that that was possible.  So I went through the whole residential side of things and bought my first apartment building the end of 2012. So just like seven years ago. It was a little eighth unit building and I fixed it all up, put tenants in place and I was like man, I'm making better returns on this than I am flipping houses and it's way less headaches. And so I bought another eight-unit and kind of built up a portfolio about 150 units with some partners.           That partnership ended up going bad a few years later. In 2015, I ended up liquidating everything and then just going back out on my own. And so I started on my own and just kind of partnered up with a couple of people that they just started raising money for different projects and I partnered up with good operators and bring money to those projects and help sponsor those loans or I started buying my own properties here locally in Cleveland. And over the past four years, pretty much in August of 2015, I started buying my own stuff. So it's been right at four years now. I built up a little over 3200 units, 3207 units as of today, about 251 million dollars worth of property value and my model is based on the residential realm, actually. I buy properties and I got to be all in for 65% of the stabilized value because that's what the model was. I never read a book. I never went to a seminar before. I just kind of developed it myself and I started buying properties, apartment buildings, the exact same way.  So I have to be able to buy it, renovate it, be all in for 65% of that stabilized value. And so a lot of the buildings that I buy, you know, I'm into a building that's worth 10 million dollars for about six-six and a half million dollars. So on the 250 million dollars worth of property, I only owe to lenders and my equity investors, it's like right at 150 million dollars. So we have a lot of equity in our properties too.  James: Got it. Got it. So it's very interesting you bring up that 65% because that's the exact number that I had when I was doing my single-family for zero money down. So I counted if I get at 65% ARV, which is after repair value, you should be able to do a second load, which is I call it as a double closing of a loan. I have two loans; one loan is like you do like a short term loan and at 65%, you buy it, you take a rehab loan and then you flip it to the long term loan. Tim: Yes. That's my entire model. So I don't traditionally syndicate, I buy distressed assets. I'm bigger than some of the smaller investors but not quite a hedge fund or a Reit and I'm willing to get my hands dirty, I'm willing to actually do the work. So I take on a little bit more distressed type properties. I only buy in A and B Class areas, but the properties are typically C-Class type properties that need physical improvements, better management. Like really not just value-add but like a total repositioning a lot of times. We're remarketing, rebranding, all that. And so, we come in and we fix it all up and because we force appreciation because we can make it happen and really create the appreciation versus speculating on appreciation and hoping values go up over the next five years, we're able to create a lot of equity in that first 12 months and then we're able to turn around and refinance and cash out our investors.  So instead of selling, I just refinance at like a 70% loan to value that gives me enough money to then, pay off my bridge loan. Or that short-term construction loan is and it helps me pay off my investors and to me, it's more predictable. It's more predictable to know where interest rates and where the economy is going to be 12 months from now or 18 months from now than it is like maybe 5 or 7 years from now. Five or seven years from now, we could have a very different economy, very different political circumstances; could have three different presidents in the next five years, right? So we just don't know.  And for me, I like the predictability of buying at a wholesale price, creating an appreciation and then cashing out my investors. Now it's you know for lack of a better term house money in play, right? So now we can let the property ride and we can hit sit on it. It doesn't matter what happens to the economy for the next 10 years, I have a long-term, long amortization schedule fixed interest rate loan, non-recourse loan in place; where the market can go up it can go down, I still have tenants in place paying the debt service, paying the operating expenses, and putting cash in my pocket and I could ride this thing out because I don't owe any of my investors any more cash.  James: Got it. Got it. So yeah, that's exactly the deep value add, that's how I position it where you buy it at really good value; very, very low level.  You really put all your effort to push up the first appreciation and then you go and refi in 12 to 18 months, I guess right? Tim: And we built some new construction stuff too, down in the Southeast. We built some townhouses. Like we'll do new construction, it'll be like an A or B plus kind of an area but it's not luxury. We do only workforce type housing so we can build townhouses for about $85,000 per unit, 80 to 90,000 per unit and they'll rent for about 1,300 bucks a month for us. And so that allows us to get the values where we need it to then refinance and do the exact same thing just for new construction. So we do a little bit of that and more repositioning of existing assets though. James:  Yeah, very interesting. I really like the model. I was doing it like two-three years ago. I mean, for me, I got worried about the market and I start, not looking for deep value add and also deep value add is harder to find. Even though you find it, what happened the sellers are basically taking the value by pushing up the price on the deep value add and because of that, it's not a deep value add anymore. Tim: Right. I don't pay a seller for the value that I'm going to bring to the property, right? So there are some sellers that you know, they're like, oh, well, this could be worth this much. Yeah, but I have to create that value. You're not creating that value. So we find we're a lot of times direct to seller, off-market type property. You know, we're big enough now, especially in Georgia and South Carolina, we have the broker relationships where we're one of the top five buyers in town and you get those deals before they actually hit the market. But in a lot of other markets, I'm not, you know, the biggest buyer in town so I have to go off-market, direct to seller, kind of stuff. And we get a lot of our properties from Mom and Pops who have owned it for 20 30 years or inherited the property. They just didn't put any more money back into it. You know, the total debt on the property is very low if at all and they just don't want to put any more money into it. They don't want to do the work so we buy it from them. Or I buy a lot from smart entrepreneurs, really sharp people who make a lot of money in their traditional business and they just put their money in real estate and then they didn't have a joint venture partner. They never got educated. They don't know how to manage a management company or interview a management company and they just get abused in the business. So they're like I'm making too much money in my traditional business, this thing is going to sink me. Let me just fire sale this apartment building. So that's where we buy most of our properties from. And then again: we reposition it, we do the stuff that that hedge funds aren't willing to do, and we're qualified enough to take down a 200 unit building that needs a pretty heavy value-add. I do it that way. But like you said though, James, I'm starting to buy a little bit more stabilized assets, more like 85-90 percent occupied of just a little bit of tweaks in the common areas and amenities and then bumping up some rents. We're doing a little bit more of that right now just because of where we are in the market cycle.  James: Yeah, correct. But you gave a lot of details that I want to go a bit more detail into that. So you said you look for deals that are in class A and B, but more distress. And I mean you're basically shrinking your funnel as well because you're going for that... Tim:  Niche gets rich, right? James: Exactly. [11:02crosstalk] Tim: People say hey real estate's mine age. Now real estate's an industry, right? Apartments aren't even initial. You need to figure out what you are really, really good at. And one of the things that I'm really good at is 80 units to 100 units that are distress. It's bigger, it's too distressed for the small guys to get a loan on it because they don't have the background or the resume to go and take down that kind of stuff and the qualifications do that because they haven't done it before. It's a big project, big value add and at the same time, it's too distressed for the hedge funds because they just want to park money and let it sit, let it ride, and let it cash flow from day one. So this is my niche. It's A and B Class areas; good areas, desirable areas, just distressed kind of properties and we're able to get in there and we have all the financing, the relationships are all in place. We could raise the money pretty easily because we can cycle our money every 12 to 18 months. I don't have to wait five years to get my investors their money out; I can cycle at every 12 to 18 months. So as soon as I pay him back guess what they say, let's go do another one. And then they're involved in you know, three deals in five years versus one deal in five years and it makes my life easier because I don't have to go and raise money from new people all the time. James: Got it. Got it. That's a really good model. So that's the investors after you cash out when you pay them back, do they stay in the deal as well? Tim: Yep. So mine's a little bit different than traditional syndication. Usually me and my joint venture boots-on-the-ground partners, we keep 70 to 80% of the equity in the deal and then we pay a pref, a fixed pref to our investors regardless of the properties performance. So even if it's not cash flowing it's predictable because I know that if I'm borrowing 2 million bucks, I'm paying, let's say, 10% pref, I'm going to pay $200,000. That's just a cost of the deal. I got roofs, I got flooring, I got paint, I got cost of capital; it's an extra $200,000.  So I build that into my model and then I can make those payments to them. They feel more confident, more comfortable because now they have a predictable return on their investment. Then I refinance, they get all their money back off the table and then they still maintain 20-30% ownership without any money invested and we're able to do that again and again and again. And so, you know with traditional syndicators if I try raising money from somebody who's used to traditional syndication, they're like, why would I ever do that? Well, you get a predictable return and secondly, you get 30% ownership.  But if all your money is in three different deals, it's actually 90% ownership because 30% 30% 30%. And so overall, they're actually ahead of what they would do in traditional syndication where they might get 70 or 80% of the equity in one deal. So, it actually works out better for the investors, works out better for me but it's a lot of work on my part. We spend a lot of money.  Sometimes we spend a lot of money on advertising in new markets until we have those relationships built up and then, in order to find those off-market direct to seller deals and it's a lot of work. Like my business partner down in Georgia that I own a bunch of property with, he goes and sleeps at the properties for three nights a week. He spends four full days there, sleeps in a B-class apartment, you know, on a blow-up mattress, the guy is worth 25 million bucks. And then his brother who's our other partner is worth another 25 million and they're sleeping at the properties, doing the work, kicking the tables, making sure construction ends up on time, on budget and that's what you need to do man. I see a lot of people who are trying to be this puppet master and they're not willing to actually do the work of taking ownership over this thing. They just want to go and syndicate and then go back off to whatever they're doing. And to me, like there's something to be said about just having old school diligence and work mentality and what you can get done if you're willing to do that kind of stuff. James: Yeah, real estate is very, very powerful; especially commercial real estate where you can force appreciate. And especially if you are going to get the majority of the equity in the deal, why not I sleep, right?  In 12 months, 70 to 80% of this deal is going to be mine. Why not work hard, I'm with you. Tim: It's a season of your life. If you're putting your head down for a year or 18 months, but then you can generate millions of dollars of equity, why not do that? And so yeah, that's kind of the mentality that we take.  James: Correct. Yeah, it's very powerful to create wealth and I think the investors appreciate that as well because now you're able to give them back their money and all that. But your model is assuming that you are able to refi into a long term loan in the 12 to 18 months, right? So what happened if that model breaks? Tim: Yep, absolutely. So that's the inherent risk with our model is what happens if rates change, what happens? If banking tightens up, what does that all look like? So a couple of things. One, I don't think rates are going to change as much in 12 or 18 months as they would maybe in five or seven years. So to me, we underwrite the deal - like right now, I just closed on 500 units. I got 2 buildings, around 250 units each last month and I got a 3.83 and a 3.88 interest rate. Even right now, rates went up back; they're hovering around for four and a quarter right now for stabilized assets. We're underwriting the deals with 4.75 to five percent interest rate on the back end for a stabilized property. So we're taking on some of that, some of that, we're underwriting it for that. We also underwrite our rents very, very conservatively and we're at such a low basis in the property, usually around 60% of what that stabilized value is, we have options. So Fannie and Freddie are tightening up big time right now. That's okay because we're at such a low basis that we can still go over to CMBS - commercial mortgage-backed security - or a life insurance company and even though they offer a lower loan to value, I'm okay with that because I'm at a low enough basis. I can still cash out my investors.  So worst-case scenario, my investors still get their money back and we have a lower LTV loan. So maybe there's not some refi proceeds or anything like that that we can take off the table but at the end of the day, they're going to have more equity, you know, their equities gonna be worth more in the property and the cash flow is going to be more on a recurring basis for that. And the other thing is even when banks stopped lending to people in 2009-2010, guess what? They were still lending to somebody and it was the people with big balance sheets, with stabilized portfolios. And I have a big enough balance sheet and stable enough portfolio. I'll be able to get refinanced regardless of what happens in the next 12 to 18 months so I'm not that concerned about it. And again, because our basis is so low, we have such high cash flow on these properties. I have different options and have a good team of mortgage brokers. Who even if I had a slap another, you know three-year loan on there, even if it was at 6% interest rate or six and a half percent interest rate, I can still cash flow;  it's enough. It covers my operating expenses, it covers my debt service, still puts cash flow in the bank. You know, it's a crappy conversation that I have to have with my equity investors, but they keep on making ten percent on their money so they're happy.           You know, the worst-case scenario is they get their money back in 48 months; then, you know it is what it is. So I've taken a look at all the downside. I've talked to people with billion dollar portfolios and said, hey poke holes in my model. And that's the inherent risk is what if you can't refinance? So that's one of the things. The deals that I just closed last month, they were already in that 85-90 percent occupancy range. Like right at 90-91, I think is what they were. And so we got a Fannie Mae loan actually on it. That's a construction loan that we'll be able to put a supplemental debt on it. So, it's already a long term loan, 30-year amortization, couple years of interest only. And then, whenever we create the appreciation, 12 months 18 months from now, we'll be able to put supplemental debt, which is kind of like a second mortgage almost but through the same lender, so they're cool with it. And so the only real risk I'm taking is the interest rate on that portion of the debt. I owe 17 million dollar mortgage on it right now. And then the other will be about another 7 million dollars. So the only real rate risk is I'll get home at three point eight percent on 17 million dollars, even if the other 7 million goes a 5%, my blended cost of capital still four and a quarter or maybe a little less. So, you know, that's another way that we're reducing that ongoing risk.  James: It's very interesting. Now you're convincing me to do deep value add again. So because it's just so hard to mess up. Tim: I mean, the construction is where it all comes down to. I mean, if you stay on time and on budget, you're in good shape. But if you don't have a good construction partner like you can really get burn bad in the deep value add stuff. So you've got to understand what your team looks like, what your strengths are, what your weaknesses are. And for me, we're okay with it. We're pretty good at it and we have a really good construction team.  My partner in Georgia, man, I put him toe-to-toe against anybody in the country from a construction standpoint. He can build new construction, he can renovate existing units. And because he has the mentality of 'let me go and sleep at the property' three nights a week, away from his family, away from his five kids, you know, he's willing to take that on because it's again a season of his life. Like that's kind of partners that I like to partner up with. James: Yeah. Hustlers, they will go really far in life and that's what we need. It's very interesting. So I mean, is there any deal that you find that you didn't do? That you think you should have done and after you passed on it, you realized, ah, should have done that deal? Is there a deal that you look at...  Tim: That's a good question.  Let me think on this. We try to kill deals. I try to kill every deal that comes across my plate, especially right now. I try to look for every reason to walk away from every deal that comes across my desk. If I cannot kill the deal then I know it's a good deal. And so, you know, as soon as you're like, 'hey, well, I think I can scale back construction and make it work', wrong idea, wrong strategy. Because the last thing you want to scale back is the construction of the value-add process. Because then your rents aren't going to hit where you expect them to hit because you're not able to attract better tenants or higher quality tenants and they don't see the value that you're adding to the property. At the end of the day, like people like, 'oh, I think we can make this one work.' No. The only way you can make it work is if you go back to the seller and negotiate a lower purchase price because that's the only variable in this equation. You know, what rents are going to be is what rents are going to be; what the construction budget is, is what the construction budget is. The only variable here is the purchase price. And you know, you make your money on the buy side. So are there deals that I passed up on that I should have moved on? Maybe but for me, man, I don't have much of a risk tolerance. I only buy stuff that I know that is very predictable to me. That's why I don't play the stock market. I can't control if you know Volkswagen -  I can't control if Elon Musk smokes a joint on public television and the stock drops by 15%; you know, I can't control that. I like being able to control real estate and having very predictable returns for me and my investors. And sometimes it's a gut check, you know. Even if everything looks good on paper, but my gut doesn't feel good about it, I'll say no to a deal. It's just that I've seen enough deals go south. And as quickly as we can build our net worth, being in commercial real estate, one bad deal can take out your legs and wipe you out totally. So I'm just not willing to take on that risk, especially when it takes so much work in order to get to where we are.  James: Yeah. Yeah. I mean I want to touch on your gut check thing because I know numbers don't lie and we are numbers guys and when underwriting, we want to make sure things work on paper and all that. But I've walked out of a deal because everything works very well and the numbers look good, but there is something wrong in that deal that I didn't discover and I've walked out from that kind of deal as well. And that's very important. I mean, real estate is not only science where everybody says a numbers game and people that are good in numbers will do it but there's a lot of odd to it as well where it's just something wrong somewhere and it comes from experience. Tim:  That's the only way you get that, from experience and it's usually personnel kind of things that make me walk from a deal. I'm just not comfortable with that joint venture partner, with that management company or with whatever the seller is saying. You can kind of see through the lines once in a while, whatever that is. Yeah, I mean my model is I'm really good at raising money. I'm really good at sourcing deals. We're pretty good at creating - like we can handle a lot of the back office type stuff.  I'm back in Cleveland, Ohio now, is where I live, we can handle a lot of the management side of things; collecting of rents, work orders, telecommunication; all that kind of stuff, all the administrative side. From here in Cleveland, we just need a local boots-on-the-ground partner and some local property managers, maintenance personnel, and I always have a joint venture partner locally. And so if that joint venture partner isn't strong enough, then usually I'll walk away from the deal. Because man, I think it's important to have somebody with vested interest, with equitable interest in the deal; who's local to the property, who can go put their eyes on it a couple of times a month; to keep everybody honest, to keep the management company honest, to keep the local property manager, maintenance personnel, leasing agents and just come in and kick the tables once a month and just let people know that we're paying attention. Because if you don't pay attention, then they take advantage of you.  James: Yeah, it's hard work. I mean, I know exactly how you feel in terms of how much hustle and how much detail and how much you have to be on top of the property managers because it's not their baby, it's your baby. And there's so much of details that if you don't ask them, they're just going to slack off right?  Tim: Yes.   James: They are paid differently from what we have paid for and we are the owners and it's just completely different ownership level, right? So that's very interesting. Is there any deal that you think after you bought it didn't match from what you thought in the beginning. You thought this is how I'm going to execute it but once you buy, it's like, oh, it's completely different from what I thought and how did you overcome it? Tim: Yeah, I mean every deal is a learning experience and you to get punched in the gut enough times and eventually you learn. Fortunately, you know when I was growing my portfolio, I bought my first building in 2012 and I bought an eight-unit building for $30,000. So I'm in Cleveland, Ohio buying units for $4,000 a unit. I put another, I don't know, 50 grand into it. So I'm all in for $10,000 a unit. And it's hard to lose. And so in 2012 2013 2014 as I'm growing my portfolio, while I'm going through these learning curves, the market is getting better and that was able to absorb a lot of my screw-ups early on. So I still made money on every single deal that I did even though I was learning on a lot of these things. There's only one building, a 44 unit building, that I bought about 2-3 years ago maybe that I've lost money on. It was one of those things, hey, I saw the leases, I saw the rent roll. It was 80% occupied and I bought it from a guy that I know, somebody that I actually know. And so, I bought 44 units and he's like, "Yeah, man, 80% occupancy." "Great, man. I'm going to come in, I'm going to renovate the last whatever 9 units and turn those over. I got a local team." He was out of state.  "So like my team can come in clean it all up clean up the common areas. I think I can make $300,000 on this thing in the next 12 months pretty easily and it'll cash flow a little bit in the meantime." So I buy it and I find out it's only 25% economically occupied. So there are 35 tenants or something in place and only 11 of them are actually paying rent. And so I learned my lesson there, you know. It's not about occupancy, it's about collections.  And this is a buddy of mine. This is somebody I've known for many years and grabbed dinner with him, his wife, my wife and not a lot of times but a few times and close enough where I call him a buddy. And all of a sudden, he sells me a building, tells me it's 80% occupied, doesn't tell me it's only collecting 25%. And all of a sudden, I had to kick out 24 tenants and turn over 24 additional units.  So imagine what that cost does now to the $300,000 I thought I was going to make? And this was one of the only times I brought an investor in and he wanted 50/50 of the deal: "Let me bring the money, you do the deal."  "Okay, cool."  And I'm stroking a check for about 35 40 thousand dollars when it was all said and done. And I could have gone to that investor and said, "Hey, man, I need 20 grand from you. I'm putting up 20 grand of my money. We're selling this thing. It's a pain in the butt. We're gonna lose money on it. But, you know, we gotta get rid of it. And that's part of the deal."  Instead, I stroked the entire check, gave him 100% of his money back and because he didn't make a return, I gave him equity in another deal of mine, without him having to put up any money just to kind of soften that blow. And so I think when you do the right thing by your investors word spreads, you know, he says great things about me, he wants to invest in more deals with me and stuff now. It is, do the right thing knowing that there's always another deal. There's always another opportunity.  That one, we could have held on to the property long-term and let it cash flow. That's a cool thing about buying apartment buildings. You can really screw up and if you had to, you can hold on to it, manage it, let it cash flow for the next 10 years and eventually, you'll actually make money on these things even with that big of a screw-up. But for me and where my long-term vision is and my team and everything else, it was just more of a C-Class type property. It took up too much management and too many headaches. It wasn't big enough. We couldn't really scale it. So we made just a business decision to sell it and to eat that loss. But it's the only building I ever really ever lost money on. Now we've gone through pretty much everything and we've gotten kicked in the crotch enough times where we know what to look for across every building. Like it's very hard to pull the wool over our eyes unless it's like grossly fraudulent on the sellers part.  Another big thing that I didn't know early on that I wish I should have done that's always a consistent issue with every building we've ever bought is like the plumbing and the drain tiles leaving the building. It's always one of those unknowns. So now, we spend three to five thousand dollars to scope every single drain line, in every building that we put under contract to ensure that there's not going to be this massive plumbing bill, unexpected plumbing bill, once we buy the property. So that's one of the things that's been a big deal.           And then just verifying collections. Like those two things from a financial due diligence and a physical due diligence perspective like those two things that we've dialed in now and we always did everything else. We always inspected the rooms in every unit, the electrical panels. One of the other things that I didn't do early on that I do now, we've done for the many years now, is I used to only walk the vacant units and the common areas and the mechanical rooms. And then all of a sudden, you realize that they're not showing you all the vacant units. There are other vacant units that they're telling you that they're occupied, they just didn't want you to see them. And like I bought buildings where tenants were turning on and off their faucet with a wrench because there's no actual faucet. So you don't realize a lot of that stuff early on when you're a dumb kid. But I've been through all man. I've been everything. We walk every single unit on a 500 unit apartment building. We will walk every single unit and we'll put a report together on every single unit. It's a one-page, just kind of condition report. We'll take 30 pictures of every single unit. We put it all into like a Google Drive or Dropbox folder. In that way, we have all the information we could ever need on this property. We're not relying on our memory to look up all that stuff. It's all there. Our contractors can see it during the entire due diligence period, all that stuff. And so I think everything's a learning curve. I think you learn from everything. The thing in this business though is like if you can get past all those learning curves, if you can get past some of those losses and some of those getting punched in the stomach, eventually, you're process is so dialed in.  Like they can't pull the wool over your eyes that you cannot lose on deals. And that's why we walk away from a lot of deals that we do because they're waiting for somebody who's an idiot who doesn't know what they're doing to come in and buy their property and overpay for it or not do the due diligence that they're supposed to be doing and all these other things. But eventually, you know what you're doing enough, where your risk is so minimized because you've done all the due diligence on these things, it's a very predictable business at the end of the day. Like you said, it's all about numbers, right? James: Yeah, I mean, it's crazy nowadays, right? I mean with the market being as hot as it is right now, with so many people looking for deals and so many bidding war. So nowadays, the smarter thing that a lot of brokers and sellers are doing, they say day one hard money. Now, they lock you in. So you go into a bidding war, you pay this huge amount of hard money and sometimes they don't even give you early access., So now you're locked in. You can find a thousand and one things and yet we are locked in. Tim: No, I don't do that stuff. I don't play that game. You don't need to if your off-market direct to seller. If you're going through brokers, they're going to do that to you, you know. And there are some people who have crazy money and they're willing to risk that; I'm not willing to risk any of that stuff. A lot of people, they spend a lot of time on ROI - return on investment. I spend a lot of time on return on ROI - return of investment, you know, and making sure I get all my money back. I never ever want to risk principal.   I mean that deal, that's just too risky of a deal. If they want hard earnest money from day one and I haven't already walked the entire property, I'm not interested in doing it. I think once you get to a point where if you're partnered up with a great sponsor or you are a great sponsor yourself and you have the business acumen that like you have James or that I have like I'm able to posture up with these sellers now and kind of say, "Hey. Yeah, no problem. You can go steal somebody's earnest money. That's okay. You can go ahead and do that. But they're not gonna be able to close on this deal because you're lying about the condition of the property or the financials whatever. Or if you're willing to actually sell it to me, give me my opportunity to do my due diligence and shoot straight with me on everything, I promise you, I'm more capable of closing than any of the other people that you're getting bids from right now or you're getting offers from right now."  And so I've been able to kind of build up my credibility in that way where sellers are willing to take less money and offer me better terms than they would maybe with somebody else because they know that I can close on the property. They don't want to get dragged through the mud.  James: Correct. Yeah, this is very interesting, nowadays, the way the market is being played. They're putting all these handcuffs of hard money, day one. And there's another handcuffed where they said you must do lending with our own in-house lending. So that's another handcuff. There are two or three handcuffs that brokers are putting on sellers. And the third subtle handcuff that they do; nowadays, when they close, they send out an email saying that, oh, this buyer paid day one, you know huge amount of money $500,000. They're telling everybody else. Tim: They're trying to set that expectation.  James: If you want to come and buy deals nowadays, you better be ready. So many handcuffs are being put on buyers. But I think a lot of sellers, you know, if they want to work with a good buyer, people who want to really do business, they don't know want to just make the money on earnest money and waste a lot of time getting people to walk through all their units and getting their stuff all being nervous.  So just find a guy who's willing to do it and who is the true buyer. Who knows what he's doing and can close.  Tim: The good brokers with long-term visions and long-term goals, know how to find quality buyers and that's better than just anybody who raises their hand with earnest money, you know. In every hot market, there are people who are short-sighted, who got into real estate real quick just because they wanted to get rich quick, kind of a thing. And they'd rather just do it that way and then anybody who raises their hand, they're willing to go with and those aren't the brokers you want to work with. You want to work with the people who have been around the block a few times, who understand what a good buyer looks like, can build those ongoing relationships. Because as soon as the market shifts, if things cool off, it's going to clean out all the unqualified buyers and unqualified brokers as well. James: Correct. So, let's go to a bit more personal side of things. So what I like about you is you're very, very positive. So you like to look at life very positively and you know, it's hard to do because sometimes you always have something negative that comes in. So do you want to explain about in this business, yeah, you always want to say something negative that you always want to talk about but how do you maintain that positivity?  Tim: Yeah, I mean, you know, I told you the story when we met up a couple of weeks ago or a month ago. I mean, just less than 90 days ago, I was out golfing and I got rocketed to the face with a golf ball, 100 miles an hour from about 30 yards away. It shattered my upper maxilla bone. It knocked out four of my front teeth and shredded my gums. And my lip opened and I was bleeding like crazy. I look down. I'm like, oh, I feel my teeth dangling from my gums and I look down at the ground and I kind of took a knee to make sure I didn't pass out. I looked down at the grass, I'm like, "Man, this grass is really well-manicured; like beautiful grass here, on this golf course."  And I'm like, How the hell am I able to keep up such a positive attitude in this?" You know, I'm thinking about my thoughts. I'm very reflective in that regard. And I was like, "Well, here's why I can see it positive because I got hit my mouth and not in my eyeball or my temple. I could be blind or dead if this thing was an inch higher than where it was."           And so, man, I don't know if it's the law of attraction. You can call it God, you can call it, you know the universe and call it whatever but I think when you put the positivity out, it comes full circle. It's kind of like you reap what you sow kind of a thing and I sow seeds of positivity. And so, I jump in the golf cart and I get taken back to the clubhouse. You know, who's dining in the clubhouse? There are two dentists and an ER nurse having dinner in the clubhouse. They put me in there. They look at my teeth. They drop what they're doing. They take me to their dental office, 15 minutes down the road. They stitched me all up. They put my teeth back in and I'm able to save my teeth and 90 days later, you couldn't even tell that this whole thing happened. Like I'm still going through some cosmetic stuff, but overall like it was a terrible situation, but I think because I was positive it all just kind of came to fruition.  So, you know, one of the things I've always practiced is not saying I have to do something but saying I get to do something. When I go out to dinner with a bunch of my friends and I pick up the tab, they're like, "Dude, you don't have to do that." " No, I don't have to do it but I get to."  The reason that I do what I do is so that I can help people out and I can pay it forward. "Oh, hey, you don't have to cover that bill. You don't have to do this"  'No, but I get to."           I had to eat soup for about a month afterward, but I'm thinking you know, I'm eating a tomato bisque basil soup. I don't have to eat mud pies like people do on the other side of the earth. I don't have to walk two miles each way to go and get fresh water like people have to do on the other side of the earth and some people on this side of the earth. I get to eat soup, I get to eat something that's a bisque that has basil in it. Like are you kidding me? Like there are people who would kill to be able to eat that kind of stuff. I didn't have 14 teeth knocked out, I only had four teeth knocked out.  I think when you just compare it and you put it in that type of perspective of, man, it could have been way worse, you know, like the situation could have gone - and there are still people even with me with my teeth dangling from my mouth, being in that circumstance, I'm still in a better circumstance than a lot of other people who don't have any food, who don't have any shelter, who don't have any clothes, who don't have any support. They're being trafficked by like human trafficking like all that kind of crazy stuff.  Even when I have to go out and raise - I had to raise 7 million bucks for deals last month, and now I don't have to raise 7 million bucks. I get to raise 7 million bucks; that's a pretty awesome problem to have. And I think just putting it in that perspective of shifting your 'I-have-to' to 'I get to', will really make you more gratuitous or have more gratitude for life. James: Was it because of your parents or do you think because you just had some event in your life that you think now I have to change my time or it's just how you have been? Tim: That's a good question. My mom as always been very positive. My mom as always been, hey, you have something else to compare it to. Compare it to this, compare it to that. And I think that's probably what planted the seed of always looking at it from, "Yeah. You're right. I guess it could be way worse, right?" It could have been totally different circumstance. She always used to say, "Hey, if that's your biggest problem today, you've got a pretty good life, Tim." When I was growing up: "Ma, I don't know what I'm gonna do like my basketball just popped." "If that's your biggest problem today, it's a pretty good problem to have." You know, you're safe. You're secure, you're healthy, you have a family, you've got people who love you, you've got food with food on the table and clothes on your back and a roof over your head. Like all those kinds of things like you put in perspective. There's people dealing with a lot worse things. And yeah, I think my mom kind of rooted that into me maybe early on and it definitely stuck and man, I just show gratitude. Especially once you have kids, you know, and you realize man like all I want is their safety and their security and their healthiness and their happiness and as long as they're happy and I'm happy. That kind of a thing that's really amplified it over the past four years. I have a four-year-old and a two-year-old now. And so just putting things into in the perspective that way has been a big deal.  James: Awesome. Awesome. Is there one proud moment in your life that you think you will be remembering it for your entire life?  Tim: That's a good question, James. You've got some good questions there, buddy. James: I want you to think and answer.  Tim: Yeah, you know, I mean, is there one... James: One proud moment that at the end of your life, you're going to say that I'm really, really proud that I did that and it's going to be you know. Tim: Yeah, I don't know if it's one specific moment, but maybe just like kind of how I live my life. I try to do it on a daily basis and maybe it's not something profound. Maybe it's not something that's like one specific thing that was a catalyst. You know, I'm driving to the office today to come and talk to you and some dude cuts me off. Maybe he's got some priorities or something going on. I don't know what other people are going through, you know and for me to judge or get pissed off because somebody cut me off, why would I do that?   I'll tell you if there's a really proud moment, once my kids grow up to be decent human beings, you know, and making sure that I want to live my life as an example of what an exceptional life can look like. So I want people to be like, hey, if Tim Brax, some kid from a blue-collar family in a blue-collar town, outside of Cleveland, Ohio can build up a big portfolio and still maintain good health and still maintain positivity and still maintain great relationships with his wife and with his children, with his friends and still engage and and maybe not be balanced but have harmony in his life, like if this guy can do it, I know I could do it.  If I can inspire people, whether that be one moment in time by a Facebook post or an event that I host or being on a podcast, if I can inspire people to just be their best which is what I have on my wall here and that's not 'do' that's 'be' you know, that's like consumed that all together. It doesn't have to be the best. It would be your best. There's always gonna be somebody more capable, more resources, more whatever. You know, I don't think it's healthy to compare yourself to other people but to compare yourself to yourself and making sure that you're advancing on a daily, weekly, monthly and annual basis is a big deal. And so, I think I just try to make my kids proud, make my mom proud, make my wife proud, make my friends proud. Inspire other people and I try to do it more in the daily activity versus just do it one time and look at that one moment. I try to give back and try to - like I had suites to the Cavs games when LeBron was here in Cleveland. All right, and so when was that, two years year to go? Two years ago, I think. No, it was last year, I think. And so last year, I had a suite to the Cavs. I got the entire series for the first series. I figured who they're playing, but essentially when you buy a suite, you get it for the entire series, however many games they play at home and they played four games at home. And so, you know the first game I went to, I brought some business partners and was able to pay for the suite that way. And then, the second game I brought some family and the third game, I'm like, hey, I was excited to go but like I'm not as excited as I was maybe the first or second time and I'm like somebody else deserves this more than I do because I've already had this experience right? Like, how can I pay this forward?  And so I posted on social media, "I got a suite to the Cavs game. I have 18 tickets that I can give away, a couple of parking passes. It's stocked with food and drinks and whatever you guys want. Like does anybody know of a family or a few families that I can give these tickets to that maybe wouldn't have this experience on their own but really deserve because of how good of a people that they are?"  And man, like it got so much momentum and got so many shares and then the news picked it up and came and did a story on it. And I had about 5-600 applications that came through for people nominating other people to get tickets to this Cav suite. And so, it was actually really hard to break it down and essentially I found four or five families. I think five families that four tickets a piece that I gave the tickets to. And it was pretty easy to narrow it down to like 25 because I wanted somebody who had maybe faced adversity, overcame the diversity and then found a way to pay it forward; not just overcoming it but actually paying it forward and creating a difference.  So, you know, there was one girl whose sister died of an accidental overdose of drugs and now, this girl who's still alive, her younger sister goes around and speaks at different schools about opioid problems and drug problems and how to overcome that and different resources to plug into for that, you know. And so I'm like, wow, this girl, at the age of 16 years old is making an impact on the world; like she deserves some tickets. There was another gentleman who lost his daughter to a congenital heart defect. She was 3 years old, you know and loses his daughter to this congenital heart defect. And instead of like, I mean, I can only imagine how dark of a place he must have been in and he ends up opening up a nonprofit organization to help families with other kids with congenital heart defects to give them the support and help and the conversations and everything and making a massive impact up here in Cleveland, Ohio. This guy is such a good guy. I give him the tickets and he gives them to one of the people that are in his nonprofit, you know. And it's like, man, these people are just amazing individuals.           And so I found five awesome families like that, that we were able to give the tickets to and like doing stuff like that really makes me feel good. And what's even better is that there were 500 people who I was able to create a catalyst by doing this who now, 500 people are thinking in a positive way about people who make a positive impact on their life. And just that positive ripple effect that's created, I think is really, really powerful and it was really, really cool to see. James: Yeah. When I talk to you, I get very inspired because it's not about the portfolio of real estate or [49:17unintelligible]  rights, it's how you look at life and how you look at things. How you think positive and that's the most important when I look at a person. Tim: Yeah. And you do an awesome job with it, man. I mean, you realize that it's not the portfolio, it's not the money that's noble. It's what you can do with the money that's noble and utilizing it for good. I could afford a really expensive fancy exotic car and I drive a $20,000 Jeep just because I don't really care. I know that there's a bigger impact I can make by being a better steward of my Capital, putting it in more deals or paying it forward in ways like that. So I get more fulfillment from that than from maybe driving something fancy.  James: Yeah, even for me, I can't really imagine driving exotic car because, do I really need it?  Tim: At the end of the day, it'd be cool. I'd rather just go and rent one. I know I'd have buyer's remorse. I just know myself personally and I know that as soon as I bought it I'd be like, I don't really need this. And here's the thing. I like watches. I like clocks. I like taking nice vacations. I like traveling first class. I like that kind of stuff. I like making memories and traveling the world; I love all that. So that's where I get my drive from on making a lot of money. For other people, they like fancy cars, they like fancy houses; that's okay.  I got a good buddy, man, he drives a Rolls-Royce and has multiple hundred-thousand-dollar watches, you know. But I know he doesn't do it for flashed and to impress other people. He does it because when he looks down at his watch and when he gets in his car, he always sits back and he's like, "Man, I had to overcome some adversity, I had to go through some shit in order to get this watch. In order to be able to afford this car. And I've had to grow as an individual, as a person and make an impact on enough other people's lives, positively, that then the universe came back and gave me enough money to be able to afford this car and afford this watch." And so, I think it depends on perspective and that's how you look at it. Like I have nothing against people who have fancy nice things, material type things. Because I know he's one of the most giving people that I've ever met as well and so it's perspective.  James: Yeah, it's perspective. Yeah, awesome, Tim. So why don't you tell our audience how to get hold of you?  Tim: Yeah. I mean, I'm pretty active on social media; you can find me on Facebook Tim Bratz. I run my own Facebook account, you know, it's not somebody else running it. I do some education stuff on how to get involved in apartments and things but hit me up with a message there if you're looking for formal education. I give a lot of away a lot of free content, a lot of free insight and I try to provide a lot of value on social media and stuff so just connect with me on Facebook.  That's gonna be the best way and, yeah, man, James, I appreciate all the value that you give and all the value that you create and all the content that you put out there and, man, you're creating the ripple effect yourself on making a positive impact on people's lives. So appreciate you too, brother. James: Yeah, absolutely. Absolutely. Thanks for coming on the show. It was really a very inspiring show. I'm sure for me and for my listeners and everybody's going to be enjoying it.  Tim: Appreciate it, brother. Thank you so much. James: All right. Bye.

How can you reduce the number of times you show a property? Virtual tours. It’s time to weed out unnecessary in-person showings with time wasters and tire kickers.  Today, I am talking to James Barrett of Tenant Turner, a leading property management tool and resource that lets property managers manage tenant leads, schedule showings, and automate the leasing process.  You’ll Learn... [02:59] Goal of Virtual Tours: Educate potential tenants before choosing to visit property. [03:27] Customer-Centric Concept: Virtual tours evolved from quality images to videos. [04:20] ROI: Reduced costs for video camera equipment make virtual tours possible. [07:40] Lack of competition makes virtual tours core to growth and promotion.  [08:28] Direct correlation between virtual tours, time on market, vacancy, and showings. [08:53] Quality over Quantity: Maximize exposure to increase good-fit tenant leads. [13:37] Virtual tours take time and money. Are they worth it? Promoted? Required? [16:29] Record moves, maintenance, and inspections for marketing and leasing metrics. [21:08] Options and Recommendations: Zillow’s 3D Home, zInspector, and Ricoh; or outsource and offload to PlanOmatic, VirtuallyinCredible, and HomeJab. Tweetables Listings with virtual tours increase interest by 250% and generate 49% more leads. One-third of Tenant Turner’s customers do virtual tours; 11% of its listings include them. Do virtual tours. If you do, you’ll be different, reduce vacancy, and make more money. About 45% of millennial renters seek virtual tour technology before making a decision. Resources Tenant Turner James Barrett’s Email Matterport Zillow zInspector Apartments.com VirtuallyinCredible Ricoh National Association of Residential Property Managers (NARPM) PlanOmatic HomeJab DGS 45: Automate Tenant Lead Management with James Barrett and Calvin Davis of Tenant Turner DGS 78: Automating Property Showings with Michael Sanz of Neesh Property DoorGrowClub Facebook Group DoorGrowLive DoorGrow on YouTube DoorGrow Website Score Quiz Transcript Jason: Welcome DoorGrow hackers to the DoorGrow Show. If you are a property management entrepreneur that wants to add doors, make a difference, increase revenue, help others, impact lives, and you are interested in growing your business and life, and you are open to doing things a bit differently, then you are a DoorGrow Hacker. DoorGrow Hackers love the opportunities, daily variety, unique challenges and freedom that property management brings. Many in real estate think you're crazy for doing it, you think they're crazy for not because you realize that property management is the ultimate high trust gateway to real estate deals, relationships, and residual income.  At DoorGrow, we are on a mission to transform property management businesses and their owners. We want to transform the industry, eliminate the BS, build awareness, change perception, expand the market and help the best property management entrepreneurs win. I'm your host, property management growth expert, Jason Hull, the founder and CEO of DoorGrow. Now, let's get into the show. Today's guest is my buddy James Barrett. James, how are you? James: Doing well, sir. Good to be back on the show. Jason: James and I were just in Nashville, at the Southern States Conference. We got to hang out afterwards and we went dancing. We went out on the town and it was crazy, wasn't it? James: It was a great time. Jason: It was a great time. James: Dance floors everywhere. Jason: The musicians and the talent. Yeah, it was crazy. It was a lot of fun. James: That’s what I tell people about Nashville all the time, the worst musician in Nashville is better than every musician everywhere else, it seems like. Jason: I'm doing open mic night tomorrow night and everyone in Nashville’s better than me, that's for sure. I'm taking the risk, I'm getting on stage. James: That’s right, go out there. You can get a lot of practice behind the mic doing this podcast so it'll… Jason: I don't know if that's the same as singing with the guitar, but yeah. James: We'll see. Jason: We'll see. James, you've been on the show before, welcome back. I'm glad to have you here. In case anybody who’s listening doesn't know James and they can't see his shirt because they're listening, he is part of a company called Tenant Turner, which consistently has been one of the top performing companies for vendors. In our Facebook group, we get a lot of positive feedback from clients on Tenant Turner. I'm glad to have you back on the show. Today, we’re going to be talking about virtual tour technologies, what is that? James: For those of you who might be questioning, “Why is James from a scheduling software, where they do lock boxes and in person showing, why is he talking about virtual tours?” With virtual tours, the real goal is how can you reduce the number of showings that are happening because people are being educated before physically having to go to the property. Jason, as you alluded to with how highly we’re rated within the Facebook group and what not, we are a very customer centric, customer driven organization.  It is something that's come up, particularly more recently, is just the concept of virtual tours. Seeing the evolution of quality images, which was kind of the norm 5-10 years ago. Making sure you have quality, high definition images on your listings, to then moving more to a model of video tours, which is a form of virtual tours but really just the gateway of virtual tours where you're taking a video walking through the home. Now, more and more, we see customers who are adopting these 3D virtual tours like those that are provided by like Matterport. It's becoming very important within the industry because people are investing in this amount of time and effort into these virtual tours and they need to make sure they're seeing an ROI on that. Jason: Are they always seeing an ROI or is that a problem? James: It's been a problem largely because of the investment has always been so high, because one of the big companies that really got into the real estate market was Matterport, one that's very highly rated, but their cameras are $4000. Every property management company in the world might want to do a virtual tour, but at that price point, it's limited.  What we’ve seen more recently is there's now lower cost 360 cameras that are used by not only Matterport, but companies like zInspector which are used by a lot of property managers for inspection software. Really, I think one of the big tipping points is Zillow, who recently came out with their own app that allows you to take a 360 virtual tours utilizing just an iPhone. You're starting to see that barrier to entry drop down pretty significantly but it's still early on in its adoption phases here. Jason: We've had some really great episodes for those listening, if they look at like that so we do with Michael Sanz. He talked a lot about how he's leveraged some of these cheaper cameras and took to offload and to reduce the number of showing significantly. Let's dig in, so how does this apply to Tenant Turner? James: One of the things we have is we have a nice, unique data set that tells us how many people are starting to adopt these types of virtual tours and put them in their listings. We started to see a nice little increase of such tours to date. Right now, it's only about 11% of our active listings, but just a couple years ago, sub 1%, sub 2%. It was really just in its infancy. We started to see faster adoption of virtual tours and one of the things that's also really interesting is 11% of our active rentals have virtual tours associated with them, but now a full third of our customers had at least one virtual tour. Companies in general are starting to adopt more and more of the virtual tours and basically building it to their process. Jason: Let's point this out, people that are using Tenant Turner are probably the more tech savvy, maybe more forthcoming property manager, I mean they're a little more forward thinking, is what I mean. They're early adopters and using your technology. You may have 11% and maybe 33% or whatever a third or have at least one but I would imagine outside Tenant Turner, the number has got to be way lower.  This is still a huge differentiating factor for a management company that say, “Hey, we do these tours.” It's probably really rare that people are going to bump into any competitors that are doing this yet. Even the people that are savvy enough to be using a scheduling software and showing software like Tenant Turner, only 11% of the properties it’s really being used for. James: Yeah, and I think where there's a huge opportunity within the property management space, is now that some of these barriers have been brought down, making it core to your growth model being able to promote the fact that you do this. You actually have an artifact that is created that you can then share with the property owner, that's part of the whole thing, it's part of the inspection process. It's part of your now marketing material where you can say, “Look at these beautiful virtual tours that we're providing,” that really nobody else in your market may be doing. Jason: Yeah and I'm sure there's a direct correlation between virtual tours, and time on the market, and vacancy, and not having to do showings and all of this. James: It's really interesting, there's a lot of similarities between Tenant Turner and our goals and what virtual tours do. With Tenant Turner, we want to make the process as streamlined as possible. On one hand we're generating more leads because we want to make sure we maximize our customer’s exposure, but on the other hand, we want to eliminate anyone who's not a good fit. On the one side, we’re a 24/7 service that can respond to the leads instantly, but on the other side, we have a pre qualification scoring tool that weeds out people who aren’t a good fit. These virtual tours are kind of the same thing but for the other side of the market. With virtual tours, because you have a virtual tour on your listing, statistically it's going to get more page views. It's going to get more clicks.  Apartments.com, they actually did a nice little study on this and it's something that they've started offering through their website is highlighting listings that have virtual tours. There's a 250% increase in time on page for a listing that has a virtual tour versus one that does not Jason: Okay, you said 250%? James: 250%, yep. You got to think too, a lot of these listing sites, they're very vanilla, you can go to Zillow or HotPads or apartments.com and it's pretty cookie cutter in a lot of ways. If you are able to provide a virtual tour and it gets pushed out to those different sites and they can put a little tag or icon next to it, it can go a long way into generating more clicks. Similar to Tenant Turner, they're trying to increase leads with virtual tours and we see more time on page. They’ve also seen a 49% increase in the number of leads. That's one of the goals of virtual tours is how can we get more leads into the top end of the funnel. At the same time, just like Tenant Turner, how we like to weed out people who aren’t a good fit, the virtual tours are helping prospective tenants weed themselves out if they think that the place is a good fit for them. Jason: Right. Yeah, makes sense. James: More leads on one hand but at the same time better fit leads, so that way when it does get time for a showing, you'll ultimately have fewer showings at a particular property but it will be more people who are qualified… Jason: More relevant. James:…exactly, exactly. It's a quality over quantity type solution. Jason: Yeah, I mean relevancy is the crux of everything. It doesn't matter how great the property is or how many tenants you have going through it, if the showings aren't relevant or they're not interested. It allows them to filter it out. They can see the kitchen and say, “No, that's too small,” or they can see the backyard, “That's not what I was hoping for.” They just get a better feel for what it would like to be in it without having actually go and do it. If there is a virtual tour and somebody scheduled to showing they're probably fairly legit interested. They’re probably seriously considering putting an application in on this place. They're probably ready to move. Whereas, instead of getting a whole host of tire kickers and time wasters. James: That's right. What we’re seeing, the big thing right now in our industry is the movement to support self access viewings and whatnot. Within Tenant Turner, only a third of our properties are enabled for self access, because if you have an occupied property, if the owner won’t allow self access to the particular property, if the price point’s too low, you're still going to show and if the price points too high, you're still going to show it. This is a huge tool to help weed out unnecessary in-person showings. If you have your showing agent, like you said, driving around town interacting with all these different tire kickers who would’ve weeded themselves out of the process if they actually saw what it looked like from the curb, if they actually had an opportunity to see the size of the backyard and wouldn’t fit their two or three dogs. If they saw the layout of it and they know they want an open floor plan, but then as soon as they walk in they see it's not an open floor plan, they're going to walk right back out. It is a huge opportunity to generate more leads because you've got people who are going to be more engaged with your listing, but then also allow them to self identify that it's really not a good fit for them based upon what they're seeing in the virtual tour. Jason: Yeah, I mean it's really difficult when you're just looking at a bunch of photos where you’re just seeing an angle from one corner of a room, and that's all you see of each room. It's really hard to get perspective as a renter and you have no idea how these rooms kind of fit together, how that works and what the flow of the place would be like, so all that makes sense. How is Tenant Turner allowing people to get the virtual showings into the listings? James: Yeah, it was kind of a surprising thing that we saw come through our enhancements requests and whatnot, it was just really people—they're spending a lot of money. Whether they own their own Matterport camera or they're putting a lot of time into it and these virtual tours can take anywhere from 20 minutes to an hour to record. Some people like to go in at Matterport and do video editing or maybe they pay a service like VirtuallyinCredible to do virtual tour, where they stitch together the images for you and stuff like that. They're either putting in a lot of time or putting in a lot of money or effort or both.  One of the downsides with a lot of these listing sites,and even with Tenant Turner for awhile was that you couldn't really put links in the description that were clickable that enabled that to be highlighted element. They came through in our enhancement request, just making sure that those things are being promoted appropriately that got Tenant Turner now their own section where people can watch tours. It highlights the fact that that particular listing has a tour versus the ones that do not. The links are in the descriptions, hyperlinks and clickable, which then engages a new window for them to be able to watch the tours before they go through and schedule a showing. Some of our customers, they even have custom questions built into the Tenant Turner Questionnaire that asks if they have viewed the tour. Jason: I was going to say, can they require in order to schedule a showing or even to do a self access, can you require them to confirm that they have seen the virtual tour so no time’s wasted? James: Yeah and that's a huge thing. We've seen that in past questions that customers created. It was really like, “Have you driven through the neighborhood?” was kind of the beginning part of it, because they didn’t want to meet somebody at a home that the person has no idea what the neighborhood is like, if it’s going to be a good fit for them, have they driven by and seen the outside. Now we’re starting to see more people do that with the virtual tours and say, “Have you watched the virtual tour?” If not, draw attention to it before they schedule an appointment, because if they're not satisfied with the virtual tour, they're not going to be satisfied with an in-person tour once they get to the property. Jason; Right. Very clever. What are some other ways that people are leveraging these or making sure that it's all tied together? You're at the forefront of seeing how people are reaching this stuff. I think that's a clever hack to require the virtual tour in some way or fashion. Are there any other things like that that you're noticing people are doing to facilitate this? James: Yes. I think one thing that's really interesting and really smart is particularly the cost of these cameras is dropping and there are more options for property managers than there's ever been before. As you're doing your move outs and some of the homes obviously, they're going to need some maintenance as you turn them over, and maybe a new coat of paint, a new carpet, whatever, but as you do your next move-in inspection, if you have a 360 camera for using the Zillow 3D Home app, if you're using your own iPhone in order to record your pictures and whatnot, use that next move-in inspection as an opportunity to not only record what the status of the home is before the new tenant moves in, but then use that as an opportunity for your marketing material too. A lot of these tools like Matterport for example if you use one of their cameras, it'll take all the pictures panoramic pictures for you, and then you can even take out specific 2D images and use those for your marketing materials too. Basically, if you have the right equipment and your budget allows for it, put the camera on the tripod, put it inside each room, it'll take stance of the entire room, it’ll create a 3D floor plan, it'll create a dollhouse view of the home, and it will create all the individual images that you would need for your listings and for your inspection. Take that as an opportunity to combine the maintenance and loop-in element with the marketing elements so that you can have that 3D tour for that home in the future. Jason: Right. Then when your tenant puts a notice, you can start marketing the property right away, you can put it out there, you can put out the tour and everything else before, and you may be able to get the place rented before it's even vacant. James: Absolutely. That's another big benefit that some property managers are realizing with high quality virtual tours is that they can get the properties rented, sight unseen. If the virtual tour is good enough whether the person lives in town or not, if the property’s occupied and they want to put it out there in the market, there's a higher likelihood that they'll have the home rented sight unseen with a high quality virtual tour. I think that's the goal.  With Tenant Turner, we're trying to manage the leads and schedule the appointments to get people into the home, but ultimately what we're trying to do is streamline the leasing process. If we can help minimize the number of showings to help minimize the amount of back and forth that goes on with these virtual tours, maybe even prevent somebody from going to a property altogether, it's a win-win. Jason: The property managers that are not doing this stuff, if they're tracking their metrics, and they're tracking their average time to get things rented out, their time on market, some of these variables, and then they start using maybe Tenant Turner to start using maybe self access, maybe start using virtual 360 cameras and tours, and all this, they probably will see a dramatic difference. To be able to say in a sales presentation to a prospective owner, “Hey, this is where we were before, like all the companies out there, and here's where we're at now, and what we've noticed,” it's such a huge differentiator in selling point. Even a month of vacancy, even a couple weeks of vacancy can be pretty expensive. In some markets, that could be thousands of dollars depending on the property. James: Yeah. It’s just another kind of tool in the tool belt. I think a big thing is some of the concepts from virtual tours and I think something like Matterport too, just because the cost has been so high, you can get into doing virtual tours relatively easier now because of the Zillow’s 3D home app, you can do it now just with the quality of phones being able to take your own panoramic pictures. I know a lot of people out there, they're using tools like zInspector already for their home inspections, but they also offer a virtual tour tool. There's a lot more out there now than there's ever been before and I think the property managers who are willing to take that leap into putting a little bit of extra effort into it, and putting a little bit of extra time in it, they're going to be the ones to receive the biggest returns by reducing their vacancy, reducing their rent loss to vacancy, but then also like you said, being able to inject those core metrics back into their value prop to their customers. Jason: Between you and me, because it's just you and me right now, just us, if you're hanging out with one of your buddies that runs a property management company and they're like, “Hey, what should I use? What camera should I get? I've got your system Tenant Turner.” What would your go to recommendation be right now? James: I think the Zillow thing is really intriguing because it's free, but for all of us in the industry, Zillow, they're kind of a… Jason: It makes everyone scared. We’re all afraid of Zillow. James: Exactly. Jason: We’re all watching Zillow, but we’re all a little bit afraid. James: With Zillow, I mean they own and control your data because you're recording it in their app, you're uploading it to their servers, and I know a lot of people in this industry, they're thinking at the back of their mind, “It's just a matter of time before I've uploaded this to their servers for free and then they're going to take me out of the process completely because now they have my virtual tour.”  I would say, the Zillow one is appealing because of the cost, it costs nothing to do it, but I do think for property managers who are a bit more sophisticated and a bit more in the know in the industry, and maybe have some fears of Zillow and for good reason, there's a couple of hundred dollar camera, a RICOH camera which is a reputable brand. It works with zInspector, it works with Matterport, you can use it with either one of those products and probably a couple of others, and that's a great place to be able to create these beautiful 360 panoramic vantage points of the rental property.  This is what we saw in the data that we looked at, a third of our customers are doing virtual tours, but only 11% of our listings have virtual tours. The higher end properties or maybe some of your smaller multifamily that you can reuse the layout or use a virtual tour across multiple units, that's where you're also going to get the most bang for your buck. I think as time goes on, maybe we're not quite there yet where this is going to be a ubiquitous part of everybody's process, you can use it as an upsell to an owner, you can use it as something particular for those higher end listings. You tell somebody and say, “Hey, you have a top tier property, you have a beautiful space, and I want to be the property manager for you, and this is how I'm going to do it.” That's part of a way you can help win that management agreement. I don't think it has to be something that's used all the time by every property out there. I think that's a good way to overcome it. If you don't have a camera and you want to test the waters, the RICOH cameras, and there are a couple of them out there, but they're more like $400 versus the Matterport’s $4000. It's a good way to test it out and see if it's a good fit for your organization. To your point earlier is it going to positively impact your key metrics, are you going to see a reduction in your days vacant, are you going to see a reduction of your time on market, are you going to see an increase in either maybe an additional fee or more management contracts because you offer this, and nobody else in your market does. Jason: Say you've got a $20 an hour employee that's helping do some of this stuff, whatever. If it's a $400 camera and if it saves you 20 hours ever at $20 an hour, you’ve broken even on the camera. I would imagine, what is that, 20 showings maybe, or trips out to a place, or whatever. I think it's a no brainer. You could probably justify the $4000 camera if you needed two guys or gals, but $400 is pretty easy to start with. James: Exactly. We have seen with some of the bigger groups, particularly property managers who are tied into larger real estate offices that primarily focus on sales, they tend to have access to the Matterport cameras because these Matterport cameras have taken off more on the for sale side. That's another thing. Whether it's within the NARPM world or within your just local real estate group, you may have a friend that has one. Whether or not they let you borrow their $4000 camera... Jason: Rent it. James: Rent it, that's an option. There are services too, depending upon what you think your choke point is, but there's tools out there or services out there. PlanOmatic is one, Zillow also offers their own network of professional photographers that have access to the 3D tour technology. PlanOmatic is in partnership with Matterport. HomeJab is another new one that has 50 offices nationwide. If your issue is getting somebody to go to the property, take pictures and do the editing, PlanOmatic, HomeJab, those tools are in place. Those services are offered. Jason: You can offload it. James: Exactly. Think about what's the most appropriate part of the process to potentially outsource. VirtuallyinCredible, they do a good job in creating virtual tours that can then be promoted through your various listings, and websites, and whatnot. If you have an editing, if that's where your constraint is, you don't feel like you have the time or talent to do it, there's another place where you can offload and outsource that component to it. You should be doing it, and if you do it, you will differentiate yourself to make more money and reduce your days vacant, so it makes sense to do it, but if you have hesitancies around buying a camera, then borrow one, or use one of these services, or go the Zillow route. If you can overcome that hurdle and your concern is really around editing, and formatting, and getting it to the appropriate level, you can use another one of those services like VirtuallyinCredible who can piece it all together for you, but any stage of the game where you think you have hesitancy or you're resistant to taking it on, there are opportunities to buy equipment or utilize an existing service who’s an expert in it. Jason: Perfect. I think you’ve sold people on the idea of virtual tour technologies. Anything else that that they should know about this that you're seeing from your 30-foot view with all the different property management companies that you're helping them with the leasing side? James: Yeah. I would say one thing to add is that some people might be listening to this saying, “We don't really need to do that, the technology is not there yet,” at least be thinking about this, whether you look at strategic components every quarter, or every year, or whatever, because one of the big statistics that came out of some of the research done by apartments.com and Zillow is, about 45% of millennial renters are really leaning into virtual tours before they make a decision. If you don't think the stats are compelling, if you don't want to try it, just know that the largest group of renters that continues to expand within the markets that we serve, they are looking for this type of technology. Again, it's something that you can use to help sell to your owners, but as you look at quality tenants, this is something that those folks are going to be looking for, and they'll look past your listings eventually if this is not going to be there. Be ready. Jason: I would wager to say there might be a correlation between the most tech savvy of renters and the safest ones to be placing into properties. It might help you attract better tenants. Maybe. James: Yeah, I agree. Jason: Psychologically, it seems sound to me, but who knows. James, it was really cool to have you here again. I don't know when the next conference is but we'll have to go dancing again. James: That's right. Jason: With all our homies. To be clear, it’s not just Jason and I dancing. Jason: No, we’re not dancing together. James: Good times. Jason: You're married, but I'm single again, so I can pick up… James: I could be your wingman. Jason: You’ll be my wingman, I could use a wingman. James: I got you covered. Jason: Alright, well hey, it's really good to see you again. James, it’s really good to see you again. I love what you guys are doing at Tenant Turner. I appreciate you coming on the show and how could people get in touch with Tenant Turner? James: Yeah, if you guys ever need any help with your showings, software, lock boxes, or locks, or ever just a resource to chat with as you can tell, we're really into the data, we’re really into the industry, and we want to be of service to folks. You can reach me at james@tenantturner.com. Definitely come to our website. We’ve got a live chat feature. Anytime you want to speak with somebody, we have folks standing by all US based who would love to hear from you. Come on through. Jason: I saw your Instagram. I'm going to let you get another quick plug here. You have some new lock boxes that you guys are doing now? James: That's right, yes. One of the big and exciting things that we've been rolling out, we've been doing it in a slow launch and actually Calvin, he owns his own property management company, Keyrenter Richmond. He was one of our guinea pig customers. We put new lock boxes on his property. They're SentriLock lock boxes, SentriLock’s a wholly owned subsidiary of the National Association of Realtors. It is an extremely high quality lock box with the six year warranty. For anybody who has had a desire to experiment with self access but maybe was hesitant because of the lock boxes, what we have now is top tier and will last you a good long time and help prevent you from having to go to those properties showings yourself. Jason: Perfect, awesome. Alright, cool. Well James, thanks again for coming on and I will let you go. James: Cool, thank you, Jason, it was a pleasure. Jason: Alright, so great to see him again and have him on the show. Check out Tenant Turner at tenantturner.com and if you are [...] business feel free to reach out. Test your website at doorgrow.com/quiz. Test your website out. See if it's effective, and if not, you maybe want to talk with us and that might help you realize there's that leak, but you probably have several other leaks that we can help you with in your sales pipeline. Our goal is to show up trust, show up those leaks because trust is the speed in which you're able to get clients on close deals and grow your company. That's what we specialize in is helping maximize trust and organic growth and we’re on lead generation at DoorGrow. With that I will let everybody have an awesome day, let everybody go and until next time, to our mutual growth. Bye everyone.

James: Hey, audience. Welcome to Achieve Wealth podcast. Achieve Wealth podcast focuses on value add real estate investing. I'm James Kandasamy. Today I have an accomplished couple, Jack and Michelle Bosch. And Jack and Michelle Bosch have done more than 4000 land flips across the nation. Land flips is something very interesting to me. And, you know, it's an asset class, or an asset class, which I think is very interesting. And you can learn how we make money out of it. They've done a lot of single-family houses. And they also have done apartments; 330 units apartments. And, you know, they are continuing to look for more and apartments as well, but I think they are the masters of land flip. Hey Jack and Michelle, welcome to the show. Michelle: Thank you so much for having us, James we're excited to be here. Jack: Thank you for having us, James. James: Tell me, did I miss out anything in your credentials or you know, did I -- Jack: No, other than we're both immigrants, we both came from other countries. So we started here with, just like you, just came over from another country and so we have that in common. But now we flip now 4000 pieces of land. We teach it now; so we have seminars on that. But then for asset allocation, basically the money we make for land flips and whichever way rental properties now, we rolled that into more and more two apartments now. Michelle: Yes. James: Got it. Michelle: To produce what we call one-time cash with the land flips like you work for a once and you get paid once. We're also able to produce some cash flow because we are also able to sell those properties using seller financing, you know. James: Got it. Michelle: And so you do get some mailbox money, but those notes usually come to an end once the property is paid off. And so, we're always in the back of our minds is okay, let's roll cash profits and cash flow into what we call forever cash, which would be a partner. James: Got it. Before we go into the detail of land flipping, I want to understand your background because I know all of us are immigrants So can you tell me when did you guys move to the country? And how did you move? Were you already successful on the day that you land in this country? Michelle: Oh no. Jack: Of course, we're like, we're a billionaire. James: Did you find gold outside the boat? Jack: No. So, Michelle… Michelle: Yes, for me I came from Honduras here in 1995 to study. I came to a tiny little town like about three hours South-West of Chicago called McComb, Illinois, that's where I met this man in the middle of the cornfields. It's basically university town, you know, and nothing else to do.I came here for a business degree, my undergrad, and I was in my senior year there, my third and last year when I met Jack. We shared some upper finance courses together because he was here for an MBA, 10 months. He met me and then he couldn't leave anymore. James: Got stuck, you got stuck in the US. Jack: She's right. She summarized it. I came in 1997, Michelle was in her last year in undergrad. I did come in for a Masters to that same university that had an exchange program with the university I used to go to Germany. And I was kind of like be able to kind of accomplish three goals in one year. Number one; I was able to get an MBA in the United States because it was an accredited school and I was studying business Germany. Already had enough credits and I just needed these 10 months, was enough to give me the American MBA. They give me, I tested out and all of these other things. Number two, I was able to get credit for the missing classes in Germany. So with that, I didn't have to go back to Germany to do more classes. I completed my degree in Germany, those same classes gave me the MBA. Also helped me complete my degree in Germany and improve my English. And the fourth and most important thing, I met this one. Michelle: But to answer your question as to whether we came here successful, absolutely not. I came in with two suitcases to my name, Jack pretty much the same. You know, I was raised by a single mom and my father passed away when we were very, you know when I was very young. And it was, you know, she was sending me here to study with a lot of sacrifices. I had to take several courses, you know, take seven courses per semester, like advanced as much as possible, because I couldn't afford to be in the US for more than two and a half, three years, you know what I mean? And eating soup towards the end of the semester when you run out of money. And, but I didn't have, I did have in the back of my mind the thought that real estate has been incredibly good for my family. You know, before my father passed, he had made an amazing decision. And it was to buy a piece of commercial property that to this day spits out cash, you know, for my mother. And so -- Jack: And that piece of property brought her to college here in the -- Michelle: Got me through college. Jack: And still sustains her mom over there. Yes, in my case and my dad's, again the same thing my mom, not the same thing but similar. My dad is a high school teacher, retired now. My mom's a stay at home mom. So no, I came here with student debt. I came here with enough money to pay for one semester, I didn't have, really didn't have a clue, how I would even pay for the second semester. Luckily, I got a job at school. The first car that I bought in the US was a $900 old Chevy caprice, like the old [inaudible05:31] car that they use to drive around -- James: It had four wheels, right? Four wheels? Jack: Four wheels, yes. Michelle: And I was like Jack, why did you get this, I mean, there are so many cars, why did you get this car? And his answer was like, cars in Germany are so tiny, I was looking for the biggest car possible in the US. Jack: Like Germans and every single one of them bought the biggest car that they could find. James: That's good. That's good. Yes, I like to, that's a very interesting story from both of you, right. So I like to, I mean before we go into the technicality of the commercial real estate and all that, I like to understand a lot about the thought process and you know, the people behind it, right. Because I think that's what makes everybody successful. It's not about the tool like real estate, right. So tell me about what was your family thinking when looking about the US from outside, right? Did they think the US is the land of opportunity, easy to get rich? Or how I mean, can you talk about the process that when families outside of the country when they want to send their children to the US, what do they usually think, you know, what do they think that you kids will get here? Jack: Well, I think Michelle's mom was perhaps not thrilled that she would stay here. Michelle: Yes. James: But not thrilled? Michelle: No, yes. James: Okay. Michelle: The whole point was to come here, study, not find a husband, go back home and basically help her manage, you know, this piece of real estate and hopefully, you know, continue growing the legacy that was left to us. James: Okay. Jack: Next, get a job, right? Michelle: Yes, yes. Jack: Same thing here. My parents were absolutely not thrilled that I was staying here behind. They, I literally had the job lined up in Germany. I had the, I just put my student furniture in my parents' basement. I had a good degree from a good university and good things and they're like, what are you doing? What are you staying there? What's going on there, you're so far away. In particular, my mom had a really hard time with it for several years. But then once they saw our success, particularly once we entered real estate, and once we saw success and what that success actually means for them too and for us. It's like we don't, we see our parents, this year we see my parents three or four times even though they live in Germany. And it's like, and they, we support them a little bit financially. They get to come here and they get to spend time here. And they see that they don't have to worry about us like we're the one or like, we're my, Michelle and our family, they don't, they're like a peace of mind. They're okay. They're good. They're happy financially, they're good. So, you know what as a parent you wonder, you want to have that feeling. So they know, ultimately, it's a good decision and took them like 15 years to say that, but they did. Michelle: Yes, I mean, we also contributed to, you know, being able to retire Jack's dad before time. You know, a couple of years before he had been working as a school teacher for many, many years. And he was just at the point where he just didn't want to do it anymore but he couldn't leave it because, you know, that involved a big reduction in his pension if he did. And so we put the pedal to the metal back then and it was just through land flipping, to be able to make up for that, you know, for those two years of early retirement and being able to retire him early. So -- Jack: So he ended up retiring a year and a half, two and a half years early because of that and James: Wow, awesome. Jack: And so overall so now they totally have changed. Michelle: Yes, so family has been always I think also big why for us, a big driver to get things done. James: Got it. That's absolutely what happened, you can come here and help out your family back home. It's just sometimes people, I mean sometimes they think that okay we want to come to the US and stay here but that was not the case for both of you, right? I mean, you came to study and you're supposed to go back. But you got stuck with each other. Jack: The United States is a wonderful country to be. But then we also, we realized, I don't want to live in Honduras, Michelle didn't want to live in Germany. Nothing wrong with these two countries, they are beautiful countries but language barriers, cultural barriers [inaudible09:40] we're already here, let's try to make this work here. We got lucky, we both got jobs here. We got the job that got the visa, the h1B visa, took five and a half years to get to that process. Michelle: And it was a job, jobs we both hated. But we were handcuffed because of the, you know, green card situation. And so we had to stay but -- Jack: Yes, but yes, it was just something, let's see if we can make this work here because we like it here. And we -- James: Got it. Jack: Beautiful neutral ground also for us. James: So do you think that as an immigrant, did that whole life situation gave you a boost, a reason for you to be successful in the US? Michelle: Absolutely, it like, I think it was incredible, it gives you an incredible drive and hunger. Like I don't come from a wealthy society like Jack's, you know. I was going back to a third world country, you know, yes, from a middle-class family, but still to a very poor society. And so for me, yes, that, you know, that was an incredible drive, you know. You still go back home and those wealth disparities between the haves and have nots are brutal. And so you definitely don't want to be caught in the haves not part. You want to be caught in the other group of people. So, yes, that was definitely a big, big drive for me for sure. Jack: Yes, absolutely, yes, same here. I mean, but a different way. Here, it's more like I could, anytime I could have left and go to Germany, first-class country, Mercedes Benz, would've gotten a good job with a BMW as a business car and expense budget and staying in nice hotels and all those kind of stuff. But the overall I mean, there's something really amazing about the US and I keep saying and it's not like blind nationalism. It's just for business and for success and for comfort, and for just that particular business. It's just an amazing country. It's like so once we started setting our eyes on that, it's like, it's so easy to do this. And definitely helps to be an immigrant, I don't know if the hardship helps if you use them, right. Michelle: Yes. Jack: So we use them as fuel. We used them as a reason why we needed to succeed because we did not want to live a life like I was travelling 100%. I mean, sounds glamorous, like I was jumping the plane on Monday morning going somewhere. But I was staying in Holiday Inn Express where ants were crawling up the walls. And in some cases, and usually, in small towns, where there are five restaurants, three of them are fast foods and I was like working in some companies up till midnight and I didn't enjoy it. So I use those things as fuel to say okay, I really got to do something extra in order to succeed. Now, having said that, being an immigrant here, which as you can probably confirm, is you start, you see way more opportunity that the non-immigrant see. Because it's not normal to you, what you see around you is all new. So as it's new, you look at it from a different angle and you see the holes in it, based on compared to what you see in other places in the world. And it's like well, and any kind of opportunity that ever existed is really masking itself as a problem. So you see, like anything that created like glasses, have been created because people don't see up with eyesight anymore. The problem is the eyesight gives is the solution. So anything even multifamily is the solution to a problem. You take a problem, you take a problem property that's been run down and you make it into the prettiest property in the neighbourhood. You provide a solution for people who want to save, solid, good well-working place, affordable place to live you can make something out of that. And it's true for everything and as an immigrant, I have a feeling you see that much more than then if you're born and raised here and it's everything is just normal. James: Yes, yes. Hey, I had a friend from the UK and he left the UK came to the US and he kept on telling me this. I don't know whether the UK or entire Europe, right, I mean it's a well to do country, it's a rich country but there's no easy part to break out from your circle.You can't break out as a breakout and go to the next level, you’re always within that, you're probably working, you're earning, you're learning, you are living an average life like everybody else, but you can't break out to the next level. So I'm not sure how is that in Germany, but in the US. Jack: Plus Germans, they don't move a lot. So you're on top of it, almost like down by your social circles, that like there's a party, a thing and a friendship. So if you start breaking out, you become you're almost alienating the people around you. Michelle: An anomaly. Jack: An anomaly. James: Okay. Jack: And if you don't have the stamina to keep that off and build a new circle of friendships or so, then you're going to be pulled back down. And that's another benefit as an immigrant, it's like, hey, it's like you didn't burn the boat but you cut the ties. It's a brand new world, it's a brand new opportunity, you associate yourself and make friends with those people that you want to make friends with. And it's just a, it's almost, it's a brand new world. It's a different thing. James: Got it. Michelle: I think especially in Jack's case, you know, resonates with that because he comes from a very small town in Germany. And he's like, there are some people that even though I didn't want to socialize, I had to because it was such a small town. James: Yes, that's true. Jack: Once when I was younger I was in college, I went to study in Spain for half a year. I came back went to my favourite bar and they just asked me, hey you looked tan, what do you want to drink? So nothing changed in like eight months or so. And not a single thing had changed, the same people were sitting at the same desk, tables, in the same bar, drinking the same drink. And 20 years later, still is nothing has changed. It's still, you know, look older and unhealthier but other than that it's the same thing. James: Yes. That's maybe that's why the index happiness index is much higher in some European country. People are just happy with the way they are, right? Jack: Yes, and there's no judgment in that. Michelle: Yes. James: Why do you want to rush? Why do you want to rush? Why do you want to get rich just leave as it is, right so? Jack: Yes, there's nothing set to be there but if you have ambitions if you enjoy growth, like a bit like we enjoy personal growth. We're really on a personal growth journey, it comes with challenges, it comes with new hurdles, it comes with expansion and so it wouldn't be my work. Michelle: And those challenges, you know, are our part, we know are part of the journey. And you think that the goal is you know, a worth goal, but it's really, the goal is a being on a constant process of becoming, an expansion kinda like what Jack said. Jack: And the wealth comes as a side benefit of that. James: Got it. Got it. So let's go to your businesses. So you guys, you had your green card, you came here. You worked for how many years did you work on a corporate life? Jack: Five and a half. Michelle: Five and a half. James: Five and a half, so what happened after five and a half? When did you start your land flipping thing? Jack: Well, the land business, we started about three years in or two years in we realized this is not what we want to do with this job thing. So we started dabbling with real estate. And we really didn't find success until about four years into it, until the end of 2002. So -- James: Hold on, on the two years that you realize that your work is not the thing that you all wanting to do, right? Jack: Right. James: What was that ah-ha moment, say that? Jack: The ah-ha moment was actually, for me was the first particular day that the company of 7000 people, let go a 1000 people in one day. Michelle: Right after September 11. Jack: And the economy did a massive shift downwards, the software company that had grown from 500 people when I joined them to 7000 people, three years later to two or three years later, we're starting to go back down from 7000 to 4000 people. And they did that in one year. As a matter of fact, it was within three days, during that one year. James: Wow. Jack: So one day 1000, another day 1000, another day 1000. These cuts were like for a few months apart from each other. But the first time that happened was when they literally, left and right when they when we were at the customer side, there was a software company. But I don't know anything about software and just wasn't a business, account department. They, business analyst, we were so worried about the customer side, that the phone would ring and our network was shut down. Usually, connect the internet to our corporate networks to get to files and stuff, all of a sudden, nobody could get into the network. It's like, oh, you get it, you get it. Michelle: You know what's happening, right? Jack: We started calling people in other offices, what's going on, you get in, no, nobody could get in. It's like oh, our network is down. Next thing you know, few of them, was over the phone rings, the guy picks up and all the colour leaves his face. And three minutes later, he picks up, he grabs his stuff and says, hey guys, nice meeting you. I was just fired. And he basically picks up his stuff and leaves. And that's it. And I was like, what you mean that's it? Like, again, Germany, if somebody fires you, they have to give you three months, -- Michelle: Three months. Jack: Three months notice. James: I thought it was 12 months notice. Michelle: Yes, so then you can actually train your replacement. Jack: Train your replacement and so on and or least have to pay for three months, some company say go home, but they have to pay for three months. Here, you're off and they gave him I think of four weeks severance if they signed something that they wouldn't sue the company. So and then during the course of the day, a whole bunch of people that I knew were let go. And I was sweating bullets, obviously, you know, we both were sweating bullets, because obviously, we work -- Michelle: And at that point, I had joined actually Jack's immigration, you know, files and paperwork because we figured, okay, there are very few people trying to emigrate from Germany. And there's so many more coming from south of the border, that stuck on Jack's application. And so we were both, you know, on his paperwork. Jack: So if I would have lost that job, we would have 60 days to find another job or leave the country. So at that moment, we realized, okay, this is, we're so breaking replaceable here, we're just a number in this big wheel of 7000 people. And after the day only 6000 people were like, okay, we got it, we got to do something else. We don't like it. After five and a half in an industry, you're almost like pigeonholed in that industry. I didn't want to stay for the rest of my career in that industry. So we wanted to get out. And we didn't know how to do that we just looked around. And after a few months or weeks of looking, we came across real estate, tried all kinds of different things, but couldn't get anything to work until we came across land flip. Michelle: And I think the land flipping thing was even, like falling forward. Jack: Yes, like pure coincidences, just like -- Michelle: We're looking into taxing and taxing you know, taxing investing. And I had gone up to somewhere in Northern California to a taxing option and stumbled upon, you know, a piece of land, a lady that owned a piece of land and we auction it off. And we're like, oh my gosh, you know, how could we do something like this? But instead of waiting until an auction happens, you know, how can we get to people much, much sooner. And because if she's a, you know, an owner of vacant land and wanted out, there must be other people. Jack: So we started sending direct mail to owners of real estate who have back taxes. And only people that own land, call us back. And -- James: You know what, that is exactly happened to me. I was trying to look for houses and all the people with land call me back. I said I don't want land, I want houses. Jack: There you go, you just missed out on a big opportunity right there. James: Yes, I should have known you guys. Jack: And then one guy had a property, it was worth about $8,000. But he hadn't done it, what's called a percolation test to make sure to put a septic tank in there, to see how the water, how fast the water sinks in the ground and it hasn't passed the septic test. So to him, it was worthless and he was leaving the state and he was wanting to leave. And he's like you guys can have that thing. And it's like, well, how about $400, he's like take it. So we got this thing for $400. And we sold it literally the next day to the neighbor across the street for $4000. James: Wow. Jack: And that became the beginning -- Michelle: And that's because our negotiation skills sucked. We were, the neighbor shows up Jack: And they just offered 4000 and we said, yes. Michelle: We were ecstatic, you know. Jack: Instead of like negotiating, we're just like -- James: You were like 10 times more, that's it, done, right? Jack: Right. And then the next deal was 10,000, the next deal, babe then we got to deal with like 21 properties for $30,000 that we sold for over $100,000. And then all of a sudden things started working. And then we also realize that most people that want to get rid of these properties don't actually even own property taxes. So now we go after all the general land and we generated millions of dollars, and we started doing this part-time then. Then Michelle quit her job because she was on the visa, started this full time. And then in March of 2003, I got, we got the green card. And then a few months later we felt comfortable. Michelle: I retire again. Jack: Retire, exactly. James: So my wife styles me. Jack: Then so in October of 2003, we quit our job, but it just we stumbled into that, bonded, built it up. And then for several years, we put the blinders on and all we did was land flipping. We only put our head up when the market crashed and everyone around us was losing money and we're still making lots of money. And then that's when we started buying single families and then later apartments. Michelle: Because we could buy houses here for forty, fifty thousand dollars, you know, with five grand in repairs and rent them for anywhere between $900 to $1100. James: Yes. Michelle: So you know, it made sense. And we had all the cash profits, you know, from the land business, because that land business actually, we're able to grow it very rapidly to almost an eight-figure business. You know, the first year we did about 60 deals, the second year, we did about 120 deals, 130. Jack: The third deal, 3800 deals. Michelle: Because we use them, we figured out a way to flush a lot of these properties. And by using auctions. So we used to have big live auctions, you know, we advertise on TV, radio, billboards, periodicals, online flyers. And get like 600 people to a room here in the Phoenix Convention Center, and sell them in one day 250, 200 to 250 parcels. And so we were quickly able to scale that and -- Jack: Build a bigger operation then, with like 40 full-time people. At the auction days, we had 120 people work for us, it was a big operation and we built them. And then we use those profits to then get into the forever cash market meaning buy, put asset allocation, as I call it, take the money we made and roll it over into something that brings cash flow for the rest of our lives. Now we have like 50, completely free and clear rental properties, which now have quadrupled in value. And we still own. James: That's awesome. Awesome. It's very interesting on how you stumble upon doing yellow letters. So that's how, I mean, I was looking for houses. And I believe I look at tax lien lease, if I'm not mistaken, people who didn't pay tax because most of the people who have an empty land, they don't want to pay the tax, right? Jack: Right. James: Because I think there's no cash flow, there's nothing coming. So Jack: Exactly. James: So many calls coming back, I was surprised at the number of response, people calling, but was calling all for empty land. And I say, I'm not going to buy that. So but looks like you guys monetize that I, I should have known that. Michelle: And you know, and even there, it's like in our countries, there's no way that you're going to lose your property over for taxes. But here in the US, you do, you know, the tax lien foreclosure method or through the tax [inaudible 0:25:16]. So those are opportunities that perhaps we were able to really, you know, hold on to because neither of our country's -- Jack: We would like, it blows away that people would even let these properties go for taxes, it was a perfect opening for us. And yes, so we monetize it in two ways. We learn, we wholesale them, we wholesale them. And we still do that, we just sold one week, actually two last week and, I don't know, every week there are sales. And we wholesale them, basically we buy something for $2,000 and go sell it for 10, that's not a bad profit, right? James: Absolutely. Jack: You can live off that. And plus, they're very affordable these properties. Or what we also do is we sell a seller financing. So a couple of months ago, there was one particular deal I want to highlight, is we bought the property for $5,000, an empty lot here in the city of Phoenix. And we sold it for $64,000 with a $6,500 down payment. So if you do the math, we paid five for them, and we got 6,500. So we got all ready -- Michelle: Our money is back. Jack: The moment we sell the property, our money is back. And now for the next 20 years, we get $500 a month and we'll make over $112,000 total on a property that we have zero money in, the moment we sold it. James: That's awesome. That's awesome. So let's walk through the land, the best land flipping strategy. Right? Jack: Okay. James: Because you guys have done it many times, right? So first is where do you get the list of landowners? What the, where's the best place to find? Michelle: So there are three possible places, we are still in love with a more difficult one. Because the harder it is for me, the harder it is for everyone else. James: Correct. Michelle: So there are places like Rebel gateway or Agent Pro, where you can get lists. And I think these two -- Jack: Lists services. Michelle: List services that basically, Jack: Online lists services, James: Lists source, right? Is it list source or -- Jack: List source or logic or agent pro 24/7.com. There's a whole host of different websites. James: What kind of list should we look for? Jack: We're looking for land lists, ones with value James: Other criteria, right? Jack: Yes, land, the other criteria is that the land value is below $100,000. Typically, because we found that to be our sweet spot, now you can go up above, but then your response rates are going to drop. [inaudible27:41] the pay for these properties just skyrockets and so on. But you can do those deals like we have a student the other day that made $192,000 flipping a deal that he put on the contract for much more than we usually put the properties under contract for. It went for 80 and he sold then for, what is that, close to 270 or something or 300. And then he made his offer to closing costs 192,000. But usually beyond that, we like out of state owners, but they don't have to be out of state. So there's a couple of other criteria. Then once you get that list, -- Michelle: You send them you know, you send them a letter and you can either you know printing stuff and stamped and lick all your envelopes and your letters. Or you can send it through a mailing house if you want to outsource that and send out letters and just hold on to your seat because you're going to get -- James: You're gonna get a lot of calls. Michelle: A lot of calls. Jack: Right, you're going to get a lot of calls, exactly. We did, for example, yes, when you send out these letters also, so we don't use the yellow letter, we've developed our own letter and split tested that hundreds of times until we got it to a point where we could not improve the performance of it anymore. And so our letter sometimes, there are a few counties where you get lower response rates, but usually, you get at least a four or five, six percent response rate. And it can go as high as 15 to 20%. James: So let's say now someone calling you, say I will land to sell, can you buy from me? What are the things you look for, to see whether you want to take down their number and follow up with them? Jack: First thing is motivation. Michelle: Yes. Jack: Because almost any kind of land sells, it's just if you get it cheap enough. Now, having said that, there are certain areas, certain pockets that we don't buy. I mean, there are areas in Arizona, where its land, an acre of land is worth $500, that's not worth pursuing. So the value needs to be there. So we typically don't just go below $100,000. We also start above 10,000. So that we have, -- Michelle: So you don't get crap. Jack: So you don't get crap. Michelle: Yes. Jack: So good language here. So you gotta get you together, you don't get junk land. James: Thanks for being nice. Jack: Yes, we have that ongoing, she's the foul mouth in the family. Michelle: Hey, you throw me under the bus. Jack: So then you, yes, you sent out these letters, I thin I forget the question. James: The question is, once they call, what are the criteria -- Jack: You asked them a few questions, you go through a list of questions that we created the script for and asked like if there's early access, if there is utility to the properties, and none of those things is a deal-breaker, they just determine how much you ultimately going to offer for property. James: Got it. And how do you determine what you gonna offer? Jack: Comparables, you run for market comparables similar to houses plus there are a few extra ways, like for example, particularly in rural areas, there might not be comparables of the same size. So if you're looking at five acre parcel, and you only have like 10 and 20 acre parcels, and there's no other five acres to sold or listed, you gotta adjust for size sometimes. So basically, a 10-acre parcel is listed or sold for $30,000. Well, five acres, not automatically worth 15, it's more worth a little bit more, because in rural areas, the smaller the parcel, the higher the price per acre. Michelle: Yes. Jack: So you get down, it's like the other way around, the bigger you go, the more kind of volume discount you get on the acreage. So going from 20 to 40 is not a doubling, it's more like a one and a half times in value. James: Got it. Jack: So 20 is, so the value over 20 years because of comparable shows you that's $40,000 and an 80 is not a 20 to 40 or 40-acre parcel is not $80,000. It's more like $60,000. So there's kind of you can adjust for those things. But the nice part is we buy our properties for five to 25 cents on the dollar. So that's the key to this entire thing. Because when you buy at 10, 15, 20 cents on the dollar, you can be off in your analysis and still make money. And you can make money by selling the reseller of financing and getting a down payment that pays for the property. And you have so much margin of error and so much offer in there that it's almost impossible and I'm not saying it is but it's almost impossible to screw up. James: Yes, yes. And what tool do you use to find those comparables? Jack: We use, we go on Zillow, we go on Redfin, we go on realtor.com, we go on landwatch.com, the same free websites, because I ideally go on the MLS, but the MLS only has, doesn't have all the land is allowed land it sells like owner to owner. And also even if you have access to the MLS, we do deals from Hawaii to Florida. Our students do deals out of the country, you usually only have access to the MLS in one little pocket. So it's impossible to almost have access to the MLS all over the country. Michelle: And it's relatively easy to do the comparable analysis we develop, like our own proprietary software that basically connects through you know, to Zillow, Redfin and all these services. So when I'm at a record, you know, and I'm looking at it immediately it populates for me, you know, whatever comparables. And if it's a little bit, you know, more, if it takes a little bit longer for me to do that, it's maybe eight to 10 minutes, you know, to look up a record elsewhere, specifically, like if it's an info lot, and it's completely built out, you kind of have to like back into the value of the land by figuring out, you know, what are the average, you know, prices in homes in this area? What is the average square foot? How much would it take a builder to, you know, building your house and, and kind of that way back into the value by -- Jack: So we build five methods to the value of the thing, not less, not the least is actually assessed value, any counties the assessed value as a relationship to the market value. And if you can prove over the first 10, 20 analysis that you do that this relationship is reliable, and you can just use the assessed value too for evaluation. Michelle: In a particular county. Yes. James: So you have to pay property tax on all this land, right? Do you try to flip it within the year so that you don't pay property taxes? Jack: As a matter of fact, the way most of our students are doing this is that they don't actually ever buy the property. What they do is that they put the property on a contract and then go market the property right away, and then either do an assignment or do it what's called a double closing, where they use the same day transaction where they buy it and sell it both in the same day. And the buyer brings up all the funds that pays everyone. So -- James: That's a wholesaling technique, right? Jack: It's a wholesaling technique, James: Yes, like in houses, that's what -- Jack: Exactly it's same, the same technique just that we use land for it. And the nice part about land is there's no tenants, no toilets, no termites, there's no repairs. There's no you don't have to show anyone the property. Michelle: James and in the competition -- Jack: Is almost none. James: That's why so many people call me. Jack: Somebody on this podcast just told us that he walked away from owning land because he didn't know -- James: I know. You know, I was thinking that time why are these people selling all their land. I mean, there must be some business here. But I was so busy looking at houses, right. And I thought… Jack: Right and that's the normal thing. So there's almost no competition. And for the last 12 years, we have done this entirely, virtually we have not looked at a single piece of land ourselves. James: Yes. Jack: Google Maps, Google Earth, you can see it all, you don't, Google Street View, you can just drive by your lot, take pictures. And it's all there, no reason to get dirty and dusty out there. Michelle: And that's another thing that I think I want to add in terms of like how simple it is. And now that we've like perfected our system, how predictable it is, you know, is that when we started looking into real estate, because we're both not from here, we had no clue completely clueless about construction, about estimating repairs for kitchen or bathrooms, for flooring, for roofing, we had no idea. And you don't have to deal with any contractors, any, you don't have to deal with any of those headaches that usually you have to deal with improve property when you're dealing with land. So that's something else we forgot to mention. Jack: And that's actually why we also, the main reason why we didn't jump from that multifamily right away, but we took the bridge of single families because we first needed to learn the details of how much does it cost to rehab a kitchen and the bathroom, and the flooring and windows and things like that. We didn't want to tackle a $10 million project first. We wanted to go, start small, so we bought some rental houses with their own money so if we make mistakes, it costs us money and not our investors. And little by little we then learned and after realizing that we can manage those also remotely because our houses are in three different markets; Phoenix, Cleveland, Omaha and an even though new houses in Cleveland, I just hold a show last week. I may have a few houses that I couldn't even find anymore because I haven't, the last time I saw them was like eight years ago, and they spit out cash flow every month. The property management companies who charge them, everything is good. So after that experience was like we're ready for a step up and now buy the bigger buildings and manage them. And we can also do that remotely. James: Okay, that's awesome. So I'm thinking why did I miss this opportunity, right? And I think the answer to my question was, I do not know who to sell to. So how did y'all solve the problem? How do you go to market, okay, today you get land, how do you go and find the seller? Jack: So initially, we started with eBay and newspapers and then we figured out this big land auctions. But the big land auction stopped working about 2007, 2008. Michelle: And started doing online auctions. Jack: And then we started doing online auctions, we shifted, started everything online. So since about 2008, the middle of 2008 now, we have been pursuing and we have been selling all our land online through websites like Craigslist, through Zillow, through MLS. If you own the property, if you have a paragraph in it, it's just that you're allowed to market it. You can even a property if you own it, it's easy to sell it on the MLS anyway, if you don't own it, you can have a paragraph in your contract which we have, that allows you to market this then you can put it off to the brokerlessMLS.com for $99 goes on the MLS. Again, but in other, this land specific websites like land watch, landfliprealtor.com again, land of America and the biggest one that is right now driving the most traffic for us and everyone else is the Facebook marketplace. James: So they are people looking to buy land from people? Jack: Oh, lots of people like -- Michelle: Facebook marketplace and Facebook groups land, land groups. Jack: Yes, Facebook land groups. Yes, there's a big market. I mean, we focus on three kinds of land. Number one [inaudible 0:38:34] lots, can sell immediately to a builder. Number two, the lots in the outskirts of town, right, if this is the city right on the outskirts of the city, that's where we still buy land because it's in the path of growth. Cities like San Antonio, cities like Austin, cities like Dallas, cities like Phoenix, cities like LA, like Denver, all over the country, they're growing, their growing infill. They're there. They're growing in the outskirts of town we're there and there are two ways and the third way is we're focusing on larger acreage in the more rural areas. And that is for the multi-billion dollar market off RV, ATV's, hunters, campers, how would you love to have a 40-acre ranch out into the hills of East Texas, right? Wouldn't that be beautiful? James: Yes. Absolutely, Jack: Yes. And there's millions of people that are looking for that. And then we put the one on top because we get so cheap. If you offer those properties with seller financing, they sell very quickly. Michelle: Or a discount -- Jack: Or discount or market value, wholesale, there is price, will advertise it's a good property, it sells very quickly. And for example, one of our students just posted something that they put, they put an ad on the Facebook marketplace and within 24 hours that has 4250 people look at it and comment and message them. And obviously, they had to take the ad down and had multiple offers on the ads in one day. Now that's not necessarily typical, it might take a few weeks for the property to sell. But there are buyers with it's a b2c market right, we're the business to the consumer market. And the end consumer buys a lot of these lots and the [inaudible40:18] lots are B2B to the builders. Michelle: Yes. James: And how do you check the entitlement of the land? What is it zoned and all that? Jack: There's another company, Michelle: Yes, so you go through a title company, make sure titles free and clear. Jack: There are title companies that we use are not the same companies, different department that we use when buying a $10 million apartment complex than when we buy for it for a $30,000 piece of land. Obviously, the cost is different because they charge us a minimum cost, which is usually anywhere between $700 and $1200 a deal. But if you're about to make $50,000 on there, you can pay $800 and then make 14,200, still okay. James: What about land, which has a utility or going to get utilities, is that much higher price than? Jack: Usually it is and usually it's already, Michelle you can. Michelle: Go ahead. Jack: Usually, it's already in the assessed value included, occasionally it's not because the assessors like a year or two behind. But it's definitely already when you run your comparables, it's already in the market because that word is out and then other properties in the market are going to be listed higher, which tells you, okay, or listed or sold higher, which shows you the market value is higher. So your offer is going to be higher and the seller is going to be happy to accept it. And you make more money in the process. Michelle: And it's much more attractive to buyers too. Jack: And it sells quicker. Yes. James: Yes. So I can see people like me doing this, right, because I already have done the yellow letter marketing, I know all the languages and you know all that. But so anybody can do that, right? It's a simple business, which makes a lot of money. And you are basically bridging the gap between people who need the land versus marketing to their direct seller who is in a distressed situation or who just want to get out from. Most of the time they inherited the land, they don't want to pay tax and they just get rid of it. Jack: Looks like you talk to a few of them. James: I did, talk to a few of them. A lot of them said hey, you know, my mom gave me and she died and now I have to pay property tax on it. And can you buy it or not? Jack: Exactly right. Michelle: So you're helping them and then you're helping your buyers too. And I think the how quickly you sell the property has a lot to do with how you market the property, how what kind of listing you create, you know. There's a lot of crap where you just show a piece of dirt and no, you need to dream it, you know, you have a catchy headline. I mean, you have to understand a little bit of marketing and copy and grabbing people's attention and so on and so forth. But nothing that you can't learn. James: Yes, absolutely. Absolutely. And what do you think? I mean, you have a property software on it, right? What problem does it solve? Michelle: So what that does is, so back in the day, when we were starting, and we were doing in just a few deals, you know, we could manage to keep our stuff, you know, on paper, on an Excel spreadsheet. But the moment we basically started really scaling this, you know, at the point that we started doing the auctions, we could no longer continue using Excel spreadsheets, we really needed you know, a CRM. And not just a CRM to keep track of our buyers and our sellers, but to keep us organized in our process flow. From the moment that the mailing went out to the inbound call being received to are we ready on the status where we've done research and ready to send an offer, has the offer come back, accept it and we sent this out to title escrow, is it back? Is it ready to be put into the catalogue for the auction, you know, for sale? And so it basically it's a process deal flow from beginning to end for land specifically. Jack: And we build the software in-house that guides you along step by step through the process of buying a property, keep them organized, like statistics, as tax, there is a built-in buyers website, seller's website, calculator for the numbers and things like that. James: So why do you need like, you know, like you said, you have like 15 staffs, right, you have the CRM, what function does the staff do? Jack: The staff does the work, I mean, the CRM organize to work for you, but somebody needs to put in the data. And somebody really needs to press the buttons and do the -- Michelle: And somebody needs to pick up the calls from the buyers. Like we have a lady that is just in charge of that as of this position, basically, there are other people making sure that the phone rings and she's just answering them. Jack: But having said that, this is us, right, we want to spend our time with our 11-year-old daughter travelling the world. We want to spend our time focusing on apartment complexes and not focusing but spending our time, we love learning right and looking at complex deals and things like that. So after building our land business to the level that wanted to build it, we started putting a team in place of it. Having said that, we have many students that run one of them, at the top of the head, I think of one of them is also a coaching organization. He is on track this year to do 120 deals alone with one assistant with one virtual assistant. So the thing is, because it's simple because you don't have to rehab anything, because if you don't have to do anything like that, he can do a, he can do 120 deals just as a two-man or a man and woman, kind of show. And so you don't need a big staff is a point, we have a staff of like somebody picks up the phone calls, answer them they, you can outsource everything. So we use a mailing and a call center to take the phone calls, we use a mailing house to send out the letters. So what we have inhouse is somebody does the deal analysis to figure out what the properties are worth, and somebody who team of two people that prepare the listings and go sell the properties. Anything else you don't really need, anything else you can do, you can outsource. Michelle: And documentation, unless you like to work with documents, paperwork. Jack: But all of that is electronic. Again, it comes in we have buyers signed by DocuSign. We have, we scan things, we put it on to Dropbox, we use different files. We attach them to our CRM and stuff. But it doesn't require a lot of people to do this, which makes it even more profitable. James: Yes, yes. I mean, I think you've sequence it very nicely so that you can scale gracefully and you can have your own time too, awesome. Jack: Probably the biggest thing I think that this business because there's no competition and as you said the sellers have people that are, there are people that inherited this property, they're not getting 25 letters a week, like the hospitals. They're getting nothing a week, so when your letter comes in and when you make that offer, we sent the offer by mail to them, we give them 10 days to actually accept the offer. Then when we buy it, we get a contract and we have three months or four months or six months, whichever we want to close on it. So it destresses the entire thing. That means we can design this business around our lives. And so the life designing with a life -- Michelle: Retrofitting it into the business, Jack: Yes, determining when we have free time. So it's truly a business that can be done based on everyone's work schedule and in full time can be designed such that you work with around the things that are important in your life. James: So does it still work now in this economic cycle? Jack: It's actually right now is the best market that we have seen in probably 15 years. Michelle: Yes. James: Why is that? Jack: Because the market is up so it means that buyers are, still buyers will, the sellers will always be there. James: Sellers always be there, yes. Jack: There's always going to be people that inherited the property and don't want it anymore. But the buyers are right out there, right now out there in the market. They're positive, they're upbeat, they want to buy these properties. They want to take them up, take their RV's up there. Michelle: Ride their RTV's. Jack: Ride their RTV's, spilled something on it so the properties are flying off the shelves, and probably the big right now our properties and our students' properties, we see the highest margins that we've probably seen since we teach this. James: Awesome, awesome. Michelle: We have people that are doing this that are you know, stay at home moms, single moms to Rob, who's a dentist, he no longer is a, well, he will always be a dentist, I guess. But he sold his practice because, you know, 10 months into the land flip he's like, I don't need to be behind the chair anymore. And now his wife who is also a dentist is looking to sell her practice as well, to people that are having a job still in parallel because they, you know, they are already 30 something years in it. And they're like they have just one more year for their pension. So they don't want to go back and are doing it in parallel. I mean, we have -- Jack: It's across the board. Michelle: It's across the broad, from all works of life. James: Yeah, I can see anybody doing this, right? It doesn't take a lot of time and effort, not like house flipping or even rentals or… Michelle: Yes, in the house flipping world, you get a call from a seller and he says I'm interested. I mean, you better meet him at the property, like within a few hours, because you're going to have two or three people that are chasing the same house. James: Yes, yes, yes. That's what happened to me. I missed out on the land flipping, I went house flipping, life has become so busy. So coming back to the next level commercial asset, not the next level. I mean, the other commercial asset class that you guys are doing, which is multifamily, right. And you said you're doing it so can you explain that to me why you're doing that? Jack: Yes, we're doing that for long term generational wealth. So in other words, right now we do syndicate deals. So we have some deals that we make very good money, but and we have our assets and our paid-off properties. But so we wanted to take the next step in complexity, the next step and leverage the next step in personal growth. So we -- Michelle: Exactly, I think our investing has really followed our own personal journey, you know, of development and growth. So Jack: Right, so one of the things, so we started buying these properties. And the first one, we realized, we syndicate it with our investors. And then the second one, the first few we syndicate investors. As a matter of fact, the first one we came in as a junior partner. So we raised the thing, the guy that couldn't raise all the money. And the moment he was about to lose this deal and he basically said, like, if you guys raise half of the money, you get half of the deal, which is obviously a great, great deal. I've never come across that. Michelle: And we're gonna learn how to do it, as he has been doing this for many years. I'm like, that sounds like a perfect situation. Jack: But we also needed to put in $80,000 in escrow deposit, which we could have lost. So it was, he asks for something and he gave something, was a great deal. So we came in, we ended up raising 60% of the money. And doesn't matter, we didn't get more than 50% of the deal. We got in we learned a ton and then we started doing this on our own. And the first few deals like there was just, we have a lot of income, but we have like your cash availability is not always $3 million, right? So we basically looked at it as like we needed $3 million. Let's put some money in ourselves and let's raise the rest through syndications. So we did a syndication for the last few deals. And at some point of time, we might transition into doing deals without investors, the reading hold on for the long term, 10, 20, 30 years, and then our daughter can potentially then inherit and she can keep them or sell them and upgrade them and so on. But in essence, it's a way to, what attracted us to it over the single families is that there's another layer of management, another layer of separation between us and the actual issues on the problem. Michelle: Yes, because now all of a sudden, you know, when you're looking at 100 doors at a time, and that scale allows you to have you know, on the ground, a full time, you know, leasing person, a full-time person for repairs or maintenance. Another one that is turning units around, you know, we have the regional director with, you know, with the property management. And so for us, it's really a lot of asset management, but not the everyday thing of like, would you approve, you know, the repair on a toilet or on this, small things-- Jack: Which, today, I got two more in our single families because they have an authorization limit of $500 on me there because I don't trust them with more. So on a single family, so everything over $500 goes to me, which is literally something three or four things a week that happen especially in summer when it's hot, and AC breaks and so on, that are just like driving me crazy. Because every single time it's like they don't give you the information you need. They don't give you the details you need, you have to jump on the phone call, you have to email back a few times. They don't follow the instructions and how to submit it versus when you operate on a larger property, you can distance, you're removed from these things. You get a status report, you can dive in with your expert partner on the deal, I mean, the regional manager into it. And more than anything, the other thing we realized is you very well know, you can force appreciation and you can force value increase rent, which on the single-family house, you can just, you just cannot do. Michelle: Yes. And elevation is not based on the income but it's fixed but based on other properties. James: Yes, yes I always say that you can build a house, painted with gold, on real gold but the value is still going to be following the other houses surrounding it. Jack: Exactly. James: Are you guys using the depreciation from multifamily to offset the active income on your land? Jack: Yes. Of course, yes. Big time. I mean we -- Jame: That's double right. Jack: We have done on all the units we have, we have done the cost segregation study, and it is literally. Michelle: It shows a lot of the profits from the land flipping even from the educational business, you know, it's a very purpose-driven business for [inaudible 0:54:03] and it throws a nice chunk of cash. And I'm like, we need to, you know, protect that. And so we're, it feels like, you know, with apartment investing, we get to have the cake and eat it too, in terms of, you know, getting the cash flow in. Jack: We get cash flow, we get income, any cash flow, we get appreciation and we get the tax benefits that wipes out almost the entire income of the other things that we do. So it's a it's like a dream come true. Yes. James: Yes. So you want to consider real estate professional, not because of the land, but because of that single-family homes? Jack: Because of really everything I mean, Michelle: That's all we do. James: If you do just land, are you considering real estate professional? Jack: Yes, the land is real estate. As a matter of fact, I always say that when somebody says I've never dealt with land, only do houses. I said like, it's actually I said, it is actually an incorrect statement. Because you have never bought a house -- James: Without the land? Jack: What you buy is the land and the house on it. James: Yes, correct. Jack: That's truly a land transaction that had a house on it. The legal description of the property is not the house, it doesn't say it's a four-bedroom, three bath house, no, you're buying this lot, lot number 23 with whatever it happens to be on it. And what is on it is a luxury house or a dump is just defines the value differences. But so with a real estate professional, doesn't have to be defined by analysis, or commercial, or you can be land too James: Got it, got it. So let's go to a bit more personal side of it. So no technicals? So why do you guys do what you do? Michelle: I think for me, you know, in the beginning, it was about us having freedom of money, time, you know, relationships. And right now, it's about freedom of purpose, you know. It has you kind of like, you know, when you're struggling, somebody is listening to this, they're struggling, or they have a job they hate or whatever, the very first thing that you look at is how can you take care of your immediate family? When you have that taken care of, then you start looking at, okay, how can I, you know, start, you know, helping them my church or helping in my community or helping on a much, much larger scale. So for me, you know, a lot of my, you know, what drives me right now, and my purpose and my why is to become a mentor and a leader. You know, for other women to start investing in real estate, to start, you know, having their money work for them, for example, and set an example, you know, I want to be a hero for my daughter. And I want her to also grow into a lady that you know, knows how to manage your finances, that is very comfortable with investments, whether small or large and so on. So, Jack: For me, along the similar lines, I remember the year 2007, when we were and we had accomplished our first major, big financial goal, which was a certain number, I feel everyone has their number and goal in mind. And we had just moved into a gorgeous, semi-custom home that we designed from scratch up and all of a sudden, we're like, you reach those goals, and you almost like fall into a hole. And we fall in that hole because you expect to be like all candy and rainbows and everything and unicorns, but actually the quite opposite of that. But it's like for a moment you celebrate and then you're like, what now, right? So we basically sat down and was like, okay, so we can sit down now and we can go retire in essence, we can go sit down, we can do nothing. But we realized, for example, there's a charity in Michelle's home country Honduras, that we said we could go work in charities, in charitable work. But we realized, we're really very good at getting businesses to a profitable stage, we're good at kind of creating money, Michelle: That's kind of like our genius. Jack: And so that we are not the person that's going to live in the Honduran in rain forest jungle and feeding the poor, so but it's close to our heart. So why don't we stick to what we love doing Michelle: Our strength. Jack: So that we generate the money that we can be more impactful in those kinds of things. And as a side thing, I love real estate, I mean, I don't see myself not doing real estate ever. I mean, I hate it the entire the IT industry. I'm not personally involved in the continuous development of our software, because I'm kind of scarred from that time in the IT industry. I get involved into the what the vision is of it, but, and then we have a great guy that drives the implementation of these things. But we focus on deals, we focus on and if I can focus deals for the rest of my life and opportunities then I'm a happy camper, it's just what I love doing. So and it throws off money and that allows us to help more people, that is awesome. Michelle: And be transformational in the way, you know, and the way we treat our investors and the way that you know, people that want to participate in our deals. Jack: So the teaching side of things, we started the teaching side of things also kind of like almost like a mission kind of the point of view that not that we need the rest to save the world. But there are so many people out there that do real estate either the wrong way or that they don't know that there's an easier and simpler way that you can do real estate. And learn and grow build the confidence and capability in your life that then allows you to do whatever the heck you want to do afterwards that we feel like I was called to teach this and show the land flipping part of things to people. So they can also get on their own feet. And we have had years where we lost money in that business where we put it on their own pocket for and it was still fulfilling because we see the difference that it makes in the people's life. So we were committed and our core values are to be transformational. Michelle: Yes. And it's not just walking a person through a deal by really sculpting someone's spirit you know, someone's confidence, someone's courage through the process of a real estate deal. So it's incredibly rewarding work for sure. James: Okay, okay. So why don't you tell about how to find you guys. How can the listeners find you? Jack: Easiest way to find us on the land flipping side is to go to landprofitgenerator.com and you can also go to www.orbitinvestments.com, there's a link over to the land flipping side. There's a couple of other links on too. James: Okay. Michelle: I'm on Facebook Michelle Bosch, Instagram michelleboschofficial. Jack: And again on the land site we since we don't teach the apartment complex things, you do that. We have no educational things about that, we just, we do syndicate with investors. We do probably similar deals and but on our website like all the educational things all about land flipping. So we have a Facebook group called Land Profit Generator Real Estate Group. So everything we do on the land side is called land profit generator. So you look for land profit generator, you find us and orbit investments is more like the overall holding company above everything else with links to all the different pieces that we do. James: Awesome. Well, Jack and Michelle, thanks for coming in. I learned so much and I learned what I didn't miss too, but I'm sure the listeners learned a lot of things from today's podcast. Thank you for coming in. Michelle: Thank you so much for having us, absolutely. Jack: Looking forward to seeing you at the next mastermind. James: Absolutely. Thank you Michelle: Thank you, bye.

