Podcast appearances and mentions of james exactly

Let’s talk about death, baby From breaking the stigma to understanding the conversations we need to have before we die, beloved broadcaster and advocate Andrew Denton and clinical psychologist Dr Kerrie Noonan dissect everything we should and shouldn’t say about death. About the episode – brought to you by Australian Seniors. Join James Valentine for the sixth season of Life’s Booming: Dying to Know, our most unflinching yet. We’ll have the conversations that are hardest to have, ask the questions that are easy to ignore, and hear stories that will make you think differently about the one thing we’re all guaranteed to experience: Death. Featuring interviews with famous faces as well as experts in the space, we uncover what they know about what we can expect. There are hard truths, surprising discoveries, tears and even laughs. Nothing about death is off the table. Andrew Denton is renowned as a producer, comedian and Gold Logie-nominated TV presenter, but for the past decade he has been devoted to a very personal cause. He is the founder of Go Gentle Australia, a charity advocating for better end of life choices that was instrumental in passing voluntary assisted dying (VAD) laws across Australia. Senior clinical psychologist Dr Kerrie Noonan is director of the Death Literacy Institute; director of research, Western NSW Local Health District; and adjunct Associate Professor, Public Health Palliative Care Unit, La Trobe University. For the past 25 years she has been working to create a more death literate society, one where people and communities have the practical know-how needed to plan well and respond to dying, death and grief. If you have any thoughts or questions and want to share your story to Life’s Booming, send us a voice note – lifesbooming@seniors.com.au Watch Life’s Booming on YouTube Listen to Life's Booming on Apple Podcasts Listen to Life's Booming on Spotify For more information visit seniors.com.au/podcast Produced by Medium Rare Content Agency, in conjunction with Ampel -- Disclaimer: Please be advised that this episode contains discussions about death, which may be triggering or upsetting for some listeners. Listener discretion is advised. If you are struggling with the loss of a loved one, please know that you are not alone and there are resources available. For additional support please contact Lifeline on 131 114 or Beyond Blue on 1300 224 636. TRANSCRIPT: James: Hello, and welcome to Life's Booming. I'm James Valentine, and this season, we're talking about death. Or, on this episode, why we don't talk about it enough. Death is really easy to talk about, but avoiding the subject just makes things even harder. From breaking the stigma to understanding the conversations we must have before we die, I'll be dissecting everything we should and shouldn't say about death with two fascinating minds. Andrew Denton is the founder of Go Gentle Australia. A charity advocating for better end of life choices, but you probably know him better from so many shows on our TV. And Dr Kerrie Noonan is a senior clinical psychologist and social researcher, determined to increase our death literacy. Kerrie, Andrew, thanks so much for joining us. Do you know one another? Andrew: Yes we do. Yeah. Kerrie: Yeah, along the way. Andrew: We've had a few conversations about death, dying, literacy, all those things. Yeah. James: How did you learn about death? Like when did you, and who did you go to talk to? When did you start thinking about it? Andrew: Well, I think you learn about death the way everybody does, which is you experience it. And the first time it happened to me, I made a documentary about teenagers with cancer, Canteen, the support group, and one of those young men died. And his parents very generously invited me to visit him as he was dying. And that was the first time I actually saw what death can be. And it was, it was very hard to see and then watching my own father die obviously was a profound moment for me because that was an unhappy death. But how I've learned about it since is, I imagine a bit like Kerrie. I've had thousands of hours of conversations with people who are dying and their families and their carers. And, I've learned so much about death I feel I've mastered it and can move on. James: Yeah, true. That's right. Is that, is this what you mean by death literacy, that, that in some ways we just need to be talking about it more? Kerrie: It's, it's talking about it. That, that's one aspect. But it's, it's kind of developing your know-how and being able to put that know-how into practice. So, you can maybe talk about, maybe have some competency in terms of talking or maybe doing one element, related to death and dying. But, when you put it into practice, that's when death literacy kind of really comes to life. It kind of sits, some of the research we've done recently, it's evident that death literacy sits in networks, in-between people, within people, in communities, so it's not just about individuals. James: I suppose I'm wondering about at what point we might have this, or there'd be a difference in death literacy with 20-year-olds than there would be with 80-year-olds, right? Kerrie: Yes, experience changes your death literacy. That's probably the strongest predictor. So we started this research looking at networks of care and how people kind of come together. And so where we're at now is we're looking at what are the predictors and what are the things that we understand so that we can understand more about how to make more death literacy, I guess. So an example, that's your question, well I can give a real example. When my mum was in hospital, we were, we needed someone to help us to move mum from the hospital to home because we wanted to take her home. And we couldn't get the health system or the medical system to do that. So I put an email out, a text message out to my friends who happened to work in the death space. And within an hour we had someone, within two hours, mum was home. And so. That took, you know, that set off a little chain of conversations, emails, texts. And while I was doing that, my brother was getting the medication sorted and other things sorted for my mum. So we really, we utilised, to bring my mum home, we utilised like every bit of knowledge and our networks to do that. James: But you were at the centre of, you know, you, you study this, you're a, you know, an advocate for it, and so you're at the centre of it. You would have a network. I mean, I don't know that I've got the same network. I'd, I could put it out to my friends and they'd go, we could bring wine. Oh, you know, like, I don't know that they'd, I don't know that they'd be that practical. Kerrie: But that's actually helpful too. You need your friends to turn up with wine and, and bread and whatever comforts. So we found that younger people, for example, so we've done two kind of national studies just to kind of demonstrate your point about younger people. Between, 2019, pre COVID, and 2023, we looked at the population and we looked at death literacy and how it changed. And we found that voluntary assisted dying and COVID had an impact on people's death literacy, particularly for the younger people, anyone who's experienced a death, anyone who's been through loss, has higher death literacy than people who haven't. And so, there's lots of things that contribute to that, but, COVID, I think, we're still kind of looking at the data, but certainly voluntary assisted dying because of the way that you need to kind of have conversations, you need to actually reach out to your networks, you need to talk to doctors, you know, there are actually lots of interactions in that that really stretch your skills and, your understanding. James: It's only a few generations back when death was very present in our life. The conversation about voluntary assisted dying has perhaps allowed us to have that conversation again. Have you seen that? Andrew: Yeah, I think that's right. I mean, there's, there's a lovely, witty observation that in Victorian times they talked about death all the time and never about sex. And today it's the other way around. It's not that many generations ago where the body would lie in the house and there'd be a viewing in the house. And so it was, it was a more human thing, the way Kerrie's describing her friends helping her mother come home, that's a communal and human thing. And when I talk about voluntary assisted dying, I must and I want to bracket it with palliative care, because really, despite the fact politically they were oppositional during the legislative debate, they're very much on the same end of the spectrum, which is we're all going to die, and the concept of palliative care, which is also the same idea of voluntary assisted dying, is not, ‘Let's get you to the dying bit, but how do you live as well as you can while you are dying?’ And that dying process could be very short or it could be very long, it could be several years. You, usually you can't be really clear. So the whole point as Kerrie said about voluntary assisted dying and palliative care is you talk about these things. And interestingly, I think there's a paralysis around death, and you know, you said, well, my friends wouldn't know what to do, they'd bring wine, as Kerrie said, that's no bad thing. But if you put out a call to your friends to say, I need to move my fridge, somebody's going to say, I've got a ute. James: Yes. Andrew: …your need, perhaps, to leave hospital and go home, that's the same question… James: They might have a ute. Andrew: …It's just, it's just a human question, which is, I need help. And not only do we get paralysed in the face of death and assume that the experts have the answers, but the experts often get paralysed in the face of death. They don't know how to have those conversations either. So one of the things that voluntary assisted dying absolutely has done, and there was a, a geriatrician in Victoria who said to me. He was ashamed to admit that voluntary assisted dying had made him understand how limited his practice had been, in that he had subconsciously only been asking questions of patients that he had an answer to: How's your pain? James: Right. Andrew: I can treat your pain. What are your symptoms? I might be able to treat your symptoms. Whereas what he asks now is, how do you feel? What is life like for you? That's a much more holistic question. What is it that you need? If we can't help you with it, maybe someone else can help you with it. So I think it's about transcending that paralysis in the face of death. Which is natural, but the greater group that you can talk with it about, the better. I still remember a woman I met several years ago. And she said to me from the moment her husband was diagnosed with cancer to the moment he died, he refused to talk about it. And the, it was like a sliver of ice stuck in her heart because she was frozen in that too. James: Yeah, yeah. Kerrie: Yeah, and I think what we, what we found in a lot of our research too, Andrew, was that, carers were often, had massive networks that the person who was dying didn't know about… Andrew: Right… Kerrie: …as well. So I think that's, that's the other thing, about some of these conversations is that, once you know that you've got community who's up for the conversation or up for whatever around you that a lot of carers are, can have that access to other people. James: And you mean the person dying doesn't know because they don't ask, unless they're talking about it, then no-one thinks to bring it forward? Is that what you mean? Kerrie: Yeah. I think what happens in that situation is a carer can become quite isolated like the dying person. If they don't want to talk about it, there actually are still practical things to organise. There are still things, where are the passwords? How do you get into the bank account? What bills need paying? Andrew: I'm trying that with my wife all the time and she's not even dying! Kerrie: That's right. They continue but you don't get to have the conversation with the person. Andrew: Actually, Geraldine Brooks, a beautiful author, her husband Tony, who is a friend, he died very suddenly, dropped dead in the street, and he was young, in his early 60s. And she's just written a book about this called Memorial Days, about that whole experience. And that's the strongest piece of practical advice she gives, which is, prepare for your death by helping others. James: Yes. Andrew: Like, leave the passwords, explain how these things work. The best things I've learnt about the idea of preparing for death and thinking about death, actually I'm pretty sure came from some of your literature, Kerrie, which was the idea of an emotional will. And an emotional will is not about, to you James, I'll leave my ute. It's actually about, to you James, I'm going to leave, my favourite city in the world. Limerick in Ireland, and here's some money for you to go there, or to you James, I'm going to leave these five songs, which mean something to me. It's actually about, well this poem, it's about gifting something of spiritual life value as opposed to an object. James: Yeah. Following the, the, the legislation in New South Wales, now pretty much in every state, Andrew, where, what do you see now? What do you see in our society now? What do you see happening? Andrew: Look, there's still the same paralysis and fear about death. I think that's, that's kind of natural. You know, one of the people on our board of Go Gentle is the former federal president of the AMA, who's a neurosurgeon, and he said when his dad was dying in hospital, he was afraid to ask for, you know, more help because he didn't want to be annoying. So, you know, I mean, this is the head of the AMA. To me the big question is not so much, how individual families or individuals respond even though it's very important. To me the big conversation is within the medical professions. And I don't actually say that critically. Because we're all equally struggling with the concept of the abyss. And I think, it is an acknowledged problem in healthcare, of futile care at the end of life. It's giving a 90-year-old a hip replacement, for example, just over-treating. Because of the, I've heard it described as ‘doctor as hero’. You know, we give, we give doctors, quite reasonably, a special place in our society. Because we ask special things of them. But part of that training is, we must win. We must treat. When I was first told this by a doctor in Oregon, when I went there. When they said, oh, we see death as a defeat, I actually laughed. I thought they were joking. I said, it's… James: You know you can't win. He turns up with that scythe at some point. Andrew: So I think there's a much broader conversation about what is dying, and how do we have that conversation with people who are dying. And I think… James: I suppose I just thought, I have had a couple of conversations recently with people who have a relative or parent who has gone through voluntary assisted dying… Andrew: Yes… James: …And what I noticed was the way they talked about it, in a sense, wasn't much different to, oh, we went to Europe. You know, we had a nice trip. Like, it was very normal, the way they said it. They went, I was at my uncle's death yesterday. Andrew: It can be. It can be. You know, dying affects different people differently. There are people who have gone through the voluntary assisted dying process who totally support it and are very glad it's there, but still found the experience traumatic. It's not a silver bullet. James: Right. Andrew: It doesn't, it, it's merciful, and it's peaceful, but it doesn't, it certainly doesn't remove grief, and it doesn't remove, for many people, the unreality of dying. We hear many, many testimonies of families deeply grateful for the way in which they are able to say farewell. And I think that's a very important part of voluntary assisted dying. A genuine ability to say farewell. But people are different. There's one man that insisted, who used voluntary assisted dying, and insisted that he be only with his doctor. And the reason he gave, which I find both beautiful and heartbreaking, he said, ‘I don't want the love of my family holding me back’. So, you know, I always maintain when I talk about this. James: [sigh] I felt the same thing. I did the same thing. I know. You know, huge. Andrew: Whenever I've talked about this, I've always maintained, none of us know how our dying will be. All we know is that it will be hours and hours alone. And I think that's why I struggle with, that philosophy that somehow or other, that, our dying is about society at large or about some universal rule that we might be breaking if we don't do it the right way. James: Kerrie, you know, I sort of want to acknowledge that you've been through death quite recently, that your mother died only a few weeks ago as we're having this conversation. As someone who's then spent their life studying this area and thinking about this area, what have you learned from the death of your mother? Kerrie: It looks similar to what Andrew said before about his colleague, the doctor. Like, well, I went straight to the practical things, didn't I? Like, it's a kick, grief's a kick in the guts, let's face it. Knocks you on your butt. James: And we are very practical in those first weeks, aren't we? At the moment of death and afterwards. Kerrie: Just the other day, when we dropped my daughter off to uni, I went to text my mum, as I would usually do. And text her the photo of her in her dorm. And I think this is, you know, I was really glad of my experience because I just sat there and cried for about five minutes, actually. I just needed to blubber and cry. I could have sucked it up. We could have just, you know, driven on. But actually it was really helpful just to really deeply acknowledge that moment. That was the first time. That I'd experienced that real sense of wanting to, to, communicate with her. Andrew: I hope it won't be the last time you hear her cry about your mum. Kerrie: No, it won't be. It won't be. But when she died, because of the work that we had done, I didn't cry initially. Andrew: Yeah. Kerrie: And this is this individual kind of experience of going through this. I didn't, immediately cry. I felt intense relief for my mum. And so I was just reflecting on that. I was like, ‘Whoa, I'm not crying’. The other thing that is, is on my mind is that it took an ICU doctor on the day that mum… So mum had three MET calls. And if you don't know what a MET call is, and you're listening to this, this is where every registrar, every emergency person on call, runs to the bed of the person who is, who's crashing. James: Right. Kerrie: …and she had three of those. And by the end, I'm glad I wasn't there because I hear that mum was very distressed. James: Right. Kerrie: And it took an ICU doctor to sit down with her and go, what do you want Maureen? James: Yeah. Andrew: Yeah. Kerrie: And mum said, I'm done. And so it didn't matter that I'd done that with the doctors, multiple times, or that she had an advanced care directive, clearly stating, do not give me, treatment that will prolong my life. It didn't matter that all of those things were in place. What mattered, was that ICU doctor who absolutely, compassionately just stopped everything and talked to my mum. And it's a pretty brave thing when your heart is failing and other things are happening in your body to say, no more, I'm done. Because that does, that's a decision about you only have a certain amount of time left in your life then. So, that doctor changed the course of my mum's dying. And, yeah, I'll never forget that. And then the compassion at which she called me to talk with me about what mum had decided. And the checking. The difference – one of the other things that I found – the difference between a doctor with really, like, person-centered communication skills and someone who's focused on getting the job done. They ring and say, ‘Hey, I'm caring for your mum. I'm caring for your person. What do you understand about what's happening?’ James: Right. Right. Kerrie: And every time, they did that… James: …they want to listen to you first, yeah. Kerrie: …Yeah. Every time they did that, it just gave me an opportunity, even though I know this gig, I've talked a hundred times on the other side of that conversation with people, but it just made me realise the just incredible, that empathy, you feel it in your bones on a whole other level when someone is truly going, ‘Tell me, tell me your story, tell me your bit.’ And, that was, that was a big learning and a big reflection as a health professional, as someone who's been there. The other thing, sorry, you cracked that open, didn't you? The other, the other part was, no one asked, me or my brother, about, about our experience, our previous experiences, and who we were, and what we did, and who were these children taking their mum home. My brother's a nurse. I've worked in palliative care for a million years, and it was a really interesting thing having to, like, I just wanted someone to go, Hey, have you done this before? And maybe I'm being a bit biased there because that's something that, because I've got a death literacy lens over things. And I'm always interested in, Hey, what have you done before? Hey, what experiences do you want to bring to this one? What do you know about what you're facing? What do you want to know about next? They were all the questions that I would be asking if I was working with someone. I really wanted someone to ask me those questions. Andrew: In a palliative care setting, you would probably have been asked those questions, you would hope. Kerrie: I hope so. Andrew: In a general hospital, maybe not. I think that speaks to two things, what we're talking about, which is paralysis in the face of death and, a sense of we just treat, we treat, we treat. This is what we do. Everybody's terrified of being accused somehow of not having done enough. So I think there's that. And, the doctor, the ICU doctor you described, that strikes me as a perfect piece of medicine. And it, it absolutely accords with what a beautiful nurse said to me in South Australia some years ago. She was very emotional. She was, she was recording a piece for us about why there should be voluntary assisted dying. It was always instructive to me that the ones that really advocated for it were the nurses, because they're the ones that see the suffering. And she just said, ‘Why can't we do the right thing, human to human?’ And that's why I see this as a multi-generational discussion within the health profession. It's not that people in the health profession aren't humans or don't get that, but it's not how they're trained. And, but I also think it speaks to the pressures on the health system too. Kerrie: Yeah. Andrew: In the same way as we're talking about aged care, even though we have a much healthier health system than, say, America, it's still pressured. And we know, we hear stories from hospitals all the time of, resources that are built but not used or resources that are used but are stretched beyond reason, and so I think it's a reflection of all those things. But there was at times, and I think sometimes we don't talk about this enough, is paternalism in healthcare. Andrew: Can I explain that?! James: Yeah, that's right. Andrew: Sorry. James: Oh yeah, we covered that Kerrie, us blokes know all… Andrew: Please, do go on. Kerrie: Oh, there's a lived experience. [laughter]. Oh, yes, that. Andrew: No, I'm sorry, please do explain. James: …which you ably demonstrated… Kerrie: So, that, yeah, like paternalism, we just don't have a critical kind of conversation about paternalism in healthcare. And there's, you know, there's that difference between really great care. And then, but if you just kind of tip it a little further into ‘Hmm, do you really want to do that? Oh, don't you want to be the daughter, not the carer?’ You know, like there are, there are kind of, there are particular things that happen in healthcare that, that we don't, we aren't critical enough, is what I'm saying. I don't know what the answer is, but I would like the system to be more critical about, about some of those things that perhaps they take for granted a little. And, look, sometimes it would be maybe permission for a family to kind of, yeah, be the daughter. James: Well, even in my experience, my cancer experience in the last year or so, I've now done several talks at doctors conferences and things like that. And what, what sort of strikes me as funny about it is I go, ‘We’re thinking of taking an interest in the patient's perspective, perhaps you'd like to come talk about that?’ Patient's perspective. Is this new? Andrew: You know, I, I went on Q&A, about VAD quite early in my advocacy, which was a terrifying experience, by the way, and, and there was a, another fairly prominent doctor who was strongly in opposition, and I, I completed what I had to say by basically saying, you know, doctors, it's, it's time to listen to your patients. And this doctor, who's a very good writer, wrote this excoriating piece in a magazine afterwards, just accusing me of being patronising towards doctors. And I'm thinking, that's patronising? I mean, the worst example I know of this, there was a, a former AMA official and, they held a debate on this internally in 2016, that I had a link to and I, so I watched it. And he was a, a geriatrician, and a senior doctor. And somebody on the other side of the debate, because he was opposed, had put to him that there's a great public support for this. And he said, and I'm, I'm quoting pretty close to verbatim, he said, ‘That's why we're paid $200,000 a year. We make these decisions.’ And that's, so I think there is significant paternalism. There was another, a female oncologist who wrote a piece in The Australian against these laws, and even though it wasn't her headline, it was what she meant. The headline was, ‘Autonomy, it's not about you’. And you know, going back to what I was saying, there cannot be a more, you-focused experience than your dying. I don't care what your religion tells you, in the end, only you are going there when it happens. James: You've given, is it a decade now, to this? Andrew: More, I think. James: More, you know. Again, I suppose, what's your reflection on that? I sort of feel like I'm framing the question almost, are you glad you did that? You know, is that… Andrew: There are times, and I'm sure Kerrie would agree with this, there are times I think, you know, I've had enough death, thank you very much. Andrew: But I would have to say it's been the most brilliant second act for me after showbusiness, far more meaningful to me. The correspondence I've had and the conversations I've had, have been so privileged, and the gratitude that we as an organisation, Go Gentle, receive from people whose families had the option of voluntary assisted dying is immense. And, so yes, I am glad. And certainly I view this as the real work that I've done, not whatever I may have done in television. Perhaps if I'd won a Logie, I'd feel differently about that. James: I think you peaked at [1980s show] Blah, Blah, Blah, quite frankly! Andrew: Yeah, I think so, and it was all downhill after that first year, exactly! James: Yeah, well, I almost feel like I need to go and have a good cry. It's been, a beautiful discussion. Thank you so much for, uh, sharing it with us here on Life's Booming. Andrew: Can I ask you a question? Before you just wound up, you're getting teary. James: Yeah, yeah. Andrew: What are you feeling? James: I'm taking a deep breath to calm, so I can't talk, not necessarily to squash it. I'm always surprised when it comes up. I, I never quite know when I'm going to get teary. And sometimes it's, it can happen on air, like sometimes if someone starts talking about death or a relative, and I'll be listening to it and I'll suddenly go to speak and go, oh, the emotion's right there, you know. So, I'm not entirely clear. I think I'm moved by Kerrie, and sort of wanting to experience your grief in some ways, deal with that. Or I feel like, I think I'm feeling that you, you holding it in, sort of that, you know, we need to sort of let that, let that go a bit. So, it's interesting. I think I'm moved by your work as well. Look, we have a funny connection over many decades, and to observe you go through, deal with, deal with, you know, to see you transform into doing that work has been quite extraordinary. And I'm probably just contemplating my own death. [laughter] Andrew: And, exactly right, James. And during the height of COVID, quite unexpectedly, a very good, friend of mine, he rang me from Victoria and we knew his wife had pancreatic cancer, which is obviously a very tough diagnosis. And then he said she's chosen VAD and she's going to die in this state. And despite all the thousands of hours spent in that debate to get that law passed in Victoria, which was the first one in Australia, and it was an absolute brutal knife fight of a battle to get that law passed. For some reason, it had never occurred to me that somebody who I knew and loved was going to use this law. James: Yeah, right. Andrew: And I remember, despite everything I knew about it, on the day, Jennifer and I, we got our whisky glasses. We poured a whisky. We lit a candle. But I remember thinking as the clock ticked down to the moment, it felt very unreal to me. But the strong emotion that I felt at the moment, knowledge in the moment of her dying was not that she had died. It was actually about just the richness of life. Oh my god, life is so rich. And that's what I felt. I just felt, wow, life. Kerrie: I think that is what you say there is so deeply important because one of the reluctances around talking about death and dying is not being able to maybe lean into some of that feeling around that richness of life. When we were going through photo albums, there were photos there that, you know, that we'd never really taken notice of before. Damn, we wanted to know about them now. Who were they? Who are these people? Where are they now? It does connect you to life in a very profound way. And all of the messiness of that. And that's, I think, only a great thing. Watching my children, 22 and 17, be with their grandma. We did a very, a simple thing. Put a comb, a brush on the end of her bed. And mum used to love having her hair brushed. And we just said to the kids, just brush her hair, if you want. Andrew: That’s gorgeous… Kerrie: And so that just very simple action just then gave them something to be with her while she was dying. Andrew: Human to human. James: Yeah. Kerrie: Yeah. And my children did that many times, while she was dying. And, and that's when we would sit and talk about what we did with Nanny and things. And we, you know… So it's worth leaning into. I guess that's the other thing. It's worth getting the whisky out and having a think about, about, about these things and reflecting in on it, and how, and what it means to you and what you want to do. James: Thank you. Kerrie: Thanks. Andrew: Thanks, James. James: I'm gonna cry. Andrew: Come on. Let's hug it out. Come here. James: Exactly. It was very good. That was a beautiful moment. Thank you. Thank you. Thank you. Thanks to our guests, Andrew Denton and Dr Kerrie Noonan. You've been listening to Season 6 of Life's Booming: Dying to Know, brought to you by Australian Seniors. Please leave a review or tell someone about it. Head to seniors.com.au/podcast for more episodes. May your life be booming. I'm James Valentine.See omnystudio.com/listener for privacy information.