James: Hey, audience and listeners, this is James Kandasamy from Achieve Wealth Podcast where we focus a lot on value-add, commercial real estate investing and we usually talk to commercial real estate operators who have been very active buying deals nowadays.  Today, I have Brian Murray. So if you have not heard about Brian Murray, he's the author of the best-selling and award-winning book: Crushing It in Apartments and Commercial Real Estate. And he owns almost 700 units right now on his own and I think out of 700, 600 of it is apartments and 100 units are on office sites. Hey, Brian, welcome to the show.  Brian: I'm really happy to be here, James. Thanks for having me. James: Really happy to have you here. And so tell me about, how did you go from 0 to 600 multifamily 0 to 700 asset classes on your own without syndication?   Brian: Yeah, well, you know, I started 12 years ago and I'm located in Upstate New York. That's quite a bit different market than New York City. But my first property was an office building and it was a distressed office building and from that very first deal, I did a lot of value-adds. Frankly, I really didn't know what I was doing, I was kind of figuring stuff out as I went along but I progressively made that property perform better over a couple of years and added a ton of value. On that deal, I assumed the mortgage and on my second deal, I did an owner/finance situation. It was another property that was half full, I filled it up and refinanced out of both of those and bought three more properties and followed that path the entire way. Which is find well-located properties that were not well managed or had some other large value-add component, exercise that value add and then refinance, take cash out and buy more properties. And that's the exact path that I followed to get to where I'm at today. James: That's crazy, which is good. I mean, that's the model that, I mean, it's an absolute value-add model, which is basically the theme of this podcast. And so did you buy and then improve it and then refinance the money out or did you sell it and I didn't get that far, can you clarify that? Brian: Yeah. So I refinance the money out. I am primarily buying hold, still to this day. But especially in the first 10 years, I think I sold one or two properties, smaller properties, for the most part, during that time. I am selling some of my smaller properties right now to redeploy those funds into larger properties, but my strategy has really been buying hold. James: Awesome. Awesome. So before we go further, I want to clarify about your book, Crushing It. I mean, I remember asking this question to you when we met face-to-face. So did Gary take the 'Crushing' name from you or you took it from him? Which one is that?  Brian: You know, so his book, Crushing It, came out about a year after mine but he launched a book called Crush It prior to when mine came out. But he took the Crushing It and you know, but that's fine. It doesn't matter. It's all good.  James: Well, it must be a good name because both of you are like a best seller, you know, in your own domain. So awesome. So right now what's your plan? I mean you own this many units on your own and what's your plan right now?  Brian: So right now, I'm really focused on diversifying. I was really excited to do my first Mastermind, which was last year, which is how you and I met and I met some great people at that Mastermind and highly recommend that to other people; surround yourself with other folks that are doing what you're doing. But when I went off to this Mastermind, it was really eye-opening for me because pretty much everybody there was doing syndication and it was a model that was really new for me and I just learned a ton about what people were doing.  And my model has worked great for me up to this point, but I've reached a size, we're growing purely organically. It's becoming more challenging to maintain that pace of growth. I think also with valuations at a higher point, it's more and more challenging each year to pull that much value-add out with refis. I think another factor that's come into play is I've been very, very dedicated to putting every dollar that I've earned back into my real estate. That's been a been a big part of how I've done what I've done is to continuously reinvest back in. As a result of that, to this point, I've been living fairly frugally and you know at a certain point, you want to not have to put every dollar back in but you know, to maintain that growth rate, I've got to look at other options. I also want to diversify geographically because most of my properties are in one location. And so I'm in the middle of my first syndication right now and I've met so many good people that now, I'm developing partners and looking at new markets and it's very exciting for me. I love to learn, I love to try new things and getting into these other markets and, you know, meeting accomplished people like yourself, it's very motivating. So I'm just super excited about it.  James: Yeah, it's eye-opening when you go and talk to different people who are doing the same level as you are doing much more higher level because you can see a lot of different thought processes and how people do things. So why are you moving towards syndication? I mean, you own like so many units on your own, can you go into a bit more detail on why do you think syndication is going to be beneficial for you right now in this market cycle as well or on your investment side?  Brian: Well, you know syndication, it does open up a lot more opportunities in terms of size. So for example, right now, I'm looking very closely at an apartment complex that's approximately 300 units. It's in a market that's new for me that I've been doing a lot of research on and that would be a real challenge to try to pull off on my own. It really wouldn't be possible right now. So the property that I've purchased strictly on my own, without raising any outside money, I did last year, it was 126 units and you know to try to purchase something that's 300 plus units that wouldn't be possible for me right now. So it's pretty exciting and I think another thing is I really enjoy working with the idea of doing some projects with partners and getting into some of these new markets. So, there's another piece of it that's kind of exciting is, I've reached a point where I've done pretty well for myself and the idea of helping other investors who want to put their money to work to achieve their goals, I think that's going to be rewarding too. That if a project does really well that, it's all those limited partners that come in that can then improve their lives through their investment as well. And if I can be a part of that, I think I'll find that very rewarding.  James: Okay, that's awesome. So scalability is important and you think of helping others as well to make money, especially I think other investors or other GPs who needs your skills, I would say? Brian:  Yeah, absolutely. Yeah, and that's one of the things that's great too is I've found that it's meeting these other people that are doing it, I've got a different experience. So just like I'm learning from people like you, I'm finding that partners I can bring some different perspectives and value to the table as well. So you always want to partner with people that have strengths in areas that are different from you and that's what makes a strong team. James: Absolutely, especially in commercial real estate because the number of knobs that you can tune, there are so many knobs and especially like in multifamily because it's very management intensive compared to the triple net, other commercial properties. Multi-family is very management intensive and it gives a lot of ways to make more money or to scale down or to scale up. Even though you'd be really, really skilled at that but it just gives you a lot more opportunity. And the lease is one year term or six months term; you can quickly raise or reduce rents, it gives you a lot more fungibility, I would say. I mean, you have like SAS, we talked, in the beginning. You have like 600 units multifamily and 100 office space? Brian: Yes.  James: So can we go a bit more detail into the office? What kind of office is it and how did you strategically balance within the 600 and 100 office? Is it optimistic or what did you see and why did you do it?  Brian: So I started off with the office and actually, my second property was retail and so, starting on that commercial side was really interesting. I think one of the things that did for me is really emphasized my focus on customer service and customer care with tenants. And when I tried my first multifamily, I think that there were differences but they're also a lot of similarities. So the value-added approach that I was taking to office retail worked just as well with multifamily. And our focus on really taking care of our tenants as our customers really served us really well in that area also. Over time, as recently as two or three years ago, we had reached a point where up to that point we had more office and Retail and then about two years ago, I would say, we were 50/50 and now we're closer to two thirds, maybe even 70% multifamily with the rest commercial in terms of the makeup of our portfolio. So as time went by, we've really gravitated toward multifamily and that's our 100% focus right now. I think the biggest thing is that there's a number of things we like about multi-family. From our experience with commercial, you've always got a little bit more risk because you tend to have, not always, but you often will have tenants that comprise a disproportionately large percentage of your income and that can leave you really vulnerable if somebody leaves. So, on more than one occasion, we've had a commercial property where someone that takes up more than half of the space in that property, leaves unexpectedly. And then you've got with one tenant leaving, you have a property that is negative cash flow. And if you don't have a portfolio in place to support that, that can be devastating and it's really not fun even if you have a portfolio to perform it. And then when you go to backfill that space, it's more challenging in commercial properties because you oftentimes have to find the exact right tenant for that space, for that location, for the tenant mix and the property, for the configuration of the floor plan. There's a lot of things that you know, different commercial tenants are looking for.  If you just adjust the rents up and down or maybe offer some concessions, a lot of times, the market doesn't immediately react to that. So turning that dial like you do in multifamily, you have less control. So if you're looking for a particular type of commercial tenant, it could be, it's not unusual for us to sit on a vacant space for one two or more years before the right tenant comes along and fits in and takes that space. With multifamily, you've got those dials that you can turn and say, Hey, you know, we're going to run a special. We're going to bump rents, we're going to drop rents and you usually will see a pretty quick reaction from the market to the changes that you make and from my perspective, that's better.  You always want to have more control and the ability to adjust with your market, adjust to combat your competition and different things like that. And frankly, we've enjoyed working with the tenants. I think there's a perception out there that a lot of people would love to invest in commercial because they think they have this idea that working with white collar tenants would be much better, wouldn't have the problems but in our experience, they can be more challenging. They can be more demanding and sometimes even unreasonable with what they're looking for and you don't usually find that as much with the residential tenants in multifamily. We do primarily workforce housing and the people that we deal with there, tend to be good down to earth people and reasonable. So we appreciate that.  James: And when you talk about office, this is the normal office tenants, I guess?  Brian: Yeah full-spectrum, mostly professional tenants. We've got plenty of medical tenants. We have lawyers, accountants, all types, we've got not-for-profit offices, engineers and architects that would pretty much any type of white-collar professionals. James: Got it. That's very interesting. So when was the aha moment that, hey, I should do multifamily because you are focusing a lot on office, what was that triggering moment where you say, okay, I may need to look at this multi-family? Brian:  Well, I don't know if there was a specific moment. I think it happened gradually over time. When we had about 50/50 multifamily and Commercial, I think one of the big things was watching the performance of the two halves of the portfolio and seeing which half was performing better and part of it had to do with the types of value-add projects we were finding and I thought we were better able to execute on the value-adds on the multifamily side. And that portion of our portfolio just kept outperforming the commercial side and I just saw in the market that we're in, more opportunity there and I felt like it was more stable income based. So, I think I think it just happened gradually over time and you kind of tend to slowly move in the direction that's performing well and where the needs are in your Marketplace. James:  Got it. So all the deals that you have done on multifamily, how did you choose? I mean all these deals are in Upstate, New York, is that right? Brian: Yes. James: So you may not choose the city because that's where you live, the area. But how did you select the submarket? Okay, this deal is good in this submarket, what are the parameters that you looked at When you look at a deal in multi-family? Brian: So, we have a really close familiarity with the subtleties of the market and so it's fairly nuanced like there's not one overarching thing. One of the primary drivers of the market where we are is not that far away is a fairly large military base. And so one of the factors that we look at is, well, we definitely welcome military tenants, we have shied away from the properties that are closer to the military base and tend to have a really high percentage of military population. That's just because there's so much turnover, lenders are less excited about lending those properties because they know that long-term, there could be downsizing. A base could close, there's exposure with that. So we have gravitated within our region to the areas that are maybe we will have some military but not be all military and into the communities where people want to live, in the parts of the city that we feel are strong and good safe locations and convenient locations for the major employers in the area. James: Got it. Got it. And on average right now, what is the price per door in that market? Because I never talk to anybody from New York who's buying multifamily. I mean, Upstate, New York,  New York City, but in general, can you give us some guideline on price per door? What cap rated stabilize deals are being bought right now? Brian: Yes, absolutely. So it's a really, really wide range. So that's what I would say at first. The most recent stabilized property that we purchased we paid about 60,000 a door. There are properties selling in the area, 80,000 plus per door, not that often but a lot of the properties we've got, we've purchased a couple of decent sized properties at auction. We've purchased a lot of distressed properties.  The 126 units that we purchased last year, we paid in the 40s per door and that's pretty low for this area actually, but also the occupancy was below 60% when we bought it and it had a lot of deferred maintenance. So I do feel like we got a fair deal and a good deal on that because there was so much upside but there was a reason that it was priced that low. And so you can come along properties in this area that have low price point sometimes even down into the 30s per door, but usually, there's a reason why they might be in severe distress. But for stabilized properties, I think you're mostly looking at maybe 50 to 70 a door.  James: Okay. You also mentioned that you're looking at other markets now?  Brian: Yes. James: And why is that and what're your criteria to look for in other markets?  Brian: So the number one reason is really a risk management type of approach. Where anybody who's come in and taken a close look at our business and one point even a few years back, I had some graduate students come in and they analyzed it and everybody said, hey, you're kind of crazy. You've got all your properties concentrated right here in this one city and now they're all within maybe half an hour drive of that City and there's a lot of risks involved to that.   So if that City that I focused on starts to decline or say that military base that's not that far away, if they downsize then that all affects my portfolio. So I've known for a long time that it would be wise to diversify geographically and it's time to do that. Another factor is frankly, this is not a huge City. It's not a big area that I'm in and we've got limited opportunities for growth here. There's a limited number of properties that come onto the market and realistically, it's time for us to look to other places. So it's a variety of things. James: So let's say you're looking at a new city, a city A and a city B, what do you look for in that city that you think is going to be appealing to you?  Brian: Well, I think there's a variety of different factors. Probably the number one thing that makes the city appealing is job growth, job creation. Being located in Upstate New York, it's not a strong area for job growth. There are pros and cons to being in a market that's undesirable. So I have less competition. I can buy things at much higher cap rates and I can get properties to cash flow better if I have less competition and higher cap rates. So, there's sometimes you can look at it and say, hey, if you're in a market that's less desirable, sometimes you're getting properties at a great deal and there's something to be said for that. But as I look to new markets, I'm trying to find something where cap rates haven't dropped too far and you can get a reasonable return but you've got that benefit of healthy growth in population and jobs. But I think because I'm looking for more geographic to looking for a market that's going to show more stability, it's on an uptrend and just like any other place, no matter what market I'm looking at, I've realized over time just how critical the specific location with any city is.  So almost any City has their good parts and the bad parts and so you could take any market that you choose and break it down into all different, more and less appealing locations. And so, I wouldn't just throw and say, hey, this one city is great, even though the population is growing and you and I talked about a property not that long ago that you are familiar with the location and you very wisely were like, oh, that's not the right deal. It might be a good city, but that's not the right part of the city. James: Correct. So, I mean, you are sitting in Upstate New York, you looked at the entire nation. Can you give us the top three cities that you think that you want to delve in?   James: Brian, so you are sitting in Upstate New York, and you looked at the entire nation, you know how multifamily works because you own 600 on your own. So you just briefly outline what are the things that you look for in a city. So can you name like top three cities that you think that you want to be involved in that you think has a strong growth story?  Brian: Well, it's a work in progress for sure. And what I would say is sort of the candidates that I've narrowed it down to the commonality would be they tend to be the places that people are migrating to and being in Upstate New York where a lot of people are leaving the area, I want to look toward the places they're going.           And so, primarily in the Southeast, pretty much our candidates or everything from starting in probably North Carolina going down to Florida and you know all the way over to maybe the little bit in Texas, but I think Georgia is an interesting market that a lot of people are pursuing. I'm partnering on a project in Kentucky right now and we're looking at North Carolina and there are some very attractive markets in Florida as well.  James: Got it. Got it. Got it. Before I want to go into the deal level analysis that you do, I want to quickly ask this question because you know, it's very unique to you because you had your own deals and now you're going into syndication, right? So what do you think are the skills needed from yourself when you are having your own deals, where you can skip a distribution or whatever happened to the deal is your own problem. So now you're going into syndication, where it involves a lot more people. What do you think is a few skills that syndicators need to be successful in syndication? Brian: Sure. I mean I would say start a start with one of the big ones which is something that I don't have, which is an investor base and that's a whole job unto itself. Over the years doing what I've been doing and getting some acknowledgments for that, I had a lot of people approach me over the years and say, hey, you know, can I invest and I never took them up on that and now I'm doing that. But what I've realized is in getting to know all these folks that are out there that there's a lot of people who are interested in partnering with me who already have those investor bases and have that skill set of managing those investors and taking care of all aspects of that.  So at this point, I'm primarily thinking that I bring more value in the weighing on the underwriting and the property and identifying all the value-add opportunities and making sure that people look at it as more than a spreadsheet because there's so much more. I toured a property last week and was able to uncover quite a few things. The broker that was there. I was one of the last people, they had about 40 tours and I came through and identified some significant value-add opportunities that the broker said no one else picked up on. And I think that that's something I didn't discuss but we've managed all of our own properties that whole time and so, the knowledge that you get from that just brings so much better of analysis to a deal to make sure you're vetting it properly, you're not overpaying, you're also not underpaying and that there might be value there that you're not realizing. That some of the assumptions that you're making for rent growth are real and can actually be feasible for implementation. And so, you know, those are some of the things that I bring and the experience and having the portfolio I have may give lenders a lot of comfort. And so, I'm recognizing that, hey, I could focus on my strengths and bring some things to a partnership and take those areas that I don't have and other people might and partner up. So if someone's going to do it on their own, they've got to have a pretty broad skill set and that's a challenge, to have the operational knowledge and bring that side and also have the people skills and the investor relationships, it's not easy. I have a lot of respect for people that are doing it all. James: Absolutely. So you are two operators, where you underwrite deals, you understand the operation and you're doing your own asset management. You're missing the investor base creation side of it, which I think you are either partnering or slowly building that up so which is awesome. For me, the operators are at the top of the food chain because they are the backbone of the whole deal. They know what's happening in terms of the rents, how many percents of rent increase is happening on each unit? How many units are being turned? What is the make ready period, what's the delinquency? What is the idling unit period? That's a lot of parameters in the multi-family operation which can be optimized and if you know that very well, your underwriting can be very, very solid, I would say.  Brian: And I think you also bring a reality check. I think that the folks that are operating in the syndication space that don't have as much operating experience, it's easy to look at numbers and assumptions in a spreadsheet and it's challenging to actually recognize what that means in terms of the actual human beings who are there living in the apartments, what it means for the contractors and the property managers and whether what you're assuming is even practical. I look at a spreadsheet and I'm looking at it realizing, hey, you know, I looked at it once a day and I told somebody I'm like, do you understand how much drama will be involved in this? So if you haven't done that you don't know. And sometimes that translates into you might need to maybe tone back your rent growth or you might need to say, hey, maybe we implement something like this over time so that we don't have an all-out rebellion on our hands. So, you know, it's a challenge to bring all those things to the table. James: Yeah, I've seen people who come to me, you know, first few deals and say, oh, this is all bills paid, I'm just going to change it to tenant pay bills. I say, well, that's easy. We can see the value. Well, you do not know how much drama you're going to have there and you might not able to do that on a specific property, a specific location. And they say they want to do them; Utility Bill back, they want to increase the rent, they want to charge covered parking, they want to do laundry increase. So many things they want to do at the same time and I can tell you, they don't have the experience actually. But the thing is, a lot of people have been making money even without all the skills. And I always tell them everybody's a champion in a bull market.  Brian: Exactly, yes. A rising tide lifts all ships, right?  James: Correct. So, people may not look at that skill more in detail or give due consideration to that type of skills where the operation is important, but I think it's important if you want to sustain good rent growth across different market cycles. So coming back to underwriting. So right now you are looking at deals, how many percents of deals do you reject immediately by just looking at it?  Brian: Wow, I would say well over 90%.  James: Okay. So the 10% that you have or what do you look for in that 10%? What do you do? What are the steps that you take to look at that 10%? Brian: You know, I think the very, very first thing I do is I look at the T12. I want to start my analysis of a property by looking at actuals. And then I'm going to base the current situation and the actuals, going to kind of weigh that against my own experience. So, how does the target asking price or the whisper price or whatever they have, how does that compare to the actuals?           And then based on my experience looking through those actuals, what do I see that jumps out at me that might create value? And if you look down through and start looking at the comps and really piecing together this puzzle about, what opportunity is really here? Is the valuation based on something that's completely unrealistic? A lot of times, you'll recognize that some brokers are way better than others at doing a realistic model and pro forma and that's much appreciated. Because you see too many where they'll say, oh, you know, the labor is going to be whatever, $300 a door, and you know, hey, that's crazy. Like it should be 1100 a door or 1000 a door in that market and you know, you'll find out that well, it's been managed by the owner and they don't track the labor. But if you see that it's based on the labor is $2000 a door and you know, hey, we could get that to 900 realistically and still do a good job of maintaining that property, then you start to see an opportunity. It's a combination of running numbers and logical analysis based on experience, is really what I would say it boils down to. James: So in a new market, how would you determine payroll and [12:09unintelligible] on property taxes because this differs by market? Brian: Sure. So all those things are going to vary by market, although many of them will fall within a range. So you're going to say, well, in that market it's going to tend to be higher or lower and I will use my best judgment but if it passes a certain level of scrutiny, that's when you want to really get an established reputable local property manager involved who could look at it and say, okay, for this market specifically, these assumptions you've made are realistic or not realistic. The same thing goes with construction costs they could vary and I can look at it and say, I think that new flooring should be this much but hey, maybe in that market, flooring is much more expensive or maybe it's a lot cheaper. So, you know it's going to be within a certain range, but you just need to figure out how you need to tweak it to get to that market.  James: Got it Got it. Got it. I mean since you have your own property management in your own backyard and now I presume you looking at third partying your property management in this new market, is that correct?  Brian: That's correct.  James: So, what would you think is the most important factor to look at that third party property management company? Brian: Well, at this point, I would say yes, we're relying on third-party property managers. We may eventually consider expanding into new markets or operations, but not doing that right now and evaluating the property managers, it's been a very interesting process. I think you need to look at the full picture. I don't think there's any one thing you can look at. For a project that we're underwriting right now, in evaluating the various property managers, of course, we weigh referrals, you know, that's always good to hear referrals but I think one of the things that are appealing about the property manager that we ended up selecting for this project that we're pursuing is they actually specialize in this specific type of property that we're looking at. So, they have a track record and experience of nearly 10,000 units that are specifically C-Class properties that they've done value-add and executed those successfully. And a fair percentage of those are in the specific market that we're looking at and so there's a lot of things that just lined up. I think if I had to pick the one thing from my interaction with this firm because they toured the property with me as well, but I actually was very impressed with their analysis of our underwriting. They actually went through our assumptions and they toured the property on their own before I got there and gave us their own analysis and without us asking, they also toured the comps and gave us some feedback on that. I was impressed. You could tell that they went out of their way to look at the right things. They looked at the types of things that I would look at and they identified things and based on that write-up, I just said, hey, this is a firm that's experienced. They get it. They did a thorough job. They were professional, they were responsive and you know, it really checked a lot of boxes in terms of giving us an overall sense of comfort with the possibility of working with them. James: Awesome. Awesome. Let's go to a bit more on the value-add side because you have done a lot of value-adds because you buy refi and keep it more long-term. So what is the most valuable value-add multifamily from your experience?  Brian: I would say that the most valuable is it's different for almost every property. If I had to pick, you know, I think that sort of the Big Bang low-hanging fruit tends to be the, I'd say, clean paint landscape, kind of like the surface stuff. If a property is dirty and not well kept and then you make it clean and you put a fresh coat of paint and you landscape it, it can change the entire image of property of fairly modest cost and that can have a huge impact. The rent adjustment is sort of obvious, I think everybody looks at that. I guess big picture if the landlord is way undercharging, of course, you know, that's an obvious big easy one, but one thing that we've ended up doing in a number of cases that is less obvious that people almost never talk about is lowering rents. And in the 126 unit that I mentioned earlier, that's under distress, that's the first thing that we did is we went in and by our assessment, they were trying to charge too much which was a major factor in why the occupancy was so low.  So we immediately went in and cut all the rents and that might seem counterintuitive for a value-add person but over the last six months, we've raised the occupancy 25% and one of the big reasons is we lower the rents and so the net change in terms of the net operating income of that property it skyrocketed by lowering rents. So that also further demonstrates that it really varies, you kind of have to you know. It's sort of like if you look at five different people and say, you know, what change would you make in each person to improve their overall wellness? For some people, they might say stop smoking and some people might say, well, that one needs to eat better so you can't kind of really say well, what's the one thing overall?  James: How did you decide to lower the rent? What was the data that you looked at and decide, okay, I just need to reduce the rent here?  Brian: Well, you know, that's one of the fantastic things when you've got so many properties in one market. You know immediately that based on your other operations that something's off. You know when it's low, you know when it's high, you know when the fees don't match what's present in that market or the concessions don't match.  It becomes very simple. If you're going into a new market, you've got to study those comps and do the best you can and hopefully, tour those comps and do your own homework. But it's one of many advantages of having a concentration of properties in one area. In addition to all the many operational efficiencies that you can have is that you have that market specific knowledge that is there's no substitute for.  James: Got it. Got it. So when you decide to lower the rent, I mean it is a counter-intuitive but I think it makes sense in value-add, especially when you go with that kind of low occupancy. You need to do something to bring up the occupancy because once you bring up the occupancy, you can do a lot of other things. Brian: Exactly. James: You can't do it when the occupancy is low and you're adamant about pushing up the rent. So was your thought process, rather than I leave this unit vacant, that's the biggest loss compared to giving [19:48inaudible] $25 or $30 increase that doesn't make sense.  Brian: Yes. That's right. So, you know that's been one of the strategies that I've adhered to and has worked well; you lower the rents and lease it up and then you make improvements as you go and then you raise rents from there. Nothing more expensive than vacant space. The other piece of that which is an advantage of not syndicating is that I have been able in many cases to fund many of the improvements out of cash flow. So with this particular property, we did lower the rents, but the occupancy has been brought way up. So we've just crossed a threshold where now this property is cash flowing again and all that cash flow is going to be directed right back into making improvements, probably, for the next few years at least. And so, that's a perfect example of well, if you're going to syndicate and you need to pay investors, you really can't be investing all of your cash flow back into a property.  So what do you need to do? You need to raise some money up front to pay for those improvements and not count on cash flow so that you can achieve your investor returns and start to get them their money back.  James: Yeah. That's the one thing different with syndicated deal versus owning your own deals. You don't have to raise so much money so you can take your cash flow and just put it back. With a syndication [21:27crosstalk/inaudible] and you may lose deals because you're competing with somebody who has a lot of money versus somebody who is syndicating.  Brian: That's right. James: It's very interesting. So in terms of, I'm going to your personal side, is there a proud moment in your life or not in your life, toward your real estate career, that you think, I would remember that moment throughout my life until the end; can you describe that moment?  Brian: Oh, wow, you know there's been so many moments, but not all good.  James: No, no, the proudest moment where you think you really made a big impact on something.  Brian: I never really expected this but some of the proudest moments that I've had has been since my book came out and I would have never guessed that that would lead to that but some of the feedback that I've gotten from readers that they've shared with me that it's changed their lives that they started into investing and have already built portfolios. And to see the direct link between the book and people, you know, really making improvements in their lives has been extremely rewarding. So I think one of the great things is that I really went into the idea of writing the book just because I wanted to share what I've learned, the mistakes I've made and to help other people, but I never really thought that it would sell very many copies or that people would have that kind of effect and the fact that it did. When I get a letter, a note from somebody, it's been extremely rewarding. So now I kind of remember that I think that's been a big impact.  James: Yeah. It's interesting. I mean, I get a lot of notes from my books as well and sometimes you don't really take it seriously because for us it's just common knowledge from what we have learned. But some notes do make us think, oh, I really really made an impact on someone. I mean, it's mind-blowing in how many lives can be changed with the things that you share in a book.  Brian: Right, right. Yeah. Absolutely.  James: Yeah. So the next second question is why do you do what you're doing? Brian: Well. You know and it's interesting. I mean actually, in the book I share at one point, this was a few years back, I had somebody come up to me and they said you know, how much is enough? Like you are so greedy, why do you keep going? And I just realized that this person doesn't understand, they missed the whole point that it's just rewarding to take a property that's not performing, that's in distress, that's maybe even a bad thing in a community and to turn it around and make it a better place for people to live. You help the tenants and you help the community and to do that and start to get involved. Like I do meetups now and I met new people and threw those in the book to help other investors, and so, you know, I look forward to going to work every day. I enjoy it. I enjoy the challenge of finding and executing on properties that aren't achieving up to their potential and making a better place for people to live and more profitable at the same time. So I just think it's fun. Like I enjoy what I do.  James: Yeah, it's like a discovery, you're trying to discover these from your paper to the real stuff. Especially when you are underwriting because you're assuming a lot of things and how does that whole assumption become a reality? You know, it's very interesting to see the output of that become [25:42inaudible] people's lives, which is just... Brian: Absolutely. James: So we really had a really good knowledge box from you, Brian. So can you tell our listeners and audience how to get hold of you?  Brian: Sure, you know, your listeners can find me on Facebook. You can find me on LinkedIn, you know, you can find the book on amazon.com or on the book website is crushingit.info and my company's website is Washingtonstreetproperties.com  And if anybody is interested in reaching out, I'd be glad to hear from them.  James: Awesome, Brian. Thank you for coming and joining us. I think that's it. Thank you.  Brian: Thanks, James, was an honor.

James:  Hi listeners and audience, this is James Kandasamy from Achieve Wealth Through Value-add Real Estate Investing Podcast. Today, we have Brian Hamrick. Brian owns 370 units which 2/3 of it is syndicated, the remaining is owned by him. He's from Grand Rapids, Michigan. He does multifamily, self-storage and also non-performing notes and Brian is also the past president of Rental Properties Owner Association.  Hey, Brian, welcome to the show.  Brian: Hey, James, great to be here. Thanks for having me.  James: I'm really happy to have you here. I mean, you have been podcasting for the past three years. You have a really good audience because I remember after showing up on your podcast, a lot of people did contact me. So I'm sure a lot of people love your podcast as well.  Brian: That's fantastic. I'm glad to hear that.  James: Yes. So can we go a bit more detailed into what is this Rental Properties Owners Association, how do they add value to syndicators or landlords or tenants? Can you describe a bit more on that? Brian: Sure, the Rental Property Owners Association, which I'm a past president of, I'm currently on the executive committee and I sit on a number of different committees, they are a landlord representation organization.  So we also work a lot with Real Estate Investors and provide all kinds of training for both landlords and Real Estate Investors. Every year, we have an annual conference where we have National Speakers come in and talk about all different types of investing asset classes and whatnot. And really I got involved with it because when I moved here to Grand Rapids, 15 years ago, I was looking for a professional organization that I could become part of that would help me network with other professionals in the industry. People who own rental properties and knew how to profit from it and also just an organization that would help teach best practices so I could learn the ropes how to do it and certainly through the Rental Property Owners Association and the people I've met there, I've learned a lot.  We provide a lot of training but probably what I consider most important of all is we have a legislative committee that works with lawmakers, both local and at the state level, to help push through bills that help rental property owners and also help prevent bills from becoming a reality that would hurt us; anything that has to do with like rent control or some of those hot button issues that as landlords and rental property owners would like to avoid.  James: Yeah, very interesting. So like New York and I think, Oregon now is rent control states, if I'm not mistaken, so they probably have similar Association like yours in that city, I guess. Brian: I would hope so. It sounds like they're fighting a losing battle as you and I both know as rental property owners, you know, I believe you invest out of state, out of your area, is that correct?  James: No. No, I'm from Austin. I invest everything in Austin and San Antonio. Brian: Okay. So would you even consider investing in a city or a state that has rent control?  James: No. Of course not.  Brian: Yeah. It's really detrimental to the market and I think it's going to cause a lot of problems. I used to live in Santa Monica, California where they had rent control and you can see the negative results of that. James: Oh, Santa Monica in California, did they have rent control in the past?  Brian: Yeah, a lot of the Los Angeles counties, you know, it's kind of county by county, city by city, area by area, but there is rent control in Los Angeles in certain areas and you can just see how rental property owners, who own buildings in rent control areas, have no incentive to put money back into them. They're not putting the capital expenditures back into their property to keep them in good shape because there's no incentive to do so. They can't raise rents beyond a certain amount each year and you know, so why would you invest $100,000 back into your building if you're not going to get that out in value? James: Yeah. Yeah. It doesn't make sense for a business. So you may not run it as a business, you may be just run it as cash flow, I don't know, it's like a cash flow investment. I guess you don't have to spend any capital on it.  Brian: I can see how if you've owned the property for a long time and you bought it at the right price at the right time, you could probably be doing well with cash flow. But in these markets where you see a lot of rent control, they're expensive markets. So I'm not really sure once rent control is instituted in these markets what's going to incentivize new investors to come in and bring fresh money into the market. James: Interesting interesting. So coming back to your portfolio, can you tell me in terms of your holdings, how much is multifamily, how much is self-storage? How many percents of each one of these and how much is non-performing notes?  Brian: Sure. Sure. So multi-family is my bread and butter. I've been doing that since 2008. I moved to Grand Rapids in 2005 and 2008 the bubble burst, you know, we entered the Great Recession, it was a buyers' market. I bought my first 12 unit, I was using my own money in the beginning, started using other people's money and then started syndicating.  We currently have about 370 units here in the Grand Rapids area, Grand Rapids, Michigan and that's multi-family residential. In 2018 we purchased a self-storage facility, it's about 28,000 square foot, we're currently adding another 15,000 square foot to it and that's been a fantastic investment, I really love self-storage. And then, as you mentioned, I host a podcast - The Rental Property Owner and Real Estate Investor Podcast - and one of my guests over two years ago was a gentleman by the name of Gene Chandler and he was investing in non-performing notes and I really liked his strategy so much that I ended up investing well over 300,000 dollars with them and the results have just been fantastic.  James: So, you now do multifamily and now you're doing two other asset class. So can you tell me what does multifamily did not offer that these two other asset class offers? Brian: Well, I like you, I'm investing in my own backyard for when it comes to multifamily. Even though I've bought and sold over 450 units, in 2015, I stopped buying multifamily altogether because the values had gone to a point where I could no longer justify syndication. I couldn't get the returns that I needed for my investors to be able to to pay the prices that people were asking. The last two deals I found - one was off-market, one was kind of in between market - and I can go into details on that but anything that I saw after that point just, I was so spoiled by the prices I was getting between 2008-2014, that I started looking for other asset classes.  And there were probably about 3 years where I just sat on the fence, waiting to see if the market would change or something else would come along. And at some point, one of the people who I met through the podcast, brought me a self-storage deal that he had found off-market. I looked at it, I like the numbers. His underwriting was very conservative, but the numbers were very compelling and we ended up buying that in 2018. And just in one year of basically bringing the rents up to market value and switching to a virtual online web-based management system, we were able to add over $700,000 in value to that property. So I like the simplicity of managing and owning self-storage more so than multifamily because in multifamily, you have tenants and plumbing issues... James: So it's very Property Management intensive, right? Brian:  It definitely is and the self-storage, it's not. When you have turn-over, you're basically sweeping out a metal shed, you know, so it's a lot easier to manage and own and operate self-storage, especially when you're in a good market and I think we bought in an excellent market. It's just north of Lansing, Michigan. And then with the non-performing notes, I found a strategic partner who handled a lot of the nuts and bolts of that and I was able to invest with him somewhat passively so I enjoyed that aspect of investing there and the returns we were getting were very good.  James: Interesting. Yeah, I mean, as I mentioned in my book, commercial asset classes go in cycles. I mean, I know I'm a multi-family guy and your bread and butter is multifamily but if you find the right operators in other asset classes, you can make a lot more money or equal amount of money as what you're making with multi-family. So, would you think so? Brian: Absolutely. Finding the right strategic partners in other asset classes that's one of the things I set my mind to when I realize I'm just not seeing the returns I want to see in multifamily and apartments in my area where I'm comfortable investing. Now, have you looked at other asset classes? James: I did look at a few asset class. I mean the asset class that I looked at is also like, you know, self-storage or mobile home parks but it's also in demand. I'm surprised to see here that you found something in 2018 because I thought self-storage is a hot asset class as well, I will risk going after that. Brian: Yeah, it was a lucky strike and we've been looking for similar opportunities. But yeah, we're not finding them. What we're doing instead is building ground-up construction in self-storage, finding locations where the demographics are right and the need for more square footage of self-storage space is there and then we go in and fill that need. James: Yeah, but I'm happy that you are looking at multifamily is not like the only asset class throughout the whole real estate cycle. I mean you felt like in 2015, things picked up and you really can't find the prices that you want and you have changed strategy which is how an investor should be. You always want to look at what's available out there, the deal flow because the economy is still doing very well. There's a lot of capital out there and it's just harder to find a great really-making-sense deal. I wouldn't say deals, making sense deals in multi-family, something that makes sense. It's just so hard to find out nowadays. Brian: Absolutely. As an investor, you have to stay nimble and flexible and be open to other opportunities. Now, I know a lot of people in our field, our asset class of multifamily and apartments will find strategic partners outside of their area like in Texas or Georgia or wherever and partner with strategic partners who are able to find better value and better yields in their Investments. But I've had some bad experiences early on with some single-families that I owned out of state so I've always been very hesitant since then to own rental property, residential rental property, out of state. James: So you like to have any property within your own backyard, but you like to diversify within asset classes. Some people have one asset class, but they go across the nation. Like some people like to buy multi-family across the nation, wherever make sense but you are doing it the other way around. Brian: Yeah. Since I've branched out into self-storage and non-performing notes, I'm comfortable switching up asset classes. James: Awesome. So on self-storage, are you the operator, are you the primary guy?  Brian: No, my strategic partner is. He's the one who found the deal off-market, he negotiated it. I basically came in and raised the money; we syndicated that and raise the funds to be able to acquire it. James: Got it. Very interesting. And on the performing notes, you have a strategic partner, I would say, right? Brian: Yeah, I have a strategic partner on that. He's the one who knows that world. He's been doing it for well over six years now and really knows how to negotiate with the lender who we're purchasing a non-performing note from. He works with the homeowners to try to keep them in the home and figure out if that's even possible and then knows who the title company is that he should work with to get the right due diligence done and he's got the different scenarios in his head of how we can profit off of these notes. If we keep the homeowner in the home, what are the strategies there for us to maximize our profit or if we have to go through the foreclosure process. How do we go about that and maximize our returns in those cases as well. James: Interesting. Interesting. So if you get a multi-family deal today, would you still do it? Brian: If I found a deal that made sense and my underwriting shows that I could get the returns to my investors that they're accustomed to, I'd do it in a second, absolutely.  James: Okay. Okay. So let's talk about the market and submarket selection. So why did you move from California to Grand Rapids, Michigan?  Everybody's heading to Texas and Florida from California.  Brian: I'm from Michigan, originally. James: Oh, you're from Michigan? Okay, that makes a lot of sense.  Brian: Yeah, my wife is from here as well. So we met in California but decided okay, if we get married, start a family we didn't want to do it in Los Angeles, it's just too busy there.  James: Makes sense. Yeah, I mean just based on data that 50% of the population move to Texas And I think there's a lot more but Texas and Florida is the favorite destination for people from California. That's why I was asking the question. And how do you select the submarket in Grand Rapids, Michigan? Like how do you select which submarket to really do the deal? Brian:  Well eyes because I live here, I am looking within a half hour to an hour of where I live. Grand Rapids is very strong, has very strong demographics. It's one of the few Midwest cities that really bounce back strong from the Great Recession. A lot of diversified manufacturing industry. Furniture, Amway is here, we've got a lot of different industries and employment based here. So when I look at submarkets, I'm looking more at the neighborhoods, what's the crime rate in that neighborhood? What's the income level in that? What kind of rents can we command and by the way, I'll buy B properties and C properties or you know, C minus properties that we can push into that C plus B minus range. But I will avoid the The D areas and I've seen a lot of opportunities in the D areas. And by D, I mean where you have a lot higher crime rate, where you have a lot more evictions and tenant turnover and problems.  So I'm just very careful about and I work with the property management company that has a good grasp of these areas. So when we look at a property, we can really get a sense of if we buy this, is there an upside value, can we improve it and get higher rents, get better residents in here or is it going to be bound by the neighborhood it's in, that where it is now is what just where it's going to be? James:  Got it. Got it. Interesting. What about underwriting? I mean, when you look at a deal like I mean when you are buying multifamily, right? So how would you select the deal? Let's say a hundred deals been sent to you, do you know how many percents of it you would reject? Brian: Right now 100%. I'm not even looking right now, but what I'll do is I'll do a quick rule of thumb. Okay, what's the net operating income? What's the cap rate that they're asking? Is there upside potential? And of course, if it's listed by a broker, they'll always tell you the market the rents are way under market. you can raise the rent. No problem. That's sometimes true, sometimes not true.  But this area is so strong that any seller right now knows that they can get top dollar and while there's a lot of Institutions and out-of-state investors and even International investors who are willing to pay top dollar, the yields that they are willing to accept are much lower than what I'm willing to pay, which is why I'm not even looking at the moment.  James: Very interesting. Now I see it's happening across the country. I thought it was only happening in Texas and Florida but looks like across the country, that's what's happening. It's just so hard to find deals that used to make sense to us long time ago, right? So it's crazy out there.  Brian: Yeah, and it could just be that I'm spoiled because I was buying during a period when I could buy it at eight nine ten caps. And now, when I see things at five six, six and a half caps, I don't even want to consider them. But had I bought it at those cap rates between 2015 and 2017, I would have made a lot of money. So maybe I'm just a little too stringent in my criteria right now.  James: Yeah. That could be it as well.  Brian: Are you buying right now? James: Well, I mean, well, I'm still buying if I find the right deal. It's just so hard to find the deal that makes sense for my criteria, and I'm sure that's the same thing as your criteria. I'm still buying if I find the right deal but I'm not underwriting a hundred deals, you know, in one month. You know, whatever deal comes to me, I usually know that within the quick look, I know whether it makes sense for me to underwrite or not. And sometimes brokers will call me if they know that a certain deal is something that I would do. That's the only deal that I look at.  Brian: What's your quick back of the napkin way of determining whether or not you want to invest in something? James: If it's an email blast, I probably wouldn't look at it.  Brian: Yeah. Yeah, you kind of eliminate the ones that go out to everybody.  James: Yeah, it's already got everybody on his shop date and coming on an email blast. You know, you have to go on a best and final and best and best and final and then this ultimate best and final offer, which is you're shooting in the dark, right? You're basically bidding against yourself. [20:45 inaudible] I'm not really in a desperate mode to buy deals that go through that kind of process. So when I look for value-add if there's a true value-add deal, I mean, minus the crime rate area, I definitely know the area that has high crime rate, I can check it out quickly Class B and C, but need to have true value-add that we can go and add value. I don't really look at the entry cap rate, but I look for the spread of the cap rate from the time I buy to in the next two years kind of thing without any rent increases.  Brian: I think part of part of my problem, one of the reasons that I've just been on the fence is because we bought a value-add property back in 2015. It was an older building, built in 1920 and it was such an exhaustive process to go in and add value to that property. I was over there like every day. James: It is very tiring to do those value-add deals. To do deep value-adds, I would say.   Brian: Deep, deep value-add. And so my bandwidth for more opportunities was just completely limited because I was so exhausted by working on this one particular project. Now, luckily, we got it to a point where we added tremendous value to it and we're very proud of the work we did but you have to weigh the opportunity cost when you do those value-adds because sometimes they're so intensive that some of the lower hanging fruits, you bypassed that. James: Correct. Yeah. I see some syndicators doing deals every month and they're not doing a deep value-add or they're just doing the lighter value-add. Maybe they're just doing a yield play. [22:30inaudible] they can buy every month. They can claim 5,000 units or 3,000 years versus deep value-add to be like 100 and 200 and 300. It's a really really deep value-add. You probably make a lot more money than the guy who owns 3,000 to 4,000 units, but it's a lot of work.  Brian: It's more than just asset managing. You kind of become a de facto developer. James: Developer, a huge project manager. Yes, so many things but the deep value-add gives you a sense of accomplishment. Brian: It does.  I'm very proud of the work we did on this particular property and more so than any of my other properties because I didn't have to put nearly as much work into them.  James: Yeah, and the deep value-add it becomes a case study, right? Because it truly shows your skills to turn around property.  And people who have done deep value-add it's going to be easier for them to do the lighter [23:30inaudible]   Brian: Yeah, yeah, that's an excellent point.  James: So that's very interesting. So can you name like 2 or 3 secret sauces to your success? Brian: The two or three secret sauces to my success. I'm sorry if you hear that printer going in the background there.  James: It's okay. No worries.  Brian: Hopefully that ends soon. Secret sauces to my success; I think doing the underwriting, running my numbers. I always like to say, I like to see my numbers in bullet time. To see all the Matrix, you know, everything slows down and you can see it coming at you. I want to know what are the real expense is going to be after we've acquired the property. One particular mistake that I see a lot of investors making is they assume that the property tax is going to be the same as what the previous owner was paying and that's just not the case. So right there that's one of the main factors that I look at right away, is what is the property tax going to become once I buy this property and that eliminates 50% of the deals that I would even consider. So number one secret sauce is just really understanding the numbers. Not just where they are today, but where they will be once we acquire the property. Number two is having the right team. I am all about partnering with strategic partners who add value because they understand inside and out the asset class that you're investing in. The reason I was able to expand my multifamily portfolio was that I partnered with someone who owned his own property management company and managed the type of properties that I wanted to acquire. That without his assistance and without his team that really knew how to go in and do the due diligence and help me assess upfront, what are the capital expense costs going to be? What are the true costs going to be when we acquire this property? Without that, I would have made a lot of mistakes. The same with self-storage. I partnered with someone who even though he's young and new, somewhat new to the business, he had really studied it, talked to a lot of professionals, been mentored by people and really understood inside and out how we could add value to that self-storage facility. And everything that he put in his pro forma ended up becoming a reality. With my non-performing note partner, I mean he knows that world inside and out. So when we acquire a note, the first 12 that I bought with him, we only had one that we lost money on and that was about $1,700.  James: Out of how many notes?  Brian: We bought 12 notes to start with because I like to test before I bring other investors in so I bought 12 notes with my partner, I JV with him. Five of the notes our average return was over 80%.  James: Wow. What timeline? Brian: A year and a half.  Well, actually, each note is kind of on its own timeline. So I'll tell you that of the twelve notes that he and I purchased together, five of them are closed and paid off like we've made our profit. Our average return on investment, before we split 50/50, our average return was 81% and that included the one note that we lost $1,700 on. Some of the returns that we're getting are phenomenal. Five of the notes are re-performing, which means that we were able to keep the homeowners in their homes, which is fantastic. That's our number one goal. Our average return on those notes as we collect the monthly income is 30%. And then two of them are in some form of foreclosure. In fact, we're about to sell one. We just listed it today actually, so we should make a decent return on that. We always try to work with the homeowner and keep them in the home. Half the time we're able to do that, half the time it just doesn't work out. But you asked me the timeline so, of those five notes that we closed, our average return was 81%, the average number of days that we were in each of those notes was 163 days so that took less than half a year.   James: I mean, those are good great numbers. I mean, I mentioned in my book, find the right operator in that asset class and partner with them or invest with them for passive investors. So as I said in every asset class, there's always good operators. So the numbers you're telling me in non-performing notes in self-storage are huge, right? I mean, I know multifamily you can make money if the market went up and you have a really good operator that can handle that. On average, not everybody is making what you just told me right now on self-storage. So why is multifamily more popular than other asset classes?   Brian: There are more people teaching it.  James: That's absolutely my point. Brian: Yeah, I mean like there are some excellent instructors out there in multifamily and you and I are both the part of a group with one of them. I mean great top-notch training material. Okay. Yeah, there's just fewer people out there. Whereas you have between 10 to 20 people out there teaching multifamily, you could count on one hand the number of people teaching self-storage and it's even less teaching the non-performing note.  James: I understand. Yeah, it is it is true. There's a lot more people teaching multifamily, a lot more boot camps, a lot more 2 days weekend seminars on multifamily compared to self-storage or non-performing notes. And I think multi-family is also very simple to understand, it's a house. Not many people understand what is non-performing notes.  Brian: Yeah, there's all that educational like just understanding and wrapping your head around the concept. I got into multifamily because I understood the economy of scale and I understood people have to have a place to live. So if you can get them to pay their rent and that rent pays all your expenses plus the mortgage, well, you can make a lot of money that way. And then once I understood the next level of value, which is the income valuation method, how commercial multifamily is valued based on the income method and you can increase your returns exponentially if you understand that. The relationship between cap rate and your net operating income and value that was very compelling to me. And I think that still is very compelling when it comes to investing in commercial real estate whether it be multifamily or self-storage. I think non-performing notes, there's a lot more perceived risk in that because it's not valued based on any  - it's hard to understand how that's valued because there are so many different scenarios in which you can profit from non-performing notes. That you can't just say well we value it this way and if you buy this note, this is what you're going to make, it's kind of a crapshoot. But if you do it right and you partner with someone who knows how to avoid the dogs, you can actually make a lot of money doing it.  James: So what is the most valuable value-add in non-performing notes? Brian: You mean an example of one of our...? James: No, not an example. I'm talking about what is the one thing that if you do the most of the time or the frequency of things that you do in non-performing notes that you get the most value out of? Brian: Well, yeah, it differs note by note. I'll give you two examples. One is a property that was pretty much a teardown property that we bought the note on in Middlebury, Indiana. We paid $5,000 for this note and I asked my partner, I mean it's $5,000, this property is a teardown. How are we going to make money on this? And he said, well, we're not buying this for this property for the house that's on it. We're buying it for the land because it's right next door to a farm and this farm is owned by this Amish family. So he sent a realtor over to the Amish family and they ended up paying $35,000 for that note. So after closing costs and paying the realtor and getting our initial $5,000 investment back, our profit was over $24,000 that represented a 245% return and we did that in less than two months. James: Yeah, but you need to identify that opportunity. I mean, it's not like you can go and buy any deals right now. Okay, very interesting. Brian: Yeah. Yeah, absolutely. Another quick example of how you can profit on notes and I don't want it to lead you to believe that your best profit is always going to be a few foreclose or take possession of the property because you can still make a lot of money if you can work with the homeowners. We bought a note on a property in northern Michigan, probably about 9 or 10 months ago now. And I believe the numbers were in the line of we paid $20,000 for this note, got the homeowners re-performing, the unpaid balance on this note is $41,000. Once we have them season for 12 months, meaning that they're paying on time for 12 months - we've been working with them with a mortgage loan originator, where they can go and get new financing, permanent financing of FHA or Fannie Mae type loan in place with much better interest rate much better payments. Well, when they go do that, they're going to pay off that unpaid balance. So our $19,000 investment, now that I'm thinking about it was $19,000, our $19,000 investment, we're going to get paid that $41,000 of the unpaid balance on their note, plus the money that they've been paying each year. So our return on that is going to be 100%, it's actually over a hundred percent.   James: Across how many years?  Brian: We'll be out of that in under 15 months. James: Okay, interesting. Brian: Because they're going to refinance and when they refinance, we get paid that unpaid balance. James: Got it. Got it. What about on the multifamily properties that you own before 2015? What do you think is the most valuable value-add that you really like?  Brian: Well, they're all great because just anything I bought between 2008 and 2012, I've achieved an infinite return on those.  James: Okay. So refied it by and you kept it? Brian: Yeah. Yeah, we've refinanced, pulled our initial investment out. We have no money in the properties and we're collecting cash flow every month. So you can't calculate a return on that. Probably one of the best examples is a 37 unit that we purchased. We bought it at a short sale in 2009, was about 600,000 is what we paid for it. We put a $200,000 into it right away to replace roofs, windows. It was a hodgepodge of heating systems. There's electric baseboard heat and hot water boiler heat and then gas forced-air furnace heat. It just depended on which unit you were looking at. So we replaced a lot of the mechanicals, made it as much of a new property as we could, as far as just the mechanicals and the roof and the windows. And we refinanced it once it had over 1.1 million dollar value, pulled all of our initial investment out plus some extra cash flow and then we just refinanced it again, put a tenure fixed loan on it through the Freddie Mac. small apartment loan. So we got great terms on it, 30-year amortization. At that point, it valued over two million dollars. So we've added a lot of value to it and the compression of cap rates didn't hurt either.  James: Yeah. Yeah. Those are the awesome deals, the deep value-adds. That's where you can go and refi and make it infinite written because you pulled out all your cost basis. Brian: Yeah, yeah. Yeah, that's the goal to achieve infinite return. Whenever we can do that, that's what we do.  James: Absolutely. Aren't you worried about the state of the market right now in real estate in general?  Brian: You know, gosh, I was more worried about it two years ago than I am now probably. James: What has changed? Brian: Probably because two years ago, I was thinking, oh, it's going to turn any minute now and then it only got better and better. You and I both know Neil Bala and we talked to him at the last event we were at together and he made a very good case for the continuation of this market. And it basically rests on the fact that the United States, it's one of the few, if not the only places in the world where you can go to get real yield on your investment. We're seeing a lot of international money coming into the United States because in their countries, they're seeing negative yield or 0 yield. Here even if you can still get three or four percent yield on your investment, that's a lot of money. It's bringing a lot of money into this country and that's going to prop up our values for quite a long time. On top of that, I've always fought or believe that interest rates were going to rise and I've been believing that since 2000 and they keep going down. And even now, as we're speaking, they're talking about lowering the rate again by the end of the year. So that interest rate risk, I know we're playing with fire here and eventually, we're going to have to pay the piper but our government seems to keep coming up with ways to prolong this growth and the increase in prices. So am I worried? Not in the short term. No. No. The Economists I listen to are saying, oh, it's going to be a roaring 20s for us. Things are really going to hit the fan and. 2027, 2028, 29. James: Interesting. Yeah, because I think I don't know, maybe my thoughts are similar to yours somehow the Fed has figured out how to do quantitative easing and quantitative tightening. Somehow they're able to contract the economy and bring it down. So they could have found some new mechanism to keep the economy going even though our thought process always has been real estate goes in cycles. But at some point, you will hit an affordability issue, it can't [40:13unintelligible]  go up all the time, right?  Brian: Yes.  James: The prices can go up because the interest rate is coming down because now you can get more cash flow. But at the same time, you can't keep on increasing rent because our wages are not going up so much. I mean, I'm not an economist but at some point, you will hit some roadblock, but I'm not sure where is it and how is going to come.  Brian: Yeah, well, we're seeing a plateauing I think right now in just the rents that we're able to charge, the prices that people are willing to pay but it's still a very strong market. Now, don't get me wrong, I'm not going out there and just buying stuff like crazy because I am very conservative and like I said if I can't get the returns that I need to bring investors into my deals, I'm just not even looking at it. I don't anticipate that the market is going to have a huge correction, there might be a bump, I think if you're in a good market, like Grand Rapids, that bump won't be nearly as severe as some other places.  I'm keeping my eye on the market but at the same time, investing conservatively in asset classes that I think will be able to withstand the next correction.  James: Awesome. So let's go back to a personal side of things, right? So is there a proud moment throughout your career in real estate that you will remember for your whole life, one proud moment? Brian: One for a moment to put on my tombstone. James: Yeah, absolutely. That you really think that hard, I'm really proud I did that.  Brian: Yeah. So a couple of answers. I mean any time we're able to go in and improve a property and improving neighborhoods, that always makes me proud, you know, that we're adding value to a neighborhood and community. The older building that I told you about here in Grand Rapids, it was built in 1920. When we bought that it was very tired, kind of poorly managed, it was losing money. We were able to turn that around so I'm very proud of that. I'm very proud of the fact that we also fought very hard and work very closely with the city to be able to put a restaurant in that building. So the fact that when we bought it it was 96 apartment units and about 6,000 square foot of vacant commercial space. Now we had to work with the city to get it rezoned because it had been vacant for so long, it had to be reverted to being zoned residential. So we spent over a year trying to get it rezoned so we could add commercial in there, but we filled up all 6,000 square foot including a restaurant and that took about two or three years to do.  So when I think about what I'm proud of I think I'm definitely proud of that.  James: Awesome. That there is hard work  because you're turning the zoning from residential to mixed use.  Brian: Yeah, mixed-use residential commercial, just dealing with parking, number of parking spots and green space and tree canopies. I mean, it was a massive undertaking.  James: Yeah. It's very interesting that kind of work. I did one that was borderline and we merged it with an apartment and we did so many things. It was a very unique value-add that we recently refinance.  Brian: What was it, a lot of work for you? James: It was a lot of work because you have to go through, you know, buying the deal - you had to buy two deals at the same time. One is the apartment and one is the land and then we have to go to the city to merge these two plots. Then you had to rezone it, then you had to - I mean replot it, rezone it And then after you do a tree survey, you have to do so many different surveys have to do to get that. It's not normal in a residential, you know, where you buy today and increase rent, reduce expense kind of deal. But it's very interesting and people got 80% of our money within 15 months, which is huge, just by doing this creatively.  Brian: That's fantastic. Yeah. Yeah, you talk about its zoning and tree, you know.  James: Yeah, zoning and tree and all those. Brian: So it's a whole new world and it definitely is costly and time-consuming because you have to have experts on your team. You got to bring experts like architects.  James: Yeah, we brought in architects, engineers.  Brian: Yeah, engineers who even understand what it is that the city is asking for because if you were trying to do that yourself, you just would be a mess. James: Yeah. I mean the good thing about what you said about what I'm proud of this kind of process and 99% of the syndicators don't have that kind of experience. Brian: Yeah. I didn't have that kind of experience but now I do.  James: Most of the time, you just buy buildings and, you know, look at increasing income and reducing expenses and after that, at some point you sell but you don't do different contracts buying land and doing kind of things. So another question for you, Brian, why do you do what you do?  Brian: I love it. I love what I do. I feel very entrepreneurial about it because I've been an employee up until about five or six years ago. Whatever it was I was doing, whatever job, I always embraced it and did the best I could. But what I love about being an entrepreneur, being a full-time real estate investor, now syndicator/asset manager is that it's all very self-motivated. I'm the one who decides what needs to happen, what I need to pay attention to on a day-by-day basis. I don't have a boss or anyone else telling me, 'Hey, Brian, go do this' when I'm like, 'no, I want to go do this instead.' I get to call the shots. So that's what I love about it. I get to call the shots, I get to take time off if I need to take time off and I get to kind of fill my day with activities that I want to be doing. James: Awesome. Hey Brian, you want to tell our listeners and audience how to get hold of you?  Brian: Sure, James. First of all, you can go to my website, which is higinvestor.com. That's HIG is Hamrick Investment Group. You can also listen to my podcast and James you've been a guest on there so you can definitely listen to me interview James. It's the Rental Property Owner and Real Estate Investor Podcast and it's sponsored by the RPOA, which we begin this conversation talking about. And if you want to get in touch with me, you can also email me Brian@higinvestor.com.   James: Awesome, Brian. Thanks for coming in and adding value to my listeners and audience and to myself as well in the kind of things from our discussion here. I think that's it. Thank you very much.  Brian: All right. Thanks, James. It's been a pleasure. It's a lot of fun. James: Lot of fun, thank you.  

James:  Hi, audience and listeners, this is James Kandasamy from Achieve Wealth Podcast. Today, I have Glen Gonzalez who have been a big operator out of you know, Austin, Texas, and Glenn has deals which he has done in Dallas area, Corpus Christi Clean and south of Houston City, called Lake Jackson. And he is currently owning about 3,000 units at some point, in the past few years, he owned like more than. 4,500 units and he also have a strong property management company, previously, which used to manage up to 6,500 units. So he brings really good value to this podcast. Hey Glenn, how are you doing? Glenn: Hey, James, doing great. Thanks for having me on, this is exciting.  James: Yeah. Yeah. Did I miss out any of the story behind you that you want to clarify? Glenn: Maybe. I think where I came from, you know, because people are always interested. You know, we talk about all the success that we have, but I actually started as a maintenance man. James: Wow.  Glenn: I was kind of at the bottom of the barrel, picking up trash and I was like a porter, really. And then I was eventually painting apartments and fixing stoves and stuff. So my involvement in the apartment industry started about 30 years ago. So I actually came through as a maintenance man, leasing agent, property manager, then a regional manager, director of operations and so all the way through. Pretty much all the different ranks of Property Management until about six years ago, when I started buying my own, as the owner. And that really changes the perspective on apartments, you know, you got an operator perspective and an owner perspective, so maybe I could share some of that today while we're all on the call.  James: Sure. That would be really, really interesting. I mean some of the big guys that I know in this apartment, such as Ken McElroy. I mean, he started as a property manager, right? And I interviewed Eddy Lauren who has done like more like 1 billion in transactions as an operator. One of the big first advice that he told our listeners when I interviewed him like a few podcasts back was like, start from the ground, start to learn from the ground itself. Be property manager or be a maintenance man or porter and then learned in the business because you can learn so many things. So it looks like you have that 'coming from the ground' experience. Now, you have no more than 3,000 units and you used to have 4,500 units, which is awesome. I mean looking at from the ground itself up to the asset management; like when you were maintenance man or a porter, what did you think about the owners? Glenn: Oh my gosh, I used to get so nervous when the owners would show up to one of my apartment complexes because my boss would call me and say, hey, the owners are coming so I want to make sure this place looks perfect and everything is in order. And then they would tell me things like, you know, if they ask you a bunch of questions, you know, they would say let me do the talking. So I was basically supposed to keep my mouth shut and that just kind of made me nervous, you know, because of all the hype and stuff.  So I don't know, you kind of think the owners are almost not like real people to some degree, but they are, they're just like you and me. They're just common folks.   James: Yeah, it's interesting. I mean sometimes, especially the maintenance crew, right? I mean usually when owners come into a property, when we go and visit our property - I mean, most of the owners, we talk to the office staff, right? Because we think we control the whole thing but the backbone of renewal in the property is the maintenance. Because people are happy when work orders are being taken care of and people really like that. So we really make it a point to really take care of the maintenance people and that's another advice for all the listeners out there. If you own property, don't just look at the property managers or the leasing agents or the assistant managers; go and say hi to your maintenance people because they are really, really important. Don't you think so? Glenn: Absolutely. I would add a little bit to that. You know, when I go visit a property, I always speak with the maintenance guys, always because they will tell you everything that's going on on that property, even the stuff the manager might not know. I mean, they know how often they're recharging air conditioners or how often they're fixing things. I mean, they know the work orders like the back of their hand, but beyond that, they even know the tenants. I mean they know which ones have pets and which ones don't have pets because they're in there, doing work orders. They know everything. And I would say that they're often the ones that are neglected because like you mentioned earlier, when we go and do a site visit, a lot of times we'll sit down with the property manager and we'll talk about the lessee and the marketing and the delinquency and some of those common things but rarely do we talk to the maintenance guy about, hey, is there anybody out here that's like a bad apple, that's like creating a lot of havoc? And they will tell you who's dumping the trash out there. They will tell you who are having parties late at night and whose got like 5 dogs in their apartment. You know, I mean, they know everything. So my advice is if you need to know what's really going on behind the scenes, get to know your maintenance guys. James: Yeah. I think it's also important during the due diligence process right? Because sometimes we are with the Brokers and we have the managers and you can see that they like to hide the people who know the real stuff which is the maintenance guys, right? So try to get to them to ask more questions. Did you have any tips and tricks to get to maintenance guys while doing due diligence so that we can get the truth from them?  Glenn: Yeah. Yeah. I think part of it is just making them feel appreciated and that their opinion matters, I'll tell you this just like I was sharing my experience. I used to get really nervous when the owners would come around because to me, when I was younger, they were very intimidating. So if one of those guys came up and wanted to talk to me, I'd be like, um, you're talking to me? So find a way to make them comfortable, you know, really, at the end of the day, just make them feel appreciated for all their hard work and acknowledge that they are such a big part of the team. And when they feel appreciated and they feel acknowledged, trust me, they'll share with you a lot of important information.  They may offer information that nobody else knows. They may say things like, hey, by the way, I would go check the roofs on building 3 because we had several roof leaks on that one building in the last four months. They know everything because they're doing all the sheetrock repairs on the inside, right? And so they even know where it's leaking. It could be around the chimney or something in there. Just be like, good idea, thanks. I will check that. So yeah, due diligence, maintenance guys, you're absolutely right. James: The other thing that we do, just to share with the listeners is you know, we also ask the maintenance guys to rank the property managers. So it's not only like property managers control the whole thing, I think six months, once a year, we do this 360 feedback on the property managers from the maintenance right? Because you know, sometimes you need to give them the voice, right? And I think we have to just give them an official channel for them to voice what they want to share in terms of how the property managers are doing,  what these people are doing. Glenn: You know and I've shared this with some of my friends in the industry that you'll never ever have a successful manager without a successful maintenance guy and vice versa. If one of them are really good at their job and the other one is not, you will not be maximizing the value of that apartment complex. I mean, it's almost like a marriage, you know, the manager and the maintenance supervisor, they're married at the hip. They've got to be on the same page and if they're not, if they're complaining about each other, you know, that's an opportunity to stop and pause about why they're not on the same page. So just FYI, you know, and if one of the maintenance guys like you said gives a rating to the manager of a very low number like, oh, that manager is a 2 at the best, you might want to go talk to the manager.  Like how do you rate your maintenance guy? He's like a negative 2 at best, you know, and it's like, what's going on and who knows what the problem is? Before you could then read the financials. The financials will tell you the story too because if your way out of budget, you know, say the maintenance guy is not very good at painting so he wants to contract out every paint and your turned cost could be very, very expensive. There's a lot of you know things that you can learn from each other. That's why it's on your part.  James: Absolutely. Absolutely. So, how did you climb that ladder from porter to maintenance to becoming an owner? Glenn: It's a funny story, James, it's really funny story. To be honest with you, I'm out there trying to do work orders and I started my industry in Salt Lake City and it's really cold outside. So when you're picking up trash, you're freezing cold, especially when you're going from apartment to apartment, carrying all this stuff. Anyway, so I went and I told my boss, you know, I don't want to be a maintenance guy forever. I want to be a manager because they get to sit in the office and talk on the phone. That was my motivation, I was young. I just don't want to be out in the cold. So they're like well, we don't have any openings for maintenance guys to be managers. I'm like well just so you know, that's my next step.  So they had a 60 unit apartment complex that needed a part-time manager and a part-time maintenance guy so I said I'll take it. So I was part-time on each one of those so I got to learn the manager skill and you know talk on the phone and then I needed the work orders and make ready and I learned with this valuable lesson. Somebody moved in and they had to fill out one of those move-in checklists to make sure that the units in proper condition when people move in and they turned it into the manager after they signed the lease and it's got all these things that don't work. The stove doesn't work right, the toilet is running and the dishwasher won't cycle or whatever. So that I got to know who fixed this apartment, you need to get them back. So I'd go back later in the day and I would take my tools and change my clothes and they're like, hey, what are you doing here? I'm like, well, I'm the maintenance guy. And they're like, oh, so you're the one that got this apartment ready? I'm like, yeah, that was me. And I realized then I was not a very good maintenance guy, but that was my transition.  But I really was able to turn that apartment community around. And the problem with occupancy and revenue and it got to the point where it was doing very, very well because I kind of was able to see it from both sides. I knew how much we can rent them for but I also knew we had to get them ready first and I work my little magic as a newbie to the industry. I was very successful.  My boss recognized the success and they had another, I think, it was larger, I don't remember exactly, 200 or 300 units. It was struggling with some of the same stuff and they asked if I would go there and give him my opinion. So I went, kind of as a manager, over to this other community and found that the leasing agent and the manager were really good friends but that leasing agent wasn't very effective at all and the manager was too good of friends to fire her friend.  So I said, well, let's do one of those secret shops and do an evaluation and kind of did all that and I showed the manager. Look, you know, you're not a very good manager because you're not able to make a business decision. You've got to make changes on the leasing and that leasing agent is affecting you as a leader. So she kind of said she realized at that time that if she wasn't able to make an improvement or change it was going to stifle her own career as well. So she made that change and all the sudden, the leasing got better and collections got better and people were giving better reviews and my boss recognized that I had this knack for identifying problems. Well, then I got to oversee multiple apartment complexes and I became what's known as an area manager so I had two or three that I could oversee. So my career just started kind of progressing a little bit. I graduated college and I was supposed to be a hospital administrator and I did my internship at a hospital and I did not want to do that the rest of my life. So here I was at a crossroads, maintenance manager/hospital administrator, now what?  So I said, I'm just going to make Property Management my career. And then I just started getting more educated with real estate licensing, then I eventually got my CPM designation and I was involved with the apartment association stuff. So there you go. That's kind of how I moved up the ladder a little bit. James: So at what point did you buy your first property? I mean, syndicated or you know, start using some other.. Glenn:  Sure that's a great question. So in the time frame from that point, it was probably another, gosh, 10 or 15 years later. I was now working for a big REIT, a Real Estate Investment Trust, in the Pacific Northwest. Equity Residential, they're very big property owner-manager REIT and I was getting great experience there. Well, I had a mentor that was serving on the board of directors for the apartment association, his name is John Gibson, also from Washington. And I went to John and said John I want to buy an apartment complex one day. And I showed him this little 60 unit deal that I was analyzing. And at this time I was still a regional manager. I still got a W-2 paycheck. When I went to John and I said, "You know, tell me what you think."  And he said, "You know, you'll probably do okay."  He said, "But I have this little 44 unit apartment complex, I'll sell you and I'll make it much easier to buy."  I said, "How so?"  He's like, "You just need to come up with a $150,000 down payment and I'll carry a note back for the rest."  And I said, "Great. Let me go look at it."  So I went and looked at it and this guy wasn't managing it very well and I knew how to manage pretty well so I'm like, 'This is great, we can make money on this."  So I went to two of my friends and I said, "You guys want to go in on this apartment complex with me?"  They said, "What do we need?" I said, "$150,000."  And they said, "You know, what are the splits?"  I said, "A third, a third, a third."  And they said, "Okay."  I said, "But you each have to put up $75,000."  And they're like, "Whoa, well, for a third, a third, a third, shouldn't we split that 150,000, a third, a third, a third?" But I didn't have any money. So I'm like, "I found the deal if we're gonna make money and you guys put up the equity, you guys will get your money back before me but once we start making money, we'll split a third, a third, a third."  And those two friends said, "All right, sounds good."  We did it. We bought that apartment complex. He carried a note back and we own it for like a year and a half and we sold it for about a million dollars more than we paid for it in eight months. So that third, a third, a third, those folks were pretty happy. So the mistake I made is when I sold it, I carried back a note on part of our profits and the guy that borrowed or bought it from us has defaulted on that note. So, actually, we made a lot of money on paper, I lost half of it to a bad note. So word to the wise if you're going to be a lender to a buyer, do your homework.  James: So you seller-financed to someone else, I guess. Glenn: Yes. We still pocketed a half million dollars. So I mean we did okay, but we carried a note back. That was my very first deal, it was 44 units and it was while I was still working as an employee. James: That's very interesting because you really came from the ground up and you made that transition to a owner, you know, and you found the deal and you able to convince your friends to finance it. So at what point did you had the realization that, hey, I'm a regional now, I want to buy and why did you want that thought process came in? Why did you want to be an owner?  Glenn: Well, a couple of reasons. One, I knew that these owners that came seemed like they had a lot of money, in my mind. I assume that they were pretty rich people. They drove fancy cars and stuff and from my perspective they were wealthy. But the other one is I realized that when I got really good at property management and I increased the value of that apartment community, that owner would eventually sell that property and he would take his money and run and I would get a thank you and he would get a lot of money. And they always said, "You know, Glenn we really appreciate your property management efforts. You've done very well for us and thank you very much."  So I got a lot of thank yous, not a lot of dollars and you know, that was a motivation for me. It's like someday I wish I could trade that value for myself. My wife always encouraged me. She's like, "You know, you're really good at making other people a lot of money. Someday, you got to do that for yourself." And so that was motivation too. You get really good at Property Management, you should maybe be the owner but I didn't have any money.   James: But you have that knowledge on how to increase the NOI, which is the most important, I would say. Having a lot of money and buying assets if you do not know how to increase the NOI from the ground up, you're maybe just half-blindfolded.   Glenn: Yeah, and I think you know what made me successful later in life, is that experience and the knowledge that I had from the ground up. It gave me great insight in helping me find good deals that I could fix if they're broken. And then, later in my career about six years ago, I started to buy my own. And I remember having to raise over a million dollars on my first deal and when people realize that you have experience, you know what you're talking about and you came from the ground up, they're more likely to invest with you than they would be with somebody who has no experience,19:48inaudible]  just go syndicate deal with no experience. So, the experience really paid off in the end for me.  James: Yeah, I'm sure it's paying off right now itself. So I want to go into some of the secrets in Property Management because you are the insider. Glenn: Yeah, that's right. James: Because I mean, for me, my wife does a lot of property management and just because of the knowledge that we have in asking questions to our employees and all the employes doesn't really tell us stories. They don't tell us like it takes five days to make ready or two to three weeks to make ready and all that kind of thing. I mean, property management is a people business, there's a lot of detailed things happening inside the property management itself. And if you do not know the details, people are just going to take you for a ride. So, let's go into the details. So how would you know a leasing agent is not a good leasing agent.   Glenn: So great question, James. There are indicators that are quite obvious, but then there's some that you kind of have to peel the onion back a little bit to figure out. The first indicator is if your occupancy is struggling, where all your competitors are saying, in the 90s and your property is like in the 80s and you have enough product that's already made ready, and it's priced correctly, but gosh, people are just not leasing so that could be an indicator.  You know, there are remedies to that. You can hire a secret shopper that will come and pretend to be a renter and they will give that leasing agent an evaluation.  James: And what does the secret shopper do? Glenn: They pretend like they are an average person coming to rent an apartment. You know, they give a name, they go on a tour and they kind of evaluate whether or not the leasing agent was able to connect with them as a renter if they took them on a tour of the apartment. Mostly if they followed up to say, "You know, are you still interested in renting?" You know, some leasing agents never follow up. Some agents aren't able to connect with people like emotionally connect with people because you know renting an apartment home it's an emotional decision. There's apartments everywhere. So the only thing that makes your apartment may be different than your competitors' apartment, maybe that leasing agent.  So if the indicators are there, there are remedies but sometimes you just got to peel the onion back and what I mean by that is you just need to listen to how they talk to people. You need to get feedback from the residents. As an owner, you can always send out a little flyer or a little questionnaire. You know, we get what's called the Move-in Report, where it talks about who moved in, in the last 30 days. I look at those moving reports to see if they've hit the targets on the rent and stuff, but you can send a little questionnaire or you could even call them on the phone, as the owner, and say, "Tell me about your experience from the time you moved in till now." And that'll give you a lot of insight.  The other thing is the closing ratio. There are averages in our industry about if 10 people apply, what percent actually come back and sign a lease and move in? And that percentage could be anywhere from 30 to 40 percent of the people come back. Now, granted some of those get denied because of credit, criminal activity or addictions and we expect that. But if some leasing agent has a closing ratio of 10% or 15%, you'll want to stop and say there's a problem here because that's below the industry average. And where do you find those industry average? Well, you got to talk to people in the industry. They're not widely publicized on closing ratios but that information is readily available. You can get it through the apartment association. You can get it through people who own and operate apartments and you can just ask, network with people.  James: Yeah, and what do you do if the leasing agent gives reason saying that our apartment is priced too high? Glenn: Well, there's your 'trust but verify'; she could be right, you know, I mean if they have a low closing ratio and you as the owner said, "Hey, we renovated this unit and I know we can get a thousand dollars for these two bedroom units." And all your competitors and your leasing agent saying, "Yeah, but all my competitors are at 950 to 900 and you want 1000." If you argue with the leasing agent say, "But I spent so much money and I need to get a thousand out of this deal." You know, she's going to get frustrated and so are you. But if I were you, I'd go verify that. If the leasing agent is saying all your competitors are renting their two bedrooms at 950 and she's right, you as the owner better eat some humble pie and take her word for it. And when you get the facts verified, you better adjust your price because you may lose a good leasing agent because you're a bad owner.  James: Correct. Yeah, so it's important that because sometimes as owners. We might hear a certain performer on rents and that may not be true because you are doing it pre-closing, you know. Only when the rubber meets the road then you really know whether whatever you projected in your performer is being able to be captured on the ground. All right, and it's very skill to identify [25:41crosstalk and unintelligible]  Glenn:  That's correct. I had a boss of mine one time, he was the CEO of a company and he said this to me one time. He said, "You know if it comes down to your opinion versus my opinion, my opinion wins because I'm the owner."   He says, "But if it comes down to my opinion versus your facts and your facts are right, it doesn't really matter what my opinion is, the facts always tell the truth." That's why we do Market surveys. That's why we figure out where competitors occupancy is. And if you're a good owner, you'll realize that sometimes the information is right in front of your face talking to you and you're just not willing to listen.  James: Correct. There's a lot of data that we can use to really see whether I priced it correctly or not. Such as, how many people are applying, how many vacancies you had for that certain configuration and all that, right? Glenn: Yeah. Yeah. James: And how do you select a good property manager?  Glenn: That's a tough one. That's a really tough one. Gosh, you know I have, in my career, when I was an asset manager for Pacific property company and I think we had like 8,000 units and we had hired two or three different property management companies that did fee management for us as an owner and I was an asset manager. But some of those were some big name brand management companies that had all the bells and whistles but you know what it came down to James? It came down to two individuals, how well did that regional manager get along with that property manager and how often is that regional giving support?              If they are pretty well connected and they're good communicators, chances are all the other things will fall into place. The bills get paid on time and you know, if the manager needs some overrides or permission to the regional and they're on the same page and readily available, that property will flow better. Sometimes I've seen that a regional manager may have 9 10 11 or even 12 Assets in their portfolio. How often can an effective Regional go visit 12 Assets in a week or a month or two months? Not very often. They're going to be spread so thin.             The trick is that I know a lot of fee management companies are moving away from this but their profitability increases because they get a management fee increases when they have one fixed cost of a regional manager spread out over many assets. So from the property managers company's perspective, they may give that Regional a big portfolio to cover their salary. You, as the owner, want that portfolio to be small because you want their undivided attention, you know, so that's a good question you can ask a management company. Is how many assets are in that regional manager's portfolio and how often that manager works with your property manager on site. Those are two key elements.  And of course, the other big one is the back office. How often are they producing your financial packages and are they reconciling every month and do they catch the bounced checks fast enough? The back office, people don't really jump into as an owner, they just look at what's presented to them on the front end. So there's lots of good bells and whistles.  James: Very interesting. So what is the good ratio for regional versus property that they manage? Glenn: Yeah. That's a great question. I think an effective regional manager shouldn't have more than seven or eight assets in their portfolio. That number can go up to 9 or 10 if all those properties are maybe smaller or they've got one manager that oversees two or three that helps or they're all stabilized. They are all stabilized in their the assets and they're all doing very well with the regional, then they could then handle more.             But if the regional manager has a new lease up or repositioning or undergoing a renovation or you're trying to change the demographic a little bit, those are very, very time-consuming. And if that's the case, you don't want them to have more than five in their portfolio.  So there's a big range. Variables are stabilized in the size and then the complexity of the assets that are in the portfolio. James: Yeah, yeah, that's a very interesting feedback on the regional because as you know, and I know is that property management is a business of issues, daily issues which a lot of asset managers don't want to touch. They say that is a thankless job, we do not want to touch it and all that. But how important do you think Property Management, in terms of the efficiency or the NOI optimization of a multi-family? Glenn: Again, it comes down to that regional manager and the property manager. You know, I guess the fixed costs are you know, some property managers charge you more, a larger percentage of the management fee. That's a cost that's going to affect your NOI. The property management company has to have some buying power. Hopefully, they buy so many carpets and so much paint that they get significant discounts on the product that they purchase and they pass that right along to you as the owner, that would be a great benefit.  You know, if you're paying, call it $10 a yard for carpet installed and the property management company can get it done for eight or nine, that's pretty significant overall your Capex. So all those are little variables that you need to kind of ask what kind of benefit you get as the owner. And some of them are the opposite. They're very expensive, some of them pay for very expensive software for the property management and they pass it right along to you the owner and you're, "Gosh, this is expensive every month." And then you start asking about this fee and that fee and there's like an accounting fee on top of the property management fee. They charge you a fee for processing your own payroll and like, "Why am I paying you to process my payroll? Isn't that part of the services?"  And they're like, "Oh, no that's an extra."  So, you know, gosh darn, you just got to dive into it, to be honest with you. That's a good question. It's really complicated. Call me and we'll talk offline. James: Yeah. That's good. Glenn: I used to be a property management company,[32:56crosstalk] and I know there are areas that the management company wants to make money on. James: Correct. Correct.  Glenn: It doesn't always benefit the owner. It benefits the management company. James: Yes, but I mean we have to understand property management is also a lot of work and they are the backbone of your operation. So choosing the right property management and how the profit centers and all that is how everybody... Glenn: Yeah. James if you step back and you realize sometimes it's worth paying those little fees to these property management companies if they're really good at what they do. Because if you step back, they're really good at what they do, they're going to make you Millions on your asset. if they're not very good at what they do, they're going to lose you Millions on your asset. And here's the key; sometimes they just make excuses on why they're poor performers. And I struggled with a very large management company at 30,000 units. I owned a 650 unit apartment complex up in Dallas and my occupancy was going down and down and down and the bad debt was going up and up and up and I'm like, "What the world is going on here?"  And they said, "Well, the market, the sub-market is getting worse."  And I scratch my head and I said, "Well, how could that be? Because our competitors are 94 and you're like 81."  They're like, "Well, that's because they have just filled it up with junk people."  And I'm like, "I talked to the owner of that one and they said their delinquencies are only like two and a half percent. You guys are like seven. I mean that doesn't an add up either."  So what's really going on and they were a mess. They were going through changes up above and they had two Regionals that quit because of leadership and the property manager had quit because she didn't like the management company and my 650 unit was struggling financially now after it had just had its best year. Her name was Letty, she was the property manager for us for a year year and a half. When Letty left, everything unraveled and I ended up having to terminate that management contract and I gave it to a different management company and they were very successful. And they turned it all around and I ended up selling that complex about a year and a half after the new property management took over. And guess what? They out-performed all of a sudden and it was the same submarket, it was the same community. So all the excuses the previous management company gave me was just a bunch of BS.  James: Yeah. Yeah. It takes a lot of leadership to really fire property management because as an asset manager who just know asset management your hands are tied. You can listen to one excuse this month and next month, I'm going to give you the same excuses. But at what point do you make that call saying that, okay, these guys are not good? So it's very hard for you to make that call if you do not know the details and how to read the financials; as you say, you know the owner on the comps, right? Glenn: Yeah. James: But not everybody knows the owners. So, how do they find out? It could be very well true that if [36:07inaudible] so do you have some tips on how to identify bad property management? One point should be fine.  Glenn: I know a couple of them by name.  James: We don't need names.  Glenn: I can't say it on the podcast; call me. How do you identify? Here's one indicator. There's a lot of turnover for some key people. You know if the bookkeepers are quitting and the regional managers are quitting and the property managers are quitting; if you can't have access to interview all those people and talk to them about why they're quitting, you're losing out on an opportunity, but that will tell you, that's an indicator. By nature, I think we turn over about 30 percent of the site people a year, you know. One of the indicators that I chart so if you're up to 40 50 percent of your site people move, including your maintenance guys and releasing agent, but if you're up above 30%, there's a problem. Either with the leadership or how it functions or they just can't get enough training. There's something going on because people don't just walk away from their jobs. And the way to indicate a good one, management company, is if they've got long-term employees that stay with them long term over and over and over again. So there are some indicators there.  And your intuition; let me just address that. If for some reason a property management company is telling you excuses over and over and over again and in your mind, it doesn't add up but your guts telling you something's not right here, I would say trust your intuition because there's probably something not right there. James: Got it. Got it. Let's go back to, as you said, the most important person in the whole pipeline for an owner, asset manager. So you have leasing agent, you have property manager, you have Regional and you have the property management leadership. So you said, if I remember correctly, Regional is the most important on how they communicate and... Glenn: The regional and the property manager those two together.  James: So how do you identify the qualities of a good regional?  Glenn: Yeah, you know the good regionals, you can always tell if they're pretty effective because you can ask them a question about, you know, call it turnover expenses or you know, we notice this big expense for HVAC, you know that Regional says, "You know what? I noticed that too because the manager had booked it up in the operating expenses and I reclassify it to Capex."  And if the regional knows what's going on, how the property is spending their money and where they're booking it and she just knows it or he knows it right off the bat, they're on it, and they are on it and you should be very grateful that they're watching your asset and your financials pretty effectively.  Now if you ask a regional manager, 'Hey, what's going on? Why did it go up?"  And she's like, "I've no idea. Let me get back with you."  And you're like, "okay, get back to me, let’s talk. " And she never he never gets back with you and you send them another email says, "You know, what did you find out? I mean, our NOI took a dip 10 grand this month and it's been pretty consistent, what's going on?"  If you have to follow more than one or two times, dude, you've got a problem. They're not looking at your bottom line. They're not talking to their manager and they're certainly not watching your asset.  James: Got it. Got it. Okay. It's very interesting. Let's go to a bit more personal side. Is there any moment in your whole career when you started in real estate up to now, is there a proud moment that you always remember, you're going to remember that proud moment for your whole life? Glenn: That's a good question. You should have given me some lead time on that. James: I'm really proud that I did that. It could be anything.  Glenn: You know, I think part of it is a feeling of satisfaction that I get. You know when we syndicated deals, when we bring investors together, when we take that money that they've trusted us with and we apply it to the apartment complex and we do what we said we were going to do. We renovate the office and we raise the rents. And then, down the road, you step back and you look at the community and I go, "Wow! This actually looks better than it did when we buy it." And then it feels better and our delinquencies are going down. It's almost like your baby. It's like your kid, your little offspring. Like I'm so proud of this community.  And then you sell that and you give all the investors back their money and they call you on the phone, "Glenn, dude, I'm so happy. You actually did what you said you were gonna do and did better than we expected." To be honest with you, I get so much satisfaction out of that and I like making other people money, you know. And when that happens, they don't mind sharing the profits with me. And now, I'm making money so it's not always about the money, but it's about doing what you said you were going to do and doing it well and kind of being the best in the industry. Not all deals have gone has planned, not all deals have been successful and those are tough pills to swallow but I think, for the most part, my greatest in my career is seeing the magic that we work and executing the plan, I love that. And then there is one other if you don't mind me sharing? James: Sure, absolutely. Glenn: There's a gentleman that was a maintenance guy that would come and talk about if you spend this, you know, I think we need more rent. If you fix this over here and you know, I mean really, I wouldn't do anything on the one bedrooms because we have so many of them we can't even random, you know, but we can make a lot more than that. I took that maintenance guy and I said, "Have you ever thought about being a property manager?" He's like, "No way, there's no way; that's the last job I want."  I'm like, "But you think like a property manager."  And this is just a deal here at Austin that I was managing as a fee manager and I convinced him; I said, "Dude, you could do this."             And he did. He got out of his comfort zone and we moved him from outside to inside and he was the same way. He was so effective, I love the way he processed. And his name is Louis and Louis was a very good manager. He had a wife and a child and he was later moonlighting for a company for Best Buy, you know, he was working in the evenings and on weekends and stuff to make ends meet for his family. And we were at lunch one time, talking and I saw what he had done for the community. The occupancy went up, it had stabilized and he was right. We were making more money on the two bedrooms and I told Louis, I said, "Louis, why don't you quit? How much are you making at Best Buy a month?"  He said, "I get an extra eight or nine hundred dollars a month by working kind of part-time, on the weekends." And I said, "If you were able to just devote more time to the community, do you think you can make it more money?" He said, "I just can't afford to not."  So I told him, I said, "Let me raise your pay by a thousand dollars a month if you quit that job."   And I said, "Then, you could be a better husband. You could be a better father to your kid and you won't be so stressed. You don't have to work every single weekend because you're going to get burned out, you're going to get sick and then you're eventually going to quit."  And he's a grown man, he just started crying. Right there at lunch, it was kind of uncomfortable. He's like, "Why would you do that for me?"  I said, "Because I see in you great things, Louis."  And I said, "You should be a better dad and a better father to your child. If you're gone all the time, you're going to look back and you're going to say it wasn't worth it."  So the community had benefited so much from this guy, it could afford to give him a $12,000 a year raise and it would have zero effect on the properties bottom line because he had increased in a while. And he stood up with tears in his eyes and he's like, "I'm gonna go give notice."  I said, "And I'm gonna raise your pay this afternoon." And he gave me a big hug, and we've been friends ever since. He's very successful. But that was a proud moment where I identified that it's not always just about the money. It's also about being a good dad, a good husband and have less stress in your life. And sometimes we could take real estate and make dreams happen for people. Now, that was a good moment in my life. You know, it wasn't that long ago.  James: It's very fulfilling when you impact people's life. I mean you can make money in many ways. Glenn: That's right. James: You make a few million dollars and then you forget about it and you give it to investors and you forget about it. But when you impact someone it follows you throughout your life and you remember that's a big impact, you can't really put a monetary value. Glenn: Yeah. James:  And I've had REIT investors who when I paid them back through refi, they were like happy, "Oh, okay. I really needed this money and you gave it to me." It was just like a mind-blowing thing to me because I didn't really think that they really need that money. I mean, some people just invest hundreds of thousands of dollars and we give, you know, a hundred thousand back to them. They are like, "Wow! It's like I needed this money and you gave it to me. I'm so happy." So yeah, it's very fulfilling. Glenn: Fulfilling, yeah. That's neat. Yeah.  James: So do you have any secret sauce for your success? Glenn: Do the right thing, in the right place at the right time, little bit of luck. I do a lot of praying, help from above and just do the right thing. You know, I mean, I've gone through business relationship changes with business partners because we're not always aligned with doing the right thing and I say if you really want to be successful, just always do the right thing and what comes around goes around. James: Yeah. Yeah. I mean, I think one thing that I want to share with the audience is that I know about you and another buyer which is part of our same masterminds when you had details of that property which had a chiller system when it was down like one or two weeks before closing. And you had a choice whether you want to disclose it to the buyer or not and you made the choice of disclosing it, which is I think it's absolutely, the right thing to do. [47:15unintelligible]  Glenn: Not only did I disclose it, James, I also bought the buyer a new Chiller.  James: Absolutely. Glenn: He was already passed his due diligence, he was closing on it. He couldn't come back and re-trade me, his earnest money was more than a chiller so I could have just said it is what it is. I could have put a bandaid on it. But this is a small world we live in. And I've had business partners that have said, "Well, actually you don't have to tell them that kind of stuff." And inside my heart, I think I do. So I bought the guy a new chiller and he heard about that and he picked up the phone and he called me directly.  A lot of times the buyers and the sellers don't always talk to each other because they have brokers that represent them and then they have attorneys that work stuff out. But he called me on the phone. He's like, "I just want to say, thank you."  And I said, "You're welcome."  And I said, "You know, it's a small world and I know how I would feel if the roles were reversed."  And I was buying an apartment complex and I got stuck with a pretty big bill and somebody had knowledge of it because that actually happened to me. I bought Oaks Creek up in Dallas, a 280 unit deal and after due diligence and even after you know, we should have caught it but we didn't, there was a couple of buildings that had questionable foundation issues and my Engineers didn't catch me with my contractors.  Later I found out that the owner knew about it, the seller and I said, "Why didn't you tell me I could have just budgeted for it and fix it? Now, I've got to figure out how to scramble to pay for it because it's not on my rehab budget." He said, "Gosh, I just didn't feel like it was you know, I didn't want to tell you because I don't want you to re-trade me."  I'm like, "Yeah, I wouldn't have re-traded you. I just wish you'd have told me because I could have raised a little extra money to fix it." Anyway, just what comes around goes around. Secret Sauce, do the right thing. You also have to analyze your numbers. With 30 years of experience, when I come across deals today, I will jump in and I will verify rents, I'll verify rehab, I'll look at how we're going to finance it and some sponsors like me or you, we don't do this but some people do and they just convince themselves that it's still a good deal even though the numbers don't say so or like, "Oh, my guts telling me that we're gonna make a ton of money." "Uuuh, I don't know, man. The comps suggest that you're not."  And like, "Well, the taxes aren't really going to go up that high." I'm like, "Yeah, it's going to go up pretty [49:54inaudible]  and so the insurance."  So people convince themselves that you know, not to listen to reality. Well, Secret Sauce, listen to reality, be honest with yourself. Listen, the numbers don't lie. You might lie to yourself but the numbers aren't gonna lie to you if you do your homework.  James: It's so hard nowadays, I think for newbies, especially, who want to get started. I mean, they've been looking for deals for many, many months, sometimes years and they feel so frustrated because the market is good and everybody's a champion. A bull market, everybody's making money. Like I need to get jumping in to buy something. And even though they find the numbers are not really strong, I mean, you have to make a lot of aggressive assumptions. And then, they just go ahead and do it. It's very hard for them. I can understand that but it is what it is. I mean, real estate is not forgiving in a downturn.  We have been in an upturn for the past nine years and a lot of mistakes has been [50:52inaudible] Glenn: Well, here's a little Golden Nugget for our current environment. So interest rates are down. I believe they were kind of reaching the top. Everybody talks about that. Well, one way to mitigate your risk is when you buy a deal in today's market and here's what I'm doing is I actually raise extra money for my investors for a rainy day fund. It's not applied to anything whatsoever. It's just going to sit in the checking account as an emergency. Well, you know, you kind of have to pay some preferred return sometimes or a return to investors for all that extra money, but I'm doing that in my own personal acquisitions just so that I don't ever have to go back into a cash call to an investor and I know things will come up that I can't foresee and the market is gonna take a couple bumps. Well, I'm preparing for that now so, FYI. James: Got it. Very good tips over there. What is the advice for newbies who want to be like you? Glenn: Yeah. Be better than me. I think it's important for people that want to get in the industry to actually latch on and become friends with and partner with somebody that's done it before. It doesn't mean you have to form a company together and you don't have to be long-term, but at least do one deal with somebody who's done it over and over again. You're going to learn so much just by having a mentor friend on one transaction. And once you've been through a full cycle or something with somebody holding your hand and don't be afraid about giving up some of your money to that person or the profits, you know, you will get much more out of the education and the experience and then you can go do it on your own without those people after you've done it once or twice.  Some people like to just jump in and say I can do this. That's my advice, I would do that. James: Got it. Got it. This is a very exciting and inspiring advice. Let me go to one last question before I let you go, Glen. Why do you do what you are doing on a daily basis?  Glenn: Oh, man. It doesn't feel like work James. I kind of work and I look the deals and I just love it. I mean, it doesn't feel like work and I could have been a hospital administrator that feel like work. I didn't want to do that for the rest of my life. For some reason, I'm just attracted to this and I get to pick and choose who I do business with. I get to can pick and choose which brokers I like to do business with. I get to put together a team of people that I like to do business with. Not just people in the office but partners that I do business with; investors, lenders, I get to pick all that and you can do business with whoever you want to do business with and you can be kind of in control of your own destiny and it's fun. That's why I do what I do, James.  James: Awesome. Awesome. Glenn:  My question is James, why do you do what you do?   James: I that a real question? Glenn: Yeah, It's a real question. James:  Actually, no one has ever asked me that question when I ask that question but that's a really good question. I do what I do because I'm trying to make a big impact in the world.  So real estate is just a tool for me. I mean, basically, my reason would be how I impact. I mean, I love impacting other people's life. I mean, you say it, you made an impact to those employees lives and we make, as real estate entrepreneurs, we make impacts into many people's lives, into the communities lives, into our employees' lives. We also give a lot of donations out. And how do I impact orphans, kids who are orphans in the third world country and we pay a lot of money for their education and all that. So impacting their lives and it gives you fulfillment. I mean that's why I do what I do.  Glenn: I love it. I love it. You ask me hard questions. I get asked you one at the very end. You want to make a difference in the world, I think it's awesome.  James: Yeah, yeah. As I said you can make money and you can forget about how much you made after a few years but impacting people's lives, when you really see that you've touched someone's life in a big way that comes with you until you die so that's important. Glenn: James, you're a good man.  James: Thank you. Glenn: You're putting together some cool deals, you're writing a book and you invite people like me to come on your show and share our story and I just think you're a pretty cool guy, man. Thank you. James: Thank you. Yeah, why not tell our audience and listeners, how to get hold of you, how to get in touch with you.  Glenn: Oh, yeah. Yeah. So my phone number... James: You're really gonna give your phone number? Glenn: Yeah. 5 1 2 9 3 7 5 9 6 4 and I have an email address glenn@obsidiancapitalco.com  And you can also go to the website, we're there too.  James: Thank you very much, Glenn, for being on the show and sharing all your awesome tips. We have so much value in terms of property management, in terms of your personal thought process and that's what I want to get out of the podcast because sometimes, as I said, it's not only making money it's also what's behind the person. That's why I do this podcast.  Glenn: To make a difference in the world. Thanks, James. James: Exactly. Thank you very much. Talk to you soon.  Glenn: Ok.  James: Bye.

James: Hey listeners, this is James Kandasamy from Achieve Wealth podcasts, a podcast where we focus on commercial real estate operators across all asset classes. And we like to talk a lot about value at real estate investing. Today, I have Will Crozier from Cap X Ventures who started in multifamily investing starting 2012 and went up to like 7,000 units, almost 350 million in assets under management. Right now, I think he has sold a lot of his assets and he has like a thousand units right now in the Dallas area. Hey Will, welcome to the show.  Will: Hey, James, awesome to be here. Thank you for inviting me.  James: Good. Is there anything that you want to elaborate on your past history and ventures in real estate? Will: I guess, I did about 10 years, single-family just grinding away and then moved from California out to Texas to the DFW area, wanting to do more of the same but quickly realized deal sizes were too small in DFW house. To flip a house out there was 60,000 and I was used to doing a $600,000 houses, so I was going the wrong way around. I looked around and said I need bigger deal sizes so I moved into apartments in a hurry, plugged in with some good people and started my multifamily career about seven years ago. We grew as quickly as we could, partnered up with people, raise capital to syndicate deals and just tried our best to do heavy value-add deals wherever possible. The uglier, the better, basically. James: I love that concept, right? That's where the deep value-add comes in. And I used to do a lot of deep value-adds even though now I'm doing a lot lighter value-add just because of the market cycle. And I know you do very, very heavy, deep value-add and you've started doing larger units. So talk about what are the deep value-add that you have done? One of the largest deep value-add that you have done. Will: I did a project, it was 656 units, just a single property alone, drove that one down into the 70% occupancy range. That was not an extremely heavy value add, it was mostly interior innovations but it was the largest one as far as heavy, heavy like, you know, a war zone type properties that a couple of 200 and 400 units that were just ugly. Even drop those down, purchased at 50% occupancy and pushed it down into the high twenties. I mean, just clean up. It was basically a brand new project when we were done with it but turn the neighborhood around in a major way too.  James: Yeah, I think that's where you make the most money, right? I mean, it's always a real estate. Any invest, at least we walked a game and you took a big risk in that kind of deal. I'm sure that reward also must have been tremendous because there's so much of equity built up, right? That's where the deep value-add or even the value add comes into play. That's where the wealth is created. So tell me about why do you like deep value adds versus the lighter call or yield place?  Will: Sure. Well, when I started in multifamily, I had a little money, a couple hundred thousand dollars but it was nothing to really, really brag about, I couldn't retire on it. I couldn't invest it at 10% interest and have it changed my life at all so I had no choice but to really do big game projects. I needed to really change my game. To change my outlook on life to set myself up and so I could go and invest and make 7% or 9% and I was just like, that's not the station I'm in life. I was raised poor, I didn't come in from a lot of money. I needed to just shift my whole reality. So I only focused on deals where I could make a 100% return or a 200% return. And yeah, there are lots of people's money together and just go, go, go. And so I did that serial 10 31, 10 31, 10 31, and then, other projects around it, I flipped them. I mean, I was in and out of some deals in 13 months, 17 months; just get in there and go hard. Usually, it was about a two-year thing where if you double your money and then double that money again and then double that money again, you start to see the multiplication effect, just go crazy. So I went from almost nothing to a good sum of cash through doing these heavy value add deals.   And you mentioned something that everyone looks at this differently, but risk-reward, I always looked at my deals as not risky because they were in terrible condition. They were rundown, there was no one living in them. So there was really nothing I could do to make the situation worse. Whereas the yield deals, you know, they're really skinny, they're really tight. You jump in there and you make a few missteps and you can drop from 93% to 83% in a hurry. And the way the debt set up, like to me that seemed risky, at least at the time. There are a million ways to look at it, but for me, it's like there's nothing I'm going to do to mess this deal up more. And there were 15 other people bidding on it so I can get out of it if I need to and it's a bridge loan. So to me, at the time it just seemed not risky. It's strange.  James: You are right actually. I mean sometimes people just look at cash flow. They don't really look at the debt service coverage, right? Because on a yield play or Copley, your debt service coverage is so thin, you've got no way to increase your NOI. So let's say you're buying at 1.25, if you're not doing anything, you're just going to service that debt at 1.25 maybe slightly more because the market appreciates to 1.3; whereas on a deep value-add play, you may be buying it less than one DSCR but you are pushing up the NOIs so much to 1.5, 2 X. So in case the market turns, you're not going to come back to one, you've got so much a buffer to play. Will: Right. We start cash flowing it 70% occupancy and it's going and going. And so everywhere you go from there, it's really, really nice. James: Yeah. I mean it's a bit hard for me to do yield place, just because I see it as a risk as well because there's just no buffer there. Question for you--so can you hear me?  Will: Yeah, I can. Will: Because you sound to be so quiet. So, I mean, you went up to like zero in 2012 in multifamily and went up to 7,000 units. You did so many 10 31 and you started selling a lot of it. Right? So when did you start selling a lot of your deals? Will: Well, it became a bit obvious to me writing on the wall, but the tide was no longer with us. You know, the winds weren't at the back anymore. There's still deals to be done. There's always deals to be done. But it wasn't this situation or set up where no matter what I do, I'm going to make lots of money. The heavy value- add deals started getting super rare, hard to get into them. The interest rates started ticking up and that's eroding the value of my property when I'm not doing anything wrong, but I'm watching millions of dollars just get wiped off of the table just because of interest rates, you know? And that goes up and down but that was another indicator. The county started playing ridiculously hard with the taxes and that was another thing. It was just like, I'm watching millions of dollars just disappear and I'm not doing anything wrong.  You know, I'm just this part of the business cycle and its part of the politics of the game. So when I saw some of those things, easing and changing and the rapid competition, especially in DFW, from not only coastal buyers but international buyers, we're selling to people in Dubai, UAE, et cetera. So it's just like this is a really different game than what I entered in '12. And so when I entered in '12, I was always all in, just anything I had pushed it in, tell everybody, put your money in this thing, it's going to go, go, go. When I couldn't be that aggressive anymore, it made me start to just to look around a little bit, what are my options in life? I had accumulated big pilot ships and I don't need to do this anymore. I can easily retire and not do anything for the rest of my life and my kids could share that as well.  So I have to really stop and look at my life; what is it that I want to do? What is my risk tolerance? Am I gonna bust my ass really competing for trying to get 7% return? Or maybe find a way to eke out a 10% return. Or for me, it's just hit pause or at least dial it way back, look at my life, what makes me happy? What do I want to do with myself? Let the market settle down a little bit, let it choose a new direction and then decide, do I want to jump back in with this, push everything back in again or figure out a different strategy? So right now, I'm just kind of observing, taking it all in. If a good deal comes my way, I jump on it. I closed the deal a month ago in Abilene, another 120 unit value-add deals. So I'll grab them, but I'm not gonna run around chasing my tail, trying and forcing to put it together when I don't need to.  James: Yeah. Yeah. It's crazy out there right now. Right? I mean, you can do deals in a good market, in a bad market. The acceleration of how much you want to buy on a market cycle like this, maybe slow down. I mean you have to just think about it, whether it's a real deal or not. I think there's just so many people jumping into the game as well, I guess. Prices are being bumped up so much and they are value-add deals, they are deep value-add deals, but a lot of sellers are asking for crazy prices, which means that deep value-add becomes like a yield play.  Will: Yeah, it really is. They're charging you the premium to do all the work.  James: A lot of people are jumping saying, hey, it's a deep value-add or deep value-add but it's actually not value-add.  Will: We were buying it at 13 a door, you know, going crazy and the same deals are trading for 80 and 90 and they're in worse condition than, I don't know, it's just nuts. They're still deals, but frankly, I don't want to dedicate the 80 hours a week that I used to when I don't need to in this market cycle. Like that doesn't make sense for me personally to pursue that right now at least. At least with full dedication.  James: Got it. So are you still positive on multifamily or any other asset classes?  Will: Well, as I said, I purchased last month in Abilene. I'm basically kind of a sponsor in the deal. I raised equity for the deal. I underwrote the deal, I connected it, but I'm more happy to be working with sort of the next generation of deal sponsors, syndicator. If they have holes like equity gaps, I can plug that. If they have some experience things or they're not sure of a specific market, like I was already operating 500 units in Abilene so it's like throw this on there, same management company, it's just stamp, stamp, stamp, repeat. So if there are new deal sponsors who want to want to partner up and follow a similar pattern to what I've already established, that's where I can really add value to another team. I don't want to be out there every day. I don't want to live on site like I used to live on site. I'm just past all that, but I can still work with other people and make win, win, wins across the board.  James: Got It, got it. Got It. Let's go into details of what are some of the deep value-adds that you have done. Not really a specific deal, but when you look at the deal, how do you identify this is the deal for me, I want to really do this deal. What do you look for in that? Will: Well, the dream is, of course, the neighborhood. I'm less interested in the specific property than I am, 'can I invest millions of dollars in this neighborhood and have it mean something?' Have it attract the kind of people that will pay their rent, that won't bring crime, that will be a nice safe, habitable place for people with jobs want to live. So I'd always look at the neighborhood and just blue collars, great. If there are work trucks out there in the parking lot, I'm super excited about that. Of course, then property specific things, love of course pitch roofs or individual HVAC. I'm one of the weird guys that love all bills paid. I made more money on those deals than others; it's a hassle but there's money to be made there for sure. What else? Price Point says a lot. The right price point, jump in there and sometimes that's a really, really high price point versus other neighborhoods, but it's still just comparatively low. I love rundown interior units. We got really, really good at renovating interiors and doing it on the cheap. I imported all my stuff from China. I built a company around that, sold that company last year. But we could do an interior better and cheaper than almost anyone could. And that's how you raise rents. And that's how you get the NOI bumps and that's how you make a mini fortune on every deal you do. So those were sort of the criteria I was looking for.  James: Okay. Okay. I want to go a bit more into the underwriting, but before I do that, why do you like all bills paid? Will: Well, I always feel weird, is the SCC watching me, like lying sometimes, but you kind of get to act like a utility broker in a way, a middleman, so to speak. Where I can buy energy for 6 cents a kilowatt hour and I ended up basically selling it for 12 or whatever and I don't remember the specifics on that. And then they love it because they're not having to put these big deposits and run credit checks and all this stuff. So I get a buffer that makes it really, really simple for them, giving them a cheaper rate than they would be able to get even on their own. So again, it's kind of paving a win, win, win and I'm pulling in more cash each month. I'm kind of controlling their major expenditures, which is going to be their rents, it's going to be their utilities. And so, I kind of get to babysit a little bit. I hesitate to use that word. But if you have the right management team working with them, it's just a bigger rent check coming into you each month so your income is greater and when you go to sell the thing, you realize those gains. James: Yeah. And I think you can use your skills to relate the real utility bills, right? I mean, you can do local pilots and all that, which the upside, you get it right.  Will: Yeah, absolutely.  James: Got It. Got It. So let's talk about underwriting. So when you underwrite a deep value-add deal, what do you really look for? Do you just look for really, really low rent, you know, expenses? Or what else do you look for? I mean, let's talk about that. Will: I've never been one to super focus on expenses. Yeah. Expenses matter but they're generally going to be in the right ballpark unless you spot the obvious, water conservation thing or whatever. I always like to focus on income. Income is a lot easier to control than expenses. So you know, look at the submarket, do your market survey, see are you low and why are you low? Are there other factors besides just you have a terrible interior and amenities package? Just chew that up, underwrite that, you know but otherwise, just to figure out why you're low, see if you can plug that gap in that. I was never shy about leading the market. I would like to be a hundred under and come out a hundred over, you know, and I wasn't shy about getting it because we had a nice product and we always had a great management team. So that was probably my number one criteria is just making sure I'm getting something that I can really push and accelerate rents on. That was a lot easier before. James: Okay. Okay. So definitely income is a lot easier to control, where you can just increase the rent compared to the expenses. I know you do a lot of major rehabs, which needs a lot of materials and all that. So what triggered you to go and start importing materials, to reduce your cost in terms of expenses? Will: I did the first deal without any imports. I learned quickly, that was just like 77 units. But even on something that small, I had a hard time controlling the logistics supply chain. I would deal with AZ Parts Master Nationwide MRO, Lowe's, Home Depot, whoever and they would start delivering me different products as like keep trying to order the same thing. They would change the light fixture or the fan. And then one week it's $45 and the next week it's $62 and this was very, very frustrating. And my projects, I want it to be very uniform, very beautiful, started looking like patchwork quilts. And this one looks like this and this one looks like this and this was on a small deal. So the next time around, I bought 244 units and it was half occupied and I was like, well, I'm going to need about 300,000 square feet of flooring on this deal.  I had one of my partners was a Chinese national and she'd done imports for her own business. She's like, let's get on a plane, let's go. So I was like, okay, let's give it a try. And so flew over there and got overwhelmed in a hurry and made a few bad missteps early on, but corrected and adjusted and moved from flooring into anything else we needed massive quantities of. I remember my 1st container, 40 foot high Q container of fans came in, I think it was like 1400 fans. I'm like, what am I gonna do with this? And then before long, they were coming in monthly. And it was a wild run there for a while, to go from one of my one-bedroom units, I had a down unit and I just shoved stuff from Home Depot and Lowe's into it, to having a warehouse and then buying and renting the warehouse next to that and then two more next to that and buying, you know, medium duty trucks and forklifts. I'm like, what am I doing? But it all just made sense for my own projects and therefore it made sense for other people's projects. And that's I think a good foundation for any business is to solve issues and then let other people take advantage of the job you've done there. James: Yeah. Yeah. I would like to make sure that the listeners know, I mean the amount of hard work that I'm sure really have put in to do all that largest things, is huge. Right? So, it's not simple, but the thing is if you do it, you will get the benefit out of it. And I think when you really want to make a lot of money in real estate, that's the extent that you have to go to because that's where you really make the money when you go to integrate your supply chain. And you hop on a plane and go and solve problems. Will: Your right, James, and thank you for clarifying that. Like it's easy to sit here in a podcast years after the fact and make it seem like it was somehow easy or it didn't take that much. It literally was 80 hours a week. Holidays, weekends. I moved into my projects to really watch them because every penny of my net worth was in these projects. I was controlling tens of millions of dollars of assets and yet I was living on like 2100 bucks a month. That's me, my wife, my kids, couldn't afford anything. I was a paper millionaire and then a paper multimillionaire and yet I couldn't pay for anything and I was deeply in credit card debt, just trying to keep everything afloat. It's humorous to me when people come in and say, I want to do what you do, but they're like a doctor and they're used to like pulling down 400 g's a year and there's like, you probably should just be a passive investor. Forget all about what I'm doing because it's not really going to mesh. You're going to be in poverty for the first four years you're doing this thing.  James: Yeah. I remember when I did my second deal, we did like almost one and a half a million dollars. We did it within one year. And I think that whole idea is you're trying to convert all that capital that you have in your cash for Rehab, you're trying to convert it to NOI. So once it becomes NOI, that's equity. Now the building is much more valuable. So you're basically adding all this sweat equity, your ideas, your business tactic, all this into a NOI. And how skillful you are converting this whole thing into the NOI is where the skill gaps. Will: Yeah. And then if you're really good, you're tempted into a 10 31 exchange so you don't realize any of the equity. And then you go ahead and do it again and you're like, I promise I have some money somewhere [21:37crosstalk]  James: Yeah. I like to refi and take out that money. I least I want to quickly do it, refi it, take out, okay, now I see some cash, cash flow, right? Will: And the taxes are a little nicer in that scenario.  James: Yeah. There's no tax on a refi, right. Even on 1031, yeah, you defer the taxes, but this all tax strategy and the amount of NOI that you created to take out your equity. So of all the deep value that you did, what do you think is the most valuable value-add? Will: What do you mean by that, James?  James: Like for example, let's say you have $1 million to do a project, right? But that million dollars become like 300,000. So what would you go in and focus first? Interior. Exterior. And if it's interior, what would you focus? If it's exterior, what would you focus? Because now you have a reduced budget, right? What do you think is the most important value add? Will: I hate exteriors, they have to be done, but you very, very rarely see any kind of rent increase on exteriors. It's more of a cohesive theme of the property that will give you a rent bump on the exterior, but you can throw millions and millions at roofs, parking lot, siding, like retaining, landscaping, that's going to give you tiny returns as far as NOI. So, of course, I loved the interiors. Flooring is like magic. You put in a new floor and people are immediately amazed by it. I love to put in hard surface flooring. I hate carpet. So I mean, just put in the hard surface flooring, it's easy to turn, it's easy to keep clean. It's a fantastic product. So floors are huge. Appliances, I always bet big on appliances. I almost always went to stainless steel, nice packages; once in a while, I would just make it all black or whatever. But appliances and flooring get you a long, long way on interior renovations. So that's the first thing on all of my budgets. James: Got It. So appliance and flooring. Okay. Interesting. So let's go to the personal side of it. Right? So you sold a lot of your assets and you said you don't think so, I mean the odds are on your side right now in terms of market and you want to take it slowly. If you find the right deal, you would go ahead and do it. But why did you move out of the country? I mean from Dallas to the Philippines.  Will: Could have come somewhere a little closer. Right. So just a little background on that. And when I was traveling to China a lot, I really fell in love with travel and I really also fell in love with Asia. My wife is from the Philippines, so I have a direct family connection here. Spending time over here, I enjoyed it. The speed of life is totally different than the US, it's just in slow Mo. That can be infuriating sometimes, you are like, what's wrong with this place? But it's all those things that are wrong that make it so great at the same time. So I try to just accept it, be patient with it, but also got plugged in with a couple of foundations. One that I'm starting, one that I am a currently a board member on and support in any way I can. It's children's surgical outreaches that for some reason is so rewarding to me. Like I'll just do it until I die. If no one else wants to participate, I don't care. But to see how far a US dollar can go and changing someone in the third world's entire life, entire future. Like what we'll spend on an average dinner out, we'll change the entire outlook of one child's life through one simple surgery that takes basically an afternoon. That blew my mind and it made me reevaluate my own expenses, my own material desires in life.  I just sold my house in Texas. A big stupid, huge, ugly, gorgeous house, and then my cars and all that stupid stuff that I love so much, but just change the focus, you know, and tried to move into something a bit more humble and easy, lower expense so I can divert funds to some of this other stuff that's just so much more rewarding at the end of the day.  James: Yeah. Yeah. I mean, I'm from Southeast Asia, I'm from Malaysia. Right. So I know a lot of these lifestyles there even though I don't think my lifestyle was slow. It was really fast as well, but it's just a different perspective in life. Did any of these travels and living in the Philippines or even traveling, do you think it changed any of your perspective towards money? Will: Oh, yes, absolutely. I noticed first, right away when I started traveling a lot internationally, besides just having a hotel to stay in or food to buy, I didn't really ever think about money. It was just weird. Like when I was bored in the US and I was kind of building my empire, If I got bored, bored maybe, if I had free moments ever, I would go on Zillow or I would go on cars.com and I would just browse for whatever the next kind of toy was, the next car. Like, look, what's that house in that neighborhood. There's a beautiful neighborhood, I would love to live there, someday. And it was all just sort of focus on the material, a focus on improving the lifestyle, basically. And when I was traveling, I just never really thought that way and when that started clicking in my head, I was like, I'm really happy when I'm traveling and I'm not focused on really the material at all. It's more learning, experiencing things. It all got cheaper. That was one of the weird things was this much happier, more fulfilling lifestyle was way, way, way, way cheaper than the less satisfying, less happy lifestyle. So that was a big Aha moment for me. James: Yeah, it's interesting. I mean, sometimes you look at people who are really poor or living in a very small house or hut, you know, in a poor country, they are very happy compared to some people who live in a very big house with a lot of money. I mean, there's so much commitment, so many issues. You have to make a lot of life choices or you may not be happy, but people who have fewer things, maybe they make fewer choices and they're much happier, right? I mean, end of the day, why do we make money? So to supposedly supposed to be happy, right. So it's just so much of a difference in perspective when you're traveling to that kind of places and you experience different lifestyles. Will: I've heard always that thing where it's just cliche almost in the US and I'm sure you've heard it, where people talk about the people that have nothing. And as an American, when someone says they have nothing, basically that means like they drive a 10-year-old car, either their house is less than 2000 square feet. That's what having nothing meant to m,e until I met people who literally don't have anything. They are living under a leaf house, built out of bamboo and you know, they find an old water bottle to go and haul water from the stream to where they're living that month. And it was okay. They actually have nothing and yet, as you said, at the time they're having the smile on their face and the relaxed nature of it all. And poverty is horrible, it's a terrible thing, especially for health. That's what you watch just get destroyed as people who are aging with diseases but outside of the health, everything else to me seems like they're having a better living existence than most anybody I know in the first world. James: Yeah. It's a completely different perspective when you start to travel, right? And I see people here, sometimes they complain the country is bad. Oh, this is bad. That is not right. This is not right. Well, you have never seen the other part of the world. So it's just surprising for me on when people just don't have that 360 perspectives of how the whole life is. I mean I'm not saying that I have when you have it, but you know when you travel and you go really live in another country, you can see a lot more things which you are not able to see when you are living here in the US. There are so many things that have been taken for granted here.  Will: The opportunities in the US are insane, the low cost. Americans think US is expensive. That is ridiculous. The price of cars and of electronics and of anything and the wide availability of anything you want, it's all cheap and it's quality and it's a variety. And you come in most countries and cars costs double like a BMW in the Philippines or in Thailand or anywhere over here, it costs double what it costs in the US. And it's like the cheaper model and it's pretty crazy. James: Yeah. When I was living overseas in Malaysia, I can never afford a luxury car, have to buy a local car. And even that was really good already. So because everything else was expensive just because the governments like to tax the in parts of the car. And also your pay scale really doesn't jive with the cost of living. Here, the pay scale does compensate for your cost of living. So things are much cheaper here in the US. Will: Yeah. In China, it blew my mind. You have maybe lower level management positions and hotels or restaurants or whatever and you find out that they're earning $400 a month and yet that's what rent costs. Rent is exactly what their income is. And you're like, how does this even work? Like, I don't understand the economics and you go visit one of these homes and you realize there are six people in a really, really tiny one bedroom, you know, 400, 500 square feet and it's not comfortable and it's not nice.  We're were very, very lucky as Americans. My wife just became a citizen last month and a smile on her face to have that blue passport. To enter another country with an American passport is a whole different experience than with our Philippine passport where anywhere you go you need a visa. And getting that visa is not like applying online. It's tax returns. It's like bank statements. It's like health records, shots of full travel itinerary of where you're going when you're going to be there. Like it was just a mess. We're spoiled as Americans. James:  Absolutely. Absolutely. So can you name a few things that you think is the secret success, any secret sauces that you think that you want to share with the listeners? Will: Yeah, I could share a few things that have hugely improved my performance as a businessman, as an entrepreneur, the short cuts per se. Partnering has been huge for me. It's not for everybody, but it's for most people, especially when you're dealing with something like multifamily. I'm by far not the smartest person around, I'm the kind of a simple-minded guy. I don't even have that many skills. I just have the determination to make sure I'm getting deals done to land the deals, to execute. I'm a doer, but I've had to really surround myself with phenomenal partners who understand accounting inside out, who understand books or taxation inside and out, people who are super duper organized. These are big failings that I have in my skillset, my personality. So I've had to bring these folks in and show them that I can do something to add value in their life. And then we partner up. And that's been huge for me.  Another thing that's been huge as I've raised so much capital, I mean my returns in all of this would have been tiny compared to what I was able to do because it was easy to go out after a while and some reputation to raise $10 million or $15 million to do a deal. Without that, my returns would have been a fraction of what they've been. But I built the trust, I built the relationships. I performed for my investors. I did everything I could to make them a lot of money and because of that, I made a lot of money, a portion of everything they made, I also made.  Another thing that I think has just been huge was starting this, I wanted to do it all alone. I was one of these guys that just wanted to read on like Bigger Pockets or like hang out online and just read and I could do it alone. I didn't need anyone's help. I wanted to own it. That would've been a huge mistake in multifamily investing. You can kind of wing it in single family, but multifamily, it's a team sport all day long. You need a hell of a team on your side, on your behalf. You trust each other, you lean on them, you rely upon them. And so team building, not only for my immediate advisors but also for raising the capital. It required me getting off my butt, get out from the computer, go awkwardly, shake hands, go and meet people and it was horrible for me. I hated doing that. I lacked self-confidence. I lacked the thought that anyone would be interested in even talking to me just I was, I was kind of low and slow. You had to just be like, I really need this. I need this to work, I need this to be successful. So I'm going to go and do the worst thing I could think of doing and plant myself at a networking event from 5:00 PM until 10:00 PM and not allow myself to leave. I'm just there, I'm trapped. But no matter what, I got to go talk to people and it was horrible, terrible. The dentist is better, tax is better, whatever. But eventually I started liking people at these things and they started knowing what I was up to and I bought that house or I bought that new apartment complex and how is that going? And loosen my tongue. I got my confidence up, my courage up and before long, I really love going to them because those were my pals, those were my buddies. Now, wherever I went to these different real estate meetups and without that, impossible to do the business, I don't have enough money to take down 10, 20, 30, $40 million deals Like how am I going to do that? I need guarantors, I need KPs who believe in me. How are they going to believe in me? Chatting for a while, talking about my business, bringing them out to my property, sharing a meal or a beer or whatever. And suddenly they're like, yeah, I'll sign on your note with you. Some of these were full recourse loans and they're pledging their stock portfolio on me. Blew my mind. But it was just through being sincere or not hiding stuff, just being a hundred percent transparent with them. And I had people who I never thought wanted to talk to me, betting on me with their signature and pledging their stock portfolio to make me get these full recourse bridge loans done on 50% occupied properties. So that was the long answer, but really, really, really network, partner up if you don't have what you need, raise capital, do bigger deals and go, go, go. James:  Yeah. Yeah. Awesome advice. I think so much of advising golden nuggets in what you mentioned just now. Is there any proud moments in your life that you think, you know, you're really proud of that and one day you're going to tell to your grandkids, you know, when you're really, really old, one proud moment that you think, oh, I'm so happy I did this. I'm very proud of that. Can you share that with us? Will: You know, it's, it's probably the moment, the sort of make or break moment. When I was in southern California and I had a good thing going, I understood how to flip houses. I was making some okay money at it, paying the bills, accumulating. I had more than anyone I knew, but it was 300 grand or something. It was nothing but it was more than anything I knew. So I had a comfortable life and I had a pattern and I had a sort of figured it out and it was really just stepping back and saying, I want more opportunity and I'm willing to do whatever it takes to get it.  So I didn't know anyone in Dallas, not a soul, zero people there. I looked around the whole country, looked at Florida, I looked at Arizona and Nevada like anywhere there was supposed to be opportunity and I really zeroed in on Texas as hey, strong economy, great wages, low cost of living, low taxation, they seem business friendly and I just pieced this together off of Internet research. I drove around the country and the old piece of crap, 91 Buick with 200,000 miles on it and I was like, where is it? And I picked Texas and it was really just a twin costs on Dallas. I think I visited there in April and it was pretty that day or something and I just moved there.  So I just loaded up my car with all my junk and then dropped it in a storage facility and lived in a motel six as I tried to figure out what's next, what's the next play. People looked at me like I was a bit crazy, but to me, that was the only move. Like how could I start a business in California? There wasn't friendly for businesses down there. Rent was absurdly high, not only to live but to rent anything for an office space or just to build anything. Costs were really high for real estate. So basically to answer your question, what am I really proud of? I took a leap, a calculated risk. I really calculated a lot. I really studied the thing, but then I made that leap. There was nothing comfortable about it. I didn't have any safety net. I had nothing. I had like six grand in the bank.  I lived, you know, expendable. I had my nugget but that was for business. It was forbidden to touch that. But I had six grand in the bank that I could actually do something with. And, you know, living in a motel six is humbling. Your friends by this point, they are 10 years into their career or five years into their career and they've got the three series beemer and the nice condos sort of by the beach kind of in California. And here's, Will, doing this weird stuff. But I just saw the future. I saw the writing on the wall and I took that gamble and I'm really, really glad I did it. It stacked the odds in my favor, it put odds behind me and I was able to set myself up to use those odds to roll the dice.  It didn't work immediately in Texas. It took several years to get going, but the odds were on my side. So then I just needed to play the game then. And I did and I played it as much as I could. And then it resulted in a fantastic past seven, eight years here.  James: It's a big leap of faith, right? And just so many people are scared to take the leap of fate or they just say, oh, I'm going to do it later. People give so many reasons to make that big jump and it's something that, you know, you have to do it if you have to do it, sometimes you have to make that choice. And is there like a daily habit that you have that you think has contributed a lot to your effectiveness in your success? Will: I guess this will sound a little controversial. I think there's maybe two things. One, I got good at that networking thing I talked about, and so probably more than a lot of people, you will find me out at five drinking a decaf coffee somewhere or grabbing a beer with people that I've never met before. I don't know who these people are, they just messaged me on Facebook. I'm like, okay, that what's happening here in Manila, people I've never met. They're like, you're in Manila. I'm going to be in Hong Kong, I'll meet you. But that's been huge to just keep doors open. Every time you meet a new person, you never know what door that's going to open up and even if they're humble and starting, they have ideas or a work ethic that you want to be part of or some new partnerships or new source of deals, some new source of equity, whatever.  So I do a lot of people are like, are you working? You know, sitting there just kind of talking at a bar or whatever. Yeah, that's been huge to keep some momentum going for me, a little controversial maybe. And then on the flip side of that, I try to stay sharp by every morning waking up and going for a jog and without fail, I've got my earbuds in and I'm listening to some podcasts. I'm listening to some audio book. I'm listening to something that's just drilling further understanding, intelligence into my mind, shifting my perspective. That's been huge for me to not maintain, but to continue to grow and expand my mind and where I'm going to go in the future. That's been huge for me. And the exercise combined with the knowledge is amazing.  James: Awesome. Is there anything else that you want to share with the audience, the listeners that you have not shared in any of the podcasts that you think, hey, I should mention this in some podcasts? Will: Interesting question. I think I haven't mentioned this just because it's pretty new in my mind, but it's really easy to get locked into the idea that going from having $2 million to $4 million is going to do something for you. It won't do anything for you. Like you won't even notice. It's so obnoxious that adding $1 million to your balance sheet will go unnoticed, but it gets to that point in a hurry to where you really have to shift and I was lazy about it. It's like, oh, there's another deal. I'll grab this. I'll do this one, do this one. What's really changed my life for the better has been reevaluating, stepping back and saying, okay, literally adding a few more million will go unnoticed to me but what will be noticed for me is I dramatically shift my schedule, how I'm living my life, who I'm interacting with, and that's kept me out of the daily grind of business a lot.  I'm still doing it. I still check in, I still email, I still call, but it's become a third of my day instead of 133% of my day. I do a lot more reading. I'll do more traveling, I'll focus more on cooking or I'm a musician, then I focus on that and this is maybe the wrong topic for a real estate show or whatever. Maybe you frame it how you want, but it's been hugely rewarding for me to make that transition to enjoy life daily. Don't procrastinate life till later. I'm 39 and I feel very, very fortunate to be in this spot now to where I'm expanding and I'm learning and I'm studying language and philosophy and it's making me so much better person than throwing another several million dollars on the balance sheet. So that's a new thought for me. I haven't said it on any podcast but that's really what I'm thinking about right now, a lot. James: Awesome. Awesome. And I have to say thank you to you, Will, because when I started in real estate, when I started doing multifamily, I have a lot of ideas and thoughts and I started writing my own blogs and I think you are one of the one who read one of my blog and you say good things about my blog and I was thinking, huh? Not bad. Will:  I remember that well. I'm like, who's this guy? This is really great.  James: I was like, Huh? Somebody like real, I mean, I think, at that time you were well known in the multifamily space and I was thinking, oh, not bad by somebody commented me. So that's why I started writing more blogs and I say, I need to write a book. English is not my first language but I mean, putting everything that I have in my mind into a book or on my blog helps me a lot because I don't know, for some reason I have to write it down and share it with others.  And especially when you have the knowledge, you know, what's the point of keeping it to yourself. Right? So you have to share it and I'm proud of all your work that you've been doing in with the children's treatment in the Philippines, which is, I think it's very, very fulfilling. I think that's something that nobody can take away from you. I mean, you can lose the money, you can lose the real estate, you can lose your entire life but that's something that, I don't know whether I'm talking for you or not, but for me, it feel like it follows you because that's Karma, right? You do good, things are going to go your way. Do you want to tell the listeners how to get hold of you? Will: Sure. I'm a big Facebook guy, so my id is  Will Crozier. I'm friends with James, but just hook up with me there. Two websites that are relevant for me is capxventures.com. That's kind of my multifamily arm. I am also hanging out @angelcapitalist.com. That's where I put some of my boring, boring blog posts; things that I cook up once in a while when I'm really bored. There's some of that there. How to connect with me is there. Some of the humanitarian projects. I'm also doing some angel investing in businesses that I really believe in. I loved not only real estate but any business, small business or larger so I've been investing in small businesses lately. There's one's called Propelio, maybe some people have heard about it so subscribe to that. Make me some more money, please. It's a great group of free real estate, especially single family educational content. Totally free. They're not selling you anything regarding that. So check it out. They're having a great academy there. I think those are the best ways to connect with me and kind of keep tabs on what I'm up to. And I love people to pitch. So if you have deals that you want to partner up with me on or a business that you need equity sometimes that, usually I like equity, but, yeah, reach out. James: Yeah. Yeah. I mean that's a clue, guys. I mean, if you want to pitch your business to Will, I mean, I can bet you he can look at financials and quickly tell you whether the deal works or not because it takes a lot of skill to really do deep value -add, and, you know, not many people can do it as well, but I think Will is a really good resource for that. So. All right. Thank you very much for coming on the show and happy to have you here. Thank you. Will: A lot of fun, James. Thanks.

James: Hey listeners, this is James Kandasamy. Welcome to Achieve Wealth Podcast. Achieve Wealth Podcast focuses on value at real estate investing across different commercial asset class and we focus on interviewing a lot of operators so that you know, I can learn and you can learn as well. So today I have Omar Khan who has been on many podcasts but I would like to go into a lot more details into is underwriting and market analysis that he has. So Omar is a CFA, has more than 10 years investing across real estate and commodities. He has experience in the MNA transaction worth 3.7 billion, Syndicated Lodge a multi-million deal across the U.S. and he recently closed a hundred thirty plus something units in Jacksonville, Florida. Hey Omar, welcome to the show.  Omar: Hey, thank you James. I'm just trying to work hard to get to your level man. One of these days.  James: That's good. That's a compliment. Thank you Omar. So why not you tell our audience anything that I would have missed out about you and your credibility. Omar: I think you did a good job. If I open my mouth my credibility might go down.  James: Yes, that's good. That's good. So let's go a bit more details. So you live in Dallas, right? I think you're, I mean if I've listened to you on other podcasts and we have talked before the show you came from Canada to Dallas and you bought I think you have been looking for deals for some time right now. And you recently bought in Jacksonville. Can you tell about the whole flow in a quick summary?  Omar: Oh, yes. Well the quick summary is man that you know, when you're competing against people who's operating strategy is a hope and a prayer, you have to look [inaudible01:54] Right?  James: Absolutely.  Omar: I mean, and hey just to give you a full disclosure yesterday there was actually a smaller deal in Dallas. It's about a hundred and twenty something units. And I mean we were coming in at 10-point some million dollars. And just to get into best and final people were paying a million dollars more than that, and I'm not talking just a million dollars more than I was trying to be cheap. The point was, at a million dollar more than that there is freaking no way you could hit your numbers, like mid teens that are already 10% cash-on-cash. Like literally, they would have to find a gold mine right underneath their apartment. So my point is it's kind of hard man. But what are you going to do about it? Right?  James: Yes. Yes. Omar: Just have to keep looking. You have to keep finding. You have to keep being respectful of Brokers' times. Get back to them. You just keep doing the stuff. I mean you would do it every day pretty much.  James: Yes. Yes. I just think that there's so much capital flow out there. They are a lot of people who expect less, lower less return. Like you say you are expecting mid teen IRR, there could be someone there out there expecting 10 percent IRR and they could be the one who's paying that $1,000,000. Right? And maybe the underwriting is completely wrong, right? Compared to-- I wouldn't say underwriting is wrong. I mean, I think a lot of people-- Omar: Well you can say that James you don't have to be a nice person. You can say it.  James: I'm just saying that everybody thinks, I mean they absolutely they could be underwriting wrong, too or they may be going over aggressively on the rent growth assumption or property tax growth assumption compared to what you have. At the same time they could have a much lower expectation on-- Omar: Yes. I mean let's hope that's the case because if they have a higher expectation man, they're going to crash and burn. James: Absolutely. Omar: I hope, I really hope they have a low expectation.  James: Yes. Yes. I did look at a chart recently from Marcus and Millichap the for Texas City where they show us how that's like a San Antonio, Austin, Dallas and Houston and if you look at Dallas, you know, the amount of acceleration in terms of growth is huge, right? And then suddenly it's coming down. I mean all markets are coming down slightly right now, but I'm just hopefully, you know, you can see that growth to continue in all this strong market. Omar: No, no, don't get me wrong, when I said somebody paid more than 1 million just to get into best and final, that has no merits on, that is not a comment on the state of the Dallas Market. I personally feel Dallas is a fantastic Market. Texas overall, all the big four cities that you mentioned are fantastic but my point is there is nothing, no asset in the world that is so great that you can pay an infinite price for it. And there's nothing so bad in the world that if it wasn't for a cheap enough price, you wouldn't want to buy it. James: Correct, correct.  Omar: I mean that that's what I meant. I didn't mean it was a comment on the state of the market.  James: Got it. Got it. So let's come to your search outside of the Texas market, right? So how did you choose, how did you go to Jacksonville?  Omar: Well, number one the deal is I didn't want to go to a smaller city. I'm not one of those guys, you know in search of [inaudible05:11] I find everybody every time somebody tells me I'm looking for a higher cap rate, I was like, why do you like to get shot every time you go to the apartment building? You want to go to the ghetto? Do you want somebody to stab you in the stomach? Is that because that's-- James: That's a lot of deals with a higher cap rate. Omar: Yes. There's a lot because I was like man, I can find you a lot of deals with really high cap rates.  James: Yes. Omar: But you might get stabbed. Right?  James: And they are set class 2 which has higher cap rate.  Omar: Oh, yes, yes, yes.  James: So I think people just do not know what a cap rate means or how-- Omar: Yes and people you know, all these gurus tell you today, I mean let's not even get into that right. So specifically for us like I wanted to stand at least a secondary, tertiary market [inaudible 05:48] I mean like, any City over at least eight, nine hundred thousand at least a million, somewhere in that range, right?  James: Okay. Omar: And specifically look, after Texas it was really Florida. Because look, you could do the whole Atlanta thing. I personally, I love Atlanta but it's a toss-up between Atlanta and say either of the three metros in Florida or Jackson. Lords in Central Florida, Jacksonville, Tampa, Orlando. You know based on my [inaudible06:11] experience I was doing this stuff portfolio management anyways, I kind of ran smaller factor model for all the cities where I took in different sort of factors about 30 different factors. And then you know, you kind of just have to do all the site tours and property visits to make all those relationships. And what I see across the board was, I mean Tampa has a great Market, but for the same quality product for the same demographic of tenant, for the same say rent level, Tampa was 20 to 25% more expensive on a per pound basis.  James: Okay. Omar: Let's say a Jacksonville, right? Orlando is kind of in the middle where the good deals were really expensive or rather the good areas were a bit too dear for us and the bad areas were nicely priced and everybody then tells you, "Oh it's Florida." right? James: No, no. Omar: But what they don't tell you is there's good and bad parts of Florida-- James: There's submarket. Yes Yes. Omar: Right? So you got to go submarket by submarket. And then lastly what we were basically seeing in Jacksonville was, it was very much a market which like for instance in Atlanta and seeing parts of say Orlando and Tampa, you can have to go block by block street by street. But if you're on the wrong side of the street, man you are screwed, pretty much. James: Absolutely. Omar: But Jacksonville to a certain degree, obviously not always, was very similar to Dallas in the sense that there is good areas and then there's a gradual shift into a not as a [inaudible07:29] Right? So basically what you kind of had to do was name the submarket properly and if you had a higher chance of success than for instance [inaudible07:38] right down to the street corner, right? And then like I said the deals we were seeing, the numbers just made more sense in Jacksonville for the same level of demographic, for the same type of tenant, for the same income level, for the same vintage, for the same type of construction. So Jacksonville, you know, we started making relationships in all the markets but Jacksonville is where we got the best bang for our buck and that's how we moved in.  James: Okay. So I just want to give some education to the listener. So as what Omar and I were talking about, not the whole city that you are listening to is hot, right. So, for example, you have to really look at the human capital growth in certain parts of the city, right? So for example in Dallas, not everywhere Dallas is the best area to invest. You may have got a deal in Dallas but are you buying in it in a place where there's a lot of growth happening? Right? Like for example, North Dallas is a lot of growth, right? Compared to South Dallas, right? In Atlanta that's I-20 that runs in between Atlanta and there's a difference between, you cross the I-20 is much, you know a lot of price per pound or price per door. It's like a hundred over door and below Atlanta is slightly lower, right? So it's growing, but it may grow it may not grow. I mean right now the market is hot, everything grows. So you can buy anywhere and make money and you can claim that, hey I'm making money, but as I say market is-- Omar: [inaudible09:03] repeatable [inaudible09:04] By the way I look at it, is hey is this strategy repeatable? Can I just rinse and repeat this over and over and over? James: Correct. Correct. I mean it depends on sponsor's cases. While some sponsors will buy because price per dollar is cheap, right? But do they look at the back end of it when the market turns, right? Some sponsors will be very very scared to buy that kind of deal because we always think about, what happens when the market turns, right? So. Omar: Yes, James and the other thing that I've seen is that, look, obviously, we're not buying the most highest quality product. James: Correct. Omar: But what I've seen is a lot of times when people focus on price per unit, say I will go for the cheapest price per unit. Well, there's a reason why it's cheap because you know, there's a reason why Suzuki is cheaper than a Mercedes. Now, I'm not saying you have to go buy a Mercedes because sometimes you only need to buy a Suzuki. Right? I mean that's the way it is, but you got to have to be cognizant that just because something is cheap doesn't mean it's more valuable and just because something is more expensive doesn't mean it's less than.  James: Correct. Correct. Correct. And price per door is one I think one of the most flawed metrics that people are talking about. Price per door and also how many doors do people own? Omar: And also cap rate, man. [inaudible 10:09]  James: Cap rate, price per door and-- Omar: How many doors have you got? James: How many doors do you have? Three metrics is so popular, there is so much marketing happening based on these three metrics. I mean for me you can take it and throw it into the trash paper, right? Omar: The way I look at it is I would much rather have one or two really nice things, as opposed to 10 really crappy things.  James: Correct. Correct. Correct. Like I don't mind buying a deal in Austin for a hundred a door compared to buying a same deal in a strong Market in another-- like for example, North Atlanta, right? I would rather buy it in Austin. It's just different market, right? So. Absolutely different. So price per door, number of doors and cap rate, especially entry cap rate, right? I went back and cap rate you can't really predict, right? So it's a bit hard to really predict all that. But that's-- Omar: Yes but my point is with all of these things you have, and when people tell me cap rate I'm like, look, are you buying stabilized properties? Because that's the only time you can apply this. James: Correct. Correct. Omar: Otherwise, what you really going to have to look at is how much upside do I have because at the end of the day, you know this better than I do. Regardless of what somebody says, what somebody does, everything is valued on [inaudible11:15] James: Correct. Omar: Pretty much. You can say it's a low cap rate and the broker will tell you, well yes the guy down the street bought it for a hundred and fifty thousand a unit so you got to pay me a hundred fifty, right? And then that's the end of the conversation.  James: Yes. Omar: Literally, I mean that is the end of the conversation, right? What are you going to do about it?  James: Yes. Correct. I mean the Brokers they have a fiduciary responsibility to market their product as much as possible, but I think it's our responsibility as Sponsor to really underwrite that deal to make sure that-- Omar: Oh yes. James: --what is the true potential. Omar: And look, to be honest with you sometimes the deal, that is say a hundred and fifty thousand dollars a unit might actually be a better deal-- James: Oh absolutely. Omar: [inaudible 11:51] fifty thousand dollars a unit. I mean, you don't know till you run the numbers. James: Correct. Absolutely. Absolutely. I've seen deals which I know a hundred sixty a door and still have much better deal than something that you know, I can buy for 50 a door, right? So. You have to underwrite all deals. There's no such thing as cap rate or no, such thing as price per door. I mean you can use price per door to a certain level.  Omar: [inaudible 12:15] in this market what is the price per door? That's the extent of what you might potentially say, in the submarket.  James: Correct. Omar: All the comps are trading at 75,000 a door. Why is this at 95 a door?  James: Yes. Omar: That's it.  James: I like to look at price per door divided by net square, rentable square footage because that would neutralize all measurements. Omar: Yes, see, you know we had a little back and forth on this, I was talking to my Analyst on this but my point is that I would understand [inaudible 12:46] at least to my mind. Okay. I'm not, because I know a lot of Brokers use it.  James: Sure. Omar: In my mind that would apply to say, Commercial and Industrial properties more. But any time I've gone to buy or say rent an apartment complex, I never really go and say like, hmm the rent is $800. It's 800 square feet. Hmm on a per square foot basis. I'm getting one dollar and then I go-- James: No, no, no, I'm not talking about that measurement. I'm talking about price per door divided by square footage rentable because that would neutralize between you have like whether you have a lot of smaller units, or whether you have a larger unit and you have to look-- but you have to plot it based on location. Right? So. Omar: Yes, so you know as you get into those sort of issues right? Well, is it worth more than that corner?  James: Yes. Yes. You're right. Yes. You have to still do rent comes and analyze it.  Omar: Yes. James: So let's all-- Omar: I mean look, I get it, especially I think it works if you know one or two submarkets really well. Then you can really-- James: Correct. Correct. That's like my market I know price because I know the market pretty well. I just ask you this information, just tell me price per door. How much average square feet on the units and then I can tell you very quickly because I know the market pretty well. Omar: Because you know your Market, because you already know all the rents. You already know [crosstalk13:57] James: [crosstalk13:57] You have to know the rent. I said you have to build that database in your mind, on your spreadsheet to really underwrite things very quickly. So that's good. So let's go back to Jacksonville, right? So you looked-- what are the top three things that you look at when you chose Jacksonville at a high level in terms of like the macroeconomic indicators? Omar: Oh see, I wasn't necessarily just looking at Jackson. What I did is I did a relative value comparison saying what is the relative value I get in Jacksonville versus a value say I get in a Tampa, Atlanta or in Orlando and how does that relatively compare to each other?  James: So, how do you measure relative-- Omar: What I did is for instance for a similar type of say vintage, right? Say a mid 80s, mid 70s vintage, and for a similar type of median income which was giving me a similar type of rent. Say a median income say 40 Grand a year or 38 to 40 Grand a year resulting in an average rate of about $800. Right? And a vintage say mid 70s, right? Board construction. Now what am I getting, again this is very basic maths, right? This is not I'm not trying to like make up.  James: Yes. Absolutely. Omar: A model out of this, right? So the basic math is, okay what is the price per unit I'm getting in say, what I have a certain crime rating, I have a certain median income rating and I have a certain amount of growth rating. And by growth I mean not just some market growth, [inaudible 15:21] are Elementary Schools nearby? Are there shopping and amenities nearby? Is Transportation accessible, you know, one or two highways that sort of stuff. Right? So for those types of similar things in specific submarkets, [inaudible 15:33] Jacksonville had three, Tampa had two and Orlando had three and Atlanta had four, right? What is the average price per unit I'm facing for similar type of demographics with a similar type of rent profile? With similar type of growth profile I mean you just plot them on a spreadsheet, right? And with the similar type of basically, you know how they performed after 2008 and when I was looking at that, what I was looking at again, is this precise? No, it's not a crystal ball. But these are just to wrap your head around a certain problem. Right? You have to frame it a certain way.  James: Okay. Omar: And what I was seeing across the board was that it all boils down to when you take these things because at the end of the day, all you're really concerned is what price am I getting this at, right? Once you normalize for all the other things, right? James: Correct. Correct. Omar: Right? And what I was seeing was just generally Jacksonville, the pricing was just like I said compared to Tampa which by the way is a fantastic market, right? But pricing was just 15 to 20% below Tampa. I mean Tampa pricing is just crazy. I mean right now I can look at the flyer and tell you their 60s and mid 70s vintage is going for $130,000 $120,000 a unit in an area where the median income is 38 to 40 Grand. James: Why is that? Omar: I don't know. It's not one of this is that the state Tampa is actually a very good market, okay. Let's be [inaudible 16:47] it's very good market. It's a very hot market now. People are willing to pay money for that. Right? So now maybe I'm not the one paying money for it, but there's obviously enough people out there that are taking that back. So. James: But why is that? Is it because they hope that Tampa is going to grow because-- Omar: Well, yes. Well if Tampa doesn't grow they're all screwed James. James: No, but are they assuming that growth or are they seeing something that we are not seeing? Because, if people are earning 30, 40 thousand median household income and the amount of apartment prices that much, they could be some of the metrics that they are seeing that they think-- Omar: Well, yes. Tampa's growth has been off the charts in the past few years, right? James: Okay. Okay. Omar: So what look-- first of all this is the obvious disclaimer is I don't know what I don't know. Right? So I don't know what everybody else is looking at. Our Tampa's growth has been off the charts, there is a lot of development and redevelopment and all that stuff happening in the wider metro area. So people are underwriting five, six, seven, eight percent growth.  James: Okay. So the growth is being-- Omar: No, the growth is very-- look the growth has been very high so far. James: Okay. Got it. Omar: My underlying assumption is, as I go in with the assumption that the growth must be high but as soon as I get in the growth will go down.  James: But why is that growth? I mean that is specific macroeconomic.  Omar: Oh yes, yes. There's first of all, there's a port there, number one. The port -- James: In Tampa. Okay. You're talking about Jacksonville or Tampa right now? Omar: No, I'm talking Tampa. James: Okay. Omar: Jacksonville also has it, but Tampa also has it, okay. James: Okay. Got it. Got it. Omar: Tampa is also fast becoming, Tampa and Orlando by the way are connected with this, what is it? I to or I for whatever, it's connected by. So they're faster like, you know San Antonio and Austin how their kind of converging like this? James: Correct. Correct. Omar: Tampa and Orlando are sort of converging like this. James: Got it. Got it. Omar: Number one. Number two, they're very diversified employment base, you know all the typical Medical, Government, Finance, Healthcare all of that sort of stuff, right? Logistics this and that. And plus the deal is man, they're also repositioning themselves as a tourist destination and they've been very successful at it. James: Okay.  Omar: Because there's lots to do you know you have a nice beach. So, you know that kind of helps all this, right? Have a nice beach. James: Correct. Correct. Omar: Really nice weather, you know. So they're really positioning it that way and it also helps that you've got Disneyland which is about 90 minutes away from you in Orlando. So you can kind of get some of the acts things while you come to Tampa you enjoy all the stuff here. Because Orlando relative to Tampa is not, I mean outside of Disneyland there's not a lot to do though. But a lot of like nightlife and entertainment and all that.  James: But I also heard from someone saying that like Orlando because it is more of a central location of Florida and because of all the hurricane and people are less worried about hurricane in the central because it you know, it has less impact. Omar: James. James. James: Can you hear me? Omar: When people don't get a hurricane, they are not going to be the people who get the hurricane. Other people get hurricanes. Not us. James: Correct, correct. Omar: But that's not always the case but that's the assumption.  James: Okay. By Tampa is the same case as well? Like, you know because of-- Omar: I don't know exactly how many hurricanes they've got but look man, they seem to be doing fine. I mean if they receive the hurricane they seem to be doing very fine after a hurricane.  James: Okay. Okay. So let's go to Jacksonville, that's a market that did not exist in the map of hotness, of apartment and recently in the past three, four years or maybe more than that. Maybe you can tell me a lot more history than that. Why did it pop out as a good market to invest as an apartment? Omar: Well, because Jackson actually, we talk to the Chamber of Commerce actually about this. And the Chamber of Commerce has done a fantastic job in attracting people, number one. Because first of all Florida has no state income tax. What they've also done is a very low otherwise state a low or minimum tax environment [inaudible20:29] What they've also done is, they reconfigured their whole thing as a logistical Center as well. So they already had the military and people always used to say, oh Tampa, Jacksonville's got a lot of military, but it turns out military's only 11% of the economy now. James: Okay. Okay. Omar: So they've reposition themselves as a leading Health Care Center provider, all that sort of, Mayo Clinic has an offshoot there by the way, just to let you know. It's a number one ranked Hospital.  James: Oh Mayo Clinic. Okay. Okay. We always wonder what is Mayo Clinic, but now you clarified that. Omar: Right? So Mayo Clinic is in Rochester I think. One of my wise colleagues is there actually. Think it's in Rochester Minnesota. It's one of the leading hospitals in the world. James: Okay. Got it. Omar: And now they've actually had an offshoot in basically Jacksonville, which is the number one ranked Hospital in Florida. Plus they've got a lot of good healthcare jobs. They've really repositioned themselves not only as a great Port because the port of Jacksonville is really good and they're really expanding their ports. You know Chicon, the owner of Jacksonville Jaguars, man he's going crazy. He is spending like two or three or four billion dollars redeveloping everything.  James: Got it. Got it. Omar: [inaudible 21:32] what they've done is because of their location, because they're right, I mean Georgia is about 90 minutes away, Southern Georgia, right? And now you have to go into basically, Florida and basically go to the Panhandle. What they've also done is because of their poor, because of their transportation Network and then proximity to the East Coast they repositioned themselves as a Logistical Center as well.  James: Got it. That's what I heard is one of the big drivers for Jacksonville. And I also heard about the opening of Panama Canal has given that option from like importing things from China. It's much, much faster to go through Panama Canal and go through Jacksonville. Omar: Oh, yes. James: Makes it a very good distribution centre. Omar: Because the other board right after Jacksonville in which by the way is also going through a big redevelopment and vitalization is Savannah, Georgia.  James: Okay. Yes. Omar: [inaudible 22:17] big enough and I think Jacksonville does something like, I mean don't quote me on this but like 31% of all the cars that are imported into the U.S. come through the Jacksonville Port. So there's a lot of activity there, right? But they've really done a good job. The Government there has done a fantastic job in attracting all this talent and all these businesses.  James: Okay. Okay. Got it. So let me recap on the process that you came to Jacksonville and going to the submarket. So you looked at a few big hot markets for apartments and looked at similar characteristics for that submarket that you want like for closer to school, in a good location and you look at the deal flow that you are getting from each of these markets. And then you, I mean from your assessment Jacksonville has a good value that you can go and buy right now for that specific demographic of location I guess, right? Omar: Look I love Atlanta as well. I was actually in Atlanta a few weeks ago looking at some, touring some properties. So that doesn't mean Atlanta isn't good or say Tampa or Orlando is good. We were just finding the best deals in Jacksonville.  James: Okay. Okay. So the approach you're taking is like basically looking at the market and shifting it to look for deals in specific locations of submarket where you think there is a good value to be created rather than just randomly looking at deals, right? Because-- Omar: Because man it doesn't really help you, right? If you really go crazy if you try to randomly look at deals.  James: Yes. Yes. I think a lot of people just look at deals. What, where is the deal? What's the deal that exist? Start underwriting the deals right? So-- Omar: Oh I don't have that much free time and I have a son who's like 18 months old man My wife is going to leave me if I start underwriting every deal that comes across my desk.  James: Yes, I don't do all the deals that comes across. Omar: I'm going to kill myself trying to do all that. Yes man it's very surprising I see a lot of people especially on Facebook posting. I mean I get up in the morning and I see this, [inaudible 24:05] who loves to underwrite deals? And I'm like, dude it's 1 a.m. Go get a beer. Why are you underwriting a deal at 1 a.m., man?  James: Yes. Yes. Yes I think some people think that you can open up a big funnel and make sure you know out of that funnel you get one or two good deals, right? But also if you have experience enough you can get the right funnel to make sure you only get quality data in, so that whatever comes in is more quality. Omar: My point is man, why do you want to underwrite more deals? Why don't you underwrite the right deal and spend more time on that deal or that set of deals. James: Correct. Omar: Because there's just so many transactions in the U.S. man. There's no way I can keep up man. James: Correct. Correct. Correct. So let's go to your underwriting Jacksonville because I think that's important, right? So now you already select a few submarkets in Jacksonville, right and then you start networking with Brokers, is that what you did?  Omar: Yes. Yes but you know with Brokers also, you kind of have to train them, right? Because what happened is every time what are you looking at? All that after all that jazz, wine and dining and all that stuff. We had to train Brokers [inaudible25:08] here are only specific submarkets we're looking at. So for instance Jacksonville, it was San Jose, San Marcos, it's the beaches, it was Mandarin and orange [inaudible25:16]  James: Okay. Omar: And Argyle Forest was certainly, right? If it's anything outside of that, unless I don't know it's like the deal of the century, right? Literally, somebody is just handing it away. We don't want to look at it. Don't waste my time. And invariably what the Brokers will do, because it's their job they have to do it. They'll send you deals from other submarkets because they want to sell. Hey, I think this is great. You will love this. James: Yes. Omar: And you have to keep telling them, hey man I really appreciative that you send me this stuff, not interested. Not interested. So, but what that does is you do this a few times and then the Broker really remembers your name when a deal in your particular submarket does show up. Because then you go to the top of the pile. James: Correct. Because they know that you asked specifically for these right now.  Omar: Yes. [inaudible25:58] You know the deal. Right? So that's kind of what we get, right? James: So let's say they send a deal that matches your location. So what is the next thing we look at? Omar: So what I basically look at is what are the demographics. Median income has got to be at the minimum 38 to 40 thousand dollars minimum. James: What, at median household income? Omar: Median household income. Right? James: Got it. Got it. Why do you think median household income is important? Omar: Because look, again this is rough math I didn't do a PhD in [inaudible 26:27]  James: Sure, sure, sure. Go ahead. Omar: Typically, you know, where [inaudible 26:30] everybody says BC but really everybody is doing C. Okay, you can just-- I think people just say B to sound nice. Right? It's really C. Okay, let's be honest. Right? Typically with a C if you're going to push [inaudible 26:41] within one or two years, in these submarkets at least, I don't know about other areas. Typically you want to push the rents to around a thousand dollars a month, give or take. Average rate. I'm just talking very cool terms, right? Which basically means that if you're pushing it to a thousand dollars a month and the affordability index is it should be 33%, 1000 times 12 is 12, 12 times 3 is 36. So I just added an extra 2,000 on top or 4000 on top just to give a margin of safety.  James: Okay. Omar: Right? It's very simple math, right? There's nothing complex in it. Right?  James: Correct. Omar: Because my point is if you're in an area where the average income is 30,000, man you can raise your rent all you like. Nobody's going to pay you. James: Yes. Yes, correct. So I think we can let me clarify to the listeners, right? So basically when you rent to an apartment, we basically look for 3x income, right? So that's how it translates to the household income, average household income and if you want to do a value-add or where deals, you have a margin of buffer in our site and you're buying it lower than what the median household income, that's basically upside. That means you can find enough renters to fill up that upside, right?  Omar: Yes. James: Just to clarify to the listeners. So go ahead. So you basically look up median household income. What is the next step do you look for? Omar: Then I basically look at crime. Basically, I just-- I mean look, there's going to be a level of crime, what I'm really looking at is violent crime. Right? James: Violent crime. Okay. How do you look for which tools to use?  Omar: Well, you can go to crime map, crime ratings, you can subscribe to certain databases and they can give you neighborhood Scout is one by the way.  James: Okay. Okay. Omar: You can use that. And then on top of that because it's harder to do this for Texas, but you can do this in other states like Florida, Georgia and all of that. But for instance, what you can do is see what the comps in the submarket are. Right? And that kind of helps you in determining basically, look if all the properties for a certain vintage around you have traded for a certain amount of money, then if something is up or below that there's got to be a compelling reason for that. Now I'm not saying if it's above it's a bad reason and don't do it. There's got to be a compelling reason. Now they might be actually a very good reason. Right? James: Got it. Omar: So, you know that's like a rough idea and then basically I'm looking at rent upside. Basically look at co-stars and see what the average rents are for this property. What is roughly the average rent upside and you can also seek [inaudible29:04] place that I had a few contacts in Jacksonville and you can also call those up. Right? Again, rough math kind of gives you hey, do I send five hundred two hundred dollars and then basically see what is the amount of value [inaudible29:16]. Because for instance, if all the units have been renovated which by the way happened yesterday. Yesterday we came across [inaudible29:22] in Jackson where I know the Broker and I mean he sent me the email. You know, the email blast out and basically what we saw was the location was great, there's a lot of rent up, supposedly there's rent upside, but when I called the guy up, we know each other. He's like, bro, all the units have been renovated. There's maybe 50, 75, I know you so I'm going to tell you there's only 50, 75 so the price isn't going to be worth it. James: Yes, and they'll ask you to do some weird stuff, right? Like go there, washer, dryer, rent the washer dryer out. Omar: Yes. Yes. James: But charge for assigned parking, right? So very small amount in terms of upside, right? Omar: My point is if it was so easy why don't you do it? James: Yes. Correct. Omar: That's the way I look at it.  James: Yes, usually I mean when I talk to the Brokers I will know within the few seconds whether it's a good deal or not. They'll be really excited if it matches what we are looking for, right? Especially-- Omar: Yes because I think the other deal is if you develop a good relationship with Brokers and they know what you're specifically looking for, good Brokers can kind of again look they have to sell but they can also give you some guidance along the way. James: Correct. Correct. Omar: Right? They can do a lot bro, it doesn't really work for you I think, but I'm just going to be honest with you, and look you still have to take it with a grain of salt but it is what it is.  James: Correct, correct. Okay. So look for rent upside by looking at rent comps and you said in Texas which is a non-disclosure state it's hard to find sales comp but…  Omar: Yes, but look, you know if you're in a market you're going to know who the people are doing deals. Which people are doing deals.  James: Okay. Omar: And even if you don't know it, say your property manager kind of knows it, or your  loan broker or lender knows kind of what deals have traded in the market. You got me. You can pick up a phone and call some people, right? Maybe you don't get all the information but you can get, I mean if you're in submarket or sometimes even in Texas, you can't know.  James: Yes, exactly. Exactly. So when do you start underwriting on your Excel sheet?  Omar: Oh bro after I've done the property tour because if these don't even pass this stuff why you even bothering to underwrite it.  James: Oh really? So okay. So you basically look at market-- Omar: [inaudible 31:28] My point is, if it passes all these filters and then I have a conversation, I talk to my property manager, I talk to the Broker, I talk to my local contacts there and if it's all a go and these are all five-minute conversations or less. It's not like a two hour long conversation if it passes through all this they're just going to [inaudible 31:45] property door, man.  James: Okay, so you basically-- but what about the price? How do you determine whether the price they asking is reasonable or not. Omar: Well, obviously because I can do a rough math and compare it against the comps, right?  James: Okay. Okay. Got it. Got it. So you basically do [inaudible 31:59]  Omar: Oh, yes. Yes, because my point is why waste myself? Because look, the price could make sense, all the Brokers pictures we all know look fantastic. It looks like you're in like Beverly Hills, you know. So the pictures you know are kind of misleading, right? And the location might be really good but hey, you might go there and realize you know, the approach is really weird. Or for instance we were touring this one property and then 90% of I think the residents were just hanging out at 12:00 noon. James: Correct. Omar: Outside smoking.  James: At 12 o'clock. Wow. Omar: I said, well what the hell is this. Right? So my point is some things you only know when you do tour a property, there's no amount of videos and photos because the Broker isn't going to put a bad photo on.  James: Yes. Yes. Their Excel spreadsheets are going to tell you that, right?  Omar: Yes. James: So basically, you know, you have to go. What about what else do you look for when you do a property tour other than…  Omar: So you know when they're doing a property tour, like obviously I'm taking a lot of notes, I'm taking a lot of pictures, a lot of times the Broker will say one thing and then you kind of turn back around and ask the same question a different way just to kind of see. But what I also like to do is I also like to tour the property. On the property tour I like to have the current property manager and look I'm not stupid enough to say that the Broker hasn't coached the property manager. The broker has obviously coached the property manager that's his job. But a lot of times you'll realize that they haven't been coached enough. So if you ask the right questions the right way you can get some level of information. Again you have to verify everything and another trick I also figured out is. You should also try to talk to the maintenance guy and have him on the property tour and then take these people aside and so the Broker can be with somebody else. Ideally you should tour with two people. So if one guy takes care of the Broker and you take care of the property manager or the other way around. Because then you can isolate and ask questions, right? So especially if you take like say a maintenance guy and you ask him, hey man so what kind of cap X you think we should do? What do you think about the [inaudible 33:54]? A lot of times those people haven't been coached as much or at all. James: Correct.  Omar: And to be honest with you, man, we are in a high trust society. Most people aren't going to completely just lie to your face. They might lie a little bit but people aren't going to say red is blue and blue is purple. James: Correct. Omar: You know you can see that. You know when somebody says it, you can feel it. Come on. James: You can feel, yes. That's what I'm coming. You can actually see whether they are trying to hide stuff or not. But you're right, asking the maintenance guy is a better way than asking the property managers or even the other person is like leasing agent.  Omar: Yes. James: Who were assigned to you. They probably will tell you a lot more information. Omar: And that's why I feel like it's better to have two people like you and a partner touring. James: Okay. Omar: Because then different people, like one because look, and there is nothing wrong. The Broker has to do this. The Broker always wants to be with you to see every question is answered the way he wants it to be answered. So then one of your partners or you can tackle the Broker and the other person can tackle somebody else. James: Got it. Got it. So let's go to, okay so now you are done with the property tour. Now you're going to an [inaudible35:01] underwriting, right? So, how do you underwrite, I mean I want to talk especially about Jacksonville because it's a new market for you and you are looking at a new, how did you underwrite taxes, insurance and payroll because this-- Omar: Taxes was very easy to do. You talk to a tax consultant and you also see what historically the rate has been for the county. Right? James: Okay. Omar: But again, just because your new doesn't mean you don't know people. James: Correct. But how do you underwrite tax post acquisition? Because I mean in taxes is always very complicated-- Omar: No but taxes is harder, right? But [inaudible 35:32] in Florida it's easier because the sale is reported. They already know what price it is. James: So do they, so how much let's say how many percent do they increase it to after-- Omar: Typically in Duval County where we bought, it's about 80 to 85% [inaudible35:46]  James: Okay. Okay. That's it.  Omar: But the tax rate is low, right? Just to give you an idea the tax rate is [inaudible35:51] in Texas a tax rate is higher. So you understand there's lots of things and for instance in Florida there's an early payment discount. So if you pay in November, so it's November, December, January, February, right? So if you pay in November, which is four months before you should be paying you get 4% off your tax return.  James: Oh, that's really good. Omar: And if you pay in December you get 3% off, if you pay January you get well, whatever 2% off. In February you get 1% off. James: So what is the average tax rate in Florida?  Omar: I don't know about Florida. I know about Douval. It was like 1.81.  James: Wow, that's pretty low. Yes compared to-- Omar: Yes, but you also have to realize you have the percentage of assessed value is higher, right? Depending on which county you are in. You're in San Antonio and Austin where Bear county is just crazy. James: Bear Travis County, yes. Omar: Yes. Bear and Travis are just crazy but there are other counties in for instance Texas where the tax might be high but percentage of assessed value is really low.  James: Correct.  Omar: No, I mean it balances out. Right? My point is-- James: Yes. So but what about the, do you get to protest the tax and all that in the Duval County in Jacksonville? Omar: I think you can. No you were not, I think I know you can because we're going to do it. But you need to have a pretty good reason, right?  James: Okay. Okay. Omar: Right? And obviously look, you can show that yea, look I bought it for this price, but my income doesn't support this tax or this or that. I mean you have to hire the right people. I'm not going to go stand and do it myself.  James: So basically they do bump up the price of the acquisition, but it's very easy to determine that and 80 to 85% of whatever.  Omar; Yes. Yes. Yes. James: That's-- Omar: But look man, on the flip side is that when you go in, you kind of have a better control of your taxes in Texas where taxes can just go up and you [inaudible37:29]  James: Yes. Yes. You have no control in Texas. So we usually go very very conservative to a hundred percent. So which-- Omar: Look my point is it's good and bad, right? It depends where you are. So now people will say, oh the tax person knows all your numbers and like, yes but I can plan for it.  James: Yes, yes, correct. But it also gives you an expectation difference between buyer and seller because the buyer is saying this is my cap rate whereas the seller is saying, this is what, I mean the seller is going to say this is one of the cap rate whereas the buyer is going to say this is my cap rate will be after acquisition because-- Omar: Yes. Of course. James: So when it's smaller [inaudible38:03] between these two, the expectation is more aligned compared to in Texas because you know, it can jump up a lot and there's a lot of mismatch of expectations. Right? Omar: Well actually a deal in Houston, it's near Sugar Land and yesterday I was talking to this guy who wanted me on the deal and the other deal isn't going anywhere because the taxes were reassessed at double last year. Now he has to go to this the next week to fight it. Man, there's no way you're going to get double taxes in Florida or Georgia where there's our disclosure state, right? James: Correct. Correct, correct. So that's a good part because the buyer would be saying that's not my, the seller would be saying that's not my problem and buyer is going to say I have to underwrite that, right? So. Omar: I mean man, you can have a good case, right? Because it's not like somebody is saying something to you like, look man this is the law.  James: Yes, correct. So let's go back to Insurance. How do you underwrite Jacksonville Insurance? Because I know in Florida there is a lot of hurricane and all that-- Omar: [inaudible 38:58] just to give you an idea that is a complete myth because Jacksonville has only had one hurricane in the past eight years.  James: So is it lower than other parts of Florida? Or it just-- Omar: Yes. So the first it only depends where you are in Florida. Number one, right? Number two, it depends if you're in a flood plain or not, but that's in Texas as well. Right? And number three, it also depends a lot of times, well how many other claims have happened in your area? Right? Because that kind of for the insurance people that's kind of like a you know, how risky your area is quote unquote for them. So yes, so in Jacksonville, and apparently I did not need to know this information but we were told this information. Like the coast of Florida where Jacksonville is the golf coast is really warm where Jacksonville is, not golf courses on the other side, it's the Atlantic side. These are really warm waters relatively speaking. So apparently there's like some weather system which makes it really hard for hurricanes to come into Jacksonville. So that's why it's only had one hurricane in the 80 years.  James: So when you get your insurance quote, when you compare that to other parts of other markets-- Omar: Oh yes, Tampa was way higher, man. James: What about like Houston and Dallas?  Omar: I don't know about Houston because I haven't really lately looked at something in Houston. Right? So I can't really say about Houston and Dallas was maybe like say $25, $50 less maybe. James: Oh really. Okay.  Omar: Yes. It wasn't because that was a big question that came up for everybody. I was like look man, literally here's all the information and you don't even have to take my word for it because I'm giving you sources for all the information. Right? [crosstalk40:24] James: [crosstalk40:25] rate at different markets? Omar: Sorry? James: Are you talking about the insurance rate for-- Omar: Yes. Yes. Yes. Because a lot of guys from Chicago, I had a few investors they were like, but Florida has real hurricanes. I was like, yes but Jacksonville doesn't. James: Okay, got it. So you basically got a code from the insurance guy for the-- Omar: Oh yes man, I wasn't just going to go in and just put my own number that has no basis in reality.  James: Correct, correct. So, what about payroll? How did you determine the payroll?  Omar: So the payroll is pretty easy man. You know how much people get paid on per whatever hour. You know, you can have a rough idea how many people you are going to put on site and then you know what the load is, so then it gets pretty easy to calculate what your payroll is going to be. James: What was the load that you put in? Omar: So the load in this particular case was like 40% which is very high. James: Okay-- Omar: Yes it is pretty high. But the-- James: That is pretty high is very high. Omar: No. No. No. But hold on. They put our wages really low, right?  James: Oh really? Okay. Omar: Then you have got to [inaudible41:16] around. I was paying roughly the same that I was paying in [inaudible41:19]  James: Really? So why is that market…  Omar: I have no idea man, and I tried to check I asked multiple people. We did all that song and dancing. It's all kind of the same.  James: So you looked at the current financials and looked at the payroll? Omar: No. No, I was talking about my payroll would be going forward. I don't really care what the guy before me paid. Why do I care? James: So you got that from your property management?  Omar: Yes. Yes. Yes. And then I verified it with other property managers and blah blah blah blah blah checked everything, you know did all the due diligence. James: Got it. Yes. It's interesting that because 40% is really high. I mean usually-- Omar: Yes but [inaudible41:52] basis was really low. Like people salaries are really lower.  James: Is that a Jacksonville specific? Omar: I don't know what it is specifically. I think it's a Florida-based thing relatively speaking. But yes, that's what I mean. I thought it was kind of weird too. But then I mean I checked with other people.  James: So the deal that you're doing, I presume is a value ad deal. Is that right? Omar: Oh yes, all the deals-- James: How deep is the value at? I mean roughly at high level, how much are you putting in? Omar: Man, nothing has been touched for ten years. In fact, let's put it this way. We have enough land we checked with the city that we have enough land at the back to develop 32 more units.  James: That's really good because it's hard to find deals now, you know. Like ten years not touched, right? All deals are being flip right now, right? So within a couple of years. So that's good. That should be a really good deal. And what is the-- Omar: A hundred percent we could do basically.  James: What was your expense ratio that you see based on income divided by your expenses? I mean first-- Omar: Hold on man, let me just take it out. I don't even have to tell you. Hold on.  James: Okay. Omar: Why even bother you know?  James: Because usually like 50 to 55% is common in the [inaudible 42:59] industry. Omar: Oh no in basically in Jacksonville. You can get really lower expense ratios.  James: Okay.  Omar: It depends if it's submarket [inaudible43:05]  James: Yes, and I know like in Phoenix, I think it was like 45, or 40% which was surprising to me [crosstalk43:13]  Omar: [crosstalk43:13] this right now. Hold on let me open this model I can tell you right now. I don't want to give you something [inaudible 43:21] then variably one person's going to be like, I looked at your deal your numbers--Like, yes I'm sorry. I don't like have like numbers with second decimal points. Because people always do that to try to catch you. Right? And they're like, yes it's off by like $2 man. So hold on, divided by, oh yes so it was operating at 52 and yes first year we're going to be at 56 because you know we are repositioning-- James: Yes. First year of course, it will be higher-- Omar: And then we just go down.  James: Okay. Okay, okay that's interesting, that's good. So, and then as the income grows and your expenses stabilize, I think that expenses should be-- Omar: That's the only reason why the expense ratio goes down. Right? Because you're basically your top Line growth is way higher than your basically your expense growth.  James: Got it. Got it. Got it. Okay, that's really good. And you look for mid teens IRR. Omar: Mid teens IRR, a 10% cash flow and stabilized, all that jazz. James: Got it. Got it. Got it. Okay, that sounds good in terms of the underwriting. So-- Omar: Am I giving you all my secrets James?  James: Yes, absolutely. I will be very specific to Jacksonville. Right? I like to see you know, how each market is being underwritten and so that a business can learn and you know, it's very specific to people who do a lot of analysis on the market because I think that's important, right? You can't just go and buy any deal out of the gate right there, right? So it's good to know that. And these three things like payroll, insurance and taxes are very tricky when you-- Omar: Oh yes. James: --in different markets. So it's good to understand how does that county or that particular city or state determines their property taxes? Because we have different things in taxes here where I buy so it's good to understand. That's good. What is the most valuable value ad that you think that you're going to be doing to this deal? Omar: Oh well look man, because nothing had been touched. I think everything is valuable.  James: Okay. Omar: Hold on but that we lucked out also, right? There's a part of this is work and preparation. Or part of this is luck also. I mean you can't just take that portion away, right? James: Oh yes yes. Absolutely. Omar: All my hard work. Right? James: Absolutely. Absolutely. Omar: Because there's lots of people-- James: It's really hard to find that kind of deals nowadays, right? So how much was your rehab budget?  Omar: So rehab is about a million dollars. James: A million dollars. So let's say your million-dollar today become 500,000 right? I'm showing million dollar you're bringing into your exterior everything upgrade. Right? So let's say then-- Omar: Your exterior is roughly split 70/30. Interior [inaudible46:01]  James: Okay. Okay. So between interior and exterior which one do you think is more important?  Omar: I think if you only had a few dollars, exterior. James: Exterior, okay. Omar: Because people make a-- again this doesn't mean you should ignore the interior. Just to add a disclaimer. The point is, my point is a lot of times we as humans make decisions on first impressions. So if you come into a property and the clubhouse looks [inaudible 46:28] the approach looks [inaudible 46:29] the trees are trimmed, the parking lot is done nicely, then you go to an apartment which may, I mean I'm not saying it should be a complete disaster, but it might not be the best apartment in the world. You can overcome that. Right? But if you come in and the approach looks like you know, somebody got murdered here, right and the clubhouse looks like you know fights happen here, then no matter how good your indeed a renovation is, there's a good chance people will say well, I mean, it looks like I might get killed to just get into my apartment. James: Yes. Omar: Right? So it's the first impression thing more than anything else. It's like any other thing in life I feel. James: Absolutely. So let's say you are 300,000 for exterior. Right? Let's say that 300,000 become a 150,000, what are the important exterior renovation that you would focus on? Omar: So we did all the tree trimming because man, there's first of all living in Texas you realize how much a mystery still [inaudible 47:26] right? So first of all, tree trimming. Trees hadn't been trimmed for 10 years man. They were beautiful Spanish [inaudible 47:34] oak trees with Spanish moss on them. But they just hadn't been trimmed. James: Okay. Okay. Omar: So doing all the tree trimming, all the landscaping, then basically resealing the driveway and then making sure all the flower beds and all the approach leading up to all of that was done properly and the monument signage.  James: Okay, got it. So this is what you would focus on. And what about-- Omar: But also putting a dog park by the way. [inaudible 47:57] you said if my $300,000 budget went to 150 what I do and that's-- James: Yes. Dog park is not very expensive. Omar: Yes. But I'm saying it's stuff like dog park and [inaudible 48:06] to your outdoor kitchen, you're swimming pool, put a bigger sign in. You know [inaudible48:11]  James: Yes and dog park is one of the most valuable value ad because you spend less on it, but a lot of people want it, right? So for some reason, I mean people like pets and all that. So what about the interior? You have 700,000, how much per door are you planning to put for each-- Omar: So roughly say I can do the math roughly. There was six something. Right? So and James: [inaudible48:32]  Omar: Yes, so we're not even-- so we're planning on doing roughly say 75% of the unit's right? So I think that's  104 units if you go 700 divided by 104, roughly we were going to be around $6500 per unit. James; Okay. That's a pretty large budget.  Omar: Yes, man you should see some of these units man, I was like why God how do people even live here?  James: Yes. Omar: Because it's a very affluent. I mean relatively middle class, upper middle class submarket, right? They just haven't done anything.  James: So are you going to be using the property management company to do the renovations? Omar: They have a very fantastic reputation and they were highly recommended a few of our other contacts also use them so that's why. James: Okay. Omar: Because we were seeing problems with a lot of other people's property managers. Either they didn't have the right staff or didn't have the right professionals and this and that indeed these guys were properly integrated across the value chain. James: So at high level, what are you doing on the interiors? Omar: High level Interiors, it's a typical, [inaudible 49:29] back splashes, change the kitchen appliances, countertops, medicine cabinets, lighting packages. The other small little thing which we realized was a very big value add but was cost us less than two dollars and fifty cents per outlet was the [inaudible 49:45] Yes it was the biggest value add-- James: Yeah, biggest value add; that is the most valuable value add. Right? Omar: Yes. James: Like I've never done it in any of my properties but I was telling my wife, Shanti and I said, hey, you know, we should do these, you know, because it's so cheap and a lot of people, a lot of-- Omar: Yes, it was like two dollars or whatever, it was cheaper than that and people cannot get over the fact that they have so many USB out, I was like, everywhere there is a plug there's got to be a USB outlet. James: So do you put for every outlet? The USB? Omar: Not for every, I was dramatizing but I mean for the ones that are accessible say around the kitchen, living room. James: Okay interesting I should steal that idea.  Omar: I didn't invent the idea go for it man.  James: Yes. Omar: [inaudible 50:25] USB port so take it.  James: I know a few other people who do it mentioned that too but I'm not sure for some reason we are not doing it. But that should be a very simple-- Omar: People love it man. And I don't blame them man. Like it's freaking aggravating sometimes, you know, when you got to put like a little thing on top of your USB and then you plug it in. James: Yes, imagine how much you know, this life has changed around all this electronic [crosstalk50:46] devices and all that. So interesting. So did you get a lot of advice from your property management companies on how to work and what are the things to renovate and all that? Or how-- Omar: Yes, and no because we had been developing a relationship with them six months prior to this acquisition. So we had a good relationship with not just them but with other vendors in the market. And especially luckily for us the regional we have for this property right now, actually in an earlier life and with an earlier employer had actually started working on this asset 15 years ago as a property manager. This is sheer dumb luck. This is not by design. So she really knew where all the [inaudible51:24]  James: Yes. Yes, that's interesting. Sometimes you get people who have been in the industry for some time. They say yes, I've worked on that property before they, which is good for us because they know. Got it. Got it. So let's go to a more personal side of things. Right? So you have been pretty successful now and you're doing an apartment syndication now and all that, right? So why do you do what you do? Omar: James, I know a lot of people try to say they have a big "why" and they have a really philosophical reason James, my big "why" is James, I really like-- my lifestyle is very expensive James. So all these nice suits. James: Okay. Omar: All these nice vacations man, they're not cheap. Okay. Real estate is a pretty good way to make a lot of money man.  James: Okay.  Omar: I want to give you a philosophical reason, I know a lot of people say they have the Immigrant success story, Oh I came from India or I came from Pakistan, I ate out of a dumpster, I worked in a gas station and no I had five dollars in my pocket, and everybody tells me that and I say, okay what did you do man? I don't know did you just swim from India, you had two dollars in your pocket you need to get on a plane buddy.  James: You can't be here, right?  Omar: No Indian shows up to America and [inaudible 52:37] Are you kidding me? All the Indians are educated. Everybody's an engineer or doctor or lawyer. You kidding me. He shows up with five dollars, man. So no I didn't show up to this country with five dollars James. I didn't eat out of a dumpster. I didn't work at a gas station, and I'm very grateful for that. Right? I've always had a very good lifestyle and I don't need to have a philosophical reason to say I'm doing this to, I don't know, solve world hunger or poverty or whatever. I have a pretty good lifestyle. I'm very grateful and very blessed. And the biggest thing in my life is being that, look I moved to Texas man I didn't know anybody. Right? But people have been so generous, people have been so kind to me. I'm not just saying investing with us, which is very nice, which I'm very grateful but also connecting me with other people, right? Hey, hey just opening a door. They didn't have to do it, but people have been so generous and so kind, So I quite enjoy the fact man that it's a good way to  make an honest living, right? I have a very expensive lifestyle that needs to get financed and that's just the way it is. And I didn't show up with two dollars in my pocket. So I'm very  grateful for that.  James: That sounds good. So, can you give some, do you have any daily habits that you think makes you more successful? Omar: No man, I just get up every day and I try to put one step after the other but consistently work in the same direction. So every day I'm reaching out to people and that's a lot of small little tasks. First of all, I never like getting up early but I've always known the value of getting up early. So I get up in the morning, right? 5:45, 550 ish I kind of up. Most days not always, right? I read a lot of books man. I reach out to Brokers all the time. I'm always looking at deals, coordinating with my team to do stuff and a lot of these like you do in your business there are a lot of small little tasks there's no one task that is, oh my God, you do this and [inaudible 54:33] But it's just small little tasks that you do daily, every single day in and day out. So even if you're feeling sick, even if your head is hurting you just do it.  James: So can you give a few advice to people who want to start in this business? Omar: Regularly communicating. So in my particular case, I don't know like when you're starting out specifically everybody has a different pain point, right? So in my particular case for instance on a daily, I can't say about weekly I can tell you, staying in touch with my marketing people, emailing Brokers, emailing investors, following up with people I've had conversations with, especially leads, you know people who use this stuff. A lot of word of mouth and just doing the stuff over and over and over. But it's not like I have a 9:00 to 5:00 now, right? It's not like oh Friday, I'm done and Saturday, Sunday I'm relaxing. I mean I could relax on a Monday now, but Saturday and Sunday I'm working. Right? So that's a good-- but it's like the same as you were doing with your business, right?  James: Yes. Absolutely. Absolutely. Well, Omar it has been really a pleasure to have you on this podcast. Is there anything that you have never mentioned in other podcasts that you want to mention? Omar: No James, I don't want to go down that route man.  James: Is there something that you want to tell, you know people who listen to you that you think that would be a good thing to talk about? Omar: Yes, what I want to tell people is listen, I don't think you should take words of wisdom for me. But what I should tell people is guys, honestly, I don't l