Robby: So today we want to talk especially to those listeners who are going through a crisis. And if you're not, we want to encourage you to listen in. Because today's talk will be helpful whatever season you're in, whether for you or someone you love. James? James: That's right. We want to talk about “Prayers from the Pit”—think about Joseph, thrown into a pit by his brothers, then sold into slavery, one crisis after another. Robby: James, when we were talking about this before you mentioned that you read something today about this that you really found helpful. James: Yeah, that will set this up well. A friend of mine gave me a book of quotes from Charles Spurgeon, the amazingly gifted British preacher. Just listen to this, because there's a lot of truth in it (James reads). Robby: That's beautiful. And that really does lead us right into talking about prayer, because when you're going through something like that, it can be hard on your relationship with God. You can wonder why He allows it, what He's up to, and that can really have an impact on the ways that we pray. James: Exactly. And that's what I wanted to do today, to talk to that person who is in that place right now and encourage you, even though it's hard, even though it's dark right now, don't give up. Especially don't give up on God. Robby: I can see why you'd like that message from Spurgeon so much, because you've really been there. I know there were some times where you and your wife had to feel like you were—how did Spurgeon put it—“marked for sorrow” because of what was going on in your life with your kids. But then later, you became a comforter to others because of it, especially the parents of other prodigals, helping them learn how to pray in those times through your book “Prayers for Prodigals” James: Yeah, that's just the thing. You wonder why God allows it at the time—and I'm not just talking about those “life doesn't seem fair” moments, I'm talking about those circumstances that are heartbreaking. And then later you see how God really did get you through even those moments when it seemed like He wasn't there. But you have to go through them, you have to feel it in your own skin. Because if you don't go through something like that you won't be as real when it comes to helping others. And of course that's the farthest thing from your mind in the moment, you just want to go through it, to come through the other side. And this is where it comes down to prayer. How do you pray at a time like that? I think there are three things we can do that really make a difference, and the first is a simple prayer of trust. “Lord, I don't understand this, I don't like it, but I'm yours. I trust that you've got this, and you've got me. I love you and I need you, please keep me close. Robby: I like that because when you think about Joseph, the Bible tells us God was with him in everything, even when he was in prison. James: That's right. And think about something else Joseph said later to his brothers. Robby: I know where you're going with this. He told them, “You meant it for evil, but God meant it for good.” James: That's right. So after we pray a prayer of trust, pray a prayer of praise. Not for your circumstances—that would be really hard to do that and be real it in—but to just praise God for God, to take your eyes off yourself and put them on Him. Robby: Yeah, that can really help us. I find when I try to do that God has a way of lifting me out of whatever is going on somehow, and giving me what I need to just get through. He builds my faith when I do it. James: I think that's really true. And faith brings us to the third way to pray—a prayer of thanks. Remember God's Word encourages us to give thanks in all circumstances, so we can thank God that He is good, He is faithful, and He will bring good even though you can't see it right now. So that pretty much wraps it up. A prayer of trust, a prayer of praise, and a prayer of thanks. Robby: James, let's pray for those listeners who are going through it right now as we wrap up. Will you do that? James: That would be good. (James prays)

About JamesJames has been part of AWS for over 15 years. During that time he's led software engineering for Amazon EC2 and more recently leads the AWS Commerce Platform group that runs some of the largest systems in the world, handling volumes of data and request rates that would make your eyes water. And AWS customers trust us to be right all the time so there's no room for error.Links Referenced:Email: jamesg@amazon.comTranscriptAnnouncer: Hello, and welcome to Screaming in the Cloud with your host, Chief Cloud Economist at The Duckbill Group, Corey Quinn. This weekly show features conversations with people doing interesting work in the world of cloud, thoughtful commentary on the state of the technical world, and ridiculous titles for which Corey refuses to apologize. This is Screaming in the Cloud.Corey: This episode is sponsored in part by our friends at Vultr. 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My thanks to them for sponsoring this ridiculous podcast.Corey: Finding skilled DevOps engineers is a pain in the neck! And if you need to deploy a secure and compliant application to AWS, forgettaboutit! But that's where DuploCloud can help. Their comprehensive no-code/low-code software platform guarantees a secure and compliant infrastructure in as little as two weeks, while automating the full DevSecOps lifestyle. Get started with DevOps-as-a-Service from DuploCloud so that your cloud configurations are done right the first time. Tell them I sent you and your first two months are free. To learn more visit: snark.cloud/duplo. Thats's snark.cloud/D-U-P-L-O-C-L-O-U-D. Corey: Welcome to Screaming in the Cloud. I'm Corey Quinn. And I've been angling to get someone from a particular department at AWS on this show for nearly its entire run. If you were to find yourself in an Amazon building and wander through the various dungeons and boiler rooms and subterranean basements—I presume; I haven't seen nearly as many of you inside of those buildings as people might think—you pass interesting departments labeled things like ‘Spline Reticulation,' or whatnot. And then you come to a very particular group called Commerce Platform.Now, I'm not generally one to tell other people's stories for them. My guest today is James Greenfield, the VP of Commerce Platform at AWS. James, thank you for joining me and suffering the slings and arrows I will no doubt be hurling at you.James: Thanks for having me. I'm looking forward to it.Corey: So, let's start at the very beginning—because I guarantee you, you're going to do a better job of giving the chapter and verse answer than I would from a background mired deeply in snark—what is Commerce Platform? It sounds almost like it's the retail website that sells socks, books, and underpants.James: So, Commerce Platform actually spans a bunch of different things. And so, I'm going to try not to bore you with a laundry list of all of the things that we do—it's a much longer list than most people assume even internal to AWS—at its core, Commerce Platform owns all of the infrastructure and processes and software that takes the fact that you've been running an EC2 instance, or you're storing an object in S3 for some period of time, and turns it into a number at the end of the month. That is what you asked for that service and then proceeds to try to give you as many ways to pay us as easily as possible. There are a few other bits in there that are maybe less obvious. One is we're also responsible for protecting the platform and our customers from fraudulent activity. And then we're also responsible for helping collect all of the data that we need for internal reporting to support some of the back-ends services that a business needs to do things like revenue recognition and general financial reporting.Corey: One of the interesting aspects about the billing system is just how deeply it permeates everything that happens within AWS. I frequently say that when it comes to cloud, cost and architecture are foundationally and fundamentally the same exact thing. If your entire service goes down, a few interesting things happen. One, I don't believe a single customer is going to complain other than maybe a few accountants here and there because the books aren't reconciling, but also you've removed a whole bunch of constraints around why things are the way that they are. Like, what is the most efficient way to run this workload?Well, if all the computers suddenly become free, I don't really care about efficiency, so much is, “Oh, hey. There's a fly, what do I have as a flyswatter? That's right, I'm going to drop a building on it.” And those constraints breed almost everything. I've said, for example, that S3 has infinite storage because it does.They can add drives faster than we're able to fill them—at least historically; they added some more replication services—but they're going to be able to buy hard drives faster than the rest of us are going to be able to stretch our budgets. If that constraint of the budget falls away, all bets are really off, and more or less, we're talking about the destruction of the cloud as a viable business entity. No pressure or anything.James: [laugh].Corey: You're also a recent transplant into AWS billing as a whole, Commerce Platform in general. You spent 15 years at the company, the vast majority of that over an EC2. So, either it was you've been exiled to a basically digital Siberia or it was one of those, “Okay, keeping all the EC2 servers up, this is easy. I don't see what people stress about.” And they say, “Oh, ho ho, try this instead.” How did you find yourself migrating over to the Commerce Platform?James: That's actually one I've had a lot from folks that I've worked with. You're right, I spent the first 15 or so years of my career at AWS in EC2, responsible for various things over there. And when the leadership role in Commerce Platform opened up, the timing was fortuitous, and part of it, I was in the process of relocating my family. We moved to Vancouver in the middle of last year. And we had an opening in the role and started talking about, potentially, me stepping into that role.The reason that I took it—there's a few reasons, but the primary reason is that if I look back over my career, I've kind of naturally gravitated towards owning things where people only really remember that they exist when they're not working. And for some reason, you know, I enjoy the opportunity to try to keep those kinds of services ticking over to the point where people don't notice them. And so, Commerce Platform lands squarely in that space. I've always been attracted to opportunities to have an impact, and it's hard to imagine having much more of an impact than in the Commerce Platform space. It underpins everything, as you said earlier.Every single one of our customers depends on the service, whether they think about it or realize it. Every single service that we offer to customers depends on us. And so, that really is the sort of nexus within AWS. And I'm a platform guy, I've always been a platform guy. I like the force multiplier nature of platforms, and so Commerce Platform, you know, as I kind of thought through all of those elements, really was a great opportunity to step in.And I think there's something to be said for, I've been a customer of Commerce Platform internally for a long time. And so, a chance to cross over and be on the other side of that was something that I didn't want to pass up. And so, you know, I'm digging in, and learning quickly, ramping up. By no means an expert, very dependent on a very smart, talented, committed group of people within the team. That's kind of the long and short of how and why.Corey: Let's say that I am taking on the role of an AWS product team, for the sake of argument. I know, keep the cringe down for a second, as far as oh, God, the wince is just inevitable when the idea of me working there ever comes up to anyone. But I have an idea for a service—obviously, it runs containers, and maybe it does some other things as well—going from idea to six-pager to MVP to barely better than MVP day-one launch, and at some point, various things happen to that service. It gets staff with a team, objectives and a roadmap get built, a P&L and budget, and a pricing model and the rest. One the last thing that happens, apparently, is someone picks the worst name off of a list of candidates, slaps it on the product, and ships it off there.At what point does the billing system and figuring out the pricing dimensions for a given service tend to factor in? Is that a last-minute story? Is that almost from the beginning? Where along that journey does, “Oh, by the way, we're building this thing. Maybe we should figure out, I don't know, how to make money from it.” Factor into the conversation?James: There are two parts to that answer. Pretty early on as we're trying to define what that service is going to look like, we're already typically thinking about what are the dimensions that we might charge along. The actual pricing discussions typically happen fairly late, but identifying those dimensions and, sort of, the right way to present it to customers happens pretty early on. The thing that doesn't happen early enough is actually pulling the Commerce Platform team in. but it is something that we're going to work this year to try to get a little bit more in front of.Corey: Have you found historically that you have a pretty good idea of how a service is going to be priced, everything is mostly thought through, a service goes to either private preview or you're discussing about a launch, and then more or less, I don't know, someone like me crops up with a, “Hey, yeah, let's disregard 90% of what the service does because I see a way to misuse the remaining 10% of it as a database.” And you run some mental math and realize, “Huh. We're suddenly giving, like, eight petabytes of storage per customer away for free. Maybe we should guard against that because otherwise, it's rife with misuse.” It used to be that I could find interesting ways to sneak through the cracks of various services—usually in pursuit of a laugh—those are getting relatively hard to come by and invariably a lot more trouble than they're worth. Is that just better comprehensive diligence internally, is that learning from customers, or am I just bad at this?James: No, I mean, what you're describing is almost a variant of the Defender's Dilemma. They are way more ways to abuse something than you can imagine, and so defending against that is pretty challenging. And it's important because, you know, if you turn the economics of something upside down, then it just becomes harder for us to offer it to customers who want to use it legitimately. I would say 90% of that improvement is us learning. We make plenty of mistakes, but I think, you know, one of the things that I've always been impressed by over my time here is how intentional we are trying to learn from those mistakes.And so, I think that's what you're seeing there. And then we try very hard to listen to customers, talk to folks like you, because one of the best ways to tackle anything it smells of the Defender's Dilemma is to harness that collective creativity of a large number of smart people because you really are trying to cover as much ground as possible.Corey: There was a fun joke going around a while back of what is the most expensive environment you can get running on a free tier account before someone from AWS steps in, and I think I got it to something like half a billion dollars in the first month. Now, I haven't actually tested this for reasons that mostly have to do with being relatively poor compared to, you know, being able to buy Guam. And understanding as well the fraud protections built into something like AWS are largely built around defending against getting service usage for free that in some way, shape or form, benefits the attacker. The easy example of that would be mining cryptocurrency, which is just super-economic as long as you use someone else's AWS account to do it. Whereas a lot of my vectors are, “Yeah, ignore all of that. How do I just make the bill artificially high? What can I do to misuse data transfer? And passing a single gigabyte through, how much can I make that per gigabyte cost be?” And, “Oh, circular replication and the Lambda invokes itself pattern,” and basically every bad architectural decision you can possibly make only this time, it's intentional.And that shines some really interesting light on it. And I have to give credit where due, a lot of that didn't come from just me sitting here being sick and twisted nearly so much as it did having seen examples of that type of misconfiguration—by mistake—in a variety of customer accounts, most confidently my own because it turns out that the way I learn things is by screwing them up first.James: Yeah, you've touched on a couple of different things in there. So, you know, maybe the first one is, I typically try to draw a line between fraud and abuse. And fraud is essentially trying to spend somebody else's money to get something for free. And we spent a lot of time trying to shut that down, and we're getting really good at catching it. And then abuse is either intentional or unintentional. There's intentional abuse: You find a chink in our armor and you try to take advantage of it.But much more commonly is unintentional abuse. It's not really abuse, you know. Abuse has very negative connotations, but it's unintentionally setting something up so that you run up a much larger bill than you intended. And we have a number of different internal efforts, and we're working on a bunch more this year, to try to catch those early on because one of my personal goals is to minimize the frequency with which we surprise customers. And the least favorite kind of surprise for customers is a [laugh] large bill. And so, what you're talking about there is, in a sufficiently complex system, there's always going to be weaknesses and ways to get yourself tied up in knots.We're trying both at the service team level, but also within my teams to try to find ways to make it as hard as possible to accidentally do that to yourself and then catch when you do so that we can stop it. And even more on the intentional abuse side of things, if somebody's found a way to do something that's problematic for our services, then you know, that's pretty much on us. But we will often reach out and engage with whoever's doing and try to understand what they're trying to do and why. Because often, somebody's trying to do something legitimate, they've got a problem to solve, they found a creative way to solve it, and it may put strain on the service because it's just not something we designed for, and so we'll try to work with them to use that to feed into either new services, or find a better place for that workload, or just bolster what they're using. And maybe that's something that eventually becomes a fully-fledged feature that we offer the customers. We're always open to learning from our customers. They have found far more creative ways to get really cool things done with our services than we've ever imagined. And that's true today.Corey: I mean, most of my service criticisms come down to the fact that you have more-or-less built a very late model, high performing iPad, and I'm out there complaining about, “What a shitty hammer this thing is, it barely works at all, and then it breaks in my hand. What gives?” I would also challenge something you said a minute ago that the worst day for some customers is to get a giant surprise bill, but [unintelligible 00:13:53] to that is, yeah, but, on some level, that kind of only money; you do have levers on your side to fix those issues. A worse scenario is you have a customer that exhibits fraud-like behavior, they're suddenly using far more resources than they ever did before, so let's go ahead and turn them off or throttle them significantly, and you call them up to tell them you saved them some money, and, “Our Superbowl ad ran. What exactly do you think you're doing?” Because they don't get a second bite at that kind of Apple.So, there's a parallel on both sides of this. And those are just two examples. The world is full of nuances, and at the scale that you folks operate at. The one-in-a-million events happen multiple times a second, the corner cases become common cases, and I'm surprised—to be direct—how little I see you folks dropping the ball.James: Credit to all of the teams. I think our secret sauce, if anything, really does come down to our people. Like, a huge amount of what you see as hopefully relatively consistent, good execution comes down to people behind the scenes making sure. You know, like, some of it is software that we built and made sure it's robust and tested to scale, but there's always an element of people behind the scenes, when you hit those edge cases or something doesn't quite go the way that you planned, making sure that things run smoothly. And that, if anything, is something that I'm immensely proud of and is kind of amazing to watch from the inside.Corey: And, on some level, it's the small errors that are the bigger concern than the big ones. Back a couple years ago, when they announced GP3 volumes at re:Invent, well, great, well spin up a test volume and kick the tires on it for an hour. And I think it was 80 or 100 gigs or whatnot, and the next day in the bill, it showed up as about $5,000. And it was, “Okay, that's not great. Not great at all.” And it turned out that it was a mispricing error by I think a factor of a million.And okay, at least it stood out. But there are scenarios where we were prepared to pay it because, oops, you got one over on us. Good job. That's never been the mindset I've gotten about AWS's philosophy for pricing. The better example that I love because no one took it seriously, was a few years before that when there was a LightSail bug in the billing system, and it made the papers because people suddenly found that for their LightSail instance, they were getting predicted bills of $4 billion.And the way I see it, you really only had to make that work once and then you've made your numbers for the year, so why not? Someone's going to pay for it, probably. But that was such out-of-the-world numbers that no one saw that and ever thought it was anything other than a bug. It's the small pernicious things that creep in. Because the billing system is vast; I had no idea when I started working with AWS bills just how complicated it really was.James: Yeah, I remember both of those, and there's something in there that you touched on that I think is really important. That's something that I realized pretty early on at Amazon, and it's why customer obsession is our flagship leadership principle. It's not because it's love and butterflies and unicorns; customer obsession is key to us because that's how you build a long-term sustainable business is your customers depend on you. And it drives how we think about everything that we do. And in the billing space, small errors, even if there are small errors in the customer's favor, slowly erode that trust.So, we take any kind of error really seriously and we try to figure out how we can make sure that it doesn't happen again. We don't always get that right. As you said, we've built an enormous, super-complex business to growing really quickly, and really quick growth like that always acts as kind of a multiplier on top of complexity. And on the pricing points, we're managing millions of pricing points at the moment.And our tools that we use internally, there's always room for improvement. It's a huge area of focus for us. We're in the beginning of looking at applying things like formal methods to make sure that we can make very hard guarantees about the correctness of some of those. But at the end of the day, people are plugging numbers in and you need as many belts and braces as possible to make sure that you don't make mistakes there.Corey: One of the things that struck me by surprise when I first started getting deep into this space was the fact that the finalized bill was—what does it mean to have this be ‘finalized?' It can hit the Cost and Usage Report in an S3 bucket and it can change retroactively after the month closed periodically. And that's when I started to have an inkling of a few things: Not just the sheer scale and complexity inherent to something like the billing system that touches everything, but the sheer data retention stories where you clearly have to be able to go back and reconstruct a bill from the raw data years ago. And I know what the output of all of those things are in the form of Cost and Usage Reports and the billing data from our client accounts—which is the single largest expense in all of our AWS accounts; we spent thousands and thousands and thousands of dollars a year just on storing all of that data, let alone the processing piece of it—the sheer scale is staggering. I used to wonder why does it take you a day to record me using something to it's showing up in the bill? And the more I learned the more it became a how can you do that in only a day?James: Yes, the scale is actually mind-boggling. I'm pretty sure that the core of our billing system is—I'm reasonably confident it's the largest or one of the largest data processing systems on the planet. I remember pretty early on when I joined Commerce Platform and was still starting to wrap my head around some of these things, Googling the definition of quadrillion because we measured the number of metering events, which is how we record usage in services, on a daily basis in the quadrillions, which is a billion billions. So, it's just an absolutely staggering number. And so, the scale here is just out of this world.That's saying something because it's not like other services across AWS are small in their own right. But I'm still reasonably sure that being one of a handful of services that is kind of at the nexus of AWS and kind of deals with the aggregate of AWS's scale, this is probably one of the biggest systems on the planet. And that shows up in all sorts of places. You start with that input, just the sheer volume of metering events, but that has to produce as an output pretty fine-grained line item detailed information, which ultimately rolls up into the total that a customer will see in their bill. But we have a number of different systems further down the pipeline that try to do things like analyze your usage, make sensible recommendations, look for opportunities to improve your efficiency, give you the ability to slice and dice your data and allocate it out to different parts of your business in whatever way it makes sense for your business. And so, those systems have to deal with anywhere from millions to billions to recently, we were talking about trillions of data points themselves. And so, I was tangentially aware of some of the scale of this, but being in the thick of it having joined the team really just does underscore just how vast the systems are.Corey: I think it's, on some level, more than a little unfortunate that that story isn't being more widely told, more frequently. Because when Commerce Platform has job postings that are available on the website, you read it and it's very vague. It doesn't tend to give hard numbers about a lot of these things, and people who don't play in these waters can easily be forgiven for thinking the way that you folks do your job is you fire up one of those 24 terabyte of RAM instances that—you know, those monstrous things that you folks offer—and what do you do next? Well, Microsoft Excel. We have a special high memory version that we've done some horse-trading with our friends over at Microsoft for.It's, yeah, you're several steps beyond that, at this point. It's a challenging problem that every one of your customers has to deal with, on some level, as well. But we're only dealing with the output of a lot of the processing that you folks are doing first.James: You're exactly right. And a big focus for some of my teams is figuring out how to help customers deal with that output. Because even if you're talking about couple of orders of magnitude reduction, you're still talking about very large numbers there. So, to help customers make sense of that, we have a range of tools that exist, we're investing in.There's another dimension of complexity in the space that I think is one that's also very easy to miss. And I think of it as arbitrary complexity. And it's arbitrary because some of the rules that we have to box within here are driven by legislative changes. As you operate more and more countries around the world, you want to make sure that we're tax compliant, that we help our customers be tax compliant. Those rules evolve pretty rapidly, and Country A may sit next to Country B, but that doesn't mean that they're talking to one another. They've all got their own ideas. They're trying to accomplish r—00:22:47Corey: A company is picking up and relocating from India to Germany. How do we—James: Exactly.Corey: —change that on the AWS side and the rest? And it's, “Hoo boy, have you considered burning it all down and filing an insurance claim to start over?” And, like, there's a lot of complexity buried underneath that that just doesn't rise to the notice of 99% of your customers.James: And the fact that it doesn't rise to the notice is something that we strive for. Like, these shouldn't be things that customers have to worry about. Because it really is about clearing away the things that, as far as possible, you don't want to have to spend time thinking about so that you can focus on the thing that your business does that differentiates you. It's getting rid of that undifferentiated heavy lifting. And there's a ton of that in this space, and if you're blissfully unaware of it, then hopefully that means that we're doing our job.Corey: What I'm, I think, the most surprised about, and I have been for a long time. And please don't take this as an insult to various other folks—engineers, the rest, not just in other parts of AWS but throughout the other industry—but talking to the people who work within Commerce Platform has always been just a fantastic experience. The caliber of people that you have managed to attract and largely retain—we don't own people, they do matriculate out eventually—but the caliber of people that you've retained on your teams has just been out of this world. And at first, I wondered, why are these awesome people working on something as boring and prosaic as billing? And then I started learning a little bit more as I went, and, “Oh, wow. How did they learn all the stuff that they have to hold in their head in tension at once to be able to build things like this?” It's incredibly inspiring just watching the caliber of the people that you've been able to bring in.James: I've been really, really excited joining this team, as I've gotten other folks on the team because there's some super-smart people here. But what's really jumped out to me is how committed the team is. This is, for the most part, a team that has been in the space for many years. Many of them have—we talk about boomerangs, folks who live AWS, go spend some time somewhere else and come back and there's a surprisingly high proportion of folks in Commerce Platform who have spent time somewhere else and then come back because they enjoy the space, they find that challenging, folks are attracted to the ability to have an impact because it is so foundational. But yeah, there's a super-committed core to this team. And I really enjoy working with teams where you've got that because then you really can take the long view and build something great. And I think we have tons of opportunities to do that here.Corey: It sounds ridiculous, but I've reached out to team members before to explain two-cent variances in my bill, and never once have I been confronted with a, “It's two cents. What do you care?” They understand the requirement that these things be accurate, not just, “Eh, take our word for it.” And also, frankly, they understand that two cents on a $20 bill looks a little different on a $20 million bill. So yeah, let us figure out if this is systemic or something I have managed to break.It turns out the Cost and Usage Report processing systems don't love it when there's a cost allocation tag whose name contains an emoji. Who knew? It's the little things in life that just have this fun way of breaking when you least expect it.James: They're also a surprisingly interesting problem. So like, it turns out something as simple as rounding numbers consistently across a distributed system at this scale, is a non-trivial problem. And if you don't, then you do get small seventh or eighth decimal place differences that add up to something that then shows up as a two-cent difference somewhere. And so, there's some really, really interesting problems in the space. And I think the team often takes these kinds of things as a personal challenge. It should be correct, and it's not, so we should go make sure it is correct. The interesting problems abound here, but at the end of the day, it's the kind of thing that any engineering team wants to go and make sure it's correct because they know that it can be.Corey: This episode is sponsored in parts by our friend EnterpriseDB. EnterpriseDB has been powering enterprise applications with PostgreSQL for 15 years. And now EnterpriseDB has you covered wherever you deploy PostgreSQL on premises, private cloud, and they just announced a fully managed service on AWS and Azure called BigAnimal, all one word. Don't leave managing your database to your cloud vendor because they're too busy launching another half dozen manage databases to focus on any one of them that they didn't build themselves. Instead, work with the experts over at EnterpriseDB. They can save you time and money, they can even help you migrate legacy applications, including Oracle, to the cloud.To learn more, try BigAnimal for free. Go to biganimal.com/snark, and tell them Corey sent you.Corey: On the one hand, I love people who just round and estimate—we all do that, let's be clear; I sit there and I back-of-the-envelope everything first. But then I look at some of your pricing pages and I count the digits after the zeros. Like, you're talking about trillionths of a dollar on some of your pricing points. And you add it up in the course of a given hour and it's like, oh, it's $250 a month, most months. And it's you work backwards to way more decimal places of precision than is required, sometimes.I'm also a personal fan of the bill that counts, for example, number of Route 53 zones. Great. And it counts them to four decimal places of precision. Like, I don't even know what half of it Route 53 zone is at this point, let alone something to, like, ah the 1,000th of the zone is going to cause this. It's all an artifact of what the underlying systems are.Can you by any chance shed a little light on what the evolution of those systems has been over a period of time? I have to imagine that anything you built in the early days, 16 years ago or so from the time of this recording when S3 launched to general availability, you probably didn't have to worry about this scope and scale of what you do, now. In fact, I suspect if you tried to funnel this volume through S3 back then, the whole thing would have collapsed under its own weight. What's evolved over the time that you had the billing system there? Because changes come slowly to your environment. And frankly, I appreciate that as a customer. I don't like surprising people in finance.James: Yeah, you're totally right. So, I joined the EC2 team as an engineer myself, some 16 years ago, and the very first thing that I did was our billing integration. And so, my relationship with the Commerce Platform organization—what was the billing team way back when—it goes back over my entire career at AWS. And at the time, the billing team was similar, you know, [unintelligible 00:28:34] eight people. And that was everything. There was none of the scale and complexity; it was all one system.And much like many of our biggest, oldest services—EC2 is very similar, S3 is as well—there's been significant growth over the last decade-and-a-half. A lot of that growth has been rapid, and rapid growth presents its own challenges. And you live with decisions that you make early on that you didn't realize were significant decisions that have pretty deep implications 15 years later. We're still working through some of those; they present their own challenges. Evolving an existing system to keep up with the growth of business and a customer base that's as varied and complex as ours is always challenging.And also harder but I also think more fun than a clean sheet redo at this point. Like, that's a great thought exercise for, well, if we got to do this again today, what would we do now that we've learned so much over the last 15 years? But there's this—I find it personally fascinating challenge with evolving a live system where it's like, “No, no, like, things exist, so how do we go from there to where we want to be next?”Corey: Turn the billing system off for 18 months, rebuild—James: Yeah. [laugh].Corey: The whole thing from first principles. Light it up. I'm sure you'd have a much better billing system, and also not a company left anymore.James: [laugh]. Exactly, exactly. I've always enjoyed that challenge. You know, even prior to AWS, my previous careers have involved similar kinds of constraints where you've got a live system, or you've got an existing—in the one case, it was an existing SDK that was deployed to tens of thousands of customers around the world, and so backwards compatibility was something that I spent the first five years of my career thinking about it way more detail than I think most people do. And it's a very similar mindset. And I enjoy that challenge. I enjoy that: How do I evolve from here to there without breaking customers along the way?And that's something that we take pretty seriously across AWS. I think SimpleDB is the poster child for we never turn things off. But that applies equally to the services that are maybe less visible to customers, and billing is definitely one of them. Like, we don't get to switch stuff off. We don't get to throw things away and start again. It's this constant state of evolution.Corey: So, let's say that I were to find a way to route data through a series of two Managed NAT Gateways and then egress to internet, and the sheer density of the expense of that traffic tears a hole in the fabric of space-time, it goes back 15 years ago, and you can make a single change to how the billing system was built. What would it be? What pisses you off the most about the current constraints that you have to work within or around?James: I think one of the biggest challenges we've got, actually, is the concept of an account. Because an account means half-a-dozen different things. And way back, when it seemed like a great idea, you just needed an account; an account was your customer, and it was the same thing as the boundary that you put all your resources inside. And of course, it's the same thing that you're going to roll all of your usage up and issue a bill against. And that has been one of the areas that's seen the most evolution and probably still has a pretty long way to go.And what's interesting about that is, that's probably something we could have seen coming because we watched the retail business go through, kind of, the same evolution because they started with, well, a customer is a customer is a customer and had to evolve to support the concept of sellers and partners. And then users are different than customers, and you want to log in and that's a different thing. So, we saw that kind of bifurcation of a single entity into a wide range of different related but separate entities, and I think if we'd looked at that, you know, thought out 15 years, then yeah, we could probably have learned something from that. But at the same time, when AWS first kicked off, we had wild ambitions for it, but there was no guarantee that it was going to be the monster that it is today. So, I'm always a little bit reluctant to—like, it's a great thought exercise, but it's easy to end up second-guessing a pretty successful 15 years, so I'm always a little bit careful to walk that line. But I think account is one of the things that we would probably go back and think about a little bit more.Corey: I want to be very clear with this next question that it is intentionally setting up a question I suspect you get a lot. It does not mirror my own thinking on the matter even slightly, but I get a version of it myself all the time. “AWS bills, that sounds boring as hell. Why would you choose to work on such a thing?” Now, I have a laundry list of answers to that aren't nearly as interesting as I suspect yours are going to be. What makes working on this problem space interesting to you?James: There's a bunch of different things. So, first and foremost, the scale that we're talking about here is absolutely mind-blowing. And for any engineer who wants to get stuck into problems that deal with mind-blowingly large volumes of data, incredibly rich dimensions, problems where, honestly, applying techniques like statistical reasoning or machine learning is really the only way to chip away at it, that exists in spades in the space. It's not always immediately obvious, and I think from the outside, it's easy to assume this is actually pretty simple. So, the scale is a huge part of that.Corey: “Oh, petabytes. How quaint.”James: [laugh]. Exactly. Exactly I mean, it's mind-blowing every time I see some of the numbers in various parts of the Commerce Platform space. I talked about quadrillions earlier. Trillions is a pretty common unit of measure.The complexity that I talked about earlier, that's a result of external environments is another one. So, imposed by external entities, whether it's a government or a tax authority somewhere, or a business requirement from customers, or ourselves. I enjoy those as well. Those are different kinds of challenge. They really keep you on your toes.I enjoy thinking of them as an engineering problem, like, how do I get in front of them? And that's something we spend a lot of time doing in Commerce Platform. And when we get it right, customers are just unaware of it. And then the third one is, I personally am always attracted to the opportunity to have an impact. And this is a space where we get to hopefully positively impact every single customer every day. And that, to me is pretty fulfilling.Those are kind of the three standout reasons why I think this is actually a super-exciting space. And I think it's often an underestimated space. I think once folks join the team and sort of start to dig in, I've never heard anybody after they've joined, telling me that what they're doing is boring. Challenging, yes. Is frustrating, sometimes. Hard, absolutely, but boring never comes up.Corey: There's almost no service, other than IAM, that I can think of that impacts every customer simultaneously. And it's easy for me to sit in the cheap seats and say, “Oh, you should change this,” or, “You should change that.” But every change you have is so massive in scale that it's going to break a whole bunch of companies' automations around the bill processing in different ways. You have an entire category of user persona who is used to clicking a certain button in this certain place in the console to generate the report every month, and if that button moves or changes color, or has a different font, suddenly that renders their documentation invalid, and they're scrambling because it's not their core competency—nor should it be—and every change you make is so constricted, just based upon all the different concerns that you've got to be juggling with. How do you get anything done at all? I find that to be one of the most impressive aspects about your organization, bar none.James: Yeah, I'm not going to lie and say that it isn't a challenge, but a lot of it comes down to the talent that we have on the team. We have a super-motivated, super-smart, super-engaged team, and we spend a lot of time figuring out how to make sure that we can keep moving, keep up with the business, keep up with a world that's getting more complicated [laugh] with every passing day. So, you've kind of hit on one of the core challenges there, which is, how do we keep up with all of those different dimensions that are demanding an increasing amount of engineering and new support and new investment from us, while we keep those customers happy?And I think you touched on something else a little bit indirectly there, which is, a lot of our customers are actually pretty technical across AWS. The customers that Commerce Platform supports, are often the least technical of our customers, and so often need the most help understanding why things are the way they are, where the constraints are.Corey: “A big bill from Amazon. How many books did you people buy last month?”—James: [laugh]. Exactly.Corey: —is still very much level of understanding in some cases. And it's not because they're dumb; far from it. It's just, imagine that some people view there as being more to life than understanding the nuances and intricacies of cloud computing. How dare they?James: Exactly. Who would have thought?Corey: So, as you look now over all of your domain, such as it is, what sucks the most? What are you looking to fix as far as impactful changes that the rest of the world might experience? Because I'm not going to accept one of those questions like, “Oh, yeah, on the back-end, we have this storage subsystem for a tertiary thing that just annoys me because it wakes us up once in a whi”—no, no, I want something customer-facing. What's the painful thing you're looking at fixing next?James: I don't like surprising customers. And free tier is, sort of, one of those buckets of surprises, but there are others. Another one that's pretty squarely in my sights is, whether we like it or not, customer accounts get compromised. Usually, it's a password got reused somewhere or was accidentally committed into a GitHub repository somewhere.And we have pretty established, pretty effective mechanisms for finding all of those, we'll scan for passwords and credentials, and alert customers to those, and help them correct that pretty quickly. We're also actually pretty good at detecting when an account does start to do something that suggests that it's been compromised. Usually, the first thing that a compromised account starts to do is cryptocurrency mining. We're pretty quick to catch those; we catch those within a matter of hours, much faster most days.What we haven't really cracked and where I'm focused at the moment is getting back to the customer in a way that's effective. And by that I mean specifically, we detect an account compromised super-quickly, we reach out automatically. And so, you know, a customer has got some kind of contact from us usually within a couple of hours. It's not having the effect that we need it to. Customers are still being surprised a month later by a large bill. And so, we're digging into how much of that is because they never saw the contact, they didn't know what to do with the contact.Corey: It got buried with all the other, “Hey, we saw you spun up an S3 bucket. Have you heard of what S3 is?” Again, that's all valuable, but you have 300-some-odd services. If you start doing that for every service, you're going to hit mail sending limits for Gmail.James: Exactly. It's not just enough that we detect those and notify customers; we have to reduce the size of the surprise. It's one thing to spend 100 bucks a month on average, and then suddenly find that your spend has jumped $250 because you reused the password somewhere and somebody got ahold of it and it's cryptocurrency-mining your account. It's a whole different ballgame to spend 100 bucks a month and then at the end of the month discover that your bill is suddenly $2,000 or $20,000. And so, that's something that I really wanted to make some progress on this year. Corey: I've really enjoyed our conversation. If people want to learn more about how you view these things, how you're approaching some of these problems, or potentially are just the right kind of warped to consider joining up, where's the best place for them to go?James: They should drop me an email at jamesg@amazon.com. That is the most direct way to get hold of me, and I promise I will get back to you. I try to stay on top of my email as much as possible. But that will come straight to me, and I'm always happy to talk to folks about the space, talk to folks about opportunities in this team, opportunities across AWS, or just hear what's not working, make sure that it's something that we're aware of and looking at.Corey: Throughout Amazon, but particularly within Commerce Platform, I've always appreciated the response of, whenever I report something, no matter how ridiculous it is—and I assure you there's an awful lot of ridiculousness in my bug reports—the response has always been the same: “Tell me more. Help me understand what it is you're trying to achieve—even if it is ridiculous—so we can look at this and see what is actually going on.” Every Amazonian team has been great about that or you're not at Amazon very long, but you folks have taken that to an otherworldly level. I just want to thank you for doing that.James: I appreciate you for calling that out. We try, you know, we really do. We take listening to our customers very seriously because, at the end of the day, that's what makes us better, and that's how we make sure we're in it for the long haul.Corey: Thanks once again for being so generous with your time. I really appreciate it.James: Yeah, thanks for having me on. I've enjoyed it.Corey: James Greenfield, VP of Commerce Platform at AWS. I'm Cloud Economist Corey Quinn, and this is Screaming in the Cloud. If you've enjoyed this podcast, please leave a five-star review on your podcast platform of choice, whereas if you've hated this podcast, please leave a five-star review on your podcast platform of choice along with an angry comment—possibly on YouTube as well—about how you aren't actually giving this five-stars at all; you have taken three trillions of a star off of the rating.Corey: If your AWS bill keeps rising and your blood pressure is doing the same, then you need The Duckbill Group. We help companies fix their AWS bill by making it smaller and less horrifying. The Duckbill Group works for you, not AWS. We tailor recommendations to your business and we get to the point. Visit duckbillgroup.com to get started.Announcer: This has been a HumblePod production. Stay humble.