ow how to deploy it and learn about real estate. Started with the single-family space. And so, the first thing I bought was a fourplex than a bunch of houses. And then I realized it was too much brain damage in terms of just scaling. Right. I mean it's, having 12 insurance policies, 12 tenants and 12 loans and 12 of everything is kind of a pain. And so, learn about multifamily and then kind of the rest of the history. So, I've been running with that since.   James: Yes. I really disliked, the insurance part of the single family because--   Feras Moussa: Yes.   James: --lot of it expires at different times of the year.   Feras Moussa: That's my biggest pain point honestly and I literally will, I'm willing to pay a premium for a broker that'll just take care of it and I just don't have to think about it because it's just not worth the hassle of thinking through and spending the time and effort there.   James: Yes. Yes. I think you can pay like a monthly is the same amount and it's all automated, but insurance is one thing you have to print out and you have to scan, and you have to do all kinds of things.   Feras Moussa: Yes.   James: So, let's go a bit more into the thought process here before we go into the details of your deals and all that. So, three IT guys, right? I'm also with an electrical engineering background with some software. Why do you think a lot of these IT guys like commercial real estate investing, especially in multifamily?   Feras Moussa: Yeah, I mean.   Ben Suttles: From my perspective, I think it's the numbers right. I think it's-- you come from a kind of an analytical side of the brain, right? And I think in real estate, a lot of it is numbers driven. Now there's a relationship side of the business, right? Which we all have to have. We have to have that side of it to raise equity and obviously work with the brokers and stuff like that, but at the end of the day, it's a numbers game, right? You've got to be able to underwrite the deals. You've got to be able to make, projections, financial projections and all that as numbers and spreadsheet driven. And I think that's a lot of why the IT and engineering guys, get into this space. Also, I think the other thing is too is that allows us to be creative. When we're not able to be creative in some, some respects, whenever you're able to kind of put your stamp on the rehab of a property and improve that and, and kind of get out and roll your sleeves up. That's another thing that we were lacking probably in a lot of our jobs. And so, I think, at least personally for me, that that might be part of the reason why, I don't know, Feras might have another take on it as well.   Feras Moussa: Well, no, I think the numbers things. Definitely one of the biggest factors, but it's also, it's a space that you can learn it yourself, right? Meaning, you know, a lot of engineers are willing to go above and beyond, spend the effort, research, read books and learn it. You can do that in this space and, there's not like an engineering exam at the end of it where you have to do, you can pass. Right?   James: Yes.   Feras Moussa: And so, it's the kind of thing where you can learn it and it makes sense, right? The numbers don't lie. And so, two engineers, right? It's like, you can see a clear path of the progression, right? There's not like a leap of faith any point in time. And then the other part of it too is problem-solving, right? I think all engineers like problem-solving as part of the challenge. And to me, that's what I like about multifamily. It's bigger and harder, right? Sure. I could've probably scaled out a rental portfolio part, really wanted to, but I mean, it's just not fun to buy, hundred thousand-dollar assets, $150,000. It's a lot more fun to do bigger projects, a bigger team, and really, work through each issue as it comes up.   James: Yes. Yes. I mean in my mind is a lot about-- I mean real estates, there's a lot of creative thinking that you need to put on and that's really fun, right? Because you want to, I mean, I'm sure when you guys handle deals, we want to solve that problem. Right?   Feras Moussa: Yes, absolutely.   James: You want to break; I'm going to break that deal. Right? Hey, why? Like for me, I always say, how can I break this deal? Why you should, why you should work for me. Right? That's why I think, I'm sure you guys do that too.   Ben Suttles: I was doing that earlier yesterday, man. Yes, man, [inaudible 13:36], how do you blow up the deal, right? And--   James: How do you blow up the deal? There must be something wrong with this deal. Let's find that out.   Ben Suttles: [crosstalk 13:42].   Feras Moussa: Oh yes that's fun. Let's have a deal that makes sense. It's like, this not right, I'm just going to offer a lower, I might've otherwise because something doesn't make me, go 100%.   James: Yes. If that [inaudible] make sense, you are like, let's say to break it. Something must be wrong and when you can't break it then, then it makes sense. That okay, that's [inaudible 13:58].   Feras Moussa: Yes.   Ben Suttles: That's the one.   Feras Moussa: And then the other part too is that it's a people game, right? I mean, so something, some engineers might not like it, but at least me, I mean nothing. Ben, same. We like it because it's a team effort. It's not one person. It's how do you combine people really get the thing done both on, on the GP side as well as the operations side, right? How do you build rapport with your manager, with your regional, whoever it is? Right. And kind of help accomplish the goals and give them motivated. To me, that's part of the fun.   James: Yes.   Feras Moussa: I guess what we do is like project management on steroids.   Ben Suttles: Feras, if you touch us up on that, that was really interesting to earlier which was the project management piece, which I had forgotten about. I mean a lot of us to come from big, we've done big projects, we've worked with teams and let's be honest, and this is a team sport, right?   James: Absolutely.   Ben Suttles: This is, yes you could maybe be solo and respectful, you've got a team in the background that's helping you accomplish your goal and you've got project management or manage that whole entire process in order to get it to close. And then even after you're closing it, right? In order to asset management or to do the asset management, to do the construction management and for you James too, you do the property management.   James: Okay.   Ben Suttles: All of that stuff is, you're juggling a lot of different pieces and making sure that the ball is continuously moving forward towards that goal. And I think a lot of IT and engineering folks come from that background, understand that. So, once you can kind of segue that into the commercial real estate state space, it's just essentially just project management at the end of the day.   James: Yes. Yes. You one might, throughout my 22 years in the corporate world, I think 16 years I was a manager and I was also a project manager and I was a very good project manager. I need all that translates to this multimillion-dollar business that you're managing, right?   Ben Suttles: Yes.   James: Because to make sure your transactions happen correctly; you need to make sure you communicate to people. And that's what we all learned in project management. But how do you over communicate? How do you make sure people don't mess up? How do you take proactive action to de-risk a project? Right? So that's, that's how the game is played. Even in the commercial real estate with this [crosstalk 16:00].   Ben Suttles: And it's never going to be straight forward. Right? There are always challenges.   James: Yes.   Ben Suttles: So, I mean, that's where, we're those project management skills really kind of come into play because, anybody can run a smooth project, right? And we're nothing ever bad happened, but let's just be honest. There's always something that happens.   James: Yes, yes.   Ben Suttles: And so, you have to, you have to have that, that acumen to be able to, to keep that ball moving forward towards that common goal.   James: Yes. So apart from the, IT education itself, do you guys think that your work experience, the classes that you have been at your workplace and the environment that you have gone through? I mean as given certain edge to you guys as well.   Feras Moussa: I will say absolutely. Like I said, I mean what we do is project management on steroids. Right? And so, having done that for years had-- knowing how to keep track of multiple projects simultaneously. That's another thing too, right? A lot of people will get into the business and they realize like, hey, syndicating start to finish is not a walk in the park. There's a lot that happens, both lending and legal and issues come up and they, it's a lot to keep track of. But then she tried to do two deals at a time. Right. And how would, it's not really two weeks, it's kind of a square, issues. So, I would say absolutely. Right. And then the other thing that we've seen, being on the tech side is how do we differentiate ourselves from other people too, right? How do we, create a better impression for investors? How do you position, everything professionally, right? All of our stuff is mobile friendly. All of our stuff, certain ways. And those are the things that I've brought at least from the tech world, to make sure that we kind of do and do well.   Ben Suttles: Yes, I think, I think efficiencies, right? That you come from that IT engineering background, it's all about productivity, efficiency, how can we automate things and James you probably saw the same thing when he got into space and to completely fracture. A lot of it is backward or outdated and there's a, there's a lot of low hanging fruit stuff, ways that can be improved and I'm sure your team is looking to do that constantly and so are we. And that's all come that comes from our background, right?   James: Background, yes.   Feras Moussa: I told Ben I have to stop myself from wanting to start a software company every few months. Being an entrepreneur and being a software guy, it's like man, this place some of the stuff we do is pretty archaic.   James: Yes.   Ben Suttles: Yes.   Ben Suttles: I think real estate is the last, most, what it called?   Feras Moussa: [crosstalk 18:28].   James: Fragmented industry, you know, that is, they're like something like AI or something is going to take over soon, right. Because there's so much inefficiency.   Ben Suttles: Yes. But it's, you can take it to an extent, but then there's that personal side, that relationship side. Right. And I think that's kind of, that's, that's one of the parts that I took from my former job, which was, a lot of sales and business development work as well. Right. Taking that, that networking, that relationship building side, that building rapport side into this space. But, I mean, I agree. I think there's their software and AI and these types of things are going to automate a lot of that back-office part of the process and maybe even the analysis piece. But there's always going to have to be those two people coming together to make a deal happen, right?   James: Yes.   Ben Suttles: Because ultimately, it's going to be one person or one group and trying to sell on one group trying to buy, and you have to come with some kind of an agreement. Right. And then even after you buy it, right, there's always those relationships with vendors and employees and all those different things that you have to kind of manage to. But anything that we can bring and that we've seen in our past gig where we could make that more efficient here, we're, we're obviously trying to introduce that.   James: Got It. Got It, got it. So, let's go back to the business side of it. So, what are your guys' focus, in terms of market? Right now, currently Atlanta and some cities in Texas, right? Why don't you guys talk about, why did you choose these two markets?   Feras Moussa: Yes. So, in terms of why we chose them, I mean, the same reason you're probably in San Antonio to some degree, right? We're looking for strong, attractive markets that are not a single industry that is growing right. Population and the business side. And then, really the important thing for us to is the yield, right. So that's why we got into San Antonio too, was that we can't find returns in Houston. We look at a lot of bills and use of our base and we don't own anything in Houston, right? We're looking for returns that we can, that that will actually, you are looking for deals that'll give actual turns, foreign investors. That's also why we don't look in Dallas, right? Price points are too high that you having to pay so much that you basically have no yield on the deal. And so that's kind of what really got us into Atlanta. We got us into San Antonio as well and yes, Beaumont's kind of a slight story, but those are the things that we look for. And then in terms of future deals, right? If future markets, so, we've really kind of manage to, I would say streamline a lot more of our acquisition pipeline, right? In terms of underwriting deals, identifying deals and really keeping a pipeline going. And so, what that's allowed us to do, especially with a fulltime asset manager now, is we can look at a lot more deals. So, we've kind of identified two markets that we want to get into, hopefully, this year. Orlando in North Carolina. And that just, just to give us, just to keep our pipeline going. Right. We can keep looking at more and more and more deals. Yes, we'll hopefully be finding something that makes sense.   Ben Suttles: Absolutely.   James: So how do you guys choose your market? So, like now you say Orlando and not Carolina, right? So, I have a lot of stats on Orlando because I know it's growing very quickly. So, let's take, not Carolina. Why did you guys identify? Not Carolina?   Ben Suttles: I mean, I think, I think all of it boils down to population growth, job growth. We also like to find areas and that's not every single market, but I like to see a good concentration of different universities and colleges as well because I feel like a lot of the bigger corporations are going to follow where they're going to have a good funnel of potential students to take from it as well. So, we'll look in college towns as well too, because, but let's be honest, North Carolina, it's got, the research triangle, it's got a ton of universities. And, it's calling to be called the Wall Street of the south. The problem with North Carolina is that we're not the only ones looking there. So, it's, it's pretty competitive there too. But it's got a lot of those good data points that we like to see in terms of population economic growth--   James: Okay.   Ben Suttles: --that you see in Texas and in Georgia. And really, we are, we look at in Texas for quite some time and we found Georgia was very, very similar in a lot of ways to Texas. And so that's the reason we started kind of focusing on Atlanta as well. But it ultimately boils down to, is there enough population job growth to continue to drive demand for the workforce housing that we're, that we're looking for. So, people are always like, well, you're not renting out to fortune 500 folks. So why do you care about that? I'm saying, well, the ancillary service companies and service jobs, they're going to feed into this white-collar job is what we're looking for. So, if you don't have any of the fortune 500 stuff rights, then there's not any real need for a lot of the infrastructure where a lot of these people are going to be working. So, when you, when you look at it in Texas, when you look at it and Georgia, right? One of those people is there. So there has to be serviced workforce type jobs that are going to have to be feeding into that. And that's why we like those markets. And, we see a lot of that same type of thing happening in Orlando and some other markets and Florida and as well as North Carolina. And we've looked in Tennessee, we've looked in some other spots as well. From us we've got so much deal flow coming in that in order for us to be a little bit more strategic work as a team, we've decided to focus on about three or four major markets and then just go deep on those and then we can go horizontal and find out that markets in the future.   James: Got It. So, let's say now today you're getting a deal, right? Let's say from North Carolina, what other steps that you guys take? So today let's say, I mean how do you guys get deals nowadays. Is it through broker relationship, off-market, on the market? How are you guys sorting out the deal flow?   Ben Suttles: Yes, everything in between. A lot of it is brokers. A lot of is people that know what's his buyers, people that you know, we will get the deal closed, right? Whether it's the broker that knows it and they might know. Seller. One thing I tell every broker is like, hey, if you have a deal that you don't have the exclusive on and you need someone to make a pre-emptive offer to try to get that locked down. Like, where are your guys? Right? So, you find ways to motivate the broker is motivated. Other people that know someone that knows someone. So, we, I mean really deals come in all shapes and forms. And so, for us, the biggest volume is definitely the brokers, but it's really, it's not about the ones that they just email outlasted, right? It's really about the follow-up deals that maybe are near, getting to the finish line and getting the finish line in terms of the-- in terms of the marketing, but they haven't had any such interest or for whatever reason. Right. So, I think that's important. So, once the deal comes through in terms of the analysis side of LLC, dig into the P12, dig into the OEM, but more importantly, talk to them. Sorry, go ahead.   James: I'm just saying, what do you look for first in the deal? Do you get a-- so you get a deal, what do you look for? What are the, what do you, what's your sniff test because I --   Ben Suttles: Yes.   James: underwrite everything, right? What's the sniff test?   Feras Moussa: I'll tell you what my first sniff test. I look at what the average rents are and what their price point is, and then I can deduce from that, right.   James: Okay.   Feras Moussa: Is this going to be anywhere. And really what I'm doing kind of mentally ballparking what the cap might be. Right? But really, I'm looking at what are the average rents and what does the purchase price. Right. And then yield. Is there, are they close enough that I think that there's some meat on the bone, right? It's really what it boils down to. I'll give you a real example. There was a deal in Atlanta that I-- so North Atlanta, Atlanta has a really unique market. North Atlanta is really expensive. South Atlanta is the complete opposite. There's a deal that came through on the northern side and I think the average rents on that deal were like, 850 $900. So, I'm okay, this one might be at a reasonable price point. Right? And so, I'm like in my head, mentally I'm like, okay, let me call the broker. If this is 80 maybe 90 you know, there's a deal to be had here. Hey, call the broker. And it's 130 a door, right? So, I mean, that already instantly ruled it out. And so, you're really looking for some of those kinds of low hanging fruit just to figure out, okay, is this still even in the ballpark for us to look into it anymore.   Ben Suttles: Yes, absolutely. And I think the first sniff test James is really, I mean then the location of it too, right? Do you know what I mean? We're getting the deal flow and these places that we want to be, and we've identified different pockets within those submarkets that we want to be in. So, if it's not within one of those pockets and we're automatically, putting that to the side. Now that doesn't mean that there's not a deal there. Right.   James: Yes.   Ben Suttles: So those are usually kind of the maybe deals and we're, we want to kind of circle back maybe we're bored or something. Let's do that one-- -   Feras Moussa: Exactly, whether we are bored, we go back and look at those deals.   Ben Suttles: Yes, we'll go back and take a look at those. Right. But we're looking for that are going to be the net, that those are some market pockets, right? That we like. And then from there, right, just like what Feras was saying, you can almost, you can almost immediately tell if it's going to work. Right. And you pencil out so many deals. I mean, we, at this point we've analysed hundreds and hundreds of deals. So, you can on them almost look and say, oh, that's not going to work for us. Right. Just based on what they're asking for. And you can also kind of tell that to, by the price per pound versus, sometimes the median income of the area. Right. I mean, are you going to be able to achieve the rent that it's going to, it's going to take to make that deal work. And if you're going to be maxing out your median income, then it's not going to work either.   Ben Suttles: So, a lot of the things that we look at, population growth, we look at job growth, all those things too. But one of the things that we also look at as the median income, right? And a lot of these is workforce housing, right? So, I mean, you look at, what's the, what's the average rent? We're usually doing the three-x income test. Whenever we're taking perspective tenants in, right? Like everybody should, and then you determine, what the median income level is and if you're going to be maxing that out, you're above that, then the first sign that something is going wrong, let's get ready to skip. They're going to stop paying rent, right? So, you want to make sure that you're under that, right? You don't want to; you don't want to be at the top of the market. Yes. Maybe they can keep up with it for a month or two where they're going to get behind. And so very, very cognizant of that.   Feras Moussa: And to add those, it's not that, if it's a lower income area, we won't buy a deal very well. It's really these are just kind of rules of thumb. And then from that, you start to work back, okay, well if it's a lower income area, can assume they are economic occupancy is going to be much slower. So, you should underwrite it that way. Right? Cause there's a deal to be had anywhere, right? I mean I'll buy any deal at the right price point, right? Assuming as long as it's, to me at least this has been new instead of a growing market. Right. And that's not a deal at f four worry about the city, essentially no one even wanted to live in that general area. But in terms of price points, in terms of, average incomes, all of that, it's really, again, depending on what price point are we buying it at.   James: So, let's say the rent and the price seems reasonable right? At the first sniff test, what's your next level sniff test? What do you guys do?   Feras Moussa: Then and actually started this. The thing I do before that is actually called the broker and just get there [inaudible 29:18].   James: Okay.   Feras Moussa: Right? And that's the first, usually, right? Because a lot of times there's more to this story, right? Is it, is it a partnership where you know, one of the sellers passed away and they're looking, you know, they're a little bit more motivated or is it a deal that just, the Bro, I've had brokers a little bit tell me these sellers are terrible operators, right? And you can kind of, and if you have a relationship with a broker, there'll be honest with you about that aspect. Right? Brokers are all, a lot of times brokers, I don't want to say always, but there'll always be, a lot of times we'll say, yeah, you know, you could do this and this and get, a $200 rent pop. Right?   James: Yes.   Feras Moussa: Take that with a grain of salt. But I'm looking for something that's kind of that ancillary information to help the deuce. Like, Hey, is there an actual opportunity to do, what's the value add that we can do is we can kind of take that into what we just talked about. Then kind of once, like you said, once you know the numbers make sense or the deals make sense, then you start to dig in and near. That's where we really do just to, go down to the numbers, right. Look at the t 12, look at where they are today on expenses. Look at where we think we will be on expenses. Where, what does the rent currently, right? What's the spread on just the rent, the market rents versus what their marketing right. Today. I mean kind of, we really starting to put the bigger picture together. Right. And then understanding is, hey, does this make sense at a high level? Right? Yes. That's us. Sorry, go ahead.   Ben Suttles: Oh, I was just going to say, what I mean, we don't even look at the OEM. Right. Do you know what I mean? We're going straight from our perspective, right. That just use your, you'll get, you'll get the skinny from the broker, right? Because they'll usually-- but the marketing packages is the marketing package. Right. And I feel like that sometimes skews people's numbers when they look in. Concentrate on that a little bit too closely. So, it's always best than if it passes your initial test and you talked to the broker and there might be something there and you just go straight to the spreadsheet analysis. Right. Because, I mean if you start trying to dissect what they're going-- what they have in terms of pro forma income and expenses, then you start getting that none of those numbers in your mind. And guess what, there, they're making those numbers work. So, we always, we always go straight to that and then only then do I then look at the OEM and I see how far apart we are. And usually, it's pretty significant. But, it's those classic sales tips, like, below replacement costs and all of these things that they love to say, that makes it sound so sexy.   James: Yes, its--   Ben Suttles: At the end of the day and it has to pencil out. It's all about the numbers.   James: Yes. I remember in one of the deals I never look at the OM until I close because I need a logo for that property. And I say where is the logo and then I called the broker, you understand the OM, I say yes.   Feras Moussa: Oh, you had the floor plan. Yes, we had that for the floor plan. You go back to the OM and grab the floor plan that [inaudible 31:56]--   James: Exactly.   Feras Moussa: --time and effort on.   James: Yes, yes, we did a floor plan and the logo from the OM, that's it.   Ben Suttles: There you go.   James: So, it's interesting. And so, the type of deals that you guys do, I mean, where do you categorize it? Value add deep value add or [inaudible 32:14] yield play or core type of tails.   Feras Moussa: I mean right now we're focused on value add. I mean we would like to do a more, really to me, the ideal deal for us now or given where we are given, our network, et cetera. It's really kind of that B minus space. Right? We've done the heavy value add, it's a lot of work. Right? And those skills have worked out. They performed, but for us, I mean it's just she consumes you, right to some degree. And so, we're trying to less of those and we try to vary it up. Right. Always have a value add going on, having a stabilized going on. Just cause from a bandwidth perspective, right, we can kind of handle one at a time, but we don't want to take on three big value add the one time because then he would get lost in that. And so, I think for us we're typically in that C plus B minus space is really the focus for us.   Ben Suttles: Yes, yes.   Feras Moussa: One day we'll do an ADL but not in, but not-- but it's about matching it to the right equity pool. Right. If we have equity that's okay with the lesser returns. Right. We can go do a B plus or a minus. But so far, we've been kind of in the C plus B minus space.   Ben Suttles: Yes. Yes.   James: Got It. Got It. So, what about that, that strategy? Do you guys do only agency Loan, Bridge, Bridge through an agency?   Ben Suttles: I think we're doing all this. It's really deals dependent. Right. Do you know what I mean? I think the bridge has gotten a little bit of a bad rap. I mean there's, there obviously you have to be careful with it, right? You have to understand that your exit strategy, you have to be able to hit those targets in terms of, especially if it's a value add, tell him the hair on it, which is, it's going to with a bridge, right? You got to be able to hit those timetables in terms of your construction, your rehab in order to refi out of it quickly. And then at the best price point that you can write, because obviously, you don't want to have to bring money to the table. So, we'll do a little bit of the bridge, but for the most part, where everyone, just like every other smart operator, you're looking for agency debt when you can. But at the end of the day, we're looking to maximize returns for our investors. And so sometimes, going bridge versus agency has been a better way in order to do that. And people understand that there's a little bit higher of risk tolerance with those. But we always get a three-year term with two years' extension. So, at the end of the day, it's still five years on a bridge that, it's not something like an 18-month deal. So, I think that that gives people a little bit of, they feel a little bit better about it as well. But we've done agency all the way up to 12 years too. So, it's a little bit about, just depends on the deal.   Feras Moussa: Yes. For anyone listening, I mean I think we have a Ph.D. in the agency space. Unfortunately, we've had issues that people that do 50 deals never hit. So, we've seen it all. And so, if anyone has any questions, feel free to reach out. But we've seen the good, the bad and the ugly on the dead space. So, it's, you kind of, you work through those problems, right? If you get the closing, which is the good news, but then you kind of learn from it and you know, start to figure out what are the things that could be learned from this to basically avoid the situation in the future. Right. We've had, we've really seen a variety of things. Unfortunately--   James: Oh, let's talk about--   Feras Moussa: --that's where Ben lost all this hair.   Ben Suttles: Just one. Just one lender, which I'll tell if you want to email me, I'll tell you which linear it was.   James: Okay, tell me the worst story with an agency, just let's just go--   Feras Moussa: The worst agency story. I'll tell you one, and this is one near and to you James. So, it's in San Antonio.   James: Okay.   Feras Moussa: San Antonio deal its a, a deal that pencils in really well. And for those of you that know on the agency side, right? With a standing loan, you can do what's called fully delegated, which means that fanny lets the dust lender, which in our case could be Arbor, could be haunted, it can be any variety of them. For us, it was an Arbor deal and lets them operate in the wrong capacity, right. To some degree. And so, there's kind of a box. As long as they're within the box, Arbor could approve the deal, no questions asked. Well yes, we're like three weeks from closing pretty much at the finish line. Money's in the bank. Well, we're already looking at the next field that we had to go on and then kind of going back, what happened was that because it's the San Antonio deal and the deal pencils in really, really well, right from a financial perspective, the lender said, well hey, we can go get your five years IO. And we didn't think much of it. Right. It was like, okay, that's fine. Well, at least we'll back out to where we are today because we run the road at one-year IO. Well, long story short, this deal essentially used to be on a watch list three years ago. The sellers are only deal in San Antonio. They struggled with it. Plus, it was kind of whenever they're in the midst of a lot of rehabs. So, he got on the watch list, it wasn't on the watch list the past few years. And that whole you, that market better than we do James. And that whole area has really turned around from where it was three years ago. But guess what, it was already flagged by Fannie and they just wanted to essentially get it off their books. Right. And so, this is something very, I actually did this just the other day where I, I was talking to a broker about a deal and asked him was the saber on a watch list.   Feras Moussa: That's something I've learned to ask now because and what sucks about it is that once a lender, a dus lender, this gets Arbor went to fanny, right? Once Fannie times in, Fannie is the authority, right?   James: Correct.   Ben Suttles: Versus if we would have just not ever done that, we could have closed the deal agency with Arbor, no questions asked. And so, it's a very unique situation. I don't know anyone that's actually ever encountered that. Right. But these kinds of things do happen. And so just knowing that they can happen, figure on how much risk you want to take because we would have been happy with what we had-- what we could have closed. Right. We were happy with the one-year IO. That was great. That was fine. But it's your kind of get a little bit more than that and then now completely bag of worms. So.   James: Yes, I learn, even I learned about this watch list, last week when was looking at another dealer then someone says, Oh, I backed out because of watch list, I say what is that? Right? Then we realize there are so many other issues with the deal. Right? So that's crazy. Yes. I mean for listeners, just FYI most dus lenders, they have one-year authority on a delegated underwriting. So within, if they give one-year IO, they don't have to go back to Fannie Mae and get approval. But once they go above that they have to go to Fannie Mae. And a lot of things can change when you go to Fannie Mae.   Feras Moussa: Yes. So, I have learned that there are different tiers. Right? So, there's the tier two, tier three. So, if you're at higher leverage that can only give you one. But if you're willing to go down to 65% they can actually approve 5 years IO, no questions.   James: Okay.   Feras Moussa: So, you start to learn. And again, why did I learn that from a different deal? So, start to understand really the mechanics of what's going on behind the scene. And this is where having the right mortgage broker makes all the difference, right? They can help steer you in the right direction and help catch some of these. So, I mean for the-- for the watch list, the sellers were actually more pissed that we were about the whole, they didn't think that was going to be an issue in terms of us getting the next one. Right.   James: Okay.   Feras Moussa: And they never thought to just close it. You don't think it's going to be an issue.   Ben Suttles: No, they thought it was off too.   Feras Moussa: Yes.   Ben Suttles: But, do you know what I mean? I think there's that just like, like our earlier part of the conversation. Right. You know, we're project managing these things, things are going to pop up. So, we were able to make it through that process--   James: Right.   Ben Suttles: --and still come out on top in terms of the debt. But yes, I mean we're always looking to maximize returns and risk and minimize risk for our investors. And I think that having this different background and different debt products and having a good experience with some of these different lenders really gives us a good broad overview of the debt market and which deals are going to make sense where, and I think that that's huge when you're looking at who to invest your money with, because know some people, let's be honest. So, they'll just go straight to Fannie, if it's not Fannie or if it's not Fannie then I'm not doing it. Right.   James: Correct.   Ben Suttles: But I think sometimes you're missing out on opportunities there as well.   James: So, wasn't, like three weeks before closing, didn't you guys had a rate lock at that time?   Feras Moussa: No, we're supposed to [inaudible 40:01] lock a few days later.   James: Oh okay.   Feras Moussa: Like little, they're just waiting on the final. Oh, because they went to Fannie, Fannie kind of asked-- this is where really, I think we could have-- it's about positioning the story. Right. Again, I think the lender just went in thinking that it's going to be easy down the middle because really that's what they told us. Right?   James: Okay.   Feras Moussa: They didn't even bother. We had a great story for the deal, for the sponsorship team. They tried to do it retroactively and kind of wants Fannie comes in it's really hard to change. But we were literally at the point of rate locking and getting, being done with the steel. Like we will do, so.   James: Yes. [crosstalk 40:36].   Feras Moussa: You do full 360 and charge full 180 and change things and kind of Redo. So, in my mind, it was really, we did, it took us to close if get that deal done.   James: Yes, it's, yes, it's, it's a day just to do it at the end because you're almost at the closing table. Right. So,   Ben Suttles: Yes.   Feras Moussa: Yes. So, so in that situation, just maybe to complete the story, right. The seller realized kind of what happened. They gave us more time, right? They gave us another 30 days they knew that wasn't really for lack of use or lack of anything that we did. And so, we're able to buy more time and then redo the process and kind of, get to where we needed to be.   James: So, did you do a different loan?   Feras Moussa: Yes. So that one we call back every investor because I mean we basically what we did Arbor realized the mistake that they made, which was they should not have gone to the lender, tell Fannie, they should have just closed. And so, they basically gave us a balance sheet loan, right? Which is like a bridge loan on their books that essentially, the short term just to get it off of Fannie's book, --   James: Okay.   Ben Suttles: --then in nine months. Right. So, for us, we kind of turned it into a value add reprice scenario. Right.   James: Okay.   Feras Moussa: And so, when that case, we will, nine months, 12 months, somewhere around there. Right. We're also pushing our NOI as hard as you can. We'll refi, pull equity out and get back into a panty permanent loan.   James: Got it.   Feras Moussa: And so, but the deal changed, right? And so, we had to call every investor, tell every investor here's what changed, here's what happened. Then thankfully pretty much everyone stayed in the deal. Right? So that kind of-- for us that it's a sigh of relief. But also, it's like, everyone just doubled down on us. Right? So, we're--   James: Right.   Ben Suttles: --going to get babysat through the finish line.   James: Yes, the amount of pressure for you to go, on the contact to rate lock it so much. Right. So, I mean, I don't know, I mean-- there's a lot of pressure on, responsibility. You have so much money tied, and you are under the gun and you have all your reputation out there. You are doing the deal, investors are looking at you, you are to be a leader. You have very strong leaders. So.   Ben Suttles: Yes.   James: Yes, it's a lot of work.   Feras Moussa: Absolutely.   James: So, kind of back to value add, right? So, you guys do value add strategy. So, what's your, what do you think is the most valuable value add?   Ben Suttles: I think, ultimately, what tenants care most about, right? I mean, whenever you're doing value add, unfortunately, you have to cure a lot of [inaudible 42:52]. You have to do a lot of things that you not going to get the best return on your investment on. But the two things that tenants care about, first being their interiors. So, what was actually in my unit, the second thing that they care about is amenities, right. Probably a distance second. Most of the time with the workforce housing, they're caring about what their units look like. And I think that's where you're going to get the best return on your investment when you're doing value add. And then you can obviously update and add on amenities as a secondary thing to that. But unfortunately, with those value adds, you got to do things like roofs and HVAC replacement and other things that just people just say, hey if I'm renting from you, I expect that to be working. So, you know, but you might be spending a hundred or two hundred grand on some of this stuff, right? So, your return on investment is almost nothing, but you have to do it. So, you've got to balance those two things, right? You've got to work in curing that deferred maintenance along with how do I push the NOI and the revenue side by, really updating the property for the way that the tenants are looking at it. So, I mean that's kind of how we look at every value-add play that we do. A combination of those two things.   Feras Moussa: So, James, is your question really specific about ROI? Like what are the things that we putting kind of deferred maintenance aside, what other things would we do to really try to maximize our return?   James: Yes, other than deferred maintenance, like the roof and all the big stuff [crosstalk 44:21].   Feras Moussa: Yes, so I mean it's, its properties specific, right? It's really depending on the asset, what it looks like currently and what is the market doing right now? That said from our experience, right? The most common thing, flooring, two-tone paint, right? And pimping out the kitchen some degree. Right? And you can go as crazy as replacing all the cabinets or you really replacing the front or even just putting fixtures, right? Like for us, fixtures are definitely cheap. Easy to do. It gives a different, pop to the thing, right? Flooring almost always, painted and really two-tone paint. It's important. And the other thing too that we like to do is really putting a backsplash. You can do backsplashes with this kind of stick on backsplash, really, really cheap to do per unit. And it gives the kitchen, which is usually known the seventies, eighties build kitchen, a bit of Pop, right? It gives it something to modernize it. Right? We didn't go as far as putting granted in. Right. But you are putting that in kind of coupled with a resurfacing. It actually looks pretty good. And then, the obvious is white and black appliances. Right?   James: So, let's say--   Feras Moussa: And that's all, white, black or aluminium.   James: Let's say how the interiors, right. So, let's say you guys lost for some reason you thought you had 100% of your interior budget, but now you need like 50% of the budget. What would you focus on, on the interior?   Ben Suttles: Yes, if the property needed any flooring or paint. Right? [crosstalk 45:38] Those are important things to think.   James: Okay.   Feras Moussa: Yes, I mean, you got appliances too right, but I mean appliances, you're going to be two x in your interior budgeted, just adding those in. But a lot of people they take, there's a price difference between white and black appliances are really not, but there's a perception that they're a little bit higher quality. So, you can even do that too. Right? You got to replace the appliances, but you don't have a whole big budget for that. You can just go from white to black to and I think that adds a nice pop too.   James: Yes, that's a really good point. I mean I realize a lot of times if you give them even white, really nice appliances, people are happy. Right?   Ben Suttles: No. Yes, you can do, right. It's-- I mean, but like, you'll see people like, they're just ecstatic that they've got black appliances. Right now, the market is about the same in terms of pricing.   James: Correct.   Ben Suttles: So, but it's just a perception thing or just, like I said, backslash 150 bucks.   James: Yes.   Ben Suttles: [crosstalk 46:38].   Feras Moussa: Let me turn the question around to you, James. Would you, the same question to you, right, would you do the same thing, or would you do something else?   James: So, we, so for me, I think my most valuable value add would be just giving them good management, right? So, there are so many bad operators out there, which is mismanaging not respecting the tenants, not taking care of it. So, we just want to make sure, really good management that's on the management side. But if you go back to the interiors, I would say, of course, we do the appliances and we do the painting and flooring. That's what we would, I would say the most, so, but I think, a lot of people just love having good management people who take care of them. Everything--   Ben Suttles: Oh, absolutely. I mean, they want to feel comfortable and who miss their right. People that understand what's going on. I mean, that's to me, and that's why for all of our properties, we're big people, putting, doing parties, doing tenant events, pretending retention vents. Because from the operations side, right. This is, you have the backdoor and you have the front door, right? You don't have people renewing, right. You're going to have delinquency problems, not a delinquency problem, you're going to have an oxygen problem, right? And so really keeping people happy, renewing, right. Well, then it makes it easier on the front end to start the push friends, right? Because you have people that are enjoy working there, living there. Right. You know, for another 10, $20. Sure enough, it's more than the cost of moving. Right. And so that's absolutely.   James: Yes. I think at the end of the day the tenants just want to be felt appreciated. That you just-- so many properties out there. You don't have to be being mismanaged.   Ben Suttles: Yes, clean, quality, safe housing, man. I mean, it seems so easy and the way that I describe it, but so many operators, I've just run some of these properties in the ground and they don't take care of it. Right? And so, the tenants, therefore, don't consider home and they don't take care of it. So when you get a good operator, I know you get a good management company in there and they showed that they're taking care of the property, then by default you're going to get more loyal 10 tenants, you're going to have people that are going to be more apt to take a renewal increase, cause they like, they like coming home again. Right? It's home.   James: Yes.   Ben Suttles: Versus just a place just to sleep.   James: Yes. Yes. I think one of the episodes, maybe episode five or six, I interviewed, Addie Lauren from California strategic alliance and he had been doing this for 30 years, more than 1 billion in a transaction. And he told me very simple, clean, basic and functional quality is what his motto is that's it. Right?   Ben Suttles: You don't have to get; you don't have to be creative about it. Right. I mean, you know, the space that we plan is essentially workforce housing. I mean, across our whole entire portfolio, our average rents are less than a thousand bucks, right. So, folks aren't looking for crazy amenities and crazy things even in their interiors. They just want a good quality place to come home to and then, and the management side is a big piece of that too.   James: Correct, correct, correct.   Ben Suttles: Yes, she bought up a good point.   Feras Moussa: And then another thing too with good management, right. You get lower delinquency. So, for us, I mean that's night and day. We had a deal that we, one of our heavy value add deals where essentially where we were, I went back and looked at numbers July versus where we are today. We have three times more revenue collected than we will, we did before total, like literally straight revenue you and that's a combination of, cutting back the delinquency, bringing units, align, updating. But I mean, it’s, once people know that it's, someone taking care of the property and enjoying it, people want to stay there. All right. People are eating $200 rep push because guess what, this place has been completely turned around. It's more family oriented and even just bringing more families on board helps to come back for delinquency. So, for us really looking at how do you build that community and some people really cheap about it, but like, hosting these parties is you, I mean, do the math, right? How much does it cost to go get a hundred hot dog and a hundred burgers? Right?   James: Yes.   Feras Moussa: I mean it's very, very cheap, right? To be there and grill it out, have like a little patio, you know, a party, whatever it is. These things are almost, you know, half of the units rented a month, right. It's kind of thing. And so, they're almost rounding errors, errors where we are, but guess what? It changes the dynamics in the property. And so, I mean, some people don't really-- people are very short-sighted. I see. And really it has a much bigger kind of longer-term impact.   James: Yes.   Ben Suttles: And I think going along with the value add, right? I mean, you know, a lot of what we're doing is repositioning the property too, which is kind of where you're going with this James. Is bringing in better management. You're getting a better tenant profile at the same time too. So that's part of the value-add strategy as well, so once you, and once you show them that you care, you've got tenants in there that care than the properties just starts performing. There's a whole-- the energy shifts are palpable. Do you know what I mean? You go from a bad energy deal to a very good energy deal and you have less delinquency. Yes. Better occupancy people more apt to take a renewal increase and you can, you can rent that out more easily because people that prospective tenants that are walking around fuel that same thing too. So that's a huge part of what we do. We don't like to focus the value add just on the what the aesthetic of the property to, it's how you manage it and tenants that you have in there as well. A huge part of it.   James: So, you guys operators, which is the definition. What I mean is very active asset management because you know the details of what's happening on the side by side. Right. So, is that a correct assumption? Right? So.   Ben Suttles: Absolutely.   Feras Moussa: Yes, absolutely.   James: How do you guys manage this third-party property management companies?   Feras Moussa: Man, that's, that's part of the secret sauce. But I mean, it's really is nothing to it. There's nothing secret about it. So, we have an asset manager now that we've brought in who very experienced, 20 plus years if families a property, he manages family really. And so that's starting to help, but we plan to keep a pulse in general on what's going on in every deal. And so, for us, it's really about putting systems in place with each of your property managers, right? And having accountability. Right? And so, we have not brought in property management in house, but we've been successful with managing our property managers. Right? Yes. And it's a partnership, right? It's not like they're your employee. You really need to get on the level of like where they understand like, hey, we're partnering, we're growing together. Right? And so, they've seen that, and you know, yes. Identify the good property managers from the batch. So, there's a whole betting cycle. I don't want to get too far into, but really, we have the weekly calls, we have the weekly reports come in at a certain time. We have certain expectations that within a few days we expect them to follow up with hearing all the action items and did these all get done? Yes or no? Why not? Right? And how do we, I can keep them accountable, so.   Ben Suttles: Yes, it's all about obviously keep it to an agenda, keep into the processes that we put in place to templates and checklists. And we're very upfront when we get into a partnership with these property management companies that this is what we expect, that this is when we expect it. Right. And then we, like we said, we keep them accountable through--   Feras Moussa: And this is the format that we expect, that these are the numbers that we need and sent out.   James: Okay.   Feras Moussa: Just to help us track everything the way we want. And then you learn from it. Right. We're not perfect. It's not, it's an iterative process, right. Anytime we identify something that we can improve from one property manager, we applied to the portfolio. The nice thing is really is that having different property managers, we see the strengths and weaknesses of each property manager and you figure out how do we make them all better and so what things can we do across the board to make everything better?   Ben Suttles: Yes.   James: So, can you name like three things that you guys always look out for in the property management performance? When you realize that someone of these three things is not going well, things are not going right.   Feras Moussa: Oh Man. I would say renewals is the lowest hanging fruit. Look and understand what's going on in renewals and how important it is because early renewals are indicative of a lot of other things. Are they following up with tenants for the renewal? Right. Did they really? That's just a-- that's the number that you can kind of look at and realize that there must be other problems going on. I would say that's my answer. I don't know about you, Ben.   Ben Suttles: No, I think, yes, I think you're right, man. Totally. Yes. I think my biggest, my biggest hanging out in delinquency because it's like that's the properties money. Like you know, go out there, how are you going to collect the rent that is owed? And so, when you start seeing that slipping and we're increasing, that's my big red flag that hey, there's something going on here, right? As our management on site, not, not doing their job, or are we getting bad tenants in there that aren't capable of paying the rent that we're asking of them may be what's the, there's a, there's usually a bigger problem going on, but yes, I mean all of these, these metrics we expect on our Monday morning report. And so, we're looking at each of these things weekly and we're also having follow-up calls throughout the week to either our asset management or asset manager or us or having calls with the property manager to track these things. So, it's not like a weekly thing. And that we don't have any kind of insight into what's happening for the rest of the week. If there's a challenge, we're having a follow-up call that week about it as well.   James: Okay. So, do you convert like renewal to percentage and look at, give that as a goal, that what you guys delinquency at two percentage and give that as a goal?   Feras Moussa: It's a balancing act depending on how hard you're pushing. Right? So, it's not like you can just say, hey, we expect 50% renewals across the board. I think it's really, it's deal specific and I mean we're looking at renewals, we're looking at least as we're looking at delinquency, right? We're looking at how much traffic came in versus how much leases got closed and then going in and really both on leases, we didn't close. What's the story? What's the story? What's the story? Sometimes there are cases where you, maybe you, no, you can go save that, that person. Similarly, on the delinquency, we go through what's this person's story? Are they going to pay? Cause really in Atlanta, our delinquency is higher than it isn't and Texas, right? It's just by nature of the market. And so, you, you kind of need to be more flexible in one market versus the other. And so really go through and understand what's the story behind me. Just like whenever we, you asked me earlier about the properties, how we analyse it, you're looking for that story. And so, we talked through each one of these and figure out what makes sense to kind of do moving forward. Because to us, it is very different between different properties.   Ben Suttles: Yes, and I, I would say targeted for delinquency, right? It's always zero. And do you know what I mean? So, the property management companies will say, oh yes, we got zero across our whole portfolio, I'm like, yes right. Do you know what I mean? Not, not the workforce housing stuff. So, you got to be realistic. But I would say your target, there's probably one to 2%, you know, on a stabilized property if you're dealing in the workforce housing space that we are and so that's usually the metric that we're pushing towards. But on the renewal side too. One thing I want to point out, right? When you're doing a heavy value add and you've got a lot of interior budget to kind of burn through and you have units that you need to update too, right? You're not going to be chasing after those folks as aggressively as you would on a stabilized property because maybe you don't have a lot of down units are a lot of vacancies and you need to free up, you know, units actually update them, right? So, you're not going to be as aggressive in renewing those folks. So, we've been able to connect like Feras says, right? I mean, you don't want to, you're not going to burn that bridge completely. So, you're constantly looking at occupancy, versus how much, how many units are we supposed to be turning a month in order to hit that target of, 60, 70, 80 units a year. Right. Because people have, people aren't moving out. What are we going to do? We can't sit on the money and there's usually a finite amount of time that we can, we can actually use that cash. So.   Feras Moussa: To expand on Ben's point too. It's almost like, we have a deal where we almost went the opposite. We don't want renewal. And what I mean by that is that one of our deals in Atlanta, we've pushed rents an insane amount on this deal. Like we're probably up 30% honestly, you know, 30 40% and we still have 98% occupants are choke when they're property managers at one day on the call, it felt to 97 and a half. And then, we called her out on it like, Oh, you're at 97 and a half, you're not a 98% anymore. And she's like, no, no, I just had someone who fucking renewed. She's back at 98, but in that deal, we have interior budgets that we need to go spend. We were literally just sitting on the side-lines. Right. Trying to, so you were kind of that balancing act is because we knew what was below market. Right. And figure out, where can we land on to where we have some people not renewing and we can go in and actually spend the money to even get, you know, that better push.   James: Yes. I think you need to look for where is the base rank, where's the base rank before you really go and spend all that rehab money. Otherwise, you can't be spending, spending, spending.   Ben Suttles: Exactly.   James: You don't know where's your base. Where is your starting point? Right. So, yes, I've had properties where we didn't even spend, we have the money yet, but we already bumped up just because people like it just because we are just a better operator than the previous guy. Right. So, --   Ben Suttles: And you'll get that. Right. Do you know what I mean? You'll just, you're amazed that how much they'll take it on renewal too. And that's great. You know, I mean, I just think it's a balancing act sometimes, but yeah, you have that, you have to kind of see where the market is and, and obviously be strategic with those dollars as well.   James: Yes, correct. Correct. That's right. So, can you give us some advice on how do you choose third-party property management? Because you guys are going in multiple markets, right? How would you give them expectations? Because a lot of, I'm sure a lot of property management company don't like, active asset managers. I couldn't control, [inaudible 59:57] I guess.   Ben Suttles: Well, hey now. [crosstalk 01:00:01].   Feras Moussa: Ben. I think, yes, I think.   James: [inaudible 01:00:04].   Feras Moussa: Well I will say though all of our property managers literally, you ask them, they say we're one of their favourites.   James: Oh okay.   Feras Moussa: So, let's not because we're active or inactive. [crosstalk 01:00:15]. Well, it's, we're doing maybe some of it, but it's more so that we're realistic. Right. I think what I was surprised to hear from them as a lot of people will just sell their property may, here's your budget, here's what you have to go, you know, accomplish. And sometimes it's not realistic. Right. I said before any of your deals because we've already worked on a budget with a property manager, we have an agreement on what that looks like, what the plan is, and we're not just picking numbers out of a hat just to make our deal work. Right. And really kind of do it the other way around. And then, yes, whenever issues come up, we're both, I mean, I hope people on the audience, I get this impression. Ben and I are pretty level headed, pretty easy to work with. And so, they understand things happen. And so, the property management companies, at least they enjoy because we're easy to get a hold of. We understand what's going on the deal. And we're realistic. And so, because I've asked them and pretty much all of them have said that we're one of, we're one of their favourites. Right. And so, --   James: Okay.   Feras Moussa: Now, that said, maybe to answer your question, Ben, do you want to answer? Do you want me to answer?   Ben Suttles: I mean, I, I think, I mean, you've got to be stern, but at the same time, you can have a friendly relationship with them at the same time. Right. But I think it's all about setting the right expectations and just betting them in general. I think it's, it's all you usually start off with referrals. Right?   James: Okay.   Ben Suttles: But I think some of the big things are as, go take a look at some of their properties too. Go secret shop those deals, so you're going to say, okay, hey you, you're a good referral on whatever market. Right. Give me three of the assets that you, and then you fly out there and you go shopping. What does the property look like? Is it clean? Is the management, is the leasing agent and the manager, are they friendly, are they knowledgeable of the property? Are they good or are they leasing it properly? All of these things go back to the property management side and, and as long as that's, that's kind of coalesces with what you've heard about them and everything. That is good. Obviously, the fee has to be online and those roles have, the references have to be there. But I think the biggest, the biggest asset test for us is, vetting the deals that they currently have, and do we like what we see, and they call them out, right? I mean, if they don't, if there's a deficiency saying, hey we went to Xyz property and there's trash on the ground, what's the deal with that and then how do they respond to that? Because that's going to be, -- there are always challenges, but it’s how you respond to those challenges is what I'm looking for on the property management side.   James: Yeah.   Feras Moussa: And then a couple of things too, just to add, I mean it's about what's kind of, what's the impression and feeling you're getting from them? Right. And, and working on a budget with a property management company is actually a great exercise to understand how they look at things and how are they going to meet what you're looking for. And I mean that in multiple, always, right? A, are they, -- is their budget realistic? Right. And B, is there pushback? I mean we actually like when they push back, right? If we say, well we think we can run payroll at x amount and they're like, well no, payroll is going to be this amount. Here are the 10 properties we have nearby to prove it. Right? That's good. Versus we've had property managers that are essential yes people, right? That'll say yes to everything and that's not at all what you want because we need something realistic. We're not trying to, we have millions of dollars at stake, we have other people's money. We're not here to just take a gamble. So, looking at that and kind of what we've found success in is really the people that are in that five to 15,000-unit range, right? The 40,000 guys in too much, they don't care about you. The guys that are smaller, there's just a lot of them. You know this first-hand. There's a lot of back offices that need to happen for a successful property management company. Right. And so, we found that sweet spot seems to be that five to 15 and then to where there our portfolio is enough volume for them, right? That we kind of get that professional preferential treatment where needed and at the same time, right, they're developed enough to be able to, kind of take on and succeed with it.   James: Got It. Got It. Very interesting, very interesting. So, let me ask some question about more the personal side, right? So maybe each one of you can add in on your own site. So, what's, what do you think is the top three things that are the secret sauce, for the success that you guys have been having in terms of closing deals?   Ben Suttles: All right. Go for it man.   Feras Moussa: Partnerships and relationships, right? Most important, first and foremost, right? Being willing to partner with brokers, property managers, other partners, partners, right? On the GP. People that can help us, would the deal, right? Whether it's helping with construction, hel