Controlling Your Voice [Video description begins] Topic title: Controlling Your Voice. Ali, Cory, and James are in the presentation room. Ali is speaking to Cory and James. She looks nervous.[Video description ends] ALI: Our sales figures for the year through the second quarter are down 9%. [Video description begins]Cory and James look uninterested. [Video description ends] We know we're facing powerful competition from some new players, but our team have to turn all things around. Um. All signs are that our latest product is potentially a huge hit... [Video description begins] The host is in the host space. [Video description ends] HOST: Your voice is a tool for communication. Not just for the words you deliver, but for shaping how you deliver them. How fast or how slowly you talk, your volume, your tone, your pitch – all these things help tell listeners what you mean and how you feel. Confident communication requires that you consider and control the volume, pitch, and pace of your voice, using them to say what you want to say the way you want to say it. [Video description begins] Back in the presentation room, Ali, Cory, and James continue their conversation. Cory is speaking to Ali and James. [Video description ends] CORY: Our sales figures through the second quarter are down 9%. We know we're facing powerful competition from some new players, but our teams have to turn things around. [Video description begins] Cory looks confident while speaking. He makes eye contact with each in turn and gestures appropriately. [Video description ends] All signs are that this product could be a huge hit – [Video description begins] The host is in the host space. [Video description ends] HOST: Next, slow down. There is a natural tendency to speed up when talking to an audience, even a small one. Speak slowly. Stretch vowel sounds ever so slightly, pause between your key points, and make sure to enunciate clearly. And use a natural, conversational tone. Even when you're in front of a group, speak to one person at a time, as individuals. Focus from one to the next, but always as if you're talking directly to that person. [Video description begins] Ali and James are in the presentation room. Ali is talking to James. She is holding index cards in her hands. [Video description ends] ALI: These figures alone are pretty impressive. But further results from numerous independent studies have verified our findings [Video description begins] James looks sleepy. [Video description ends] and even surpassed our expectations. JAMES: I'm falling asleep here. ALI: What? [Video description begins] Ali looks surprised. [Video description ends] JAMES: Exactly. Put some emotion into it. You sound flat, like you're reciting from memory. ALI: These figures alone are pretty impressive, but further results from numerous independent studies have verified our findings and even surpassed our expectations. [Video description begins] James smiles and nods in acknowledgement. The host is in the host space. [Video description ends] HOST: Better. Using appropriate emphasis lets you highlight your key points and keep listeners' interest. Emphasis allows you to better connect emotionally with your audience and imparts a sense of passion and immediacy to what you're telling them. And finally, remember that you write in paragraphs, so you should speak in them, too. Make use of pauses as you talk. Used effectively, natural pauses show confidence and give listeners a chance to absorb what you've said. A longer-than-average pause can also effectively recapture a listener's attention. [Video description begins] Back in the presentation room, Ali is talking to James. She looks confident. [Video description ends] ALI: These figures alone are pretty impressive. But further results from numerous independent studies have verified our findings and even surpassed our expectations. Now, that's all well and good, but it won't mean anything if we can't get it in fron

About JamesJames is the Redmonk co-founder, sunshine in a bag, industry analyst loves developers, "motivating in a surreal kind of way". Came up with "progressive delivery". He/HimLinks: RedMonk: https://redmonk.com/ Twitter: https://twitter.com/MonkChips Monktoberfest: https://monktoberfest.com/ Monki Gras: https://monkigras.com/ TranscriptAnnouncer: Hello, and welcome to Screaming in the Cloud with your host, Cloud Economist Corey Quinn. This weekly show features conversations with people doing interesting work in the world of Cloud, thoughtful commentary on the state of the technical world, and ridiculous titles for which Corey refuses to apologize. This is Screaming in the Cloud.Corey: Your company might be stuck in the middle of a DevOps revolution without even realizing it. Lucky you! Does your company culture discourage risk? Are you willing to admit it? Does your team have clear responsibilities? Depends on who you ask. Are you struggling to get buy in on DevOps practices? Well, download the 2021 State of DevOps report brought to you annually by Puppet since 2011 to explore the trends and blockers keeping evolution firms stuck in the middle of their DevOps evolution. Because they fail to evolve or die like dinosaurs. The significance of organizational buy in, and oh it is significant indeed, and why team identities and interaction models matter. Not to mention weither the use of automation and the cloud translate to DevOps success. All that and more awaits you. Visit: www.puppet.com to download your copy of the report now!Corey: And now for something completely different!Corey: Welcome to Screaming in the Cloud. I'm Corey Quinn. I'm joined this week by James Governor, analyst and co-founder of a boutique analysis shop called RedMonk. James, thank you for coming on the show.James: Oh, it's my pleasure. Corey.Corey: I've more or less had to continue pestering you with invites onto this for years because it's a high bar, but you are absolutely one of my favorite people in tech for a variety of reasons that I'm sure we're going to get into. But first, let's let you tell the story. What is it you'd say it is that you do here?James: We—industry analysts; we're a research firm, as you said. I think we do things slightly differently. RedMonk has a very strong opinion about how the industry works. And so whilst there are plenty of research firms that look at the industry, and technology adoption, and process adoption through the lens of the purchaser, RedMonk focuses on it through the lens of the practitioner: the developer, the SRE, the people that are really doing the engineering. And so, historically IT was a top-down function: it required a lot of permission; it was something that was slow, you would make a request, you might get some resources six to nine months later, and they were probably the resources that you didn't actually want, but something that was purchased from somebody that was particularly good at selling things.Corey: Yes. And the thing that you were purchasing was aimed at people who are particularly good at buying things, but not using the things.James: Exactly right. And so I think that RedMonk we look at the world—the new world, which is based on the fact there's open-source software, there's cloud-based software, there are platforms like GitHub. So, there's all of this knowledge out there, and increasingly—it's not a permission-free world. But technology adoption is more strongly influenced than ever by developers. That's what RedMonk understands; that's what makes us tick; that's what excites us. What are the decisions that developers are making? When and why? And how can we tap into that knowledge to help everyone become more effective?Corey: RedMonk is one of those companies that is so rare, it may as well not count when you do a survey of a landscape. We've touched on that before on the show. In 2019, we had your colleague, Rachel Stevens on the show; in 2020, we had your business partner Stephen O'Grady on, and in 2021 we have you. Apparently, you're doling out staff at the rate of one a year. That's okay; I will outlast your expansion plans.James: Yeah, I think you probably will. One thing that RedMonk is not good at doing is growing, which may go to some of the uniqueness that you're talking about. We do what we do very well, but we definitely still haven't worked out what we're going to be when we grow up.Corey: I will admit that every time I see a RedMonk blog post that comes across my desk, I don't even need to click on it anymore; I don't need to read the thing because I already get that sinking feeling, because I know without even glancing at it, I'm going to read this and it's going to be depressing because I'm going to wish I had written it instead because the points are always so pitch-perfect. And it feels like the thing that I struggle to articulate on the best of days, you folks—across the board—just wind up putting out almost effortlessly. Or at least that's how it seems from the outside.James: I think Stephen does that.Corey: It's funny; it's what he said about you.James: I like to sell his ideas, sell his work. He's the brains and the talent of the operation in terms of co-founders. Kelly and Rachel are both incredibly smart people, and yeah, they definitely do a fantastic job of writing with clarity, and getting ideas across by stuff just tends to be sort of jumbled up. I do my best, but certainly, those fully formed, ‘I wish I had written that' pieces, they come from my colleagues. So, thank you very much for that praise of them.Corey: One of the central tenets that RedMonk has always believed and espoused is that developers are kingmakers, to use the term—and I steal that term, of course, from your co-founder's book, The New Kingmakers, which, from my read, was talking about developers. That makes a lot of sense for a lot of tools that see bottom-up adoption, but in a world of cloud, where you're seeing massive deals get signed, I don't know too many developers out there who can sign a 50 million dollar cloud services contract more than once because they get fired the first time they outstrip their authority. Do you think that that model is changing?James: So, ‘new kingmakers' is quite a gendered term, and I have been asked to reconsider its use because, I mean, I don't know whether it should be ‘new monarchmakers?' That aside, developers are a fundamentally influential constituency. It's important, I think, to say that they themselves are not necessarily the monarchs; they are not the ones sitting in Buckingham Palace [laugh] or whatever, but they are influences. And it's important to understand the difference between influence and purchase. You're absolutely right, Corey, the cloud is becoming more, like traditional IT. Something I noticed with your good friends at GCP, this was shortly after the article came out that they were going to cut bait if they didn't get to number two after whatever period of time it was, they then went intentionally inside a bunch of 10-year deals with massive enterprises, I guess, to make it clear that they are in it for the long haul. But yeah, were developers making that decision? No. On the other hand, we don't talk to any organizations that are good at creating digital products and services—and increasingly, that's something that pretty much everybody needs to do—that do not pay a lot more attention to the needs and desires of their developers. They are reshoring, they are not outsourcing everything, they want developers that are close to the business, that understand the business, and they're investing heavily in those people. And rather than seeing them as, sort of, oh, we're going to get the cheapest possible people we can that have some Java skills and hope that these applications aren't crap. It may not be Netflix, “Hey, we're going to pay above market rate,” but it's certainly what do they want? What tools do they want to use? How can we help them become more effective? And so yeah, you might sign a really big deal, but you still want to be thinking, “Hang on a minute, what are the skills that people have? What is going to make them happy? What do they know? Because if they aren't productive, if they aren't happy, we may lose them, and they are very, very important talent.” So, they may not be the people with 50 million dollars in budget, but their opinion is indeed important. And I think that RedMonk is not saying there is no such thing as top-down purchasing anymore. What we are saying is that you need to be serving the needs of this very important constituency, and they will make you more productive. The happier they are, the more flow they can have, the more creative they can be with the tools at hand, the better the business outcomes are going to be. So, it's really about having a mindset and an organizational structure that enables you to become more effective by better serving the needs of developers, frankly. It used to just be the only tech companies had to care about that, but now everybody does. I mean, if we look at, whoever it is: Lego, or Capital One, or Branch, the new insurance company—I love Branch, by the way. I mean—Corey: Yeah. They're fantastic people, I love working with them. I wish I got to spend more time talking with them. So far, all I can do is drag them on to the podcast and argue on Twitter, but one of these days, one of these days, they're going to have an AWS bill bigger than 50 cents a month, and then, oh, then I've got them.James: There you go. But I think that the thing of him intentionally saying we're not going to set up—I mean, are they in Columbus, I think?Corey: They are. The greater Ohio region, yes.James: Yes. And Joe is all about, we need tools that juniors can be effective with, and we need to satisfy the needs of those juniors so they can be productive in driving our business forward. Juniors is already—and perhaps as a bad term, but new entrants into the industry, and how can we support them where they are, but also help them gain new skills to become more effective? And I just think it's about a different posture, and I think they're a great example because not everybody is south of Market, able to pay 350 grand a year plus stock options. That's just not realistic for most businesses. So, it is important to think about developers and their needs, the skills they learned, if they're from a non-traditional background, what are those skills? How can we support them and become more effective?Corey: That's really what it comes down to. We're all trying to do more with less, but rather than trying to work twice as hard, how to become more effective with the time we have and still go home in time for dinner every day?James: Definitely. I have to say, I mean, 2020 sucked in lots of ways, but not missing a single meal with my family definitely was not one of them.Corey: Yeah. There are certain things I'm willing to trade and certain things I'm not. And honestly, family time is one of them. So, I met you—I don't even recall what year—because what is even time anymore in this pandemic era?—where we sat down and grabbed a drink, I want to say it was at Google Cloud Next—the conference that Google does every year about their cloud—not that Google loses interest in things, but even their conference is called ‘Next'—but I didn't know what to expect when I sat down and spoke with you, and I got the sense you had no idea what to make of me back then because I was basically what I am now, only less fully formed. I was obnoxious on Twitter, I had barely coherent thoughts that I could periodically hurl into the abyss and see if they resonated, but stands out is one of the seminal grabbing a drink with someone moments in the course of my career.James: Well, I mean, fledgling Corey was pretty close to where he is now. But yeah, you bring something unique to the table. And I didn't totally know what to expect; I knew there would be snark. But yeah, it was certainly a pleasure to meet you, and I think that whenever I meet someone, I'm always interested in if there is any way I can help them. And it was nice because you're clearly a talented fellow and everything else, but it was like, are there some areas where I might be able to help? I mean, I think that's a good position as a human meeting another human. And yeah, it was a pleasure. I think it was in the Intercontinental, I guess, in [unintelligible 00:11:00].Corey: Yes, that's exactly where it was. Good memory. In fact, I can tell you the date: it was April 11 of 2019. And I know that because right after we finished having a drink, you tweeted out a GIF of Snow White carving a pie, saying, “QuinnyPig is an industry analyst.” And the first time I saw that, it was, “I thought he liked me. Why on earth would he insult me that way?”But it turned into something where when you have loud angry opinions, if you call yourself an analyst, suddenly people know what to do with you. I'm not kidding, I had that tweet laser engraved on a piece of wood through Laser Tweets. It is sitting on my shelf right now, which is how I know the date because it's the closest thing I have to a credential in almost anything that I do. So, congratulations, you're the accrediting university. Good job.James: [laugh]. I credentialed you. How about that?Corey: It's true, though. It didn't occur to me that analysts were a real thing. I didn't know what it was, and that's part of what we talked about at lunch, where it seemed that every time I tried to articulate what I do, people got confused. Analyst is not that far removed from an awful lot of what I do. And as I started going to analyst events, and catching up with other analysts—you know, the real kind of analyst, I would say, “I feel like a fake analyst. I have no idea what I'm actually doing.” And they said, “You are an analyst. Welcome to the club. We meet at the bar.” It turns out, no one really knows what is going on, fully, in this zany industry, and I feel like that the thing that we all bond over on some level is the sense of, we each only see a piece of it, and we try and piece it together with our understanding of the world and ideally try and make some sense out of it. At least, that's my off-the-cuff definition of an industry analyst. As someone who's an actual industry analyst, and not just a pretend one on Twitter, what's your take on the subject?James: Well, it's a remarkable privilege, and it's interesting because it is an uncredentialed job. Anybody can be, theoretically at least, an industry analyst. If people say you are and think you are, then then you are; you walk and quack like a duck. It's basically about research and trying to understand a problem space and trying to articulate and help people to basically become more effective by understanding that problem space themselves, more. So, it might be about products, as I say, it might be about processes, but for me, I've just always enjoyed research. And I've always enjoyed advice. You need a particular mindset to give people advice. That's one of the key things that, as an industry analyst, you're sort of expected to do. But yeah, it's the getting out there and learning from people that is the best part of the job. And I guess that's why I've been doing it for such an ungodly long time; because I love learning, and I love talking to people, and I love trying to help people understand stuff. So, it suits me very well. It's basically a job, which is about research, analysis, communication.Corey: The research part is the part that I want to push back on because you say that, and I cringe. On paper, I have an eighth-grade education. And academia was never really something that I was drawn to, excelled at, or frankly, was even halfway competent at for a variety of reasons. So, when you say ‘research,' I think of something awful and horrible. But then I look at the things I do when I talk to companies that are building something, and then I talked to the customers who are using the thing the company's building, and, okay, those two things don't always align as far as conversations go, so let's take this thing that they built, and I'll build something myself with it in an afternoon and see what the real story is. And it never occurred to me until we started having conversations to view that through the lens of well, that is actual research. I just consider it messing around with computers until something explodes.James: Well, I think. I mean, that is research, isn't it?Corey: I think so. I'm trying to understand what your vision of research is. Because from where I sit, it's either something negative and boring or almost subverting the premises you're starting with to a point where you can twist it back on itself in some sort of ridiculous pretzel and come out with something that if it's not functional, at least it's hopefully funny.James: The funny part I certainly wish that I could get anywhere close to the level of humor that you bring to the table on some of the analysis. But look, I mean, yes, it's easy to see things as a sort of dry. Look, I mean, a great job I had randomly in my 20s, I sort of lied, fluked, lucked my way into researching Eastern European art and architecture. And a big part of the job was going to all of these amazing museums and libraries in and around London, trying to find catalogs from art exhibitions. And you're learning about [Anastasi Kremnica 00:15:36], one of the greatest exponents of the illuminated manuscript and just, sort of, finding out about this interesting work, you're finding out that some of the articles in this dictionary that you're researching for had been completely made up, and that there wasn't a bibliography, these were people that were writing for free and they just made shit up, so… but I just found that fascinating, and if you point me at a body of knowledge, I will enjoy learning stuff. So, I totally know what you mean; one can look at it from a, is this an academic pursuit? But I think, yeah, I've just always enjoyed learning stuff. And in terms of what is research, a lot of what RedMonk does is on the qualitative side; we're trying to understand what people think of things, why they make the choices that they do, you have thousands of conversations, synthesize that into a worldview, you may try and play with those tools, you can't always do that. I mean, to your point, play with things and break things, but how deep can you go? I'm talking to developers that are writing in Rust; they're writing in Go, they're writing in Node, they're writing in, you know, all of these programming languages under the sun. I don't know every programming language, so you have to synthesize. I know a little bit and enough to probably cut off my own thumb, but it's about trying to understand people's experience. And then, of course, you have a chance to bring some quantitative things to the table. That was one of the things that RedMonk for a long time, we'd always—we were always very wary of, sort of, quantitative models in research because you see this stuff, it's all hockey sticks, it's all up into the right—Corey: Yeah. You have that ridiculous graph thing, which I'm sorry, I'm sure has an official name. And every analyst firm has its own magic name, whether it's a ‘Magic Quadrant,' or the ‘Forrester Wave,' or, I don't know, ‘The Crushing Pit Of Despair.' I don't know what company is which. But you have the programming language up-and-to-the-right line graph that I'm not sure the exact methodology, but you wind up placing slash ranking all of the programming languages that are whatever body of work you're consuming—I believe it might be Stack Overflow—James: Yeah.Corey: —and people look for that whenever it comes out. And for some reason, no one ever yells at you the way that they would if you were—oh, I don't know, a woman—or someone who didn't look like us, with our over-represented faces.James: Well, yeah. There is some of that. I mean, look, there are two defining forces to the culture. One is outrage, and if you can tap into people's outrage, then you're golden—Corey: Oh, rage-driven development is very much a thing. I guess I shouldn't be quite as flippant. It's kind of magic that you can wind up publishing these things as an organization, and people mostly accept it. People pay attention to it; it gets a lot of publicity, but no one argues with you about nonsense, for the most, part that I've seen.James: I mean, so there's a couple of things. One is outrage; universal human thing, and too much of that in the culture, but it seems to work in terms of driving attention. And the other is confirmation bias. So, I think the beauty of the programming language rankings—which is basically a scatterplot based on looking at conversations in StackOverflow and some behaviors in GitHub, and trying to understand whether they correlate—we're very open about the methodology. It's not something where—there are some other companies where you don't actually know how they've reached the conclusions they do. And we've been doing it for a long time; it is somewhat dry. I mean, when you read the post the way Stephen writes it, he really does come across quite academic; 20 paragraphs of explication of the methodology followed by a few paragraphs explaining what we found with the research. Every time we publish it, someone will say, “CSS is not a programming language,” or, “Why is COBOL not on there?” And it's largely a function of methodology. So, there's always raged to be had.Corey: Oh, absolutely. Channeling rage is basically one of my primary core competencies.James: There you go. So, I think that it's both. One of the beauties of the thing is that on any given day when we publish it, people either want to pat themselves on the back and say, “Hey, look, I've made a really good choice. My programming language is becoming more popular,” or they are furious and like, “Well, come on, we're not seeing any slow down. I don't know why those RedMonk folks are saying that.” So, in amongst those two things, the programming language rankings was where we began to realize that we could have a footprint that was a bit more quantitative, and trying to understand the breadcrumbs that developers were dropping because the simple fact is, is—look, when we look at the platforms where developers do their work today, they are in effect instrumented. And you can understand things, not with a survey where a lot of good developers—a lot of people in general—are not going to fill in surveys, but you can begin to understand people's behaviors without talking to them, and so for RedMonk, that's really thrilling. So, if we've got a model where we can understand things by talking to people, and understand things by not talking to people, then we're cooking with gas.Corey: I really love installing, upgrading, and fixing security agents in my cloud estate! Why do I say that? Because I sell things, because I sell things for a company that deploys an agent, there's no other reason. Because let's face it. Agents can be a real headache. Well, now Orca Security gives you a single tool that detects basically every risk in your cloud environment -- and that's as easy to install and maintain as a smartphone app. It is agentless, or my intro would've gotten me into trouble here, but  it can still see deep into your AWS workloads, while guaranteeing 100% coverage. With Orca Security, there are no overlooked assets, no DevOps headaches, and believe me you will hear from those people if you cause them headaches. and no performance hits on live environments. Connect your first cloud account in minutes and see for yourself at orca.security. Thats “Orca” as in whale, “dot” security as in that things you company claims to care about but doesn't until right after it really should have.Corey: One of the I think most defining characteristics about you is that, first, you tend to undersell the weight your words carry. And I can't figure out, honestly, whether that is because you're unaware of them, or you're naturally a modest person, but I will say you're absolutely one of my favorite Twitter follows; @monkchips. If you're not following James, you absolutely should be. Mostly because of what you do whenever someone gives you a modicum of attention, or of credibility, or of power, and that is you immediately—it is reflexive and clearly so, you reach out to find someone you can use that credibility to lift up. It's really an inspirational thing to see. It's one of the things that if I could change anything about myself, it would be to make that less friction-full process, and I think it only comes from practice. You're the kind of person I think—I guess I'm trying to say that I aspire to be in ways that are beyond where I already am.James: [laugh]. Well, that's very charming. Look, we are creatures of extreme privilege. I mean, I say you and I specifically, but people in this industry generally. And maybe not enough people recognize that privilege, but I do, and it's just become more and more clear to me the longer I've been in this industry, that privilege does need to be more evenly distributed. So, if I can help someone, I naturally will. I think it is a muscle that I've exercised, don't get me wrong—Corey: Oh, it is a muscle and it is a skill that can absolutely be improved. I was nowhere near where I am now, back when I started. I gave talks early on in my speaking career, about how to handle a job interview. What I accidentally built was, “How to handle a job interview if you're a white guy in tech,” which it turns out is not the inclusive message I wanted to be delivering, so I retired the talk until I could rebuild it with someone who didn't look like me and give it jointly.James: And that's admirable. And that's—Corey: I wouldn't say it's admirable. I'd say it's the bare minimum, to be perfectly honest.James: You're too kind. I do what I can, it's a very small amount. I do have a lot of privilege, and I'm aware that not everybody has that privilege. And I'm just a work in progress. I'm doing my best, but I guess what I would say is the people listening is that you do have an opportunity, as Corey said about me just now, maybe I don't realize the weight of my words, what I would say is that perhaps you have privileges you can share, that you're not fully aware that you have. In sharing those privileges, in finding folks that you can help it does make you feel good. And if you would like to feel better, trying to help people in some small way is one of the ways that you can feel better. And I mentioned outrage, and I was sort of joking in terms of the programming language rankings, but clearly, we live in a culture where there is too much outrage. And so to take a step back and help someone, that is a very pure thing and makes you feel good. So, if you want to feel a bit less outraged, feel that you've made an impact, you can never finish a day feeling bad about the contribution you've made if you've helped someone else. So, we do have a rare privilege, and I get a lot out of it. And so I would just say it works for me, and in an era when there's a lot of anger around, helping people is usually the time when you're not angry. And there's a lot to be said for that.Corey: I'll take it beyond that. It's easy to cast this in a purely feel-good, oh, you'll give something up in order to lift people up. It never works that way. It always comes back in some weird esoteric way. For example, I go to an awful lot of conferences during, you know, normal years, and I see an awful lot of events and they're all—hmm—how to put this?