James: Hi Audience. Welcome to Achieve Wealth podcasts where we talk about value-add and real estate investing. Today, I have two great guests. The company's called Raven multifamily, we have Ramana Korada and Venkat Avasarala, both of them own almost 2000 units right now, class B and C in the Dallas market and they're under contract on another 300 units and they had been looking at other markets as well. But let me get them to introduce themselves to you. Hey guys, welcome to the podcast.    Venkat: Hello James. Thanks for having us.    Ramana: Thank you, James. Thank you for having us.     James: Yeah. Did I miss out any of the introduction a section for you guys? Do you guys want to add anything about yourself?    Venkat: No, I think that that sums it up.    James: Okay. Okay. So you guys had right now all your deals in Dallas, right? And you are looking at or you did have some deals in the other markets as well. Can you explain what were the other markets and why did you guys focusing on Dallas or exploring other markets?    Venkat: Sure. So myself, hi, I’m Venkat Avasarala and along with Ramana, we partnered back in 2016 to get started with apartments and we both live in Dallas. But Dallas, as you all know, it's a pretty tight market, a very competent to market and you need to have a resume in order to land a property, right? I mean most often than not. So as we did not own any properties back in 2016, it was even so hard to even buy a 60 unit property awarded to us just because we didn't have any resume. So Ramana came up with this thought, you know what? We can keep doing that eventually, probably will get something. But if you want to expedite this, let's get out of the DFW market. Prove ourselves outside the market where the market is not very competent.  So that's why we went to Oklahoma, we bought a hundred unit property there, it's a C class property, but in the town of Norman, Oklahoma College town, and we showed that expedience and bag the 120 units deal in Phoenix. And Phoenix, back in 2016, was a really mellow market; right now, it's very hot. But back in 2016, not so much. So we showed this 100 unit experience from Oklahoma and we got the 120 unit deal in Phoenix. Then we showed both of these and bought our way back into Dallas where we live and ever since we were buying in Dallas and we didn't go back outside of Dallas ever since. But it had to be that way back then.    James:  So you guys went out of Dallas because you thought Dallas was overpriced and came back to Dallas once you have some track record, right?    Venkat: No, not really. Not all of time because it's just that we were not being awarded the deals.    James:  Oh, okay. Got It. Got It. That makes sense. Ramana, you want to say something?    Ramana: Yeah, same thing. We were not able to get hold of any brokers or sellers attention because we didn't sell any properties in our portfolio. These two properties from the other markets helped us to get in the Dallas market.    James: So that's very interesting because starting 2015, you guys went to Oklahoma or is it 2016?    Venkat: June 2016.    James: So 2016 to 2019 now, which is still early 2019, you guys have accumulated 2000 units. That means you have found some secret sauce in Dallas market on how to win the deals. Can you explain what is that secret sauce?    Venkat: Yeah, Ramana, you can weigh in man, how about you want to take this?    Ramana: No, I think you'd do better.  Venkat: And we strongly believe that real estate is a people's market, right? I mean it's a relationship based business, so it's what you can influence other people, right? So, I don't know what exactly it is, I cannot articulate, but basically, I think we heard it from brokers and other investors and our peers also. Basically, we come out very thoroughly prepared. We are both from IT background and you can relate to this yourself because you had enough background as well. We don't walk into any meeting without prep, right? So we prep and we prep and we prep and when we have the meeting we run it in an organized fashion. We come out very prepared and organized. And after the meeting we take meeting minute notes, right? And basically, we work towards every single day of getting things done on a timely basis.  And this is something that we brought along with us from our IT background and I would like to think that, you know, we kind of impressed upon our brokers or whoever we were working with and also we have a track record, right? So we try our level best and then some to always do exactly what we say. And when you keep doing that, you kind of develop a track record and people like to work with you. And I would say that other than that, it's not rocket science at all.    James: So let's go a bit more detail into that, right? Because it's important because a lot of people cannot find deals or could not win the final interview. We know whenever they go in the best and final round so I think that's what you mean when you go into a meeting with the broker or the seller, you guys are really prepared. So let's dig down deeper into that. So let's say when a deal comes, I know you guys underwrite it and you submit your deals and I think it's as usual, you want to make sure you go to the best and final, right? So and after that, let's say you go to the best and final where you get interview into the seller. So what exactly do you guys do to the confidence of the seller?    Venkat: Sure. I mean, so let's take an example off the 306 unit property, our very first property in DFW, right? So we didn't have, yes, we own about 220 units outside Dallas, but nothing in Dallas. But our very first property in Dallas had been 306 units, it's called Tradewind Apartments. Marcus [06:21unintelligible] sold that us so we were underdogs there. We won this particular property in an interview, a literal interview. Like where the seller was actually interviewing us and one other party and then they chose to award it to us. So again, the idea is the best and final, these interviews are just the closing part, but the whole process actually starts well in the beginning, right? The day when you go to actually tour the property, you better show up with all the relevant information, thoroughly analyzed and reviewed on your side and just don't go ask some basic questions.    Show the broker that this person actually wants this deal. They invested a lot of time and effort into this thing and come up with some relevant questions that you cannot get out of an OEM or a T12 or a rent roll, right? And then discuss with a broker, basically, get some help with underwriting on, just enroll a  broker into the underwriting process. I'm not saying that you should just underwrite based on exactly what the broker says, but involve them and make them a part of the process so they will get also invested into this process of your acquisition process. So you build up from that and then you put yourself in broker shoes and seller's shoes and say that if I'm a broker, what would I want to see in buyer if I'm the seller, what I would want to see in the buyer?     So in that particular case, we came to know that the seller was thinking to refi it and they were working with one particular lender at that time. And guess who we tried to get the courts from? And guess who we put on the interview call? We brought a broker from the same exact company.     James: These are the lender's broker, mortgage broker, right?     Venkat: This is a mortgage broker. And actually a DUS lender, in this particular case actually we put a DUS lender on the call and the mortgage broker, but from the same exact DUS lender that the seller was trying to use and they had the loan, they already had the loan with that particular DUS lender and they're trying to refi the loan with them. So again, remember, this is our very first deal. We don't have a lot of track record and we have zero track record in Dallas. See when you are well established and you probably don't have to try this hard, but you always have to assess your current situation and try to put yourself in other people's shoes and see what they are looking at, you know, when they're looking at you, what are the seeing and try to see what I can do to gain advantage. And in that case, that made a hell of a difference because we brought the same DUS lender and they felt instantly comfortable because the DUS lender batted for us and say that, yeah, I mean, these people have checked out, this is what we are looking at on the loan proceeds and all that. So instantly they became comfortable and they awarded us the deal.    Ramana: I know we close two more deals with the same Marcus broker, that's how best to get the DUS lender on the call. If it was a fast deal, they wouldn't care to join. But that kind of helped us, [09:38unintelligible] helped big time.    James:  Okay. Yeah, that was one of my question. How did you know the right DUS lender, right? So how did you guys find out that this was the exact DUS lender that the seller was using?    Venkat: This is Yardi and all that. This is common knowledge, right? I mean if you actually go into Yardi and put the property name, we know who did the loan, what is the loan amount, the terms and all that. Luckily, we happen to use the same exact DUS lender for our property in Oklahoma and Arizona so luck kind of favored us there. But even if that wasn't the case, we would have gone and got that particular DUS lender onto the call one way or the other. We already figured out all the details, but always how to work towards what's the end goal.    James: Okay. Got It. Got It. So just to clarify for the audience, DUS lenders are usually, DUS stands for delegated underwriting services. Basically, Fannie Mae gave like, I can't remember how many, 30 or 60 DUS lenders, how many?    Venkat: 40    James: 40 DUS lenders across the nation, which is the delegated underwriting portion of it to these lenders to help them underwrite because it's just as a part of their scheme for them to do the business. So basically, you can get access, I mean, you can Google DUS lenders and get access to them or you can go to your mortgage broker to get access to a DUS lender. That's right. So coming back to the preparation to meet broker when you're doing your tour because I think that's important. A lot of people, including me, I just go and say hi and bye to the broker, but usually I underwrite my deals if I go and see them.  But how to be really, really prepared when you go and meet a broker because I think that's important as you mentioned, it gives a lot of perception to the broker to say that this guy is really serious. They are the liaison to the seller and if they can give a good word out to the seller, that takes a long way. What are the things that a person need to be prepared before they meet the broker for a tour?    Venkat: Sure. So what I would say is that number one is there are three components in my mind that I have to check, right? So one is the business plan itself or am I buying into this business plan or not? Because every broker has a pitch, right? Sometimes, right? And the more repeated the broker is, the more accurate at whatever they put in the OEM that you can subscribe to that, right? I mean the more repeated the brokerage is. But still, you have to wet that. Like for example, one of these brokers always puts, you know, you do the small patio extension and you're going to get $50 rent bump. It might be true in some cases, right? I'm not saying that doesn't work at all, but may not work in every submarket, in every neighborhood, right? So you have to go look for the comps and all that and you can drop those names of those.   Like for suppose, let's say if I go to see this particular property and I tell the broker, hey, I read what you wrote in the OEM. So basically you're saying that if I spend about $800 extending this patio, then I'm going to get a $50 rent bump and I cross-checked with that, that that property and those two properties are already getting it. So I kind of agree with you. So this is how you make a connection and involve the broker onto the team. And I'm not saying that you have to agree on everything, but find the common points. And also even when you try and go into the negotiations into tough negotiations or anything at all, start with the yes. Find something which we both can agree upon and start hitting those points.     And once you build up a yes, momentum, yes, yes, yes, yes. And then you come to a point where we don't disagree, but since you have established the Yes momentum, right? So you both parties would be more willing for a compromise. That's a small detour from your question, but that is what I tried to establish. So basically I go through all the business plan and then discuss the same with the broker and kind of establish a rapport. Seeing that, yes, you wrote that, I verified it, checked out, it checked out. So I'm trying to build a rapport here. Then comes to this question, say water savings. I see that you think we can make that kind of water savings but in my experience, that didn't quite happen that way or all the time; what do you think? Where do you think you got that?    So what I'm trying to do here is I'm trying to build a rapport with the broker on every aspect that shows that, you know, this guy really spent time, effort, made calls, did everything he has to do. So in the broker's mind, you're trying to get ahead of everybody else because and not many people may not do all the ground the legwork before showing up and touring the property. The second thing is debt right? Obviously, you have to pull debt, you know, debt quotes and also you have to share that information, right? You may not have to share exact terms and all that, but some general idea on who you're working with debt and try to give that comfort feeling and everybody knows everybody these days, right? But if the broker knows that, yeah, you know, okay, you're working with that broker, I know him really well. That's kind of, again, the second leg of coordination over there.     And the third thing is equity, right? The broker will not ask you all these things. He will not, most people don't feel comfortable quizzing you like this, you are kind of [15:06unintelligible] there. So they're trying to show you the property, trying to sell you something, but they're not going to interview their, right? So they're not going to ask you how prepared you are, they're not gonna ask you where you're bringing debt or equity from. But if I think, I take the initiative of sharing the way I'm approaching on these three friends, the business plan, how I'm underwriting, how I'm bringing my debt, how am bringing my equity. I share that with the broker and I personally think that will help you go several rungs up the ladder and the ice with the broker.     Ramana: Just to add there, you have to make sure that you go through all the financials that the broker provides. I mean obviously accurate, but you test if it fits into your business plan. You know, make sure that, for example, water conservation, if you want to do this conservation, we have to make sure the water bill is high enough so that it will help you reduce your expenses. I mean you have to read through rental like left to right, right to left, top to bottom, bottom to top. Make sure to find anomalies, you know, just to make sure you're not getting into something you really don't want to. You can tune up the property but not be unbearable neighborhood, right? So make sure you understand what you're getting into. Like when concerned, if you plan out on the equity and debt and as long as you're well-prepared, you have a pretty good chance chunk, but you can get into it.    James: So you guys would have done underwriting and ready to go. You wouldn't be for meeting the brokers, is that right?    Venkat: That is correct. We only will show up at that property only if the numbers work, otherwise, we won't.    James: Yeah. Yeah. Same thing with me. I learn everything first before going and see the broker. I know a lot of people who whenever a deal comes they say, well let's set up a tour first. And then later go and underwrite it. But I think the bad part about doing the second option is basically you missed the opportunity to show how serious you are with the broker. Especially on a hot market like Dallas. Because you know, they want to make sure that people come prepared and spend their time wisely, I guess.    Venkat: No, I would say that no reputation is better than a bad reputation. Again, if you start hitting up all these brokers without prep and if they get a gist that you know what? This guy is just showing up, you know, it won't work well. But I concur with you there. The prep is the key.    James: So do you guys look at every deal that you get through the mail, through the broker email blasts or is it more through personal relationship or what?    Ramana: We do take a look at each and every bill that comes into our mailbox, but doesn't mean that we underwrite each and every deal. We want to make sure the location, location is critical, right? We want to make sure we are buying the properties in the right area. The median income, demographics, traffic, the property has to be located on the road if it's not near the main road, yeah, you have to spend extra dollars to market the property. So we have a few pointers that we look for in each property. If it doesn't qualify, we just delete the email.  James: So can you list down the top three things that you look for? It's basically a sniff test, right? What you're doing is the sniff test?    Ramana: Absolutely. So location is critical, median income; the look and feel of the property. I mean, we can improve the property, but you cannot make a class C property into a class A property. But location, demographics and median income, those are the things that we start with.     Venkat: To add to that, if you want to dig deeper on that let's say, we see a small culvert or a stream or something like that, we immediately check the flood zone. I'm not saying that you should not buy flood zones, but you know what the insurance will go through the roof. So as long as the underwriting works with a bigger number of insurance, then it's fine. And another thing is let's say if you're trying to buy 150 units and right next to it there is a brand new 2008 built low-income property with 450 units, I wouldn't go there in there because it's hard to compete. It's a much nicer asset, a newer asset, larger asset, and low income. There is no way I can turn a profit there any easy way possible. So these are the kind of things. Again, the first thing is this, you actually need to read the OEM and reading OEM literally takes about 20 minutes.   You can skim the data. You don't have to read every word. There are a few sections, like a section where the broker actually talks about the strength of the location and talks about the strength of the property, right? The asset itself, like it has new rules, things like that. So as you read them, what happens is you will have a farther need to look into few things and obviously, you look at the property and the Google maps kind of thing. And also read the reviews. Google reviews, apartment.com reviews, oh my God! I mean it tells you a whole lot about the property.     James: So you look for good reviews or bad reviews?    Ramana: I only looked for bad reviews.    James: Absolutely. It's value add, right?     Ramana: Yes, yes. For example, recently somebody sent us a large property on MacArthur. Now, this is Mac Arthur Irving and what's there not to like, right? You know, decent. But then again, we started looking at it and we see that 95% of them are one bedrooms. Nothing wrong with that. It's not something that we are very thrilled about. It's hard to keep tight on the families there with one bedroom. We want larger units to at least two bedrooms where people pile up all the stuff and you know, there should be a barrier to move away from your property. All they have is a [21:18unintelligible]  and a bicycle.    James: Yeah, the turnover is really high. What about the median household income, what's your criteria? Because that's part of your sniff test.     Venkat: Yeah, so I would say that we wouldn't look at anything less than 35; 35 is like really, really bottom so everything else should be strong. Like there should be a strong value add component. If you are buying at $35,000 one mile, only one mile matters. We don't even consider, we don't even look at the three miles and five miles and all that. Only one-mile matters in our book. And if we are trying to buy a property with $35,000 household median income, everything else better check out very well, right? Meaning the quality of the assets should be okay. The demographic mix should be okay, we don't want any concentrations. And then there should be at least like 50, $7,500 rent bump. Then we would venture into 35. Anything less than 35, it's just not worth it.      I'm not saying you cannot make money on this. I know a lot of people who really do well buying roughest properties. It's just that we are syndicating these deals so we are taking money for investment, we are taking money from working people who actually had to work a year or two to amass that 75 or $100,000 that they're giving to you. It's just not a proper way for us to take that money and going to riskier assets. Maybe the reward will be good, but it's just the risk is also high. So we just don't look at that lower end of the market. We try to sit between 35 to about 60,000 median income. Obviously the higher the better.  Ramana: [23:00unintelligible] Definitely. That is something we don't need to spend a lot of time--- of course, with the property we will come up with some value add strategy but we don't want to buy a C class property 23:18 when you can buy class A for 5 cap. That's another item that we look at before we delete the email  Venkat: Obviously, in order to get the whisper prize and it's all the stakes, again, once you keep doing that, you'll just do it subconsciously, right? I mean, you don't sit there and make a spreadsheet to track all these things, but you know what the key items that you need to know, the deal breakers basically. So for us, right now, if you see a large flood zone, it's a deal breaker. If we see a concentration of a particular demographic, it's a deal breaker like that. So basically once we weed out all these deal breakers and spend about 10 minutes, 15 minutes, and Yardi is a great tool to do this, right? So once you run Yardi, it just becomes so much easier to check these properties out.    James: Absolutely. Do you guys look at the rent range? I mean, you can buy a big property as well, right? Like a big townhome, right? Do you guys look at that and I know you don't look at the one bedroom, there are too many one bedrooms. I mean you're not thrilled about it so much. So do you guys look at the rent range?    Ramana: You mean to say like surrounding properties like single-family properties..?    James: No, no, no. Not Single family. So let's say you can buy townhomes, right? Which is like 1500 1600 a unit rent per month. Do you guys look at the kind of deals or it doesn't matter?    Venkat: So we don't own any townhomes yet. We are not opposed to it. But again, what we're looking for is renters by necessity, right? So as the rent actually goes up and up, let's say, 1300 1,416 or 1800, you better be in a really nice location, right next to a big financial business district or something like that so that you don't have to worry about, you know what? Yes, my rent is $1,800 but I don't care. You know, once this tenant moves out then somebody moves in. Unless that is the case, the higher the rent, I personally perceive it to be risky to play in that area. We don't want to be at a 500 $600 rentals, so the sweet spot is something like on a one bedroom, maybe 800 to let's say 1200, 1300 on the higher end. That is our sweet spot.     Again, this is where you get renters by necessity and also the larger the unit, what happens is they accumulate stuff and it's hard to wow. Because I was a renter once and when I was in school all I had was like my cycle and a couple of suitcases and that's it. It was so easy. I moved like four different places in two years. But that experience is something that I can never forget. So we want people to come in and also not just because of the luggage, we want people to stay there because it's a nice place for them to be as well. So again, we look at the rent roll, that's obviously the next step, right? If  like 90% of these leases originated in last one year, obviously that tells us something. So we're dealing with a high turnaround on the property and it's really tough to operate those kinds of properties as well.    James: Yeah. Yeah. I would say the volume of renters reduces at the binomial curve. You have the binomial curve in the middle where you have certain brand range where you have a lot more renters. When the market shifts and goes towards the end of the tail end of that curve, you're going to have a less number of people. And when the market shifts, you know that people may not be there anymore. They're like class eight people. So it's a slightly different market.    Venkat: So renters by choice, that choice can change at any time. Maybe a guy go meets a girl, they get married, have kids. Well, they don't want to live in an apartment anymore, they want a house.     James: They're not going to go to a high rise building. Right?    Venkat: Yes, there you go. So we want people that they are renters by necessity, so they'll continue to rent. Now then what happens is, okay, what do I do to just keep them there? Just treat them well, take care of their work orders. If they really want to move out, offer them an upgraded unit for a smaller bump or whatever the retention measures kick in at that time.    James: Okay, got it. I mean in the beginning you had a lot of on market deals, right? Where you see OEMs and all that. I'm sure at this point in time you get a lot of off-market deals, right? So it is that right?    Venkat: We do, but unfortunately this is the nature of the off-market. Off Market is technically not off-market. We bought this property called Surround in Irving and we closed it on February 21st this year. So very close to that, there was another 200 unit deal which came off-market and they were asking 95 a door. It's not penciling in 95 a door. So it's like no, the seller is going to list it; let's move, let's move, let's move. And then what happened, the next week a very big brokerage actually listed it and their risk for price is like 88. That's $7,000. So more often than not, what happens is that owners want to test the markets before. They obviously have some kind of thought on who they want to list the property with, but before they do that, they just flood the property around.    James: They want someone to underwrite it for you.      Venkat: Just to see if anybody will take a bite. It's worth the shot. I mean, it doesn't cost anything, so why not? But we do get, I would say about our nine properties, I would say about one, two, three, four;  four of our nine properties are off-market, they're true off-market. Meaning, nobody else is looking at us. It's just us and nobody else. That is how we define, they're very far and few between so we're not going to hold our breath for that but we sift through all the so-called off-market, which come through our table looking for the next off-market. But we are not opposed to buying the listing deals also. And one of the issue with the listing deals is the smaller the deal, the greater the number of bidders.     Right now there's a lot of euphoria and the market equity and the debt, everything is available and that translates to the bidding wars, right? Up until October of 2016, oh no, actually February of 2018 we were buying around 140, 150 unit, that asset class, right? I mean that size of the properties. Then what we notice is like every time we had to fight with so many people, we compete against so many people. So in order to elevate ourselves from the competition, then we started buying 300 units plus and our last four deals, including the one which we are buying. So we did the HRV, Cielo Surround and this one. So yeah, I mean our latest four deals on average, the average size of this is 350 units and here you get a lot less competition. So you get a much nicer product for a decent price. So that's what I would say.     Ramana: So on the same topic, the market is so hard.  Sellers are trying to get off-market. I mean off off-market. Definitely, they're just testing the market and giving to the broker who can get the best. But is it really happening? Not in every case. For example, we looked at a property in Jacksonville, this broker was displaying at 87 a door but ended up being sold at 78 a door; $9,000 per unit difference. Sometimes we get scared, not scared, but to tie that off-market prices not making sense at all. No property is getting right there. The market is so hard, so nobody is going to, I mean I wouldn't say nobody, but it's tough to make these off-market deals work out.    James: Yeah. It's called off-market premium. For me, off-market means unless the broker knows you, that you are the best buyer for some reason. And they come to you and say, Hey, you know, we only are giving up to three people and that we think you would be one of the better ones because you have properties nearby or you like this kind of deal that's an off-market, right? Or the deal falls out of contract and they want someone to close it quickly, that could be an off-market. Or, you're buying it directly from the seller, that is a real off-market. All other things is actually on-market but the term off-market to make it sound sexier thing, right?    Venkat: In our case, all these four properties, we got to buy them weeks. All four of them [32:24unintelligible] getting listed. So actually they had a listing agreement and they're working on the OEM and it takes them two to three weeks at least to launch them.  Because they had to send them somewhere to take pictures. They have to right up, underwrite and all that. So while that is happening, probably some brokers feel comfortable showing it to some of their clients. And all these four properties had we not buy these four properties, they would have hit the market with the same listing agent.    James: I think even for brokers is much easier for them to find a buyer and just close it off-market. Otherwise, they have to do [32:59unintelligible] they have to do your best and final. There are so many processes, there's that's property management stuff, getting visits and all that. So much pressure, right? So you'd rather do it the off-market, but I think they want to find the right buyers and the right buyer needs to move very quickly in the off-market situation if the numbers work out.    Venkat: And I think the seller psychology from what I have seen in the transactions. Our transactions and the other transactions, what I saw James, is there are two types of sellers, right? Hey, I got in at 40 a door. As long as I get 75 a door, I'm more than happy, right? I'm way past my projections. My investors are happy. I'm happy, I want to get it done quick because now time's money, right? Because I'm planning what to do with this money. The interest rate might go up, then maybe I will not get 75. The smart sellers, sometimes what they do is they work pretty quick, right? They are very agile so they work with one broker. Sometimes you won't believe, you get the same single deal from half a dozen, it happened to me. Over the period of two to three days, six different big brokerages call me with an off-market property and this seller didn't know what he was doing. He just blasted it out to all the brokers and that's how not to do it, right?     But all these properties that we bought are something like, you know what? They understood that a lot can change between now and four months, which it takes to actually market the property and sell it that way. So if somebody wants to move quickly and if they have a number in mind, as long as somebody is gonna pay that number, they'll transact off-market so that hasn't been the case. The other kind is, hey, I'm not in any hurry. I don't care what I bought at that. I want to see every last dollar, maybe 75 is not going to, maybe somebody will pay 78 a door, let's see what happens; a little bit more adventurous kind of people. And especially if people do that if they have nothing to worry about, right? I mean, they don't have a big prepayment penalty and interest rates are pretty stable or whatever the case, they will go that route. So we try to work with our brokers so once in a while, they get to transact with this type of seller, which we just talked about in the first case. Whereas, as long as you pay them this price, they're happy, right? So that is the kind of properties that we want, those are the true off-market properties if you ask me.    James: So Dallas is a super hot market, right? What are the things that you guys are doing differently in the contract terms to get these deals?     Venkat: Ramana, you want to hit it?    Ramana: You mean to say PSA?    James: Yeah, what are the tips? Like day one, had money, feasibility period, the water. What are the things that you guys think is essential to win a deal there?  Ramana: So we are being [35:53unintelligible] there, we want to work with sellers and brokers in order to make everything smooth for them. The market is like, I think 30 plus 30 or 30 plus 45, but based on our experience, we can close even much shorter time period. But just to keep or build some wiggle room, we are doing 21 days DD and got 39 days for closing. Usually, we have a question for a couple of extensions with additional hard money. I've seen some cases like a couple of 30 days extension. [36:36unintelligible] everybody's case is different, but it's working that way as well. We are doing, before getting into any property, making sure that this is the property that we want to buy so we are comfortable giving the day one hard money. Not a whole lot like on 1% on every deal but what is reasonable for the deal, we are just coming up with the hard money, day one.    Venkat: And James to add to that. So our comps are not vastly different but here's the differentiator on us, right? We work really hard to close the property ASAP. And the worst case scenario, one day before the 60-day mark, right? Just like Ramana said, obviously, we're not trying to be a cowboy here. We have signed a 60-day contract with couple more 15-day extension. So technically we have 90 days to close but we won't use it. We work as if we only have 55 days to close. We do it for a couple of reasons. When we close this property well before the 60-day mark, it really makes the broker look like a hero in front of the seller. The seller will be like ecstatic, oh my God, I mean you got me the best buyer, right?     So we work towards making our brokers look like superstars, that's the mindset that we have. Like, suppose we purchased a 400 unit property and we went into contract on a Friday; Monday, Tuesday, Wednesday, all the duties are done. We do ask for 21 days due diligence, but Monday, Tuesday, Wednesday, all the duties are done; on a 430 2-unit  property, with two different lenders, walking all the units, checking everything which needs to be checked. And the reports will be spit out by, by Friday, the following Friday, right? So it's just that we work so fast, so agile if you will, and in a very organized way with a lot of communication, a broker doesn't call me.   Right now, we are under contract to buy this property 330 2-unit property in Fort Worth. It's been a while since I spoke to the broker ever since we went into contract about two weeks back. That broker doesn't even call us because he knows that things get done. So that is the reputation that we carry forward, every deal, we close it that way. And even in this case, we have a 5/27, on May 27 to close the property; right now, we brought it forward by 5 days so we working to close by 5 days before. And we are even working harder to see if we can even close on May 15th. The idea is to treat your seller as your customer, right? And treat your broker as your customer and give them the best possible experience. Smoked, right? I'm not saying that you agree to everything that seller says or the broker says, that's not what I'm saying at all. If the  the more you prepare, the more organized you are, the smoother the transaction would be. I don't wait until a lender asks me. Ramana and I, keep everything ready, anticipating that broker will ask that, a seller will ask that, a title company will ask that. So just run a tight ship and more importantly, equity. Equity is nine out of 10 times that is the one that gets delayed. So as soon as the LOI is signed, we start working on a flyer, we send a flyer out in the same email, we schedule the webinar. And then we do the webinar asap so that we can quickly get the money in the bank to do the transaction.    James: Yeah. Yeah. Brokers love buyers who are very, very organized and get them to look like a rockstar. Ramana, you were saying something.    Ramana: Yeah. So just to add one more thing on the PSA. Like you know, nowadays with the day one hard money, also in the agreement, get enough time to check on few high-cost items would be a good idea. Some sellers would allow and some do not. But you have to make sure you have like an applied GC who can do an inspection if they can come up with some numbers, some check-boxes that would help buyers as well.    James: Got It. Got It. Got It. Yeah. The smoother we make our broker's life, which is what a buyer's responsibility should be. I mean, you have to be really, really prepared in terms of aligning every equity, lining up your debt, lining up your insurance guy, you know, so that the broker doesn't feel the pain and that's where they're going to get more deals coming to you. Because for them it's like, oh, this is so easy to make money with these guys. I mean, I have to convince the seller to a certain price. Now I have the right buyer, let's do more deals. I mean, ultimately everybody wants to close deals and get their commissions. So that's important.    Venkat: So just to add to that; in a market like Dallas or Phoenix, the hot markets. A seller might ask, why should I hire a broker when I'm getting unsolicited offers, people with good resumes and all that? So why should I need a broker? So the brokers kind have to justify, and it's just not meeting expectations, but they have to exceed the expectation if they want to be the top player in the market. Because 20%, in our case, I think maybe 10% of the brokers in the Dallas market does 90% of the deals. If a broker wants to be in the top 10%, they have to consistently exceed the sellers' expectations so they're already working under a lot of pressure. So if you can make their job easier, their life easier, oh, they'll love you for that    Ramana: Oh, absolutely. Yeah. It's not one-time business. It's for your life. That's repeat business that comes in the picture.    James: Absolutely. Absolutely. So let's go into a little more detail into the value add stuff. So you guys do a lot of value add. I mean, how deep of a value add do you guys do? I mean right now on the recent few deals that you guys have been doing,    Ramana: So last October, it appeared that interest rates are going to take off, they're not gonna come back. What? We hit 325, I think, on the 10-year treasury and people started doing loans at 5.4% 5.2%. I mean it was crazy. So then we had a big mind shift, right? So if you want to go buy something with a bridge loan and try to settle it into a permanent loan, God knows. I mean, it seems bad once it starts raising traditionally until they go all the way to there. We kind of started take and also we are so late in the cycle, right? I mean usually, a cycle between recession is about nine to 10 years and it's been nine years. The last time the recession ended was back in 2009 and we are in 2019. So we are actually at the end of one of the greatest periods of economic expansion in this country. So right now, we are off taking some different sub posture. What that means is again, we don't want to do a straight yield place. Yield is good because you go there [44:01unintelligible] 10%. If they don't have the value add, next year, maybe your expenses will grow faster, you earn your income and maybe that'll become 8% and then 6% and then 5%. So we definitely are not looking for very deep value add distressed assets, nothing like that. But as long as if there is at least a 30 to 50% left meat on the bone, then we are going into these deals with an expectation that we are going to do that value add and it's a good yield place. The good yield place usually gives you a good leverage. On our latest deal, we got what, 83% LTV, 70 in FIO and 154 spread. So right now, we just locked the rate a few days back and our locked interest rate is 4.19%. So good cash-flowing deals, make sure that you get a good deal on the debt side as well. Then there's some value add left.     So that is the portion that we are taking. We have to see how this 29 goes because we're keeping our ears close to the ground. The reason is if there is anything coming our way, but we don't want to be caught in a very deep distressed asset doing the major value add where interest rates take off on us. Or even worse if that decision was to come here. So that is our current state. But even when we are most aggressive, we always go for 90% occupied property; we don't believe in buying 40 50% properties.   Again, the kind of equity that we are using right now, we don't want to assume that kind of risk. Obviously, it's a high-risk value-add game, but we are accepting equity from individual investors. Most of these people are not super rich or anything like that. Most of our investors are wealthy but they're not like super rich or anything like that. They really need their money back, what they gave and the profit that we projected. So we are only buying 90% occupied properties with a verifiable value add. When I say verifiable, either the seller prove it to us or within the same property, he has to prove it to us or we have to be able to verify with the--- it should be 46:08  of debt. You shouldn't have to dig deeper to see the value add. If we have to dig deeper, that means more often than not...    James: There's no real value-add.     Ramana: That's only a good value for the next buyer.     James: So in your experience doing all this value add, light value add, I know slightly heavier value add, what is the most valuable value add that you guys think makes the most bang for the buck?     Venkat: I would say floors, definitely-- before we go into the floors and all that. Right? This is what, when we start the business, we couldn't care less about how the exterior look. We were always about interior. Our thought process was, hey, where does the tenant wants to 99% of the time when he's on the property, where does he live, inside the property, not staring at the buildings, right? It makes perfect sense to spend, let's say if you only have $1100 only spend it on the interior and make it look nice and that gives you a bump. Well, we kind of dial back from that kind of mindset. Right now exterior is more important to us as we saw a lot of deals being done, even up from our deals and all that. What we realized is first you should be able to attract a quality tenant, right?     A quality tenant has several options, you know, because we are a capitalistic society, there's a lot of competition in every single thing and apartments are not different. So everybody has some kind of upgrade or some kind of special, hey, my property has a water view or whatever. So constantly they are competing for our tenants here. So in order to first attract a tenant, as soon as a good tenant sees your property, that person has to take a U-turn and come see us, right? In order to make that happen, obviously, your exterior should look good. Otherwise, if it looks like crap and they're not going to stop.    James: They are just going to pass right by.      Venkat: They're not going to come at all. So that I would say, I mean, let's say if you have a very limited budget, you can just do the exterior. Obviously, what that includes is the paint and what I would tell people is, again, just change your mindset on how you see a value add at a C class property. I mean, 10 years back, Dallas is a second tier, it's still a second-tier city, but nothing to speak of, right? But a lot has changed in Dallas in the last 10 years or several Metros like San Antonio, Houston, a lot has changed. So treat these C class properties with some respect. And what I meant by that is higher a designer. Please don't pick your own colors. Hire a designer, see some renderings and make sure that you incorporate the elements. They're not really expensive, right? Corrugated metal, horizontal cedar planks, things like that, right? Throw some design elements into it and basically, the whole idea is this; there's only so much you can do to a 1960 property to make it look modern but a little bit of design with almost the same money. You don't have to spend a vast amount of money.     We spend about five to $10,000 in design and it's really well worth it because we get renderings, very good recommendations and all that and make the property really pop. So that would be my first step value add. And then we dial into these things. Like if you go into the interior side, obviously, your floor, number one, then appliances. Number two is appliances. And we love appliances. Let me tell you about appliances. The beauty of appliances is as soon as you go into the property, if you see new appliances because everybody's directly going to the kitchen, everybody's curious to see how the kitchen looks like, right? They would forgive you everything else except for appliances because that's something that they use almost everyday. The touch, the feel, even if they host somebody they don't want to cook on bad appliances and all that. The beauty of appliances is it does not cost you a single dollar in labor. You call somebody, they drop it off on the day when people move in; zero labor and you can mostly sometimes you can buy gently used appliances. You don't even have to shell out 1500 2000 anymore for a BNC class finish out. And you can sometimes see 50, $75 in [50:30unintelligible] so appliances in my mind is number one for me, but we kind of put it in the number two because the floor is obviously important because you cannot miss it. If it looks bad, you gotta deal with it. So those are my top two.    James: Ramana, you agree with that?    Ramana: Absolutely. So we've been doing the same thing in pretty much all the 2000 units. Right? And to that, definitely, the cabinets and the backsplash has to pop up in the kitchen so that, you know, they'll spend that extra time while you're cooking or whatnot. So all that is good is like electric and the plumbing fixtures, accent wall.  Every little thing adds up. On the exterior side, to attract the right tenant like Venkat said, you have to make sure it'd be [51:24unintelligible] Landscaping is good enough, you have to focus on that. The signage. Signage has to be good. [51:35unintelligible] with bad landscaping and not good signage.[51:44unintelligible]  you have to make sure it presents to the current market standard. So if you do that, you can attract the right tenant. A quality tenant is crucial in this business. The guy has to come in and he has to like the property and he has to pay the rent on time. If you don't find the right tenant, then the entire business plan falls off.  James: Correct. Absolutely. Absolutely. So, let's go to asset management. I mean, what are the tools that you guys use to asset manage your property? Because I know you guys don't have your own property management company, you guys are using third-party property management, right? But what are the tools that you guys use to do asset management?    Venkat: I mean there's not a lot of tools. We definitely have processes and procedures, obviously. We have our weekly meetings with them, but myself and Ramana, we run the meetings. We don't let our property management run the meetings because here's the thing. Usually more often than not a regional [52:53unintelligible] on the other side. And we have a deal with our management company where they allow the manager to be on the call as well because who's on the property five days a week? The manager; not the regional, not the owner, not the asset manager, not nobody else. The manager. Now oftentimes than not, most property management companies, they don't put the managers on the call for whatever reason that is. So a regional is responsible for so many other properties. So we kind of take any [53:21unintelligible] on them, Ramana and myself and we come prepared to the meeting. Obviously, the regional will bring the numbers and few updates, but then we have different sections, right? So obviously we go through the collections, vacancies, evictions and we will bring up discussion points. Every call is not just simply giving updates, our calls run as a brainstorm sessions. Obviously, there is nothing concerning. Obviously, we skip, skip, skip, as soon as we hit a point which is concerning, we brainstorm. And we treat our property management as experts and we constantly tell them, please don't look at us owners, just forget that we are owners. We're not here to make decisions. You make the decision, you are the experts. Our job is to just bring things up for discussion so that we have a good brainstorming session and just like how we do it in IT.     I mean, we could not use the policies and procedures that we used in IT. So we bring that here and also it gives a very good feeling for a manager because nobody's telling them what to do. Rather, people are respecting their views. One other thing is like you give responsibilities to some people and expect results. Hey, this is your responsibility, you got to do that. But then again, you have to give some power as well. Again, that's what I was exposed to in when I was IT. When my manager was managing me, they definitely have expectations for me, they said Venkat, this is all your call, not going to tell you how to do it, but this is the end result that we are looking for. So we try to give the same to our property management as well.    James: Okay. Okay. Awesome. All right, you guys, so we're at the end of the podcast. Why not you guys tell the audience how to reach you guys? What's the best way to get hold of both of you?    Venkat: You can reach me at my phone number is (281) 727-9238 or email me at venkat@ravenmultifamily.com Raven as the bird, multifamily, all one word.com.    Ramana: Yep. My phone number is (214) 799-9127 and email is ramana@ravenmultifamily.com.    James:  Awesome. Thanks for joining us today. And I think that's it. For the audience, join us on our Facebook group, Multifamily Investors Group, where we are having a serious discussion about multifamily. So thank you, guys.    Ramana: James, one last thing. You bring lots of value to your investors and multifamily, a whole multifamily group. Thank you so much. I mean, it's really educational and you provide a lot of insight to what you do.     James: Awesome.     Venkat: I'm in so many groups, but I never feel like asking things and bringing things for discussions and all that, but I feel very comfortable doing that in your group. I don't know why, it's just the way I feel. It's really a great group that you have created on Facebook.    James: Awesome. Awesome. All right guys. Thank you for the comments and nice chatting with you.    Ramana: Thank you.    https://ravenmf.com

Whether it's failing fast or being agile, leadership has already changed a lot from more traditional approaches. Our guest in this episode brings a lot of expertise surrounding what leadership and the workplace look like today, and what it will look like in 10 years. We are pleased to have Lisa Rueth, the Senior Partner and CEO of Cultivate Leadership, a consulting firm that is dedicated to leadership science, organizational design, and executive coaching. With over 20 years of experience, Lisa has dedicated her career to helping organizations with the mechanics of leadership, human performance, and systems of collaboration. Lisa studied Applied Leadership and Organizational Psychology at the Ken Blanchard School of Business and did graduate work in Authentic Leadership at Naropa University and has a Masters in Social Change, marrying her passion for empowering leaders doing world changing work. Below is a partial transcript of this episode. For the full transcript, click here: https://hrdailyadvisor.blr.com/2019/07/09/hr-works-transcript-this-is-what-leadership-looks-like-in-10-years/ James: Hello, everyone, and welcome to HR Works, the podcast for HR professionals. HR has an important job: predicting the future. The urgency of that job grows with each passing year as various technologies rapidly advance. In a presentation that I recently attended, Ginni Rometty, the CEO of IBM, stated that skills learned today will be obsolete in 5 years. That stunning fact alone well couches the problem at hand. Technology is evolving far too quickly for employees to keep up, and HR is the exception. Today's guest specializes in what the workplace—and, in particular, leadership—will look like in 2025. I'm pleased to introduce Lisa Rueth, the senior partner and CEO of Cultivate Leadership, a consulting firm that is dedicated to leadership science, organizational design, and executive coaching. Lisa: Thank you for having me. What a pleasure and an honor. James: Absolutely. How about we jump right in? There are going to be a lot of changes to the workplace and to leadership over the next 10 years. For example, I see that there's going to be, by some estimates, as many as 800 million jobs lost globally by 2030. That's not that many jobs, right? Lisa: It's a lot. It's a lot. It's even more important to think through how automation will reshape entire industries. Right? It's not just the jobs that we're losing—it's entire industries and people who have particular skills. Like a large majority of some of those industries will be—think of trucking, right? Think of cars. They're autonomous. Think of trains, transportation, and airplanes. So, what we end up with are people. There's an entire category of people who are skilled for hands-on work that we have, over time—over the last 50 years, become more and more accustomed to outsourcing to other workers around a globalized marketplace. So, losing jobs is a problem within itself, but losing jobs for a particular category of people is also a problem that we have to grapple with.

James: Hi listeners, welcome to Achieve Wealth Podcast. Achieve Wealth Podcast True Value in Real Estate Investing focuses on key players in valuable estate investing specifically on Commercial Real Estate asset class. Today we have Michael Becker who has done more than 7,200 units, primarily, I believe in the Dallas area, I know Michael can help me fix that. But you know, he has done a lot of deals in the past few years that he has been investing. Hey, Michael, welcome to the show.  Michael: Thanks for having me. Appreciate it.  James: Good, good. Can you tell the listeners about things that I missed out about your credentials? Michael: Yeah. So, Michael Becker, I'm based in Dallas, Texas and I'm a banker by profession. That's kind of how I got into the business was loaning money to other people and went out on my own about six years ago now, so about six years of experience. And as we talk right now, we're just closing up our 34th and 35th acquisition. So puts us about 70 to 100 units that we've done in our career. So far we going full cycle on 16 deals. So we refinanced three out, return some Capital still own and we sold 13 of them. So as we talk, we currently own about 5,000 apartment units, the vast majority of those are up here in Dallas Fort Worth, which is where I'm based. We have 400 units in Tyler and then we have 900 units in the Austin markets. So we're Texas-based focused, predominately on Dallas Fort Worth and Austin for where we look to buy. James: Awesome. Awesome. So rarely, I get to interview someone who has come from, you know, brokerage business and also the landing site, right? But I always wonder why Brokers and lenders who lend money and trade deals never really become the buyer or the owner of the assets, right? So what was your triggering Aha moment that you said, hey, I should better just, you know, go on the other side of the table here and start buying deals rather than lend money? Michael:  Yeah to be a banker, you have to have a certain like mindset and generally pretty conservative and if you start becoming successful like I was as a banker making a lot of loans, they try to tie you in the bank by giving you stock options and have more investing period so it's kind of the longer you wait, the harder it is to leave. But for me, I was 35 when I left the bank, I'm 40 now, and we're just like this little fork in the road, I felt that if I stuck around it was going to be that much harder to go. And really what I did was this all day every day was making loans to other people like yourself that would be a buyer, distress deal, renovate and sell it for big profits and I kind of realized I was on the wrong side of all those deals. It's better to be the borrower than a lender.  And you know a lot of great clients, a lot of them are friends, my friends still to this day, and I was looking at a lot of them and I was like thinking myself like if that guy can do it, I definitely could do it. You know, not that they're not smart. But what I like about the business it's a really, really simple business at its core; it's not always easy to execute but it's pretty simple to understand. So I had a lot of connections, had a lot of experience, you know, I underwrote deal after deal after deal, I knew everyone in Dallas Fort Worth, I was in the industry. I just wasn't doing anything about it.  So I met my business partner, Shawn, back when I was at the bank and he was helping people out of California buy properties in Texas. I made a loan to them. And so, he was kind of sick of working for his boss the broker and I was sick of working for my boss at the bank and so we kind of went out on our own. And like I said, we're probably the second or third most active B classifier in Dallas Fort Worth and the current market cycle. So we've been pretty active here in Dallas Forth Worth.  James: Got it. Got it. That's interesting. I always wonder, I mean, what do the Brokers and lenders see in themselves that they want to continue doing that rather than owning an asset? Michael:  You know, when you think about it though, like as a banker, you don't have any money at risk, you got other people's money at risk, you got your clients' money, you got the bank's money and you know for you to go tie up a deal, especially today, I mean, you posted up six figures in earnest money or God forbid, you know, well north of that hard earnest money day one and get all this like Risk and then you got to go out and raise, syndicate the capital. So to take that to do what we do for a living, you got to have a certain amount of guts to go out and do that because you know, you're taking a calculated risk along the way and you don't have a paycheck. So if you don't do business you don't get paid. So that's a certain minority of people in the world I can go on and take that type of risk on and thrive and if you go out setting cases up like I do, you just have to be comfortable taking that kind of risk. And on top of that, you know, most of the stuff is on recourse, where you still sign and carve out. Some bankers get pretty, pretty nervous about signing, you know, I have 4- 500 million in debt right now so I mean that's a lot of money, you know, and to try to take that mentality, it's just a different type of mindset for sure.  James: Yeah, I guess the entrepreneurship mindset and whether you want to do it, I mean, especially if you have gone through the last crash in 2008, you can be very scared.  Michael: That's right, for sure. James:  So let's come back to how did you scale up to this large portfolio, right? Because I used to listen to your podcast when I started in this multifamily investing in 2015. When I was listening, I know you had like, first year in[05:47unintelligible] you had like 1000 units and now you have like 7,000 units, right? I mean maybe now you own like 5,000 units, but what was the system's process if you put back yourself back into that time and I know you made mistakes from then until now but you know, what are the teams or what are the processes and who would you hire first to grow to this scale? Because now it seems like clockwork for you because you guys have been... Michael: Yeah, so we started out, it was pretty lean. So when we first started out, I did the first four deals, first 800 units. I still worked at the bank and then I kind of had enough scale that I felt like I could you know, keep going. I had enough credibility in the market place; you buy one deal, you get a lot of credibility. You buy four like quickly everyone in town knows you're out there buying it because like I mentioned, I had a lot of resources like from the standpoint like all I did, all day, was underwrite apartment loans. I had a lot of connections to a lot of people. What was holding me back was that everyone thought of Michael Becker as a banker, they didn't think of me as a principal so I had to kind of change the perception in the marketplace what I was from a banker to a principal. So once I did that, that changed it pretty quick and then from there, we sort of started to scale. And so it was my partner Sean and I and we had one employee when we started. We kind of did a little bit everything and we all do a little bit everything when you're that kind of small. And so, you know, we were just kind of guys who were doing deals and then all of a sudden we woke up. I think we had seven or eight deals and we had all this work on us and there was still just three guys out there doing deals. So we had to figure out how to systematize so we started out with someone that's got an IT project management background experience actually, so she came in and kind of did operation; we were disorganized with stuff everywhere. So like our Dropbox wasn't orderly, you know, just wasn't everything wasn't save down. We didn't have any documentation of processes and procedures. So she came in the systematically, you know by meeting with me for two hours at a time., she'll talk about whatever, interview me and systematically built out all our policies and procedures and organize everything. You know, our chaos for life got real organized over a six to a 12-month period from there. Then we added an analyst to kind of help on top of it. And then we started layering in an administrative help on top of that and then you know, we start getting Asset Management help, hired a professional asset manager and then you know, we hired transaction people to kind of help run process the escrow and things like that. So those are the types of teams, you know, we have a third-party management company. I think you're vertically integrated when you do management in-house.  So we're able to manage 5,000 units with nine people; basically my partner and I and seven employees. We've got ahead and taken the approach. So I want to hire really high-quality people, pay them a little bit more money, but just be a little bit leaner. So that's kind of the approach we've taken because I really don't like managing people. So the lesser quality people will take a lot more of my resources so I rather pay someone that's a killer really high salaries and trust they can go out and do the job. But you know, admin help is the first thing I think you need. Someone to make sure you get organized. You have a process, make sure you get an investor database. Be really helpful, if you do syndication dropboxes, so we use dropbox all the time.  You'll have internal chat systems. Those are things that kind of we can do quick little messaging, you know, all sorts of stuff like I talk about, about raising money more efficiently if you want to go down that path or if you want to talk about operation, we talked about that too. But just trying to use technology and work smarter not harder. And every time we do a deal, at the end of the deal, we always have a Post-mortem meeting where we go over the good and the bad and we take away lessons that were bad and then we take those and try to improve the process for the next deal.  And when we first started out, they were a lot of bigger issues and now, fortunately, the issues are really small and minor because we got the list of stuff you don't ever want to do again list, got really long pretty quick and try not to make the same mistake willingly twice. James: Yeah, so can you name like top three things that you have realized from that not to do list, can you share it with the listeners?  Michael: I mean around raising capital in particular, you know, we first started out, we had a database and I needed to raise a million. I remember I had to raise a million four for a deal, I think it was a million five something like that. And it took me about 20 25 people somewhere in that range to get a million five in, a hundred thousand minimum. We first started out I'd get a package. I need be able to an investor. I set up a call and have an hour-long call, 45 minutes to an hour long call and I had to do that 25 times. Now, what will do is we'll email the list, we hit schedule webinar and it's at, you know, seven o'clock Central Time on Wednesday. People that can attend Live, great. If not, we'll send them a recording of the webinar. And then they can watch the webinar when they want to and then I have a five-minute call with them if I need to resolve. So I presented all the materials of the deal so maybe a lot more efficient that way. Whereas, you start scaling up doing like webinars a lot more efficient way to present your opportunity than one on one calls. Because, for example, we just finish up with 24.6 million dollar equity raised and if I had to do that one call at a time like that is so huge, you can't do that. It's going to be 200 people basically invested to get 24.6 million. So, you know, you'd have to have 300 calls to get that and that just isn't an efficient way of doing it. So, that'd be one thing.  Another thing that's been official, as I said we got an investor database. So when you invest with us, you go to our database or portal up our website you fill your stuff in electronically and you electronically sign your documents. And that's a much easier way of going about it and getting the old school, paperwork out, that's kind of how we started. And then finally what was another good way to be able to work efficiently. You know, I think we got more efficient the way we've kind of work it and keep people in line and we clearly communicate what's expected of people and we're really consistent with it. So those are things you grow into, those aren't things you necessarily have money to do out the gate because we, you know, spent a couple of thousand bucks a month on our investor database. So if you have zero units to spend $24,000 a year on a database doesn't make sense. But you know, gotowebinar is certainly something you can do and you can use a Google sheet instead of a set of a database until you ultimately get enough revenue where you can afford some of the more technology tools that are available out there.  James: Yeah, yeah. In fact, I just launched my investor database yesterday, which was a lot of my investors love it. They just say it's so nice for them to see their dashboard, in terms of investment because a lot of them have multiple investments with me and it's just nice for them to see. And all the documents are in one place and they can just log in and get the report. They just love it. Michael: And it'll help you when it comes to tax time to track all your distribution in there, I'm sure and then you don't have to go recall your distributions at the end of the year to do your K1s. James: Got it. So coming to I mean you must have a good number size of passive investors. I mean, how do you select certain passive investors for certain deals? I mean is it first come first serve or how is that? Yeah, so we have, let's see, I did 900K1s last year. I think I had about 500 unique investors when we closed the year out. We just raised, I'm not quite sure what the stats are of how many are a repeat, how many are new but I probably have 600 unique investors who've literally invest with me at this point in time. And we're going to do 12-1300K1s  next year easily. So yeah, we generally will so we definitely have like a blacklist, right? So if we take your money and you're a pain, we'll make sure we don't take your money again. That's certainly the thing I think everyone should do that for sure.  On the front end if we think you're going to be a pain we'll generally kind of blacklist you as well, life's too short. Yeah, too many people, we don't have time to have a little distraction. But basically when we have an offering, we'll just go in the database and you'll get together like the MailChimp will send out a little, hey, coming soon email or save the date email, got a future opportunity coming up and then you just email the database and just generally first come, first serve.  Sometimes we have a couple of guys that we know that we have a special situation with that. They're like, hey, I have this money. I want to place it with you. Maybe we'll give them a little bit of a head start to deal from time to time. But generally, send it out first for people to pay attention, fill the paperwork out, get it all done, wire the money in, those are the ones that get into the deal. James: Yeah. I mean, I agree with some investors being a pain. I mean, it's just so hard to win. Especially sponsors like us. I mean, there's so much of moving parts and so much hard money in and on day one, I mean, so much money stuck on escrow and this has so many things going on in closing a deal. And there will be some people we just had to deal with it, right? Michael:  Yeah, so, you know, it wasn't the vast majority, people are great and but you know, one of the things that I was talking with one of my buddies, he's syndicating his first or second deal, yesterday, and he was getting a little frustrated, it wasn't going quicker and I'm like well just because you have a deal in escrow and you have a deadline and it's important to you, doesn't mean that it's not as important to investors, but they have other stuff going on their lives. So you got to be able to make sure you meet your deadlines. So you got to consistently communicate deadlines and be proactively reaching out to people and you know, you gotta push sometimes to get these people. Because if you don't stay in front of them, they're going to get distracted and something else in life is going to come up and they'll just simply forget that, you know read about your deal. They don't mean to and it's kind of like happens.   James: Yeah. Yeah, I always communicate as well to make sure that everybody knows the timeline and when do we expect things and keep on communicating to them because everybody's working on getting things done, the passive investor, the sponsors and all that. So that's important. And so the type of deal nowadays that you're doing because usually I mean, I'm not sure whether you know, I wrote a book called Passive Investing in Commercial Real Estate where I categorize three different types of deal, which one is core, the other ones are light value add the other ones a deep value add. So the type of deal that you're doing, can you describe those characteristics? Michael: Yeah. So when we first started out, we bought a whole lot of[16:37unintelligible] that's kind of generally where we started out that's where most people start out. So the first probably ten deals may be more raw 1960s 1970s vintage stuff and then about two years into the business, we started to transition more in the B-class. So Texas, things like the 1980s vintage. And then really the last two to three years the vast majority of what we have done had been kind of more B plus, A-minus. So things kind of like late 90s all the way to about 2008; that's kind of my most favorite part of the market, as we sit right now.  We have done a couple of brand new deals. We had some exchanged money, we sold a BDO and we just bought a brand-new 17:16unintelligible]  and then we bought a few deals a little bit older than the 90s. But generally speaking, if you ask me, A-minus is my favorite space and a couple of reasons for that. Now one, if you go back when I first I bought my first apartment 2013, I bought a brand new class A Deal in Dallas for about a 5 cap, a BDO was like six and a quarter six and a half cap and a CDO was like eight, eight and a half cap. Fast forward to today an ADO is like a 475, a BDO is like a 5 and the CDO like five and a quarter by five and a half, something like that, right? So what used to be a big gap is now really, really narrow.  So we have the ability to track larger amounts of capital. So it make as much sense to me to be on a risk-adjusted return basis to buy a 1970s piece of crap building if I can buy a 2004 vintage building for a similar cap rate. So that's kind of what we're focusing on. And the stuff that was built that's 15 years old, stuff kind of on the 2000s. Still, most of those have like white appliances and cheap light fixtures and you know, no backsplash and you know cheap cabinet fronts. You still do similar value add things like flooring, appliances, fixtures, backsplash, cabinet fronts and still push the rent lift up a hundred dollars or maybe more per unit by doing the work. So that's kind of my favorite part on the market and then just kind of we've been fortunate enough to have a couple of deals go full cycle and return a bunch of capital. So we have a lot of money in our database and so I can't simply go raise two or three million dollars, that's just too small, you know, we need to be raising, you know, nine ten million time minimum; it's just too small. So we're just trying to do a little bit of a larger deal. And that's kind of what we've been focused on and say light value add, A-minus that's the vast majority of what we do with a couple like more newer stabilized kind of deals then thrown them in if we do an exchange or we just think we're getting a good basis on a deal. James: Got it. Got it. And also the other thing that I mentioned the book is the passive investors will be, they would like to invest based on their preference or based on their investment cycle. So when you look at your passive investor demographic, do you see some differentiation in terms of these are the group of people that like to invest in my deal?  Michael: Yeah, I mean, listen with 700 different people that invested with us you get a little bit of everything, right? You know, but that's one of the things that we always try to make sure we stress is you know, hey, here's what to expect. You know, we're really explicit about what the projections are, the timing and amount and the timing of the cash flow and when you do a syndication, ultimately most of those things need to sell at some point. It's hard to keep a whole bunch of unrelated people to together for perpetuity; forever is not a good hold in a syndication environment. That's cool if it's like you or you and a partner or a really small group of people, but when you have, you know, a hundred unrelated people that's hard. So we want to make sure when we're communicating with them that--and they understand like, you know what to expect and I also let them know if we're going to sell it and it doesn't fit what your objectives are, then this isn't a good thing for you to invest in.  So we try to be really explicit. So we match expectations properly because what I don't want is a year down the road, for you to be upset because you thought you were investing in, you know, one thing and there's really something different so, you know trying to be explicitly and very clear to our investors is what we're trying to do.  James: Yeah, that's good. That's the best way to just make sure that everybody knows what they're getting into right? So with the market at the current cycle right now, I mean in DFW Austin, you know, the whole taxes or places where you're investing it's very hot right now so, where do you think we are right now and how your strategy has changed in terms of acquisition? Michael: Yeah, I mean. You know, this has been a hell of a run where we're nine years into this thing or something like that. I mean, it's been one hell of a run. You know, with that said, the more we focus on a predominately Austin which is where you live in Dallas which is where I live and if you look at the population projections about three weeks ago, I've done this with staff about three weeks ago. The Census Bureau came out and kind of have stats for the growth 2018. So Dallas, Fort Worth from 2010 through 2018 over an 8 year period, there are a million more people in here in 2018 that was in 2010. So, we went from that 6 and a half million people to about 7 and a half million people and their projections in Dallas Fort Worth are to grow from about 7 and a half million people to almost 10 somewhere between the next 12 to 15 years. So to put that in perspective that's about two and a half million more people coming to Dallas, Fort Worth if the projections are right. So that's the equivalent of like the entire metropolitan area of Charlotte or Orlando and then putting it on top of Dallas, Fort Worth today. And everything I just quoted to you about Dallas, if you take the percentages, it's even higher in Austin. So Austin is growing even faster on a percentage basis. If you feel like just driving around, there are just more cars, more people all that. So I don't know a whole lot, James, but I know if the equivalent of the entire metropolitan area, Charlotte is put on top of Dallas Fort Worth[22:50unintelligible] have to go higher right? They just have to go higher. So what we want to do is, you know, make sure that we're focusing on the right locations within the metropolitan area. You know, we're trying to buy away from these Supply the best we can. We're buying like Suburban multifamily deals in better school districts. We're trying to focus on basis. So we're trying not to pay Crazy Prices. One of the strategies we've done here recently is focused on properties that you can come buy and assume someone else's mortgage and you get this avoids having a large yield maintenance or the [23:24unintelligible] prepayment penalty. So you get a pass along a lower cost to you as a buyer. So that's a way to kind of counteract that a little bit.  What you give up as a buyer; you give up five years of interest only on the front end as you're assuming a mortgage that's most likely already amortizing so kind of hurt you up from yield. But if you save a million dollars or two million dollars in basis, you know, one day, that's going to burn down if you need to sell it or refinance it free and clear. So that's one strategy we've been doing. And then here's another thing. I mean you own a bunch of stuff to San Antonio like those we were talking about before we started recording. You know, this is one of the things I would say, it's completely unfair business, you know, a lot of it who you know, what you know, what chips you can trade. And you know, I own a lot of stuff in Dallas but I walk in the San Antonio, you know, you have more clout in San Antonio than I do, just because I don't own. So the Brokers are more apt to sell you something than someone that doesn't know that market. So we're at this point in the cycle doing 35 deals or some like that at this point, we know everybody, everyone knows us that our Brokers are players in town. So we get our unfair share deals. So, you know, we're looking at a lot of stuff and we're trying to be selective with it. It's also as far as strategy goes, you know, the lone assumption route has been something that's been successful for us. And then two, we put up a lot of hard money. That is the other thing that helps.  So you can put up a lot of hard money, get aggressive with your terms, you know, act quickly, you know, we got a deal in escrow that we officially never got to tour, you know, so we had to go shop it and then we never got to tour it and so we just basically got it in escrow went hard [25:10unintelligible]  without ever having an official tour and I can do that because I've done 30 something deals. You don't do that on your first deal. So I know what's up, I know what's going on and we did our due diligence and we didn't find anything that we didn't already expect. So we knew what to expect and that's what experience and repetition gives you a psyche. I got my 10,000 hours and I kind of know what's going on. I kept having to make better decisions, quicker with that level of experience.  James: Yeah and brokers love it too because for them is like you're a very easy buyer because you already know the submarket. You're not going to give a surprise and they have done deals with you. They just love it things to go much smoother. They make money as well. So they love the repeat buyers and the local players, as well. Michael: Yeah, that's right. And then we're all friends like we go and have drinks together we go to the baseball game together. We all become friends and you know people do business with people they know like and Trust so being local in the markets that we own and operate in. I was at lunch before this podcast and ran from the[26:17unintelligible] Brokers because of their office across the street from me. Walking down the street and you ended up having lunch in these just randomly. And as I was walking out, one of my competitors who own like 12,000 units whose office is around the corner for me walked across me in the hallway, you know, and on the sidewalk, I mean so this like being proximity and doing a lot of deals that stuff helps. James: Got it. Got it. So let's say nowadays, what's the process of your firm looking at a deal? So let's say today there's a deal coming. I mean, it's not on the market, the broker tells you, who looks at it first, how does it come to your eyesight before?  Michael: Yeah. The way we are set up, a deal comes in, say I get it, you know comes across my desk. You know, I basically kind of where's it located? You know, what's the basic price? Right? So I'll just kind of go to Google Map. Make sure you kind of know the location I'm in and I know whatever location that they are sending us. Like we know like the markets because we're in the market. So, you know, usually, most of the deals are like, no, it's the wrong location or no, you're prices are extremely insane. I'm not paying that price per unit for this type of product. And so usually a lot of people kind of get kicked out, but if it passes kind of that basic high-level test, then at that point usually we'll do like a real get the financial statements in from the seller. And then what we'll do like a real back of the envelope analysis.  We'll spend 20 to 30 minutes doing a real high-level underwriting just to make sure that it kind of passes the high-level test and usually a lot of those deals die right then. So, you know, the deal was just like, you know the match it doesn't work. It's just way too expensive or we don't think there's not much upside in the rinse. Just whatever it is. We kick a lot of deals out that way. Then if it passes that deal usually at that point, we'll do a full underwriting and that will take this like four hours. You know, we have a CFA that's our analysts. Our analyst will go underwrite the deal for four hours. Since it's my partner and I, then my partner will go through and kind of review the model. And once you review the model, it passes that, then, you know usually, most of the deals kind of die right there then they don't really work. But the deals that kind of pass that screening that's when you know, we'll kind of get down and get serious about it. And I think that point that's usually when I go tour. So that point, they pass all the tests so we set up a tour maybe put [28:34unintelligible]  in early kind of depends on the situation. And so, you know, we're looking at you know, 60 70 deals to get one that actually makes something like that. That's probably somewhere in that kind of General ratio is what we look at. And we just have like little series of check marks along the way that we gotta like, you know, but doesn't pass this one little test and let's just kill a deal and move on. I found on the biggest cost to have in my life anymore, stop tuning cost. So if I spent a lot of time on one thing it's at the expense of something else. So my time is precious. So just trying to make sure I get, you know, use that the most widely and don't chase these deals for you know weeks and weeks. I never had the opportunity of actually making it in a day. So that's hard to do when you're first starting out and that's a lot easier to do when you have some experience.  So when you start out, you got to learn these lessons sometimes the hard way. You got to underwrite this deal that if you would have just at the end of it just kind of be self-reflective like, you know, what could I have seen earlier on this deal that would have stopped me from wasting a week of my life on it? You know, you need to start that. I think that's what separates a better apartment owner, ownership syndication type groups from the less successful ones.  James: Yeah, I agree. I mean, I don't look at more than five parameters in any P&L to decide whether I want to dig deeper. So what's the ratio of deals that you look at verses you looking at and passing it to your analyst for the four hours underwriting? Michael:  I mean, it's probably pretty limited. So if it's called 60 deals to get one, I mean it's probably, at least half just get killed or your pricing is way too high or it's the wrong location or the deal too small or something physically about the deal I don't like. So that's probably half of them and the ones I've been going to like get a back-of-the-envelope, we probably kill, you know, the 30 that make it through on the 60 we're probably killing, you know, so that's 20 right there. Then we'll probably underwrite, you know, ten to get the one type of thing.  James: What do you look for in a location?  Michael: You know, yeah, so we're Suburban multi Family Guy. So good Suburban location that is in the better school districts, you know near major thoroughfares preferably to have access to Lifestyle and Retail amenities like, you know, like they are near a Starbucks, near a good grocery store, you know, retail restaurant, stuff that people want to live in. First and foremost, low-crime area too, I don't want to buy in the hood. So, you know, no low-crime area. Those are the things I look for and we're targeting, you know, preferably 200 plus unit, A-minus family deals, but that's kind of my perfect deals. An A-minus deal with more than 10% or an upside, you know it's well located, low crime, better School District, near employers, near retail and restaurant. That's kind of what I look for.   James: So, can we go a bit more deeper into the back of napkin underwriting? So, let's say there's a $10 million deal you know, 50 unit, maybe a 100-unit deal, how did you underwrite that? Back of the Napkin. Michael: I mean, so what is the first major metric is a, you know, one other [inaudible31:51} ransom what's our basic market survey say . So, pull a [inaudible] and look at the market rent. So then how much upside do we have in rent? So, I say, so, if there's only 5% upside in rents then it's probably not ideal for us, you know, we typically 10 plus percent in upside of rent to make the mass work. So, if I only have 5%, I know when I layer in my sponsorship compensation it's just not going to make sense. All right, so you know, like it's just not going to have no margin for us to be able to go attract capital. So, that's the first thing and then we'll then obviously go down and like other income or other income opportunities, then obviously look at the expenses as well. Michael: So, you know, one of the deals were we just got awarded, the payroll is by 1600 ,1650 a unit and it should be 1200, you know, so we can on day one, boom, take 450 out of payroll that certainly helps quite a bit. So, we're looking for things like that, that's kind of what it is. And you know, basically for maybe if you think about it at its simplest form, James, like, I need to do a deal I need to be able to deliver somewhere between 13 to 15% IRR today that's what takes me to attract capital. So if I can't get a deal layer in my compensation layer in whatever capital you need to do, um, you know, talk to the purchase price and I don't have enough upside of rents because at the end of the day, if I can't produce a 14% or 15% IRR over a five year hold period, my investors don't want to invest. So, I can't spend time on deals on can produce those types of returns. So, we're just trying to find, stuff that has enough upsides would be able to produce that. So, whatever that is, reducing expenses, increasing income, the two most common things, or is there some sort of way we can get a different type of debt quotes that may be kind of juices, some of these returns or whatever the specific situation is to that property. That's kind of what we're trying to get to the heart because, if I can't produce a 14 or 15% return, I need to shoot the deal and move on. James: Got It, got It. So, coming to 13,14% IRR is it to investors, or is it overall returns on ... Michael: Investors right. So, if it’s like 15 investors 17 and a half, 18 to the deal and you put a sponsor comp in there? So, it's got to be, I gross 8 total 18 they get up 15 and our structure or something, something like that. James: Got It, got It. Yeah. It's interesting on the debt code side, no, sorry, before I go there, how do you know that the seller is not taking some of your upside? Because nowadays that's what sellers do, right? They price it slightly higher; they give you upside, but they price it higher, which erases your upside. So how do you determine that? Michael: That's the whole thing why we don’t buy c class anymore because of the same catch, so yeah you know, that's the thing so I mean, all these deals that have a lot of upside have a lot more interest and so they can again, bit up and the cap rates are compressing. So, the trick is you got to overpay a little bit, but you can't overpay too much. Right. James: Right. Michael: And that's kind of like what you're doing. So, at the end of the day I got to, I, it's as simple as I deliver a 15 IRR and if I can't deliver, I can pay up to a certain price and then you start doing past out price and I can produce the returns I need. And that's kind of when we back off. James: Okay. Michael: So that's kind of how I think about it, so, every, most of the deals we'll work out at a price. So, we just kind of get to where this is the Max price what we can do to push to push out a 15 IRR for investors. And so that works up to 20 million and 20 million, 100,000 it doesn't work. So, you got to kind of draw the line in the sand and have a lot of arms in the fire. You get a whole bunch of deals working all at the same time. Usually, they start popping. James: Yes, yes, yes. The basis of my question is because they could be $150 or hundred dollars a rent bump potential, but the seller has priced it so much or we could have outbid-- Michael: Yes. James: --so much that it's not worth it, right. So, to do that because you might be just getting-- Michael: Yes, there's that. And then you get a little nervous for some of the less-- the newer people in the business, with little less experience like you're going to pay a five cap for 19 C class, 1917 deal. Okay, location and suburban St. Tonio or Dallas or whatever and then you're going to perform like a five and a half or five 75 extra cap. Five years down the road for a c class deal, maybe that, maybe that's the right cap rate, maybe it's not, it needs-- as you go and improve the property, you're able to increase rents and by extension, you value you’re in a why. But at the same time, the more upside you take out of these deals because your turnover, 50% units upgrade them, shrinks your buyer pool cause everyone wants value add. So, the more value you take out on the deal, your cap rate actually goes up. So, it's like a weird little dynamic you're in that you got to like, you got to factor in. It's like a 3-D puzzle you're doing because what's great because you're increasing, you're why. Because you're raising your rent, but at the same time you're also expanding your cap rate, as we sit in the same marketplace. So, it's interesting, complex puzzle, the marketplaces are right now. James: Yes, I was talking to a broker and you say hottest deal to sell nowadays it’s like deals where everything is done right, 90% is done. Michael: Yes. James: Nobody really wants it because everybody wants value add right? Michael: That's probably the opportunity to go buy a bunch of that stuff. Cause that's what today is. And then if you can get higher leverage loan, you get a 75% loan and get a good low-interest rate and get a bunch of I Own and go buy a deal that's turnkey. Maybe that's a better way of going, to be honest with you. And just kind of get a little bit more your return from current yield versus a big pop on the backend. That's thought about strategy, to be honest with you, it's a lot more safer than going and doing a bunch of work on a property-- James: Yes. Michael: --and paying a 475 cap for 1970 deal. I'd rather pay a six and a quarter cap for six and a half cap for a deal that's already done. James: Yes, because the backend is not certain. Right. Nobody knows what's going to happen-- Michael: Right. James: --at the [inaudible37:58] cap rate, so. Michael: That's right. James: So that brings to my next-- Michael: And then you do all the work, you might expand your cap rate anyways. And then you're doing all this work to only get half the payment. So, I think if I could go back in time, I would've bought every deal on a bridge loan. I would not have spent a single dollar in renovations and just operate it, wait five years and you sell it in today's environment for like a freaking 475 cap, that would have been a better decision with the benefit of hindsight. James: Yes, correct. Correct. So how would you-- sorry, in terms of cash flow vs. IRR vs. Equity multiply, right? So, what do you see, what is the most important number that-- for you, right, I know you're passive investors need to look at? Michael: Yes. You know, I think everyone, that everyone's different too. Like, all my investors have different things that are most important to them. I think, honestly at the end of the day, a pair of this investment, that investment, IRR is really kind of the driven. I'm not the biggest IRR in our store. We, I think the cash on cash certainly matters because I can't pay my bills on IRR, but I can with a check every month. So, I, that certainly protects it. But at the end of the day, really, we're focused kind of when we're-- comparing this, it's up to you in the next one, really kind of IRR. Because you know, if I'm able to come in this deal, I assume a mortgage and refinance in the third year or something like that and have a partial return of capital that pops my IRR pretty, pretty good. And I keep take some of this capital and return to my investors quickly. Two-year period, you know, 30% of their money back through a refi or something like that. That certainly is attractive. So, we'll, I think I kind of focused on IRR when I'm making the decisions on which deal, I want to buy, which deal I don't. And we've been, we like [inaudible39:54], we've been focused many deals about loan assumptions recently trying to get a lower basis. So, the first and foremost I'm focused on basis, making sure I buy a deal that's a relative value to everything else is trading right now. And I, cause I was only two things. You can't change on a property; you can't change your purchase price and you can't change location of it. Everything else you can kind of modify can always refinance it. I can always improve the property, but I can't change what price I paid or where it's located. So, we'll locate a deal with good prices, and I think everything else will kind of generally work itself out. James: Got It. And got it. How do you make decent between buy and hold for long term vs. buy and buy and refi? How do you decide? Michael: Yes, so if it's a syndicated deal, we've done a couple deals, especially when it first started out doing dentures where it's like what equity partner in us. Those deals we tend to hold longer. We bought a bunch of workforces, we sold them, we exchange, like A-minus or a product. So, we did a bunch of that. And then when it's a syndication people for like forever is not a good whole period if you're in syndication. Because people want, return on their money as well as return of their money and kind of the intermediate term. So, we're typically performing a five-year hold period. I think you'd be going much past seven. Most people kind of like, you know, shoot, I don't want to tie my money up for 10 years or 20 years. Now I kind of want to get my, I kind of want to see a return of my money as well as the return on my money. So, it kind of depends on the thing, but that's a heck of a lot of work buying and selling these things. So, it was just a lot easier just to kind of hold and it's kind of operate, especially the way we're set up with a third-party management company that does all day today. I, managing a bunch of thousands of apartment units. It's kind of like adult daycare. James: Yes, it's adult daycare, it's a good one to see. Michael: It's property management as a business of problems. I mean, there's always a problem, like every day, always, problems everywhere. So, if you have third-party management to kind of oversee that and we're set up and I have an asset manager that layered in between me and them. As a principal, the way we're set up, it's really not that bad on the day today. So, what we've been kind of focusing on is we're just selling the older stuff and buying newer, nicer stuff. Cause there's old stuff, I mean, not only, it was great, and we made a bunch of money, but you have asphalt parking lots and casts on sewers and t one 11 siding, Hardie. You go renovate a deal and two or three years later you've got to renovate the deal because the parking lot needs to be redone and you painted over wood. So, then you've got to have more wood of what, right? You got to go paint over again. And you can't cast, our sewers are collapsed in every time you turn around and get, dig it up and replaced sexting sewer pipe. So, you have all these like nonrecurring items that recurrent all the time. So, doesn't impact in a live per se, but it impacts your actual cash and the bottom line? So, I'm so I think the actual net cash you can pay out, it's not that different on a higher cap rate, older deal versus, or maybe a little bit lower cap rate, better quality deal if you're going to be in these deals for a long period of time. So, we've been just trying to get younger in our portfolio, so stuff I owned a day, I'd be much more likely to want to hold than the stuff I owned in 2014, 2013 cause those were just tougher, older, older deals. And I think that's what I've seen been kind of like the natural progression of most people that do what I do for a living. Just over time. One of the things, one of my mentors told me once when I first got in the business was, you own apartments in dog years, and every year of ownership feels like seven. So, like over time, you know that statement is very, very true. The older the property and the smaller the property, the more true that statement is. The bigger, nicer. It's just easy, just easier. So, I don't know if I answered your question,-- James: [inaudible43:42]. Michael: --but those are the-- between owning or selling a deal. James: Absolutely. Absolutely. And-- so let's go back to a bit more personal stuff, right? So, can you name like three things that you think is your secret sauce in, scaling up to this level? Michael: Yes, so, first and foremost, I mean I'm pretty tenacious and I had a lot of ambition, so, that was, that was a lot of it, right? I was like, I was willing to do what it takes to get to where I got. So, we had a lot of experience, background, and training and that certainly, so first and foremost, I just really, really, really wanted it. And like last weekend I flew to Jacksonville, not check, yes, Jacksonville, Florida, I'm sorry. Losing track of where I was. So, I was in Jacksonville for 21 hours. I spoke in front of 300 potential investors. I flew back home. I did that Saturday morning, came back Sunday morning and three weeks earlier I was in Newark, New Jersey, went to some hotel conference room on a Saturday, came back on Sunday. So, I'm willing to sacrifice a good chunk of my weekend to go out and get in front of investors so I can then do these larger deals. So, if you're not willing to put in the work and do what it takes and you're only, you're going to get a moderate your success for sure. Second thing was, I had a great background being a banker for over a decade and I just did deal after deal after deal. So, I've got a great education on my, on the bank Stein. So, most people don't have that. Cause then they're not bankers. Right. But, go get educated. That's the other thing I would, I would say get educated, higher from a reputable mentor. There's a lot of people out there put the time in. Become a student of your craft, go listen to this podcast, or listen to our podcasts, read books, do stuff like that. That’s a great way of learning. These podcasts are great. Like we host the Dole Capitol podcasts or your podcast. You're going to sit here and talk to me. So, it looks like about at least 45 minutes here- James: Yes. Michael: --at this point. And you get to your conversation from two guys that own almost 10,000 units collectively for 45 minutes for free. And there's a lot of wisdom and nuggets, but I think hopefully you can take out of that. Um, so, my background, my education was certainly it. And then really just a lot of its just relationships. You know what I mean? A lot of this is as simple as just don't be a jerk. That's, that's a lot of it, right? So, the brokers want to do business with people they know, like, and trust. They want you to be honest with them. They want you to be, do what you say you're going to do. And if you could just do that and be in a good guy and be friendly with them, man that goes a long way. It really does. So those are, those are three things I've done pretty well in this business. James: Got it, got it. And why do you do, what you do, I mean, where are you? Michael: I understood back, couple of things, right? To have a better life to be able to, the monetary if you'd have done well, the very rewarding monetarily. I sit back, so I got a couple of things happen, reflecting back on this, cause you know, we've done a lot in a short period of time. When I was 2010, so my mother passed away in 2010. So, I was like 32, I'm 32, 31, something like that at the time. And, so she was like 57 when at the time she passed away and then she-- her and my father sacrificed to save all their life to then be able to retire one day and then go have all those great traveling adventures in the sunlight and do stuff that was great in life and she didn't get to do that. She works to sacrificed and saved and I never got to-- the fruits of it. So, I kind of, that was a thing that kind of burned into my mind that I need to be able to do something young, unable to take a risk young. So, then I can then enjoy a lot of stuff in life. So shortly after, that's when I really first started was in 2011. I bought a bunch of rent houses in 2011. I [inaudible 47:28] my mom passed away and that's kind of really when I started like taking risks and doing stuff because being a banker, you're just naturally conservative. You're not really wanting to go take risks. But I started small and kind of got some confidence and then a transition in the multifamily. So that was one thing. And then, and then when I was about 34, 35, I was sitting at the bank and I worked for a large, large national bank and then, I was really successful, and they're kept trying to promote me. And, when I was looking at the bank and I looked at my boss and my boss's boss and his boss and thinking about what they do all day, it was kind of depressing, to be honest with you. Like I didn't want to do that. And I felt like a, it is a metaphorical thing, but it felt like a little fork in the road. Like I'm 34, 35 and if I don't go out and take a chance like right now, and I wait one more year, every year is, we made a little bit harder to go out and take this risk. But if I like go out right now, I saw the market, the market was right. Capital was blowing and the deals are so good. And I knew that because I was in the industry. So, I was like, if I go out and I fail I can always come back and be a banker because I was a really good banker and I can, y'all are going to need to be a banker. But if I go out and I succeed, then I can have a great life and get to go to Hawaii for three weeks. Like I'm going to this summer, I'm just going to pick up the family in Hawaii for three weeks. I'm just going to work from Hawaii for three weeks to sort of be in a hundred degrees in Dallas. Right. So that's what you, that's what I get to do today. And I get to pay for my sister and her family to go to Hawaii because we've taken the risk and been successful and those are-- that's kind of, I guess some of my whys right there. James: Yes. It's, it's interesting on how you're tenacious. I mean, whether its real estate or anything. And you can do this in anything, right to, you just have to be-- Michael: Yes. James: --persistent in doing it and know your why and just push it. And I can change your life. Right? So. Michael: In every transaction, there's always a problem, right. James: Yes. Michael: So that's the thing too. And that's what I always fall back on. Like there's always a problem. There's always stress, there's always, whatever. And you just got to like push through who's going to put your head down. You just got to push through. Just kind of will it, so do what you needed to do, you know? And not that every time I feel frustrated and you were not getting a deal, right? Like I've gone months and months on a deal, I just do more. Like, you know, I make more calls, I go do this, I'm proactive. I'm just like more always answer. So, we don't get what you want to do. More effort, not, that's usually, usually tends to work out pretty good for me. James: Good. Good. We're coming to the end. One more question. Do you have any like a daily habit or daily ritual that you do that contributes to your success or effectiveness in life? Michael: I'm not the most, I don't really read a lot of books. I don't really meditate on do any of that. So, what-- I, I do find myself from time to time, I'll go down the rabbit hole of doing something and like burn off 30 minutes by all my life around the internet or something like that in the middle of the day. And I always try to catch myself and say, okay, like I just need to prioritize. So, I have a hundred things to do every single day and I need to ensure I know what the most impactful thing is. And I focus my time on that. Cause, sometimes you let the tyranny of the urgent get in the way of the important. So just cause I have 40 emails on red, I need to go clear. It doesn't mean that's the most important thing for me to do right then. Even though that's like dinging on my screen in front of me. Sometimes I'll try to shut that out, focus on what are, what is the most important thing. And then I know when I, I'll schedule time to come back and clear my emails out an hour later down the road when I kind of get done the most important thing. Because, if you're in a Sproul, I'll leave you with, it's kind of, there's this whole thing that I've, I've definitely learned in this business, as a syndicator, as someone that does, find that puts together an apartment operators, apartment investment opportunities or any sort of opportunity like that. The best way you make, the way you make money in this business, you've got to find deals and find money. Going to find deals and find money and everything else is sort of noise. It’s all really important. You got to operate; you've got to do all their things right. But, that doesn't really, that's not driving revenue. So, if you want to focus on revenue, you've got to find deals or find money. So, I'm not talking to brokers, I'm not talking to my investors, you know, everything else is, not driving revenue. So, at the end of the day, I always try to remember that when I'm deciding, what do I spend my time on. Do I spend my time on this or that, that's always in the back of my mind? James: Got it. Got it. Is there anything else that you want to share in this podcast that you have not shared in hundreds of other podcasts that you have been? I should have [inaudible51:57]. Michael: I, I think, we do a pretty good job. So, I would, if you want to know more about me, I think really there's a couple of ways you can, the easiest way to find me, just get my company's website, which is a company spiadvisory, just go to our website www.spiadvisory.com. It's spi like spy advisory dot com. There's a contact us form, fill that out. I always happen to have in 10 or 15 minutes. A telephone call, listeners of the podcast. You guys are interested in maybe working with us or really the best way if you want to know more about me or if you listen to this podcast or [inaudible] or. So, you can listen to a dual capital podcast. So that's on iTunes or Stitcher or YouTube or anywhere you're probably listening to me right now. You can find the old capital real estate investing podcast. So, we have probably 300 episodes in the archive or more at this point. So, we do interviews with other people kind of similar to this format. As well as we do a little short one where my partner Paul interviews me and asked me one question a week and I answered about one specific topic. So, if you want to know anything about and just all-around apartment investing in your or some form or fashion. So you want to learn more about me, that's a good way to kind of-- I talk, I have a lot of stuff recorded that's out there that, but if you like this, you may, you may like that and hopefully can provide some, a little nub. It nuggets on different little talk topics, to listen to those. James: Yes. Yes. I learned a lot from you. I mean, listening to you from different, different podcasts throughout my apartment investing journey. So, I'm thankful for that. And I think that's it. Hopefully, all the audience and listeners got the value that they want to get or getting from Michael and myself. I think that's it. Thank you. Michael: All right. Thank you.  

Brian Burke is President / CEO of Praxis Capital Inc, a vertically integrated real estate private equity investment firm. Praxis operates on multiple platforms, currently managing active syndications for the acquisition of multifamily, single family, and opportunistic residential assets in US growth markets. Brian has acquired over $400 million in real estate over a 30-year real estate investment career including over 2,500 multifamily units and more than 700 single-family homes, with the assistance of proprietary software that he wrote himself. Brian has subdivided land, built homes and constructed self-storage, but really prefers to reposition existing properties.   The Achieve Wealth Podcast  Guest: Brian Burke  Host: James  Title :  Market selection, Rent Comps and turning around apartments   James:  Hey listeners, thanks for coming into this podcast show, it's called The Achieve Wealth Podcast. So we focus on value at real estate investing aspects and today we have a great show. Somebody that I've been following since when I started in Bigger Pockets, the host's name is Brian Burke. He's the president and CEO of Praxis Capital, a vertically integrated real estate private Equity Firm. Basically, they are currently managing active syndication of multifamily, single-family and residential assets across the US growth market. Brian has acquired over 400 million in real estate over 30-year real estate investment carrier, including 2500 multifamily units and more than 700 single-family homes and he built his own software that he wrote himself.   He has done a lot of different aspects of real estate such as subdividing land, build homes, constructing self-storage, but he really prefers the re-positioning of existing property.  Hey, Brian, welcome to the show.     Brian: Thanks for having me on.    James: So why don't you tell about your location, whatever background that I've missed out and what's your focus area and what's your reason for focusing on real estate?     Brian: Yeah, you pretty much hit it. Our office is located in Santa Rosa, California, which is north of San Francisco.  But having said that that's not really where we're investing in real estate. All of the real estate we're buying is outside of California, mostly in the southern half of the US, Arizona, Texas, Georgia, and Florida. We're acquiring multifamily properties that are somewhere between preferably 150 units and right now we have 539 in a contract. So somewhere between 150 and 500 units. Typically, we've done a couple of deals that are smaller like 136 units recently and we've also made offers on some larger properties like one that was almost 1000 units.   But we're really focused on the value-add multifamily space in the southern half of the US.    James: Good. So why are these markets? I mean, can you describe a bit more on why did you choose this few markets?     Brian: Yeah, we select our markets based on areas where we see a really good economic growth story. So really what we're looking for is, we're looking for a lot of income growth, job growth, and population growth. Those are the three big drivers of multifamily and so we're looking for markets that have all three of those. In addition, we like to see areas, where there's not a ton of new development or the new development doesn't exceed the population growth and absorption.  So, we analyze markets all over the US every year, we come up with a list of Target markets where we want to be and each year it's typically the usual suspects but some markets will drop off and some markets will pop on.     James: So in your looking for deals, do you start with the market first, do you start with the sub-market or do you start with the deal first? What do you start with?    Brian: We definitely start with the market first; the deal is so much less important than the market itself because the market is going to provide you either with a headwind or a tailwind. You can work really, really hard trying to push a great deal in a bad market and get absolutely nowhere but on the other hand, you can buy a good deal in a great market and achieve an incredible result. So it's really got market first, sub-market second, the deal is third.    James: So what are the parameters? Let's say, you look at like, you chose a few like Arizona, Georgia, and Texas, right? So, what are the actual indicators that you look for? How many percent job growth do you look for, how many percent supply coming in, just tell me what are the exact criteria that you look for when it's like a market.    Brian: Yeah; the yardsticks are less about percentages than they are about how---number one, do they exceed the US average?    James: What average are we talking about here? Is it household income or is it house vacancy or what are we talking about?     Brian: No, we're looking at income growth, job growth, and population growth. Those are the three main metrics and we want to see that all three of those exceed the national average; that's kind of the first test. But really the way that we test them is, we look for the top markets in the country You can look at the Milken Institute's best-performing cities index, you can look at PWC and ULIs markets to watch rankings and you can get a sense of how some of the expert demographers and economists are ranking various markets by their performance in those categories. And so to begin with, we look at the top ranking market. So, there might be, call it, 200 different markets that are ranked, we definitely want to be in the top 100, preferably the top 50 and generally, we're focusing on kind of those top 25 markets, that's a starting point.     The next thing we do is, we go in and we look at the actual data; we can compare those markets so which ones do we think are going to be the most promising for us? And also you have to couple that up with what markets have a deal flow right? I mean you could find a great market where all of the demographical indicators are telling you that there's a great reason to buy multifamily property there, but they only have 20,000 units of multifamily housing stock so you might see one deal every two years.    James: Yeah, exactly.    Brian: It also has to be areas where there's an actual product to buy.     James: Okay. So let's take an example; so after you look at all these different reports you look for the top, in terms of, job growth, income growth, and population growth. And you also look at the deal-flow because you need to get deals right? I mean, sometimes it's just too crowded with people trying to buy in the same market, just because everybody knows it's a good market. So, what do you do next? I mean do you go into, let's say, for example, Atlanta? Atlanta is a very strong Market, is that a place that you buy?    Brian: Yes. We own over 1000 units in Atlanta; it's definitely one of our primary markets. And again, it has all of those things; it has income growth, job growth, and population growth.     James: Okay. So, for example, Atlanta, it's a big city, right? So, how do you go to the next level?    Brian: The next level really is starting to look for the product. And we've been in that market for a while so we have really good relationships with brokers in that market and we see a lot of opportunity coming out of that market.   If it was a new market to us that we hadn't been in before, what we would need to do is we need to establish relationships with brokers. And generally the best way for us to do that, is through brokers that we've actually closed with before and other markets and say, hey, you guys have an office in Orlando, can you get in touch with one of the guys over at the Orlando office and tell him about your experience in working with us in your market.    So they'll take us seriously when we call or our lender, maybe we've used their debt group before and they can call and vouch for us because this is a relationship business and cold-calling Brokers out of nowhere and saying you're this big-time buyer isn't really gonna win you a lot of points.    James: Yeah. So let's say you get a deal from the broker and you know, I mean, I know somebody in Atlanta which I would not buy right I mean, so I'm sure you have that as well. So what do you look for in terms of sequence? I mean, let's say you get a deal today, what do you do, do you look at numbers, do you look at sub-market, do you look at the crime rate, what do you look for?     Brian: The first thing we're going to look at is, does the property fit within our box? So, our box would be if it's like built before 1980, it's probably not going to fly. It might if we do some 70s deal on a case-by-case basis but if it's built before 1970, it's probably an automatic cross off.     The next thing is, is it too small? If it's 100 units or 99 units or 75 units, yeah, it's just too small, we're gonna cross it off. So, it has to meet kind of the age and size restrictions, we're looking for properties preferably with pitched roofs, no chillers, a good unit mix so we're basically kind of looking at the physical plan itself. And if that's a pass, then the next step after that would be to underwrite the financial performance. And that involves building the model, inputting the historical financials and rent rule data into our model, conducting a market survey to study what the market will support for rents, post-renovation, talk to the broker and learn about the story behind the deal and then model it up and see how it will perform.     James: So when at which point do you look at the sub-market?     Brian: That's part of this process of looking at the physical asset. So, when we are underwriting and modeling it up, one of the things we're going to look at is, we're going to look at the median income in that census tract, we're going to look at the crime rate in that area. Those things are a little bit lesser important but when we get close where we think we're going to make an offer on the property or we think that there's a chance we're actually going to get awarded the property, now we're going to take a really deep dive into the actual sub market data and statistics.     What's the historical rent growth in that sub-market? What's the future forecasted rent growth in that market? What are the occupancies? What's the occupancy history and occupancy forecasts? We're looking at that. We're looking at the trough occupancy, how bad did occupancy get during the last great recession? We're looking at all of those different kinds of granular level statistics right about the time where we're circling in on making a decision either to write an offer or to accept an award of a deal.     James: Okay. So basically you have a very high level, you have age and size that might be just like [12:28unintelligible] if it doesn't work, then it doesn't work; no Chiller, pitch roof and you will go ahead and do the underwriting on the financials and just before writing an offer you think you're going to get the offer then you go into deeper into the sub-market [12:45crosstalk] and occupancy okay, interesting.    Brian: Yeah. Yeah.     James: So, when do you do the market rent comp?    Brian: That's one of the first things we're doing. So as we're building the model and putting in the historical rent data, we'll go out and do a tour of the property where we show up and look at some units, take a good look at the exterior of the property. And then after we've seen the property and then we go to drive the comps and we visit those comps and figure out what they're charging in rents, what their level of renovation is like, is that a property that's supporting where rents for the subject property should be today or is it more of an aspirational comp where this is what this property could be when it grows up.    We need to figure out which category the comps fit into and then make sure that we're adjusting our rent expectations based on comps that are really comps.     James: Okay, so when you do your rent comp, how do you do it? Do you go by bedroom, or do you go that high-level price per square footage? Can you describe in a bit more detail about how do you go into doing the rent comp analysis?     Brian: Yeah, the comp analysis is basically it's a grid system where we lay out the unit mix of the subject property so that we can see, you got to 500 square foot studio and a 650 square foot one bedroom and an 800 square foot two bedroom and 1000 square foot three bedroom, and we're going to lay all those out on a grid then as we go visit the comps, we're going to put the most applicable units in that grid.     So like if we're looking at a 750 square foot two bedroom unit at the subject, we want to find somewhere around 750 square foot two-bedroom units of the comps and they might be 700; they might be 775, they might not be 750 but they'll be somewhat close. We're going to put that next to the rent that we have for the subject property and we're also going to note, what condition are those in; are they renovated or non-renovated and if their renovated to what level have they've been renovated or they have granite countertops and stainless steel appliances or is it resurface counters and white appliances? You want to know what you're comparing to and then what you plan to renovate the subject to and how it's going to fit in with those comps.     James: Okay, got it. How far do you go in terms of looking at properties that kind of meet those comps or that you're going to select for comps? I mean, is it like one mile, 0.75?     Brian: We go as far as we have to; the best comps are within three miles, but sometimes we're finding comps five or six miles away. This can happen, especially if you're looking to renovate a property in a sub-market where there's only been a couple of properties that have been renovated. Sometimes you have to broaden your search out to find other properties that have been renovated to give you a frame of comparison to a post renovated rent status.     So, we're looking for a minimum of four, preferably 6 comps for the property and we'd like for those comps to be representative of what we expect our property to look like after we finish doing what we're going to do to it.    James: Okay. Got it. And how do you identify because real estate is hyper-local right? It's very, very localized. So how do you identify whether the comp qualifies a comp or not? Because if you do a circular comp so you can go across certain artificial barriers, such as a highway and I mean, street by street right? Sometimes by doing this, you have a completely different comp, people are willing to pay more but how did you identify those kinds of issues?    Brian: One of the things we look at, sometimes you can just tell; you can just drive in and you can say this is just not a comp, it's a completely different physical plan. The subject property is a pitched roof - 1980s and this is a flat roof - 1970s with no amenities and it hasn't been fixed up; you can sometimes just tell but going beyond that, you're right. Sometimes you can cross over a major arterial and you can go from a place where people want to live to one where they don't want to. So one of the ways that you can check for, just as for the subject property, we looked at the median income in that census tract and the crime rate in the area of that comp. We can do the same thing for the comps and look at the census tract where the comp is located and sometimes it's different. You might cross arterial and cross into a different census tract and you can see like a massive change in income.    So one of the things that can trip people up sometimes is let's say, your subject property is in areas that have $30,000 median income, you've got a great renovated comp about six blocks away and they're getting like $400 more so you might say, geez, we could get $400 more for this property, that's great. But then, you look at the income maps by census tract you see like, okay, this is in the 30,000 neighborhood, but the comp is in a 90,000 income neighborhood, it may look like a comp but it's not really a comp and it could be that it crossed the School District boundary and you went from subpar schools to your really desirable School District or whatever the case may be and sometimes those comps aren't really comps.    James: So you are mentioning a lot about census tract. So in your opinion do you think census tract represent, could be the artery on where the difference in household income would be able to be represented well?   Brian:  Well, it's just when they're doing a statistical data set, that's the way that the data is calculated. It's by census tract and so some people do it by ZIP code but zip codes can be so large that they might cover half of a City versus census tract that it's more like a few blocks; it just gives you a little bit more granular level detail.     James: So do you do like a cost report to do initial rent comp before you guys drive down?    Brian: No, not generally. With rent comps, they're fairly easy to kind of circle in on to some extent. Usually, the offering memorandum, the broker will give you, will show you some comps and have some comp data in there that you can use as a starting point. And then there are other things you can do; like visit the comps property website, it's supposed to have a link you can click to see the available units and you can click on that and you can see what they're asking for various different floor plans on their website, they have pictures and you can get a sense of the property by looking at the comps picture. You know those kinds of things are relatively good start.     Nothing beats good old fashion shoe leather of showing up in the office and asking for a brochure and saying, Hey, I want to rent an apartment here, what are you going to charge me for a two-bedroom unit and can I see one?   That's really the way you get the best comp data. We do have the ability to get comp data from Co-star, Axiometrics, and Reese, which is certainly very helpful. And we do use that to a certain extent but we like to get a little bit more granular than that.    James: Okay, okay, but do you use this Co-star, Axiometrics in the beginning before you visit the property or that is just not being used at all.     Brian: We usually use that when we're getting closer to deciding on a price or putting in an offer; until we go see the property, that's just raw data. We really want to get our hands on what we're dealing with and what the comps look like in person. We can usually tell if a deal is work before we go down there, but we're still going to end up touring a lot of properties that maybe we could have ruled out but we just group them together and our chief investment officer will take a trip to Atlanta and look at 10 assets that are for sale and do it all in one trip.    And so there might be a couple in there that slip through that we could maybe have decided against by looking at data. But the time it takes to look at that data, it's probably more time than it would have taken it to drive a few more blocks and go look at the property.    James: Okay, I mean, it looks like what you're saying is you prefer to just see the property on the market just go and drive for on comp rather than doing all this, Co-star, Axiometrics and all that.    Brian: Yeah, that information is helpful; it's certainly not something to be completely disregarded but you can only do so much desktop underwriting. Real estate is a tangible business and it's a hands-on process and so you gotta get hands-on.     James: Yeah. Yeah, that's interesting because I know a lot of sponsors who like to do a lot of things on the desktop before going even and walking the units and they may walk the unit's eventually but the rent comp is so tricky because if you get the wrong rent comp, your whole business plan may not be able to work right?    Brian: That's exactly right. Yeah, it's true and you know what I find is that the data in those third-party reports often contain inaccurate or dated information and there's no current information better than showing up in the office and asking for a brochure. We just do ours a little bit more hands-on; nothing wrong with using data and we will use data to kind of screen initially but we really want to go see those comps.     James: So what about on the financials, like the P&L and rent roll so let's take P&L; I know we take the numbers from them and underwrite it but at a high-level glance when you look at P&L, what do you really look for?      James: Not much; there's not a lot of information on there that's particularly helpful. I would say there's really only two things on a P&L that we use and that's the utilities expense and the contract Services expense. Because whatever they're paying for utilities; water, sewer, electric, that's probably not going to change when we buy the property so that that information is useful.     The other thing is Contract Services, what they're paying the landscape company and the cable TV contract and the alarm bill, Alarm Monitoring those kinds of things, those recurring contracts, assuming that we can't negotiate a better deal those costs are going to end up being our costs and so we want to look at what those costs are; the rest of it is not particularly helpful. We will look at things, like, we look for clues right?     So often times, you might find the general and administrative expense category is abnormally high. Well, why is that and then you find out, well, there's a homeowner's association that charges homeowners association dues; we're going to be stuck with those so we want to make sure we build that into our expense model so we look for clues like that to tell us that there are certain charges or expenses that we're going to be responsible for. But outside of that, the balance of their expense sheet doesn't really apply to us because our insurance company is going to charge us a different price than there getting. We're going to have different software than they're using so we might switch phone companies or change internet providers or whatever.     So our general administrative costs are going to be different. We'll advertise differently so our advertising and marketing costs are going to be different.   We're going to staff differently so our payroll costs will be different. We'll probably have a different pay scale than they have, we'll probably pay a different management fee. Our property taxes will get reassessed based on however the local taxing jurisdiction handles property taxes upon a transfer so that's going to be different. So all that historical financial data is relatively meaningless other than to give us a comparison to see kind of what the starting point is.    James: Okay. Except for these two, basically what you're saying is that's basically coming to entry cap rate, right? So do you really care for the entry cap rate?    Brian: No, entry cap rate doesn't mean anything; entry cap rate has no use in acquisition underwriting.    James: Yeah, especially on a value-add deal because now you are going to be running it much differently from the current guy that has been doing it.     Brian: That's right and cap rate is nothing more than a measurement of the sentiment of the market and how it's valuing an income stream. There's no particular use for entry cap rate in underwriting your acquisition.    James: Yeah, absolutely. Like what about the rent roll, what do you do with a rent roll that's given to you? What is one of the first analysis that you do?    Brian: Yeah, what we do is we sort the rent roll based on floor plan and then we sort it based on move-in date so that we can see each floor plan, what the average rent is that they're getting for each floor plan and we can also see what is the average that they've been renting those units out for in the last 90 days.  And those two things kind of give us a sense of what units are renting for and what direction they're headed.     James: Okay, and why last 90 days?     Brian: We just want to see what the most recent rents are going out. So, let's say, for example, you have a two-bedroom unit that on average is rented for $800 but you notice that in the last 90 days, they've been getting 875; that tells you that something's going on. One of two things is going on; either they're doing some renovations and they're getting a $75 bump for the renovations or the market has gone up $75 and they're not doing any renovations at all.     So as we're analyzing what our starting point rents are, the starting point rent is $800 because that's what the average is or are the starting point rent is 875 because that's what they're getting today.  James: Okay. Well, they could be just faking the rent rule at the last minute just because they want to sell.     Brian: That's also possible.     James: I've seen many cases like that.     Brian: I have to yeah, they could be stealing the rent rule. That's entirely possible, absolutely.     James: Yeah. I've seen cases where sellers, they were only like five years and the last year they started bumping up and it's like the last three months, they started bumping up. I always wonder, what? I mean, you owned it for the past five years and why suddenly the last three months you're bumping up?    Brian: Because they want to sell.     James: They want to sell it?    Brian: Yeah, absolutely. The trick is when you go and due diligence you're doing a lease file audit and you're looking at those most recent leases, did they do an income verification? Did they do a criminal background check if that's what their practice was? So if you look all the sudden, their lease file audit is pretty clean but in the last 90 days you're noticing that there's a bunch of felons that have no jobs, but they're still paying a higher rent, it tells you that they just got anybody to sign a lease [28:50inaudible]     James:  Absolutely. Yeah, it's a lot of tricks that the sellers play too. So I mean commercial that's the challenge right? It's not based on surrounding comps like single family homes, right? I mean, in commercials it's all about the income stream that's coming in and you have to be very careful on how the sellers are positioning their product just before selling and buyers can get tricked into it. So I mean, you focus a lot on value-add deals, right? I mean, that's the fundamental on why people do commercial real estate because of [29:22inaudible] appreciation. So what do you think is your secret sauce and is there any secret sauce that you have in your value-add investing that you think, I'm very good at doing this or I'm good at identifying this and fixing this, other than increasing income and reducing expense?     Brian: Well, I think a couple of things; one is, I think we underwrite very well and very accurately. We've got really powerful modeling tools that we use that gives us a competitive edge, I think that's part of it. The other is we take a very deep dive and we have a very good understanding of the market and the comps.     We have an advantage in most of our markets because we already own there so we have our historical experience to be able to dip into and really, a lot of people fail to realize is that doing a value-add deal isn't just about an acquisition, it's about execution. My senior team here has 105,000 units of multifamily experience and they've been doing this for as long as 40 years. So that gives us a tremendous advantage because we just got all this operational experience and things are not going according to plan.    We've got a lot of experience here to dip into, to figure out how to right the ship and make things start going according to plan. I think that gives us a tremendous   advantage.     James: So I think you have your own proprietary Excel spreadsheet, I guess to underwrite the deals, right? So what do you think is the unique advantage of that spreadsheet that you think it gives you really good accurate underwriting numbers?    Brian: Yeah. It's just incredibly granular and the level of detail that it goes into and it's been built for doing value-add multifamily deals and gives us a very, very detailed look at what we expect a property to do. And it's also enormously flexible that we can arrange all different kinds of financing, vehicles, debt, equity, just an enormous number of combinations and model; any scenario and estimate the outcome and it just gives us a huge advantage to be able to underwrite like that.     James: Yeah, so have you tried to match whatever you've underwritten and are you able to execute it correctly? I mean, have you seen it come out all the time correctly?  I mean, there could be some times where whatever you underwrite on paper didn't come out on execution; what are the cases like that?    Brian: Well that happens 100 percent of the time, the only thing I can tell you about underwriting multifamily with absolute certainty is that the actual performance will not exactly match the expected.    James: It always ends up, something is wrong. It's always something wrong.     Brian: Yeah, it's 100 percent wrong. I mean, it's the best estimate you can make going in but you're gonna perform in one direction or the other and that direction is going to change. So, it's not at all uncommon where you find that your first year performance was way under the mark because you got in there and you end up finding out that a third of the tenants didn't qualify and they stopped paying, you got to get them out and bring occupancy down to 75 percent and then bring it all the way back up with a new tenant base and we call that repositioning the tenant base or resident profile change is another term for it.    James: Demographic shift.     Brian: Demographic shift; sometimes you have to do that and that causes your first-year performance to slack but then you get to the second year and now you've got a better tenant based on what you started with and your second year outperforms. And then, by the time you get to year 3 everybody's forgotten how bad year one was and you've got a higher income than you projected and you sell and you actually beat your projections.     You have other times where right straight out of the gate, you're beating your projection. We had this one property where the day we took over, the new managers went into the office like literally an hour after closing. And every time a new prospect walked in the door, we increase the asking rent $25. And we did that all day long until somebody said no.     I think, by the time we were finished, it was like a $125 increase from where it was five hours earlier. And that property really outperformed in the first year because we had so much more robust renewal and lease rates than what we had forecasted. So you're never going to get it exact, you're always going to be wrong. But the point is, can you underwrite it accurately enough to make a good decision on whether or not you want to be involved in that asset, to begin with? And then, how well can you execute and can you outperform that projection? And we've kind of  intentionally design our pro formas so that we can outperform them. It's just a much easier way to operate and we don't always do that, especially in the first year, it can be tough on some assets but generally speaking we tend to outperform. And by the time the property is stabilized, we're usually stabilized at a higher income than we projected. All the deals that we've exited, we've exited and delivered a higher rate of return and a higher multiple than what we had projected to achieve so all in all, we have a really good track record. But you just can't track a track record month by month or quarter by quarter, you don't really get your report card until you're about two or three or four years in.    James: Correct, especially in value-add deals. I mean, you're absolutely right. You just do not know what you're getting into until after a couple of years. So, what are the tools that you use to do asset management? Because I mean, you are you are an operator right so there should be a lot of tools that you use to monitor the rent growth or the rent increase, the expense reduction; what are the things that you track and what are the tools that you use to track them?     Brian: Well a couple; we use a software platform called Real Page which is a property management software platform, an enterprise-grade management platform that is used for generally, people think of Real Page, they also know it as one site.    James: Yeah, it's a property management software, right?     Brian: Yeah. It's a property management software usually think of it as a way to track your tenants and book your rents and that sort of stuff but it's an enormously powerful tool. And one of the things that they have as part of that package is a package called, oh, shoot, now, I forget what it's called; let me let me look and see how I saved it here,  it's called like asset something or other. Business Intelligence, see how intelligent I am, I forgot that it's even called, Business Intelligence. And so the Business Intelligence model what it does is, it gives me a dashboard or I just login; I can see on a dashboard, occupancy, the leasing velocity, the number of visits to every property in our portfolio on one dashboard at a class, including with graphs and everything. So I can just pop that up and I can see what's the occupancy property, how many people walked in and asked for a tour? How many of those closed and signed a lease? What's the least rate that we've been leasing out lately?     What was the lease rate we had a year ago? I can make comparisons then and then every week it automatically emails me a detailed report showing me a number of different yardsticks that I can measure performance. In addition to that tool, we also take our quarterly performance and model in a comparison spreadsheet next to our expected performance. So we'll take each and every quarter out of the acquisition model we have, what did we think we were going to get in gross potential rent and how much are we going to lose the vacancy loss and what we're going to spend in utility bills? And we input our actual performance next to that and we can compare how we did with how we thought we were going to do and we can report that to our investors.     So we kind of take both of those two platforms and also that gives us a little bit inside, where do we need to improve? You know, jeez, we really missed the mark on vacancy loss so we need to get on a drive to push occupancy and oh, by the way, we didn't spend the entire budget on marketing so maybe if we spent more money on marketing we'd have less vacancy. So those kinds of things, you can see that stuff kind of in real time as it happens.     James: Wow! But this is assuming the real pitches, you're assuming that all your property management companies are using Yardi systems as the property Management tool because that's basically integrated with that.    Brian: Yardi is a different system than Real Page so that's a competitor. It's similar, but it's a competitor product but we own our own management company. So, we are the management company, we have that in place at all of our properties.    James: But do you use a specific property management software to use Real Page?     Brian: That is it.     James: Yeah, so basically, you're using one site.     Brian: One site is real Pages product; it's all kind of part of the same enterprise software platform.     James: Okay. So what do you do when you see certain properties not recovering from its bad performance?    Brian: You get to work. So we had one like this in Houston, Texas, it was kind of interesting. It was performing great and all sudden hurricane Harvey came in and it created a lot of chaos in the city. And at first, we thought it was actually going to be beneficial to us. So a lot of units, not on our property, but outside of our property were destroyed by the hurricane and we thought, all these units are going to come offline, those people are going to need to find someplace to live, that's going to drive occupancy, it's going to drive rent growth.     Historically when you looked at past hurricane events, you saw that happen like in Katrina; rents went up 30% so we expected it was actually going to help our performance. But instead, what happened is we found that a lot of the apartments that were destroyed were in really, kind of subpar neighborhoods or bad neighborhoods or just lower-income neighborhoods or however you want to characterize it and those residents were coming to our sub-market to rent. And a lot of them weren't paying, they were skipping out; it just turned into a complete disaster and we noticed delinquencies sky-rocketing, we noticed vacancies increasing. To combat vacancies, we would offer concessions and that brought concessions up and then marketing expense went up and it caused the whole thing to perform below expectations.     So, what we had to do was, we had to try every experiment in the book and you try this concession. Like maybe you give half off on the second month and then maybe you try a month free or maybe a try waiving the security deposit or then you try waiving the admin fee. I mean, just a variety of different things trying to throw things against the wall to see if any of them stick and none of them did. We literally tried everything there was and nothing got us over the hump. Finally, I said we have to do something that nobody ever wants to do and it's probably maybe even never heard of.    James: What is that?    Brian: We're going to lower the rent. And it's funny, I used to go to some of these like Guru seminars and stuff and they're like, "The great thing about owning apartments is that the rents always go up. When was the last time you ever saw someone lower rent?" And I'm here to testify that sometimes rents do go down and we tried that and we lowered the rent.     We found that there were two floor-plans that were really contributing to the majority of our vacancy and we lowered the rent on those two floor-plans by $50. And lo and behold, within six weeks, we had the property back up to our projected occupancy; delinquencies plummeted, literally plummeted by about 75% and the property was tracking back on track within six weeks. And now that we did that, we can start walking the rent back up and over time, we'll get it back to where it was and it only affected a limited number of leases that we signed but the strategy works. So sometimes you have to get creative, you have to think outside the box, you have to do things you don't want to do but part of being an operator is improvising and trying to make the best decision to right the ship. Yeah, that decision sometime maybe difficult.    James:  Yeah, I mean, I've done it as well. I look at demand based on square footage and floor plans as well and sometimes, you may have been wrong. So now when you look at the data demand-supply analysis, they are sometimes you realize okay that particular floor plan is too highly priced so you need to reduce that.  So I've done it quite a number of times and it's a balance. Some floor plans might be over-performing and compared to what you thought and some could be lower in performance and the data will tell you.     Brian: Yeah.      James: So, for example, we talked about what are the markets that you look for to acquire deals, right? So what are the criteria for market do you look for when you think that I should start selling in this market? You've maybe done that before.    Brian: Yeah. We haven't really done a coordinated Exit Plan for many markets, generally, so far, knock on wood, we've been lucky enough to just maybe get out of markets before that happened. We have a business plan for each asset, we try to accomplish that business plan and sell when we had planned to sell it.     If we decide, this market isn't performing quite the way we want, we're not necessarily going to go into a fire sale, but we'll stop buying in that market and then over time, we'll just have a [44:48inaudible] we sell off properties and we're not buying additional properties, we're net sellers in the market; eventually, we're out of that market completely. We've definitely seen some sellers will do a portfolio sale and go like, you know what, we want out of Kalamazoo; take all the properties and put them all in the market in a big portfolio and we're done and you could certainly do that.    At this point, with the size of our portfolio, the lower 2000 units, we're not in a position where we would say we want to do a wholesale exit of a market and do a portfolio sale so we haven't done that type of analysis yet.     James: That's good. And why did you choose to have a vertically integrated structure?    Brian: As opposed to third-party management; so we started out with third-party management, I think most owners do. We had property management companies in each of the local markets where we invested managing those assets in those markets and that works fine, nothing wrong with it. But as we grow, having vertical integration allowed us to bring more of the control in-house, it allowed us to combine systems, we had better access to Asset Management tools, like the Business Intelligence I was telling you about, where I can log into my dashboard and see how all of our assets are performing, that's difficult to do if you've got a hodgepodge of different third-party managers in charge of properties in different areas. So this allowed us to to get that internal control over our data, our accounting, centralize everything and also really one of the big drivers was we were looking for institutional Capital Partners who could bring significant amounts of capital into our Acquisitions.    And, generally speaking, those institutional capital groups have discovered that vertically integrated companies perform better and so many of them have a preference to funding joint ventures with groups that are operators that are vertically integrated. And so in order for us to have the best chances of attracting those kinds of Partners, we needed to have that vertical integration and we did it.    James: I didn't know that institutional guys likes vertically integrate. I mean I presume is one neck choke, right? That's what I always say.     Brian: Yeah. That's a great way to put it.   James: So have you started working with the institutional partners?    Brian: We have yeah, we've done a few deals with some institutional partners and it's certainly helped us fuel our growth.    James: Okay. That's good. And in terms of value-add, what do you think is the most valuable value-add?    Brian: The most valuable value-add. Wow, that's [47:44 crosstalk]    James: If you do these few things...    Brian: Yeah, sometimes 20% a year effort will get you 80% of the result.    James: Yeah.     Brian: Yeah, that's true, that's a great question. I don't think I've ever been asked that one before. The challenge of it is that it really varies depending on the property. You can have some properties where you can just literally walk in the front door and create an enormous amount of value just by walking in the front door. A good example is that one I told you about a while ago, where literally the day we took over we raise rents $25 every time a prospect walked in.     Just managing correctly and understanding your market. I mean, we got 50% of our rent lift without spending a dime on that property the very first day and so that is a tremendous amount of added value is just proper management. But generally speaking, where we find most of our value is in doing interior renovations and taking an older run- I wouldn't say rundown- let's call them dated interior finishers and transformed into a more modern appearance; it goes a long way to getting additional value out of that property and actually the residents feel better about it.     They don't feel so good when they found out that you just rented $25 more of the rent than the last guy just because they were the next one to walk in the door; that doesn't necessarily make them feel like they got some value right? But in exchange, if you can show hey, look what we've done to the interior of this unit; it's got new flooring and new countertops and new fixtures and appliances and they see that there's actually value of that extra dollar that they're spending, then it's kind of a two-way street of adding value. Where you've added additional income which is added value to the real estate but you've also added value for the resident and they feel as though they've gotten something out of the transaction as well.     James: So what are the top three things inside the interior units that you think is the biggest bang for the buck?    Brian: The biggest bang for the buck is probably kitchens and bathrooms so appliances, countertops, and fixtures are the biggest ones.     James: Okay, that's very good. I mean, there could be a lot of people, I mean, I know right now the market is so hot, there so many gurus going around telling multifamily is one of the hottest real estate asset class to do even though they don't tell how difficult is it to manage multifamily, right?    Brian: No, that would drive people away. They wouldn't buy the course if they say [50:17 inaudible]     James: Yeah, you can do all kind of selling when the market is hot, but when things turns around, it's a whole new landscape right out there.     Brian: That is true.    James: Yeah, one of the top five advice that you would give to people who want to start a multifamily?    Brian: The top advice; I would say first is to start with a size that you can execute on. So a lot of times I hear people go, hey, I just ripped my first house, I want to go buy a 200 unit apartment complex. It's probably a little too soon; set your goal a little bit lower, get some experience doing some smaller assets, prove yourself, survived that and then move to the next level. I heard it said that success is an escalator, not an elevator and you got to do it one step at a time, you don't just go straight to the top. So I think that's probably the biggest piece of advice thing. Most people, they try to go too big, too soon and give up.    James: So you think they should be starting slowly, learning how the whole real estate process works. Where you buy under the market and you start to renovate it and you start to increase the value, I guess, the whole transaction process, right?     Brian: So I think you gotta start wherever you can execute. If you've got 20 million dollars in your bank account, you can start at a different point than somebody that has 20 dollars in their bank account. So I think you can start wherever you can execute and just make sure you just don't put yourself into getting yourself in over your head.     James: Yeah. Yeah, that's crazy. I know it's a lot of people thinks that they can buy 100 units. I mean just because syndication has become popular nowadays, and there's a lot of capital, able to pull money and there's a lot of clubs, pulling the money is become so much easy; so much Facebook group so many Gurus out there telling that you can start with 100 plus units, right? And everybody's jumping into trying to be an asset manager and they don't realize how complex the business is and that's a bit scary.    Brian: Yes, I agree.     James: Yeah and then advice for newbies that you think that they should know?   Brian: Just be ready for it to take a while. I didn't buy my first large multifamily property until I've been in this business for like 15 years. So, you gotta just pace yourself and not get too wound up in whether or not it's moving fast enough for you, it will happen in time; just be patient.     James: And just another question before I forget; so in terms of buying and selling real estate, I mean, do you believe in buying whole forever or do you buy and hold until the gas is out from that property or do you like to flip properties within a couple of years?    Brian: Well, I think I believe in all of that, it really just depends on what your strategy is. I have some properties in my personal portfolio that I've owned for a decade or longer and I might own the rest of my life and they're not particularly great properties, there's nothing special about them but what I do know, is that in about 10 more years, they'll be completely paid for and that rent can provide me with a retirement income even if I did absolutely nothing else, I know that that's there. And so it serves a specific purpose so that's the 'buy and hold forever' approach and it's serving a very specific purpose.    Now, I wouldn't go and raise money from a bunch of investors with the thesis that we're going to go buy some property and hold it forever, that just doesn't work. When you're investing money for others, you have to be sensitive to the fact that they want to know that they're getting the highest returns. They want to know when they're going to get their money back and they want to know what the business plan is going to be an 'buy and hold forever' really isn't the plan. It's you're buying it and setting it and forgetting it; there's no active component to buy and hold forever.    So if you're going to raise money from other people to invest in real estate, I think that you make the most improvements that you can to the asset, you increase the income as much as you can and then at that point, the hold cycle reaches this inflection point. Where it's no longer about you and what you can do, it's now up to the market. And when we reach that inflection point, to me, that's a great time to sell and we can get out, recapitalize our investors and we can do it all over again and we never have to rely on the market, we can always rely on our execution.     James: Okay, that's a good point. So do you have any funny stories that you have? I mean, as an operator you would have seen a lot of funny stories by tenants, right? You want to share a couple or one or two?     Brian: Oh geez, I'm terrible at remembering stories. It's like, they're always funny when they happen and then you laugh about it and then afterward, you move on so gosh! I'll tell you another thing is once you think you've seen it all, you haven't seen it all; there's always something that comes up and says, hey, this is new. We certainly had plenty; we've had all kinds of interesting things happen in the 750 something properties that I've acquired over the years, every one of them has a unique story. It's just that after having done so many of them, I don't even remember them anymore.    James: Okay, that's fine. So, hey, Brian, thanks for coming onto the show. And can you tell our listeners, where and how can our listeners reach you?     Brian: Yeah, sure. Thanks for having me on the show, by the way, James. I appreciate being here and the best place to find me, it's really two places where you're going to find me. One is going to be on biggerpockets.com.  I'm on that website, we're answering people's questions, contributing to the forums and that sort of stuff. So I've written for their blog so I get around on there so that's one place where people can find me.   Another is through our website, the Praxis Capital website, which is, praxcap.com.    James: Okay, I'll try to put that into the show notes as well. And yeah, I mean thanks for coming online and talking to me and our audience. I presume you have gone into a lot of details and my main motivation in doing this podcast is so that we can listen to some podcasts and learn a lot of things.  I mean, a lot of podcasts has been too much into a marketing material and I think as you go deeper into the multifamily asset class that's so much of details that an operator can give and that's what are the most important thing that I want to bring into this podcast. And, hopefully, everybody learned something today and thanks for being here.    Brian: And thanks for having me, James.   