—they're all directionally the same. The RedMonk events are hands down the exception to all of that. I've been to Monktoberfest once, and I keep hoping to go to—I'm sorry, was it Monki Gras is the one in the UK?James: Monki Gras, yeah.Corey: Yeah. It's just a different experience across the board where I didn't even speak and I have a standing policy just due to time commitments not to really attend conferences I'm not speaking at. I made an exception, both due to the fact that it's RedMonk, so I wanted to see what this event was all about, and also it was in Portland, Maine; my mom lived 15 minutes away, it's an excuse to go back, but not spend too much time. So, great. It was more or less a lark, and it is hands down the number one event I will make it a point to attend. And I put that above re:Invent, which is the center of my cloud-y universe every year, just because of the stories that get told, the people that get invited, just the sheer number of good people in one place is incredible. And I don't want to sound callous, or crass pointing this out, but more business for my company came out of that conference from casual conversations than any other three conferences you can name. It was phenomenal. And it wasn't because I was there setting up an expo booth—there isn't an expo hall—and it isn't because I went around harassing people into signing contracts, which some people seem to think is how it works. It's because there were good people, and I got to have great conversations. And I kept in touch with a lot of folks, and those relationships over time turned into business because that's the way it works.James: Yeah. I mean, we don't go big, we go small. We focus on creating an intimate environment that's safe and inclusive and makes people feel good. We strongly curate the events we run. As Stephen explicitly says in terms of the talks that he accepts, these are talks that you won't hear elsewhere. And we try and provide a platform for some different kind of thinking, some different voices, and we just had some magical, magical speakers, I think, at both events over the years. So, we keep it down to sort of the size of a village; we don't want to be too much over the Dunbar number. And that's where rich interactions between humans emerge. The idea, I think, at our conference is, is that over a couple of days, you will actually get to know some people, and know them well. And we have been lucky enough to attract many kind, and good, and nice people, and that's what makes the event so great. It's not because of Steve, or me, or the others on the team putting it together. It's about the people that come. And they're wonderful, and that's why it's a good event. The key there is we focus on amazing food and drink experiences, really nice people, and keep it small, and try and be as inclusive as you can. One of the things that we've done within the event is we've had a diversity and inclusion sponsorship. And so folks like GitHub, and MongoDB, and Red Hat have been kind enough—I mean, Red Hat—interestingly enough the event as a whole, Red Hat has sponsored Monktoberfest every year it's been on. But the DNI sponsorship is interesting because what we do with that is we look at that as an opportunity. So, there's a few things. When you're running an event, you can solve the speaker problem because there is an amazing pipeline of just fantastic speakers from all different kinds of backgrounds. And I think we do quite well on that, but the DNI sponsorship is really about having a program with resources to make sure that your delegates begin to look a little bit more diverse as well. And that may involve travel stipends, as well as free tickets, accommodation, and so on, which is not an easy one to pull off.Corey: But it's necessary. I mean, I will say one of the great things about this past year of remote—there have been a lot of trials and tribulations, don't get me wrong—but the fact that suddenly all these conferences are available to anyone with an internet connection is a huge accessibility story. When we go back to in-person events, I don't want to lose that.James: Yeah, I agree. I mean, I think that's been one of the really interesting stories of the—and it is in so many dimensions. I bang on about this a lot, but so much talent in tech from Nigeria. Nigeria is just an amazing, amazing geography, huge population, tons of people doing really interesting work, educating themselves, and pushing and driving forward in tech, and then we make it hard for them to get visas to travel to the US or Europe. And I find that to be… disappointing. So, opening it up to other geographies—which is one of the things that free online events does—is fantastic. You know, perhaps somebody has some accessibility needs, and they just—it's harder for them to travel. Or perhaps you're a single parent and you're unable to travel. Being able to dip into all of these events, I think is potentially a transformative model vis-à-vis inclusion. So, yeah, I hope, A) that you're right, and, B) that we as an industry are intentional because without being intentional, we're not going to realize those benefits, without understanding there were benefits, and we can indeed lower some of the barriers to entry participation, and perhaps most importantly, provide the feedback loop. Because it's not enough to let people in; you need to welcome them. I talked about the DNI program: we have—we're never quite sure what to call them. We call them mentors or things like that, but people to welcome people into the community, make introductions, this industry, sometimes it's, “Oh, great. We've got new people, but then we don't support them when they arrive.” And that's one of the things as an industry we are, frankly, bad at, and we need to get better at it.Corey: I could not agree with you more strongly. Every time I wind up looking at building an event or whatnot or seeing other people's events, it's easy to criticize, but I try to extend grace as much as possible. But whenever I see an event that is very clearly built by people with privilege, for people with privilege, it rubs me the wrong way. And I'm getting worse and worse with time at keeping my mouth shut about that thing. I know, believe it or not, I am capable of keeping my mouth shut from time to time or so I'm told. But it's irritating, it rankles because it's people not taking advantage of their privileged position to help others and that, at some point, bugs me.James: Me too. That's the bottom line, we can and must do better. And so things that, sort of, make you proud of every year, I change my theme for Monki Gras, and, you know, it's been about scaling your craft, it's been about homebrews—so that was sort of about your side gig. It wasn't about the hustle so much as just things people were interested in. Sometimes a side project turns into something amazing in its own right. I've done Scandinavian craft—the influence of the Nordics on our industry. We talk about privilege: every conference that you go to is basically a conference about what San Francisco thinks. So, it was nice to do something where I looked at the influence of Scandinavian craft and culture. Anyway, to get to my point, I did the conference one year about accessibility. I called it ‘accessible craft.' And we had some folks from a group called Code Your Future, which is a nonprofit which is basically training refugees to code. And when you've got a wheelchair-bound refugee at your conference, then you may be doing something right. I mean, the whole wheelchair thing is really interesting because it's so easy to just not realize. And I had been doing these conferences in edgy venues. And I remember walking with my sister, Saffron, to check out one of the potential venues. It was pretty cool, but when we were walking there, there were all these broken cobblestones, and there were quite a lot of heavy vehicles on the road next to it. And it was just very clear that for somebody that had either issues with walking or frankly, with their sight, it just wasn't going to fly anymore. And I think doing the accessibility conference was a watershed for me because we had to think through so many things that we had not given enough attention vis-à-vis accessibility and inclusion.Corey: I think it's also important to remember that if you're organizing a conference and someone in a wheelchair shows up, you don't want to ask that person to do extra work to help accommodate that person. You want to reach out to experts on this; take the burden on yourself. Don't put additional labor on people who are already in a relatively challenging situation. I feel like it's one of those basic things that people miss.James: Well, that's exactly right. I mean, we offered basically, we were like, look, we will pay for your transport. Get a cab that is accessible. But when he was going to come along, we said, “Oh, don't worry, we've made sure that everything is accessible.” We actually had to go further out of London. We went to the Olympic Park to run it that year because we're so modern, and the investments they made for the Olympics, the accessibility was good from the tube, to the bus, and everything else. And the first day, he came along and he was like, “Oh, I got the cab because I didn't really believe that the accessibility would work.” And I think on the second day, he just used the shuttle bus because he saw that the experience was good. So, I think that's the thing; don't make people do the work. It's our job to do the work to make a better environment for as many people as possible.Corey: James, before we call it a show, I have to ask. Your Twitter name is @monkchips and it is one of the most frustrating things in the world trying to keep up with you because your Twitter username doesn't change, but the name that goes above it changes on what appears to be a daily basis. I always felt weird asking you this in person, when I was in slapping distance, but now we're on a podcast where you can't possibly refuse to answer. What the hell is up with that?James: Well, I think if something can be changeable, if something can be mutable, then why not? It's a weird thing with Twitter is that it enables that, and it's just something fun. I know it can be sort of annoying to people. I used to mess around with my profile picture a lot; that was the thing that I really focused on. But recently, at least, I just—there are things that I find funny, or dumb, or interesting, and I'll just make that my username. It's not hugely intentional, but it is, I guess, a bit of a calling card. I like puns; it's partly, you know, why you do something. Because you can, so I've been more consistent with my profile picture. If you keep changing both of them all the time, that's probably suboptimal. Sounds good.Corey: Sounds good. It just makes it hard to track who exactly—“Who is this lunatic, and how did they get into my—oh, it's James, again.” Ugh, branding is hard. At least you're not changing your picture at the same time. That would just be unmanageable.James: Yeah, no, that's what I'm saying. I think you've got to do—you can't do both at the same time and maintain—Corey: At that point, you're basically fleeing creditors.James: Well, that may have happened. Maybe that's an issue for me.Corey: James, I want to thank you for taking as much time as you have to tolerate my slings, and arrows, and other various vocal devices. If people want to learn more about who you are, what you believe, what you're up to, and how to find you. Where are you hiding?James: Yeah, I mean, I think you've said already, that was very kind: I am at @monkchips. I'm not on topic. I think as this conversation has shown, I [laugh] don't think we've spoken as much about technology as perhaps we should, given the show is normally about the cloud.Corey: The show is normally about the business of cloud, and people stories are always better than technology stories because technology is always people.James: And so, yep, I'm all over the map; I can be annoying; I wear my heart on my sleeve. But I try and be kind as much as I can, and yeah, I tweet a lot. That's the best place to find me. And definitely look at redmonk.com. But I have smart colleagues doing great work, and if you're interested in developers and technology infrastructure, we're a great place to come and learn about those things. And we're very accessible. We love to talk to people, and if you want to get better at dealing with software developers, yeah, you should talk to us. We're nice people and we're ready to chat.Corey: Excellent. We will, of course, throw links to that in the [show notes 00:37:03]. James, thank you so much for taking the time to speak with me. I really do appreciate it.James: My pleasure. But you've made me feel like a nice person, which is a bit weird.Corey: I know, right? That's okay. You can go for a walk. Shake it off.James: [laugh].Corey: It'll be okay. James Governor, analyst and co-founder at RedMonk. I'm Cloud Economist Corey Quinn and this is Screaming in the Cloud. If you've enjoyed this podcast, please leave a five-star review on your podcast platform of choice, whereas if you hated this podcast, please leave a five-star review on your podcast platform of choice along with an insulting comment in which you attempt to gatekeep being an industry analyst.Announcer: This has been this week's episode of Screaming in the Cloud. You can also find more Corey at screaminginthecloud.com, or wherever fine snark is sold.This has been a HumblePod production. Stay humble.

John: Hi, this is Doctor John Dacey with my weekly podcast, New Solutions to the Anxiety Epidemic. Today, I have a friend of mine, James, who’s going to be talking to us about his own situation and his own familiarity with anxiety. James, how are you? James: I’m doing alright, how are you? John: Good, thank you. I wonder if you could tell us a little something about yourself before we get started. James: Well, I am currently a junior in high school. I’m 17. John: How are you finding taking courses online? James: Online? It’s presented its own set of challenges. I wouldn’t say it’s better or worse than regular school but, I think there’s less work but it’s a different kind of material. It feels a little bit less meaningful. John: Yeah, I can understand that. People say that there’s such a thing as Zoom exhaustion. After you’ve spent a certain amount of time on Zoom that it’s much more tiring than sitting there and talking to somebody. James: Yeah, I don’t do too many Zoom calls because of the way the school has set it up for us but I get that. John: Today, what I would like to do is go over 7 of the 8 types of anxiety that there are and have you tell me, do you think that you have a condition in that area, the anxiety syndrome, and we’ll talk a little bit about if you’ve discovered anything that’s helped with you. Is that ok? James: Sounds good. John: I’m going to skip the first one which is called simple phobias because everybody has them, agoraphobia, afraid of falling from heights, things like that. We’ll start with probably the most common one which is social anxiety. Social anxiety is things like fear of speaking in public, feeling of not wanting to go to parties, that sort of thing. Do you think you’re bothered by any of that? James: Not generally. Sometimes I’ll have a little bit in large groups but generally speaking, that’s not something that I tend to experience. John: I remember some years ago watching you sing by yourself in front of probably 300 people in the audience and you seemed to be very calm about the whole thing and very confident. Is that typically the case? James: Yeah that tends to be the case. John: And you’ve been in some theater things where if you were going to have social anxiety, that’s where you’d have it. James: Yeah, I’ve been doing theater from a very young age so it’s something that I’ve got pretty used to. John: That’s great. Separation anxiety usually bothers younger people but sometimes older people. Separation anxiety is when you feel like if you’re not around a person who is very powerful, that knows how to take care of you, that you’re in trouble. Did you have any trouble starting school, for example leaving your mother? James: No, I don’t think I did. John: I don’t think you did either. The next one is called generalized anxiety. Just a general nervous feeling at least half of the time. James: Yeah, that’s the one that I definitely have. John: That usually comes about from a bunch of experiences that didn’t go so well for you, or  that you feel like they didn’t go so well for you, and you become sort of nervous, on the lookout and what we call “hypervigilant.” Do you know what I mean when I say hypervigilant? James: Yeah, exactly. John: What about that does that seem like something that you’ve been dealing with? James: Yeah I think it’s something that I definitely have. It’s something I was diagnosed with and it’s something I’m on medication for. John: Oh ok. When you talk to your therapist who’s the one who did the diagnosis I suppose, what suggestions do they make about why you have this? Do you have any guess as to why you’re generally anxious? James: There’s a history of anxiety in my family. John: So, you think it might be genetic? James: I think genetics certainly has a large role in it. John: We say that everything is biopsychosocial in my field so the biological part would be genetics. Can you think of anything that psychologically might have oriented you toward that? From your experiences, for example. James: Yeah, I think some of it’s genetic and some of it’s from my experiences. Some of it from when I was younger, but it’s a combination of things that have added up to this. John: What is your position in the family? James: I’m the youngest. John: Do you think that might have anything to do with it? James: Being the youngest? I think there’s a certain level of insecurity about being young and having to prove yourself so I’m sure that played a role. John: Yeah, that’s absolutely true. Your siblings are pretty smart if I remember. They are smart people. James: They are. They’re quite intelligent. John: But as I think you know, I think you’re very smart and I’m inviting you to be in a group of mine called “Spirituality and Science.” It’s almost all adults, older adults for that matter but you’re probably the youngest person in the group but you seem to do very well supporting yourself. James: Well thank you. John: Do you feel nervous when you’re in that group? James: No, it’s a very relaxed environment. John. Oh, that’s great. Now that’s the first four and they tend to be less serious so let’s look at the next ones. Agoraphobia is fear of being away from home because of lack of control. Are you bothered by that at all? Do you feel nervous when you’re about to go on a trip or something like that? James: No. John: Ok so being out of the house or being away from the home is not a problem. James: No. John: The next one is called panic attacks. Those are feelings of fearfulness that seem to come from nowhere. They don’t seem to be related to anything. All of a sudden you start to feel really nervous. How about that one? James: Yeah that’s one that I experience. John: I’m going to guess that you probably think that’s genetic also. James: I don’t know if it’s genetic. It’s not something that I experienced when I was younger. It really didn’t come up until fairly recently, actually. John: How recently, James? James: About a year or two ago is when it first started and then it’s ramped up in the past year or so. John: When you say started, what was the first one like? James: The first one I think was actually in my chemistry class and it was just like I was doing my work. The whole room was silent and I was just doing my work and then all of a sudden, something changed and I’m not 100% sure what it was but something shifted and it was like I couldn’t breathe, my chest was compressing, shaking. It was a terrifying experience. John: That’s exactly how everybody describes it. We can be very sure you had a panic attack because that’s exactly what it sounds like. And it seems to come out of nowhere am I right? James: Yeah. John: Has anybody ever told you that it seems to be, but it actually isn’t? When I talked to my clients about panic attacks, I make an analogy to a bunch of cowboys out with a heard of cattle and if the heard of cattle starts to get nervous and one or two of them start to stand up, the cowboys have to start whistling and singing to calm them back down. Because if they all get up and going, then the next thing you know, you got a stampede on your hands and there’s nothing you can do except follow along. That’s sort of an analogy to what a panic attack is described as. I’ve had a couple myself, only about two, and it’s the weirdest thing, it seems to come out of nowhere but it really doesn’t. And what we tell people is, “you’ve got to try and be aware of your subconscious.” And that’s a really hard thing to do especially when the subconscious is saying, “something scary is about to happen” because you try to deny it. Nobody wants to be scared out of their minds. It’s a very unpleasant feeling and that’s what a panic attack is like. Instead of saying, “I think I’m beginning to feel the beginnings of a panic attack” you try and avoid it and it makes it worse. Does that sound right? James: Yeah. John: have you had any success with stopping them? James: Yeah I think I have. John: As I might say, “cutting them off at the pass.” Do you know what I mean? James: Yeah. It’s something that’s really hard to do. John: It is really hard to do. The biggest thing that’s hard about it is that you don’t want to be thinking about this. Am I right? James: Exactly. It’s something that I’ve had a lot of, so I’ve had to get pretty good at preventing them, cutting them off before they get to that point and recovering after them which is also something that’s I’ve struggled with because they’re pretty debilitating. They’re hard to come back from. John: One of the things that I’ve heard is that they’re especially hard for males because males are supposed to be strong and not give in to something like this. Am I right? James: Yeah, I think there’s some pressure. John: When you’re having a panic attack, do you tell all your friends around you that you’re having one? James: Generally, no. John: Do you feel a little bit ashamed of it? James: Yeah, I mean, it’s not something that I want to be experiencing. John: Yeah of course not. Of course, you don’t. And of course, with the stereotype that we have that men are so brave and tough, it’s not the image that we want to give to ourselves. “I can’t talk to you right now because I’m having a panic attack.” But, you know, that’s how it is. Okay, there’s only two more. OCD, which is obsessive-compulsive disorder. James: I think I have a little bit of that. John: What’s your evidence? James: I find myself having to do things a certain number of times. It’s pretty manageable and it’s not super severe, but there are certain things where like, I have to flip a coin in my hand a certain number of times or whatever so it’s even on both sides. John: James, my understanding of OCD, or obsessive-compulsive disorder, is that it is not necessarily coming from a learned experience but from another part of your brain called the amygdala and that’s it’s definitely genetic. Do you have anybody else in your family, you don’t have to say who, but do you have anybody else in your family that has trouble with this? James: Yeah, definitely. John: Would that be your father or your mother? James: I believe it’s my mother’s side. John: And anybody else in your family? James: Yeah, some siblings. John: Ok, well dealing with that is a tough one and what you have to do is basically reprogram your amygdala, is what we say about it and it means when you got to go back in the house or you got to do somethings repeatedly because they make you feel safe, you know that old phrase, “don’t step on a crack, you’ll break your mother’s back,” do you remember that? James: Yeah John: That sort of OCD-ish because it means that if you don’t step on a crack, then your mother’s back won’t be broken. But if you do step on a crack, your mother’s back will probably not be broken. It just makes you feel a little bit better that you can do something about which you almost really have no control. Am I right? James: Right. John: Okay, James, one more. Post-traumatic stress disorder. You’re pretty young for this. It’s usually soldiers and people who have been in battle or firemen who have seen burnt up bodies. Do you think you have anything in PTSD? James: I don’t think so. John: Well, James, I appreciate very much you talking to me about this. You’re very brave and I think also one of the things it does is it shows other males that it’s OK to talk about some of this stuff and in fact, it’s really necessary to talk about it, even if you don’t feel like it. Would you agree with that? James: Yeah, 100%. John: Okay, James. Thanks a million for participating today, I appreciate it.