In this episode, Jen, Annie and Lauren are joined by James Fell, the author of The Holy Shit Moment, a book that explores epiphanies and how behavior can change overnight. James shares his insights from his own radical behavior change grounded in a lightning bolt moment of permanent change, and talks about the science and stories behind these important moments. Tune in and learn how you can find your own shift, what drives lasting change and how everything can come together in an instant.   What you’ll hear in this episode: What James Fell’s epiphany was and how that changed his life How personal responsibility can be empowering Global versus focal change – what’s the difference Identity shifts and their impacts on relationships The model of personality and how it relates to change Vanity goals: do they work? Are holy S. moments always bad? Gradual vs. Immediate change What supports immediate change? How does gradual change work? Crystallisation of discontent defined The breaking point and change The quest for greatness as an impetus for change Does sucking it up every work? Building habits and enjoyment over time Weighing the pros and cons of action and committing even when it’s unpleasant Acting like a tortoise but thinking like a hare – what does that look like? Post diet rebound, pendulum swings and coming back to centre Resources: Good To Great by Jim Collins The Holy Shit Moment by James Fell Lose It Right by James Fell Learn more about Balance365 Life here Subscribe on Apple Podcasts, Spotify, Google Play, or Android so you never miss a new episode! Visit us on Facebook| Follow us on Instagram| Check us out on Pinterest Join our free Facebook group with over 40k women just like you! Did you enjoy the podcast? Leave us a review on Apple Podcasts or Google Play! It helps us get in front of new listeners so we can keep making great content. Transcript Annie: Today’s long awaited guest has been a longtime friend and supporter to Balance365 and whenever we ask our community which guest we should have on our show his name always comes up. You might know him as the man behind Body for Wife but we can’t get enough of his straight shooter honest approach to behavior change. Joining us today is the one and only James Fell. James is a highly regarded science based motivator for lasting life change. James recently launched his second book and on today’s episode he shares with us how love and a Joan Baez as quote changed his life forever, how getting clearing your values can make change feel easier and why relying on willpower is a bad idea. We had so much fun recording this episode with James and we know you’re going to love it too, enjoy. Jen and Lauren, we have been waiting for a really, really long time for this podcast episode and I know our community members have been too. Are you ready for this Lauren? Lauren: So ready. We had to reschedule. Annie: Jen, are you? Jen: Yes I’m ready. Annie: Sorry, Lauren, what was that?  I’m so excited I just cut you off. Lauren: I was going to say, we had to reschedule so I’ve been waiting for like an extra week. Annie: I know and every time we ask our community insider Facebook group Healthy Habits Happy Moms who we should have on as a guest, notoriously this man’s name keeps coming up. It is James Fell. Welcome to the show, how are you? James; I kind of feel like a rock star right now after that intro. Annie: You kind of are a rock star. James: Yeah, well, tell my kids that one. Jen: We also get a lot of referrals from you so thank you. James: Oh you’re very welcome, you know- Jen: A ton of women that said they found us  through you. James: We have like minded followers I would say. Annie: Yes. We, James and Healthy Habits Happy Mom’s which is what Balance365 was before it became Balance365 go way back so we’ve been pals for a while and Jen and James, you guys met, I think before James and I met, how did you two meet? Jen: In Vancouver. Oh, like, we just met online, small world as we talked about, when you are not shucking B.S. to people and then we met up in Vancouver and we had coffee which was awesome. James: Yeah, that’s right, I was in Vancouver for a conference. So we got to do the, you know, going from being internet friends to real life friends which is always exciting when that happens, so high five! Annie: Yeah and I met James when I went to the fitness summit in Kansas City many years ago, I mean, gosh, that was probably 3 or 4 years ago I suppose but it was, like, one of those whispers in the lobby like, “That’s James Fell.” James: Don’t make it weird, Annie. Annie: That’s what the women were whispering in my ear and I’m like “Oh, OK, OK.” It was fun to have a couple of drinks and since then our relationship with our company and you have fostered and we are excited to bring you on because you have a new book coming out. This is actually your second book, second to Lose It Right, is that correct? James: That’s correct!   Annie: It comes out January 2nd and I told- James: January 22nd. Annie: Oh, sorry, January 22nd and I told you before we started this that we have labeled our podcast as clean, which means it doesn’t have any explicit lyrics and the title of this book is called the Holy S. Moment and that’s what we’re going to call it for this podcast because we know we have people listening with little ears within earshot but you can probably imagine what the title of that book is and I just have to say it’s not actually out in print yet, is it? James: No, no, we’re, so January 22nd, so as of recording right now we’re 6 days away, so it depends on when you publish this. Annie: So by the time it’s released, this episode is released they’ll be able to find it, where can they find it? James: Anywhere, so it’s being published by St Martin’s Press in the United States and Canada and if you have any listeners in the U.K. Harper Collins is the publisher there so this is this is my 1st international released book. My 1st book Lose It Right was just published in Canada. Annie: That’s exciting, do you feel good about it? James: Oh yeah, I’m really stoked. So yeah, they can find it in any bookstore, any platform, there’s an audio recording too so if people don’t hate my voice, I’m the one that did the narration for the audio. Annie: I love it when authors do that. Jen: I do too. You really feel connected to that author. James: Yeah, I love it too because they paid me to do it. Annie: Winning and the cover of the book, unless it’s changed, because you were kind enough to share the digital format with us, the cover has a lightning bolt on it, right? James: Yes, it does. Annie:  And I don’t know if you can see that but I’ve got a big old tattoo on my trap so, you know, I feel like it was clearly, this was a book that was meant to be in my house. James: Annie Brees, me and Harry Potter are all big on lightning. Annie: Except I’ve never seen Harry Potter, I’ve never read Harry Potter- Lauren: What? Annie:  I know nothing about. I know. James: OK, you just lost some fans. Lauren: I’m sorry. I’m not cool. Annie: Okay, I just wanted to get this out too because on page 6 it just says “hi mom” and I was like- Jen: Oh, that is so sweet. Annie: So you definitely earn some bonus points but what I want to talk about is, if you know us, you know that the 3 of us are all about slow and sustainable change but you actually wrote this book because you found yourself as a coach encouraging slow and steady change but that actually hadn’t reflected your experience in how you forever changed your life. Would you mind sharing the story about the moment and the quote that you think shifted for you? James: Yeah, so before I get into that briefly, like, when it comes to say health and fitness, I don’t mean, you know, jump into your first session with Attila the trainer and go hard core and wreck your self on day one. When it comes to the the change of changing one’s body, you still need to be rational and don’t destroy yourself but the change that I’m talking about is the way that you’re motivated, that quite often we talk about motivation as a form of baby steps, being a tortoise not a hare as well, you slowly, step by step drag, yourself over a motivational tipping point developing, you know, habits that become sticky and the reality is that there’s a lot of people that don’t do it that way. They go from 0 to 100 miles an hour in a moment and they stay that way because of some transformative life changing event that just wakes up a part of their brain where they achieve a new purpose in life that endlessly and vigorously drives them forward. So that’s what the book is about is the science of that event and so there’s the, you know, all the scientific aspect but there’s also a lot of anecdotal stories that run the gamut of, you know, relationships and career change and battling addiction but also, yes, there are some weight loss stories in there as well but to my personal, the first big transformative experience for me happened when I was about 22 years old and I was in university and I’d actually gotten a letter that said, this isn’t verbatim but it boils down to “Your grades suck, we’re kicking you out” and I was, you know, I was in debt, you know, the credit card companies were calling. And I wasn’t looking after my health, I was drinking too much and and I was in a state of despair and part of that had to do with my girlfriend was that she was a very driven woman, straight A student, destined for med school and I knew that if I got kicked out of school and I do not say this to ever speak ill of her but I knew if I got kicked out of school that it was going to be the beginning of the end, that, you know, she wasn’t going to stay with a guy that was a drunken dropout who was letting his health go to hell and so I was, I was really kind of freaked out about what am I going to do and so I’m reading the university newspaper and there was this section that’s like there classified ads called 3 lines free and it’s, you know, a mixed bag of things from quotes and witticisms and proclamations of undying love or temporary lust or whatever and there was a quote in there from of all people Joan Baez the folk singer and the quote read “Action is the antidote to despair.” And I read that and it didn’t hit me immediately but it’s the 1st thing was I realize that, you know what, all these problems that I have can be fixed via action. If I get down to get to work I can fix this stuff and that was the first little wake up and then the next part that hit me bigger was the realization that I had been pretty lazy my entire life. I’ve been skating turned on cruise control, not really putting much effort into anything, these problems that I was experiencing were of my own doing. You people know me that I’m not one of those guys that say “Oh, just suck it up” and you know, I realize that there are people that, you know, life is garbage sandwich and it’s not their own doing but my this was my fault. I had dug this hole myself and only I had the ability to dig my way out and and so there was that realization that I’ve been really lazy and I was actually putting effort into being lazy by, you know, the mental gymnastics it took to, you know, shirk my responsibilities each day and that was when my brain woke up in an instant where I said, “If I just put effort in a positive way, if I just got down and started working, I could fix all this” and that’s the way that these life changing epiphanies work is that they are there a big picture concept, they’re fuzzy, they’re not usually very concrete. The concrete action plan comes afterward, after you have the event but the event happened was like, “If I just work I’ll fix everything” and in that moment I experienced what’s known in Psychology of behavior change circles as dramatic relief, where suddenly you see the light at the end of the tunnel, all the problems haven’t gone anywhere, still there but you know you’re going to fix them and you know that the light is there, you can see it and you’re going to race toward it and everything’s going to be OK. And from that moment, in that instant, I was a changed man. Jen: Wow. James: I got 2 master’s degrees. I didn’t flunk out, I went on and got 2 master’s degrees, oh and that woman, the girlfriend, we’ve been together for almost 30 years now and so yeah, I told you she was the one and you know, got in shape, got out of debt all that good stuff, I don’t brag. Annie: I don’t want to spoil, I didn’t want to spoil it for everyone but when I was reading this part about your, like, this moment that you were having reading that quote I was like “Did he do it?” and he did! And that’s, oh my gosh, that’s so sweet. But I love that realization that you said, I was in this position because I had put myself there and while that can maybe feel a little like, “I did this to myself” it can also feel like that “I can get myself out” like the flip side of that coin is, “Yeah, I put myself here but also I can get myself out” and that’s really like encouraging and empowering I think. Jen: I got goosebumps and I don’t know if you can see that on camera but my hair is standing on end. So I see that shift with some of our Balance365 members sometimes and I agree some people get a garbage sandwich but it is so important to reflect on our contribution to where we’re at in life. I believe that wholeheartedly that it is so important to reflect on that. There are obviously things that were out of your control but there are also things that you have done and you know, for this is a very complex topic but especially, you know, just the different members we have in the different lives they come from but I feel like that can be such a light bulb or that lightning bolt they need to go, you know, maybe they can’t change everything about their life but maybe they have more control than they have let themselves believe, leading out to that moment. James:  And the thing is that there’s focal changes and then there’s global changes, what I experienced was largely a global change, that I just decided that it wasn’t that I was going to get in shape or that I was going to stop flunking out of school, I was going to fix everything and so that was a global change. Other people had these focal changes, like the example in chapter one of Chuck Gross, who had started with his weight because he weighed over 400 pounds and that was a life changing epiphany after having struggled and tried and failed to lose weight many times, he had this transformative experience and that he knew it was going to work and the direct quote from Chuck was “I didn’t have to struggle with my motivation. It came built in.” And he lost over 200 pounds and has kept it off for more than a decade but the interesting thing there is that these experiences often have cascading effects where afterwards, he ended up, he went back to school and he was a straight A student, he went through a personality shift where he went from very introverted to, you know, more confident and more extroverted, it was better for his relationship and it just had a lot of other positive impacts throughout his life. Jen: What about, something on the other end of the scale, I was listening to a podcast the other day with a therapist and she was talking about the high failure rate of relationships after somebody has weight loss surgery and they didn’t dig into that but it relates back to what we’re trying but here is because a lot of people, it’s not about the weight loss, it’s about the identity change that they have because of that huge event and I can also see it going the other way, that, I mean, this happens all the time in relationships, I guess, you have people go through identity shifts throughout their life and it can also affect your relationship negatively. And so I can see it also, you know, not that anyone should stop themselves from changing but it’s just to show this is radical, right, it’s radical what happens to people and this cascading effect that you’re talking about, it can affect, we have in Balance365 these women that go on, like, one woman has founded a feminist nonprofit in Vancouver and is building this huge community and she talks about how it was Balance365 that just, it just was that moment, right, everything changed from there and it’s just interesting to see and we’ve had women applying for jobs they didn’t think they were qualified for and we’ve had women leave their husbands, we’ve had, you know, it’s just that radical personal growth shift that just, yeah, cascades everywhere. James:  Well the research you’re talking about with weight loss surgery, of which I am very supportive, I’ve written an article about how I think that if people that think that that is the right decision for them I’m the last person that would ever shame someone for doing so because the research shows that it can be quite effective but I’m not aware of and I’m not denying it, I’m just saying that I can’t speak to that. Jen: Right. James: However, in these instances I didn’t interview anyone for the book that had undergone very bariatric surgery but there were a few people that had experienced significant weight loss and as well as gone through many other changes and the one theme that I noticed is that what we’re talking about is, yes, there’s an identity shift, yes, there’s a value shift, that’s what makes it effortless. There’s the whole, it refers to Roky, social psychologist Milton Roky teaches model of personality which is, like, the whole, you know, ogres are like onions. Well, people are like onions, too. We’ve got our actions and behaviors at the extra layer which is, if you focus just on changing behavior, that’s why you need to be slow and steady because you’re in conflict with those more internal layers of your values and your identity, whereas if you go through an identity shift and a shift in values, the outer layers just sync up effortlessly which is what happened with Chuck Gross. He went through a rapid identity and values shift which just brought his actions and behaviors into line immediately. But so here’s the thing that, yes, this entire book is about a shift in identity and values which sounds scary. So this is anecdotes, not data but the examples in the book, many of these people were in relationships when they went through this dramatic shift, those relationships got better. Jen: In the examples in your book. James: And I can posit a hypothesis as to why that happens, which is that it’s actually and there’s even some philosophy in there and psychology is that this is not a false construct that you’re creating. When you go through something like this, it’s more like the current identity that you’re letting reign is the fake one, that’s the one that is, you feel that you need to survive each day because of societal pressures and pressures of, you know, maybe toxic people in your life or your job or whatever else is going on that this is the thing that, you know, it can be referred to as the despised self that you’re letting rule your life and then all of a sudden, the true self that, this is the person you’ve been yearning to be your entire life, is suddenly let loose. It’s not invented out of thin air, it was there deep down and it was like every little movie that you watched where there was a hero that did something that impressed you or a story that you read that you say “I wish I could be that brave” or all these little things are tiny bits of data that get lodged in your unconscious that that have the ability to coalesce in a profound way in a moment. So when you go through this type of identity change, this is not slow and steady, it’s such a dramatic emotional event that it’s something where it’s unleashed, it’s like, it’s like a volcano where the magma has been bubbling under the surface, building for years and then all of sudden kerblewy, it explodes.   That’s why it’s a, it’s a holy s. moment because you have this sudden realisation and because and when we look at our relationships with other people that when you fall in love with someone, you have a tendency to idealize them and you’re falling in love with what you, the vision you have of them as their best self. You see, you know, they’re not always that way but when you see the best in them, you have a tendency to overlook the bad parts the parts that annoy you, hopefully. I know my wife does it with me all the time. Then when that real true best self comes to the surface and is allowed to let reign, it’s, like, yeah, the other member of that relationship is very welcoming of that, so I’m not saying it’s a guarantee, I’m not saying it’s going to work that way every time but it sounds good, they said. Jen:  James, what do you think of this, all of this in terms of dieting. So in our community, really, what we have founded everything on is that dieting does not work and a lot, I mean, it doesn’t work for the majority of people and what happens with women is that dieting becomes a part of our identity over time, so you are or losing weight or maybe you’ll tell me, I’m not using the correct scientific terms for all of this but it may feel like part of our identity. It is so ingrained in us to be basically defining our self-worth based on our ability to lose weight or at least trying to lose weight makes us feel worthy and we get, you know, many pats on the head for it as women when we’re doing that. I would say men probably experience that as well and so feel like when women join Balance365, when we help give them, you know, turn the light on a little bit and they join Balance365 and they realize dieting doesn’t work, and for some of them it happens like in “Zing! This does not work. This I have been doing for 25 years does not work” or sometimes it happens slowly, it’s like, “OK, maybe it doesn’t work” but then they, like, come back, you know, and then maybe they pull back from us a little and go, “Well, I’m just going to try one more diet, just to double check” and then would you say that’s a change in identity happening? James: Absolutely and I think you really nailed it, that a lot of people, so that’s that is, sort of a despised self identity that is being allowed to flourish because their values are the approval of other people or living up to some toxic ideal that you see in an air brushed model on a cover of a magazine and looking at food as something that, you know, what they consume is something that they need to suffer through and this is, the thing about these type of events is the whole goal is to remove suffering, when you focus strictly on behavior change, that’s why the tortoise’s preached over the hare because if you change too much all at once, the amount of suffering you experience is quite high because it’s at odds with the more internal layers. And that’s why they say baby steps is because you’re trying to minimize the discomfort until it gets to the point where you just kind of get used to it and you come to tolerate it and yeah, you know those things can work but we all know that the failure rates are pretty high and what can be a much more positive shift in identity is having self compassion, realizing that you are a fallible human being and that food is something that is supposed to be enjoyable and nourishing and necessary for life and that you can stop caring so much about what other people think and worrying more about the way that you, what you think about yourself. And how you feel about the way you look in the mirror and how you feel physically, like, when you wake up each morning and you know hopefully bounce out of bed and then looking at food as something that nourishes you and because you have compassion for yourself that you want to feed yourself in a healthy and nourishing way and that you want to exercise because it’s good for you and it’s enjoyable and it’s OK to have some vanity goals but if vanity is your overrunning motivator I’ve never seen that work out well. Yeah, you know, for many years I had a shirtless photo of me on my website. And you know, I’m wearing the short sleeved t-shirt- Jen: Snug fit. James: And I think it’s OK to have some of those motivations but you also need to think about the, you know, I’m never going to be as buff as the next guy, I’m never going to be as ripped as the next guy but that’s OK because my wife likes the way I look, I like the way I look and I like running, I like lifting weights, I like riding my bike, I like fueling appropriately, I like the way I feel when I eat mostly healthy food, I like the way I feel when I don’t drink very much, all those types of things, that’s part of my identity, that just being kind of Zen about this whole thing. You know, just do the best you can, enjoy your life, enjoy your food, enjoy your exercise, that’s identity and values right there and that’s a positive one as opposed to all “Oh my God, I’ve got this flab from Christmas” which I totally do and you know, that’s a positive shift that people can make because they hear me talking about it, they hear other people talking about it, they read it and this type of information percolates in your brain and maybe one day it bursts through the surface and you say, “That’s who I am.” Lauren: Can I ask a question before we kind of move on or switch gears? When you were telling your story, I kind of had this realization that I listen to a lot of podcasts and there’s always people, you know, being interviewed and telling their stories and it’s usually someone who has accomplished something or done something and a lot of times you’ll hear them have that Holy S. Moment, you know, whether it’s, you know, they had a big realization or whatever and I am realizing that a lot of times, it’s kind of like they’re, it’s a bad moment, right, like, they’re kind of in a low place when they have that moment, is that and I know you have a lot of examples in the book, is that true for all of them or is there another way you can kind of come to that moment? James: It’s common but it’s not the law so, you know, in my example when I talked about the one when I was flunking out of school, yeah, the whole action is the antidote to despair quote, I was in a state of despair so that’s one of the reasons why it really spoke to me. Despair is not same thing as depression, just so we’re clear. And but and so what happens with a lot of people, one example is called crystallisation of discontent which is a psychological term which refers to discontent is, you know, say there’s one problem that’s bugging you and it’s not that big of a deal by itself you’re like, “Yeah, whatever, I can live with that. Crystallization is when you look at all the other little problems and the whole is greater than the sum of it’s parts where they suddenly crystallize all together and you reach a point where you’re like “OK enough of this, you know, we’ve got to go in a new direction because this is just not working for me anymore.” So that’s an important shift people can make. Then going deeper, we also have the breaking point, which we see quite often with addiction where people are in a horrible state and they realize that they just can’t do it that way anymore and they’ve got to go in a different direction and it is very common for people battling addiction where one day they just “No, this is it, never again” and they’re done and they are done so that’s another way but on the other end of the spectrum, we also have the good to great mentality which is and I’m stealing that from a book of the same name by Jim Collins and and the book is actually about corporate change where corporations want to go from being good at something to being great but it actually, there’s a lot of good stuff in that book that applies to people as well and what it is is someone, you know, life is pretty peachy, things are going along OK, you know, it could be better but then suddenly a quest enters your mind, like, “I gotta do this” where where it’s not like you want to be great for greatness sake, you have discovered something that makes you want to try to create it. And you know, for me people who have that big life changing event often have more later on clarifying epiphanies and for me it was being a writer that I had reached the age of 40 and I had an MBA, I had a successful business career and I didn’t hate my job but I did not love it and I knew that writing was something that I love to do and I realized life was too short to spend the majority of my waking hours doing something that I wasn’t really passionate about and I was going to give it my very best effort in order to make a career out of this and so that was a, life was good and then I became a writer and it became great. Maybe not quite financially great right away. But trust me, you know, I just turned 50 last year and my forties were awesome because I decided to become a writer and my fifties are looking to be even better. Lauren: Right, that’s good to know, you know, you can have these epiphanies without being at like rock bottom. Annie: I would just like to say that James pretty much just described my last year of therapy in like 15 seconds. Because we actually have a section of our program called The Story of You which is where we help members get clear on their values and I think Old Annie, Annie 2 years ago would have just poo-pooed that, like, “Why does this even matter, I just want to lose weight, I just want to build muscle, I just want to, you know, run this or lift this or whatever, like, I want to look a certain way or I want to feel a certain way, why does my values even matter?” and you wrote in a blog post that you encourage people to spend less time worrying about the exertion of will and engaging in continual resistance and suffering and forcing yourself to do what you really would rather not and spend some quality time on examining who you really are deep down and you encourage people to, like, really look at their values, like, what really matters to you and you’ve found in your book evidence that supports that that will help, as you said with that one gentleman that he didn’t have to rely on willpower because this is just what he wanted, like this is was him. This is what he wanted and so we hear it from a lot of women that they feel like they need more willpower and more self control and you’ve dug into self self control, self love and willpower in your book and on your blog post and as you know, the fitness industry loves this like “No excuses, just shut up and do it, grind through it.” So after looking at your work in the book and knowing you and knowing your personal and professional experience, what do you think about that? I mean do you want to expand on that barfy noise? James: There was a lot of research in the book debunking the whole myth of willpower  and seeing it as a limited resource that you can strengthen and you just gotta suck it up, we know it doesn’t work, people have been told to suck it up forever, there’s research showing that the efforts to to strengthen willpower are futile. There’s more research in the book that people who do use what they call grit, that you just tough it out no matter what even though you hate what you’re doing, it’s actually physically damaging, it has negative cardio metabolic effects as well as negative effects on I think the telemores which has to do with your life expectancy and so yeah, it’s and it’s just not fun. Willpower and grit and powering through all imply suffering and I just, we don’t want to suffer, we seek to avoid it. Our entire evolution as a species has been about trying to find ways to make things more comfortable for us so instead a person’s ability to do things, like, I will get up and put on a ridiculous amount of layers of clothes to go out for a 6 mile run in minus 30 and it’s not because, you know, I don’t hate doing it, I actually feel a sense of accomplishment, like, it’s kind of cool for me knowing, “Hey, I’m out doing something that other people think is crazy” and so that’s one of the things that motivates me to do it is that it’s, you know, it’s just I get a bit of a an excitement out of it even though, yes, it’s really cold out there and I’m kind of slow because I’m trudging through snow but it’s just, it’s this neat little sense of accomplishment and also a shower after a run at minus 30 feels really, really good. Jen: And I’m over here like, “No way.'” It brings me zero joy to do something like that. James: So that’s not, I’m not suffering. Jen: Right. James: All that being said and I’m really hoping this book takes off because if it does, not only will I feel validated which I kind of need, then I want to write a sequel about what happens after the holy S. Moment and you know, how do you keep snowballing the success from it and I think that doesn’t rule out discipline, so discipline is different from willpower. Discipline is about things, like, you know, getting, formulating routines that you stick to even though you don’t want to and yes, there are days that I don’t feel like running but you know, I just, you know, I figure I’m still a runner, that’s who I am and I don’t always succeed but there other times when I don’t want to but I’m going to do it anyway and you make yourself do it and then you get out there and yeah, maybe the first kilometer and sorry for the Americans that are listening, the first kilometers kind of drag but then you get into it and after it’s like, “Yeah, I’m really glad I did that” so there’s it’s not like everything is a joyous “Oh yeah, I can’t wait to do this.” But it’s just, it’s because it’s who you are, it’s not that big of a deal. Jen: Annie just talked about this in a workshop last night that we did for our members around exercise, you know, it’s like we do encourage people to find exercise they enjoy or can tolerate and Annie just said “Look, it’s not always going to be super fun, you’re not always going to be like I can’t wait to get to the gym but even if you can tolerate that exercise and afterwards feel accomplished and glad you went” Annie:  Then, yeah, there’s like this like acclimating period for a lot of people that aren’t super jazzed about exercise or movement that it’s like they kind of just have to get over that hump of maybe they’re a little bit sore or they’re getting into a new routine, they’re like, I think of it as like snowplows, you know, like or you’re going through a gravel road, like the first time you go through like fresh gravel it’s like a little bit wonky and then you keep going through and you keep, like, grinding those, like, pathways and-“ James: Grind isn’t a good word to  use, we don’t want to be in a rut. Lauren: No. Annie: But eventually, the pathway is a little bit smoother and you have less resistance but initially, when you’re getting going or maybe you’re trying something new, you’re learning a new skill, it’s not all fun and there’s certainly days where you’re just tired and you just don’t want to do it for whatever reason. James: And sometimes you do and that’s great and other times you don’t, you know, don’t beat yourself up over it because you know, tomorrow’s another day and one of the things that I want to be clear about is that, you know, not throw out the tortoise approach to this because if you think about motivation as, like, a mountain and at the base of the mountain that is 0 motivation to do the thing. And then the peak of the mountain is absolute 100 percent motivation to do everything associated with this goal with inspired vigor. Well, if you’re down at the base of the mountain, you don’t just hang out there and wait for sudden inspiration to arrive and Star Trek transporter your butt all the way up to the top. That can happen, sometimes it does, that’s what happened with Chuck but it doesn’t always work. You increase your odds of success if you start to hike awhile and you do those baby steps, because what it does is that it opens up new experiences to you. It gets you thinking because this is something that happens in the brain and if you are having these new experiences and starting to think about this and examining yourself and how you feel about it and looking at your, this is an emotional experience and that’s what happened for me is I talked about the, you know, the change in school and the change and you know, getting out of debt, all that kind of stuff. I didn’t get in shape right away, that came 2 or 3 years later when I finished my undergraduate degree, stuff was really busy with school and I was really busy with working to pay off my debts and those kind of things and I didn’t do anything about my body because I felt like I didn’t have time and then as soon as I finished my degree I looked in the mirror and said “Wow, I got kind of heavy. Maybe I should do some about that.” That became my next mission, I’d learned how to work hard but it doesn’t mean that I liked it. I started going to the gym and I did not like it one bit and it was after about 2 months that I was, you know, just forcing myself to go because I knew that this was something that I had to do and I was powering through on that grit and that willpower and I came close to quitting so many times and I felt like I was losing no weight whatsoever and then, so I was doing that that slow hike up the mountain of motivation and then one day I’m walking out of the gym after a couple months and the person at the front desk said “Did you have a good workout?” and I stopped and I thought about that for a moment and I said to myself, “Well, it didn’t totally suck” and I thought “It used to totally suck” and hopefully we can say suck on your podcast. Jen: Yes. Annie: Yes. James: OK, so it went from totally sucking to not totally sucking and I thought, well, if I could evolve from it toward it not sucking then one day I could learn to love it and in that moment, I wouldn’t say that I transformed into loving it but I did make a life altering decision that said “OK. One day I can learn how to love that” so therefore, I’m going to keep doing it until I die and that was 25 years ago still going so, go me! Jen: There are a lot of aspects that suck about running a business, it’s coming together but ultimately when you’re, you know, values, you know wake up in the morning and being safe, having financial autonomy is so so important to me, I will, we will show up and we will do those sucky things because ultimately our value of having financial autonomy overrides the pain of doing those sucky things. James: Yeah and it’s, you know, the alternative is is worse, right. Jen: Right, is way worse, yes. Annie: I think that that’s an important point that I hope our listeners grab, especially, you know, I’m talking about exercise because I’m a trainer but so often people think that they love something so then they’ll do it and that’s how you do more things, right, you have to love it first but like you just described, you can actually do something, get a little bit better at it and that cultivates a sense of love or enjoyment, so you can, in essence, learn to love something, like, you learn to love exercise and I think that that’s what so many women who don’t naturally love exercise like I do, I get it Jen and Lauren have expressed that they don’t share their passion for exercise like I do all the time. But that that doesn’t mean that they’re just out of luck. James: And for the analogy that I would use to describe it is that when you take this approach hiking up that mountain and then waiting for sudden inspiration to move you much further up the mountain, you know, dramatically increase your motivation all of a sudden, I refer to it as acting like a tortoise but thinking like a hare and so people need to be receptive to the possibility of this sudden gaining motivation and if they’re more receptive to it, if they’re more mindful of it happening, it dramatically increases the likelihood of it taking place. Annie: I like that, that’s really good. Jen: One of our members, her husband’s in the Army and she had this really good saying on one of our podcasts around motivation and behavior change and self-awareness, I guess, sometimes you need to know when to advance and when you just need to hold the line and I feel like that was a real, like, that’s kind of the hare and the tortoise thing, right, like you just, sometimes you have an opportunity in your life to advance and you need to take it. Motivation isn’t bad, it’s just knowing, yeah. James: Something interesting happened with me, so I was talking about how new experiences and an openness to new ideas that wake up a part of your brain that wouldn’t have happened if you hadn’t gone out and tried that thing, that’s what absolutely happened to me with running. So when I decided to take up running, so I’d lost a fair bit of weight with weight lifting and dietary changes and then I decided, well, I want to lose more and this was before Facebook, so I actually knew that that running was good for weight loss, that it could work because I hadn’t bought into all the fit pros saying “No, cardio makes you fat.” So I decided that for me that running would be a good choice and that it would also be not just good for weight loss but just good for my health, it’s good for organ health and all that kind of stuff and so I decided to start doing it and I was terrible at it and it was painful but I just started it, really short distances and gradually built myself up and I was just thinking about the outcome, like, this is good for losing weight, this is good for my health, that’s why I’m doing it and something completely unexpected happened was that that being a writer and being a person that likes to create stories and tell himself stories is that became the most creative part of my day was when I go for a run my best ideas come to me, either when I’m running or going for a bike ride and I just love the free association that I get to do. I’m away from technology, you know, I don’t have my phone with me or anything like that and it gives me that time alone in my head that, you know, that I just didn’t realize how much I craved that. And it makes such a big difference to me that that was really what I fell in love with, that if I hadn’t actually tried running I never would have known that that was the thing that I needed. Annie: Yeah, that’s really pretty, that’s a beautiful story. Lauren: That’s really pretty. Jen: James, can I get your take on another behavior we see quite often? James; Sure. Jen: So what happens very often in our community when women have the epiphany that diets don’t work and they’ve been living for years and years under a very restrictive way of living, they have their pendulum swing out the other way so many of our members talk about, after they join Balance365 they overeat, go swing into this period of eating all the things that they have denied themselves for so many years and that usually comes with weight gain and a lot of them say it became a necessary part of the process for them in order to have their pendulum swing back to center and be able to be more objective and balanced in their approach. What is your, do you think it’s necessary and or do you, is there any science or anything that you know of to explain that or what’s your take on it? James: So, I mean, I, the first caveat is that I’m not actually a psychologist. Jen: Right. James: I interviewed a whole bunch of psychologists for the book and we didn’t specifically get into that type of stuff. I would say that if you are hearing a lot of people saying that that was necessary for them and that it worked, then it sounds like there’s got to be something to it. For me, like I always would like to say err on the side of caution a little bit but you’ve got to do what you gotta do. Jen: Right. James: If you have been punishing yourself this much for so long and you reach this breaking point and you just got to go in another direction where you’re like “OK, I’m sorry but this is, I just need a break” and that what happens then, then that makes sense to me but at the same time, you need to keep something in the back your mind that says “This is temporary, that this is a reset” because you don’t want to go off the rails, right? You don’t you don’t want to never stop because and it’s not about shaming people for their body weight but just being concerned for their health and you being concerned about your own health and how you’re feeling and that as long as you realize that this is a temporary reset and that it’s part of finding a mentally and physically healthier way to move forward it sounds OK to me but- Jen: Right. James:  Just realize, OK, how far does that pendulum need to swing the other way before it comes back and don’t go beyond what’s necessary? So just little bit of caution. Jen: We have to have these come to Jesus talks with our members often on how far that pendulum has swung out and how far, how long they’re willing to stay there because in the end, a lot of women feel they came from a space where they were controlled by the diet industry saying- James: Oh yeah. Jen: Right, but then they’re screaming out into this other space where I’m like “But you’re still not really free, like you’re still not making free will choices if you can’t get your pendulum to come back to center.” James:  Exactly- Jen: You’re just in a rebound state. James:  You let the food hedonism rule instead. Jen: Right. James: You go from restriction ruling the life on one hand to highly palatable food ruling it on the other hand. Jen: Right. James: So you’re still, like you said, you nailed it, you’re still not really free, so be careful how far you let it swing- Jen: Right. James:  Consider it a bit of a mental reset that it’s almost like a statement that you’re making- Jen: Exactly. James: A rejection of this toxic diet mentality where OK, and then you make your point, “Forget you diets.” And then you come back to what you really feel is going to be both physically and psychologically nourishing for you. Jen:  Right, exactly. Annie: James, I know you have to get going because you have more interviews, you are just an in demand man. The first time we tried to schedule this episode you were just coming off of another interview and it was right before another one and everyone wants to talk to you, so I’m so thankful that you gave us some of your time. I know our community is just going to really enjoy this episode and I bet they cannot wait to get their hands on your new book which comes out the 22nd of January, so by time this should be available. James: Yes, indeed. Annie: And where, I know they already know where to find you but if they’re new to you, where are you hanging out online, where is the best way to connect to you? James: So if they want to find a book probably easiest place is well, they can either walk into a bookstore or go to bodyforwife.com and there’s a book tab that has links to every possible platform they can want. I think I mentioned that I did the narration for it so they can also get the audio if they want to do it that way. We have a lot of fun on my Facebook page, really good crowd there. Jen: Oh yes. James: It’s, I think we’re over two thirds women on the page and they’re very accepting, very feminist environment, sometimes some very foolish men show up and get their butts handed to them righteously and that’s an awesome thing to witness. Annie: You’ve had some threads that are like “Get your popcorn ready” sort of thing. Jen: You know, I don’t even say a word, I just read through them and I’m like, “Whoah!” James: Yeah, well and the thing is that people like the smack down because it serves as a lesson to other people and I learn things by, because there are so many really intelligent women on that page that, you know, people say “Oh, you know, you really get this whole kind of feminism thing” and it was like “Well, it’s only because I’ve been reading comments on my Facebook page from awesome women who know this stuff really well” and so yeah, that’s Facebook.com/bodyforwife, Twitter, Twitter sucks. I’m on Twitter let’s stick- Jen: What about Instagram? James: I’m not on Instagram, I don’t take good selfies. So Twitter is Twitter.com/bodyforwife as well. Annie: Awesome, well James, thank you so much, I cannot appreciate you enough, I’m really excited for everyone to check out this book and we’ll hope to have you back soon, OK? James: I’d love to and in closing, the one thing I will say to everyone that’s listening, that when it comes to these types of life changing epiphanies, the most important thing is to understand these things happen all the time and it is really important to believe that it’s something that can happen for you because that’s what opens yourself up to actually experiencing it. Annie: Awesome, thank you so much. James: Thank you. Annie: We’ll talk to you later. James: Bye. Lauren: Bye. Annie: Bye.     The post 51: James Fell: Epiphanies and Life Change appeared first on Balance365.

In this episode of the Houston Home Talk, Mike Wall of Love Ohio Living and James talk about the detailed roadmap for changing business over to EXP, consistency, and branding.Quotes : " If we do get somebody to say yes, then we got a shot at a six-figure income."" You'll get what you want if you can help other people get what they want. "Mentions:Website: http://loveohioliving.comShownotes: 1:04: Response from other people to the interviews2:07 Mike started real state business04:45 Mike talking about consistency08:45 - Mike talks about branding 19:24 - Team Structure 20: 48 - Mike's favorite books and podcasts.Full Transcript:[00:03] INTRO: Welcome to Houston home talk featuring all things real estate in the Houston area. We'll interview real estate professionals, local business owners, and special guests from right here in the Houston community. This is where you get the inside scoop about what's new in real estate, new community openings and business openings and much more. The Houston Home Talk Show starts right now.[00:32] JAMES: All right guys welcome. What's up? This is James J. Welcome to Houston Home Talk. I am excited today to have my man Mike Wall from Dayton, Ohio. What's up Mike? How are you today?[00:43] MIKE: Yes sir. Baby, I'm so happy to be here, man. I'm so happy to help. We'll be able to drop some value on your audience today, brother.[00:50] JAMES: Yeah. Listen, I have been watching you now for several months as you have been doing a lot of interviews with a lot of the new people that have been moving over to EXP Realty. I want to say thank you because a lot of the content that you've been providing, I know I've used, I forwarded it to people and I know that the value that you're providing is helpful to a lot of people. You and I met in New Orleans last month. I've been watching you for several months. As soon as we met, there was several people that came up to you and said, hey, thanks Mike. I know you're reaching people. [01:21] MIKE: Yeah.[01:22] JAMES: You're helping people because a lot of people can't do what you're doing in the way that you do it so thank you for that. I wanted to ask you so I want to just start, so you've been doing a lot of these interviews, a lot of Facebook Live interviews. I want to get people introduced you. I want to ask you real quick, what's been the response from other people to the interviews that you've been doing with the new people that have joining EXP?[01:42] MIKE: Yeah. No, it's a great question man. It's really been overwhelming more than I even thought and really the whole reason if I back up and just telling you the reason why I started doing the podcast… [01:52] JAMES: Right.[01:53] MIKE:…is because I knew that we were building something special. I also knew that changes is big. Change is big for everybody involved and especially the for those people who are team leaders in running a business. I wanted to give those people a platform to be able to share their unique story with the world and in hopes that somebody out there might identify with them and be able to make an intelligent decision about where their business went and then also providing a detailed roadmap for change if they decided to move their business over to EXP. Then also kind of lastly is just to provide insight on people curious about learning more about EXP.[02:34] JAMES: Right? Yeah. Let's get to know a little bit about you because I know you have been in the business. You've been licensed for about 16 years or so. You started full time…was it 2014 when you were officially started full time? [02:45] MIKE: I did it. I got a unique story. I've had my license since 2002. I actually got into the business just as a buyer specialist for one of the top agents here in our marketplace. A guy named Phil Herman who worked for Remax is a big deal man. The guy was selling like 300 properties back like when nobody knew about teams. When I got into the business I just thought, man, I don't want to try to learn all this on my own. What I'll do is I'll take a little bit less of a commission split to go under somebody who actually has all the knowledge for what I want to do, right? I worked with Phil 2002 to 2009 and we all know what happened in 2008-2009. The market just completely crashed.I actually got out of real estate. I kept my license but I went to work back in corporate America and I did that for five years. I was working for a company that was based out of Blue Ash, which is a suburb of Cincinnati and I was selling copiers, man. It is a grind doing that. I did that for five years. I knew I wouldn't do that long term and I knew I would get into real estate. [03:43] JAMES: Right. [03:44] MIKE: In 2013 in about October, I started calling the expires in 2013. In 2014 May I had 44 listings and I went to my wife and I said, honey, it's costing me more to be at my corporate job than it is to be here in real estate. She said, you know what? She said, do your thing man. That first year went out and sold 57 houses. Second year in the business, sold 104 houses, third year sold 187 houses and then fourth year I sold 309 houses. I just haven't looked back, man. There's so much obviously that goes in between there because now you know, I'm operating as a team. I've got some great team members. I got a great business partner now. We've opened up a whole world with investing and so forth.[04:30] JAMES: Now let me touch on this because it seems pretty simple. One of the things that I love about you is the consistency. I know you've been doing a lot of live coaching calls. Obviously you've been doing this for several years, calling the expires. [04:41] MIKE: Yup.[04:43] JAMES: One of the things that I tell a lot of new agents is what you think, because everybody just assumes everybody's calling the expires. I've heard you mentioned this in the video, a lot of people will stop calling after the fourth time or even a third time in a lot of cases. Obviously you were consistent. What made you focus on the expires? Because as a new agent, that's one of the things that I always tell people to do. Focus on expires. You can get that information and just keep consistent, stay consistent with it. What made you start? What was the thing that kind of got you to focus on the expires when you first started?[05:17] MIKE: Yeah. No man. That's a legitimate question because if you think about it, I mean everybody's good at something, right? Everybody can always make up the excuse that I'm not good at something and typically it's because they either don't have the experience or they're just not willing to try. For me, when I moved here, I went to high school and was raised mostly in to Dallas, Fort Worth area. I moved to Ohio and went to college at Ohio State. Go Bucks. I met my wife there and my wife was from this small town, which is a Northern Cincinnati, Southern Dayton suburb called Springboro. I didn't have a personal network. I didn't have a lot of people that I could tap into. I just thought, well, what is the next best thing? I knew I could grind it out on the phones because I had done in B to B sales selling copiers, right?[06:03] JAMES: Right. [06:05] MIKE: There's no science behind it, man. I just did it. You talked about consistency and that's, that's really what it was. It's just doing it. It's repetitions in the gym, right? It's like every day you show up. You put in your reps. You work hard, and then the magic starts to happen, man.[06:20] JAMES: Right. Yeah. That consistency thing is very difficult, especially for us because there's no one to tell us to do anything.[06:27] MIKE: Right.[06:29] JAMES: Everyone wants to get in the business, but then lacking the discipline to do what you did for three years and still continue to do to this day with the Expires. It's something tells you is you have a schedule and you got to work. It's hard to do. It is hard because stuff comes up. It's hard to stay consistent. If you really want to make it and you're a prime example, everybody that's calling these Expires, they're not doing it consistently. They just don't. I know it. In Houston, it's the same thing. We've got 30,000 agents here. We've got a lot of expires but of that 30,000 there's only a handful of people that are actually consistent with it. As a matter of fact you knew that and you stuck with it and clearly it works.[07:09] MIKE: I want your audience to understand something too James is that the great thing about calling the Expires is not everyone's is going to say yes, right? We are fortunate enough to work in an industry where the margins, if you do get a yes, are very large, and I always tell my team this, right? We live in a market in southwest Ohio here where the average price point is not really high, right? Our team average sale price is $178,000. Our market. Average sale price is $130,000 but you can still make a six figure income here if you just get one yes, every week because our agents average commission check is 25.50 and if you take 25.50 and divide that out over 50 weeks, you've got a nice income, right?[07:48] JAMES: Absolutely, yeah.[07:50] MIKE: Really we just focus…we have our team focus on that one yes per week, right? We understand when we pick up the phone that the odds are against us, right? We understand that most people are not going to answer the phone and if they answer, most people are not going to set an appointment. We understand also that if we do get somebody to answer it, if we do get somebody to say yes, then we got a shot at a six figure income.[08:10] JAMES: Absolutely. Yeah, and you know there's a couple of books I've got but the go for no is one. Darren Hardy, I love Darren Hardy. December is going to be here tomorrow and I bring this up because his book talks about the format. There's this habit, habit, habit, habit and what he used to do when he was in real estate back in the day, he would just look for no's. The more no's you get, you're just closer to that yes. At some point somebody is going to say yes and I'm a huge Darren…the compound effect. That's what that's saying in the book, compound effect. I love that book. Usually we'll bring it up every single year around this time of year and I go through it and I'll operates during the year because it's a great book about the discipline of habits. In this business. it is key to everything is self-discipline to be able to, to continue to do that. Props to you on that. Now I wanted to ask you, so I heard in the interview that you had mentioned that you had back when you started full time back '04, 2014-2015. I guess a couple of years into it. You switch from the wall group over to love Ohio living, LOL team.[09:05] MIKE: I did. I did.[09:07] JAMES: Explain why did you did that? I think I know the answer. I wanted my audience to understand why did you do that? Why did you think that was important to get your name off the brand and brand it to level high live in which you did.[09:18] MIKE: Yeah. No, that's a great question. There's arguments for both sides.For me personally, I thought it was more sustainable to build a business that didn't have my name on it. I didn't think people would sustainably work to build my business. I thought that together, if we formed something that we could all believe in and all row the same direction, that didn't have my name on it. In another words, it's like a football team, right? If you think of the Dallas cowboys, right? Who did beat the Saints last night which…[09:50] JAMES: Yes, they did. Yeah.[09:51] MIKE: if you think of the Dallas Cowboys, they're not called the Jerry Jones, right? They're called the Dallas Cowboys. Jerry Jones owns the cowboys, but everybody has their respective position for the Dallas cowboys. When they come together, they make a team, right? I wanted to do is I wanted to take the level how living team and I wanted to galvanize everybody around that.What that stood for was elite level agents being able to plug their businesses in to our tool systems and resources to go out and sell as many houses as they want. Not, they plugged into Mike Wall and just took every, all my leftovers, right? Because there is a team model that works that way and I just don't believe it's sustainable. The statistics show, I mean, the shelf life on those type of a team, the shelf life of the agent is much lower, right? Because what happens is they come in, in most cases and they build them up and then those agents, they want to go do the same thing whereas now we have an agent on our team. It's like Natalie Rose, right? Is an agent on our team? It's Natalie Rose with the level higher living team at a power broker by EXP Realty, right? Her name goes on the sign. We just have our LOL logo. Frankly, it's not that I would ever sell my business, but if you think of it like this, James who's going to buy Mike Wall real estate without Mike Wall.[11:09] JAMES: Yeah. [11:10] MIKE: You know what I mean? [11:11] JAMES: Now you're, you're right on. That's a key when we talk about marketing branding because I f struggled with that as well earlier and having my name. I agree with you completely. I think the buy in from your team is much more when you have LOL Level Higher Living. I love that you did that. That's a key. That's a nugget for people to really look at that because like you say there's arguments both ways. I'm actually on board with you as far as the branding and not having your name attached to it for the long term, long term that's a great idea. Good information there. Let me ask you, so from all the interviews that you've been doing with a lot of the EXP Agents that have been mourning, it's been absolutely crazy the growth that we've had. You joined back, was it February of this year is when you guys moved over? [11:55] MIKE: Yes sir, it'd be a year. [11:58] JAMES: Montel Williams, you moved over. What's been the best or the most surprising thing, specifically from the people that you have interviewed? Because I don't know if you've got to off the top of your head how many people you've interviewed since you started the show.[12:10] MIKE: Probably around 20, 25 at this point.[12:13] JAMES: Okay. Okay. What's been maybe one of the biggest surprises or maybe common similarities? Because everybody's story's a little different. I probably have watched virtually every video interview that you've done. Everybody's story just a little bit different. What have you found that maybe something that's maybe been similar from a lot of the people that you've spoken to? [12:30] MIKE: Yeah. I have them. Something instantly pops to mind and because it really not only has it surprised me that this is what I've learned from them. It is something that we never expected when we came over. I'm learning now when I talked to people in those interviews is that it's the same thing for them, right? What I'm learning is that the community. It's the community that we've created. It's the people that now we're able to tap into, right? Because like Jay Kinder and Mike Reese, the NEA group, right? They used to run this mastermind that was like a $25,000 buy in, right? Now they're doing that mastermind for free. [13:09] JAMES: Yeah. [13:10] MIKE: Right? We're talking about Kinder was the number one, number two guy for COA banker in the world at one time, right? He's one of the smartest guys in real estate. When you're able to plug in to those guys like I could shoot him a text right now and get a response from him, right? The same thing with Kyle Whistle, the same thing with Dan Beer. I mean we're talking about some of the biggest real estate teams and smartest real estate minds in the business.For me that was the biggest surprise man, is the fact that now we've created this fantastic community of learning and sharing and just growth and excitement, man. That's an easy answer for me. [13:50] JAMES: Yeah, you and I, we've got a lot of similar circles as far as NEA. I've been with NEA probably since 2011. Actually, back then it was just Kinder-Reese. I've been following Jay for years. He's one of the nicest guys you'll ever meet. Yes, I also coached with them him well. You're right. When now you've gotten to exponential growth summit back in the day. [14:06] MIKE: I never did go to that believe it or not. Yeah, I never went.[14:12] JAMES: Okay.[14:13] MIKE: I coached with NEA. I didn't exponential growth. [14:17] JAMES: Right. The funny thing now is that with EXP, with all these big name ages moving over, and you're right, the community and the collaboration. I know we keep using these words over. It's true. When you're in it and you and I were here where we both are at EXPN. We've been able to see it. The fact that you're right that I could call Jay right now. I've paid thousands and thousands of dollars to Jay to coach me. Now that same information, I could still get it and get access to him with literally just picking up the phone right now. That's been one of the biggest, pleasant things that I've seen as well. For a lot of people that are not, or maybe looking at the opportunity right now other than the collaboration, what else is maybe been one of the things that's been a plus for you? [15:03] MIKE: What I want to add to that real quick is that I don't want people to take that for granted because a lot of people I think represent EXP the wrong way. You're trying to get people, you're calling people that you don't know and you're trying to get them to move for revenue share or stock. That's not enough to get people to move. It's like you need to figure out what if we understand at the end of the day, right? That map is more valuable than the treasure. Then you understand that that knowledge that you can get through collaboration, that's where the treasure is, right?That's the map to the treasure. To be able to collaborate with those guys in a mastermind group. These guys are doing stuff at a level that we just haven't thought of or haven't gotten to in our businesses yet. For that person out there who's doing $10 million or $20 million a year that wants to get to 20 million or 40 million or a 100 million, right. The difference between them, where they're at right now and where they want to be is that roadmap, right? When you join EXP, you're able to tap into that right away, right, through the collaboration and relationships that you'll build here. I wanted to make sure that your audience was crystal clear on that because although revenue share is fantastic and the opportunity to be an owner through stock is fantastic. It's not the only reason you should join EXP, right?[16:28] JAMES: Yeah. No question about it. Yeah. I think the excitement around it is just because it hasn't been done this way before. [16:33] MIKE: Yeah. [16:37] JAMES: You start looking at the opportunity down the road. I could not agree with you more, Mike. That component of EXP has gotten a lot of publicity. I think as far as representing EXP, a lot of people would probably get a little turned off because everybody's talking about the revenue shift. You are right. That's not really for me the number one reason. It is the fact that you get to collaborate. You and I would not be talking right now. We aren't talking right now if it wasn’t for EXP. I wouldn't be able to call collar or anybody for that matter. It's genuine. When we went to the EXP con last month it's genuine. People are just really willing to help you with whatever because it does benefit us all when we all succeed. Where it used to be you have freinemies and you interviewed with Tammy yesterday?[17:25] MIKE: Tammy was day before. You're talking about Mary Simons Malone. I love them so much. Yes, she was frienemies with Kyle Whistle, right? They worked at competing brokerages in San Diego. She talked about that too with the collaboration now with Dan and Kyle who were formerly her biggest competition, right?[17:44] JAMES: Yeah, Yeah. Huge, huge, huge, huge. That's awesome. Couple more questions for you Mike, before I let you get on out of here. Again, you said the response from people because I saw people coming up to you and we're at the EXP last month which is pretty cool. As we were in the middle of talking,[17:59] MIKE: Let me one more thing James before because I know you asked me and I'll try not to be too long winded here. I want to make sure that people understand the value of what the model at EXP has to offer no matter where you're at in your business because you asked also what was another thing that I had learned or what was another reason that we moved and what we learned through our move, and I'm hearing back from obviously a lot of these team leaders in our interviews is the fact that I had a decision to make personally when I moved. We were opening up our own market center. We had approval through KWRI. We were opening. In fact, that market center has now opened without me. Right? [18:34] JAMES: Okay. [18:35] MIKE: Some other person or group came in and took my place. I was supposed to be an owner at that market center and EXP was put into my lap, right? We had a decision to make right away and that decision was, do I move forward with my plans with Keller Williams to open this market center, right? Or do I move my team to EXP? I'll tell you what it came down to. It came down to what was better for my team, right? Ultimately the reason why EXP want one out is because the move to Keller Williams would have been a lateral move. Actually it would have been a worst move for them because the CAP was going up at the new office. It would have only been a win for me, right? I could have been an owner at that office and that would have been great, right? Our Ego loves that, right? I'm an owner. Ultimately if I knew I wanted it to be successful through my team. That's what I want and ultimately to be able to provide them the best platform for success, right? I knew that I had to make the decision to move to EXP because now I can offer them things that I never could before. That is through revenue share and that is through who stocks, right? Now, they can become owners. They have a vested interest after three years. They have two exceptional wealth building tools that they never had access to before.[19:46] JAMES: Absolutely, yeah. That same message as I go around talking with agents in my market, same message. My team is definitely not structured because your team structure right now is, consists of what? How is your team set up right now?[19:57] MIKE: We serve two markets. We serve Dayton-Ohio market and also the Cincinnati-Ohio market. [20:02] JAMES: Okay. [20:03] MIKE: We have 25 agents. We also have a listing manager and a contract manager and then an office manager as well. [20:10] JAMES: Right. [20:11] MIKE: I have Director of operations/ co-owner and a guy named Jump Welski.[20:16] JAMES: Yeah. You've got a pretty big a machine going up there and a lot of people being affected by your decision, all tweets and make that move over to the EXP, which is not something to be taken lightly by any means. I've spoken to a lot of other agents. I don't know. I've watched a lot of your interviews with people. It's a tough decision because it's not just you that you're affecting here. It's a ton of people that are affected by your decision, good or bad one way or the other. I don't think there's really any downside to EXP. I'm going to be a little biased, but the other revenue models or other revenue streams that we have available is great. The fact that we can collaborate with people all over the country at this point and soon it'd be international, 2019-2020 which is a pretty exciting where the company's. I compare what we're doing now with EXP and how Glenn has set this up and the fact that you are not going to have a conversation. You and I could talk to each day. Three quick questions I want to ask you. First question is what are you reading right now? I know you're always seeking knowledge. I know. Are you reading anything right now that…[21:20] MIKE: Let me make it up for you man. I'll tell you right now. I usually have a couple of different books going on. I do love to read and I do love to listen to podcasts. I'm listening to… this is not a business book but its called sleep smart. I don't do fitness coaching, but I have a fitness coach too. He sends me books. I'm also listening to the Perfect Day Formula and that's by Craig Valentine. I'm listening to it another book called The Swerve. That's a good book. It's funny man, because if you do a lot of reading or if you listen to podcasts, you always get ideas about books from other people, right? It seems like one book leads to another write. One book mentions another and then you pop that in audible and you read that. I think one really good nugget and you and your audience should write this down if you haven't heard it already is listen to that recent, the most recent Maxout podcast with Ed Mylett, where he talks to you. UOP baseball team. That is so good, man. It is so powerful. I've shared that with my entire team. I listened to it probably every other morning because it just so resonates with me, especially as you transitioned into 2019. If you need something to get you up and light a fire under your butt and it is great, great material, man. [22:26] JAMES: Yeah, I have my last. He's awesome. He is awesome. That's the beauty of a podcast is or an audio book for that matter just to be able to listen to it at any point of your day, at any time. It really doesn't matter where you're at nowadays. You can just pop that in and listen to us. I have not heard that one. I will make sure that I listened to it. I'm actually post the links so people can get just click where and go right into it. [22:46] MIKE: Awesome. [22:47] JAMES: I'm an avid, avid reader as well. There's always something that I pick up. The knowledge that it's that compound effect. One compounds on top of you, the next thing. Another last, last two questions here. What's your favorite quote? Favorite quote.[23:02] MIKE: Man, that's a good one. I think it's probably changed throughout time. I think my favorite quote is probably really cliché at this point, but it just so resonates with me is the old Zig Ziglar quote is that "you'll get what you want. If you can help enough other people get what they want." That has not always been true for me. I've grown in my business, I've learned that my success will ultimately be a product of the success that I help others have.[23:28] JAMES: Yeah, no, that's awesome. Zig Ziglar Fan, goodness gracious as well. I one that was one of my favorite of course. The other one is then you're going to be a meaningful specific or a wandering generality. It's huge and especially for realtors because most realtors are not meaningful specifics.[23:45] MIKE: Right. Right. We know that.[23:46] JAMES: Great, great quote there. The last thing I want to ask you, so what's something that you want to do in 2019 that you've never done before? Whether it be business related obviously EXP is an explosion in growth mode right now. What's something that maybe you've got want to do a 2019 that you've never done before?[24:04] MIKE: That question comes at a really opportune time for me because we're actually in the middle of opening up our own mortgage company, the P and L model. I'm actually really excited to play around with that a little bit. I think there's a huge opportunity, not only to add more money to the bottom line but to also provide a level of service that most of the real estate agents can't provide because this is going to be set ups just so especially at first just so this person is servicing our team.[24:29] JAMES: That's great. I've had a sin as a, as a loan officer. There's no better mortgage advisor like yourself because you are on that side and you speak to what your clients are really wanting and really be able to direct if it's going to be your mortgage company or whoever you're working or partnering with on the mortgage side to really provide a really, really good value for people because I know you've experienced it. I've experienced it with a mortgage companies that it amazes me that some of these mortgage companies exist or lenders should I say. I've had people just completely disappear during the process. This is amazing to me. It's amazing. That's a great opportunity and I think with your background there's no way that you would not be successful with that or anything else that you do. [25:19] MIKE: Thank you sir.[25:20] JAMES: That'd be great. Again, I am a huge fan. I admire everything you've been doing. You're one of those people when you meet him, you just like of like literally I met you. We shook hands on. My God, I just liked this guy. [25:29] MIKE: Likewise my man, likewise.[25:34] JAMES: I've got to get up to and actually one more thing we got to talk about real quick, the most important thing will Ohio State be in the playoffs or not.[25:42] MIKE: Man, at this point, does it even matter? It's whoever's going to play Bama and lose, right?[25:45] JAMES: Right. Right. That’s true. [25:50] MIKE: I love my Buck guys I'm also a realist man. [25:52] JAMES: Yeah, absolutely. Yeah, it's got to be quiet if you you say well. Anyway, when I appreciate your time, Mike. Thank you so much man. Thank you. Thank you. Keep doing what you're doing. I will continue to promote you as much as I can. If there's anything I can help you with, let me know and appreciate your time, man. You have a great one and we'll catch up. [26:07] MIKE: Likewise and if anybody's interested in that free coaching that you mentioned they could go to liverealestatecoaching.com and sign up there. I'd be happy to take on anybody for 30 to 40 minutes and just really dive deep into any area of your business you're looking to improve. [26:24] JAMES: I will post the link on the podcast. Actually let me put it on here so people can get that link and access what you're offering there. Yeah, can't go wrong. Free strategy call with Mike, reach out to them. He's an awesome agent, great example a lot of consistency and professionalism. I really appreciate what you do on Mike, We'll catch up soon brother. You take care.[26:43] MIKE: All right man. Thanks so much, James. I appreciate it. [26:46] JAMES: Okay. All right, bye-bye.[26:47] MIKE: Good luck.If you like this episode of the Houston Home Talk podcast, please don't forget to like, share, and comment! We appreciate your support and feedback! See acast.com/privacy for privacy and opt-out information.

In this episode of the Houston Home Talk, Cindy West from NRL Mortgage and James talks about the process of getting a mortgage loan, interest rates, NRL Mortgage loan programs you can apply to and other things such as Cindy’s career trajectory and how her knowledge in forensic accounting helped her in her role as a mortgage loan officer. QUOTES“You have to make sure that the house is not listed for sale, because that’s a red flag in mortgage, before you cash out.”“The buying power of people changes significantly as those rates go up.”MENTIONSContact Cindy:Phone: 832-370-7373Website: https://cindywest.nrlmortgage.com/SHOW NOTES[0:02:10.9] How Cindy got into mortgage lending[0:03:32.4] How forensic accounting works[0:08:02.3] NRL Mortgage loan programs[0:14:25.1] James and Cindy talk about interest rates[0:21:04.4] The difference between pre-approval and pre-qualification[0:32:24.5] Get in touch with Cindy!Full Transcript: [00:03] INTRO: Welcome to Houston home tall, featuring all things real estate in the Houston area. We'll interview real estate professionals, local business owners, and special guests from right here in the Houston community. This is where you get the inside scoop about what's new in real estate, new community openings and business openings, and much more. The Houston home talk show starts right now.[00:33] JAMES: All right, welcome guys. This is James with Houston home talk and I am joined today by my good friend, Cindy West in our El mortgage. Um, how are you doing this morning, Cindy?[00:45] CINDY: Hey James. I'm great.[00:48] JAMES: Awesome. I'm doing great. It's a little chilly for us here in Houston at a blistering 70 degrees. Now, just joking. People in the Midwest laugh at us when it gets too 40s. [01:00] CINDY: Yeah. Yeah. [01:02] JAMES: It is cold for us but I am glad to have you on. It has been an interesting ride as far as interest rates and a lot of things going on specifically this year. You have been in the business for a few years now. You've done really well and I appreciate all your insight. Just to kind of set the table for everybody, so sending and I have known each other for about three years. We've been working together. You came to visit me when I worked for a home builder and you were one of very few, really probably the only one person that really would come visit me because everybody else was scared to come see me working for a home builder because they just assumed that they could get no business from a home builders onsite salesperson which was not the case. [01:52] CINDY: No. [01:52] JAMES: I'm glad that you've been very tenacious and the way you work and I admire your work of it. I see you on Saturdays, Sundays. I see everywhere. You have gotten a lot of knowledge and your work ethic is been very, very admirable. What I want you to do is just kind of introduced yourself. You've got a very interesting background. Introduce yourself to the audience and tell us a little bit about your background and how you got into the mortgage.[02:22] CINDY: Okay. Sure. Yeah. I've been in the business three years ago and I'm like, my background started with auditing and taxes. I did that for several years and then I relocated to Los Angeles and I became a forensic accountants, which is very interesting. [02:39] JAMES: Okay. [02:42] CINDY: Pretty much what I would do is I worked with people getting in divorce, determining child support, alimony, division of assets and valuing businesses. Pretty much I would find the money and determine what the individual's cash flow was for child support and alimony. Then after that, and I relocated here with my family. [03:04] JAMES: Okay. [03:05] CINDY: That's where I met Chad Freeman and he is a manager for Nations Reliable Lending. Tell me about the job. My personality and my background was the perfect fit and my daughter is going into school so I thought, it's a great time to get back into the workforce full time. I took the test and passed it and then I'm on my way ever since.[03:32] JAMES: The forensic, you got to give me a…tell us back a little bit more. The last time I hear forensic, I usually think, CSI and one of these criminal shows when I hear forensics. Break that down a little bit more as far as what you did with that that as forensic accounting?[03:55] CINDY: Yeah, so pretty much, I mean it has to do with documentation. [03:57] JAMES: Okay. [03:58] CINDY: Thing at paperwork, a little bit differently and people represent themselves based on the tax return. I only make $25,000 a year when you're living in a half million dollar house and you drive a Mercedes and I could see all the charges on your credit card for limousines and things of that nature. I would pretty much hunt down the money. [04:21] JAMES: Got it. [04:21] CINDY: Figure out what the true cash flow is because people have businesses, they write off all their personal expenses, cellphones, cable bill, I'm 100 percent of their auto. All those things are not true. Business expenses, personnel. They drained the company, and they want the write offs. They pay as much taxes. From a divorced stamp, that's now your cash flow. We add back all this personal offenses as perquisite come up with somebody's true cash flow. Then that's how we figured out how child support and alimony.[05:00] JAMES: Okay. I see. Then the connection with that and the connection to the mortgage side of the business because a lot of what you were doing and that career really translates into you being a mortgage lender because a lot of the details that come along with, especially, specifically you brought up self-employed because those are the biggest challenges when it comes to the mortgage. [05:24] CINDY: Yes. Yeah. [05:26] JAMES: How does that background, how did that help you on the mortgage side because like I said, I know you've only been three years but you've been…you've been very, very successful and the time that had been a mortgage lender. How has that helped you in being successful in what you're doing now?[05:42] CINDY: Definitely the tax knowledge and the attention to detail and I'm looking at paperwork a little bit differently. Very detail oriented, which in mortgage you have be, when you looked at the paperwork upfront for a year under contract and kind of figure everything out ahead of time instead of having issues under contract that who I wish I would've seen this or looked at it closer than. Definitely the tax return and the tax knowledge has helped me with understanding the actual tax return for the self-employed borrowers. [06:18] JAMES: Right. [06:18] CINDY: You can have a schedule C which is on your 1040 where you can have 1065, which is a partnership returns, that's corporations or your 11 languages are C corps. Understanding how somebody gets paid out of each one of those is quite really friendly. You can get paid out of distribution. You can get paid through salaries and wages or dividends depending on what X return you're filing. That's definitely given me an edge on a fast track and dealing with more sophisticated buyers would complex tax returns. The attention to detail, I'm looking at paperwork and just knowing. I've seen all these documents who I've been working with them for years. It's definitely helped.[07:08] JAMES: No. That definitely explains a lot because I've had a brief stint as a mortgage lender as well, so I understand the level of these. I don’t think a lot of people understand it and unless you've done it. There was no way. As a realtor, most realtors, all we care about is the loan approved. [07:29] CINDY: Right. [07:30] JAMES: Always funded. Those are the words that kind of care is, are we funded. Okay. When you're behind the scenes, the level of detail. There're so many moving parts. There's so many moving parts. I appreciate you guys more because I've had a boost said joining and kind of understand now that there's so much that goes on behind the scenes. Someone like yourself with that background and being very detailed. It's so important. It really is. Now, I know you guys have a program because one of the things that I work a lot with, I work a lot with home buyers will still be sellers who have a home to sell before they purchased their next home.I do a lot of new construction and so typically, we have a contingency to where the only way they can purchase the new house is if they sell the current house and multiple cases. I know you guys have a product that's kind of design and you don't have to go into a whole lot of detail, but I know that's something that I wanted you to share a little bit about because I think it's important for people to know that, that you guys have that product. I've dealt with a lot of lenders. I don't know anyone that has a program like this. I might be wrong. I know anybody that has that program. Tell us a little bit about that. A little bit about that program.[08:53] CINDY: It's a fantastic program because people that are looking to buy and I say new construction, it doesn't have to be new construction. It can be anything, but who this product would best serve. Somebody that finds a house that they fall in love with. That they really want. It could be through a builder. They might find a lot, the perfect lot and I called a stack or on a green belt with backyard. Let's say water way or anything specific that they might lose if we wait to sell their house. [09:32] JAMES: Right. [09:32] CINDY: That's the emotional side of this product is somebody that's motivated to move forward, doesn't want to wait. I think this product also is more beneficial to people in the higher price points a significant equity. Pretty much in order for this product work, you have to have at least 30 percent equity, the partying residence, and you need 20 percent down payment to move forward on the purchase.Now, you can obtain gift funds for the 20 percent. However, you do have to have at least 5 percent of your own friends. That would mean 25 percent now. You can get the Gift Front Lens of 20. You bring 5 percent. The 30 percent equity, if you have your house paid off or have significant equity, meaning like 30 percent or more and you don't have the cash in bank, you can do a cash out refi, pull out 20 percent as long as you leave 30 percent equity in the parting residence. You can pull out money to use that on the down payment for the purchase side, [10:43] JAMES: Got it. [10:45] CINDY: Yeah, you have to make sure the house is not listed for sale because that's a red flag and mortgage, so before you get a cash out. It's a purchase just like any other purchase, but we are eliminating that just from the ratio. You actually will have two mortgage payments until the house is sold. The only stipulation is that their house has to be listed for sale prior to the purchase of the new residents. That's it. [11:10] JAMES: Okay. [11:11] CINDY: That's something where if you're building builder relationships, that's a good thing to have because the builder that's going to identify that and it's going to call you, you're marketing this product and lease the house for sale. That's the key is you're, as a realtor, you're getting the leasing and hopefully, the buy side as well, because you're going to get a walk in client that falls in love, has a house to sell and that builders not going to wait, want to wait three to six months for the house to sell or probably does not want the contingency offer because if it's in a higher price point, we might take a little bit longer. Or if it's a flooded house that you have for sale, who knows how long going to take it so. It's a great product that allows people to move forward without waiting for the house to sell and then they don't lose equity. They don't have to half the price. They just have to afford the two payments[12:07] JAMES: Right. There're a lot of people that are in that position to be able to do it especially like you said, in a higher price point. This helps them not lose out because I've seen it on several occasions where they probably could qualify for both financially, but this product, like I said, this product wasn't around. I knew I have no knowledge of that product a few years ago. It's a great option for people that are…that are looking to buy another hall or build either one. I'll make sure I post your information because there're people out there that want to reach out to you and get a little bit. I know there's probably a little bit more detail, which you probably just speak with somebody in person. Speaks somebody over the phone to get a little bit more detail about their situation and how the product help, but I know it's a great product and it can help a lot of people.[13:05] CINDY: Yeah. Builders love it. I'm not competing with Mortgage Company. They're in house lender to add on to their business, to help it grow. I'm not looking to compete with them. I usually can't let their incentives. [13:17] JAMES: Right, yeah. [13:18] CINDY: This can eliminate the contingency offer and it's very attractive to builders and playing lots of calls and emails from builders I've ever even met before clients. Again, it's a great…it's a great marketing tool to get connected, to build a relationship and help builder build business and great for realtors to use that as well.[13:45] JAMES: I know a lot of builders are work with a ton of them in a new construction kind of what I specialize in more than anything. Having worked for a few builders myself personally. I will make sure they all know about this. Like I said, anybody is working for builders that might be watching this. I'll make sure they get you a contact because the onsite…where the onsite, salespeople or about getting…they don’t get paid to do loans. They get paid to close homes. [14:14] CINDY: That's right. [14:14] JAMES: Having you as a resource and in those situations is a great, great thing to have a speaker. I'm speaking from experience. I know one of the big things and challenges that I've seen so far this year are the interest rate. Rates have slowly just crept up and I back in January and February, I was telling people that rates are going to increase and unfortunately they have. Now we're now almost to the end of the year and so one, I guess, what are we looking now. FHA, I know everything obviously based on credit scores, but what kind of averages are we saying on FHA, conventional, and then what are we looking at? Maybe first part of 2019 that you kind of thing, well what may happen, which rates come from that first quarter?[15:09] CINDY: Well, definitely rates have slowly increased. They're in the fines, so again, to then plan your LTB FICA score, debt information, that I've seen. ORS, donate them five again. Sometimes they come with the discount, to the rate of that. Rates are still great. There's still near historic. Still a great time to buy. Do not wait to buy a house. The rates are going to go down. Of course I don't have a crystal ball. That's my said, good judgment indicates that I think are going to probably stay or climb a little bit. The interest rates a tight to this, excuse me, the 10 year treasury. [15:53] JAMES: Right? [15:53] CINDY: Usually when the Fed announces the direction of interest rates, they going to use some hikes, the market has a tendency to accelerate that. If they're going to say an increase in December, market goes higher before that. It's stable. It's still…they're still near historic low and they're in the five and would not wait 1 percent increase in the interest rate. Will make it 13 percent increase in your payment. [16:22] JAMES: Absolutely. [16:23] CINDY: A thousand dollar monthly payment. Your payment will go off to a 103 or extra $130 a month. That's pretty significant. People always talk about the score and want to increase it. I tell them, I said, you time you increase your score, you're going to be offset by the higher rate.[16:43] JAMES: Right. [16:44] CINDY: It's a lot. [16:46] JAMES: Yeah. That could take somebody from qualifying to not qualify. The bump in the rate and for people and for some people that might be borderline or maybe close anyway and you wait. You're not really winning and a lot of cases. You're not winning by waiting a. I try to encourage people, if you find…if you find a home that you're interested in now, don't wait because literally, half of point or all the point can make a significant difference. It can't really be the difference when you qualified or not in some cases. [17:19] CINDY: Yeah. Yeah. Or you have to drop the purchase price or have to come up with no money down to offset that. For every $10,000 you put down in a house, your monthly payment will change by $20,000. [17:32] JAMES: Right. [17:32] CINDY: $20,000 will only make $100 a month difference in your payment. That's not a lot of movement with significant $20,000 down payment. You're better off to do it now because rates in the fives are fantastic. I know people go back to the past and threes and fours and the confused I've seen. Ladies and gentlemen, that was history. You make three for a lifetime. [18:06] JAMES: Yeah, that's just… that's with sales. [18:04] CINDY: Gosh, yes. [18:04] JAMES: You've set the sale that made you want it. [18:08] CINDY: Right. [18:08] JAMES: It's funny when people started talking about the rates now, how they're going up and I tell people, before the crash, it just rates are in the 60s. [18:18] CINDY: Yes. [18:19] JAMES: My parents, when they bought their houses, they were in double digit. It's just perspective but if you didn't own a home before '07, '08 and maybe you just, you started looking into it after 2008. Basically the last 10 years, it won't be spoiled. [18:39] CINDY: Yes, absolutely. It means accidentally. [18:43] JAMES: It wasn't on purpose. They were spoiling. There's either the Katas or they're hard. [18:47] CINDY: I know, right?[18:48] JAMES: They were doing it to encourage people to go by because everything had kind of tanked. '08, '09 that's why those race was so insanely low, it was encouraged people to go out and own. Obviously, as the economy starts to get better, it's just a matter of time before those rates start creeping back up and that's where we are right now. [19:09] CINDY: Yes. Yeah. [19:12] JAMES: I laugh when people started talking about, oh my goodness, my rate's 4.8 and it's like…[19:19] CINDY: I know. [19:20] JAMES: Five [19:21] CINDY: Right. [19:22] JAMES: Rates are still very, very low. Yeah. Historically speaking, if your history is only six years ago. [19:31] CINDY: I know, right. Yeah. [19:34] JAMES: It’s a difficult… [19:34] CINDY: First house too that we bought was back in 2006 and it was 6 percent. I remember high fiving in the kitchen and using hands like, everybody was paying 10 and 11 percent, and I get 6 percent. That was a great rate. Six percent so great rate. [19:54] JAMES: Yeah, wise. [19:54] CINDY: It is good. [19:56] JAMES: Yeah. Absolutely was, yeah. I find it funny when people started talking about it, but we can't control it. Home ownership is still a better way to go. [20:09] CINDY: Yes. [20:10] JAMES: Paying a 5 percent interest or half or whatever it is and whatever it ends up being in 2019. It's still a better option than renting and in most cases. We'll continue to encourage people to go on. The sooner the better because rates, from what I see, and you can speak on that. For what I see, it seems like it's going to…the experts are saying that 2019, of course again, there's no crystal ball. Yeah, we're going to maybe be in that consistently in the 5 percent range. Who knows for, but that's what I see and that's what I've read. [20:51] CINDY: Yeah. Definitely would agree with that. Yeah.[20:53] JAMES: Yeah. The buying power for people, it changes significantly as those raised a lot. Yeah. If you guys are looking at a owning a home call, call Cindy. [21:04] CINDY: Yes. [21:04] JAMES: One more thing that I want to ask you. I want you to distinguish between pre-approval versus pre-qualification because I get this question a lot. I know what the difference is. [21:16] CINDY: Right. [21:16] JAMES: They are a big difference. I want you to speak on that a little bit so people really understand the difference and when, as a realtor, if you're making an offer on one of my listing with the prequalification letter, I'm not feeling that comfortable about it quite honestly. [21:32] CINDY: Yeah. [21:33] JAMES: Yeah, speak on that a little bit and tell the people the differences are. [21:39] CINDY: Sure. Okay. Definitely pre-qualification and pre-approval. The underwriter, there's a couple differences. The underwriter does the pre-approval, so that's when it actually goes into underwriting. [21:53] JAMES: Yeah. [21:53] CINDY: There're levels of prequalification letters that have stronger credibility than others. That's pretty much the documentation. [22:05] JAMES: Yes. [22:05] CINDY: When that consumer fills out a credit application and we call them. We go over the 10 on 3 with them. We pull their [inaudible] with score, input their liabilities and the application, make sure their debt to income ratio is right and sure. The LTV is right. Run interest rate pricing and make sure we get automated underwriting system approval, which is the automated scientific version of what an underwriter does. When we get an approved eligible, that triggers us to give a prequalification letter. [22:41] JAMES: Right. [22:42] CINDY: On that letter thought, if we want to take it to, I always say, I want to upgrades your prequalification letter, just to upgrade its which means I'm going to now look at your source document. [22:53] JAMES: Right. [22:54] CINDY: Source documents are your tax returns to your tax returns, early day pay stubs. That's the critical part because we really want to look at the tax returns to see what are you writing off. If you're a W2 employee, to write off, [inaudible] 106 expenses, with your salary reimbursed expenses. Because if so, we may and I say may, have to charge that as debt because those are business expenses that you're claiming. There are different programs where you may be able to skirt around that like a W2 only program if you don't own any real estate, you might be able to eliminate that. The point is, is that we need to look at the documentation that will uncover potential issues and can give us a better direction of which way we want to take the financing. [23:50] JAMES: Right. [23:50] CINDY: Yeah, it's pretty much, it’s a prequalification letter. It's just reviewing the documentation or not. That, if you're realtor, that's one of the things that you should look at is the documentation. [24:04] JAMES: Yes. Yeah. Because I mean, the prequalification, and yeah, you spoke on. That you can go online and fill out some information and get a prequalification spit out. [24:13] CINDY: Yes. [24:13] JAMES: With no verification of anything, which is why I love the fact that you take it a step further. For all of us that are involved in the transaction. From realtor to lender, we wanted to be strong. Nobody wants to waste time going through contracts and inspections and everything kind of like that. [24:37] CINDY: No. You can raise so much money. Like you wait to you inspection fee, your option fee. [24:42] JAMES: For sure. [24:42] CINDY: Even lose your earnest money, appraisal. You talk in $3,000. [24:47] JAMES: Yeah. [24:48] CINDY: I always…the realtors that I work with, I always train them, teach their clients in the beginning because you're the front contact. Let's see, pair them with need and it's very easy to your tax returns to your W2's, a 30 day pay stubs, two month bank statements, and even the bank statements are pretty significant. Even ID, I mean we've uncovered…we don't look at the beginning and then things happen that's expired and they don't have time to go get it renewed or there's always something. Really, I always tell borrower. I said, it is a lot of extra work. There is no benefit to them, the consumer if they don't provide that upfront. [25:29] JAMES: Yup. [25:32] CINDY: Good realtors prepare their clients for that right in the beginning. When I come in and talk to them, they've already heard it from you, another hearing it a second time. Again I pushed for that. I can't make them do anything. I tell them what's that risk? If they don’t get those documents and they usually, I've never had a problem with anybody complying with that. [25:59] JAMES: Right. Yeah. I think you said it. Yeah, setting that expectation from my end before they ever really talked in and most of the time, not all the time, but most of the time, it's going to start with the agent. That is so important to set that expectation. [26:12] CINDY: Yeah. You're really the point of contact. This is your lead. [26:17] JAMES: Right. [26:17] CINDY: The relationship in some way. Either from a referral or somebody that's coming to you to buy a home and I'm just the support behind the scenes. You lay the groundwork. You're going to have more credibility because you know what you're doing because this isn't your first rodeo. Then when I get them, they've already heard it before. It's really the call about preparing them and making it easier for them.[26:43] JAMES: Absolutely. [26:43] CINDY: The financing process can be, we asked for lots of documents throughout the process from start to finish and consumers will always say, is this all you need? I tell them, I'm like, well this is all I need today. [26:57] JAMES: Right. That's right.[26:58] CINDY: I'm going to back up really people behind me that are going to look at your file in a completely different way than I do. The underwriter is going to ask for conditions that need to be cleared. The processor's going to ask for documentation, my production partner, and then we might ask you for the same document again because you might not be exactly what we need. We can ask for documents up until a week or less than a week before closing. You can prepare your borrowers for that and if that doesn't happen, then it's even better.[27:33] JAMES: Yeah, supplies. [27:35] CINDY: Yeah. [27:35] JAMES: Absolutely, yeah. Now I try and said that explanations for all my clients, so yeah. It could go up to the day or the week before. [27:46] CINDY: Yeah. [27:47] JAMES: Just prepare for it. If it happens, then you know. You knew it was a possibility and I think that just makes people feel so much better because…and it's not a difficult thing just to let people know. This is not. There's a lot. It's not a straight. It might go like this. [28:06] CINDY: Yeah. [28:07] JAMES: With the close. It's not just a straight…a straight. There're a lot of things that happened. A lot of adjustments that get made, kind of like flying a plane. We never really feel it for the most part, but there're a million adjustments that these pilots are making over in a plane. Out of my analogy when it comes to a mortgage loan, because it's the same thing. It starts off one way and eventually you'll get to your destination which is closing. It's not always just a smooth process and a pupil, so frustrated with it. [28:39] CINDY: When I'm there along the way, every step of the way, I tell my followers, you can follow me after 5:00 and you can call me on the weekends. There's going to a lot of stuff that it's going to be thrown at you and especially that first time home buyers, I'm here to help you to translate what somebody else is asking. I might not be specifically asking you, but somebody else has requested that non-certain. That's part of my job. There is service court, which is mortgage lenders like myself, local small lenders. That one of the benefits is the service and being available and for the realtor as well to call and know that every time they call me, I answered the phone and I can get my voicemail. You're going to get me. [29:30] JAMES: Yes. [29:30] CINDY: You can ask the questions and I'm going to give you a straight up answer or I'm going to find out the answer if I don't know. Figure it out because you're left on a, on a ship that with the captain.[29:44] JAMES: I had that happen. I know there're a lot of realtors, its happened. Lender just do this but I know I'm working with you for the past three years. You are truly aware. You do answer the phone. Whether it's good or not, you're not the lender who just takes off and which is amazing that it happens, but it does.[30:06] CINDY: Bringing bad news to people is not easy. There's nobody on the planet would like to do that. Especially, the largest purchase of your life and that would not be a good thing and I try to stay clear of that, meaning I don't have bad situations at my peak that I qualify either solid and if they're not which means there are some weaknesses in their credit profile, which there could be that prepare them for that. I can say, this is what we're…this is the plan, and I give them the option. Your ratios are super high. You've got these collections that could be an issue. Here's what you risk. Your option money, your inspection fee, your appraisal fee. I will tell them that its a weaker profile and let them make a decision if I want to move forward or not. It also tell my realtor that too, so that they can be prepared if I have to make that call and say we, there was a hurdle that we just couldn't overcome. Blindsided like, well, why didn't you tell me this? Because yeah, I haven't run into that yet, but I will and I would. That's how I would approach that there wasn’t a paper lending. [31:29] JAMES: Yeah. There's a lot of stuff that happens that we just, again we don’t have control over what this, what the transaction is. So many people involved with so many things that happened. It's just the nature of what we signed up for this. [31:46] CINDY: That's right. [31:46] JAMES: We have this business but we love what we do. We all do because it's…it can be a crazy, crazy business. It really can. You are really good at what you do. I will excel the builder, all my builder partners that I know of. They are looking for a dependable vender. You are definitely a… [32:11] CINDY: Thank you. [32:13] JAMES: I'm speaking from personal experience, so not mean I've worked with you and I've seen what you do. How can people get a hold of you? Website, phone number? What's the best way? I'm going to post your information as throughout but…[32:30] CINDY: Okay. [32:30] JAMES: Go ahead and give…what's the website and in your phone number where to reached for you. [32:34] CINDY: My phone number is the best way. [32:36] JAMES: Okay. [32:37] CINDY: 832-370-7373, that's the best way. [32:42] JAMES: Okay. [32:43] CINDY: Yeah. [32:44] JAMES: Got it. [32:45] CINDY: My phone and now we will…you can go from there. Apply online. I get a direct portal website for online applications. [32:53] JAMES: Right. [32:54] CINDY: Get notification when it started. Application started and I get a notification when it's completed through email. What I usually do is I call the borrower right away. Introduce myself. Go over the 103 with. [33:08] JAMES: Okay. [33:08] CINDY: My link to apply online is cindywest.nrlmortgage.com.[33:17] JAMES: Okay, say that on more time. Cindy West just one word.[33:18] CINDY: Cindy West one word dot NRL mortgage.com. [33:24] JAMES: Got It. Okay, I'll make sure I'll post that on so people can have that and say if there's…if someone just got some questions about that, that special program that you guys have because there's probably a lot more detail that you can speak with and that…or just any loan. You have it take conventional or Cindy does it all. [33:41] CINDY: That's right. Okay. [33:42] JAMES: She could help you guys and she will get you to the finish line. I promise you. She's really good at it and I appreciate your time Cindy. [33:52] CINDY: Thanks James. [33:53] JAMES: We will do this again. [33:55] CINDY: Yes. [33:55] JAMES: Now we're about to head and get into the holiday season here the next week or so. We'll make sure we do this again. We can sit here and talk for hours about this. There's so much talk about. [34:09] CINDY: There is. [34:10] JAMES: We'll do this again. I appreciate your time. [34:13] CINDY: Okay, thanks. [34:14] JAMES: We will do this again. Thank you so much Cindy. [34:17] CINDY: Okay James. [34:17] JAMES: You take care.[34:18] CINDY: Thank you. [34:19] JAMES: All right. [34:19] CINDY: All right. Bye. [34:20] JAMES: Bye-bye. If you like this episode of the Houston Home Talk podcast, please don't forget to like, share, and comment! We appreciate your support and feedback! See acast.com/privacy for privacy and opt-out information.