James: Hi, audience and listeners. This is James Kandasamy from Achieve Wealth at Real Estate Investing podcasts. Last week, we had Jake and Gino from Wheelbarrow Profits. You know, Jake and Gino have tons and tons of deals on their own and you know, recently have moved into syndication space as well. And their story is just very interesting in terms of knowing how did they get started, how did they refinance their first deal to launch their multifamily investing career.   Today I have Rich Fishman from Dallas, and Rich has almost 8,000 units right now across 23 complexes and he has been buying in Texas, Tennessee, Indiana, Pennsylvania, Ohio, Mississippi, and South Carolina. So Rich is going to be giving us a lot of valuable insights into how he had bought so many apartment units. And imagine half of that 8,000 units is fundamentally owned by Rich itself and the other half of it is more of a partnership and syndication. Hey Rich, welcome to the show.   Rich: Well, thank you, James. Glad to be here.   James: Good, good. So, Rich, it's going to be a very interesting podcast because, and I'm going to be learning so much from you and I'm sure my listeners is going to be learning so much from you. How did you get started? I mean, you have like 8,000 units right now. You started almost 20 years ago. So walk back, how did you get started in multifamily immediately when you get started in real estate?   Rich: Well, actually, I was the owner of a mortgage company in the San Francisco Bay area in Berkeley, California and I financed mostly half homes, but I also financed apartment complexes. And I had a deal to finance, it was a six-plex in Alameda, California, and it was a foreclosure. Back then, there were a lot of foreclosures and the realtor gave me the deal, I got the loan, and then the buyer fell out of escrow; they didn't like the deal. And then there was another buyer; same thing happens. And I said to the realtor, I said, “What's wrong with this deal? It looks like it makes money.”  And she says “Nothing's wrong with the deal.”  And I said, “Well, I don't know how to manage anything like this.”  She says, “Well, I know management company, don't worry about it.” So I went to the property, then I dragged my wife there.   And it's a funny story because my wife is from Scandinavia and they don't do very well there. And so we went to the property and we had one of those, you know those long screwdrivers that the termite guys have because we are poking around, seeing if it was well-built. And the screwdriver went right through the wood into the drywall. And my wife says, "No, I can't buy this with you.”  I said, "No, we're buying this.”  And she looked at me and she said, “Okay.”  And so we bought this six-plex. And the six-plex was the beginning of us starting to buy real estate in earnest. So that's the story is we cut aside. There was a sidebar from the mortgage business.   James: Got it, got it, yeah. I always wonder, like whenever I meet brokers, mortgage brokers, and even brokers, I always ask them, why not you guys buy these deals, right? Why are you just doing transaction? And a lot of times, I mean not a lot of times I think once I talk to someone who went from a mortgage broker to become an investor. I'm sure you know him; it's like Michael Becker, right? Yeah. I think he's a big buyer in Dallas. I asked him this question because he used to be working in Wells Fargo and he told me not everybody likes to take risks like a business owner.   Rich: It's not only about the risk. The main reason that people get into the investment side is because, when you're doing transactions as a broker, you're making income and you're only as good as your last deal. You have to keep churning and closing deals to make a living, and every broker is off to the next listing, or the mortgage person is off the next loan and you'd live and die by the transaction. So eventually, most people either say, I've got to own this stuff; build wealth rather than income. Or I'm not interested; I really don't want to own anything. It takes the risk and the responsibility of owning property. So that's the thing, I had to make a decision to own it, take care of it, use my free time because I was still a mortgage broker. I had to use my weekends to run the real estate with my wife. We want to get started because we couldn't just go into multifamily; we needed the income from the mortgages. So it takes a lot of sacrifice for the first couple of years to get into something like this.   James: Got it, got it. So you must know the industry; working as well in the mortgage and to really successfully become owner and take advantage of that knowledge as well. So after how many years or after how many unit count that you, you said, okay, I'm going to give up this mortgage business, I'm going to be just a fulltime, a real estate investor?   Rich: I think we hit about a thousand apartments. And at that point, I let go of my duties in the mortgage company and concentrated on just buying and selling apartments.   James: Got it, got it. So, 20 years ago you started buying the six-plex, when did you see your fastest acceleration of purchase or acquisitions?   Rich: Well, we hit about 4,000 units and then the recession came 2009 to 14, 12, 13 as on the area of the country, and that was really hard. So we didn't really grow during that period. We were selling off as fast as we were buying, just kind of trying to keep our head above water. We got to about 5,000 units, about two or three years ago, and then we've grown a lot more. I could probably have 50,000 apartments today if I wanted them. I would have to basically align myself with someone on Wall Street or some investment banking for like a Goldman Sachs or something like that. And they would be happy to raise the money and give me all that money and I could then own five or 10% or 15% or whatever it is that is bought, BUT I'm not that going to ho for that strategy.   So the growth at this point is really about organic growth for me and our company, and also quality of life because when you have institutional mining, you have to take care of it in a way that suits the institutions. And they have requirements that family and friends and other people don't have. For example, they might want audited books every year. That doesn't sound like a lot because we don't; we have books [inaudible 08:46] and everything, but that just takes a lot of time to get an audit done. And if you multiply that by 15 or 20 EO, now you have to have a whole audit department, and CPAs work who for you and things like that. So it's been really about opportunity and raising money mostly from either my own, resources or family and friends and other methods.   James: Got it, got it. So, Rich, I think you bring a really good perspective in terms of economic cycle because you have went through, I mean, you started 20 years ago, you went through that 2008 and everybody said 2008 multi-family, you know, fat better than any other asset classes, they are very, very low. What you call, you know, who went into a receivership or bankruptcy; multifamily, so is that true?   Rich: That's not true at all. Most of the people who are in multifamily today, we're not even involved in the business.   James: Exactly, that's what I'm asking because everyone is sort of newbies--   Rich: A lot of people were wiped out in that recession and a lot of other people were underwater. I mean, there were thousands of apartment complexes that were foreclosed on. Now was it as bad as office buildings or retail? Maybe not, I really don't know, but it was bad. Now they say anybody who lasted eight years, they could come out the other side feeling good. But most people don't have the capital to take five or six or seven years of losses, and large losses. If you're not making debt coverage, if you're not able to pay your loan and you're coming out of pocket, that might be okay for one deal. But if you have 20 deals like that, yeah, that's a whole different story. So it's quite a different thing than when people say. Now, the multifamily was hitting extremely hard, and I think the default ratio was up to about 8%.   James: 8%. Okay.   Rich: Yeah, I think so. Yeah. That doesn't sound that bad compared to student loans. But if you think about it 8% is, you know, you're talking about housing that touches the lives of millions of people.   James: Got it. Yeah. It's very interesting data because you are giving me true data. I mean, sometimes we read in the news and they say low delinquency rate and it was not a hard hit and we don't have real, true story. Right, because a lot of it depends on the sub-marker, depends on which class we are talking about, and you know, depends on the operator as well. So how did you survive the 2008 crash?   Rich: Well, I have some properties that cash barge really well and I had others that really couldn't survive and I got rid of them. I sold them off or actually, I had you cut my portfolio down in order to survive and retrench a little bit, but I only had a few deals that were like that, the rest, I didn't have the leverage. If you were totally leveraged up in a bad market, then you cannot save yourself because, and if you're a partnership, you can't save yourself either. Because, if you own 10 or 20% of the deal and the loan is negative, then you would actually have to make a capital call every month on your partners in order to make those payments, and if you raise money. You know that there are two words that should never be spoken ‘capital costs’.   James: Exactly.   Rich: And so it's hard to really get money out of people to feed something that's losing money. So, there are a lot of people who gave; I know one fellow in the Houston market, he had property all over Houston, Atlanta, I think he gave up about 40 yields back. And there were other people like that who had just a tremendous amount of deals that they gave back to the banks.   James: So was this deal when they give back did Fannie and Freddie was giving non-recourse loan at that time?   Rich: Yeah, non-recourse loans, they just won't; if you give them deals back, they don't want to lend to you again unless you pay a heavy penalty to offset their losses because they take losses, themselves or the service or takes the loss. And in Fannie Mae's case, the loan originator slash servicer usually takes about five to 10% of the risk of the loan. So, you know, that could be pretty substantial too, to them because they're usually own companies by either large wealthy individuals or by banks. They don't like taking losses at all.   James: Got it, so they--   Rich: Hopefully we won't be there again.   James: Yeah, absolutely, we didn't want to be there again. So it was non-recourse and the owners were able to just give up their property, they lose their equity and the service that takes some loss and they gave it back to Fannie Mae and that's it.   Rich: Fanny Mae never own; one of the problems with the way the system was set up, is that Fannie may never really own the loan. People don't realize this, but Fannie Mae is just a broker.   James: Really? Okay.   Rich: There's really like nobody, you know, there's not like someone in Mumbai who owns or in Shanghai who owns all these loans. I mean, they basically securitize the loans and they sell the loan as a bond in the world financial markets. And so there's a special servicer who represents the interests of the bondholders and that person is delegated decision making, but they're not able to cut deals on Fannie Mae loan. So, they don't generally go and say, we see that you're negative, and why don't we go from 5% to 3% and you can owe us the money later? Things like that; they're not flexible. So, actually, Freddie Mac is, is more flexible, they act more like a bank, and so they can do workouts in a much better way than Fannie Mae can. It's just one of the things people don't know.   James: Got it. Wow, that's interesting. That's a lot of information out there. Yeah, I mean, Fannie Mae does a, securitize the loan and they sell it to the investor who buys it as a bond and they get certain percentage out of it. And in the middle there's servicer, there's Fannie Mae, everybody makes a few percent like this one [inaudible 15:59].   Rich: Everybody is making money, and at the end, the only people who generally lose money are the bondholders.   James: Okay, are the bondholders. But if the deal is given back, I mean the equity holder, whoever, the owner also lose the money as well, right? So there are two people, the buyer, and the seller, right?   Rich: The borrower absolutely loses a whole lot of their entire investment. And then the lender, if the lender can't be made whole by the sale of the real estate, they may lose money too. Things can get pretty bad in that cycle, that the value of the property often sunk below the outstanding balance of the loan. There're a lot of negative things to talk about, but let's talk about more positive things.   James: Got it. So you talked about people who are highly leveraged, right? So let's say you're buying a deal at 75% leverage. Do you think that's high level, I mean, can you define highly leverage? What is the highest leverage that you think?   Rich: Well, in today's world, you can leverage up to, Oh, even 90% for the first and second or preferred equity. And that's not necessarily a bad thing. It's just that you don't want to leverage that high on a stabilized property. It's one thing if you buy a property that's a value add and that you're going to add value and renovate a property, increased rents, increased value, and you're looking on a stabilized basis that okay, you went high leverage, but within a year or two you're going to be catching up and the leverage point will be at 60%, 65 or 75% or something. But if you're basically highly leveraged in stabilized properties without any value add then. If the rents go down five or 10%, then you're underwater, you want to have some protection; you want to certainly have 20% or debt coverage or something like that.   James: Yeah, that's a good point. I mean, that's the reason where I'm going with the question because we buy deals, we buy deals or value at deals even at 80% leverage, but in one to two years, that 80% leverage is going to be, 70 to 65% leveraged. So basically it's not leveraged at the start of the loan, it's basically, where are you going to be once you're stabilized; that's the more important thing. Sometimes people get confused that you shouldn't be highly leveraged? Why highly leverage and you don't understand that we are looking for buffer for DSCR? We want to be as further up from the debt service coverage ratio. That's the fundamental discussion about what highly leverage and costing higher risk.   Rich: Right, leverage is your friend, if you're using the leverage to invest capital, if you're using leverage to service debt or to pay out dividends, then you're making a huge mistake.   James: Okay, absolute point, that's an awesome point. That's well-said. I couldn't have said it better. So what about the guys who have done breach loans at that time in 2008 what happened to them and what would you give advice to that kind of people who are doing--   Rich: You mean the answer 2007 or 2008 with a value add deal, and then they had a bridge situation. While those people probably suffered, I mean they didn't execute. If they executed, that's fine. It was hard to push rents back then, everything is based on increase in rent. Fundamental multifamily strategy is how can I increase the rent? What value can I give the tenant so they'll pay more? Now, between 2008 and 2012, the only value add strategy that I know that worked was the fixed deferred maintenance to make sure you kept the lights on, for the most part. So beyond that, I didn't see people putting granite countertops in and all this other stuff because everyone was just trying to supply.   So those people, many of those people who got in at the cycle; at the end of the cycle, didn't make money unless they stayed all the way through 2015-16, so there were about seven years. But you would have to stay in that deal in order to make it. Now I did buy a property in the Midwest that I bought for about 15,000 units. You can get things that way back then. And I bought it in 2006 and I did do really well on it, but it was unusual because I got it so cheap; my basis lever was very high. But at the time it seemed like I had really jumped the shark as they say because the economy wasn't very good, and it wasn't easy to rent up any apartments for a while.   James: So coming back to Midwest, which I believe is MAVA secondary or tertiary market, right? So like right now in 2019 right now, market is so hard and people can't buy in the hot cities like Dallas, Houston, San Antonio, Austin, people are, I mean, I'm just looking at Texas, right? I mean, we're in Florida, we have Orlando, Tampa, and what Jacksonville, and I mean a lot of people have started going to other States and tertiary market or States which is like supposedly supposed to be upcoming. So, what would you give advice to them?   Rich: Well, I think my advice on the States like South Carolina or those kinds of places, is that to study the local market and make sure that it's vibrant, that there are good jobs there. There are a lot of great secondary and tertiary markets. Huntsville, Alabama or Hoover, Alabama or you know, Greenville, Columbia, South Carolina, I mean there's just, you know, Asheville, North Carolina, there's a lot of great secondary markets. I think the biggest problem that people have in these markets, one is they think they can increase rents more than they can. Because if you go to some of these markets and you think you can get $200 for putting in a new kitchen, you might find out you can only get $35 and 20 cents because there's a limit to what a lot of these people were willing to pay in these markets.   And if you go too high, they just want [inaudible 22:56], but there are still some markets that are small that people are really surprised at. I mean if you've been to Indiana and you know, there is Columbus, Indiana, well that sounds like a real nothing place, but Commons is located there, it's a very large company, and it's a pristine town with really high rents. Bloomington is also a great town in Indiana; it's got the college there. So there's a lot of college towns and there are capitals and there are places where there's a lot of manufacturing that's particularly in the Southeast that they didn't have manufacturing before. Some of these places have become very desirable for retirement and for our businesses like Charleston, South Carolina, nothing was going on there except history about 20 years ago. If you've been they are now, they are building homes like crazy. People are moving there to retire. There's a huge tourism business, I think ranked the number one wedding venue one year recently. And then they have they're making small planes there; just tremendous amount of activity going on.   James: What happened to this kind of tertiary market? I'm sure you had similar tertiary market during 2008 where you thought, okay, this is really good to go in and invest in. Looking at some of the cities that you're looking at it right now, what happened to that kind of market in 2008 how did they do compared to the major cities that are well known for--?   Rich: I own the property, and the answer is different. Every tertiary market was different, just like every major market. For example, if you look at the major markets or the secondary major markets take Tucson. Tucson was wiped out in the recession, now people say it's a good investment. Phoenix was wiped out, Vegas was wiped out, Reno was wiped out. Today Reno; people think Reno is part of California. It's hard to buy something under 150 a door in Reno now. So back then it was 50 a thousand a door was a great retirement exit. So I own property in Sierra Vista, Arizona, and there is an army base there. Now, I will never buy another property next to an army base. I don't care what the numbers look like because the politics of the army base are things that I cannot control.   And they decided that army base that they didn't need hardly anymore. So they cut the enrollment at the army base there by about half. And it was the town that depended upon the army base almost completely, not just the army people, but the people who were feeding and the vendors, and everybody else. And so the town really; rents went down about 30-40% in the town, but then there are other locations. I owned a property in Davenport, Iowa and it got hit, but it didn't get hit that bad. And agriculture, which was a real feeder for Iowa, stayed pretty good. And you know, they had the ethanol and that was pretty good. We never got below in general 90% occupancy in the properties that we own there, so it just really depends, you've got to do your research. Just how you can't make a blanket and say tertiary market, secondary market; core markets; it wasn't long ago that people considered Baltimore to be almost a core market.   Because of its proximity to DC on the Amtrak corroder from New York, the new Harbor that they had built there with the aquarium and today, a lot of people don't think of Baltimore as a core market and back then people didn't see DC as a core market. They thought it was crime, wedding blah, blah, blah, you know, stay away from DC. And now today, I mean, you're talking about very expensive real estate all over DC.   James: Awesome, awesome. That is a lot of insights there. So Rich, which market have you been focusing on, I mean, you bought in a lot of markets before these and you probably own some of it over there, but what has your strategy has been at this hot--?   Rich: Right now my strategy is really to buy more in DFW.   James: Okay.   Rich: Our office is here. This is probably the best multifamily market in the country. The cranes are all over the skyline. The jobs are coming in like crazy every day or week there is another multinational company that's relocating from California generally to Dallas Fort worth. There's a lot of vibrancy here. Rents keep tricking up. I like DFW. I've liked Houston a lot in the past; Houston is very squatty though, and there's a lot, I can't just tell you that Houston's going to do well because every part of Houston is so different and there's no zoning, so it doesn't have a character. Neighborhoods don't have as much character that they do here. But Houston is great Austin is great, it's just the real question, isn't what do I like, the real question is, is there an upside? Where is the upside in multifamily today?   And the answer is that there isn't the kind of upside today that there was until a couple of years ago because we were still basically catching up from the recession; a lack of housing, deferred maintenance and household formation. During the people said to me, "aren't there going to be more renters?" Because people were foreclosed, I don't know if you remember that. They will say, "You're in a great business". All these foreclosures, they have to rent now. No, they didn't have to rent. They moved in with their families, they hold up; whatever they had to do. People are much more flexible and adaptable than statisticians and university professors. So people didn't create households, kids stayed in the basement, and so here we are 2012 wondering where are all the renters? Well, it turns out that they were hiding out.   So when the economy got good and they got jobs, they all came out and that created a lot of household formation, a lot more renters. And that created a boom in multifamily. So, either more and more people who need rental housing, absolutely, and particularly in areas like Dallas, Fort Worth where they're coming in for the jobs, they need housing; Austin, they need housing. That puts pressure on rents and they usually start building a lot more too. The areas that have a declining population, I wouldn't invest.   So if a deal's in a city that has a declining population, I automatically say no, I'm not interested in, even if I could fix it up and make some money, to me that's; I'm going against the tide. I'm just one guy, I can't make an ocean. I have to get in my little boat, and I have to have the-- I want the ocean to work for me and not against me. I don't want to fight that. Same or crime; if I'm in an area that has just tremendous amount of crime, it's still, crime is [inaudible31:42], but if it has a lot of crime, I don't want to own it because I can't do all the things necessary to stop crime in my neighbor. I'm not a police department. I'm just one person owning one complex or two in a neighborhood and I've got to have an ability to deliver safe housing to the people who rent from us.   James: Got it, got it. Just want to add one thing to the listeners and audience. If you want to find a city where there's declining on appreciating one free resource, which is very quick to check, it is called bestplaces.net. Bestplaces.Net, and you can go and enter the city information and you can go to a household. I believe it's a real estate statistics and it shows you whether there's a declining population or increasing population. I mean in general, I think Texas is increasing in general. Everybody's moving to Texas and I believe Florida as well, so--   Rich: I mean, if you're looking in Texas and you say, well, why don't I buy in Amarillo or Abilene or these kinds of places, I don't have anything to say. I don't know those markets, but those are not vibrant places generally.   James: It makes sense; vibrant. Okay, got it. But I think the major cities in Texas are pretty vibrant.   Rich: The major cities are really San Antonio, Austin, Houston, and Dallas. Then you have cities like El Paso, Lubbock, Tyler, you know, places like that that are in the second tier. Corpus Christi is another one that is in between the second and third-tier cities. Aon, actually in Corpus Christi real estate, and that's on a lot of people's radar because they are putting along money to the ports and the petroleum industry, but it's not as vibrant as it San Antonio or Austin.   James: Got it. Got it, got it, very interesting. So but Dallas, I mean, I know you're focusing on Dallas, but Dallas prices have appreciated from what 50,000 a door. I mean, I think all over Texas it's like this, right? For the past five years, $50,000 a door to almost a hundred thousand a dollar for a C-class property. So how are you planning to buy deals? I mean since, don't you think at some point the price per door is just going to be limited by the rent wage growth of the--?   Rich: Well, I think that it's a mistake to really focus on price per door. I think it's a better thing to focus on cap rates.   James: Cap rates, okay.   Rich: And if you could buy something over a five cap rate and put loan on it for under 4%, then you have positive arbitrage, and you're going to make money. So a lot of properties are expensive, but property in San Francisco is 350,000 a door. Now, I was a mortgage broker there when they were going for 100,000 a door, and I thought people were crazy. Who would ever pay that? So, we can't let a number and you shouldn't let a number per door impact your buying decision. What your buying decision should be based on is what return on your investment you're going to get. Now, it's true that you want to make sure there's an exit there, meaning that there's somebody else who would buy a property at more per door if that's a problem.   Now there are some markets where maybe that is an issue still, but they're generally very depressed; places like Detroit or things like that or Cleveland. But even those places are not any more per door oriented. So I've seen deals recently that are 120,130 a door. They were bought for 80 a door just three, four years ago. And before that, they had one for 55 a door. And I don't really care what people bought them for in the past, I just care what can I do? What's my return going to be? If I could hit my numbers and I don't really care. Now the question is, can I hit my numbers? Am I chasing a dream that's-- is the ship already sailed? Is there really any more room in this property to enhance value? And the answer has to be yes. And a lot of the areas in Dallas are improving. The income levels are going up in some of these places. The number of jobs in the area is going up, so they're not static environments. Today, a suburb of Dallas is not the same place as it was 20 years ago because now there are four times as many people living in the area, shopping in the area, working in the area, and those people are all competing for housing.   James: Wow, that's interesting. Okay, so how do you underwrite your deals? I mean I'm sure you're looking for upside, right? That's what you talk about in any deals and whether you can make a return on your investment, right?   Rich: I'll tell you my tricks of the trade, which is nothing unusual; first of all, we go into the numbers and make sure we understand the expenses. And we also increase the property taxes based on what we think the assessor will increase the taxes too. Yeah, that's a really big thing; people don't realize they come from out of the outside Texas that your property is assessed every year a new bag. So you can't look at a tax that your seller's paying and think that you're going to have the same tax. So we get the real expenses, and then if we're going to do a value add, we want to find a property that's very similar, same vintage and everything that's already done the value add and see what rent they're achieving, what they've done, and we're not going to go past that.   In other words, I'm not going to be a pioneer and decide that I need golden faucets or Berber carpets or whatever it is; I'm going to make a nice value-add, the same as everybody else. Maybe you are a little better, but I'm not going to a guest that I can get more rent, so that's where I get my revenue, just estimating how many of this was going to renovate? What rents can we get today, today in the marketplace, not tomorrow? And then use those numbers, and if those numbers show that I can get a great return based on what it costs and what the money we put into the property, then it's a go. If the numbers, there's nothing here, I can't get a return from doing this or the rents are tapped out, that kind of thing. Then I pass. And we use a model. I think we use the CRM model. We bought the model because it got too complicated for Excel for us. And so we use a model that we bought to program the IRR and all that stuff.   James: What about the rent growth assumption? How do you usually predict that?   Rich: We don't put more than two or 3% a year in there? We're not looking to create false expectations. 5% rent growth sounds nice, but that doesn't happen all the time. In fact studies in Houston show that there's been virtually no rent growth in two or three years in Houston. And every year they say that they had four or 5% rent growth. And I asked the realtors, is the four or 5% rent growth that these reports say? And nobody seems to know where the data's coming from.   James: Yeah, absolutely. But do you think we can get that 3% rank growth moving forward from now on the next five years? I mean, do you think it's real estate?   Rich: I think we can get the two to 3% rent growth just by doing nothing; if you're in a market that is strong.   James: So it depends on the market as well.   Rich: It all depends on one thing and one thing only, which is wage growth in the market you own.   James: Correct.   Rich: I own a lot of property in San Antonio and there was virtually no wage growth in San Antonio. And I have property that I've owned there now six years, seven years. And the last two or three years there's been virtually no increase in wage growth or rents in none of these markets. The cap rates keep going down, so people keep paying more for these properties. They expect wage growth and rent growth, so everyone has a different expectation.   James: Got it, got it. So what about the, I mean, you mentioned that I mean, you did this for 20 years, own like 8,000 units, you could have multiplied 10 X your holdings by going with private equity money which some people have done. And some people have gone to private equity and came back to be a [inaudible41:31]. Some people are trying to get into working with private equity because it's easier to rent and raising money from retail investors which is like family and friends. I know you mentioned some perspective, but can you give a full perspective on why you didn't choose that route at all?   Rich: Well, we do have family and friends, and private equity, and some family offices in our deals. I have three deals that I have is tuition in, and I just prefer the flexibility that-- I prefer working with individuals and with people I know because multifamily is not a straight line. You buy something a lot of times prizes after you close, you don't know, some problems that you run into. Sometimes you have to replace staff. A lot of times you have a staffing issue. It could take a year or two longer to execute your business plan. And still, it's very good. When you execute your business plan, you make a lot of money, but instead of taking one or two years, it could take five years or four years. And when you have institutional money, they're not very patient and they are very willing after; if you don't make your numbers for one to two years, they're very willing to take the management away or threaten you with your cramming, taking away your investment. Actually, you're cramming down; they call it crammed down; to make the return.   It can be pretty nasty, so that's one of the reasons. It's getting easier to raise money from family offices privately. There are a number of crowd-sourcing platforms; we've done some crowd-sourcing rising for a couple million dollars as infill, you know, to fill in a partnership after a family or friends invest, and we still have a couple million left. Well, we've been successful at raising that money there. We've also used preferred equity, which is kind of a hybrid deal. It's not secondary financing, like mezzanine financing, but it's similar. What they do is there is a pay, they want a pay rate of around four to 6%, and then they want a complete return of let's say nine to 11% or 12%. They'll take the difference when you sell the property well when you refinance. So, it gives you more leverage, you might say, but it's not partnership money, so it reduces the money that you have to raise as a partnership.   James: Got it, got it. And what would you give advice to people who are saying that you know, when the market turns, I mean, they will not be any more private investors anymore, I mean, you have to go back to private equity? Do you think that's the true case?   Rich: You mean institutional equity? You have to go back to-- that's all private equity. I think the reality is when the market turns, everyone goes back into their little clamshell, so what you call it and money is money. And if people don't feel that they can make a return, then they won't invest. Now, what happens is that if the market turns and people are not making return, some deals will go south and will go sour, and then you'll start a new cycle of this trust real estate. And then there'll be opportunity funds or vulture capital guys who are trying to invest in those deals and they'll be looking to invest. So every part of the cycle has a different kind of investor. Right now the profile of the average investor is looking to clip coupons. Most people know that the glory days of making two, 300% on their money is over and they're very happy with what they'd done and now they really don't want to lose their principal. There have gotten more conservative as wealthier people do, and then they say, well, can I get a seven or an 8% or 6% coupon clip every month when you send me a check? And there are a lot more of those people today. There is virtually none of those people in 2008, nine, 10, 11, 12. Yeah, but today, most people have the profile as investors of wanting to have lower risk and are willing to take less reward.   James: So what you're saying is in 2008, everybody disappeared; nobody invests retail, right? And then after that, there is some vulture capital and then now people are looking more into stabilized assets with lower risk.   Rich: The people who appeared in 2008 were the people who worked at Goldman Sachs or Blackstone or these other Carlisle group and these other large accumulators of capital. And what they saw is a tremendous amount of blood on the street as they say. They saw just a lot of financial suffering and they were looking at enabling because of their massive amounts of capital to scoop up troubled assets for pennies on the dollar. So a lot of the mortgages that went bad were sold off for 20, 30, 50% of their mortgage value to these conglomerate; these large companies. And then they went through the process of foreclosing on individual assets. Some of them actually created management companies themselves, and they got the properties back. A bunch of then they put them back on the market and made a lot of money. So there was a lot of business, a lot of wealth created in that time frame, but it wasn't created by people like you and I, it was created in Goldman Sachs, and in Blackstone, and these kinds of places.   James: Got it, got it. So where do you think we are heading in the next two or three years or five years? Are we going to have a slowdown bump or it's going to be a crash into like 2008 or there is just going to be a coupon rolling in multifamily?   Rich: I don't think that we're going to have a crash. I see it more that it's just a steady market and I just think it's going to go up and down a little bit here and there, and I don't see much change from where we are for a couple of more years. I can't see out too far into the future. Sometimes politics and things like that intercede, and we don't know if someone politically comes in and starts changing the tax code like they did in 1986 or something like that. But the way I see it is that America is fundamentally becoming a retro society. People are living a lot longer, and the longer people live the less they want to own a house. A lot of people will own houses and raise families there, but they will exit houses more and more frequently to live in places like central cities or small main street America so they can be near services and doctors and entertainment and [inaudible 49:41].   And I don't think that we're going to go back to the white picket fence for everybody's environment. Now, that doesn't mean people won't buy houses, but when people are not raising children, they will prefer generally to live in smaller environments, more like Europeans do, and I think that pertains, well, for multifamily. There are so many good trends that are feeding into the multifamily trough that I can't imagine right now that in general, multifamily would have a crash.   James: Got it, got it. And so we're coming almost to the end of the show. Can you give us one advice to people who are thinking of becoming like you owning thousands of units and they're just getting started?   Rich: Sure. So this is my main piece of advice is that if you want to be in this realm, then you must make it a full-time job. This is not an investment, multifamily is not a stock that you-- it's not putting money on Microsoft and watching it go up and down. It's an active business, and if we're going to try to be somebody who owns several apartment complexes, then you just really can't buy the complexes and hand away the keys to the management company and expect great results. You have to be very actively involved, visit your properties, know the rents in the market, walk vacant apartments, and make sure you hire good people. It really is a business, and if you're not prepared because of your lifestyle, your other job or something like that to devote most of your time to this business, then my recommendation is become a limited partner in a deal or two, try to make money that way. But don't think that you could become a principal and own five or 10,000 apartments that way, no, it's not going to happen.   James: Got it. I mean, this is one of the requests from our listeners. Is there anyone advice that you want to give to a passive investor who is investing in this deal? What they should look for [inaudible 52:14]?   Rich: Well, the big issue for passive investors is that they should really understand what they're investing in, like any other investment, and not take the offering that they get from the company or the operator at its face value because it could be too optimistic. You want to make sure you agree with the assumptions. So you would probably at the very least get on the computer and look at how much are units really renting for in that area. If they're going to renovate, well, what does a renovated unit look for? Is this an achievable rent that they're projecting and are their expenses realistic? Are they in line with what expenses really shouldn't be? So do a little homework; that's my main thing, and don't just trust that, just because somebody sent you something that said that there's a 30% return, that that's a real thing.   James: Yeah, I have many, many times some passive investors just look at the final return numbers and decide whether they want to invest or not, but they forgot that we are making thousands of assumptions in that spreadsheet. So you rather check the assumptions rather than just the final numbers.   Rich: Absolutely.   James: Right, so Rich we're really happy to have you here. How can the listeners and audience reach out to you?   Rich: Well, they could, we have a website, alcapgroup.com and they can send me an email through there. If they want to know about our upcoming deals, we'd be happy to put them on their list and work with them, talk to them, and see if we can do some business together.   James: Awesome, awesome. Thank you very much Rich for coming onto the show.   Rich: Thanks James, been a pleasure.   James: Pleasure to have you. Thank you.

James: Hey, audience and listeners, this is James Kandasamy and you're listening to Achieve Wealth Podcast where we talk about value-add real estate investing and we interview a lot of commercial real estate operators where you can grab a pen and a paper and start learning.    So today we have Jake and Gino from Wheelbarrow Profits. And Jake and Gino own around 1500 units with 1000 of that units were done solely by them without any syndication. And they have another 400 units, which they started syndication and their primary focus is on Southeast market. Right now, the deals are in Tennessee and Kentucky. So, Hey guys, welcome to the show.   Gino: Hey, James. How you doing? Nice to be here.    Jake: Hey, thank you for having us.   James: Yeah. Did I miss out anything in terms of introducing you guys?   Gino: Well, I mean, for me, I've got six kids. I mean that's probably my biggest achievement to date. I live down in Florida. I relocated two years ago from New York to Florida. I'm a certified life coach. I think that's a really big accomplishment for me and I've got a fantastic partner on the other end. So that's what I guess made my success, having an amazing partner, having an amazing person pushing me and telling me, Hey Gino, we need to buy this deal. Hey Gino, you know, we need to write this book. And I'm like, come on, another thing? So having a great partner really will excel you in life. Did leave anything out, Jake?    Jake: We're economic deserters. We left the high tax Northeast for a better life of sunshine and rainbows and I'd [01:54unclear] friend. No, it's been a great ride. You know, Gino and I, back in 2011, started really looking hard at multifamily. We wanted yield. We wanted something that was going to pay us every month. We had very challenging jobs at the time. I was under threat of layoff all the time. Gino was in the back of the kitchen trying to make sure that he could get dishwashers in every night. And ultimately, we knew there was more to life than what we were experiencing and we sought out to make it happen for ourselves.    So we got into the first deal. It was a tough one. It was a 25 unit and we've never looked back. We've done multifaceted, multifamily ever since. We have four core businesses, we have property management, we have education, we have a mortgage brokerage, we have an investment business and over 20 holding companies to go along with that. So we really look at multifamily, you know, being the place to be because we know that it's a basic human need and we've grown our brands all within the multifamily space. And it's been, again, just a fantastic ride. We've focused a lot on culture scale, and growing the business day in and day out. We had an epiphany moment a few years ago that we were working too hard and we're running around doing everything.    We call it the, 'I'm a' mentality. I'm going to do this, I'm going to do that. I'm going to do everything. 'I'm a' could only go so far. So I'm ahead to bring some friends. So Jake and Gino, you know, brought some friends on and we started scaling up. And you know, we've got some really great people on the team and I think that's one of the things, I get so much of the enjoyment out of it. Cause I see these people coming on really with us and they just grow and they excel and then we've created a home for them.   Jake: And James, more importantly, that only started with a 25 unit property with $27,000 from Jake, myself and my brother, Mark. So that's the amazing thing. Talking about where to start. I'm too young, I'm too old, the market's too hot. I don't have enough money. Those are all myths that people want to tell themselves. What they're lacking is they're lacking innovation, they're lacking education, they're lacking creativity and they're lacking mastermind. Those are the things that I lacked when I used those excuses.    And if you want to use those excuses, that's fine. But we have so many Jake and Gino community members that are in their twenties and they're in their sixties and they've gone out and they're doing deals. So if you want to get into multifamily, you need to educate yourself first.   James: Yeah, very interesting. You guys are really, really vertically integrated. I mean, as you've mentioned, you guys own property management, asset management and also have a renovation team. And you also do some agency that representation right to the test lenders, I guess for the agency, which is really good. I mean I have the first three but not the last one. Question is, I mean, how did you guys do this 1000 units on your own? I can tell you there's not many people who have done like even like a what, 300 units on their own, right? Everybody syndicates, right? Including me; I syndicate, I used to own...I mean I still own some single-family, which I'm selling off right now, but all my deals are syndicated and a lot of people I talk to use syndication. But how did you guys go from that 25 units to 1000 units on your own?   Gino: We weren't that smart, first of all. We thought that's how you had to do it, to be completely honest with you. Because we said, Hey, we got to buy a deal. We'll buy the deal. We buy it, right? The three-step framework, if you see the wheelbarrow behind me, it's buy right, manage right and finance right. You need to do all three of those. We were buying them right and we're still buying the assets right.    It's truly important that you need to buy the asset right. So we buy these assets, we refinanced the assets and we wouldn't go and buy Ferrari's. We'd actually repurpose that money into the next deal. What really propelled us was we bought a 281 unit property. It was $11 million. It was owner finance. The owner basically said, here you go, here are the keys. We actually had about $120,000 come back to us at closing.   Now that doesn't happen every day, but that happens when you're ready and when you are integrated and you know the business model and you know, to take advantage of that. That really, really propelled us because we were able to refinance that property. So to date, we've refinanced over $9 million of our proceeds. We've rolled that right back into the business and we continued to grow that way. But James, to be honest with you, if we'd been syndicating through three years ago, we'd probably be at the 5,000 unit mark, which is maybe that's great, that's not great but that wasn't our path.    We started syndicating back in November because we saw we could create another multiple stream of revenue, create the asset management company, that syndication company, for syndication. And I had five or 600 investors on our platform because of the Jake and Gino brand. I just couldn't utilize them. We didn't have the space so we brought on another partner to start that business and that's been a fantastic business. We've done two syndications, we've got another deal in the contract right now and we're continuing to grow that. And James, as you know, they feed each other. It's just wonderful. You go to an event, you speak, you do podcasts, the education can sell education, sell books, and then you know what, you're positioning yourself as an authority leader. And on top of that, you're bringing investors on board and you're teaching people how to do it and you're getting the deal source. And it's just such a symbiotic, beautiful relationship.   James: Yeah, it's very interesting because I mean right now, like for example, I was told once, I mean you can do syndication, but your end goal is to own some of the units. But you guys are going the other way.   Jake: We started backward, James. I'm going to tell you something, and this is what I want your listeners to hear because it's the kind of thing where a lot of people are afraid of nonrecourse financing. And we'll tell you right now, non-recourse financing has made me rich and it's made Gino rich; fortune sides with him who dares. We took a chance on it. We couldn't even get into agency debt back when we first started. We were doing a lot of deals that would have been qualified for what is now known as Freddie Mac SBL. Okay. We took on the recourse debt. We had a lot of battles on the front end with the banks. I say a lot of times, it's just as hard negotiating the deal as negotiating the deal with the banks a lot of these times.    So we went in, we fought some good battles. As Gino said, we manage these assets, right? And then we were able to take the financing and sometimes we'd finance the deal once with a community bank and then sometimes you'll refinance it again and send it out to nonrecourse financing over time. So we just really did, we focused on buying these things, right. Adding a ton of value to them and then extracting the value, holding the assets longterm, not selling them, keeping the cost segregation going. And really my view of these is that we're going to buy them, we're going to manage them right. And the party is going to keep going because we're not going to sell them off if we're buying a deal in house. If we're buying a deal in house, we're gonna keep adding assets to it. Keep the cost SEG going and keep that party rolling.   James: But what's your end goal is syndication. I know syndication can grow very quickly in terms of unit counts, right? But your shared...   Jake: But it's not about just growing the unit counts for us, right? We want to have a tool in the toolbox that fits every deal. And we were talking before we got on the show today that we just bought a very hairy deal. It's 26 per unit. People were not being taken care of. It's 146 units. We have 40 vacancies right now. We didn't syndicate that. That was not a good deal necessarily for us to syndicate, but I know over time that deal's going to pay us back very handsomely. So was that a deal that we want to syndicate? Probably not. We're doing a deal right now. It's very clean. It's going to be a nice cash on cash return, right down the alley for syndication. We just want to, you know, any deal that comes our way, we want to, if it's going to cash flow, there's going to be an opportunity, we want to have a vehicle or tool to take that down. And syndication is just one of those tools. Find it in house is another one.   Gino: And I think the opportunity we have now, to piggyback off of that, as where we are in the market, in the market cycle right now, you just gotta be careful of what you're buying. You have to be buying assets in pretty good locations, with pretty good rent growth because when the economy slows down, you want to be able to continue to have your occupancy and run 94-95%. You don't want to see rents dropping. So you gotta be careful what you're buying. Would we've been buying these assets three and four years ago? No, the opportunity was more of those value-adds. Now there's less of an opportunity for our value adds because those prices are already built up. I mean, we went and bought an asset in November at 45 a door. Two years ago, it would have been 30 a door, but that's where we are in the market.    So with that value add, it's very difficult because you've got to put more loan to value. So you've got to put more money down on these deals and there's more risk, as going out 18 months or 24 months, if you're not able to make those preferred payments, you know, they're going to come knocking at you. And then the investor's going to say, well, why did we make the draw this and this quarter? Well, we were trying to reposition it for the long game. That's the thing with multifamily. Everybody out there, multifamily is a long game. It's number one, but debt and taxes, number two, it's about having a business. If you're not going to run the business, somebody has to run the business. And number three, it's a long game. You're not going to get paid today or tomorrow. You're going to be the farmer planting the seed, watering the seed, and waiting six months or 12 months for it to grow. That's why it's hard to get into multifamily because people love transactions. This is not so much transaction-based business unless you start getting into it and then a year, two years down the road, you can create some transactions by refing or by selling or by trading up. But when you start out, it's hard because it's that instant gratifying.   Jake: James, I want to say one thing that just piggyback on Gino here and what he's saying is many of you out there may be syndicating deals and we love syndicating. We love buying deals ourselves. Just keep in mind the syndicators that are the most successful are that they understand that the work starts after you bought the deal. Just because you're syndicating, you need to have that one on one connection, even if you're doing third party management. James, we were talking earlier that you know, he runs his own a property management group. That's when the real work starts folks. So you know, whether you're syndicating, whether you're buying in house, tee it up, make sure you're financing it right. Make sure you're buying it right. But then that managed piece, just because you know, you may not be running direct property management, you need to be having those weeklies with that property management, making sure you're nailing your KPIs.    James: Yeah. I also think that the managed portion makes the most money. Do you guys agree with that?   Gino: I totally agree with that 100% because that's where you're going to increase your NLI. You're either going to increase the income, decrease the expenses, create systems and be able to scale. But the problem that Jake and I had when we hit 650 units, we were still just telling somebody this the other day, we were still using rent posts and we fumbled upon that folio and that was the biggest aha moment. All of a sudden we said to ourselves, it doesn't matter how many units you add onto your portfolio, if you're not managing them efficiently and extracting as much value from them, that's going to be a big problem. So I think managing is the most important. It's ongoing.    Jake: There's more to it though, to James' point. Here's why. Once you buy the deal, there's no going back. You paid the money, you paid that price. That is fixed. That's why I always talk about the back leg of the wheelbarrow being fixed. If you finance the deal for 10 years, and I don't care if you have stepped down or you have your maintenance defeasance wherever you want to say, you're fixed, what are the levers do you have to pull? It's the management arm of it. That's the piece that you're going to be able to. Exactly. Right. That's a great point.   James: Yeah. Yeah, so that's why I always tell my friends and my followers in my Facebook group and all the people who come to me; the operations where you make the most money because before you buy the deal you are putting a proforma, right? You think it's going to be like that. You think it's going to be like that. You think it is going to be 3% operation. You think insurance is going to be this much. Right? So it's a lot of assumptions, but once you close on the deal, it's avail game, right? You are like, Hey, you know, now you have every tool in the box to really trap. That's where you really make the money and you, if you really work hard on the operation, you can make at least, you know,  2-3% more than if you give it to a third party management. Because third party management, they have a lot of other issues. It's not their baby.   Jake: You're not the only customer. Here, we're the only customer baby.   James: And they have a different profit center that they need to really make sure.   Jake: And we won't take on other clients. We only manage our stuff because it's ours and you're absolutely right. We're managing our baby, we're making sure our babies are doing well. There are little soldiers out there working for us. We want them to keep returning.   James: Yeah. Yeah. And also [13:28unclear] if you look at even your own operation, I can decide to, let's say my occupancy drop, I can reduce my staff today just by a phone call. Right. And reduce my expenses as well because my income is reduced. Right. So, but you can't do that on a third party. Right. You are like at the mercy of them. Right.   Gino: I agree with that. And you're also controlling; you're controlling. You can add on more employees. You can actually say to yourself, Hey listen, I want to implement this system. I want to raise my rents so you can have real-time. That's what's great about it.   Jake: Even think about the marketing piece. They may be using, you know, apartments or they may be using roof or whatever they're using and you tell them, well, I want you to stop using that. Well, that might be two or three emails or a week-long conversation to actually get that pulled out. And they may tell you, fly kite here, we just kill it.    James: Yeah, we just kill it. Yeah.    Jake: Move on. There's no question.     James: I have to give credit to my wife. She runs the property management side of it.    Jake: She must be a strong woman.    James: She's a very strong woman.   Jake: We should have her on the show.   James: She's at the property today. So I do the underwriting and investor relationship and acquisition and she does the construction and property management. And you need a lot of...   Jake: You're taking it easy, then man. Come on, you gotta get hurt...   James: My work is a lot on the front end. Right? But one it's closed, it's her work. And I do help out a lot too. Right? So, let's go back to a bit more details on syndication was owning, right? Because this is something that I've been thinking, right? Because Hey, you know, I was like you guys when in the beginning, I did a lot of short term loan, bridge loan and we make a lot of money for us. I syndicated, but my investor was so happy with it, he made so much money. But now with the market being at peak and there are not many deals out there, you know, we have to still get good cash flowing. We still do value-add deal, but no more deep value add deals. Right. So I presume that's what you guys are doing, right? Still, value-add deal but no more like a deep value add when you syndicate.   Jake: No, even the one we just did, we were talking about that; we did it in December, it was 26 a door and we're going in new decks, all new interiors and we have a ton of vacancies. I'm not afraid of it. The key is though, since we have our own management group, I don't want to take on five of these things at once because it's a resource issue at that point. We have resources to do one real heavy value add at the time so we're fine having one of those in the mix. But if you start stacking them, you know you really got to add team members and that's when it gets even more challenging. So for our size of scale right now, I'm very good with, you know, one at a time, getting it kind of rolled up. And we kind of we're just coming off the tail end of another one and then we ramped up into this one. So it's been working out for us.   Jake: So the problem with this deal, not the problem, the opportunity with this deal is we're using community financing. We've got an 85% LTV with loan to cost. So we've got 80% of the loan proceeds going into doing the cap-ex work. We're going to refi that property and bring it to the agency once it's all done. So there's the value there. And the only thing was when we bought it, we were able to have economies of scale. It's near a couple of our other assets are, we're able to use maintenance guys on that property. So that's another one of the reasons why we're able to do that cause just added to our portfolio. If this was something I was all by itself in, you know, down somewhere [16:30 unclear] assets, maybe you'd think twice. But there's always other reasons for doing the deal. And that was really one of the important factors that we saw.   James: And at what point did you start syndication? What was the timeframe? Was it like last year, two years ago?   Gino: So we started, we actually when we came off of our first event, I signed up like 30 people in our event back in November of 2017. I said to Jake, I've got all these investors floundering and that's the thing, when you're signing up investors, James, you have an important role. You need to reach out to those investors and you need to make substantive relationships. You need to start giving them value or else they're going to fall off. So I felt compelled to say to Jake, we need to start creating these relationships with these investors. We decided to hire somebody on and become a partner of that company. The beginning of 2018, February, March, April, we started ramping up, took us a few months to find our first deal. We find our first deal in August and that period timeframe for us, our first syndication, getting the PPM is soft commitments, emails.  It was pretty overwhelming and daunting but we did a small deal. It was only $6 million. It was 132 units. It was something where you can like consume and do your first deal for us. We raised $2.6 million in two days because we had all the framework, we were ready to go, we had the investors, they were prime, we had the podcast, we had the brand out there. But one thing with syndication that's a little different is things move really quickly, and it's a little nerve-wracking that you have to get everything in order. You have to get your emails out, you have to have your documents down, you have to have everything in order. You have to make sure that, you know, you get your webinars going and everything's spelled out clearly to your investors. And that's why it took us a little bit longer cause we had never taken money from the investors. So when it's your money and cash flows and come into the month, Jake says, Gino, septic fields scrapped out. We're not getting paid this month. I can deal with it.   Jake: Plus there was a demand thing we had people asking for it. And it was kind of like at some point where they're going to do, we flirted with the idea for so long as either we're going to do it or not. So we gave it a shot.   Gino:  And that's the thing we could have bought that deal without syndication. But I think it was just the ideal opportunity. It was a new market. It was small enough for us to say, you know what, we can handle this with the syndication. Let's try it. You just got to commit and then figure it out. And that's what we ended up doing. We committed to doing it. We worked with a great attorney, Kim Taylor. She walks through the process. We had great team members and then we just ended up pulling the trigger and we ended up closing in November of 2018 and we followed up with another purchase in April of 2019. About six weeks ago, we closed on a deal and at an additional 240 units in that market. So it's a great learning plus. Once you do one, you figure it out, you figure out the ramifications, the webinars, adding the investors on the documents. And then it's just 'rinse and repeat'.   James: Yeah. I think you guys are the example of why syndication exists, right? So syndication is not like a get rich scheme, right? Not everybody can do it. Not like somebody who was doing W2 can or can do, I'm not saying they must do syndication, right? So in my mind, syndication is like a mixture of an experienced operator, right? So you guys have proven that operator and there are some passive investors which want to place that money into this experienced operator, right? So if I'm getting some guy who was coming up from a boot camp or a  2-day course and trying to do syndication that he doesn't have the experience, I mean he might be coached by someone who's experienced, but I think that's where the syndication comes very powerful, right? When you marry people who really want to be passive with people who are really, really good at what they're doing that's where you get the beautiful marriage there. Right?   Gino: Also students who want to raise deals for others. So James, let's say you're coming short on a raise and you say, Hey, listen, I need to get some way, maybe you can get somebody to raise money for your deal. Obviously they have to be comfortable with you as the operator, as a sponsor. And Jake and Gina is a sponsor with a lot of students start that way by raising money for other people's deals, getting in the game, putting a little lower skin in the game and learning how the syndication process works. And then learning how much work there really is and saying, wow, this syndicator is not putting any money in this deal. But there's a lot of work and there's a reason why there's no money going on the GP side of the business. It's they're signing under debt and they're doing a lot of work for this and that's a great way for people to start getting in the business. Raise a little bit of money for another syndicator if they need that platform, then learn that process. And that's how you learn the process and then you can move on and succeed in getting your own deals.   James: Yeah, absolutely. What's the structure? Can you guys walk through the structure of your company, right? Because you have property management, asset management, you have renovation team, you do some kind of a mortgage brokering as well. On top of that you have an education platform, right? So how big is the whole team?   Jake: You know, probably and not including vendors and whatnot, it's probably just shy of 60 people,   James: 60 people. And how many people...I mean, property management would be the biggest, I guess.   Jake: Oh yeah. Property management is definitely the biggest. And you know, I'm really excited. You know, we do these weekly meetings. I'll meet with every property manager weekly. You know, we meet with the managers of the different divisions of our companies and we call them weekly L10s and we're just really looking forward to this year cause we're gonna really bring everyone together. I think one of the biggest things is when you start to scale and you start to grow, that culture piece is tremendous. Last year we did this big whitewater rafting trip. We brought everyone out. So we're looking for another event this year, but we're going to break down the barriers. We're going to get the core values going, get the tee shirts, bring everyone together for an event. And it's going to be interesting because what we're trying to do now is even get those synergies amongst the different companies jamming that much better together. Get everyone walking to the same beat and so I'm very excited about that.   James: And how many of the 60 people, like a property management. Do you have a number?   Jake: Well, we're going to be creeping up close to 46-47 on that soon. So, you know, we'll have a couple on the investment side of the business and then a handful on the continue education side.   James: Okay. Okay.   Jake: Okay. Property management and that's including our renovation team called the cap-ex crew. They are the elite Navy seal ninjas of property management and they go in when others can't, they get it done.   James: Yeah. So your renovation crew is supposed to be, I mean it's in house, but it's not really announced in terms of financial, right, because they're not supposed to be part of the P& L right? Is that correct?   Jake: Yeah. So that's basically going through the property management group.   James: Okay. Okay. Yeah. That's very interesting. And how did you guys...   Jake: He wants to see an income statement now, Gino.   James: Because...   Jake: I'm just messing with you man.    Gino: So James, I'll dive into the education a little bit more. We started the education about four years ago. October 2015 we launched the book with our profits behind me and it was just me basically quit my restaurant and said, Jake, I need to do something. I'm in New York. Let's start a podcast. And we didn't know why we started the podcast. We should have probably started it to get investors. But we just started because we wanted to learn. I mean, how many times can you speak to Ken McCroy or you know, Robert Kiyosaki for an hour, right? I mean, it's just amazing. So that's where we started. And then from that, we said, okay, how do we continue to build this? So we started selling, creating educational products. We wrote the book, we have trainings on Kajabi, we have mentorships, we have coaching.   And to grow and scale that business, I can't be doing one on one coaching all the time. So we hired a community director. We've got an operations manager in that business full time. We've got three part-time, we've got three full-time sales guys. We've got four coaches right now. We have two deal review coaches on top of our accountability coaches. So as you start growing, you commit, you figure it out, you start scaling up. But the real thing that you need to do is you need to get really qualified people. You need to get great people. Like Jake talks with the culture and our culture is basically a blue-collar work ethic. It's we don't want to hear 'it's not my job' because I'm still packing books. I'm still doing $5 an hour work when I have to. And Jake's doing the same thing. And I want that to convey those small startups with Jake and Gino and we're going to be able to expand this. We're gonna be doing weekend events to just start selling more products and we're going to start bringing on more sales guys. And as the community grows, I think that culture is going to be pervasive throughout all of the entire organization where it's like customers first, you know, students first. It's not me, it's we and whatever it takes gets done. I think that can permeate throughout all of the layers and all the multifaceted multifamily. And that's really important. So when we first thought about Jake and I, Jake will tell you, he thought culture was crap and it was working corporate because it didn't serve him. But I think as he sees it, it's everything right now. Because when they see Jake and I working hard and doing that, it just, you're the leader, you're supposed to be part. If you're going to put in a mission statement in words, and I got house rules over here, if you're not following your own house rules, how do you think your employees are going to follow the house rules.   Jake: James, nothing fires me up more than 'it's not my job'. You want to see the roof come off this house right now, smoke start coming out of my ears. That's the one thing that I can't handle.   James: My wife and I get upset when somebody said I do not know, I said, don't tell me 'I don't know'. Tell me, 'I'll figure it out'.   Jake: Or you know, let's ask and work on it. You know, it's like I can handle that a lot easier than 'it's not my job'. Cause that's like a moral and a work ethic issue and everyone else is working so hard and you're going to sit there and say something like that.   James: It's a clash between ownership mentality. I mean, especially with the property management, right, with the ownership mentality and employee mentality, right? Because a lot of times in property management, the people are working with employee mentality, but owners, we are more, we want to see the profit. We want to be really part of the profit center. Make sure everything runs as how we want for the investors. At the same time...   Jake: Gino knows about the blue-collar work ethic. We finished up a podcast with who was the guy that used to be in Bigger Pockets, who was the guy there? It was Brandon and Josh. And we got a video. We were out there one day. A tree fell across one of our assets that we just bought and was laying across the sidewalk. You know, we didn't have anybody at the time to do it. So Gino and I went down there, took out the chainsaw, chop that bad boy up, threw it in the back of the trailer and made a day of it. We got a video, I think it's still out there on YouTube, so it doesn't matter. I don't care what job it is, I'll do it all myself if we have to.   That's not how you scale, number one. That's 'I'mma' mentality. But if it comes down to it, if it needs to be done and there's no one else to do it, I'm going in and I'm going to do it. It's just period.    James: Awesome. Awesome. That's the work ethic, right? Sometimes you have to do it.    Jake: It's gotta get done. Somebody has got to do it. And the idea is to build a machine and put the systems in place to make sure it runs fluidly. You know, every day the best work that I can do is help working on the machine and building the machine. But it's not always going to be there. And sometimes, you know, a bolt falls off and if I gotta be the guy to screw it back on, I'm going to do it.   Gino: I think it's important to say that the machine isn't built from the very first day. From the very first day you're going to grow as a person. So four years ago, I wasn't doing the best work of what I had to do. I was just doing whatever work I needed to do. But now as you scale, and as you're able to do that, as you become financially free, you can start thinking about working on the business as apart as the working in the business. And the first three or four years, Jake and I were really working in the business. And we weren't able to create these multiple streams of revenue. We're just surviving and learning. And that's fine. That's what everyone's progression is. But once you get into it, when you start doing it, you can start transitioning out and start like what Jake said, start creating those systems. But if you don't start with a 25 unit property, you're never going to be able to do what you know, what actually transpires after.   James: Awesome. Let's go to some market selection questions. So how did you guys select this market?   Gino: Well, it's funny, Jake was going down in 2011 he moved down there and I had it on one of my other podcasts with my wife. He went to Knoxville, move there for six months without his wife, struggled. I mean, it's not an easy thing. He left New York, he abandoned New York and I'm up there at the restaurant. I had just met him and I'm like, Jake, these numbers work down here. Let's start looking at deals in Knoxville. His metrics for moving was; there were no state income tax, close to New York, decent weather, cost of living is great. So he moves to Knoxville. And ironically, enough, that's what makes it a pretty good market to invest in multifamily, right?    James: Population growth.    Gino: And we got lucky, we got lucky with that one. But we started investing, we started looking at deals. I think, you know, the Southeast is great. So like you said, we're vertically integrated within three hours of Knoxville. So that's what we're looking. I mean, throw a dart, there are so many great cities around there to invest in that market. We don't want to go up in the blue States, we want to stay. Texas is a little bit overbought. I mean, you know why. I mean, you have been an engine of economic growth there. People are flocking there because there are jobs there because there's infrastructure there and because people want to live there. So, that's what's happening. So I think, you know, as far as us, we just got lucky. We picked Knoxville and now we're able to go out into these other markets that mirror what Knoxville is.   Jake: And in addition to that too, we have a specific strategy that we're looking to be the best customer service property management company for C and B apartment complex. We own some A stuff but it's kind of because the deals worked and we bought it, but we see a discrepancy where C and B operators typically do not have that good of customer service. I love what Chick-fillet does with a $7 chicken sandwich. How are you doing today? It's a pleasure to serve you. How can I help you? It's that great customer service and I truly believe that is a blue ocean. That is our blue ocean strategy. It's going to separate ourselves and we rebrand all our properties, brand as our property management company so that when people pull up, they're going to know that these people care. We believe renting is personal and our residents are our number one priority. Okay, that's what we're about and that's the difference in how we run our properties and I think longterm it's not going to happen overnight. That's a longterm strategy is going to take years to fully implement, but that's the separator from us and the other guys.   James: So how do you guys standardize this? You know, the awesome operator experience for class B and C, how do you standardize it across the organization?   Gino: Yeah. Well, first thing you do is you start going on training platforms like Grace Hill, you start systematizing platforms and training. We're creating our own internal training right now for our maintenance techs. And then we're going to transitional to training our leasing techs. That's really important to have something standardized to train them. And I'm doing the same thing on education. So when we were onboard, as a coach, I created a training platform for our coaches to watch videos and show how to coach them. And it's the same way in anything. You want to be able to have something standardized where they're all playing from the same drum.   Jake:  So I'd like to elaborate on that a little bit as well because, so it starts with the basic stuff, like Gino mentioned Grace Hill. Now we also have a product called Kajabi where we've taken the Grace Hill training and we have, it's basically our elevated in house training that we're putting on the Kajabi platform where we're teaching our guys if they don't know how to do something, we're having level one, two, three and four for maintenance techs, for example. And then there's a YouTube page where they can go on and actually from their phone remotely check the video, Oh, this is how I need to change out this garbage disposal or thermostat, whatever the case may be. And so as we're going through, you're talking to us as we're in the middle of launching this entire customer service training program. In addition to that, it started with Grace Hill. We're moving to down to a Kajabi and we're working with Grace Hill on Kajabi at the same time. Once we're done with the maintenance end of it, and we should be done in the next couple of months with that end of it, it's then going to the full-service customer service piece. We have weekend trainings now. I don't want you to think that we're just starting this, but this is how we have the full-on slot of our strategy implementation. In addition to that, we've started working with Petra, they work with scaling up. I don't know if you're familiar with that.    