Beverly Langston from Bath Fitter joins us this week on the podcast, and we’re going to be talking about bathroom remodeling and renovations, and what sets them apart from the competition.Bath Fitter is an international company know for their state-of-the-art product line that includes acrylic bathtubs and shower liners, free standing bathtub and shower bases, acrylic seamless walls, domed ceilings, tub and shower doors, accessories and wainscoting.Know more about their services and products here! QUOTES“We are very versed in safety because bathrooms are very dangerous places no matter who you are. They’re slippery. So we have lots of different options for safety like grab bars, different types of grab bars, and we really work with our customers to make sure they’re getting everything they need so that everything is safe and secure, and usable and accessible for them.”MENTIONSBath FitterContact Beverly at:Office: 713-691-4110 orMobile: 281-636-3560Email: blangston@bathfitter.comSHOW NOTES[0:01:22.2] Bath Fitter: Who they are and what they do[0:04:11.2] Issues usually encountered when remodeling the bathroom[0:05:29.2] Converting the tub into a standing shower[0:06:56.0] Renovating and remodeling for investment properties[0:09:02.1] The origins of Bath Fitters, showrooms in Houston[0:10:54.1] ADA Compliance[0:12:06.7] Create your own custom bathroom on their site![0:13:17.6] Contact Beverly, Bath Fitter office hours[0:14:39.6] What happens during the consultation phaseFull Transcript:[00:03] INTRO: Welcome to Houston Home Talk featuring all things real estate in the Houston area. We'll interview real estate professionals, local business owners, and special guests from right here in the Houston community. This is where you get the inside scoop about what's new in real estate, new community openings and business openings and much more the Houston home talk show starts right now.[00:33] JAMES: All right. Welcome guys. Welcome to Houston Home Talk. My name is James and I am excited today I am joined by Beverly Langston from bath fitter and Beverly and I met just actually just not even a week ago at the sip and stroll and Katie and it was great getting a chance to meet you. How are you doing about really?[00:55] BEVERLY: I'm great. How are you?[00:57] JAMES: I'm doing great. Great. I wanted to have you on. SO as soon as I saw you in the booth, I wanted to have you guys come on and talk about what you do because I am a…in addition to roadster. I'm an investor as well and I think what you guys do can help anybody, but I was very intrigued by it and wanted to have you on. Thank you for coming on the show.[01:21] BEVERLY: Thanks for having. We're excited.[01:22] JAMES: Yeah, it's pretty cool. Why don't you tell, tell us a little bit about what it is that you guys do, how you got into it, a little bit more about bath fitter and I think it's pretty interesting what you guys do. I really do. Why don't we just start there and you introduce yourself to the audience.[01:40] BEVERLY: Sure. I'm Beverly Langston. I'm the event manager for Bath Fitter here in Houston. We are actually an international company. We're in Canada and the United States all over North America or United States. Our corporate office is right outside of Nashville, Tennessee. I've been here for about a year. I do mostly events and marketing and it's just a really amazing company, quite a unique product. It was started and the mid-80s about my [inaudible], four to be exact by three brothers, the Cotton Brothers. It started because one of them had had a baby and his wife said, I don't want to bath my baby in disgusting bathtub. He trying to figure out an economical way to repair the bathtub and make it look better and for it to be cleaner so that his wife would be happy because happy wife, happy life, right?[02:32] JAMES: Absolutely, yeah.[02:33] BEVERLY: They developed this system. The product is made out of acrylic which is really great for bathrooms because the bathrooms firmly are made…you have lots of tile, lots of grout, those kinds of things and they're porous which means they absorb the water. That's why you get all that mold and mildew in your bathroom which nobody likes and you can never ever get rid of. The acrylic is not porous. It will not ever mold and mildew ever.[03:01] JAMES: Okay. [03:02] BEVERLY: Very, very easy to keep clean. There's no scrubbing involved. Basically it's a spray cleaner if you have hard water, you either squeegee it or wipe it off with a cloth and that's it. That’s it. It's super easy to maintain as well which is a wonderful thing. Bath Fitters philosophy is we want everybody to walk into the bathroom and smile and be happy. We want to give you joy. We should all love our homes and our spaces so much and unfortunately the bathroom isn't one of those places where a lot of people are like, I just really hate it because of things like mold or mildew or maybe things are not updated so that's where the product, you know, it's great. It's a great solution for construction too because what we're most known for is our tub over tub system, which is where we can create a brand new bathtub that goes directly right over your existing bathtub. There's no like tear outs which is wonderful. Even if we do take out a product, it's still also a one day install. It's a very short timeframe.[04:06] JAMES: If you guys are going over the top of existing are there situations where maybe you're not able to just go over top or fruit for most bathrooms, I guess you guys have the ability to be able to really literally just go over top of everything that exiting. Is there any situation where maybe… [04:27] BEVERLY: There are. Sometimes there are plumbing issues that we might we have to people get. Most of the times we cannot go over fiberglass tub because the structure of them is weaker.[04:36] JAMES: Okay.[04:37] JAMES: We still have solutions for that. We can actually just remove those tubs that don't work and put in a brand new bathtub. Still with the product, still the great acrylic. Another thing that we do, we do showers as well the same way. We have a wall system that will go right over your tile. One of the greatest things about our wall system and we're the only company that does it, is it's seamless. There's in the corners is to bang on the material. There's no caulking or grout. It's not going to mold or mildew,[05:11] JAMES: That’s awesome. [05:13] JAMES: That’s is awesome. Literally there is no seam. I'm assuming then the corner is it rounded or --[05:16] BEVERLY: It depends on the material. We actually bend onsite. People always say to me, well, you're not going to get it through my door. Yeah, we will. You'd be surprised. You think you have a small doorway. We will get through it. The other thing that we do that's really, really popular now for a plethora of reasons is we take the tub out and turn it into a standing shower using the same footprint as that tub. You've got a long shower. I think a lot of people are in a point where they're not really taking baths like they used to like it's a waste of space. A lot of people also want to change it because of mobility issues, getting up and over the top. If you're older and if your short, it's very difficult so removing the tub and not having that 18 inches to get up and over is very, very popular. [06:07] JAMES: It's funny that you bring that up because a lot of people, when I sell homes or when I'm listing homes as a realtor, a lot of people for some odd reason they still ask for Tub. Most people don't use it.[06:20] BEVERLY: Yeah, yeah.[06:21] JAMES: Is baffling to me. It really is. I have a home in San Antonio where we actually built it with no tub. For some reason when we tried to sell it, like that came up at certain points, but I think now and that was I was eight, nine years ago. Now I think a lot has changed because of, like you said, the mobility for a lot of people as we start to mature, I'll use that word. Yeah, the tub. I have a tub. I never use it even now. My kids use it. That's awesome that you guys do that.Now do you guys have more like you, I guess your typical client. I don't know if you really have a typical client. I'm assuming you guys have people that are just looking to renovate, remodel, maybe investors. Maybe I could see that part of your product being awesome for a lot of people that may do an investment property where they don't have to come in and rip out. You guys don't have to come rip everything out. You could go over the exist and that's a big time saver because I've done some remodels and it can be expensive if I'm having to rip everything out[07:30] BEVERLY: Exactly, especially if you have an investment property where you have a tenants that leaving and you need to make a repair. It's pretty quick repair. The tub actually whether the shower whatever you're using has to get manufactured because it's all custom done so it's manufactured for you. Once the install happens it's a one day and the great thing is that with construction where there's a lot of dust and debris and dirt and it's sort of a messy process. We're not like that at all. The bathroom probably will be cleaner than when they walked into it. You've got a fresh, clean bathroom ready to show to your next tenant, which is wonderful. For residential, the product has a lifetime guarantee on it. For a rental facilities that's considered commercial. It doesn't have that lifetime guarantee, but I will tell you it really will last a very long time especially because in tenant situations people don't clean them as if was their property. That’s okay because the product is so sturdy and hold up so well to that. That is okay. I've talked with people that have had a rental property and the tub and the wall has been in there 30 years. Other than having to replace the caulk every few years it's been fine. [08:39] JAMES: Got it.[08:40] BEVERLY: We also do a lot of properties like hotels and apartment complexes, dormitories, lots of dormitories because kids.[08:50] JAMES: Okay. That’s makes a lot of sense.[08:51] BEVERLY: Yeah. Yeah, college students destroy things. They get in product for this. [80:59] JAMES: Absolutely. [09:00] BEVERLY: Yeah.[09:01] JAMES: Now you guys have locations. You said it started andI did not realize that you guys have been around for that long. You said the eighties. Where did this, I guess where the company originate and then where are you guys located in the Houston area? Because we're in the Houston Area. Where are you guys located? Where did things originate.[09:20] BEVERLY: It originated in Canada. That’s where the Cotton Brothers are from. Got some branches out in Canada, some stuff mostly with people who are buying in the franchises. There are some franchises store out there, but mostly they're all corporately owned stores. It is a US based company now though because our headquarters are in Springfield, Tennessee, which is right in [00:09:43] in Nashville.[09:43] JAMES: Okay. Yeah. Got it.[09:44] BEVERLY: It's manufactured here in the U.S. We manufacturer on acrylic. Everybody that works on it or all Bath Fitter employees. We never have third party. From the person that answers your phone call to the person who installs it. We are all Bath Fitter employees. We're behind our company. For Houston we are actually in the Garden Oaks District of the Heights, right off of Shepherd and Crosstimbers. We have a show room. We are welcome for people to come in and see the showroom and you have to that. If they're interested we'll send a consultant out to you and they have a mobile showroom they can bring you. If you are around and you wanted to come say hi, we love it. We love having people in here. We can give some more information here and let you see all the different models. We have garden tubs in our shower. We have the standard tub type of the tub. We have tub to shower. We also can change your shower into a bathtub, both ways. Really. Anything you want to do with your tub or shower, we can handle[10:52] JAMES: Got it. You guys can…not only just replace what is existing. You can actually do the remodeling more or less instead of ripping the tub complete out and just make it into a full shower?[11:05] BEVERLY: Yeah. We can. Yeah. Yeah. There's different color [inaudible], wall options as far style and things that people like. We even do showers for those who are wheelchair bound, who need an ADA shower.[11:20] JAMES: Yeah. I was just about to ask you about that because that's a big thing. I was about to ask you about ADA, being ADA compliant because I get a lot of clients that are looking for that so that is something that you guys have the ability to do as well.[11:32] BEVERLY: You can [inaudible] too as far the type of thresholds that we have with them or seat option. We are very, very verse also in the safety because bathrooms are very dangerous places no matter who you are. They're slippery. We have lots of different options for safety, like grab bars, different types of grab bars and we really work with our customers to make sure that they're getting everything they need so that everything is safe and secure and usable and accessible for them.[11:59] JAMES: That is awesome. In Houston that is the only location that you guys physically have here in the Houston. Go ahead…how can people look if they want to look on the website. What is the website? Go ahead and I'll post the website as well for people to be able to go and look and see what you guys have to offer. what is the website?[12:18] BEVERLY: Sure. The website is www.bathfitter.com.[12:22] JAMES: Okay.[12:23] BEVERLY: The website has got a great tool as well. You can watch some videos on how the process works. It also got a build your bathroom tool that you can imagine what you like, would it look like?[12:36] JAMES: that's awesome. That is awesome. Is it almost like a preview of what your bathroom would look like if you chose this or this --[12:47] BEVERLY: It's a virtual room to build your bathroom. [12:50] JAMES: Right[12:51] BEVERLY: On the computer so it's not going to look like it does in reality. It will show you how things will fit in certain ways. A lot of times when our design consultants go out, they use that tool as well on there. They always bring an iPad with them so that people can see and imagine it because sometimes when you actually see it put together, you're like I really don't like that soap dish. I want to be bigger. You could play around with it and see what you like.[13:18] JAMES: Got It. Got it. That is awesome. If anybody wants to reach out to you to have either email, phone number and I'll post that as well so people can reach out to you. I've got a lot of people that I work with but a lot of investors and a lot of clients that are looking for remodeling. I think you guys are very cost effective way of doing it which is really, really was intrigued when I saw what you guys did. Do you have like either a direct phone number for yourself or a… [13:44] BEVERLY: Sure. My office number is 713-691-4110. I also have a company cell phone and you can call me anytime on that which is 281-636-3560 You could e-mail me at blangstonatbathfitter.com. You're welcome to come by the store which is 356 Garden Oaks Boulevard.[14:08] JAMES: Awesome. What are your hours? What are your hours, Monday to Friday. Saturday. Tell us so we'll know what that is as well.[14:14] BEVERLY: We are Monday through Thursday. There's somebody here at 7:00 p.m. On Fridays we're open until 4:00 and on Saturdays there's somebody here from 10:00 to 2:00. Like I said we can bring everything to you. Our sales staff is great. Our consultants are great. If you can't make it in during those hours, we can come to you and we do have evening and Saturday hours or you book appointment for our consultants to come out.[14:39] JAMES: Awesome. Awesome. On the consultant, when they come out, I know you said everything was custom made so they look at the customer. Once they it out like is there…I'm assuming it's probably obviously case by case as far as how long it takes, Do you have… [14:59] BEVERLY: The process is really for us to give anybody a pricing we have … just like any home construction we've got to come out and take a look at what's going on in a bathroom.[15:05] JAMES: Sure. Sure.[15:08] BEVERLY: They'll come out. The first thing they generally do if they go into your bathroom and take out a lot of measurements because those measurements are what gets sent in when you decide to purchase. [15:18] JAMES: Right.[15:20] BEVERLY: They'll sit down with you and go over all options and all the colors and if there's any underlying problems with the bathtub or the bathroom, what those solutions would be. We do have a master plumber on staff. If there's some drainage problem or a leak somewhere, we can definitely get that fixed because we don't want to put a band aide on a problem. We want to make sure everything fits perfectly. The design consultants are really amazing people. We do understand sometimes we need to leave you with the estimate and let you think about it and they're not ever going to pressure anybody. When you decide that you want to purchase it, all of that goes to our plant in Tennessee. The product actually gets manufactured to fit your specifications. For instance, if Joseph Smith ordered a tub, it will have Joe Smith's name on it throughout the entire process up until it's actually put into their bathroom because that is Joe Smith's bathtub.[16:17] JAMES: Yeah. Awesome. Once you get it back, the actual installation, once it's put together, the actual installation process is about basically a day.[16:26] BEVERLY: It's one day, one day, unless we come across some problem. There are issues just like any construction. Sometimes you up a wall or whatever. For instance, we did a tub to shower renovation, we pulled that tub out and there was a tree root growing up underneath it[16:43] JAMES: Yeah.[16:44] BEVERLY: Our sales guy really tried to take care of that or installer trying to take care of it himself, but then he was worried he was going to damage the foundation. We stopped what we were doing. We made sure to have a professional…we met with the homeowner. They had somebody come out to fix that issue. We came back and finished it. The goal was one day but occasionally things happen.[17:08] JAMES: Yeah, it's amazing what happens behind walls. The reality is nobody really knows until there's a problem[17:18] BEVERLY: Yeah, unfortunately my guy – there's the times where I thought they're not going to finish it today and they always be like I was with a woman, very sweet lady. She'd had a knee and a hip replacement maybe six weeks out of surgery and decided she didn't want the bathtub. She wanted to shower and we took the tub out and there was this huge amount of concrete coming up from the foundation. We had to go run a Jack Hammer and it's still not done in one day. All done in one day.[17:44] JAMES: Yeah. It's amazing what happens. Unfortunately when these houses are being constructed whether it's new construction or 10 years or 15 or 20 years. The stuff that happens, it's amazing. I've seen a lot. I've been working for a few builders that I've worked for in the past and seen what happens as homes are being constructed. Yeah, it's amazing what can happen. So that's …[18:08] BEVERLY: Yeah. There had a been a ton of these structural support for the original tub that was there which was not the best option. That’s what happened. Our installers worked very hard to try to get everything done within that one day timeframe. I have done actual construction of a bathroom prior to me working here and not without a bathroom for a couple of weeks. That's not fun. We don't our customers to experience that.[18:34] JAMES: Yeah. No, I've, I've had to do the same thing. Yeah, it is a big hassle. Yeah. We like our bathrooms. We like our bathrooms and when were disrupted from being able to use one is it is definitely it disrupts my whole household. That's awesome that you guys…[18:52]BEVERLY: That’s what the construction does disrupt because there's so much dust and debris everywhere. Yeah.[18:57] JAMES: Awesome. Alright, I will post your website. Give me the website one more time Beverly.[19:03] BEVERLY: www.bathfitter.com.[19:06] JAMES: Okay. I will post that and then I'll also put your contact information. You guys share, reach out to Beverly. The service is, it's amazing. As soon as I saw it, I wanted to have you come on and talk about this because I think it's a really, really great way for people to save if they're looking to remodel or if someone's got an investment property. I think is a great alternative to ripping something completely out and investors like to save money. Actually we all like to save money. It's not even just for that matter who it is and I just think what you guys offer is a great alternative.[19:42] BEVERLY: It's great way to do it. Not have to redo it again in a few years. In the long run really cost effective.[19:51] JAMES: Yes, very, very important. I will post all that contact information there Beverly. Thank you so much. I appreciate you. It was a pleasure meeting you guys. [Inaudible] has been barely a week. That's how I'm sure what you guys l with you guys. We had a long conversation the other day. Thank you for coming on and you guys reach out. If you have questions, reach out to Beverly, www.bathfitter. That's FITTER dot com, correct?[20:19] BEVERLY: Correct.[20:20] JAMES: Got it. All right guys. Thank you. Thank you Beverly. I appreciate your time.[20:25] BEVERLY: Thank you[20:26] JAMES: All right. Take care.[20:27] BEVERLY: Take care. All right, bye-bye.If you like this episode of the Houston Home Talk podcast, please don't forget to like, share, and comment! We appreciate your support and feedback! See acast.com/privacy for privacy and opt-out information.

Welcome to the very first episode of the Houston Home Talk podcast! For our first episode, we have Willie Adolph from The Adolph Group, a company dedicated to educating others about their credit, and he’s going to talk about how we can manage our credit scores to how credit can affect the overall quality of your life.Want to learn more? Give this episode a listen! QUOTES“A lot of people feel that cash is king but credit can actually take you further.”“Credit is like reputation; It doesn’t matter all the good that you’ve done, but that one thing that you did wrong, people will spread that so fast.”“If you work with the system, the system will work for you”“When somebody takes a look at your report (credit score) it’s basically a reflection of what you’ve done, it’s not a reflection of who you are but it’s a reflection of what you’ve done”MENTIONSWillie Adolph (FB)The Adolph GroupContact Willie!Website: www.myfes.net/wadolphPhone: 281 451 7087SHOW NOTES[0:01:34.1] How to use leverage with credit[0:05:15.4] Credit Inquiries[0:06:16.7] Soft Pull VS Hard Pull[0:07:15.9] Case Study: Credit Karma[0:10:14.8] How co-signing can affect you[0:11:06.5] Credit restoration[0:14:03.5] Building/Maintaining your credit score[0:16:19.0] Which credit affect your score the most[0:18:25.7] How your credit is calculated[0:18:53.4] Models for credit scoring[0:20:40.0] What The Adolph Group does[0:22:47.4] How your credit will affect your overall quality of life[0:26:08.1] The advantages and disadvantages of having/not having a specialist assist you[0:32:49.0] A program that can help you have a better credit score[0:36:39.0] Contact Willie!Full Transcript: [00:03] Intro: Welcome Houston home talk, featuring all things real estate in the Houston area. We'll interview real estate professionals, local business owners, and special guests from right here in the Houston community. This is where you get the inside scoop about what's new in real estate, new community openings and business openings and much more. The Houston home talk show starts right now. [00:34] James: Yeah. You go ahead and introduce yourself, introduce your company and what we'll start there.[00:40] Willie: Okay. My name is Willie Adolph. I'm with MBS. I have a team called Adolf group. Basically what we do, we're here to help others educate them with about their credit. A lot of people feel that cash is king, but credit actually can take your whole lot farther because you can…you can use leverage with credit. A lot of people have a miss conception about credit. Everybody saying seven years in the final law. That's a myth. [01:08] James: Yeah, talk a little bit and more about that. Because I've heard that for years, seven years, seven years, seven years and a lot of people, it'll keep them from buying a house because they just, without contacting a professional like yourself to really know that hey, there's ways and that's seven year thing is a myth. Yeah, talk a little bit more about how that really works and how people can understand that meant, because I've heard it for year or two.[01:37] Willie: Right? Before I got into this, other place like, because I've been doing introducing credit since 2003. I've been messing around with the credit stuff for a long time because I started with the mortgage side. [01:49] James: Okay. [01:49] Willie: When I started with the mortgages, I had to kind of understand credit to help the clients that I had and then as I continue my career, I started learning more inter credit. When I dove deep into just learning about credit, it was around 2006, 2007 when that crash was coming. [02:09] James: Right. [02:10] Willie: Once they crash, it gave me more insight because it affected my family personally with. [02:16] James: Absolutely. [02:16] Willie: With the repossessions, foreclosures, things like that that was on my credit. Seven years, a lot of people say, well, with these seven years, they follow us off. Basically it's obsolete. You have a statute of limitation that it's on. [02:33] James: Right. [02:35] Willie: The problem is with a lot of people think that, so it's just like, I'm going to tell a company, 'Hey, I'm reporting this person later.' [02:44] James: Right. [02:45] Willie: I'm reporting it to the credit bureau. The person that the credit gear is not going to sit there and say it's seven years. 'Hey, guess what? We need to go ahead and take that off.' Technically, it has to be requested off because it can stay on your credit report for our life. It just doesn't fall off. It's just like home purchasing when they have the PMI is supposed to fall off, you get 20%. [03:10] James: You read my mind. Because that's where I was going. That's exactly what I was going to say. Go ahead. I'll let you continue.[03:16] Willie: Yeah. Technically, the mortgages company going try to ride and as long as they can but it wants you to realize, hey, I got 100% equity in my home. You have to contact the mortgage company, they request it off. [03:31] James: Absolutely. [03:30] Willie: There're a lot of things and with credit, a lot of people here, it's a law that was passed that anything negative on your credit report, you're allowed to…you'd be allowed to investigate. [03:44] James: Right. Right. [03:45] Willie: When a lot of people fail to understand that we're credit repair, it's not saying it's not your debt, but what it is saying that what's on there has to be accurate. It has to be verifiable and it can't be too old. Out of those three things, if it's one of those three, it has to be deleted. A lot of people don't know that if they're off by $100, $5, it has to be deleted because it's called inaccurate information.Even for like repossessions, a lot of people fall on hard times. With the repossession, you could have put a lot of money down and the car may still have a little value. Let's say for instance you owe $5,000 and they take the car back or you give it back. Voluntary repossession is still repossession. Majority of the time, if they repossessed the car, what they're going to try to do to it, if it's still in good condition, they're going to try to sell it. When you turned it in, it was $5,000 but what if they sold it for 40,000, will you own the 5,000? No.[04:50] James: No, definitely. [04:51] Willie: Now you only owe 1,000. They're supposed to contact you and let you know that hey, your car was sold and you're supposed to…there is the difference of what it is. It's the bill of sale. A lot of people don't understand the leverage that that credit has. Nowadays, rental history, before they pull your background, they looking at your credit.[05:13] James: Yeah. It's crazy. Because I mean, honestly, you can speak on this because it affects almost everything right now. I am a huge fan of the Dave Ramsey. [05:24] Willie: Yes. [05:25] James: I do. I like Dave Ramsey. As far as I haven't any credit, I mean honestly it affects job situations. It's his job. The employers check credit now. I'm not digging that all of them but I know I will check credit. Insurance, I mean it's virtually everything but its close. It's real close. Yeah, you can go ahead and you can kind of expand on that a little bit more. It's basically affect there. [05:51] Willie: Credit has so much to do with your down payment. Credit has so much to do with your interest rate and all you have some insurance company they say well it doesn't matter what your credit ain't doing what they call a soft core. [06:02] James: Right. [06:03] Willie: When they do a soft pull, they're looking at your credit history and basically your credit history is like your car telling you what you've been doing within the past few years of your financial life.[06:16] James: Yeah. Explain a sophomore versus a heart and so people understand the difference. Because I mean know the…yeah, people may not understand the difference between them, so again, explain that a little bit about the sophomore versus a parting firing.[06:27] Willie: Okay. Well that sounds cool is when a company, say for instance, sometimes like a light company. They can do, it's like a snapshot of your credit. [06:39] James: Right. [06:40] Willie: What they do is they look at it and they kind of judge and see if you have anything that's basically, do you owe them? Yeah. When you do a hardcore, they're contacting the bureaus…[06:54] James: Right? [06:54] Willie: They're getting all the information from all three bureaus or depending on if you're pulling a car, they only pulled from certain bureaus. When you're doing a home, they pulled it from all three bureaus. That's what you consider a harp pool and harp pools does affect your credit.[07:11] James: Yes. Then that's another differentiating factor too because a lot of people think, and I definitely want you to talk about this. There're so many resources out there for people to go get their credit. Get their…[07:21] Willie: Right. [07:23] James: What I get a lot is, people will tell me, they'll call me and want to, you know, they want to, are they looking, they're buying the house and they'll say, 'Hey, we're now pulled by credit, three weeks ago, three months ago. I have an 80.' I'm like, okay, well listen, and you guys…yeah, I want you to talk about this because the difference between like Credit Karma or all these other resources that people have versus them getting a mortgage. I know a mortgage, when you get any mortgage credit qualified a mortgage, it's the most thorough reports you're going to get even more so than a car already anything in my opinion. Yeah. Talk a little bit about that like the hard, like kind of the differences there.[08:07] Willie: What we've noticed over the past years, Credit Karma, they give you more of a snapshot of what your credit. [08:17] James: Right? [08:16] Willie: They give you free credit analysis. [08:21] James: Yes. [08:21] Willie: What I've seen in the past is that the numbers are off because they don't actually pull directly from the credit bureaus updated file. Perfect example, I have a client right now that she called me and she was like, 'Hey, I just need to get my scores up to a 680. I just checked on Credit Karma. I'm at a 622.' We was like, okay. Let's do it. We're glad to go through the process of eliminating this and that and see what we can do. When we actually, I said, well matter of fact, go talk to my friend that works at the mortgage company. Let's see where we stand so we can actually do a real hard pool and come to find out she was at may have fives.[09:13] James: Yeah. I've seen about that. [09:16] Willie: That's a big difference. If you're at a 622, and you're now at the mid of 5, that's like 60 some points and one point can actually kill any kind of deal and depending on what company you're going through. When you go with Credit Karma, it gives you a snapshot. They can't, they offer a lot of stuff to you to try to be more aware of your credit. To be accurate about your credit, you have to be more mindful of what's going on when you coast time for somebody. If they mess up, it falls on YouTube. A lot of people think that, well that's not mine. No. It is. It's, I'm sorry to say and you can't just call them and say, look, take my name off. No, because you're the reason why they got it.[10:04] James: Right, right. Yes. This means is that you too, I'm like you're supposed to have. I go sign and you might as well be the top signer because it really doesn't matter to get one of the names. It counts the same. [10:20] Willie: Yes. [10:20] James: That co-signer to get, I mean I've seen people get just completely get there, kind of ruined by it. My co-signer for somebody. [10:28] Willie: Right. [10:29] James: People not to, uh, whenever, you know, whenever looking to own a home because yeah, especially when…yeah, I see that all the time too, if somebody's is full stop and maybe that one debt is really keeping there for what. They got to go look at maybe trying to refine and other way, it's really [inaudible] [00:10:48] and so we finance it. There's no other way, like you said, kangaroo take, you know, take my name off of it. Yeah. That's definitely, I see that all the time. I'm like when I talked to people about credit, I don't like to use credit rest of that. For some credit repair has a negative connotation. I don't know why but for real estate, the bottom line is we need to, we need to move from here to here. [11:18] Willie: Right. [11:20] James: I call it. For you guys, I know there's not a one size fits all because everybody's situation is different. If you're working with somebody, do you guys give them a, I guess is it just based on situation to say base on what I see here, I think let's say two months, three months or how do you guys break that down when people come to you for to look at that. [11:43] Willie: Technically what it is everybody, like you said, it's a case by case scenario. [11:48] James: Right? Yeah. [11:49] Willie: Nobody can guarantee you anything. Basically everything is computer generated and it, but it's calculated as well. We're looking at the credit, the good thing about what we have to offer to the clients is that we have a similar what if scenario. What happens is, what a what if scenario? What if I pay this down, this down, this down, or pay this off, this off this off. It gives you a calculation. If you do this, you have an opportunity to get this score from where you're at now. Now is it 100% on point? No. [12:25] James: Right. [12:25] Willie: It gives you a snapshot of, hey, if you do this, you would be in that ballpark figure. It's just, it's hard for me to eyeball it and say, but what I do know if you're late, you hurt yourself.A lot of people also don't know. So let's say for instance, March has 31 days in that, right? You have a payment due on the 1st of March. Some people say, 'Oh man, I made the payment on the 15. I'm late.' Okay, you're late with the company, but you're not late with the credit. [13:02] James: Right, right. [13:02] Willie: Because you have to be a certain amount of days, which is 30. Now, some people will say, okay, well I'm going to make my payment at the end of March, which is the 31st. Guess what? You are late now. Even though you paid in March. [13:17] James: Right. [13:17] Willie: Because that is a perceptive, well I still pay on March. Yeah, but you paid on the 31st, that's past 30 days. You have to realize 30 days is 30 days. We have 28 days. You really technically anything after the 2nd of March, now you're late unless you get that leap year. There're a whole lot of things, a whole lot of variables that a lot of people don't think. They look at, well, I paid in March, it's March. No, it's the days. Then you also have to look at your calculations. You have to realize, you have to probably even call your company and ask when do they report to the credit bureaus? [13:57] James: Right. [13:57] Willie: Because your credit cards are not all reporting at the same time. Now the way to build your credit is to keep your maximum balance up on the 30%. You can charge you whatever, but you have to realize once you charge over 30% regardless if you're making that payment on time, you're going to get hit because you're overextending yourself. You're spending your…what they say you're living on other people's money and and you get deemed for that at the beginning.[14:31] James: Yeah. No. Yeah, and I use it. That's the rule I give everybody. I always say 30% I'm not real sure where the game for a while, so probably sometime long, long ago somebody mentioned that to me. I was going to ask you about that because that's what I, that's kind of the advice I'd give people when they're looking at because that's probably, yeah, I want you to talk about like the way that these girls put on a mortgage credit card versus maybe not necessarily specific percentages, but I'd rather different weight for different things. I stop my loans and mortgages so forth.[15:07] Willie: Your biggest weight is your payments. That's 30% of how everything is graded on your credit. A lot of people look at it the wrong way for the simple fact is that they feel that, okay, if I make my payments on time, my scores are going to boost up tremendously. [15:30] James: Right? [15:30] Willie: What they fail to understand, yeah, your scores are going to go up as long as you keep that balance low. [15:37] James: Right. [15:37: Willie: They're going to go up. The problem is, I look at it like it's almost like somebody's reputation and you look at it like this, it doesn't matter all the good that you've done that one thing, that one thing that you did wrong, people will sprint that so fast and your credit is the same way. You make that one late payment. Guess what? Your scores can drop anywhere from 20 to 70 points off of one late payment.[16:10] James: That doesn't matter whether it's a credit card, a car, honestly, I know a mortgage payment, you probably take the biggest skin if you're, if you have ever had like a late or…[16:21] Willie: Mortgage? Yeah, mortgage and cars take the biggest hit, but also the credit cards take a big hit is what the mortgage take I think the biggest hit for the simple fact, if you try to purchase another home…[16:38] James: Right. [16:38] Willie: The first thing they, the mortgage, another mortgage company is looking at is your mortgage history. Rental history, whatever history is where you live and what they look at is that, I have a, I have a client right now is that we're disputing their late pay. [16:54] James: Right. [16:54] Willie: You can actually get that negative off of there because at the same time they have to verify how were you late the days and the thing is, is that it's going through the credit bureaus that fight these for you. A lot of people think that you go straight to the creditor, sometimes you can work a deal out with them, but a lot of times you're going to lose that battle because they're in it for the money. You're not in it for the people there any for that bottom line.[17:23] James: No, that makes sense, man. When people are looking at getting a mortgage, it's, there's a lot of stuff that people do and what they don’t know, for me, I found that it's usually when they're looking at buying a house is when a lot of stuff comes up. That they just didn't work for. [17:41] Willie: Right. [17:43] James: If you're buying a car, you're trying to get a credit card. It never really comes. There's a lot of you can get away with just buying a car. The car that you go recently is a, what it can. It's just different but while you get it, while you back in the mortgage for example is just I felt like all of the stuff you didn’t know about your credit pass also come up. Never faills. [18:04] Willie: Exactly. [18:13] James: When it felt back and I'm getting more of it, so. [18:08] Willie: Yeah, I forgot about that. [18:10] James: I have this all the time. Yeah, all the time. All right, well…[18:14] Willie: Well James, they give you…they give you a little better percentage. You got the way that your credit is calculated, 35% of your payment history, 30% of your year amount use 15% of the length of your credit, 10% is your new credit and 10% is the type of credit that is used. Yeah. Basically all of that is calculated into what your scores are as of today, every vendor is supposed to pull from the credit bureaus. All of them don't.[18:52] James: Yeah. It's frustrating too because all the bureaus, and we could speak on this a little bit too, because you got Equifax, Transunion, and Experian. [19:02] Willie: Experian. [19:03] James: They don't all necessarily treat everything It's frustrating for me because they all do stuff different that's through scores. Yeah, maybe you talked a little bit about why that is. I don't know if you'd have to know what the why is or why they do that. I don't know if it's…cause you're getting a mortgage. Of course they look at all three scores and then they take the middle. [19:27] Willie: Right. [19:28] James: That's the fair way to do it because they all have different models.[19:33] Willie: Correct. The way that the model work, I didn't mean to cut you off. The calculations are the same. [19:40] James: Right. [19:41] Willie: It's the reporting. Everybody doesn't report to the bureaus they're saying.[19:46] James: Okay.[19:49] Willie: I may report to Transunion but not report to Equifax.[19:51] James: I made the report there also.[19:53] Wilile: No, see a lot of people think that the government, that the, the bureaus are governmental rule. They're not. That's a myth. They're not governed by the government. This is an independent source. They're making billions of dollars. They're not governed…they're not regulated by the government. It's crazy that they have…those three numbers have so much power over what you can do with your life, what you could do with purchasing and things like that. And a lot of people just really don't understand the power of credit. When you work with me are, our company. We not just only give you the opportunity to restore your credit, we educate you on your credit. You get your own private portal to where you have a snapshot of what's going on with your credit at all times.You can wake up at two o'clock in the morning and say, Hey, what's going on? We have what they call a progress report but a lot of people…we live in a microwave society. What I mean by that, we put in the microwave. We hit the popcorn button and guess what happens. It's done. We don't…we're not old school where you have to warm up the oil, put the popcorn in, shake it around and take its time. We want everything. I paid this and this should go to…no it takes time. Negative stuff does spread faster than pot the thing.[21:31] James: I'm glad you said that cause I'd rather browse…to say, it's funny because when you screw up trying to fix it now. If the creditor makes the mistake though, it's like pulling teeth trying to get them to fix it. Now visually to stay on it, you'll get it fixed. A lot of people just don't have the patience to deal with it. That's where you can come in and help people that are in that situation. Yeah, when you screw up it's like Bam, they hit you a hard real quick but trying to fix a mistake from a quick, it's just the opposite. It's not a microwave fix when it comes to them screwing up but when you do it is the microwave[22:12] Willie: It's like bam. We got you. We got you. A lot of people…[22:17] James: You have some people like it is what it is. These are the rules. This is the sandbox we're in. It's their rules. If you want to play in their sandbox, this is what you got to do. That's not cool. If you just don't…If you want to try and go through life without credit at all? I guess you can. That's what Dave Ramsey advocates. It makes it challenging in a lot of situations when you're trying to, look I'd say even just from applying for job or getting…[22:48] Willie: Like a mortgage Insurer…[22:50] James: Brad was insured for that matter. Literally everything gets checked. Even if it's a cell phone, it's still having an effect because they can say no.[22:58] Willie: Even for cell phones. Okay. So here's another thing. When you look at credit, okay, you have to have credit to get into this apartment, to get into this house, whatever which ones. Guess what? You have to have lights. What do they do? They pull credit. Not saying they're going to deny you buy you may have to pay a deposit. [23:21] James: Exactly, yeah.[23:23] Willie: You may have to…when you do your gas, when you do cable, internet, anything that you do nowadays, they pull credit. I've always thought different. It's like, okay, well if I got bad credit, why are you making my payments so harder. If I'm struggling now with these payments, how are you going to give me a higher? It's one of them lessons you have learn. If you want good things, you have to treat things good.With us, we involve our clients with every step of the way. We make sure that they are involved in it. A lot of people say, well, why didn't you do that? Well, if you put skin into the game, you're going to be more involved with it. You're going to make sure that I'm not messing it up? I'm not going to let nobody mess it up and things like that. We're here to educate. It's not we're going to fix it. No, we're going to educate you during the whole process. It's not fixing anything. It's restoring it and making sure. Can you do this yourself? You can. You definitely can. That just like when you go to court, you don't have to have a lawyer. You can represent yourself. There's so many ins and outs that you may not know. [24:37] James: That’s right.[24:36] Willie: I always say, can you change your own oil? Sure you can. Do you really want to go through that hassle? If you want it…[24:45] James: thank them for us. I'm a realtor. Yeah, you could sell your home on your own.[24:49] Willie: Right.[24:50] James: A lot of times they're the same thing. There's so much stuff that goes into it that you may not know when it comes to contracts and stuff that comes along with title. Maybe you roll on the dice. eah, could you do it? Yeah, you could. Why not pay an extra for having the expert that knows exactly what they're doing. They're going to save you a whole lot of time and in the case of real estate, most of the time having in Asia people will actually get more money when they…versus them selling. I don't know. A lot of people would think it's flipped. There might be a case by case situation where that's not true. For the most part I say to them to get an expert.Yeah, you can figure out anything you want. Just go to YouTube. everything is YouTube. People got a lot of stuff going on. The credit thing for me, I'm like, man, you need, I can get an expert because it is. It's not something like you say, it's not a microwave. You know what you're doing. Yes, people could figure it out. Consistency and staying on top of these boroughs before you see change. Most people in my experience, they don't have the -- they don't have the patience to do that and so you guys are what you do for people. It's great.[26:04] Willie: I appreciate that. For what you guys do, a lot of people say, well all you're doing is opening the house and showing the house. It's a lot more. It's a whole lot more behind that. You guys have to take on the liability of making sure that perfect example, if a house is flooded and somebody comes in there and paint the house and cover everything up it's your fiduciary to make sure that that client is taken care of, that they're not stepping into a mold trap or stepping into things that's going to hurt them later down the line. You guys do a great job of helping out the clients as well. It's a hand in hand thing that what we do. A lot of people said we don't work fast enough.here's the thing.Here's the thing. It's not that we don't work fast enough. You just destroyed your credit faster than we can repair it. Paying your bills, taking care of it, being responsible. Don't get me wrong. Life happens. Things happen in life. There's uncontrollable things that I've been there. I've had repossessions. I've had foreclosures. At the same time with credit restoration, there had been mistakes reported incorrectly that was able to be deleted and removed off of my credit report. That's our thing is that we are here to help. Are we going to sit here and say it's going to be fixed right away? No, we can't promise that that first round that we do is going to be taken care of. I'm never going to tell…I set expectations. You're going to take three months. You're going to see some improvement. [27:47] James: Right.[27:48] Willie: Six months is when you're going to see great improvement. At the same time, your improvement and my improvement is totally different. You have people out there that says, in 30 days your score's going to go up. Guess what? They're not lying if and go, if you had a 500 and you go to 501.[28:07] James: Yup. Exactly, that’s right. It went up.[28:11] Willie: It went up.[28:10] James: It's funny. I just referred to the day. It's a guarantee we're going to get you to, I think it was like 720 and I'm just laughing like how are you making this guarantee because everybody, there was no one person and I don't do credit restoration. I've been around a lot of it to know everybody. There is no one situation that repeats itself exactly the same way. I'd probably be doing this. There's probably nobody that's like, exactly the same.[28:40] Willie: No. You might have some similarities. When people say, we can raise your scores guaranteed. The problem with that is I'm going to tell you my guarantee is satisfaction guarantee. If you work the system, the system will work for you. I'm not going to guarantee because he was another thing that I've run across my years. Even easing at that as of last month, I still run through this thing. People say, it doesn't work. You know why it doesn't work? Because you don't allow it to work. What I mean by that, if we do remove some negativity your scores will go up a little bit. Perfect example, I have client. We removed six items. Scores went up 52 points, great job. They missed paying a bill and then scores dropped 65 points. Then they're down what? so that’s 13 what? 13 points under from where we started.They got…they was like, hey, you said my scores will go…it did go up. When you didn't make this payment. You got to stay with it. You understand? No, I don't understand. You know that this is this. This is that. I do understand times do come where we have to pick and choose or what, what's going to happen. Here's another thing. A lot of people don't know that if you have a collection…I will use a cable company and they're coming after their debt. Of course, they sold it to a collection company and now they're trying to fight. You can't have two people coming after the same day. [30:24] James: Right. Right.[30:25] Willie: that's against the law. Some people don't know that. We have to remove that. We also clean up your history of where you live of addresses because sometimes there's a typo O because you may have 6502 but then on your credit report it says 6520. A bank is going to say why is this like that?This is where we can remove things like that. Phone numbers, employment history, misspell of your name, nicknames. A lot of times that we do come across, like for instance, my dad is a senior. I'm a junior so when you say Willy Adolf, they can have all my dad's information on there. It may not be good that I need that because it's not accurate information and vice versa. They might have been some bills that I didn't take care of and my dad be like son, you need to get this taken care of. We are very diligent on making sure that when somebody looks at your report, it's a really a reflection of, of what you've done. It's not a reflection of who you are. It's a reflection of what you've done.We try to make sure that when creditors and vendors look at your credit report, we try to make sure that it is clean as it possible. We want to make sure that all the I's are dotted and the T's are crossed. Do we get everything off? No. Why? Because some stuff is reported correctly, is reported accurately, and it's still within that timeframe of statute of limitation where it has to be on there. We're not here to say we can get everything off because nobody can just get everything off. You got to be careful of who you let put stuff on your credit because it's technically illegal to do that. It's credit fraud. There are things that you can add to it. We have what we say credit rent. Basically what credit rent is, this is good for people who have lack of trade lines.They need some more to help boost their scores. How many times had you pulled somebody or seen somebody's credit and their rental history is on there? You don't see that? Guess what? Miss that payment and it'd be on there. We offer programs that's legal that you can actually go back two years and put that positive trade line on there and that helps with their spores. That helps with their rental history. We also offer secure credit cards because here's the funny thing, you go to a bank and tell them I want a secure credit card. That means I want to give you my money to open up a line of credit. Guess what's the first thing they do? Pull your credit. [33:17] James: Yeah. I'm giving you my money [33:22] Willie: Guess what happens? I don't like what your credit look like. You're denied. You're denying me for me to give you my money to put on this card to spin and yes they will. We offer services to that. Now, the thing is, is that now once you put your money on there, how are you going to treat that car? This is what the credit bureaus now look at. Even though it's your money and you give your credit card, $300 that doesn't mean you have $300 of spent. That means you're showing the three bureaus, hey, let me show you what, how I can manage this money because after x amount of time, you can graduate and then it goes to unsecure and then that means now you're trusted with somebody else's money. [34:05] James: It's almost like having a debit card, but you get to use it to build up your score. Actually, obviously a debit transaction report. Essentially it's a debit card that gets reported to the credit bureaus in essence is what it is.It's important for a lot of people, especially people that don't have any credit or just people that may have just had some stuff come up in the past where it's just, you know, they had a bad situation. That's kind of like I said, like everybody's problem at this at some point. I've dealt with it before. Yeah, that's secure credit card. I did not know that. That's actually a nugget because I didn't know that you could get denied for secure credit card. I didn't even know that. [34:46] Willie: Yes, I ran across that many and many a times and it still baffles me that how can you get denied. There's several banks out there, I'm not mentioning them, but there are several banks out there that will deny. You just got to make sure. Another thing that we offer with our service is on top of the education, on top of showing you how you can do debt, get to your…clear your debt, how you can pay your debt, how you can pay your house off, or how you could pay your car loan or how can pay your credit card off.We have so many tools. We have credit protection. We offer life lock part of our program. Because every two seconds somebody that identity is getting stolen. Somebody's identity just got stolen. Now you're getting alerts of what's going on. We offer credit monitoring. All of this is part of it. We say for instance, now we're going into the tough times up. We have stuff that we can prove that is inaccurate or unverifiable but the creditor is being real stubborn about it. Part of the service is we have created attorneys on staff to help fight that. Another thing, you get those phone calls on your job at home, our credited attorneys take care of that as well to stop the harassing calls for the simple fact is that we get that taken care of for you because you're not allowed to be harassed.[36:15] James: Right. That's awesome man. Lots to go man. Listen, tell people first of all, how did you get to get in touch with you guys? Would it be website, social media, whatever it is. Let people know how they can reach out to you guys, their knee if they've just got questions about anything. We just talked about anything else often they want to maybe address to you personally? How to get a hold you.[36:38] Willie: To get a hold of me, you can always call me or text me at (281) 451-7087, If you want to go to my website and just check out everything that we offer and what we have, you can go to www.myfes.net//wadolph. That’s W-A-D-O-L-P-H. On their it has so many opportunities[37:09] James: I'll add that on here so people can easily just click there and access it. Let me ask you one last question. You're based in Houston. It doesn't really matter where people are, right?[37:16] Willie: No, I'm, I'm actually bonded under the company. I'm bonded and licensed in all 50 states. [37:22] James: Awesome. That’s great to know. [37:26] Willie: Everybody can call me. Call for Will because you know, if you have, will you have a way. I am Will,[37:33] James: I appreciate your time. Listen, we will do this again because this is one of those things that you can't just touch. This is something I would see it for what I do and I know your wife she's a realtor as well. All of us. This is something we will definitely, I will have you on again and we'll talk some more about this but I appreciate your time man[37:52] Willie: I appreciate you, and think about this for all the realtors out there. If this is something that you're interested in, how can you learn about it? Reach out to me because you can do the same thing. You can help your pipeline out, help grow, add value to your service anywhere instead of sending it somewhere off to someone, you can give them the same information. Just reach me. (281) 451-7087.[38:25] James: Sounds good man. I will get that out. Like I said, I'll post that website as. well. Again, I appreciate your time and, yeah, you guys you got to have questions. Give Willy a call or reach out to him on his website and we will have you on again brother, I appreciate your time.[38:40] Willie: Hey, I appreciate you having me on. I really appreciate it. Thank you very much.[38:42] James: All right Willy. All right, man. You take care. Have a good evening. [38:46] Willie: All right. You too. Thanks.If you like this episode of the Houston Home Talk podcast, please don't forget to like, share, and comment! We appreciate your support and feedback! See acast.com/privacy for privacy and opt-out information.

Michael: Hello everyone. This is Michael Gross of OptionSellers.com here with head trader James Cordier here for your April Option Sellers Video Podcast. Well, James, we didn’t see any abatement in the volatility in the stock market this month. In fact, Fed chairman Jerome Powell last week coming out, maybe spooking investors, talking about asset prices and maybe even financial markets being overvalued here… a little ghost of 2007. What do you think is going on here? James: Michael, it’s interesting... for the first time since quantitative easing was first announced practically a decade ago, investors and money managers now actually will have an option of not just pouring money into long stocks but fixed income is going to now be some of the talk. The tenure is approaching 3%. With what Jerome Powell said this past week, we will be reaching 3%, possibly 3.25 and 3.5 coming up over the next 6-12 months. With that in place, does the stock market have now still a free ride to the upside? Investors are going to be putting some of their money into fixed income and for the first time in practically a decade there’s an alternative from just being long the stock market. Michael: Obviously at this point, a lot of investors, especially high net-worth investors, are always looking to diversify into alternative asset classes. Physical commodities as hard assets always seem to have an appeal in any type of environment really but especially in this type where you have a lot of the jitters about paper assets. James: There’s probably more jitters now than I can think of over the last decade. As you know, we have investors contacting us on a daily basis, I think, just for that reason. Investors wanting to diversify right now from the stock market, I think, is hitting a really great stride right now. Wanting to get into markets that are uncorrelated to what the DOW does and what the S&P does is not only really popular right now but a lot of the real investors, you know, the people with millions of dollars under management, they are looking for alternatives now and I think they’re going to find some, not only in yield bearing accounts like fixed income but certainly in commodities like what we do, as well. Michael: Of course, we are in springtime now in the commodities markets. That means there’s a lot of things that happen in a lot of the physical commodities in the springtime, especially the agriculture markets and energy markets. We have some great seasonal tendencies, as well, in the spring. James: We do. Needless to say, a lot of people look at commodities and they think about the weather. Over the next 90 days the weather will be a really big factor. Quite often, end users for soybeans, corn, and wheat, they need to get insurance and make sure that they’re going to have these products for what they do and basically for animal feed. Of course in the United States, the largest producer of corn and soybeans, the weather is key. Often, they build in a certain premium during the months of May, June, and July just in case the farmers in the United States don’t do exactly what they would have hoped each year. Of course, later on in the year, once again the U.S. farmers are the best in the world and the spring rallies that often happen normally are just great sales for doing what we do. Michael: Speaking of those rallies or markets, we have a couple we’re going to feature this month that are maybe a little ahead of themselves. Now we have some of that inflated call premium. If you are one of those investors, it’s just learning how to sell options or learning how to sell options on commodities, these are two markets we think are really going to help you... Good opportunities, actually markets we are taking advantage of now in our management portfolios. We are going to cover those for you here in just a minute. Thank you. Michael: Okay everyone, we are back with our Market Segment for this month’s podcast. The first market we’re going to discuss this month is the soybean market. Soybeans have been in a strong rally the past couple of months primarily as a result of some things going on down in South America. James, do you want to talk a little bit about that and what’s driving prices right now? James: Michael, corn, soybeans, and wheat are all about the weather. The third largest producer in the world is Argentina. They’ve had a very dry growing season this year. For that reason, they do have reduced yields and we’re going to have a little bit of tightness out of that South American country. They are the third largest producer in the world and basically the U.S. weather is normally the big catalyst for the market moving up or down. This year, Argentina, which of course they have the opposite season here in the United States, their summers/our winter of course, and while there’s not much to talk about in the United States, traders look elsewhere. In South America, especially in Argentina, they had a really dry season. For that reason, the soybean prices have been bumping up to nearly 12-month highs over the last couple weeks. Michael: Yeah, we have seen some reduced yield expectations right now. We were at 60 million metric tons out of Argentina just a couple of years ago, now we are hearing it might be down as low as 40 million… it’s not reflected yet here. I guess that has been driving prices substantially higher, but we’re nearing the end of that growing season there now, aren’t we? James: We really are. Quite often, traders and investors will price on the worst-case scenario, so then once the corn and soybeans are actually harvested, often the weather wasn’t as bad as people thought and then the market readjusts to the current level of the production it actually turns out to be. Michael: So what you’re saying is although we’ve had some problems out of Argentina, they do about 50% of the production done in the U.S. or Brazil. From what I’m hearing, they’re thinking that production out of Brazil may make up some of those losses out of Argentina already. Is that correct? James: Unlike Argentina, just to the south of Brazil, Brazil has had just wonderful growing conditions for cocoa, coffee, soybeans, orange juice, sugar. Brazil is just a wonderful garden right now for growing soybeans. I think the Brazilian harvest will be larger than expected and that will make up probably a quarter and a half of what we’re going to be losing out of Argentina this year. Michael: Of course, as South American harvest is under way, we get started with planting here in the United States. The market probably starts focusing on what’s going on with the U.S. crop here pretty soon. If they do, the United States has some pretty big supplies heading into the planting season this year. James: We’re certainly going to have harvest pressure probably starting September-October of this year, and the Argentinean drought it probably going to be a forgone memory at that point. Supplies are going to be more than plentiful in the United States, and of course the U.S. is going to be the supplier to the world because of our ending stocks here in the United States, which is something I know we want to talk about as well. Michael: Starting off the year, we have the second highest ending stocks in the last 30 years and the highest in over a decade, so we’re already starting off the year with big supply. Now, the planting intentions, which we’ll know more for sure the 29th of March when that report comes out, but right now estimates are we’re going to have at least as many acres planted as last year, 90 million with estimates now at 90-92 million, so if we even have average yields we could be looking at all-time record ending stocks for next year. Like you said, that harvest pressure coming in… if they’re harvesting that size of a crop you’ll get some pretty substantial harvest pressure. So, the trade you’re recommending here right now, you’re thinking that this rally is probably going to fizzle and we’re going to see steadier lower prices. What are you looking at to trade here? James: Michael, we think that come October-November, soybean prices will probably be below $10 a bushel. We’re trading around $10.40-$10.50 right now. Basically, on the dry conditions in Argentina, we’re thinking that soybeans have a little bit of a chance to rally another 20-30 cents. They could get to the mid-upper dollar region. We love the idea of selling soybeans at the $13 level, so we’re going to be recommending soybean calls at $13 and $13.25 thinking that while soybeans might have a big of a rally going into May and June, we love the idea of being short in fall. So kind of like football, we’re not exactly throwing the ball to where we think the market is right now, but we’re selling options to where we think the runner’s going to be, and the runner being a huge harvest in the United States come September and October. $13 level for soybeans, you’ve got to bet on something, and boy we don’t see that happening nowhere being near that price. Michael: Yeah, that’s a pretty big cushion there to be wrong. The USDA itself has average on-farm price this year at $9.25, which is down here. So, that seems like a pretty safe bet. Let’s go ahead and move on to our next market right now, and that would be the cocoa market. Michael: James, cocoa is another one of these markets that has had a pretty good run here over the last several weeks. What’s going on here with prices? James: You know, similar to soybeans that we just talked about, one of the main producers of cocoa is the Ivory Coast. They are the largest producer in the world. They’ve had dry conditions this past year and, while those dry conditions certainly will reduce some of the pods yielding this year, we have what’s estimated to be 2% less cocoa being produced worldwide in 2018; however, a 2% drop in production has now caused and created a 30% increase in price. The balance doesn’t quite weigh out but we do have speculators buying, we have commercials buying on the idea that the Ivory Coast crop is going to be smaller, and it is certainly trading above what we think is going to be fair value in price later this year, probably be a couple hundred dollars a ton. Michael: So, while this west African crop got hit somewhat, you’re saying global production is probably going to make up for a lot of that? James: It is. A lot is always made at the Ivory Coast because they are the largest producer. Sometimes they have political turmoil. Sometimes they have the weather that’s not quite right. 2018 and 2019 there’s supposed to be a world production surplus for cocoa. So, all this discussion about the Ivory Coast being too dry is eventually going to take the back seat to the fact that the world does have enough cocoa. It’s not as tight in supply as a lot of people think. Rallying from $2,100-$2,200 a ton all the way up to $2,600 a ton, we think that the rally is overblown and probably, starting in August and September, we’re going to be quite a bit lower than where we are right now. Michael: There’s the numbers you were talking about. That’s the latest from the ICO (International Cocoa Organization) and it’s showing only 2.3%, so that’s a pretty good rally for the bigger picture short fall. James: It’s interesting. Commodities do have a reputation for overshooting on the downside and overshooting on the upside, and I think cocoa is a prime example of that here in 2018. Let’s say the cocoa production falls off 2.5-3%... we’ve had a nearly 30% increase in price and I think things will come into equilibrium the 3rd and 4th quarter of this year. Michael: So, how do you recommend that option sellers at home take advantage of this? James: You know, like we’re looking at on the chart here, $3,000 a ton, $3,100 a ton, yet a large leap above where we are right now, those options right now are fetching $500, $600, $700 each. We think those are a great sale. The market, needless to say, is still in an uptrend. It could still go slightly higher, but as harvest around the world starts taking place we will have harvest pressure again and a lot of the commercial and speculative buying will probably back off. We expect cocoa to probably be around $2,300-$2,400 later this year. If we’re short from $3,100 by selling those calls at $3,000 and higher, we think that’s going to be a really good way to position in this market. Michael: Yeah, especially I see the speed this moved up… probably really goosed those option premiums up there. Maybe just like the market, they’re probably overpriced too now at this point. James: Michael, it’s interesting. As you know, we follow 10 commodities. We don’t trade all 10 all the time. Cocoa is on our radar screen. It is one of the markets we follow extremely closely. When you have extremes in this market, cocoa is an absolute necessity to many households and many consumers around the world. Cocoa is not so much an exotic. It is a market that everyone is in touch with and the fact that we’ve had that large increase in a very short period of time, those options now open up to large premium and, we think, we’re going to be taking advantage of those in a very good way over the next 30 days. Michael: I know for me chocolate is a necessity, so I know how those people feel. Okay, let’s go ahead and move into our Q&A session now and answer some of our questions from readers. Michael: We’re back with out Q&A with the Trader section and, James, our first question this month comes from Orson Falck of Manchester, New Hampshire. Orson asks, “Dear James, I noticed when you talk about positioning an account, you say you keep a large cash reserve for your client accounts – fifty percent I believe. Are your published results based on the entire amount in the account, including the non-invested cash, or is it based on the amount you have invested?” James: Orson, that’s a good question. If you’ve been following our materials over the last period of time, we follow 8-10 commodities. We rarely find opportunities in all of them at one time. Therefore, Orson, what we do, for example, we want to keep our margin levels at 50% or lower so that when we do have an opportunity in cocoa or soybeans or coffee positions that we don’t currently hold, we have dry powder in which to take advantage of them. Even when we are fully positioned and we are in 2 energies, 2 metals, 2 foods, and 2 grains, we still don’t raise our margin level to much more than 50%. There’s not a right way or a wrong way to do this. For us, that’s been the sweet spot for margin and leverage. I know how we did last year, I know how our returns were last year, and that was on less than 50% margin. Our client is never going to receive a margin call, we’re never getting shaken out of the market because one market or another market moved a certain level. We like the comfort of that. That allows us to make the yield curve as flat as possible so that we have smaller equity swings in people’s accounts that have invested with us. To answer your second question, the published results last year and years prior is on the total amount of money invested, not just the amount of money that is put up as margin. It is the 100% of exactly what the client invested. Michael: Very good. I get that question a lot. People, especially stock investors, that aren’t used to how those margin fluctuations, they aren’t used to that big cash cushion, and knowing how to use leverage in commodities is really one of the biggest keys to being successful in it. This is how you use leverage properly, by keeping that cushion there. James: Absolutely. There’s no reason to push this type of investment product. I know how we’ve done the last several years, being invested less than 50%, I know what the results were, and I don’t feel the need to really push that envelope. I like the ability to be nimble in the market. If we have something on that we need to add to, we have extra cushion to do that. If a market moves against us slightly it doesn’t really mess up a portfolio to any great extent, and that is why we utilize the 50% rule. We rarely are going to be invested above that. Michael: Let’s go to our second question. Our second question this month comes from Harold W. Corson. Harold is writing in from Monterey, California. Harold asks, “Dear James, Thank you for your outstanding book that introduced me to selling options on commodities contracts. So far, I’ve sold options in oil, gold, and just started out in wheat. So far, so good. I’ve noticed some commodities don’t have much trading volume. How many commodities do you typically recommend trading in an option selling account?” James: The four sectors that we follow are energies, metals, foods, and grains. Generally, we’re watching about 8 or 9. We are often in 5 or 6 of these commodities, as I mentioned in the last question. Rarely are we in all 8 or 9 at a time. I like being in all 4 sectors. We definitely want to be in the grain market, that is the main staples, of course, in the world. Precious metals, energies are extremely high-volume trades. Great liquidity there, very large premiums generally, and in the foods, as well. Basically, volume is going to be mostly in these 8 commodities. We don’t like straying outside of them. Liquidity and volume is very important. Basically, you want to look at the round strikes. For example, if you’re managing your own portfolio and you’re looking at crude oil you’re going to be looking at the $70 strike. Don’t look at the $71. In gold, don’t look at the $1,825 option, look at the $1,800 or the $1,900 option. Easy tricks like that to find the volume in the open interest will help you get in and out of the market if you choose to do this on your own. Michael: Yeah, I mean, it’s a great point you make that, again, going back to stock traders and stock option sellers, they’ve got 2,000 or more stocks they can pick from. We’ve got 10-12 commodities we watched and maybe 6-8 you’re trading at any given time. So, there’s not a big universe there. You focus on the ones with the highest volume. Obviously, there are markets like lumber and aluminum or what have you that there’s really no volume there for option sellers, so you don’t have to bother with them. James: Right. The 8 or 10 that we follow are just absolute staples of life both here in the United States and abroad. They have excellent volume and excellent open interest, for the most part, and that’s where you want to be. The exotics so much, you know, every once in a while there’s an opportunity there, but having liquidity for our clients is of the utmost importance and it should be for you, as well. Michael: A couple resources if you are interested in learning more about selling options on commodities… obviously our book, The Complete Guide to Option Selling. You can get it on our website at a discount to where you’ll get it at the bookstore or Amazon. That link is www.optionsellers.com/book. If you’re not yet a subscriber to our newsletter, you can get a free copy by going to www.optionsellers.com/newsletter and get some of these trades we’ve been talking about and also more answers to option selling questions. That does it for our Q&A section for this month. We’re going to go ahead and move into our final section of the podcast. Michael: Thank you for joining us for the April podcast. We hope you’ve enjoyed what you saw here today. Next month, we’re going into May and we have even more seasonals coming up. James, some of your favorite markets come into some major seasonals next month. James: We will look at an active calendar starting in May, certainly. Soybeans and corn are probably the main feature. We’re selling options and call options during the next 60 days. Of course, cocoa is on our radar screen right now with 2% smaller production and an increase of 30% in the last several months. We’ve got a lot of activity going on in the next May, June, and July it really looks like. Michael: We also have the energy markets coming into play, as well, so there’ll be a lot to talk about next month. We’ll probably continue talking about some of these great seasonals that happen during the spring and how you can take advantage of them here. For those of you that are interested in how the accounts work here or may be interested in becoming a client of OptionSellers.com, we do recommend you get our free Discovery kit. That’s an information pack for investors. It’ll tell you all about our accounts and how you can invest directly with OptionSellers.com in a managed option selling account. If you’d like to get that, the website link is www.optionsellers.com/Discovery. Speaking with Rosie, we do have all our April consultations booked, so there is no further availability for them; however, we do have consultations still available in May. If you’re interested in discussing an account with OptionSellers.com, you can call Rosemary at the main office. That’s 800-346-1949 or Internationally at 813-472-5760. Depending on availability, Rosemary can get you scheduled with a consultation. As a reminder, our minimum account level did go up this month. The minimum account level is now $500,000. James, thanks for all of your insights this month. James: My pleasure, Michael. Always fun and very insightful to help our viewers and listeners out with this. Michael: We’ll talk to you right here in 30 days. Thank you.

Michael: Hello everybody. This is Michael Gross of OptionSellers.com here with head trader James Cordier. We’re here with your March OptionSellers.com video podcast. James, as we head in to March here, what’s on everyone’s mind is the obviously the big development we had here in February. Big stock sell-off, it’s on everyone’s mind right now… stock investors are busy brushing themselves off, wondering what’s next. Over here in commodities, we didn’t really see a lot of movement in the markets themselves, but we had some developments in the option and option volatility. Why don’t we start off this month by maybe just talking a little bit about what happened in stocks themselves. James: Michael, it’s interesting, a couple of years ago we had BREXIT. We had Switzerland leaving the European Union, we also had the election outcome a year and a half ago. All these events didn’t really change fundamentals on a long-term basis, but what they did do is they injected a lot of volatility. The 3,000 point drop in the Dow Jones here just a couple weeks ago did exactly that. It turns out that there’s something called the volatility index in stocks. There was an instrument that was built for people to go short or long on it. It seems as though everyone was way short volatility. In the stock market, that got unwound, it developed a 3,000 point drop in the Dow Jones, and now we’ve got to the stock market recouping quite well. It’s probably going to continue to rally everything as far as we can tell. The U.S. economy looks good, the global economy looks good, stock profits look excellent right now. Volatility spiked in a dramatic way. For ourselves selling options on commodities, we saw volatility index spike as well. Precious metals, energies, and some of the foods did have a spike. In many cases, a lot of the positions we had did increase in value during this large increase in volatility. It’s not always fun when this happens, but it is absolutely a key ingredient in option selling. It allows us to sell options, as you know, 40-50% out-of-the-money. Without that creation that happens every 6-12 months in the volatility index in commodities and in stocks, we wouldn’t be able to do what we do. It’s a key ingredient and it did happen this past month. We’re very excited about the opportunities that it has now in selling options. Michael: It was kind of ironic, James, because you and I were watching this unfold, we were watching the stock market take a nose-dive, and we’re watching our commodities boards and basically nothing is going on. We have gold and silver prices staying silver, the grains and foods were business as usual, crude took a little bit of a sell-off, tied into stocks, but that was really the only one. Over in natural we had to sell off, but that was really already under way. It didn’t have much to do with stocks. Yet, you saw option volatility spill over from that stocks and it increased the value of those options temporarily, but now you’re seeing that come off a little bit. Is that right? James: It is. The volatility index in the stock market is practically to the same level as it was prior to the 3,000 point sell-off. In commodities, it has now come back about 75% of the level that it was at. The fundamentals never really changed at all, especially in commodities, and I think it sets up a great landscape for doing what we do. We’ll find out relatively soon. Michael: You know, a lot of people, they want to get diversified from stocks. That’s one reason why they’re interested in selling commodities options in the first place. You know, it was interesting… on CNBC they had an article about on the biggest day down in the Dow it was down, what…1,075 points or something like that? They ran an article that there was only 7 stocks higher that day and 2 of them were cereal and tobacco. It was Kellogg and one of the tobacco companies- I forget which one. CNBC’s analysis of that was, “well, even when stocks are down, people will still eat and they’ll still smoke”. That’s a point we make constantly is that no matter what’s going on, people still need to eat, they still need to drink coffee, and they still need to put gas in their tanks. James: The breakaway from the correlation from the stock market was very evident on that day. Gasoline and crude oil and soybeans and coffee… business as usual. That’s why a lot of our clients like being diversified away from the stock market. On that occasion, we did see the volatility index increase options on commodities, as well, and that’s just a key ingredient for us doing the business that we do. They did increase while we were in them. We just see, going forward, just a great opportunity to use that additional premium to position clients. Michael: So, we got a little bit of a surge in volatility, that pushed premiums up, and now that’s coming off. The premium is coming back down a little bit, but now we’ll have that historical volatility in the market. One thing you and I have talked about is now that opens up opportunities for us to do some strategies that maybe we weren’t able to do before. James: Right. In 2017, we saw volatility come down steadily the entire year, which really produced a great return for a lot of option sellers last year. Chapter 10 in the Third Edition of our book, we talk extensively about credit spreads. We haven’t had the opportunity to do that the last year or two because volatility has been low. The influx of volatility that happened over the last 30 days now allows us to do this. It is probably the most safe, sound option strategy there is. With the additional premium now, we’re looking forward to positioning in that fashion the next 6 months or so. Michael: Okay. One observation we were making as well is when volatility is up in options, obviously that’s when we want to sell them, but when the volatility is higher there can actually be less risk in selling the options because you’ve already had that surge in volatility. So, often times the path of least resistance is to come back off that volatility after you sold them. James: We saw that the months after the BREXIT, we saw that months after the Trump win during the election of 2016, and, boy, we did quite well right after that period. We expect that to happen again this year. We’ll see if that’s how it plays out. Michael: All right. As we head into March, we’re going to show you a couple ways maybe you can do just that. We’re going to move on to our feature markets segment and we will cover that in just a couple minutes. Thank you. Michael: All right. So, we’re back with our markets segment this month. The first market we’re going to talk about this month is the natural gas market, a market that’s near and dear to our hearts. Natural gas, if you’re unfamiliar with commodities, it’s a great market for selling options. There’s a ton of liquidity there and also you can sell options very far out-of-the-money, so it’s one of the core markets you want to focus on if you’re building an option selling portfolio. One of the first fundamentals that we look at when we look at markets like natural gas is going to be the seasonal tendency. As we know, seasonal tendency charts are not guaranteed by any means, but they do give you an average of what prices have tended to do in past years at different times of year. What we find is there are underlying fundamentals that tend to drive these every year. We’re going to take a look at the ones in natural gas right now. James, do you want to talk about that and why we see this type of movement in gas prices often in the past? James: It’s interesting, Michael. Often, suppliers want to bulk up for seasonal demand in winter, and everyone is basically building supplies going into December, January, and February. If the winter, especially in the Northeast, falls just a little bit shy of expectations or it’s 5 degrees cooler or warmer than normal, the supply actually is more than ample and prices usually start coming down in January and February as we see that we’re going to have enough natural gas and we’re not going to be running out. Again, here in the United States, we’ve had an extremely mild winter. Philadelphia, New York, and Boston, it has been some 10-15 degrees warmer this year than normal, and prices have come down just like seasonally they do. Supplies of natural gas this year are surprisingly low. Right now, we are approximately 23% below the supply of last year. We’re 19% below the 5-year average. That is because we’ve been exporting natural gas, something brand new to the exporting ability right now here in the United States. It’s setting up really nicely for the seasonal rally that we’re expecting. Natural gas right now is near it’s 12-month low here as we end February, often where it is this time of the year. Seasonally, what then happens is suppliers start building supplies then for summer cooling needs, which is like May, June, and July, and that often will give us a price spike starting in March and April. Michael: So, what you’re saying is this is really a factor of distributors accumulating that inventory, driving demand at that wholesale level, which is really what’s pulling prices higher… at least it has in the past. James: Exactly right. If we get through the winter, and it looks like we are again this year, prices usually come down because we are more than well supplied this time of the year. What wholesalers do for summer demand for cooling needs, especially in the Northeast, is they start building supplies and that demand boosts the prices starting in March, April, and May, and it’s setting up quite well to do that again this year. Michael: You know, it’s interesting, James, we talked about stock prices coming down earlier and a lot of people noticed a correlation and said, “oh, natural gas prices came down with stock.” That price really had nothing to do with that move in stocks. Natural gas prices were already coming down as a result of just normal seasonal tendencies. Wouldn’t you agree with that? James: Right. The natural gas market is so liquid. It takes no cues from any other market. The price of Apple stock has absolutely nothing to do with the supply of natural gas, the demand, or the price. It was in a downtrend here in the last few weeks just as the seasonal entails, and it was again this year. Natural gas definitely uncorrelated from the stock market and this year proved it as well. Michael: Let’s take a look at some of the fundamentals of where we find ourselves right now at the end of February, as far as supply goes. First of all, we’re going to take a look at the current chart, which looks a lot like that seasonal one. It looks like we may be at a low right now, technically looks like we’re a little bit set up for a rally here. Is that what you would expect it to look like this time of year? James: Michael, we could almost overlay the seasonal that we were just looking at and it lines up extremely well with this year’s pattern. The market is oversold right now, as the stochastic on the bottom of the chart describes. We really like the idea of the fundamentals being slightly bullish right now. We have nearly 20% below the 5-year average on supplies here in the United States. We’re going to be exporting more natural gas this year than ever before. As we get into the spring and summer cooling season, we do expect a nice bump up in natural gas prices, setting up, what we think, is a very good put sale for new option traders. Michael: Okay, good. That supply situation James was referring to, this shows the last 4 years. You’ll notice this line here is indicating this year where supply levels are. We are, as James mentioned, about 19% below the 5-year average as far as supplies go. So, this is where we are now. It sets up a fairly bullish fundamental supply picture, as you mentioned, James. There’s another side to that equation and that’s also the demand side. Why don’t you talk a little bit about that? James: The country is trying to get away from coal - electric power plants. We’re switching off into more cleaner utilization. Natural gas is going to be a big winner with that. Starting this year, having more so in the coming 3 or 4 years, but we are looking at record demand here in the United States for natural gas, combined with the fact that we are some 20% under the 5 year average on supplies sets up a nice bullish situation here for the next 3-6 months. Michael: I noticed, too, when we were looking at this bump for projected record demand in 2018, that came evenly from both residential and industrial demand sides… possibly speaking to a stronger economy, tax cuts, what have you, that are maybe at least partially driving that in addition to what you mentioned with coal fired plants switching over to electricity. James: Right. Definitely a push for greener production of energy here in the United States, and I think this chart shows it really well. Michael: Let’s take a look at a trading strategy here for those of you that are watching this. You put together a strategy here for, and obviously we’re doing a number of different things in our portfolios, but for the person watching at home that maybe wants to try it out or at least just see how it works… this is the strategy you suggested. James: We like the idea of selling September natural gas puts at approximately the $2.25 level. You can see where we’re trading right now. Often, with a seasonal rally that may or may not take place, we think it will this year, I think it’s set up quite well, natural gas is probably going to head up towards $3… maybe $3.10 or $3.20 this summer. We’re going to be some 30-40% above this strike price. We should have very fast decay in selling the $2.25 put. The market should stay a long ways away from it. The whole idea about trading seasonalities or trading fundamentals using short options is look at the variance you have in the market. This is a very large window for the market to stay above. If we have strong fundamentals and if we have a strong seasonality, can natural gas fall below $2.25? Of course it can; however, we really like the odds of this position going forward over the next several months. Fundamentally, natural gas should not fall below this level. Seasonally, natural gas shouldn’t fall below this level and we have record demand this year. It’s definitely a trade that we like going forward. I think it’s a great investment. Michael: So, what you’re saying for those viewing this at home, yes everything looks bullish here. That doesn’t mean it still can’t come down in the meantime to here, here, or here. That’s why you sell the option in the first place. You’re not trying to pick the bottom, you’re just saying it’s not coming here. So, we can go down here and it doesn’t matter what it does, even if we’re a little early or late on the trade, you still win at the end of the day if it stays above that strike. James: All investors know that timing the market is practically impossible. Trying to pick these small swings in the market are very difficult. All we’re simply doing is saying the market’s not going to fall below this level. As long as natural gas stays here, here, or higher, these natural gas puts expire worthless. Of course, as a seller, we get to keep the premium. Michael: Very good. Let’s go ahead and move into our next market, which will be the cotton market. Michael: Okay, we’re back with our second market this month, which is going to be the cotton market. Before we talk about cotton, there’s something I wanted to point out form our last segment in natural gas and the cotton market. These strikes we’re talking about right now have been made available by that last burst of volatility we got from the stock market. These strikes we are looking at probably weren’t available a couple weeks ago. When we’re looking at them now they are. So, this is kind of the fruits that option sellers can benefit from, from these little inputs of volatility into the market. So, let’s talk about cotton. It’s our next market for this month. The first thing we’re going to look at is the seasonal tendency for cotton. Obviously, we tend to see a rally up through the springtime months and then we see a sharp drop off. James, do you want to explain that or why that has tended to happen historically? James: Michael, this chart you can almost mirror over the grains of the United States. Basically, corn, soybeans, and wheat often planted in the spring and then harvested in summer and fall, and as the angst of the weather problems subside, so does the price. Cotton is planted in the south and, of course, it’s planted early in the year. So, as we’re planting in February, March, and April, there’s possible excitement about not exactly perfect weather. Users want to get insurance and they want to purchase cotton prior to planting season. As we reach April and May, we have a very good idea about how much cotton we’re going to be producing that year. End users get to stay off as far as needing to get a lot of cotton around them. So normally, once the commercial buying stops, the market usually starts coming down in May, June, and July. Interestingly, this formation so far has mirrored almost perfectly with what’s going on so far in 2018. We have a really nice setup looking just like this with a decent rally that started about 3 months ago. It’s starting to look like this already. Michael: Similar to that natural gas trade where you have the seasonal pattern tending to line up very closely with what we’re seeing in the actual price chart this year. Let’s take a look at where our fundamentals are this year as we look at the cotton market. The big story, ending stocks, stock/usage ratio… looks like they’re pretty healthy levels this year, James. James: They are. Cotton supplies in the United States are going to probably be exceeding the 10-year level that we had. In other words, we have cotton stocks that are going to be highest since 2007. Supplies look more than plentiful. We’ve planted just a great deal of cottonseeds so far this year in the south, and we’re probably going to have a bumper crop, the weather looks ideal, and planting went extremely well. With supplies in the United States at a 10-year high, the chance for a large rally going into harvest seems quite low. We really like the idea of selling calls. Michael: Yeah, that stocks/usage ratio at 30%... if you’re unfamiliar with the importance of these 2 figures, ending socks and stocks/usage ratio in agricultural commodities, we do have a piece on that on our website. It’s a tutorial. It’s at www.OptionSellers.com/agriculture. There’s just a brief video but it shows you the importance of these 2 figures. They’re the core measurements of supply and demand. They’re both baked into these things. With the highest in 10 years and, James, you alluded to it, next year, if they harvest all the acres they’re planning on putting in the ground this year, we could see these numbers even climb more. Outlook for cotton is somewhat bearish fundamentally, lining up well with that seasonal. Let’s go to the strategy we’re talking about this month. You’re recommending a call selling strategy. Do you want to talk a little bit about that? James: We are. We have cotton trading in the middle 70’s right now as planning season starts wrapping up. We’re probably looking at price pressure in the 3rd and 4th quarter. We really like the idea of selling cotton as high as the $0.90 level. The fact that we’re going to have practically a record supply and a record production this year at a time when supplies are nearing a 10-year high, the chance for approximately 20-25% rally going into harvest seems quite small. Cotton can fall, it can stay the same, it can actually rally quite a bit between now and harvest season. It has certainly a long way to go before we get to our strike price. This option at the $0.90 call strike price is trading around $700-$800. We think that is a very low hanging fruit for later this year and we think that we’ll probably be covering that position around $100 well before option expiration. The decay on that option looks terrific and the odds of cotton reaching that level is quite miniscule. Michael: Excellent. Part of the benefit if you’re using seasonals when you’re deciding which option to sell, these 2 things are almost perfectly matched because seasonals are not a perfect recipe. For right now, the seasonal tendency for cotton, it may not start declining until March or April, if it does at all. Even if you’re here and even if it does rally a little bit more and you’re not right at the beginning, that’s okay because, as James is saying, your strike is way up there at the $0.90 level and you’ve got plenty of wiggle room here to be wrong for a while, so to speak. James: That’s exactly right. That’s why we sell options on commodities and we don’t try and predict the small moves, just based on fundamentals, levels that the market cannot reach and will likely not reach. We’re not correct all the time. Every once in a while, the market might move in that direction, but selling options that far out-of-the-money using the fundamentals is a very good long-term strategy. Michael: If you’d like to read more about our research pieces on these 2 markets, of course they’ll be available on the blog. You’ll also want to make sure you get this month’s Option Seller Newsletter. That should be out at the end of this week, which would be March 2nd. The newsletter will go in the mail and that’s when the e-copy will go out. We will be featuring the natural gas market and trade strategies there. The cotton market will be on the blog, so if you want to read more about those be sure to get them. Let’s go ahead and move into our Q and A section and we’ll answer some questions for our viewers. Michael: We’re back with our Q and A session for this month. Our first question comes from Rob Reirick of Ithaca, New York. Rob asks, “ Dear James, you refer often to credit spreads in your book; however, I rarely hear you mention them in your market segments. Do you still recommend option credit spreads and, if so, why not features on them?” James: That’s a very good question. The layout and the description of our trading philosophy in our book is very detailed. When we’re giving examples for option sales in crude oil or cotton or anything else, we’re basically just laying out primary examples of where we think the market probably won’t reach. We often don’t talk about a more elaborate trade, which is a credit spread. We feel that credit spreads are probably the most opportune way to take advantage of high premiums and, at the same time, have a very conservative position where it locks in certain types of risk as involved with not just being a naked put or a naked call. We are looking at the next 5-10 years of utilizing credit spreads. We don’t talk about them a lot. They are something we’re going to be utilizing a lot in the future. Basically, when we’re talking about examples for option selling, we’re basically talking about straight fundamentals and levels that the market won’t reach. We are absolutely huge proponents of credit spreads and for our clients we will be doing those often now and in the future. Michael: This isn’t the only letter we got on this, James. Because you may want to read more about credit spreads and see examples, maybe we will start incorporating some of those into some of our examples in the future and showing you, the viewer or the reader, how to actually do it. James: As our viewership gets more further along with understanding option selling, I think that’d be a very good idea to elaborate a little more on the actual positioning that we do at home for our clients. Michael: Let’s get to our next question here. This is from Kevin Woo over Cupertino, California. Kevin asks, “Dear James, with the outlook for inflation growing, do you see a favorable outlook for commodities ahead?” James: Good question. As a basket of commodities for 2018 and 2019, we do see it in uptrend in primary prices. Basically, picking out a particular one that might outpace the other ones, I think that’s difficult to do. We’re looking presently at some of the best demand for raw commodities that we’ve seen for probably the last 10 years… from China, from Europe, from the United States. Of course, there’s some infrastructure spending ideas that are coming down the pike here in the United States. We do see commodity prices probably increasing this year anywhere from 5-15%. That might be led by precious metals, that might be led by energies, but, as a whole basket, we do like commodities going forward in the next 12-24 months. Of course, as option sellers, it doesn’t really matter if the market has inflationary factors that do increase commodity prices; however, if we do see that developing and we do see that on the horizon, we simply change our slant to a slightly more bullish factor as opposed to selling calls that are going to be out-of-the-money that are probably not going to be reached. We might utilize more 60% of our option selling as a bullish structure. In other words, selling puts under what we think might be a slightly higher commodities market in 2018 and 2019. I think that’s a great question and we are somewhat favorable on commodities. As a general theme, we do see the market going slightly higher this year and next year. Michael: That’s a great point you made there as well, James. I’m glad you addressed this, because this is a question we get often… “What do you think commodities will do? Is it a good time to be investing in commodities?” The point you made is as option sellers it doesn’t really matter if it’s a bullish or bearish year for commodities. We’ve had some of our best years in bear markets. James: Absolutely. Michael: It kind of goes back to one of those points we’re always making about diversifying your assets. If you have some of your assets in equities, real estate, or what have you, most people invest by buying assets hoping for appreciation. It goes back to that importance of diversification, not only of asset class into that commodity asset class, but also diversification of strategy, where as in what you described, you can benefit even if prices are moving lower, so you have a strategy equipped even in a bear market and you can potentially benefit from that. The importance of diversification is strategy. James: As option writers, you can be diversified to where part of your portfolio is looking for a slight uptick in prices while other markets that, whether you’re in stocks or commodities, and then other commodities might have bearish fundamentals and you might take a slightly bearish stance to those 2 or 3 markets. The idea of being diversified and having a portfolio that doesn’t necessarily need the stock market to rally, the commodities market doesn’t have to rally, this really gives a lot of versatility for a client or ourselves to diversify a client and have them be profitable, whether the stock market or commodities market goes up, down, or sideways. Often the market does go sideways. Right now, we have a very strong stock market, but over the last 10 years it normally doesn’t do that. In commodities, we normally have 1 or 2 really banner years out of 10 but, for the most part, commodity prices realize fair value, and selling puts and calls far above those markets can be very fruitful as we found out. Michael: Of course, if you want to learn more about the entire option selling strategy, you’ll want to read our book The Complete Guide to Option Selling. It’s now in its Third Edition through McGraw Hill. If you want to get a copy at a discount, or you get it at Amazon or in bookstores, you can buy it through our website… that’s www.OptionSellers.com/book. Thanks for watching our Q and A session, and we’ll now wrap up our podcast for the month. Michael: We hope you’ve enjoyed this month’s OptionSellers.com Podcast. James, we have in March, coming up, possibly our first interest rate hike. Do you have any comments on that or things investors might want to watch out for in the upcoming month? James: I think the realization of interest rates going up is going to really hit home. In March, we’re going to have the first rise of interest rates in 2018. There’s a lot of debate whether it’s 3 rate hikes or 4 rate hikes. It’s not going to matter that much. The dollar should be on more firm footing after the 1st hike, and then we’ll see where it goes from there. Higher interest rates are in the future and, we think, the U.S. economy and economies around the world are probably very well ready for that to actually take place. We think that’s going to create more opportunities in some of the strategies that we’re implementing. We’ll see. Michael: For those of you that are considering managed option selling accounts with OptionSellers.com, you probably saw the announcements over the month that as of May 1st, we will be raising account minimums to $500,000 for new accounts only. So, if you currently have an account under that level it’s quite all right. You’ll be grandfathered in, but as of May 1st, all new accounts will have to have $500,000 as the minimum. We are almost fully booked through April, so if you want to grab one of those last consultations through April to try and get in ahead of that minimum change, you can call Rosemary at the office. The number is 800-346-1949. If you are calling from overseas it’s 813-472-5760. Of course, you can always send an e-mail as well to office@optionsellers.com. If you’re watching our podcast today and you like what you read, be sure to subscribe to our YouTube channel. You can also get us on iTunes and, of course, you can subscribe to our mailing list on our website at www.OptionSellers.com. If you request any of our free materials there you’ll automatically get on our list and we’ll send you a notification any time we have new videos or podcasts. Thank you for joining us this month. James, thank you for your analysis on the markets this month. James: Likewise, Michael. Always happy to. Michael: … and we will talk to all of you in a month. Thank you.