James: No, not Petra.   Gino: Okay. It's Verne Harnish's book, Scaling Up.   Jake: And essentially, they look at people, strategy, execution, and cash. And you know, we've gone through top grading and making sure that we're getting players on the team. But the one piece of that is we fill our funnels up really full. We have all these ideas that we want to implement. So we have a good strategy, we have good people, we have good cash, but it's that execution piece that we need to get better at. So, you know, while we have an education company, we're open-minded and we know we can always grow and get better. So we're bringing in the best of the best. This is, you know, from everything I've seen, the best scale company in the country and they're working on our business as we work on our business to make us the best customer service property management group in the industry. So that's where we're going.    Gino: The cool thing about the whole education platform is we never would have done this training internally if we didn't have Jake and Gino. Because Kajabi is our online training platform for education. So it just bled over. And I've mentioned that, I said Jake, we need to do these videos to show the maintenance tech when he goes in, how to change a toilet, how to fix a hot water heater. This can all be documented by training videos. So if we didn't have the education platform, this never would have been even been a thought in our minds. And I think the other thing when you are going out as a business owner, keep your eyes open to what other businesses are doing.    My son had gotten a job down the street or at a restaurant and I was amazed at how many applications these people were taking in. They had an ADP platform and I said to Jake, this is another scaling up option where we can start onboarding our employees. And it's just a great tool. So, you know, a tip for everybody out there, if you're in multifamily real estate, see what other industries are doing because you can adapt and pull from other industries and use it to your advantage.   Jake: I want to talk about that a little bit though, Gino, because what we're basically getting with that is we've used ADP for years, but they have, I'm going to call ADP plus. It's their, whatever, you know, higher-end product. But they will give us for all our different brands, we will have a very corporate and professional landing page now. So we have something called the ran pride video. It's showcasing our folks, talking about our culture, which, you know, not have a history of the company video. All of these videos will go on these landing pages. So when potential employees want to look at us, Hey, that's what these guys are about. So we're selling ourselves; let's not kid ourselves, we are in the tightest job market in 60 years. So we need to be recruiting the best people in and we're not going to have a good organization.   So we're doing everything we can to make it a great work environment, get great people in the door and keep them. Because once they come in, we have a very low turnover. But you know, from ourselves, marketing ourselves to the outside world, we need to let them know what we're about. And then as they're coming through, they're putting their W2 information all into the ADP. It's all electronically saved in the cloud and that carries them through. It also has the HRS software so that our HR folks can manage that throughout the entire lifespan of their time with us. So we're really focusing, like I said, on scale culture and operations because, you know, the other things, the people, the strategy, the cash we've done very well with. So it's that execution and pulling it through I think is gonna propel us over the next 10 years.   Gino: And James, do you need it when you have 100 units? Maybe not, but if you're thinking of getting bigger, you're going to have to implement all these systems. Don't be overwhelmed with it now at 100 unit market, just think that you know, as you grow as a person, as you grow as a business person, you're going to be able to figure out those ideas and go...   Jake: Yeah, we're laying the framework to go from 50 to 500 employees.   James: Yeah, that's really good because I know Grace Hill, because I use it as well, we use ADP, but I've never heard about HRS and I mean I know about Kajabi, but I didn't know that you guys are using Kajabi as well.   Jake: So we blended the two together and then we're actually using a YouTube page for the videos so that they can get it right from the app on their phone. And it's coming together pretty nicely actually.    Gino: And there are so many app platforms out there. You can use Lightspeed, you can use Kajabi. We are one of the founders on there seven or eight years ago when they launched. So we've been using it for a while and we just got comfortable with it. There are so many different, you know, LMS systems that are out there.    Jake: The executives within our company, they love building this because they see the need for it. So they enjoy it and they're great. You know, there some of the ones out there filming, well not filming uncle Shawn's doing that, but actually, doing the tutorials on the maintenance or the customer service videos. So everyone's getting involved   Gino: And they're creating the assessments too, cause you want to actually have them watch a video and then do the assessments. So they're creating all that also, which is awesome.   James: So let's go into a deal, deal level detail or how do you, I mean, let's say today you get a deal today, right? From broker, off-market, right? So what are the things that you would look at, look at it quickly to either reject it up? Cause I presume a lot of deals, you guys don't even underwrite it, right?   Jake: We do a quick underwriting. So we're looking for cash flow from day one and the opportunity to force appreciation in the future. So what does that mean? You know, if it's a stabilized deal we want to be, I'd love a six and a half cap, you know, if we're a little bit lower than that and you know, six to six and a half cap, I think we can typically make it work if it's in a good location, if we're going to syndicate that deal and we're seeing, you know, 8% cash on cash, we like that. And you know that typically, we'll take it to the next level and start looking a little deeper.   James: Okay. Okay. Got it. Got it. And I presume deep value add, it really doesn't matter on the entry capital, on any of that.   Jake: Let's talk about that. So the deal we just bought, you know, if you're talking about actual is was a, you know, like probably like maybe like a...   James: 2%   Jake: And it was a beat to crap 1970s build. But you know, what are we talking about? Like do we really care what the cap rate is on that deal? No, because we know when it stabilizes the cap rates going to be more like a 12 so it's again keeping your mind open to each deal. What can I do and what's the opportunity with this deal? How do we want to take it down? Is it going to be an in house buy? Is it going to be, you know, a bridge financing, whatever the case may be as an agency? Or is it a syndicated deal? You know, all of these things weave together.  And that's the beauty of this game is that we have multiple things that we can do to extract value and create great things. And so, it gives us an opportunity to have fun with it.    Gino: And James, Jake's speaking up specifically, if we're in the 26,000 a unit, we need to add another four or 5,000. If you're into it for 31,000 a door, I know that that asset in right now is trading over 50 a dor. So I know that that right there is a whole month for us. So that's another way I like to look at the per-unit cost of what we're buying. And I like to look at the expenses. If I'm underwriting a deal, we know that the expense should be 4,200 and the operator is running it at 4,900, you know there's value in there. If there's other income that they're generating, that's only 2%, we know typically we can get 10 to 12% of other income. There's another income, there's another value add right there so we're looking for those.    And you know, you'll hear from brokers every day of the week that you can raise rents, you can raise rents. So I have to spend 10K a door to raise a $50 rent, or can I spend 3 K a door and get that same $70 rent bumps. So you have to really try to analyze the market. And I think the other thing you need to be careful is where you're buying. You know, marginal areas, you're not going to get as much elevation right now and it's a little bit riskier. So, you know, we're just buying an asset right now; if it's in a great location, we'd like it. And Jake likes to say he likes to be your Kroger's Wholefoods and Chick-fillet if you can buy in that location...   Jake: Starbucks, bring it on.   James: You guys do value add, right? So let's say your rehab budget got cut into half, right? 50% of what you have. First of all, let me ask you, what is the most...   Jake: Why did that happen and are we playing the what-if game.   James: You never know. Yeah, that's a good question because I want to, tune your mindset to the question that I want to ask. So what is the most valuable value add that you guys have seen? Jake: What is the most valuable value add? Like what is like did we get the most out of doing flooring? Did we get the most out of...?    James: Correct. Let's say you have a budget got cut. Now you have a small amount of budget.   Gino: That's a great question. It depends on what property you're looking at because some properties may, if you put a dog park and you fix up the clubhouse and you do a good job of the pool, you may not see incremental value on that. But all of a sudden you're keeping the tenants and in your act you have to compete with the property down the street. So on one of our properties, we put a dog park in, we've put a fitness center and we did a nice job in a clubhouse and we actually did a pool and the decking. That didn't translate...I'm thinking, it translate into increased value and increased rents, but it also made be able to compete with other people in the market space. I think landscaping, people don't understand; power washing, landscaping, and painting are three of the most important things.   On our property, when we took over November, we actually had rents at 525; they went to 675. And we saw them in the Google reviews. These tenants were saying, you know what, these people were raising rents, but they care; customer service. That's one of the biggest value adds, customer service. We put out exterior lighting so they feel safe at nighttime. We took care of the landscaping there. We put in a gazebo there. We stripped the parking lot and seal the parking lot. We put in a dog park there. Signage was really important. Not huge amounts of money, but anything to turn the look of the property, the feel of a property, you want to show your tenants and any of your customers that you're adding value and not just going there and raising the prices. At the end of the day, why are you raising the price on me if you're not giving me some type of value?   Jake: I'll dive into it a little bit more too. I mean, the basics that, you know, I feel like that you have to go with a lot of times are, I personally love sheet vinyl. I know a lot of people want to put in the plank and this thing. We have this amazing, it's called nature's trail. If anyone wants to go out and look at it, it's skinny, it's white. So it looks like the barn style flooring, it's beautiful, it's got great, great tones in it. Installed, we're $1.74 a square foot. I mean, that's phenomenal. And it goes in, it looks beautiful. It looks like there's hardware throughout. So if I had to really get down to bare bones and I'm turning a complex, I'm going in with my nature's trail, I'm going in with my proposed gray and I'm going white on the wood. So the woodworks, the trim, and the baseboard, I'm going a nice pure white Sherwin Williams and it gets like a 7004 or something like that.   Jake: And then, in addition to it, the property we did in December, we were like, okay, let's pull back a little bit because we're painting the cabinets. And we saw a little bit of a spike in our available units. So we went back in, we reassessed it, and we said, you know what? It looks too damn good not to, it's an extra 350 bucks. Let's just keep painting the cabinets and then we're back to zero available units. So it's always, I think, and this goes back to what you were saying earlier about being a hands-on operator; looking at these things, looking at your KPIs, saying, what the hell, why do we spike? Oh, it was my fault cause we're being cheap. So we went back in and now we're filling it back up like that.   Gino: At the same time, Jake also, you don't have to spend $170 on a ceiling fan. Maybe you see your supply spiking like they did a year and a half and saying, hold on, this unit doesn't need $170 ceiling fan.   Jake: It's a beautiful $75 ceiling fan. They're beautiful fan blades. You get the multicolor here. So yeah.   James: What do you guys think that, I don't know, this is my experience that I see. I mean a lot of times you can put in Capex and all that, but I think the management itself, just managing it correctly, people are just so happy paying you 50 to $75 more   Jake: But you're talking about customer service then.    James: Yeah, customer service. Yeah, correct. I'm not saying that's the most valuable value add, but I'm just saying in terms of...   Jake: I'll say it. Listen, if you come in and you say it's a pleasure to see you, it's a pleasure to serve you. How may I help you? What can we do to make your unit better? We have this unit today. We're gonna treat you like gold. I'll take that over the new paint.   Gino: Jake also, the other thing is when they call for a maintenance request, don't want to wait six days for hot water heater, you have to get to them.    Jake: You're not going back to the hot water heater on me again; are you? Comeon man.   Gino: I love the hot water heater in my house the other day. 44:20crosstalk] We took over the third property. I remember I was in the restaurant and Jake is sending emails, we're turning units. And we had a client come in and started crying cause we've fixed the stove. He didn't have his stove for how long Jake? It was just like the silliest thing in the world. I mean come on. So, I mean, the customer service is really, when you get a maintenance request, send out the maintenance tech and get it done. You know, that's simple.   James: Yeah. It's just amazing on you to just take care of the tenants or the residents and they are so happy to pay you so much money compared to, why didn't a new ceiling fan you? I mean that's all secondary for me. So it looks like we share the same concept as well. So, let's go back to a bit more personal stuff flow. Maybe, one by one, right? Why do you guys do what you're doing?   Jake: Yeah, I'll get into that. It literally is about control and freedom for me. I am responsible for myself and my family and I was not in a position of control or a position where my family's life was secure. It was in the hands of others and I did not feel good about that. I, ultimately at the end of the day, am responsible for everything that comes into my environment and I need to handle that. Multifamily gave me an opportunity to take control of my destiny. And you know, by adding value to others, I was able to in return receive value. And it's been a phenomenal thing for me because I don't want to be, you know, dependent on Wall Street. I don't want to be dependent on a CEOs decisions. I have a lot of faith and confidence in myself and Gino and I know if we do the right thing it'll come back to us. And again, it's something that I don't ever want to be in a position where my family is worried about, you know, where's their next meal gonna come from. Great thing about all this is we've created abundance in our lives.   And you know, we started something called Ran Carriers last year and we were able to actually feed 10,000 kids for Thanksgiving. And so, you know, we'll see if we can match that or do about 15 this year, Gino. And so it's when you bring abundance into your life, you can't help someone else if you don't have the means to do it. So by us driving the ship, we've been able to create abundance. We've been able to create good homes for folks and we've been able to give back. So it's been pretty special.   James: Awesome. What about you, Gino, why do you do what you do?    Gino: I wouldn't  know what to do if I didn't know what I wasdoing right now. I mean, honestly, I'm pretty much financially secure. If I didn't have Jake and Gino, I could just probably live off of the draws of the property. But that gets to be a little boring after a while. So I'm doing what I really like. I mean, the education, growing a business, I always wanted to grow a business from the ground up. I was wanting to help people out by buying properties and by coaching them in motivating and inspiring them. And if I can monetize on that, it's a home run for me. So I enjoy what I'm doing right now. I mean it took me a long time to figure out, and it's funny cause I feel sad for kids coming out of college. What do you want to do when you get older? If you're an adult and you figure it out by the time you're an adult, you're a little lucky. Most adults can't even figure that out.    So Jake talks about it, you know, don't follow your passion. I mean sometimes if you're passionate about opening a restaurant and that's what you want to do, but sometimes it turns into a job. So you just be careful. You know, if you're lucky enough to become financially free and then figure out what you want to do and do something that you love, I think that's like the most important thing in the world for me.   Jake: He's been humbled right now. The G dad is a giver. He likes helping people and you know, not for nothing. The education has allowed people to buy over 3000 apartment units. And I know that's what Gino gets excited about. You know, it's helping other people and, and it's that giving back piece because it's a tremendous community that we have. And the folks inside the community are all like-minded, hardworking individuals. And I think it's because of the, you know, the sort of persona that we give off and we tell people about the values and necessarily what we're about and people are connecting, they're converting and it's been amazing to watch. And they'll get inside the private Facebook group, Hey, we just knocked out a hundred units today and then everyone gets on and start congratulating, how'd you do it? Let's hear about the deal. And it's become great networking. We'd love to see the continued success.   Gino: The phone calls that you get and the 48:42unclear]  year-round. When a student says, I just left my job, or I'm leaving New York and I'm moving somewhere else. That's really worth a lot, man. Because when you get those emails saying, Hey, you know, you've changed my life. There's something that, you know, you can't replace that; that's something that you can't put a dollar amount on, cause you're helping others and you change somebody's life and you change someone's family's life. And that multiplies in effects of people that they know. So that's really cool. That's one of the cool things about education.   James: Yeah, that's one thing that you bring to your end days, right? So it's not about the money. I mean, you usually forget how much you've made, but the appreciation that people have shown you for you're helping them, it speaks. Second personal question. I mean, this is probably, each one of you can answer it. Maybe you can combine together. Is there a proud moment in your life that you think you will never forget, that that moment really impacted you then and you are really, really proud of that moment and you want to tell their stories to your grandkids?   Jake: Yeah, I got one. I got one coming up now. And it's not about myself. It has to do with Gino as well. We were at the event last year, we had a phenomenal event in Nashville, you know, and Gino calls them the 'do rules'. We had over 500 people there, whatever. And it was all about multifamily for two days and just great speakers. It's our annual event, multifamily mastery. And that it wasn't necessarily anything other than it created an opportunity for my daughter. And she went out there and Gino's kids were there and they were learning business and we had some fun shirts that said like Jake and Gino are multifamily masters or something. But my daughter at the time was three years old, she went out and started networking with people and she actually sold a shirt for like 15 or 20 bucks and then she came over and she was so proud. She hugged me and told me about it and I was able to announce it to the whole room and the whole room like erupted because it was just, you know, it's this little girl going out there and then she was making it happen. So I'll never forget that. And it just is, you know, because of the community that it created that moment for me. So that was very special to me.    Gino: So we'll leave it at that cause I've got so many stories, but that's one story.    James: Take one story.   Gino: I mean one of my proud moments March 1st, 2016 when I left the restaurant and it wasn't because I was leaving a bad situation. It was finally saying to myself that I achieved something that I had been working for forever. I finally was saying to myself, I don't have to do that anymore. I have been there doing it for 20 years, over 20 years, locked in the same job and if I can change after 20 years and having those limiting beliefs and being able to grow and do something different, I think I just wanted to inspire other people that do that. So that was really a proud moment in my life.   James: Awesome. Awesome. We're at the end of the show, why not you guys tell the audience and listeners about how to get in touch with you guys?   Gino: He's the sales guy, so I'll let him shoot.   Jake: Listen, if you can't find this, we're not doing our job very well, but it's really simple. Jakeandgino.com, ranpartnersllc.com if you're looking to invest or rancapllc.com if you're looking into the debt side of things   Gino: and please subscribe to the podcast. We have the number one multifamily podcast on iTunes called Wheelbarrow Profits. We have four shows now. I've actually launched the show with my wife called Multifamily Zone. We have the Movers and Shakers podcast, which highlights a student's success every week. And then we have the Rand Partners podcast on syndication. So we're doing shows, we like going out there as part of our fashion.   Jake: Hold on, Gino, there's more. We're going to give a teaser. So we had the best selling book, Wheelbarrow Profits on Amazon and we're phoning it up this year, right? We've got the honey bee coming out in October. We put a lot of work into this thing. It is a phenomenal book. And it tells a great story and this is not your traditional business book. Gino give a little bit more on that. What would you say about the honeybee?    Gino: It's a parable basically about a gentleman who's frustrated, is very similar to Jake's story. Going around, has a boss, hates his job, and then just stumbles upon an older man who's willing to mentor him and find out that, you know what, there's more to it. How do you have all this? The analogy of a river with little tributaries growing into a big Russian river and it's all about creating multiple streams of income, starting small and making the stakes, and then all of a sudden, five years later, you've created something really great. So we just wanted to translate our success and just have people open up to the idea of that you can start small but create those businesses and then from one little stream of revenue, you can end up having four and five like you do James. And like we do.    Jake: And I'll just leave with this because the one thing that I really picked up from Gino early on in our investing career was to get rid of limiting beliefs. I know it's like a big Tony Robbins thing as well, and people talk about this, but it's so impactful because you know, you'll sit there and say, Oh, I can't do that. Well, you're right, if that's the way you're going to think about it, you're right. I grew up in a super small town on a dirt road out in the middle of nowhere. And that's the truth. And you know, we've been able to grow this business to, you know, over a hundred million in assets and you know, created financial freedom and generational wealth for our families. So there was, you know, literally in the town that I grew up in, you could work at the school, there was a factory that made chairs and you know, my family was like, well, maybe you should be a cop... Gino:  Or a gym teacher.  Jake:  You know, I literally went to school to be a gym teacher because I played sports and that's all I knew. So don't limit yourself because look, multifamily is not rocket science. It really isn't. Get educated. I always say education times action equals results. It's possible for anyone out there to do it, especially a pizza guy and a job rep were able to do it.  James: Yeah, I always tell people, if you think there's no deal out there, you are right. If you think there are deals out there, you're absolutely right too.   Gino: I love that.  James: It's that mindset that you have to get away from. Jake: Listen, look at the deals for two or three weeks and then having them not pencil out, it can be very discouraging. Try two years. That's how long it took this guy and I to get into our first deal. So yeah, I always say, you know, the best thing we ever did, we were pesky. We hung in there. We kept driving.  James: Exactly. All right guys, thanks for joining this podcast. You guys added tons of value and we're happy to have you share.  Gino: Thanks James.  Jake: Thanks James. 

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:  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.

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

Click here to get James' new book, What the Quran Really Teaches About Jesus. Gary Myers: Hi, my name is Gary Myers. Joe Fontenot: And I am Joe Fontenot. Gary: We're the hosts of the Answering the Call Podcast. Joe: This is the podcast where we talk to people who are answering God's call. Gary: Today our guest is James Walker. Joe Fontenot: James has a new book out on the Quran but specifically on using the Quran to show that Jesus is who Jesus is- Gary: Wow. Joe: Yeah, it's very interesting. Marilyn interviewed him in this one and I sat in and listened and I really can't wait to read this book because the Quran essentially says Jesus is God without saying Jesus is God, and if you read carefully you can use it as its own apologetic for Christianity. Gary: That's great. I caught his evening session at Defend and he spoke about the book there and it's an exciting book. Can't wait to read it. Joe: Yeah. And he's also got an atheist Christian book club which he talks about, which I thought was pretty interesting as well. Gary: Very interesting. Well, let's hear from James. Marilyn Stewart: James, you are involved in some very interesting ministries and I want to talk to you about two of those. You do spend a lot of time talking to Muslims and also to atheists, but you have a brand new book What the Quran Really Teaches about Jesus prophet of Allah or Savior of the world. So, I want to start there and give you a chance to tell us a little bit about that book. But the title says the Quran Teaches about Jesus. I suspect that many Christians don't realize this. So, what does it say about Jesus? James Walker: Well, it is a surprise that the Quran has a lot to say about Jesus even more than Mohammed, and there are some things that actually that we would agree with that it agrees with the Bible in some places. Now, I think it's important to understand that it's not the same Jesus that we're talking about. But for one thing, the Quran affirms that Jesus was born of a virgin and no other Prophet, according to Islam was ever born of a virgin. Marilyn: And there are a lot of profits that Islam recognizes. James: They recognize any prophet of God. So, the prophets mentioned in the Bible, Isaiah, Ezekiel, talk about King David and Abraham. Yeah, all these are prophets, and Jesus also was one of the prophets. That's another affirmation that you have. In the book I have the transcript of a debate I did with a Muslim apologist Khalil Meek, and that's where the subtitle of the book comes from Prophet of Allah or Savior of the World. So, basically we started off in the debate with the point of agreement. We're both religions, both scriptures, the Bible and the Quran, both affirm Jesus as being a prophet. Now, we're I took it from there is you have to ask the question, what did Jesus prophesy? There is not one prophecy of Jesus recorded in the Quran. Marilyn: I believe you mentioned this when you were speaking at Defend about a Muslim who went to other authorities to check. Tell us a little bit about that. James: Yeah, one of the things that I'm trying to do in the book is encourage Christians to just engage. You'd be surprised most Christians if they think about it a while, they know a Muslim. It could be their doctor, or it could be a pharmacist, it could be a classmate at the university, it could be a convenience store clerk, a neighbor, but they know someone who's a Muslim. And there's, I think we have this kind of built in fear. I don't maybe want to start a conversation. What if they ask a difficult question, or maybe they would be offended if I ask a question about that. So, What I'm trying to do and what the Quran really teaches about Jesus is in the book, be able to have some great questions to ask or a verse in the Quran that you can ask them to explain to you and kind of start this gospel conversation. So, this particular example I gave, I was at a coffee shop and this guy comes in and I had seen him before but not really talked with him anything, but I noticed this time when he came in he actually had an Islamic dictionary in his hand. And I thought, "Okay, I know ... he's Muslim, but he also, I noticed there was only one seat open in the entire coffee shop. So, basically when I saw him headed toward my seat, I had been reading on my tablet, I'd been reading the Bible, but I just switched to the Quran. So, he sat down next to me and I didn't say anything but I thought this might happen. He must have looked over because he taps me on the shoulder he's big smile and he says, "Oh, you're reading Quran?" I said, "Yes I am." He said, "Oh, you must be Muslim." And I said, No, I'm actually Christian. He said, "huh." And it was like, it was a little bit disorienting to him. He didn't know what to make of it, but I said, "Listen, I'm a Christian, but I want to understand other religions and I want to know what the differences are, and I recognize if 1.8 billion people believe the Quran, this is an important book that I should be able to know. And I was reading in the Quran and I was having difficulty understanding a passage." He said, "I'm Muslim, let me help you." And so I showed him Surah 350 where the Quran ... Jesus is speaking actually. Here's another thing you have the saying of Jesus and Jesus says that you must fear Allah and obey me. So, you fear God, but you also have to obey Jesus. And he said, "But that's true, my friend, you must obey Jesus." I said, "Well, here's my question. I cannot anywhere in the Quran, find the commands of Jesus. If we're to obey Him, where can we find His commands?" Well, that ended up being like several conversations like that one and like two more times were talking about this and he was unable to find any of the commands of Jesus and so I said, "Well, this obviously you can only find them in the gospels like Matthew, Mark, Luke and John." He was a little bit hesitant to go that way but I finally convinced him if he would read Matthew's Gospel with me and see if we can find anything. He would say, "Oh, but the Gospels have been corrupted." I said, "But is there anything remaining of value there?" Well, he hadn't thought. "Well, there could still be something good let's go look and see." So, this is again, a way that just knowing a little bit about the Quran maybe a good verse, know the right kind of questions to ask. Yeah. And it ended up being for better part of probably six or eight months, we had off and on conversations. Marilyn: Now, so, he didn't know any commands in the Quran from Jesus and also prophecies? There were no prophesies in the Quran? James: Yeah, you can take the same approach with the prophecies. Nowhere in the New Testament. In my debate with Khalil Meek, when we both agreed at the very outset, okay premise one, is Jesus a prophet of God? Both affirm. So, my question which is a good question to ask any Muslim, what did Jesus prophesy? Marilyn: What do they say when- James: Well, they assume he must have prophesied what the Quran teachers. There's the idea that in Jesus' original writings that may be he must have taught Islam. Now, we don't have any of these writings because you don't find any of that in the four gospels or in the New Testament or anything like that, but there's this assumption, well, he must have taught the five pillars of Islam. Like any good Muslim and so I asked Khalil on that, "Can you show me the documents?" Now, when I'm going to say that Jesus made a prophecy I'm going to point to ancient documents very close to the time that Jesus lived. The best he could do was to say that those were corrupted and need to be superseded by the Quran. Marilyn: ... Now, that's interesting. So, let me make sure I'm understanding this correctly. Because the Quran does not list any commands or prophecies of Jesus, that presents a problem, but they can't feel comfortable accepting the Bible because they feel the New Testament is corrupted. James: Well, it's what Jesus prophesied. He prophesied that He would be crucified, that He would die, that He would rise three days later from the grave. These are things that not only are not in the Quran, the Quran mentions them and says that they're not true. Marilyn: Yes. Okay. James: But you don't have a prophecy of Jesus saying this. So, if someone is going to be a prophet, is he a true prophet or a false prophet? Of course, I mentioned in the book that, and the Muslim apologist Shabir Ally complains that the New Testament is not trustworthy because the Gospels may have been written several decades after the events they describe. Well, that doesn't mean they're not true, but ironically he's complaining about several decades when the Quran is trying to comment on something 600 years later, 800 miles away. Marilyn: Interesting. So, they then do say some at least that this corruption that took place with the New Testament they assume that these five pillars that's what's been taken out. James: Right. So, he must have taught Shahada, he must have taught everything that we find. So, it's kind of like the ultimate conspiracy theory is the idea that all of Jesus' original disciples were all Muslim, Jesus was Muslim, all his disciples are Muslim. They believe Islam, they believe what you now can find in the Quran and they wrote them down in what they call the Injil, the gospel, but none of the copies remain. Every copy that we have, very early copies that we have match what we have in our New Testament. So, one of the examples was that in the, there's a fragment of John's gospel, the Ryland P52 fragment, which is the oldest extent part of the New Testament that we have. It dates traditionally between 100 and 150 AD. Way before Mohammed. Ironically that little piece of fragment is actually citing a prophecy where Jesus speaks of his death and his resurrection. Marilyn: Yeah, the manuscript evidence for the New Testament just in Greek is around 5,000 manuscripts. And then of course we have other copies and other languages. So, we do have good evidence how the New Testament came to us. James: Right, and if you want to claim that there was another earlier uncorrupted New Testament, I mean, that's an interesting theory but I'd like to see some documents. Where's any proof on this? Marilyn: Sure. Let's go back to where else the Quran says some things about Jesus that we could affirm that do match up with what the New Testament says. James: Well, that Jesus was a prophet of God. We mentioned that His birth, His coming was predicted by the other prophets. They even say in the Quran that Jesus is Messiah. Now, they mean something very different by that than what we do. So, they're not trying to say Jesus was Christ or savior. That is not what they believe. But they do have the title Messiah. So, that would be something that we would affirm. To me, one of the most remarkable affirmations though is that the Quran teaches that Jesus was born of a virgin. And there's a whole chapter about Mary and about the virgin birth of Jesus in the Quran. I'd like to say, in fact, it's kind of the opposite of the Gospels. The Gospels is, 80% of it deals with Jesus' life and then rather, 20%, 25% and then the vast majority deals with those last two weeks. While in the Quran it talks a lot about Jesus but the vast majority talks about His birth and the early years and not so much about the later part of his ministry. But yeah, there's a passage in the Quran where it says that we honor and believe all of the prophets of God. And it lists several, including Jesus, and we make no differentiation between them. A great question to ask a Muslim is, "Hey, we have something in common. You believe in the virgin birth and that's what our scripture says, that Jesus was born of a virgin. Here's the question, tell me what other prophets were born of a virgin?" Marilyn: That's a good question. James: Well, there has been no other prophet. Not Abraham, not Ishmael or Isaac, or they would talk a lot about King David, none of them. So, even Mohammed. Mohammed was not born of a virgin. Marilyn: So, Jesus had this miraculous birth that