Michael: Hello, everyone. This is Michael Gross at OptionSellers.com. We are here with your monthly podcast for August 25th, 2017. I’m here with James Cordier. James, welcome to the show. James: Thank you, Michael. I’m always glad to be here and share our knowledge and wisdom. Michael: Excellent. Well, we are here in the last week of August and we are heading into Labor Day weekend and right around the corner is, of course, September. A lot of people come back from vacation, a lot of traders come back into the fold, and often times we find out where we really stand in a lot of markets that may have drifted one way or the other during the summer. Right now, as we look at stocks, kind of off a little bit. From the beginning of August we’re down, although up a little bit early in the week here at time of recording. We’ve had a little push downwards and, James, I know you addressed this in your bi-monthly address to clients on video, but do you want to talk a little bit about what might be going on right now in equities? James: Yes, Michael. The equities market, as everyone knows, has been hitting all-time highs throughout the first 6 months or so of the year; however, just recently, a bit of a speed bump with just absolute chaotic times right now in Washington D.C. A lot of the Trump ideas that helped get him elected, which propelled the stock market recently, are in question. Tax relief and de-regulation and 0% interest rates all might be influx right now, and, certainly, a lot of the reasons why people were buying stocks over the last several months were these very business-friendly ideas. I wouldn’t say that they’re gone and out for sure, but certainly they’ve taken a back seat to just simply getting Washington squared away. Hopefully these ideas will come back because they definitely are business friendly. While we’re not in the stock market, we certainly do root it on, because I’m sure a lot of our listeners and a lot of our clients do have stock holdings, so we’re always rooting for it. It has taken a little pause here for certain reasons, and a lot of them are some of the goings-on right now in Washington D.C. Hopefully it’ll get straightened out before too long. Michael: Yes, obviously this market is still in a bull market. There has been no bottom falling out and there may still be some reasons to buy the stock market. Just some interesting stats I saw was that as of earlier in the week here, on the whole year the S&P was up about 9%- not too bad, but certainly off the highs. Interesting note, James, the Russell was even on the year- no gain at all. James: Right. I noticed that, and a lot of the ideas of deregulation and, you know, lower taxation, that should be helping the small caps. The Russell being basically even on the year really does bring into the question is “How broad is this rally?” Certainly, the Dow Jones, basically we cherry-pick 30 stocks and the ones we like we put in there and the ones we don’t like we take out. Certainly, the Dow Jones has done extremely well, but some of the larger gauges of the stock market, like you said, are unchanged or up a percent for the year, and I think that was an eye opener to a lot of investors that saw that in the news here recently. I know it was to me, as well. Michael: Well, I’m just glad, James, that you and I don’t have to forecast the stock market because that’s certainly too many moving parts there for me. I know you feel the same way. James: Likewise. I really enjoy investing our client’s money and talking to our listeners today based on fundamentals of 10 commodities that have been around here forever and will likely be consumed for years and years to come. Michael: On that note, why don’t we talk about something we do know quite a bit about and that would be autumn seasonals, which is the topic of our podcast this month. We’re going to talk about a couple commodities here that we do study very closely and maybe do have some insights into. As far as talking about seasonals to begin with, if you’re a listener or have been listening to us for a long time or you read our book, you’re certainly aware of seasonal price tendencies in commodities. It is something that we follow very closely. They are not the buy-all and end-all of price forecasting, but they can certainly be a very big factor and something that can help you tremendously as an option seller. James, I know we were talking quite a bit about grain seasonals this summer and how they often sell off into the fall. Lo and behold, that seems to be exactly what happened across the board. James: Boy, it really is. Grain stockpiles around the world are at extremely ample levels. We did have quite a weather rally in the month of July and, Michael, it always seems to be too hot or too wet or too cold or something, then the market rallies. Come fall season, generally, some of the greatest producers of the world of grains are here in the United States and, lo and behold, we’re going to have quite a bit of a bumper crop in corn, wheat, and soybeans. When you add that to carry-overs from all the other production in the world, lo and behold, prices come back down to earth and they’re doing again this year. We’re not even through August yet and we’re making quite a push to seasonal lows here probably over the next 30 days. We have corn, wheat, and soybeans testing 12-month lows. It wasn’t that long ago, just a month ago, they were testing 12-month highs. Certainly, there’s a bit of a whipsaw action this year, like most years, and as we get into September and October we think prices will probably be quite heavy because of seasonal factors. Michael: Yeah, the seasonal tendency is not always perfect, as you and I know. At the same time, grains this year seem to follow it to a tee. They start declining oftentimes into harvest, the market starts anticipating that harvest, starts anticipating that excess supply coming on the market, and prices tend to start going. That’s exactly what they’ve done this year, especially now that we’re past the pivotal parts of potting and pollination in corn and soybeans. So, it’s just an example. If you’re listening at home and following grains, this is an example of what seasonals can do and how they can help. It’s not always perfect, but it certainly can help. That’s what we’re going to talk about now as we come into autumn. It’s a key time of year for a lot of commodity seasonals. The seasons are changing, there’s a lot of things going on fundamentally, and the first market we’re going to talk about of course, James, is one of your favorite markets, which is the crude oil market. This is the key time of year for crude oil, as well. Maybe you want to talk a little bit about the seasonal there and what tends to happen this time of year? James: You know, Michael, you mentioned something really interesting. The seasonals aren’t the end-all to commodity trading; however, it certainly is a tool that we enjoy using. It’s not spot on every year, but what we like to do, as you know, is we gauge the fundamentals going into a seasonal time frame. If they coincide with the seasonal factors, that is certainly something we like getting involved with. The energy market coming up again is one of these. As you know, Libya, Nigeria, and west Texas are producing some 20-30% above what they were expected to produce as far as reference to oil production. If you take west Texas, Libyan and Nigerian extra barrels that they are now producing in excess of what people were expecting, it is going to come extremely close to what the OPEC production cuts were. So, Michael, if you look at it that way, the production cuts that were creating quite a bull stare in the market this summer, that seems to be coming to an end based on the fact that production is going to equal out with the extra barrels coming from those other locations. Michael: The media really hit that hard and talked about the OPEC cuts and the bulls came out of the woodwork. It didn’t seem to have much of an effect, and now you’re saying that it may have no effect on supply whatsoever, being made up elsewhere. So, as we head into fall, we’ve already taken away one of those big bullish bullets, so to speak, is what they were hanging their hat on. If we look at a seasonal chart, which if you are getting the upcoming newsletter we do have this featured prominently in there, but James, we see crude oil going into the 5-year seasonal average here, and it tends to start falling pretty dramatically in September. Now, we talked about fundamentals and underlying fundamentals driving the seasonal, but what are the fundamentals that tend to happen this year that tend to cause that price decline? James: Michael, that’s a really good question, and a lot of our listeners and clients probably have the same question. It’s basically we are looking at a balanced to over-balanced oil market; however, in the months in June, July, and August, the United States, which is the largest consumer of energy in the world, heads out for driving. It is driving season and if you think that that’s just a saying, it truly does matter. When you have some 300 million people that have vacation ideas versus stay-home ideas, that makes an enormous difference to the consumption of gasoline in the United States. In July and the first half of August, the United States set all-time records for consumption of gasoline. That is what has propelled the market here for the last 4-8 weeks that got us out of the 40’s. It got us up to $50 a barrel in crude oil. However, the magic is, starting in September and then October, all those driving ideas and all those vacations are now pictures in albums, or should I say pictures in people’s Apple iPhones. People are sitting at home and they’re digging in for school and fall, and that makes a huge difference. We think that seasonal is setting up practically perfectly again this year. Michael: So, you’re somewhat bearish as we head into fall, here. I know you’re going to be doing an interview with Bloomberg in New York next week in-studio, and you’ll probably be talking about at least partially about the crude oil market, so this is something that our listeners want to hear now is to not only what we think it’s going to do but why we think it’s going to do it. You’ve already covered a couple aspects of that. Let’s just talk about supply here briefly. We’ve talked about the seasonal, we’ve talked about OPEC, which is kind of a non-factor right now in your opinion. What about U.S. supply? What are we looking at there? James: The U.S. supply usually comes down during these large driving season months, and it has done that. We are some 3-4% below all-time record levels that we had earlier this year and late in 2016. So, the supplies have come down. Generally, that’s a very seasonal pattern. We’re not producing any extra oil or gasoline during the summer months. It basically stays pretty constant throughout the year. The seasonal factor then is the less driving that happens in September, October, and November – they call it the shoulder season. Basically, it’s after driving season and before winter hits. That is when the U.S. supplies will start increasing again and whether they hit a new time record this fall, or not, we’re going to be pushing at levels that is way more than what the U.S. needs. Of course, you have OPEC nations that will likely be scrambling and probably fudging a bit on the compliance with their production cuts that a lot of people talked about. What’s so important to know about oil is a lot of these countries, OPEC nations in particular, they have a specific amount of income that they need from their oil production. When oil is sitting at $50, it is pretty constant; however, if we start getting in down to 42, 40, possibly below 40 later this fall, they’re still needing the same amount of income from oil production. That is where it could get a little bit of a slippery slope for oil prices this fall when countries like Iran, Nigeria, Libya, and Saudi Arabia need to produce a certain income for their country and for their needs, and yet oil might be at 10-15% below the price. Then, the barrels start to flow and that’s what’s going to get probably interesting here on the downside here in the months of October and November. Michael: James, that’s a great point. You talked about OPEC and addressed it earlier that OPEC’s potentially cheating. A figure I know that we discussed a few weeks back was although OPEC is still “supposedly” under the restraints of the cuts, exports of oil out of OPEC nations hit a record in July- 26.11 million barrels a day. So, maybe they’re pumping a little bit less, but they certainly haven’t stopped selling it any more slowly, have they? James: Well, Michael, that’s the exact thing. Certainly their storage facilities and producing nations, as well, not just here in the United States, and that’s basically a way to get around the quota. They’re keeping oil flowing through export channels and, yes, lightly reducing production; however, what does that mean? That means the world is supplied, in some cases over-supplied, with oil. It’s interesting, later this fall and early this winter we could have millions of barrels more than what the world needs. Yet, if the world is producing just one extra barrel the price goes down. So, we do have some interesting times coming up in oil. We really like the idea of selling calls above this market for the next 6-month time frame. As you know, there are never any sure things, but we really like the idea of selling oil calls some 20-30% above the peak that they hit in summer as we go into the fall low-demand season. Michael: Okay. Yeah, a lot of people that listen to this or maybe watch some of our things think that to sell this we have to have oil prices go down to make money. While we think that possibly could happen, that doesn’t necessarily have to happen for an option selling strategy to be successful. James, just one more thing I wanted to throw out here, you were talking about supply levels and I pulled up some stats here while we were talking. You made a good point that supplies you’re down this year over last year, about 5.3% below where they were last year at this time, but we were at record levels last year. Even at current supply, we’re still 22% above the 5-year average. We’re certainly still in a burdensome supply situation as far as that goes. As we head into the winter months here, you’re talking about particular strategies, do you like selling naked here? When you look at it, is there a strategy that you could put together for a spread? I know we do a number of different things in our managed accounts, but maybe just for the individual investor listening… any advice for those guys? James: You know, Michael, I think some of our listeners actually take positions on our discussion, and other listeners are probably learning about selling options possibly on their own for the first time. Just as a pure speculative position for a listener is to simply take a look at selling calls, and I would say naked calls yes. Certainly we do have spread analysis we do as well in positions that we take that are covered. With oil trading around 48 and, in my opinion, probably going down to the low 40’s over the next 2-3 months, I would sell calls in the $64, $65, $66 level going out, say, 6-9 months or so. The conversation about selling naked options, I think they use that word for a reason to scare people away from doing it, but people who take a short position on oil at 48, they may have to sit with that position for a while and it may jostle around above and below their entry level. Selling calls at $65 is some 30-35% above the summer highs that we’re hitting. We’re doing it using timing, using seasonal factors, when oil will likely get down to the low 40’s, and think of how far out-of-the-money you are at that point. I would simply sell mid-60 crude oil calls and put a stop-loss on it that you’re comfortable with. Something tells me that somewhere between Thanksgiving and the holiday season that option is going to be worth about 10% of what you sold it for. We’ll have to wait and see, that’s what makes a market. That’s how we would invest in crude oil going through the rest of the year. Michael: Okay. That naked term, I think, scares a lot of stock options sellers, too, because they’re used to selling 1 and 2 strikes out-of-the-money. Of course, in commodities, we can sell much deeper out-of-the-money. We’re going to talk a little bit deeper about that later. What you’re talking about is we’re taking a position above where the price was at the highest demand point in the year and we’re taking that position heading into the lowest demand point of the year. So, those are certainly the type of odds you look for and, hopefully, if you’re listening you picked up on what James was saying and how you might go about that. If you would like to learn more and get a little bit more analysis of the crude oil market, we will be featuring in our upcoming September Option Seller Newsletter. That comes out on or around September 1st. You’ll get that in your e-mail box and, of course, a hard copy as well if you’re on our subscriber list. If you’re not a subscriber and you’re a high net-worth investor, you can subscribe on our website – optionsellers.com/newsletter. James, why don’t’ we go ahead and move into our second market here. Something you featured earlier in the month but it’s an ongoing opportunity, we feel, and that’s the coffee market. We’re rapping up the Brazilian harvest. Of course, Brazil, the largest producer of coffee in the world, and thus events in that country can have a major impact on prices. I know you’ve been following this pretty closely, James. Do you want to give kind of a summary of what’s going on in the ground of Brazil? James: Michael, some of the most ideal growing and weather conditions are happening right now in the southern hemisphere. Brazil, of course, was basically one large forest. Whether some people like it or not, the forest was cut down and coffee, sugar, cocoa, and soybeans were all planted in their place. That rainforest is just one incredible farm that feeds the world. What’s happening right now in Brazil is practically ideal conditions for productions of, especially, coffee. Coffee acreage is absolutely giant in Brazil. It’s a very large portion, especially of their mountainous regions. We have 2 cycles in coffee. One is an off-cycle and one is an on. The off-cycle obviously produces slightly less coffee than does the on-cycle. It’s basically the tree taking a rest for 12 months and then it produces the large amount again. Basically, the world is absolutely full of coffee at this point, both in Vietnam and Brazil and here in the United States. The U.S. has the largest green coffee stocks ever since they’ve been counting coffee stocks here in the United States. Also at a time when weather conditions in Brazil are absolutely ideal, we’re looking at practically perfect growing conditions for coffee in Brazil. We’re going into flowering season, which is going to start in September and go through November. If, in fact, the precipitation that has been going extremely well in Brazil is expected to continue through the rest of the year, we’re probably going to be seeing record crop production for coffee beans in Brazil next year. Basically, that entails all the fundamentals that we need to know for the entire year. Consumption stays the same- it’s always up about 1% a year. Production the next year is going to be a large surplus. It’s setting up absolutely ideal in selling options for coffee. Michael: Yeah, I saw some of the estimates. The market looks forward here- we are in 2017 but these are the futures markets. Futures look into the future. These markets are now starting to price the new crop, the crop that beans will be on the market in 2018. For 2018, as you mentioned, James, it’s a potentially record harvest. I know we had discussed there are some estimates- 58-62 million bags of coffee, which would just be gigantic. That would be an all-time record. As the market prices that, we could be in for some lower prices. I know you’re certainly looking for some prices to mitigate here as we head into our winter. Let’s talk a little bit about the seasonal since we are talking about seasonals this month. We’re pretty much at the end of the Brazilian harvest for 2017 the crop. I think as of August 1st we were about 80% done. I’m sure we’re closer to that now. What tends to happen with the seasonal price? I see we go down a little bit into the fall, then there’s a little rally in October, and after October it seems to just really fall off. What happens then? James: Michael, I think what seems to happen is investors, both speculating in coffee and users, otherwise known as commercials, they will take long positions going into flowering season. So, basically it’s not exactly a tree that coffee grows on, it’s more of a very large bush. What happens starting in October is the bush is expecting rain to develop, and then it flowers, and each flower, of course, turns into a cherry. If we have steady rainfall starting in September, a bush will flower some 3-4 times, which makes a huge difference during this time frame as opposed to if we have very small amounts of rain and then the bush only flowers possibly 2 times. Simply doing the math, you can see how important this time frame is. That is why the coffee market will start rallying in October as investors and end users want to guarantee themselves coffee prices at a certain level. Should precipitation then be ample through October, November, and the beginning of December, basically the fundamental analysis for the entire year at that point is over. So unlike waiting for monthly reports or quarterly reports out of a company that sells widgets, the production of coffee is then set in gear for the next 9 months, waiting for harvest to begin again. So, we have a rally that starts in September, it goes on through flowering season, as the weather cooperates, and all models right now are showing me that it will again this year, the price goes back down. The seasonal factors are the market falls in September. As we have harvest pressure, then we start getting a rally in September, October, and November, and then we look to sell probably very expensive call options in coffee, once again. We are bearish on the price of coffee, we are record supplies in the United States, we are going to have record supplies in Brazil, and anyone who is wondering what 60 million bags means, 6 times what is produced in the country of Columbia is what 60 million bags turns out to be. Certainly there’s no shortage of coffee over the next year or two. Michael: That’ll be good news for those of our listeners that enjoy a cup in the morning. James: Absolutely. Michael: Now James, you’ve been a proponent of selling calls in coffee most of the year now. We’ve made no secret of that. You’ve had several articles, you’ve talked to Reuters, and the whole time you’ve been moderate to bearish, but just thinking it’s continuing to sell calls is a great way to pull income out of this market, and that’s because it simply has some strong fundamentals. We don’t know if it’s going up or down tomorrow, but overall we feel there should be a price cap on prices that keeps it under certain levels. As a call seller, that’s all you really need. Now, I know you’ve been selling these and have been talking about selling them in your articles. Do you think that we’re at a point right now where you sell them or do you think since we’re heading into flowering season the better opportunity may be a few weeks or months down the road? James: Michael, as they say on TV, “That’s an excellent question”. We’ve been selling coffee calls practically all year. The coffee market has recently fallen some 15-20 cents over the last week or two, which has basically cut our calls in half in a very short period of time. I would hold off on any additional sales. We’re going to look at taking profits on our positions over the next 4 weeks or so. As listeners and people who follow along, one of the best things that could possibly happen is have a bit of a dry weather concern in the month of October. That could get prices back up another 10-20 cents that they had given back recently. I would then look to lay out coffee calls with both hands. The really interesting part about dry conditions in Brazil, if it’s just slightly drier than the farmers there would like, it’s going to likely make a difference of 1-2 million bags. When you’re talking about a 60 or 62 million bag crop that is just a drop in the bucket. Hopefully we have a little bit of weather concerns at the beginning of flowering season, get about a 15-20 cent rally on coffee, and I would be back to putting on my tuxedo and jumping back in on the short side. Michael: For those of you that would like to read more about how you can use seasonals or apply them in commodity option selling, I do recommend out book The Complete Guide to Option Selling: Third Edition. That will really lay it out for you and give you some of the key markets and key seasonals you can use in these markets. If you don’t have a copy yet, you can get it at a discount on our website – that’s optionsellers.com/book. James, we’re going to go into our lesson right now and I’m sure this is probably something anyone who has been reading or listening to us for any period of time is familiar with, but it never gets old. It’s something that bears repeating over and over. It’s something we call going deep, which is really a reference to selling deep, deep out-of-the-money calls. It’s done with a little more time on them and it’s a strategy that you’ve adhered to for some time. The common wisdom is when you’re selling options you sell them for 30 days out because you get the fastest decay, but you subscribe to the opposite theory. I think we’ve both found that when you’re trading fundamentally or seasonally, as we’ve discussed now, it’s almost optimally designed for that. Can you talk a little bit about the benefits of selling that far out and what we have to do to get there? James: Michael, it is so interesting. When you and I first discovered writing premium as an investment for clients, we were subscribing to the same ideas… 30, 60, 90 days out- that’s where the large decay is, that’s where the large curve is. Certainly, we had success doing that; however, in this day and age of computer driven buying and computer driven selling, against what the fundamentals might dictate that prices should do, we do sell options in commodities 6, 9, and even 12 months out. People who have sold options on their own would say to themselves or write the question to us, “That certainly gives you a lot of time for the market to be wrong”. My really easy answer is that it gives us a lot of time for our prediction to be right. Basically, technical factors can move the market for 30 or 60 days, whether the fundamentals had changed in that favor or not. What fundamentals won’t allow the market to do is make a 40, 50, or 60% move. So, the investors that are trading, selling options on a 30-60 day idea, and certainly they might be very successful in doing that, what we don’t want to have happen is have a technical move in a market with no fundamental market change and us get stopped out. We are paid to wait. Most investors have a very difficult time doing that. When you know what the fundamentals are, waiting is quite easy and, as a matter of fact, waiting is fun because you’ll see technical buying or selling in gold, coffee, or oil all the time. Yet, it’s not reaching ever a 50% move; however, it does make the news and it makes options expensive. That’s just the way we like it. Michael: That’s some really good points you brought up there. It reminds me of a story of why we started doing this in the first place. For investors listening that have sold close-to-the-money options, you know it requires a lot of effort and babysitting. What James is talking about, going further out in time, allowing you to sell much deeper out-of-the-money, not as concerned about those short-term random swings, higher odds. Probably one of the most overlooked benefits is lower stress, both to the investor and the trader. James, I know many people might not know that you and I, when we first started out, were retail brokers. So, about 20 years ago when we first started working together, we were brokers and we were making these trade recommendation to people and we were trading options 30, 60, 90 days out. A lot of the time, they did very well and they were very successful, but it was a high maintenance type of trading. You and I would be on the phone all day because people would be calling in and we’d be changing orders and changing positions and writing new because the market was moving and the options were always moving. When we switched to the strategy of selling deep out-of-the-money options, once that conversion was done, it was crickets. There was nobody on the phone and there was no reason to call. So, it was a lower stress for the trader, but as an investor, I don’t want to say you never have to watch it if you’re managing your own account, but certainly it’s a lot less maintenance than it is if you’re trading those short-term options. It’s almost like day trading, wouldn’t you think? James: Michael, I remember making that switch to much further out dated options. It’s so funny you bring this up. We did get one or two phone calls, and I remember one, it was from one of our favorite clients. He said, “James, I just love selling options this way because I’m such a bad trader.” Once you get that mindset, that you’re no longer gambling, you’re no longer betting on the spin of the wheel or the roll of the dice, when you’re actually taking fundamental analysis, if you possess it, and turning that into an investment, this is just a great alternative to what some mainstream investments are. Taking long-term views, treating this as an investment, once you made that switch, I know how it was for us, I would never trade a futures contract again. Selling options on commodities this far out based on fundamentals does give you the patience to wait. Let’s face it, that’s what the big money does and, U.S. listeners, that’s where you want to be, too. Michael: It’s hard to put a price on sleeping at night. I think that’s a good place to wrap it up this month. Obviously, these days, James and I offer fully managed portfolios. If you’re interested in a new account with us, I’m just looking at the sheet here, it looks like we are fully booked for September; however, Rosemary is currently booking interviews now for October openings. So, if you are interested in exploring the possibility of a managed account, you can certainly call her at the main number. That’s 800-346-1949. If you’re calling from outside the United States, the number is 813-472-5760. You can also contact her via e-mail. That is office@optionsellers.com. She will schedule you with a free consultation interview to find out more about our accounts. Obviously our recommended opening account is U.S. 1 million. Rosemary can certainly provide you with other details on the accounts, as well. James, thank you for your insights this month. James: Michael, always my pleasure. I just love chatting about what we do. Michael: Great. For all you listeners, have a great month of option selling. We will talk to you again in September. Thank you.

Michael: Hello, everybody. This is Michael Gross of OptionSellers.com here with your monthly podcast for September 22nd, 2017. I’m here with head trader, James Cordier. James, welcome to the show. James: Thank you very much, Michael. Always looking forward to them. Michael: Boy, we had kind of a quiet summer and then, all of a sudden, in September a lot of news stories breaking and we saw a lot of volatility start to come into the commodities markets, at least in some commodities, not so much in stocks. James, do you want to talk a little bit about that? Tell us what’s going on. James: Michael, that’s a really good point you make. Often, they call them the dog days of summer just for that reason. A lot of investors and traders alike are kind of taking off June, July, and August. As we went from August to September, a whole lot has been hitting the wire. We have Kim Jong Un lighting off his rockets, yet again. We have interesting things happening in Washington D.C. lately, and there’s always a lot of talk about the value of the stock market, how high it is, and, of course, interest rates in the value of the dollar. Practically hitting on all cylinders here as we start getting ready for the 4th quarter of the year. Michael: Obviously, as commodities options sellers, that is a good thing. If you’re listening, you certainly want volatility. That’s what makes those deep out-of-the-money premiums fatten up a little bit. In addition to what you talked about, James, I know we had a couple hurricanes blow through here, too. It did some things with energy prices, orange juice, and I know you were on CNBC this month talking about that and also Fox Business. A couple commodities there were affected by the storms. James: You know, Michael, you really have to stay informed being a commodities investor or trader. 12 years ago, when we had these hurricanes hit New Orleans, just amazing havoc on oil production and natural gas production. A decade later, practically the same regions are getting hit and people racing to the options screen to buy calls in natural gas and buy calls in crude oil. The storm that hit Houston did absolutely nothing to commodity prices, such as natural gas and crude oil. It did pump up the price of gasoline, as you can imagine with the refiners going down. Boy, was that a great opportunity to sell options as people were watching the news and the weather channel that weekend. Michael: James, that’s a good teaching lesson, too, because I know something you talk about is the people that trade by following the news, and what you always talk about is if you know the real underlying fundamentals, those can be opportunities to go in and sell premium on people selling off the news that aren’t really familiar with the real story and how that could likely really affect prices. James: Well, it’s interesting, Michael, we just go through our day to day business and we’re familiar with the new production areas of natural gas and crude oil. Basically, the Gulf of Mexico 10 years ago was everything, and now they’re producing oil in the Dakota’s, Pennsylvania, Oklahoma, Kansas, and Arizona now for a huge find. You know, you definitely want to be on top of that when the normal investor comes in racing to buy energy calls. We’re more than happy to sell them based on the fact that we probably felt very little impact from the storm this year, and certainly that’s kind of the way that played out. Michael: Well, great. If you’re listening and you’d like to watch James’ interviews on both Fox and CNBC on those commodities, they are available on the media page of our website – that’s OptionSellers.com/media. James, let’s go ahead and move into our first market this month. The gold market: a market that even a lot of non-commodity traders follow. We’ve seen some pretty good strength in the gold market through, not just this year, 2017. Gold prices have been pretty strong, but especially through the months of July and August. We’re off a little bit now in September, but what’s going on there? What’s driving this rally right now? James: Well, Michael, as we often talk about, a lot of investors want to be diversified from the stock market. I think a lot of investors have a particular amount of money in, of course, securities; however, when they are watching all the situations around the world happening and playing out on TV, they see a falling U.S. dollar. The dollar is down some 12% or 13% this year, if you can believe that. Basically, the gold market will mirror to the opposite direction whatever the dollar is doing. You throw in Kim Jong Un and you’re really causing some jitters. It really wasn’t a big surprise that the gold market did rally some $100 over the last month or two. It has been putting on a pretty decent show. It has actually outpaced the stock market for the first time in several years. Michael: James, I know gold is one of your favorite markets to trade, especially given the current levels of volatility. We’re going to give listeners a view into some of our privately managed portfolios with this trade, but that’s fine… we think it’s a good teaching example. I know you had written strangles on there, we had talked about it this summer, it was on our website, you had talked about writing gold strangles. We had some of those on the market that started to rally, and you said, “No, we’re going to let it go. We’re not going to close out those positions on the call side just because we’re getting a little strength here.” Do you want to explain that position and your rationale behind that decision? James: Michael, a strangle on some of the commodities that we follow really gives the client an incredible amount of staying power. If you’re long gold from $950 by selling puts at that strike price and you’re short gold, for example at $1,800 an ounce by selling calls at that strike price, it really gives an extremely large window for the market to stay inside. Generally, gold over the last year or two has been kind of meandering up $25 and down $25. With the recent weakness in the dollar, and the geopolitical concerns that we’ve had, especially with North Korea, the gold market rallied real rapidly- practically $100. It went from $1,260 to basically $1,360 an ounce almost overnight. Our short positions did pressure us a little bit. Basically, I really had a strong feeling that the 3rd leg of pricing gold is inflation. Yes, you can have a weak dollar- that’s bullish for gold. Yes, you can have geopolitical concerns- that’s bullish for gold. The missing piece to the gold market rally is inflation. Basically, gold is a hedge against inflation and, as we all know, Japan tried creating inflation with 0% interest rates. Here in the United States we’ve done the same, and there simply isn’t any. We thought that the rally in gold would be short lived and we’re not exactly sure, day to day, where it’s going to travel to, but we backed off a quick $60 or $70 over the last couple of days and we’re very glad we stayed with our short positions in gold. It’s not getting to $1,800, at least it doesn’t look like from my desk, and any time it rallies we’re going to be likely selling it over the next 6-12 months based on the same idea- no inflation. Michael: Boy, that’s some great lessons in there if you’re listening and you’re just learning how to sell options. James is talking about selling calls deep out-of-the-money, high above the market. We had strikes on both sides, puts and calls, so when gold market rallied, if you’re short futures you’re probably getting stopped out there, or even ETFs you’re taking a beating, whereas our strategy with selling both sides of the market, even though those calls got a little bit of pressure, the puts were making up for some of that on the backside. When gold inevitably starting coming back down, the premium comes out of those in a hurry, doesn’t it James? James: It really did. A lot of the calls that we were short were double the value that we put them on at. We are now profitable our short gold calls in less than a week. It’s just a great lesson for people listening in and following us and for ourselves, as well. We learn on every single trade we make. Using our compasses, we thought staying short was the right idea and we continue to think that probably through the end of the year, as well. Michael: Good. Something else you bring up there… the option doubled, we held them, and a lot of people that read the book or read some of our materials say, “Well, I thought you were supposed to get out when it doubled.” That’s an excellent point and we’re going to be talking about that a little bit later today and today’s lesson. One of the reasons is we had a strangle on so we had a lot more leeway, but we’re going to talk about risk management here and some more advanced strategies later in the podcast here. For now, James, I know I said I wouldn’t put you on the spot, but the title of today’s podcast is Will gold’s rally continue? What are your thoughts here through the end of 2017? I know our job isn’t to pick what the market’s going to do, we only have to pick what it’s not going to do, but for people listening, maybe they don’t do this yet, maybe they’re thinking about selling options, but what’s your gut feel here? Do you think a rally continues through the end of the year or do you think we may be reaching some value levels here? James: Michael, that is a great question. The gold market is something near and dear to many investors. You can talk to clients about the price of cocoa, they might not be familiar with where that’s trading at, or soybeans, but a lot of investors know what the price of gold is trading at for one reason or another. They probably have some stashed away or it’s something they might be interested in purchasing. The gold market has a personality. It’s not necessarily all supply and demand, like soybeans or crude oil or coffee, a lot of it is perception. One week ago, the North Koreans were slapped with the harshest situations as far as deterring trade, you know, going to that country. The sanctions that were levied on them were thought to be the strongest ever. Two days later, Kim Jong Un is lighting off missiles. That seemed to really ratchet up the rhetoric and the tensions that day. The gold market traded up $7 that night. The following day after the day traders were able to get a hold of the price of gold and trade it, it closed lower the day after Kim Jong Un was lighting off missiles. That tells you that that market had topped out. Certainly, hindsight is 20/20, but it did fall some 7 days in a row since then. That tells us that a very important top was made in gold for the remainder of the year. I think fair value for the beautiful shiny yellow metal is probably $1,275 to $1,300 and we have a decent economy, we have no inflation, we have interest rates about to rise, and that is going to take a lot of the steam off of the bulls, as far as the gold market’s concerned. If you read the Wall Street Journal just 2 weeks ago, it went on and on about small investors are long, ETFs are long, large investors are long. If you follow along with that, investors listening to us today, that basically means anyone who wanted to buy the market was already in, and you’re going to see large investors pull out and take profits when that’s the case. I think that’s what we just saw and we just made an important top in gold that will probably last at least the next 3-6 months. Michael: All right, that makes a lot of sense. As far as investors maybe looking to trade gold or maybe use some of our strategies, obviously a rally like this helps us because it pumps premium into those call options. Even after the sell-off, do you think there’s still an opportunity there for investors to go in and still take premium on the calls side of this market? James: I think so. We have a couple of important announcements by the FED over the next day or two. We have some very large decisions made by the EU coming up over the next week or two. You can basically play the middle of gold right now if you just can’t fathom being short the gold market and you can’t fathom having a short gold call in your portfolio. We really like selling the 1050 gold puts, in other words the $1,050 gold put strike. We think that’s a great idea, but we are neutral to negative gold. We don’t see it going that low. That’s some $200-$250 lower than where we are right now. That’s a great window for gold bugs to participate in being in the shiny metal. Being neutral to negative I would sell the $1750-$1800 gold calls. I think that is a very low hanging fruit and I think the beginning of next year those would start being very profitable for anyone selling those. Michael: So, that’s for gold. That’s about a $700-$800 profit window that gold prices can move around and still those options would expire worthless. That’s a pretty wide range. James: You know, trying to get gold’s next $25 move is difficult. Can you imagine how many small investors and large investors alike poured into gold here the last 30 days? They’re probably going to be waiting maybe a year or two to see the market come back to that level or get slightly above it. Positioning yourself $500 above and $200 below, I know that’s not the typical investment in gold, but if you take a look at it, it might be for more investors than what they might think. Michael: Good. James, I know you’ve been tweaking some strategies here. Some of our strategies we’re going to be using for our privately managed clients as far as option selling goes, but if you heard James’ commentary here, for anyone listening, he’s just giving you a sample strategy you can possibly even use at home of a gold strangle. If you’d like to read more about strangles and other option strategies we recommend, I do suggest our book The Complete Guide to Option Selling: Third Edition. If you’d like to get a copy of it for a lower price than you’ll get at Amazon or at the book store, you can get it at our website, OptionSellers.com/book. James, let’s move into our second market this month. We’re going to move over to the grain markets, in particular the soybean market. For those of you that have listened to our commentary over the last 4-8 weeks, we’ve talked a lot about the upcoming harvest, and seasonally in soybeans, harvest time is when supplies will be at their highest. Typically, when supplies are at their highest, Economics 101 dictates that’s often when prices will fall to their lowest level. That’s why you see the seasonal chart tends to decline right into the fall and October is when harvest tends to get in full swing and then wrap up at the end of October and early November. So, often times you’ll see prices make a low around that time of year, but then something different happens. We kind of reversed that. James, do you want to talk a little bit about that? We have a change going on possibly this month in the seasonal pattern of soybeans. James: Yes, Michael, that’s exactly how it follows out. I’ve been looking at soybean seasonal charts here quite a bit. I have one very near to me right now. June and July we have weather scares and the soybean market rallies. It falls off as the scares seem to be not as defined as previously thought. The soybean market and the corn market have fallen steadily since the 4th of July. This is truly the seasonal bottom coming up practically every year at the end of September and beginning of October. Looking for a possibly different trading approach might be up on us here in the next 4-6 weeks. Michael: Yeah, and looking at soybean prices we had a pretty good nosedive into August. Sometimes that could have been a seasonal low there, I don’t know. We’ve rallied a little bit since then. We’re going to see a secondary low in October; possibly, it’s hard to say at this point. We may get the low in October or we may have already seen it in August, but the fact of the matter is after October and November prices have historically tended to start strengthening. That’s when a lot of those forward sales and those orders start to get filled and it starts to draw down inventories again and, often times, you can see soybean prices firm. Now, if you’re listening you would think, “Well, then we would want to sell puts”, but that’s not necessarily the case. James, you made a case for this in our upcoming newsletter this month. Maybe it’s the better strategy to employ the think strategy we just talked about here in gold. James: Michael, I really think it is. Seasonally, we’re going to have very good support under soybeans. At the same time, we have carryover from this year’s production practically as high as we’re ever going to see it in the past 10 years. That will likely keep a cap on soybeans. Once again, when finding a fairly valued market, that is just a great deployment of selling calls way above the market and selling put strikes way below the market. This fall and this winter for soybeans, it may be ideal for that. We have large supplies likely to hold the market down and we have a very strong seasonal tendency for the market to rally that might be the perfect equation for probably a sideways market at a time when both puts and calls are quite expensive. It might be setting up extremely well and something we’re going to be paying very close attention to as we speak. Michael: It really makes a lot of sense, because that seasonal does carry a lot of weight. At the same time, soybean stock is 475 million bushels. Not only is that going to be the highest in over a decade, but it’s the second highest in over 25 years. So, the supply levels here in the United States are pretty sizeable, yeah we could still get an adjustment in the October report, but for the most part it looks like we’re going to have a pretty sizable crop. I see what you’re saying- that could tamper that seasonal a little bit and keep prices in a nice defined range. Good thing about strangles is you’re getting double premiums. You’re getting premiums on both sides of the market. Those can be big income earners to pad an account. James: Michael, absolutely. So often, people are trying to define the next bull market or the next bear market, but when you’re able to identify a sideways or fairly priced commodity, that can be the best of both worlds. As you’re short one side of the strangle, it’s basically taking care of the other one while you’re waiting for decay. As option sellers, patience is the name of the game, and having a strangle on as your key position can really help, not only a portfolio, but help the manager taking part in deciding what to do as you have the trade on. Michael: All right… pretty good stuff. For those of you that would like to read more about the soybean market, we are featuring it in the upcoming October Newsletter. You can see the seasonal we’re talking about and also take a look at the fundamentals we’re looking at, get James’ analysis and possibly strikes you can look at if you’re trading at home. Obviously, if you’re interested in a managed portfolio, you can request our information pack on that, as well. As far as our lesson this month, James, we’re going to address something this month that we probably get more question on than anything else. It’s because it’s a very important topic and that is kind of a broad question, but it is “How do I manage risk on my short options?” We do have a whole chapter dedicated to this in The Complete Guide to Option Selling. We talk about it a lot in our videos and seminars, but I think we should cover it here because there’s a little bit of confusion as to what’s the best way, what’s the right way, etc. What we’ve put forth in our book is what we recommend to beginners, people either new to commodities or new to option selling, is the 200% rule. It’s a good basic rule; it keeps you out of trouble, if the option doubles then you end it, end of story. We still think that’s a good rule and I know you think that’s a good rule, as well. When we’re managing a portfolio with $100 million in it, we have the ability to have a little bit more leeway, we can use a little bit more advanced techniques to bump our odds up a little bit. I know there’s a couple you use and I thought maybe this month we’d pull back the curtain a little bit and let people see some of the more advanced techniques that we may use in managing our portfolios. Do you want to talk about that a little bit, James? James: You know, Michael, we make a great deal about fundamental trading simply using the 200% rule and, if you’re trading along with the fundamentals, I think a portfolio would do very well over a 1, 2, 3 year period. As far as making a more sophisticated exit level and risk parameters, we do utilize more parameters than just the 200% rule. Basically, we’re going to sell options on what the fundamentals dictate. If there’s too much cocoa in the world then we’re going to look to sell calls. 9 times out of 10, the fundamentals in cocoa that brought us to get into that position won’t change over the next 6 months. Generally speaking, a rally against the fundamentals is technical in nature and we can watch open interest, we can see who’s actually doing the buying and who’s doing the selling, and if it’s technical in nature and possibly the option did reach a double level or even more so, I’m going to look at the landscape of the cocoa market or the gold market, whatever the case may be, and if the fundamentals remain the same we will give that trade more leeway. If, for example, we were talking about gold earlier, and all of a sudden we are getting inflation and inflation is at 2, then 2.2 and 2.4 and 2.6, that is a change in fundamentals and you would definitely want to use the 200% rule. As a matter of fact, in a case like that you may not wait for it to reach that level. Being nimble selling options, there’s nothing wrong with that. If you simply want to use the 200% rule, I think, over a 3-5 year period you’ll do extremely well. We follow the fundamentals in commodities so closely that often it’s a technical rally or a technical decline in the market and, for that reason, we’ll stay with a position longer than just a simply percentage rule. Michael: So, you’re saying that’s why you sell options so far out-of-the-money. You give it so much space to move and you have a little bit more leeway because you may have a little bit more insight into what’s actually going on with prices. For the guy out there on the street that’s saying, “I like this 200% rule, but what if I want to employ something else? What if I am looking at some other things?” I know you’ve used a couple of things, but one of them is at times if the fundamentals stay the same you may roll part of that position. Can you talk a little bit about that? James: Absolutely. If you’re selling puts because you’re bullish the market and it’s falling, you might want to scale back a half of your position that you have in the puts and then just roll down to the next 1 or 2 strikes below that. Generally, the selling or the buying based on technicalities will be short-lived. You don’t necessarily just want to leave your position because of something a headline that was in the Wall Street Journal or one of the business channels. Rolling your position allows you to stay with your initial fundamental analysis. Michael: That makes a lot of sense, too, James, because I know when you get into rolling and, another strategy you mentioned is gradually scaling out a position rather than just closing out the whole thing, that gets into a little bit more art than science. It gets into kind of a feel for the market kind of to know what’s moving it. For the person that has just joined us on their own, they may not have the skills to employ that art, whereas the 200% rule is very scientific, it’s very numerical, it’s very definite. Yeah, you’re probably going to get out of a few trades that at the end of the day they’ll still expire, but it’s the only way to keep you out of the ones that are going to cause you trouble down the road. That’s a great point to make and for those of you listening, if you would like to learn some of our more advanced risk techniques, we mention a couple in The Complete Guide to Option Selling, as well. We also talk about them in some of our upcoming videos that you’re going to see this fall. So, if you watch our videos on our blog, we’re going to be talking a little bit more about the risk management, as well. Just a little housekeeping here before we go this month. For those of you interested in discussing a potential new option selling account for the 4th quarter, we are fully booked for October. Rosemary is currently scheduling consultations for our available openings in November. We do have a few of those left. If you would like to schedule a consultation, feel free to call her at the main number… 800-346-1949. If you’re calling from outside the United States, you can reach her at 813-472-5760. You can also inquire on availability by e-mail… that is Office@OptionSellers.com. James, thank you for your insights this month. James: My pleasure, Michael. Always enjoy being part of the show. Michael: We will talk to you all next month. In the meantime, have a great month of option selling. Thank you.

Michael: Hello everyone. Welcome to the April edition of the OptionSellers.com Podcast. This podcast will be both video and audio podcast. This is our first video podcast. James, welcome to the podcast. James: Thank you, Michael. Very excited about doing both video and audio – get our mugs out there! Michael: I think first on the agenda this month is what we have going on in the stock market right now. Is this going to be the long awaited correction everybody’s been awaiting or is this just a little blip? What do you think? James: It’s interesting, Michael, the stock market has just been on a historic tear here ever since the election – and with good reason. If we have deregulation and we have a lot of pro-business ideas coming out of Washington along with a U.S. economy that’s doing fairly well right now, a lot of investors have been pouring into the stock market. We had the first shot across the bow, of course, with the healthcare issue being quite a bit of a swing and a miss for Mr. Trump this past week. A lot of investors right now are thinking, “Well, if we can’t get that passed maybe the deregulation and lower taxes and interest rate help may not be as much of a slam dunk as a lot of investors thought.” This could finally be the catalyst for the long-awaited 5-10% correction in the stock market. Everyone was absolutely factoring in the best-case scenario. Now, Washington D.C. quite isn’t as put together as people thought. The whole idea of a strong U.S. economy along with a very business-friendly administration, some of that’s being taken off the table right now. I wouldn’t be surprised that a lot of investors do take some chips off the table. Some of the largest investors in the world right now have thought about that and Goldman Sachs and large banks like that are talking about making their position smaller. That tells me maybe the long awaited correction probably in the 2nd quarter this year might not be such a big surprise after all. Michael: Yeah, I’ve noticed a lot of the news channels are still bullish, they’re still cheering it on, but you can’t underestimate that public sentiment. If it starts to go, everybody’s pricing in this big economic boom. If that doesn’t happen, you can’t underestimate what that can do to prices, as we’ve seen in commodities, as well. James: Absolutely. We start getting just a little more selling than buying. We keep buying the dips, buying the dips, buying the dips, and one of these times we’re going to cross a certain moving average that’s going to cause the computer to do some selling. Then all of a sudden, everyone’s racing for the door. The stock market’s not going to collapse. We’re not going to have an epic fall of 20-30%, but this long awaited correction that gets people to re-think their investment, that’s overdue. I think we could see that happen in maybe April or May. Michael: All right, well, lets talk about some ways people can get diversified, obviously what we specialize in. This month we’re going to talk about the cotton market. Some things are starting to take place there. It’s been on a pretty good bull market here for the last year or so. We’ve had lower supplies and cotton has just been gradually trending up. You and I have been talking about this over the last several weeks about we could be seeing a shift here, we think there’s some opportunities for selling premium. Talk a little bit about it. What do you see happening here? James: Generally, the ten commodities that we follow will have a spurt of buying from an importing nation and then will have a spurt of selling from producers that have an abundance of whatever the commodity is. What’s happened this past 12 months is we’ve seen Chinese imports have gone up dramatically over the 5-year average. That, of course, rallies the market. Cotton right now is at practically a 1-2 year highs. What’s so interesting, Michael, is that a lot of investors will hear that the Chinese consumption last year was up like it was and they’re going to pile in on this long position. I know we were talking a little while ago about the SPEC position in cotton. It’s at near all-time highs. It’s basically the herd driving into a market that sounds like it has bullish fundamentals, only to have the Chinese buying. Watch this- all of the sudden it will turn off the beginning of 2017. This timing coincides with plantings in the United States. They’re expected to be up some 10% this year. So, you have all this bullishness, you have all the speculators piling in. China is one of the greatest traders of commodities in the world. Obviously, they have the largest population and they need to feed them, clothe them, and provide energy. They seem to be some of the best traders, so they were buying cotton last year when cotton prices were low. Now, they’re at multi-year highs. Speculators pour in and now the U.S. farmer plants 10% more cotton than they did last year and now you watch the market turn back down. It’s a seasonal trade and it lines up with the fundamentals. Doing the opposite of what everyone else is doing right now in commodities has been quite a great trade over the last 12-24 months. Speculators race into the cotton market. All of the sudden, the fundamentals turn and all of the sudden you have them heading for the door probably this 2nd or 3rd quarter of this year, as well. Michael: Yeah, that’s an interesting point. You’re talking about prices going up on SPEC buying and demand. We were looking at the ending stocks for cotton and they are low by maybe historic standards but relatively over the last 4-5 years they are fairly high. I’m going to check my stat over here- I know I don’t want to get the figure wrong. Ending stocks for cotton this year at 4.5 million bales, that’s still the highest in 8 years. Now, what you’re talking about is you have farmers because prices are so high they are planting in 9-10% more cotton this year. We’ll know for sure here in our report at the end of the month. We’ll get planting intentions reports, but early estimates – if we’re planting 9-10% more cotton, plus we have that seasonal tendency for prices to start declining this time of year, those call premiums have really escalated up above the markets. You’re thinking this might be a good time to start picking some of those off? James: We do. It’s a great way to diversify a portfolio. Cotton right now is overpriced. The supplies worldwide are high enough to not cause any type of shortages over the next year or two. The Chinese buying is probably going to slow down and the United States is probably going to produce quite a bit more cotton than the last several years. It almost turns out to be a perfect seasonal play. We’ll wait and see if that’s the way it turns out. Michael: All right. Now, in our piece, we did write a piece on this earlier in the month, you can see it on the blog if you haven’t seen it yet, you were looking at the Dec 90 calls. Is that still a strike that you like right now? James: The Dec. 90 is like our dream call right now. We’re hoping that the market can edge up a little higher to reach that level. Selling cotton in the high 80’s is probably what we’re going to wind up doing. If we can walk into the 90 calls a little bit later in maybe April or May certainly we’d put our tuxedos on and jump into that trade. That one looks like a good one. Michael: That’s one we put out there for when we write our public articles. Obviously, when you and I are trading we’re doing this, often times a series of strikes, a series of months, sometimes even a series of strategies all in the same market for our clients. I think you kind of picked that one as a good example for people that may not be clients and are just reading this and seeing a typical type of strike we would look at. James: That’s how we would play it, both for our clients and anyone trading and taking advantage of short options or riding out there. That’s why I would steer them that way, yes. Michael: Obviously, for any of you listening to this that are interested in how we put these fundamentals together and select this type of trade, like in cotton, you’ll want to get a copy of our book, The Complete Guide to Option Selling: Third Edition. That is available on our website at www.optionsellers.com/book. You’ll get it at a better price there than you will at Amazon or your local bookstore. All right, so let’s move on and talk about one of your favorite markets, the crude oil market. We have been addressing this market over the last month or two, but we’ve come to a point now in crude oil where you think there’s some major fundamental shift going on and I think that’s presenting some pretty good opportunities for option writers. Do you want to give your overview of crude oil right now and what’s happening there? James: Michael, one of the markets that we follow most closely is because it has the most trading volume and open interest. We were earlier talking about speculative buying or selling and different commodities. Often, it’s based on headlines. We noticed that when OPEC announced production cuts earlier this year speculators raced in to the long side of crude oil. Headlines The Wall Street Journal: First OPEC Production Cuts in over a Dozen Years. Clearly, the market is going to rally, clearly it’s a great buy, it’s just a matter of how much money you’re going to make buying crude oil. That’s what speculators did. They accumulated the largest SPEC position in history right after the production cut announcement. What’s so interesting is that this herd mentality so often is wrong. Needing to peel back the onion just a little bit just prior to the production cuts, especially from OPEC, non-OPEC nations cut production as well, that’s not as important, with the exception of Russia, of course, which is the second largest producer in the world. The 3 months prior to the production cut announcement, OPEC ramped up levels of new supplies to the largest level ever. As a matter of fact, the production cut that was announced was basically equal to the increase in production the previous 30 days to 60 days just prior to the cut. Nobody hears about that. All people talk about is production cut from OPEC and the market’s going to go to the moon. Investors start buying calls and buying crude oil futures and crude oil companies, for those of you who are investing in stocks, at an all-time record pace. This past week, we’re now starting to count barrels and we’re looking for the supply cuts. Certainly, with all these production cuts by OPEC announced, we’re going to have smaller amounts of crude oil worldwide, right? Didn’t work out that way. Here in the United States, of course, the Permian Basin, the Dakotas, different parts of Oklahoma and Texas are ramping up oil production to all-time, all-time highs. The investors and speculators that push prices up to north of $60 a barrel for far-out contracts built in the greatest hedge that the people in Texas have ever believed that could absolutely happen. Texas production is approximately $16-$18 per barrel to pull it out of the ground. They were just allowed to hedge their production over the next 2-3 years at approximately $60 a barrel, a.k.a. printing money. So, the old adage of low prices curing low prices may not take place this year. Production in the United States is expected to make all-time highs at a time where OPEC is going to start probably becoming slightly fragile. OPEC production cuts, everyone is doing a fairly good job of following along with the cuts that they talked about and oil prices start to fall. OPEC nations then start to cheat and at that point we have a snowball effect. It’s probably too early for that to happen. June and July are very strong demand months here in the United States. We don’t expect to see prices really crater this summer, but this fall if we have a slight tick up in prices in June and July of this year then we’re going to be looking at call selling opportunities for December, January, February, March, the weakest time frames of the year, at the same time when supplies will probably be at their all-time greatest. We are watching with both eyes very closely for a small tick up in energy prices this June and July. Clearly, they’ve fallen off dramatically. We were talking about selling a crude oil when we did not believe production cuts to be so bullish, crude oil fell $7 shortly after that. I remember talking to clients and other people that are in the industry that don’t trade with us. I said, “Watch out! Don’t listen to this OPEC production business. It’s not bullish, the market’s going to likely fall.” We had a couple of colleagues that said, “James, why are you telling me this?” I said, “I’m just warning you because we think that the market’s going to fail here”, and he was basically saying, “Well, the whole world is bullish. We’re going to have less production.” It didn’t turn out that way. Oil fell some $6-$7 a barrel. We’re hoping for a slight up tick with strong demand for driving season this year in the United States. If we get that, we think call selling in crude oil could be good for 6-12 months out. Oil this fall and winter could be in the low 40’s, it could actually have a 3-handle on it, and we’re going to be taking advantage of that when that happens. Michael: Yeah, I just put together out summary. We sent our summary to CNBC this week on the oil market. Hopefully, they’ll want to have us on and talk about it, but if you’re listening, CNBC, we’re ready for you with our quarterly oil analysis. Feel free to give us a call. I know you, James, talking about the cuts, have not affected supply. In fact, right now, all-time record highs in the United States- 528 million barrels. That’s 27% over the 5-year average. So, I would think that still qualifies as a glut. Would you? James: Michael, that’s definitely a glut. If we have one more barrel in the world than we need, prices go down. We have just a dramatic over-supply in the United States. Ever since we’ve been counting barrels of oil in the United States, we have never had a higher supply than we do right now. At a time where production in the United States is now going to ramp up, it is a bearish scenario. Am I saying that oil is going to fall every day and it’s going to go down to zero? We’re not saying that, but as far as the investors that like the herd mentality, this June and July we’re probably going to have more ramblings out of OPEC. They’re going to say, “We’re going to extend the cuts. We’re happy with the way it’s working but we’re going to proceed to extend these cuts further.” We’ll probably get another pop from that on the bullish news, and that’s the one we’re going to use to probably lay out some calls out 6-12 months and I think that’s going to work out pretty well. Michael: For those of your listening that may not be that familiar with option selling, what James is really saying is we don’t need prices to fall, although we think that’s a distinct possibility, we just don’t need them to go skyrocketing up in this environment. With this type of supply we don’t think that’s likely, that’s why we go high above the market and sell calls. As long as the market doesn’t get there, those calls expire and investors keep the premium. Did you have your eye on any strikes you want to share right now or do you want to save that for another podcast? James: We’re going to be selling crude oils calls with a 7 on them, and I don’t mean 7 or 17, I mean 70. If they’re producing oil in Texas at 17, we’ll go short at 70. We’ll take our chances on that and I think it’ll turn out pretty well. Michael: All right. For those of you who want to read our full forecast and analysis of the crude oil market, along with some potential trades you can look at, that is coming up in our April newsletter. It’s going to be coming out within the next couple of days. Look for it in your mailbox. If you’re not a subscriber yet, you can subscribe at our website. If you come to our website and order anything you’ll be on our subscription list. We do have a special crude oil feature this month because this is the trade we’re going to be looking at now for the next several months. One thing about option selling is if you’re taking premium out of a market, you don’t just have to sell it once and take it, you can often keep mining premium into that market for months at a time. Am I right? James: That’s how we do it. Michael: Okay. In addition, in your upcoming April newsletter there’s also a special feature this month on some of the top mistakes high-net-worth investors make, particularly 1 percenters... people that are in that higher-net-worth strata, that even though we tend to be sophisticated investors, at the same time there are some blind spots there. We did a lot of research here, a lot of different reports we found, and I think you’re really going to be fascinated to see some of these things. A lot of them, James, you wouldn’t even think of as high-net-worth investors making these type of mistakes, and they do. We really put that in perspective and I think a lot of our readers will enjoy it. James: You know, money doesn’t come with instructions. So often, you hear about investors that are making their money in whatever line of work their business or company that they had, and when they go to invest on their own they don’t quite have the success. A lot of our investors, the clients of ours, made their fortunes being experts at what they do and hiring someone to do it for you is probably a pretty good idea. Michael: Well, the first hint is don’t keep it all in the stock market. I’m sure most of you probably know that. So, we’re going to move on to our lesson portion of the podcast this month. James, this month we’re going to talk about an aspect of risk management. We did a piece on some more advanced ways to manage risk this week on the blog and we got a lot of feedback and a lot of questions. Thank you, all you viewers, for that. One of the things and questions we got there was, “Well, that’s great for naked options, but what about if I’m doing a strangle? How do I manage my risk on a strangle? I’ve sold a put and I’ve sold a call on the same market- how are you managing risk on those?” I think that’s something we want to talk about and address some of our readers who maybe want to learn how we do that. James: One of our most attractive commodity options sale that I find when I’m scouring the 10 markets that we’re closely watching, and that is identifying fairly valued markets. Quite often, you will have CNBC or Bloomberg go to the pit and the gold market is down $20 or it’s up $20 and people are talking, “Oh, the gold market got hammered today. The gold market’s soaring today.” A $20 move in gold makes a headline. It makes a headline on T.V. and they go to the pits and they’re talking to the traders and what have you. A $20 move in gold doesn’t move the needle for the options that we sell. When we sell options on crude oil or coffee or gold, often they are 50-60% out-of-the-money. So, these 1-2% blimps in commodity prices for the underlining contract makes a lot of headlines, but as an option seller, whether it’s yourselves doing it for your own account or we’re doing it for you, it very rarely even moves the needle. When selling a put and a call in gold or silver or crude oil, often the distance between the put and the call is the same value as the underlining contract itself. In other words, gold is trading around $1,200. We have option sales where we strangle gold and the strangle is $1,000 wide. So, identifying fairly valued markets, gold happens to be one of them right now, we think it’s pretty close to fairly valued, the put and the call they babysit each other while you’re waiting is basically the best way I can look at it. For example, if you’re short a gold strangle, your call is $500 above the market, your put is $400 below the market, this one is offsetting the other one at the same time. So, in other words, if the gold market moves $20-$30, your call position might go against your slightly, but your put is now taking care of the differential between from where you put the initial position on. If you use the 200% rule, and we do that ourselves, it is a very, not necessarily strategic, but it’s a very easy management tool that you can use. If you have 12 positions on in the year and 2 of them double in price, do the math. That still can be a very, very great return and it does hold your risk parameters in check. If you are selling a strangle in gold, you might take in $600 on the call, $600 on the put, you have $1,200 worth of premium. Not only will a naked call or put often double, unless the fundamentals change, but that $1,200 in premium that you take in on a strangle, that will almost rarely, practically never, double in value. So, if you have a $1,200 premium in strangle, the $1,200 level for it to double to $1,400, rather $2,400, just happens so rarely. The strangle is our best approach to markets that we find that are fair valued. If you do have your put or your call pinching you just a little bit you’ll notice that the opposite direction option is doing extremely well for your account. Needless to say, you have to have risk control parameters when you first enter a position. You can put in a 100% rule on your short put or your short call. I would put 100% rule on the entire premium itself. It gives your position a great deal of time and room to work. The strangle, I think, is the very best option sale going. If you want to keep a very close reign on your put or your call you can do that. If you wind up stopping yourself out of a strangle on most commodities, in my opinion, you’re not selling enough time. A lot of investors and a lot of books talk about writing options, they talk about a 30 day, 60 day, 90 day option. If you’re getting stopped out of your short position, those are probably the options that you’re selling. I would go further out in time and in price. Commodity options you are paid to wait, and patience is the name of the game. If you’re able to put on a strangle and you’re able to wait, more times than not you’re going to have very good results. You’re not hitting homeruns selling a strangle that far out, but for those of your who want to win the game and are okay with hitting singles all year round I think that’s a great way to do it. I think our investors certainly know about that and our viewers could find that out for themselves if they wanted to. Michael: One way of looking at that, you’re talking about risking the whole premium of the strangle. In other words, you’re saying if you take in $1,200 you can risk up to $1,200 on either side. So, actually, you can be a little more aggressive on your risk management on both sides because you have that balancing affect on the opposite side. Correct? James: Exactly right. Michael: So, instead of risking your call to double value, you can almost risk it to triple value and still get away with it because you have some extra risk management with the strangle if you’re following that. James: The stay ability in a strangle, and that is the key to option selling, is being able to ride out the small blips in the market that change the premiums. Patience and the ability to wait is the key and a properly placed strangle will give practically anyone the ability to stay with that market. That is something that we find at our office for our clients that we do a great deal. The proof is in the pudding. The strangle is a great way to go. You need to identify a fair value market. If you’re able to do that, the strangle is going to be very fruitful. Michael: One of the things we talked about this week in our risk management lesson is the purpose of the risk management tactics often is just to slow the market down long enough to let them expire because time is always working in your favor. So, if you’re using a strategy like the strangle where you’re risking premium to a certain value, you can also incorporate things like a roll. You can use a roll in a strangle where you’re rolling up or if fundamentals change then maybe you just roll it into a one-sided trade instead of just a strangle. Getting a little more creative there, but all of those strategies that we talked about can also be applied to spread, even to a strangle, to get a little more advanced. James, when you’re talking about that, the 200% rule is a good basic rule that can be used either with naked or with a strangle you just described. James: Correct. For all the times you put a strangle on, there’s a chance your put or your call will double in value. As long as the fundamentals in that market didn’t change, feel free to roll down the put or roll up the call. 9 times out of 10 that will not double again and you will be collecting 75% of the premium that you originally sold for instead of 100%, but that’s a very great investment. Michael: Excellent. Well, I hope everyone’s enjoyed our first audio and video podcast this month. For those of you that are writing in asking questions and sending them, please keep those coming. We love to address those on our shows, such as this. For those of you interested in our accounts, unfortunately we are fully booked for April. We are working into our May availability now. We still have some availability for new accounts in May. If you’re interested in learning more about this, please call Rosemary at the office. It’s (800) 346-1949. She’s scheduling consultations, which will take place in April. So, if you’re interested in one of those, give her a call. She can get your scheduled. James, I appreciate your input this month. We’ll be back next month and we’ll update some of these trades and see what’s going on then. Thank you, James, for everything this month. James: My pleasure. Always happy to do this. Michael: For all of you out there, we will talk to you in 30 days. Thank you.

Michael: Hello, everyone. This is Michael Gross of OptionSellers.com, here with head trader of OptionSellers.com, James Cordier. We’re bringing you your monthly Option Sellers Radio Show. This is for the month of July. Today, we’re going to talk about quite a few things. I want to start off with the gold market, because, James, you were featured on CNBC this month talking about gold, taking a little bit less than bullish view on that. Is that still your view on the gold market right now? James: Well, Michael, as you know, everyone’s bullish gold simply because of 0% interest rates and negative interest rates around the world. The last time that quantitative easing was introduced in the United States, that’s what raised gold from $1,100 up to $1,900. Now, a lot of investors are thinking basically along the same lines. Quantitative easing was supposed to create inflation. Several years ago in the United States, when we went to QE, it didn’t happen. Now, I believe investors are falling maybe into the same trap, thinking inflation’s on the way. Because of negative interest rates, it may not play out that way. As a matter of fact, lower prices for commodities because of a weak global economy, we think, is more likely. Michael: That’s counter to what a lot of people feel right now because of times of anxiety, we have terrorist attacks again in Paris this month, seems to be a lot of turmoil in the world right now that’s bringing a lot of investor interest into gold. You seem to feel that the inflation argument probably will be what dictates the direction here over the longer term. Is that correct? James: Michael, eventually it always does. Quite honestly, inflation is the catalyst for gold and silver to go higher. If we have deflation, we just don’t see how it can produce gold prices of $1,600, $1,700, $1,800 an ounce, which a lot of investors are looking forward to. But the fact of the matter is, gold did rally to $1,800 and $1,900 an ounce several years ago. Commodity prices were raging, soybeans were at multi-decade highs, so was copper, so was crude oil, so were many of the foods. We are going into a very weak economic/global state as far as demand for commodities. We have overproduction of everything from steel, to zinc, to iron ore, to copper, and silver. We just don’t see the inflation scenario taking place. Is gold good for hiding out when there are situations going on around the world? I guess it is; however, inflation eventually dictates the price, and we’re seeing probably deflation at the end of this year. Michael: Well James, you make some good points, and maybe they’re listening to you because since your appearance on CNBC at the beginning of July, gold has had a pretty good retracement down. I also noticed, and this is something that we mentioned in the article that you did last week, that we have a very big speculative long position in gold futures. It’s on the record that with 50,000 contracts it’s pretty heavy, so oftentimes when you have that heavy speculative yet small speculators pouring into the market, they’re heavy along the market and you have commercials getting short. Sometimes that can be an indication of a trend change. James: Michael, we think this is one of the most crowded trades ever. Just about practically everyone who’s a gold bug is double down on getting long gold. We have had a decent rally. It rallied nearly $100 an ounce. We’ve come back about $50 real rapidly over the last 2 weeks or so. Basically, the U.S. economy is doing okay. We’re not looking at negative interest rates anytime soon here. We think that the smart money, who probably was buying gold around $1,100 and $1,200, probably feels that they just have too much company right now. We see gold probably retracing into the $1,200’s over the next quarter or so. We think gold is a great market to trade. We would not be stuffing it under our mattresses… not at this price, certainly with commodities headed lower, we think gold and silver are going to probably be sold off slightly as we go to the end of the year. Michael: Now, that brings up a good point, James, and I know you’ve made this point before, as well. When you’re talking about gold prices, or writing about it, people have the viewpoint of, “Well, what is it going to do? Is it going to go up? Is it going to go down? Where do I need to buy it? Should I buy it now?” Obviously, first of all, our listeners know that’s not really how we’re trading here or how you’re supposed to. What you can’t say on CNBC is “Look, I don’t know if this is the top, but we’ll see it going through the roof and you want to take advantage of selling some of those high option premiums.” Do you have any you’re looking at now or how would you go about trading that market? James: Michael, we like talking about volatility and low-hanging fruit at the same time. That just took place in gold and silver the last 2 or 3 weeks. Gold is probably fair valued around $1,300, and silver is probably fair valued around $20. The gold bugs and silver bugs just came out in full force over the last 2 weeks. Silver bugs buying $40 calls for silver out several months in time, buying $1,900 and $2,000 gold calls several months out in time. We just feel that the likelihood of that happening is so minute. It simply isn’t going to happen, in our opinion. Gold production is doing quite well, as a matter of fact. A lot of investors are familiar with the fact of oil production has gotten better and more productive with fracking. There’s a new technology in the gold production. It’s similar to oil fracking except it’s in gold production. There is no shortage of gold, and as we see investor appeal go towards other markets and realize that buying gold of $1,350 and $1,375, they’re buying the top price in the last 2 ½ years and that might be a good place to be taking profits. We think that selling calls, you know, $1,900 and $2,000 in the gold market right now is going to be ideal. We think that silver and gold are probably going to be around 10-20% cheaper than where it is right now. That’s probably the best sale on the market right now is selling silver calls at 40 and gold calls at $2,000. We think that’s probably the best way to find yield anywhere right now. Michael: Yeah, and I love that strategy, James, and I know it’s one you and I have talked about. You get so much investor interest and you get media interest and it kind of feeds on itself. That’s what brings us speculators in to start buying those deep out-of-the-money strikes. Targeting them is what you’re talking about now. A lot of investors probably aren’t aware that there are strikes available that far out of the money when you’re trading futures, and I’m sure a lot of them appreciate you pointing that out just now. Speaking of the anxiety, a lot of anxiety now coming about the election season. A big election coming up and the question I get a lot when I’m consulting with investors, and I’m sure you do too, is “How is the election going to affect commodities? How can it affect the price of my selling option portfolio?” How would you answer that question? James: Every time we have an election, all of the smartest minds in the world trying to figure out if that is going to be bullish or bearish for the stock market. Is it going create inflation if the democrat or republican wins? This has been going on for the last 200 years in the United States. We feel what it does is it provides opportunity because it’s uncertainty. Investors will buy puts who think the market is going to fall, they’ll buy calls at extraordinary levels that think it might be bullish, and we never use the terminology at the end of the day because let’s say at the end of the year from now on. That does not change the supply and demand of raw commodities. It changes it so little that going into an election, when there’s a type of fear on the upside or downside of a particular market, you want to sell that going into an election, because when the dust settles several days later, we’re right back to supply and demand, and that never changes with an election. We don’t see that happening in 2016 either. Michael: Yeah, that’s a great point. You get in an election year, especially right around the election, and maybe a couple days after you get sometimes a reaction in the stock market, and maybe even in some commodities, but the fact of the matter is, at the end of the day, no matter who gets elected, people are still going to eat their Corn Flakes, they’re still going to put gas in their car, and they’re still going to want their cup of coffee in the morning. The supply and demand cycle goes on, and that’s really how it affects the commodity portfolio. In the longer term, it probably won’t have that big of an impact. Speaking of coffee, you have a nice feature in the newsletter coming up this month that you put together on the coffee market. That’s kind of an example as where you get a news story or something pushing up prices against the fundamental. Can you talk a little bit about that? Just maybe give our listeners a preview of what’s coming up in that piece? James: Michael, what’s happening in coffee in 2016 is so similar to what has happened over the last 10 or 15 years. We have several fronts right now. We have dry conditions in some of the growing regions in South America. We have free season in Brazil, which historically was a big driver to higher prices. Of course, we have a lot of investors thinking that coffee consumption has increased dramatically. These are 3 things that have pushed coffee up recently. Coffee was trading around $1.30-$1.35 a pound. It has rallied up to $1.45-$1.50 a pound recently. Historically speaking, coffee rallies in June and July based on the fact that it is free season in Brazil. In all actuality, come September, October, November, Brazil is picking beans and Brazil, like all other nations, need to turn their commodities into cash. We see very large sales happening in September and October of this year. We see that the price of coffee will likely be around $1.30 to $1.35 at harvest time and we are very much salivating over selling calls at the $2.60, $2.70, and $2.80 level. We think that coffee will be half that price this fall, and that I think is probably one of the best examples of low-hanging fruit here in the month of July. Michael: So, it’s high right now, you think it’s fundamentally over-valued, if that’s a fair statement. You made some good points there, but is any of that based on where we are with supply right now? I know Arabica production hitting a record this year in Brazil- 43.9 million bags. Is that already priced in or is that yet to be priced in? James: The Arabica production in Brazil this year will be a record. The Robusta production in some of the northern regions of Brazil is down this year. It’s down about 2 or 3 million bags. However, there is no shortage of coffee by any means. We did have difficult weather because of El Niño this past year. La Niña is now taking place and we think that is going to return a lot of the precipitation to areas in Columbia, Brazil, Honduras, and Vietnam. That will help production in the upcoming year. Supply is worldwide; it’s practically a glut. Here in the United States, they call something known as green coffee stocks. That is counted and announced every month. In June 2016, coffee supplies hit a 13-year high here in the United States, 6.2 million bags, and no shortage of coffee in the United States. We’re the largest consumer, and as long as there’s a lot of coffee around the consumption country of the United States, we don’t see prices getting any higher than a weather scare, which is basically what we’ve had here recently. We think this is going to be a short-lived rally. Supplies are burdensome and demand is about the same, believe it or not. Michael: So, in short, this is almost like the ideal market we talk about in our book where you have a fundamental situation. The market, for whatever reason, rallies against that fundamental, it gets overvalued, the call options get overvalued, and we don’t necessarily now where that top is going to be, but when you know it’s overvalued you know it’s going to be there somewhere. When there’s options so far out-of-the-money, that’s a time you start cashing in on, that’s the time you start collecting premium. James: Michael, what we’ve noticed last 12 months is that any time a commodity rallies on headline news or slight weather concerns in different parts of the world, especially in producing nations, you have investors chasing yield. It happens in silver, it happened in soybeans, it has happened in coffee recently. When you have negative interest rates around the world it sets up opportunity, because what winds up happening is investors will end up buying commodities above and beyond their fair value, they come down to their fair value after the frenzy ends, and during that time there’s a crescendo, and that’s when you sell calls on commodities 30, 40, 50% above the market. In some cases, like in silver and coffee right now, you can sell calls 100% over the value of the market. That is just ideal for option selling in our office. Michael: Yeah, you made a point there. I want to go back to because I want to segway into talking about the upcoming newsletter this month. The front-page article we were talking there a little bit about modern asset allocation because it’s becoming kind of a hot topic in the media right now – is 60/40 – 60% stock, 40% bond, that’s what everybody is supposed to do. That’ll make you healthy, wealthy, and wise into retirement. Given the way the economics of investments are right now, you have negative interest rates, a lot of people worried about stocks, alternatives are about to get bigger. In fact, I don’t know if you’ve seen it, but there’s an ad now on TV, I believe it’s for Invesco, that they are making that statement: “60/40 is dead. The new allocation is 50/30/20, with 20% going to alternative investments.” Do you have a viewpoint on that or what type of asset do you favor? James: You know, that asset mix is becoming more and more popular. Reading the Wall Street Journal today, they were talking about CalPERS, of course the largest investment fund in the world. They made .7% and their fiscal year ending in June there is no question that investment funds, CalPERS, and everyone down to just someone investing their $1 million account of their own are looking for return. Simply put, the stock market is going to go up and down 5% at the end of the year, it might be down 1%, we’re not sure, that’s not the game we try and play. Selling options on commodities is just a great way to diversify in our opinion. It allows investors to take advantage of bull and bear markets, the economy gets weaker, it gets stronger, and it just continues to be uncertain. That’s ideal for what we do. A 20% allocation of a portfolio into diversification, if you will, into, for example, alternative investments like what we do, I think that’s about right. I know a lot of the investors that I speak to are probably around 15-20% and I think they’re happy that they are. Michael: James, I have kind of a personal story to share here. My mother came to me the other day and she wanted me to go with her to her financial advisor to meet with them. I said, “Why?” She said, “Well, I used to make money and now I don’t make any money.” It hasn’t grown, it doesn’t go anywhere, and she’s concerned she is in the wrong stuff. I said that I’d be glad to do that. I took a look at things and they have here in about 70% bonds, which may or may not be right for a retiree, and we’re certainly going to discuss that. I had to explain to her, “You’re in this bond market that maybe used to pay you yields, but it’s not paying any yields anymore, so that’s why you’re not getting money from it. I think that there is probably a lot of people in that mindset of, “Why isn’t there money coming out of this anymore?” It’s because of the state of where interest rates are right now. James: Absolutely. Central banks all around the world are doing everything they can to try and increase investment and how they do that is they punish savers. They punish people who wanted to be conservative in the past, and that’s a perfect example. 70% in bonds, getting absolutely zero return and it is just not right. Why in the world savers and people who do things as they were always taught, work hard, save your money, get a fair interest on it. Why in the world do central banks around the world force you to invest in a fashion that you normally wouldn’t do is just what has taken place recently. That is what is basically changing the real value of assets. The stock market this past week has gone up to all-time highs and what is the global economy? It’s awful. Why do you think interest rates in Germany are negative right now? Because the economy is doing good? No. They are forcing investors to take on more risk than they normally would. It is creating opportunities and everywhere from commodities to stocks, a lot of investors are fearful of the stock market right now. It’s going up right now because it has a FED put under it. In other words, the Federal Reserve and central banks around the world are going to continue pumping money into the system, punishing savers, and making people invest, and that’s really a scary scenario for sometime down the line. When the stock market bubble blows, who knows, but I can’t imagine that there’s going to be a chair for everyone when the music goes off. I don’t think I’d want to be long stocks on that day. We don’t know what the stock market’s going to do the next 12 months, but a lot of the investors I speak to right now are getting a little bit fearful of it. When the stock market makes all-time highs on bearish news, you really got to think twice about what you’re doing. Michael: Yeah, I don’t know about you, but the whole thing is starting to feel like a house of cards to me. I did a little research this weekend on that figure we were talking about, the asset allocation. There was a survey, there was a number of different big banks on here, they all add up different opinions, there’s no real consensus. They interviewed Barclay’s, Goldman’s, you know, a bunch of the larger organizations, and there is quotes there anywhere from 5%-45% of your total assets and alternatives now. I’m imagining some of those are starting to skew upwards, given the current state of affairs. We’re going to be talking about that a lot more in this month’s newsletter. The Option Sellers Newsletter for August should be in your mailbox, or at least your e-mail box, by August 1st. You should expect your hard copy probably a couple days after that. James, not to totally give away the newsletter, but there’s also a discussion in this month’s newsletter about option selling as an alternative investment, but it’s a type of account that doesn’t really… it acts like a business more than an investment. What we mean by that is a lot of people think that an investment, you buy something and hope it goes up, where a business, you get paid to sell something. If you’re explaining that to someone who doesn’t know how to sell options, it’s probably a better way to explain it. Is that how you would explain it to somebody that doesn’t how to sell options? James: Michael, it’s interesting, so often we’ll have investors who are really astute. They’re very intelligent, they’ve been trained in the stock market, and they understand economics 101 all the way to 1,001. But, when it comes to explaining option premium selling to them for the first time, it is a complete mystery. It is so much like owning an insurance company. It’s like running a business. Basically, you’re selling to people buying. 80% of the time these options expire worthless. The insurance company probably has even a better ratio than that, but you’re basically running a business. As opposed to an asset, like Apple stock or gold, and hoping that it rallies, you’re basically running a business by selling insurance premiums to whether investors are familiar with the price of calls or puts that they should be buying or not. The fact of the matter is, we’re basically running this investment more like an insurance company. It’s been that way for the last several years and, with the uncertainty abound right now, it feels like it’s going to continue over the next 2-3 years, at least, until a lot of the uncertainty around the world gets unsettled. Premiums are much too high for the underlining value of commodities. It is a lot like running an insurance company and, as long as option buyers continue, we’ll continue selling them. It is a whole lot like taking in premiums. Every once in a while you have to pay them out, but for the most part, it’s a good place to be. It’s almost like being in the house in Las Vegas or an insurance company, depending on which scenario you want to look at. It has been interesting and it seems to be getting better and better. Michael: Buffet says insurance is the world’s most profitable business. I think that’s a pretty good analogy. We will be covering that a lot more in the newsletter. You can look for that, again, on August 1st. James, let’s transition here and do our lesson for the month. There’s a good thing I want to bring up because we ran a series of blog entries this month entitled 7 Ways to Get Higher Premiums. It was, as you know, we discussed different ways you can get higher option premiums. It doesn’t necessarily say that we recommend all of them or we use all of them, but we talked about 7 different ways. I know you have your favorites and I thought maybe you could talk about some of the ways or some of the methods you use when you’re managing portfolios. How do you or what do you look for to target higher premiums? James: Michael, it’s interesting. When selling options, there are many different ways described as to how much time to sell, how far out-of-the-money, what type of premiums to look for. One really easy secret that I can share with our listeners today, is that if you look at options that are 30-40% out-of-the-money and you look at options that far out-of-the-money that are 30 days left before expiring, 60 days left before expiring, 90 days before expiring, they’re almost practically at the exact same price. If that is the case, why wouldn’t you go out an additional 90 days when you sell an option? If 30% out-of-the-money a 1 month, 2 month, 3 month option is basically at the same price, go out an additional 90 days because you will get, when you initiate that short option, you will get 40-50% more premium by going out that much further in time. Yet, when it gets closer to expiration day, whether you have 1 month left on your option or 90 days left on your option, it’s practically the same price. The easy secret is to go an additional 90 days further than you think you normally would because, come expiration day, as we approach that time, you are able to cover that option 90 days left, 60 days left, 30 days left at practically the same price. So, very easily said, go out further in time. It allows you to get much more premium, in some cases 30, 40, 50% more premium, and as you near option expiration, you can cover it at 10% of what you initially sold it for. That is something that we do for our clients constantly. There are a couple other secrets. I can’t give them all away today, but, for those learning exactly what we do, that is something for you to consider. Quite often, a portfolio opens with us and they’re surprised at how far out-of-the-money we sell. Often, people think that gives the market a long time for you to be wrong. We don’t look at it that way- it gives us much more time to be right. That’s the way it has been turning out for the last several years. Michael: James, that is a great point, one that strikes home with me because I remember back in the day, years ago, we used to debate that. You used to always say it was better to sell further out. I kind of favored selling a little bit nearer. Over time, I came to see the light. Your way of going at it, I really saw the logic in it and the years have proven that to be an astute way to approach this. It seems to give you a lot more leeway, there’s a lot more margin for error, and you get a higher premium off of it. James: Michael, trading a lot is not what we’re interested in. Increasing high, high, high probability of option expiration is what we’re after. It all really pays off in the long run. Michael: Yeah, and you shared your favorite strategy for getting higher premiums. I’m going to share mine, too. We’ll give our listeners 2 out of the 7 that are our favorites. This is probably one of the ones you like, as well, because I know it’s something that we do often. In selling credit spreads, and a lot of people think that protection is expensive, you’re selling an option, you take a premium, and then you’re buying that protective call or put to limit or curtail your risk, which can be a great idea. Often times, after that first few months, and those options are already well into decay, the odds of those options ever going in the money begins to drop substantially. If you can unload your protection and sell it back to the market, that brings in some extra premium for your credit spread. You just let the nakeds expire. I know that’s one you like to use, as well. James: Michael, the time to do that is when volatility is the highest. Buying protection when volatility is low is expensive. Right now, buying protection is very cheap. Once again, it increases the odds of the trade going favorably for you. Buying protection right now is absolutely excellent timing to do that right now because of the high volatility, the high premiums. It gives us the luxury of buying protection and, talk about sleeping at night, option expiration happens worthless so often. If you can add protection to that, it just increases everyone’s odds that much more. Michael: Excellent. For those of you listening, if you want to hear more of those strategies, obviously we recommend our book, The Complete Guide to Option Selling: Third Edition. It’s available on our website, OptionSellers.com/book. We cover those strategies and many more for getting higher premiums and protecting your downslide, hopefully building a long-term income stream. We’re going to close this month by letting you know that we do have a couple spots left for our President’s Club. I have a client group this month that’s accounts $1 million and up. Those accounts do receive some special benefits. If you’re interested, you can feel free to give us a call at 800-346-1949. Other accounts, we do have some pre-qualifying interviews left in August. If you’d like to inquire about an account and schedule an interview, you can contact Rosemary at that same number… 800-346-1949. If you’re out of the United States, you can reach us at 813-472-5760. Obviously, if you’d like more information today, you can also find out at our website, OptionSellers.com. We’d like to wish you all a great month. We’ll be updating you on your portfolio progress on the bi-weekly videos. James, thanks for your great insight this month. James: Michael, it was my pleasure. There’s nothing that I like talking about more than short options on commodities. They’re getting more lucrative and certainly something that’s near and dear to our hearts. Michael: All right. Well, everybody, thanks for listening. We will talk to you again next month, and have a great month of option selling. Thank you.