no other prophet in the Quran has had. James: Yes. And would you have to agree with me then that Jesus is unique among the prophets if no other prophet has this kind of birth. Marilyn: Now, how is it that they see Jesus differently? Where do we disagree on Jesus? James: Well, unfortunately the disagreement on the essentials of Christian faith and the very core of the gospel. So, they're first of all going to say that while Jesus was a prophet He was not the Son of God. In Islamic thinking, and in the Quran actually, is pretty clear on this. The idea of God having a son is reprehensible to them because it implies if you're the Son of God that ... and I would agree it does. Some level, there's a quality there. You're the same type of being the father and the son. And in Islamic monotheism, only one person can be God, Allah and not any other person. If you ascribe the attributes of God to any other person, even Jesus, it is tantamount to the unpardonable sin. It's what they call the sin of shirk. Marilyn: And this is unforgivable, unpardonable, it is a major problem for Muslims. James: Yeah there's some Muslim folklore that's not explicitly said certainly in the Quran and not even really explicitly taught in the Hadith, but the idea is if you're a Muslim on the day of judgment and your bad deeds outweigh your good deeds, the Muslims all agree, you go to hell. But there's a caveat there, this idea that if you did not commit shirk and you were Muslim, that you potentially can get out of hell later. Marilyn: Okay. So, there's a way out. James: Again, that's not in the Quran. I asked a friend, one of my Muslim friends I was talking to, "I cannot find anywhere in the Quran where you get out of hell tell me where this comes from." And he, "Oh, it's not in the Quran it's in the Hadith." And I say, "Well, you know my Imam friend told me that Hadith is not totally reliable." And he's, "Well, it's not totally reliable." What if the part about getting out of hell is in the unreliable part? Marilyn: Gosh, that would be a bad situation. James: It would. Marilyn: Now, the Hadith, explain what that is and how it's different from the Quran. Just a brief explanation. James: Well, when Mohammed dies, and this is actually like a century or two after the death of Mohammed. The collection of the Hadith begins. And this is where you're trying to gather together a corpus of data on what Mohammed did and said, is extremely important in Islam because Islam is very much focused on orthopraxy, doing things the right way. I mean, everything. Every aspect of life, there's a right way to do it. It's based on the pattern of what Mohammed did. Well, that's based on Hadith. So in Hadith what they're doing is, they're trying to gather these statements, these sayings or deeds and they're trying to build a chain of custody on them. So, you have this saying, the story, and how do we know it happened? Well, this particular person said that he talked with someone who was one of the Friends of a companion of Mohammed. And so, they they connect the dots, try to get it back to the life of Mohammed, and there are several collections of Hadith. Many, many volumes of work. So, the idea is the Muslims will try to weigh how reliable that Hadith is. Is it highly reliable, is it somewhat reliable, and they base that on that chain of Custody. But I would say in a practical sense that what Islam is today is based at least as much if not more on Hadith than it is on Quran. Marilyn: Oh, is that right? James: Yes. Marilyn: And so, this shows some, it shows how important their thinking is on following a certain, I don't know if works is the right way to say it, but there is a path laid out for them that they must follow. James: Yeah, even the five pillars you don't find it at all clearly in the Quran. There's implication and stuff, but that you're to pray five times not six or seven, that's Hadith, you don't get that in the Quran. Marilyn: Very precise. James: Exactly. And so that's, on a practical level, extremely important in day to day Islamic life. Marilyn: So, it lays out a step by step thing that they must do in order to be right with Allah. James: Yes. Marilyn: So, there is no savior in Islam, is that correct? James: Yeah, and that was, we included as a chapter the entire transcript of my most recent debate with Khalil Meek and the title Jesus Christ prophet of Allah our Savior of the World, and Khalil is adamant that Jesus is not the Savior. But one of the debate issues that came up, if Jesus is not the Savior, who is? Who's the Savior then? And the tragic part of Islamic theology is, it's not just that Jesus isn't the Savior, there is no savior. Marilyn: Do they realize that they need a savior? Do you find that longing in their heart to this understanding that they are not quite good enough, that they haven't followed that path as closely as they need to? Do you get the sense that they have that desire to have a savior? James: I think not so much initially. Part of what I'm trying to do is get that Muslim friend with me into the Bible. So, I'm going to start with the Quran, but I'm trying to shift over, "Can we see what the gospel say about this." And try to get them to hear the stories of Jesus and you get a very different picture of God in the New Testament. You get a God who so loved the world that He gave His only begotten Son. Well, in Islam Jesus can't be the begotten son. It says in the Quran, "Allah neither begets nor has he begotten, but even more disturbing you don't have a God that's love. You have a God, Allah is merciful, but there's a big difference between merciful and loving. In the same way the God in Islam cannot partner with or share His attributes with, He can't have a son or He can't be a son. This idea imply that He can't have that love relationship either because he's separate and distinct and totally apart from creation. Marilyn: And so, they do not think of God as a heavenly father as Christians see Him? James: Not father at all that's anathema to call Jesus father. And even in the doctrine of the Trinity, there are several places in the Quran where it says, stop saying, seize saying God is three. And in parentheses Trinity, sometimes they'll put the parenthetical in case you don't know what we're talking about. We don't believe in the Trinity doctrine. So, technically, is a monotheistic religion and it does cause confusion with Christians. We hear from our news media, we hear from some of our politicians even. Oh well, Christianity and Islam they're both monotheistic religions, they are both religions of Abraham, they put their roots back in Abraham. So, they believe in one God, they believe in the same God. Well, I would beg to differ on that. The believe in one God doesn't mean that we're talking about the same God. I've never met any Muslim, any Imam, any cleric, any even rank-and-file Muslim who would ever say that God is the father of Jesus Christ, you can't say that. Marilyn: So, we do worship different gods. James: I would say so. Marilyn: And we can start with the things that we do affirm about Jesus but it is important to lead them to the Gospels and finding out who Jesus really is. James: I do find some parallels ain how the Apostle Paul dealt with the Epicurean and Stoic philosophers. So, the Areopagus, and Athens, and Mars Hill. When He is talking to them and when he's confronted by them and he's trying to explain the gospel, it's interesting he never quotes any scripture. If he had quoted it, those guys wouldn't have known what he was talking about anyway. He does elsewhere quote their philosophers. And so what he does is he finds a point in common. There was a shrine to this unknown God. And I think, Paul, thinks, "Hey, I don't believe in Greek mythology, but this is too easy to use. Even they've acknowledged there might be a God they don't know about. This is the one I want to tell them about." Marilyn: And this is why your book is so helpful because you pull out some passages from the Quran that is a great place for Christians to start as they're talking to a Muslim. Some of those passages about Jesus and how He is, the things they agree with about Jesus and where it is different. So, your book came out this year? James: Well, late last year, it's already a new year now. Marilyn: Well, that's true. We're in 2019. James: Less than a year ago. We can say it that way. It seems like, and I tell you, I do not really embrace and enjoy the writing process. I do it. I am not happy to write, I'm happy to have written. Marilyn: And you are a good writer. It's very clear. James: Well, thanks. But it's, sometimes I think that writing a book is the closest a man can ever know to what it's like to give birth. So, it's like the labor pain. Marilyn: No, giving birth is worse. James: You've done both so you would know, but yeah, I don't enjoy the process but I'm glad that it's done. I like the product, had a lot of people helping me. I had our editor at Watchman Fellowship at my ministry did a lot of work to help, and then at Harvest House, the senior editor there, Steve, he's just so good at what he does. Marilyn: Excellent. Before we leave Islam, I want to give you a chance to talk about tips. You've mentioned a couple of things, but for Christians that want to make a friend of a Muslim and lead that Muslim to Jesus, to a loving God, you mentioned several tips at Defend, and I know you use the word task that this is our task, I just wanted to give you a chance to explain that to us, give us any other tips for getting to know Muslims, how we get to know them, how we approach them, anything like that you'd like to say. James: Yeah, I would just say just in general, and this is not just Muslim, this is really trying to build relationship with anyone for the gospel. I have a Mormon back, I used to be Mormon before I became a Christian, and when I first became a Christian I kind of did it all wrong with my Mormon friends. I could prove them wrong and I have all this evidence I want to hit them over the head with and looking back on it I should have known better because nobody responds well to when somebody says, I can prove you're wrong 10 different ways or something like that. So, over time, what I, here's what I've learned. It's really all about relationship. What did they say. No one cares what you know till they know that you care. And so, on the building on the back of relationship, you earn the right ... first of all, you know the person and you spent time with them that they can see that there's something different about you. They can see Christ in you, hopefully. And also you earn the right to ask the question. And there's a feeling of safety that, they know that I'm going to be their friend whether they're Muslim or not. And so it's not about if you convert to Christianity, then we can be friends. No, we're friends. If you convert to Christianity, I'd be thrilled. But we're friends either way. Marilyn: That's a good point. James: And building that relationship. So, it's all about that and asking the right questions. At the end of most of the chapters, we have a series of good questions that would help further that gospel conversation and gospel discussion. The other thing I would encourage people to do, I thought, many, many years ago, I had been dealing with reaching Jehovah's Witnesses, reaching people involved in the occult and I'll put in this Muslim thing. It's just like, I have this kind of fear. If I start talking to the Muslim, they're going to say, "I'm Muslim, I'm not interested" or something. And I found the exact opposite. What I found was, "I'm Muslim. I'm very interested." Marilyn: And this is fascinating. I think a lot of Americans felt that way, still feel that way. A little afraid to speak to a Muslim. James: Well, you know, we were the generation that lived through 911 and we see the terrorism and it's connected with radical Islam and sometimes there's an actual fear, every Muslim that you see, is there a bomb involved or something like that. I'm not going to minimize that that's not a bad problem. The vast majority of Muslims do not interpret the sword versus, when the Quran says that you're to smite the infidel and strike their necks and stuff, my friend Khalil that I did the debate with, he would tell me, "James, when it says to kill the infidel it's about the infidels on the Arabian Peninsula during the time of Mohammed and the warfare that was going on. It doesn't mean kill all infidels everywhere all times. It's a specific." He'd make a comparison to the Canaanites and the Exodus. Marilyn: In the old testament. James: It doesn't mean we're to go conquer every land and kill all the inhabitants and drive them out. So, if that's what most Muslims believe it's probably not my best strategy to talk them out of that. "Oh, no, right here you're supposed to smite infidel, that's me, you're supposed." No. If that's what they interpreted, it is what it is. There are Muslims that do interpreted it in a terroristic fashion. So, I'm so appreciative of our military, our first responders, and those politicians who make the right decisions to help protect us from all dangers, foreign and domestic, including religious terrorism, but my job as a Christian, I'm not the Air Force or the army, I'm not Homeland Defense, I'm part of the church. So, I feel like my job is the gospel, not so much to be involved in military or political solution. I really kind of feel we may be beyond, on the case of radical Islam, we may be beyond a political or military solution at this point. The only real solution I think might be the gospel of Jesus Christ. Marilyn: And it is a great opportunity. We say we are people of the Great Commission and God does seem to be bringing the nation's to us even from nations that we can't get into as missionaries. So, this is great. James: I've noticed a lot of pushback from people who, they're disturbed by there's so many Muslims moved to America in a 10 year period according to our most recent census, Islam is growing by 160% in just 10 years in America. But we have to say, well, you look at the other side, these people, a lot of them are coming from countries where it is illegal to share the gospel. Now that the Muslim is your next door neighbor or is your classmate at school at the college or something, you don't have to get on an airplane, you don't have to go through the red tape, is a mission field that comes to us let's see if we can take advantage of that. Marilyn: So, what are the things that we have in common with Muslims in terms of, they are people that love their families, love their children. And in terms of developing relationships, surely they are things like that, that we can connect to. What would you say to that? James: Well, one of the things, you're dealing a little differently if you're dealing with a Muslim, from Saudi Arabia, or even from Pakistan or Indonesia, Muslim country, Sharia law, you're dealing with a little bit different mindset when they come to America versus an American Muslim, but just understand that a lot of Muslims are confused when they get here because they assume that America is a Christian nation and everything that they see, everything that they see on the internet, everything that they see on TV and the movies, they think, "Oh,, this is Christianity." And to help them to see that not everything American means Christian. A great question to ask is, when you've built that relationship with the Muslim is say, "Let me ask you my friend, have you ever came to the place where I share with you how I became a Christian?" And sometimes there's this confused look, "Well, you were born in America." Marilyn: Sure. James: "Well, yes I was, but to be born in America makes you an American, but to become a Christian you have to be born a second time." And it's almost like John chapter three. Is usually like, "What do you mean to be born again?" It's just like, they've never heard this before. Marilyn: That's great. James: And this was my life before you should be able to do this in 90 seconds, but I wanted to please God, but I was concerned that perhaps I had sinned against God and there may be a day of judgment where I would stand before God and what if I fail what would happen to me? and I realized at a point in my life I needed help, I needed a savior. And that's when I realized that Jesus was more than a prophet. That He actually came to be my substitute, to offer me eternal life. Just that little kind of communication and it's almost you can see, I can remember vividly seeing it's like childlike like, this is they've never heard this story before. Marilyn: Interesting. Well, the gospel of course is a great message and He is a God of love so I could see where this could draw Muslim very easily if we are genuine in our faith and in our walk. I do want to change the subject now and kind of shift gears and go to something that you do that is also very fascinating. That's the Atheist Book Club. So, how in the world did you get into an Atheistic Book Club? What does that look like? And whose idea was that? James: Not mine. The actual title is the Atheist Christian Book Club. So, it's atheistschristianbookclub.com, and this is something an atheist friend of mine kept bugging me to do. It's a long story how I got invited to this atheist gathering that they have like a fellowship. And just out of curiosity I went and they were actually kind of really nice and had a lot of questions. And I would try to go at least maybe once a month or something. And we got into all kinds of great discussions about everything from, Big Bang cosmology to the source of ethics, and intelligent design, and the Dallas Cowboys and I mean, all kinds of things, but over time I-

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 and welcome to your June edition of the Option Seller Podcast. This is Michael Gross of OptionSellers.com. I’m here with head trader James Cordier. James, a lot of talk this month about bull market in commodities. It’s been getting a lot of media attention, obviously crude oil has been leading the charge, but what are your thoughts on that? Are we in a bull market right now or is it just speculation? James: You know, most often, Michael, at the 3rd and 4th and 5th year of an expansion economically is usually when prices of commodities start going up. There’s usually a glut of commodities during a recession. As years go by, a lot of the excess commodities are then purchased and consumed, and usually that is when you start normally getting higher prices. I do believe we’re in a bull market in commodities. It is lead by energies, which of course was pretty much facilitated through OPEC cuts in production, but let’s face it, practically everything comes from a barrel of oil. Whether it’s cotton or soybeans or coffee or what have you, everything derives off of a barrel of oil or a gallon of gasoline. Of course, energy prices have really risen quite a bit over the last 18 months. That leads us to believe we are in a bull market in many commodities. There are 1 or 2 that have certainly oversupply in them, but the commodity market has been in a nice uptrend. Usually, this does happen 3 or 4 years after the beginning of an expansion and its kind of textbook so far. Michael: So, we have oil markets possibly leading the charge here. Some of the grains have been aided by some weather issues. Do you see this spreading to all commodities or is it primarily limited to a few sectors? James: I think it’s limited to a few sectors. If you look at the price of sugar or coffee, we’ve got just massive production expected in South America this year. The coffee market recently hit a 12 month low, the sugar market recently hit a 12 month low, so it is really a market that needs to be picked, if you will, to be in a bull market. A lot of commodities do have up trends, but some of the major commodities that we follow are over supplied. I think that’s why we really enjoy doing what we do best, and that is analyzing fundamentals on the different markets, simply buying a basket of commodities or selling a basket of commodities. I think you can be more sophisticated than that, and that’s what we try and do here, of course. Michael: Yeah, in the media they like to get a story line, “Bull Market in Commodities” and that’s what they tag and they really maybe only focusing, as you said, on a few markets, some of the other markets. That’s why you get that play within the commodities where they’re not really as correlated to each other as maybe stocks. James: Certainly not. That’s where diversification comes in. If you’re long or short the stock market, basically you’re living or dying by if it goes up or down. Of course, in commodities, we follow 4 different sectors about 10 different specific commodities and they really do have their own individual fundamentals, and that’s what makes following the same commodities for so long very prosperous, because you do get to know them. They all do have personalities. You don’t simply buy a basket of commodities like you do stocks. It’s different than that. Michael: So, the person watching at home now and they’re saying “boy, it’s a bull market in commodities. This must be a good time to sell options”… that’s really kind of irrelevant if you’re an option seller, isn’t it? James: You know, the interesting commodities, I think, is what bodes well for us. Whether you’re selling options on your own or you’re doing it with ourselves, it does increase premiums of options on both puts and calls. Certainly, the interest by the speculator, whether it’s a bank in London or whether it’s a hedge fund somewhere in San Francisco, it does increase the value of the options. If you are picking up bull or bear market, it allows you to get in at very good levels, sometimes 40-50% out-of-the-money depending on which market it is. Michael: So now matter which side of the market it’s on, the media coverage of prices going up brings in a lot of public speculators and that drives premium. James: Whether you’re selling options on your own or you’re doing it with us, it really plays into your hands… it really does. Michael: Great. We’re going to take a look at a couple of these markets that’ve moving pretty good to the upside or we feel we have some pretty good opportunities to look at this month. Why don’t we go to the trading room and get started? Michael: Welcome back to the market segment of this month’s podcast. We’re here in the trading room with head trader James Cordier. The title of this month’s podcast is taking advantage of the bull market in commodities, and we’re going to feature a couple of markets this month that are leaders, what’s driving the bull market in commodities, but how to take advantage of it might not be exactly how you think it would be. A lot of people might think, “Oh, well I’ll just go out and buy a commodities index fund or maybe I’ll buy some individual commodities stocks or what have you”, and the problem with that is, one, as James mentioned earlier, sometimes these commodities aren’t all going to move together. So, you may buy one commodity and it’s not going to participate in that bull market like other stocks wood. Also, we don’t know when this bull market might end, so we want to position ourselves so, yes, we can keep taking advantage of this if the bull market continues, but also if it stops tomorrow we still want to be able to make money. So, we’re not going to position how just a common traditional investor might try and position. We’re going to talk about selling options here. Let’s go to the first market for this month… the cotton market has been one of the leaders of the commodities bull here. Obviously we’ve had a pretty sharp rally here since last October, James. We’re up almost 25% in prices through this week. What’s going on here as far as prices go? James: Cotton’s another example of one of the bull markets of 2018. We do have some more demand out of Asia than we thought. They were speculators that thought that supplies in China were slightly less than what early was previously expected. Cotton production in China is supposed to be down slightly because of some weather. Of course, the big news is we had just an incredible drought to start out the planting season here in west Texas. Basically, commodities like soybeans and cotton, everyone’s so concerned about the weather and when they talk about dry conditions or there’s drought going on, speculators come and bid up the market. A lot of the end users then need to get insurance and they’ll buy futures contracts for cotton, as well, and that really boosts up the price usually right as growing season is beginning. That’s what we’re here looking at again today for the cotton market in 2018. Michael: Okay. So, that drought has been pushing up prices, but here in the last couple of weeks, that started to lessen a little bit. We’re looking at a map here of Texas, west Texas, big cotton growing region. If you would’ve looked at this map, the darker colors indicate a severe drought portion, so we still have some going up in northern part of Texas, but if you would’ve looked at this chart 3-4 weeks ago, almost half of Texas was in that red. So, this has mitigated quite a bit to where we are right now and that has allowed a lot of these planters to really make some progress in planting over the last couple of weeks. As a matter of fact, stats we just pulled today, James, at the end of the week of May 13th they were 28% planted. At the end of the week of May 20th, Texas farmers were 43% planted, so that’s a lot of progress to make up in a week and that’s due to that they finally got some moisture. They were able to get the crop in the ground. 5-year average is only 33%, so they’re actually ahead, quite a bit ahead, of where they normally are in a 5-year average, so that moisture they did get has really done a lot of good for the Texas crop. USDA just came out with their most recent/first estimate for the ’18-’19 crop. You’ll see here, James, ending stocks actually above last year is what they’re targeting. James: Really a weather market right now. Anyone who lives in the United States, especially in the eastern half of the United States, I know we have clients and viewers from all over the world, but here in the U.S. it’s raining all the time. Precipitation is just dominating the weather market right now and, in the chart you just mentioned, for the Texas state, that was truly an extremely dry condition and that has mitigated quite a bit. We’re now 5-6% above the 5-year average for plantings. We now have precipitation coming in. We’re going to wind up having a larger crop than a lot of people thought about and then we’re going to have carry-over in the United States, the highest level in 10 years. I know a lot of people are going to look at this, “well, the carry-over was much higher 8-9 years ago”, but cotton was also around $0.40-$0.50 a pound then, too. That’s a big difference. Michael: One other thing we should probably bring up that’s really carrying a lot of weight here is that cotton also has a very strong seasonal tendency. Actually, it doesn’t even really start to break until about mid-June. What’s usually behind this? What causes this? James: Just as we were describing, Michael, if there’s any type of weather fears in Alabama, Mississippi, this year it was Texas, generally speaking, until the crop is planting and until the weather conditions look favorable for production that year, generally speaking that’s going to be the high point of the year as planting’s taking place in the southern states of the United States. As the planting is completed, it’s 85-95% completed, which will be probably in the next 2-3 weeks, weather comes in, the dramatic dry conditions no longer are pushing up prices. Sure enough, as you start harvesting the crop in October, November, December, big crop once again, U.S. farmers are the best in the world, and once again we had a lot bigger crop than most people anticipated. That’s what’s winding up in timing right now looks perfect for the seasonal average and it’s setting up the same way into this year. Michael: Yeah, it does seem to be lining up pretty well. If the rains continue, we don’t have a big drought surprise, this seasonal looks like it’s set up to be pretty close. So, we’re looking at a trade here. I’ll let you talk about the trade, James, but you’re looking at a December call right now. James: Exactly. We have cotton trading in the low-mid 80’s recently. There was a recent spike up with a lot of discussion about the problems in Texas. Generally speaking, we do have the market rally May, June, and then July it usually rolls over. We are now looking at really decent call buying by speculators and hedgers alike at the $1 and the 105. There are no guaranteed investments in this world, but selling cotton at 105 looks like a pretty darn good one and if it does follow along with the seasonal, if it does follow along with the idea that supplies are going to be at 10-year highs at the end of this year, cotton will go from 80’s to a 105 looks very slim chances to us. We think this is going to be one of the better positions going into the 4th quarter of this year. Michael: So, when you’re talking about taking advantage of a bull market rather than buy into cotton, what James is talking about is the bull market creates interest in these deep out-of-the-money calls. So, how you take advantage of it and sell these deep out-of-the-money calls, we don’t know if the drought’s over. It sure looks like it’s taking a lot of big steps towards mitigating, but if we’re wrong and they don’t get rains and somehow the second half of the planting doesn’t go as well, cotton can still go higher from here. So, we don’t want to bet on that it’s going to turn around right now, right on seasonal. It could keep going. We’re just going to sell calls up here and it can do whatever it wants. It can keep going, it can mitigate, or it can roll over with the seasonal. Either way, there’s a pretty good chance these calls are still going to expire worthless. James: We really like that as an opportunity selling those calls. Michael: Okay. If you’d like to learn more about trading these types of markets, taking advantage of upward markets by selling calls, you’ll want to pick up a copy of our book The Complete Guide to Option Selling: Third Edition. You can get it now on our website at a discount than where you’ll get it in the bookstore or on Amazon. That’s www.OptionSellers.com/book. James, let’s move into our next market we’d like to talk about this month. James: Okay. Michael: We’re back with out second market we’re going to talk about here in our June Podcast- How to take advantage of the bull market in commodities. That second market is one we talked about here last month… that’s the crude oil market. We’re going to update this trade a little bit to give you some insights into how these type of strategies work. James, last month you talked about selling a strangle on the crude market, the February 45/90 strangle. Why don’t you update us on how the market has done and how that trade is doing? James: Let’s talk about both sides of this investment. Just 6-12 months ago, there was considered a 300 million barrel oil surplus globally. That has evaporated to approximately 30 million barrels. The market is practically absolutely flat right now. Every barrel of oil that’s being produced right now has an owner before it even comes out of the ground. That fundamental will not be changing in the next 3-6 months. They’re not just going to find oil, it’s not going to go from a 30 million barrel surplus to a 300 million barrel surplus overnight. That’s not going to happen. That’s going to keep oil well above the $40 level. The $45 put that we sold, I think, is excellent sales-ship, not ownership… you don’t want to own those. Crude oil over the next 6 months is likely not going to this level. The call side, what’s developing over the last 60-90 days really is what’s going on in Europe. Basically, the European Union has been dealing with quantitative easing for as long as the United States have. Of course, now we’re no longer doing QEs. The U.S. economy is doing extremely well. Europe? Not so much. We have quantitative easing still in Europe and PMIs in Germany, England, Italy are going straight south. Consumer confidence in Germany is at one of its lowest levels in years. The European economy is starting to roll over while it has quantitative easing. Europe produces practically no oil whatsoever and they are very susceptible to oil shocks. Oil at Brent commodity is up to $80 a barrel. In the United States it’s around $71-$72. That level is practically double of where it was 12 months ago and Europe is really feeling a brunt about that. What OPEC is very keen to know is to not kill economic growth. Oil just went from basically $45-$50, recently now up to $80 on Brent, and economies in Europe, especially, can’t sustain that. We’re looking again about discussion about Greek bonds and if that market rolls over again, and if Europe goes into slight recession going on in the next say 4th quarter of this year 1st quarter of next year, stock markets start to slide, U.S. economy starts to slide. Then, OPEC can basically claim a big part in slowing economic growth. They don’t want that. OPEC is producing oil for $35-$40 a barrel. Rent is up to 80. They’re likely going to start rolling back some of the production cuts and that’s what makes the $90-$95 calls a great sale, as well. Oil is likely not going to be hitting $90 going into the 4th quarter of this year. That’s the shoulder season, that’s when demand worldwide is at its lowest. That should make the $95 a very good sale. We like being short in 90 and 95. We love being long at 40 and 45. This is probably one of the best strangles available right now in all of commodities and the reason why those premiums are so high, as you mentioned Michael, is because the bull market in commodities. It gets people out buying options that they normally wouldn’t, reaching out for higher levels than normally they would, and that’s what makes cherry-picking in puts and calls, selling commodities in options right now, I think, the timing is just about perfect. Michael: Yeah, the trade we recommended last month, you were talking about this trade… 45/90 February. You’ll notice last month we were about here, so the market has bumped up about $3 a barrel, but it’s still right in the middle of the strangle and this strangle is actually profitable now from where we recommended it. So, just what we talked about last month, we’re not trying to pick highs or lows or guess what the market’s going to do. We don’t care as long as it stays between these levels. This strangle is performing just about optimally as how you’d want it. James: This form of investing is much more simplistic than trying to pick exactly where all these markets are going. This could look like Apple stock and trying to figure out what Apple is going to do next week or next month. Basically, selling options, especially on a strangle, you’re throwing the football to where you think the market is going to be. So, if you’re in the lower 3rd of the trading range and you still think the market has got a little bit higher to go, look where we’re winding up right now with the $2 or $3 rally. We’re right in the middle of the strangle… right where we like to see it. Michael: Okay. Now you did mention you think oil prices could be starting to slow here over the next several months. Again, we’re not calling a talk, but you think as it goes along there’s going to be a second conversation here with OPEC as far as their quotas. James: I really think so. 2 years ago, Saudi Arabia and Russia got together and said, “We’ve got to try something. We just saw oil for under $40 a barrel, we’re basically making little money.” They basically said, “Let’s try and reduce production by 3%, 4%, 5% and see what happens. The U.S. is now the largest producer. We have to do something or the market’s going to stay low.” That conversation worked extremely well… oil at Brent to $80. The second conversation now is let’s not get greedy. If the oil goes up another $2, $3, or $4 a barrel what difference does it make to you as a producer? If you’re making $40 a barrel or $42, it doesn’t make that much of a difference, but to consuming areas like the Euro area, another $3, $4, or $5 can tip that economy over and that is a big deal. I think that’s the conversation they’re going to have in June when OPEC meets. Michael: James, you just gave this talk you had on the oil markets to TDAmeritrade and they’re, what, 11 million trading customers? James: Yeah, we had a lot of investor eyeballs on us today. It’s quite interesting how many people actually do invest in commodities. There is an advertisement on TV recently… people aren’t investing in this and they aren’t investing in that and they aren’t investing in commodities. They really are investing in commodities and we certainly saw that this morning with the viewership that we had talking strictly about options on commodities. We really blew it off the charts today. Michael: Great. You can see that interview on our website probably later this week or early next week. It’ll be on the blog. The full interview will be posted there and you can take a look at that. If you’d like to learn more about some of the things we’ve been talking about here, you’ll want to take a look at the June OptionSeller Newsletter. That should be out on or before June 1st. If you’re already a subscriber, it’ll be in your e-mail box and your physical mailbox around that time. Let’s go ahead and move into our Q & A section and see what our readers have to ask this month. Michael: Welcome back to the Q & A portion of this month’s podcast. James, we’re going to take some questions from some of our viewers and readers here and see if you can answer what they have to ask. Our first question this month comes from Omar Fallon of Galveston, Texas. Omar asks, “Dear James, I am currently selling options with the assistance of your excellent book, The Complete Guide to Option Selling. I’m also following your 200% rule that you recommend. My question is, do you still follow the 200% rule when you’re writing a strangle or is there a different risk strategy for a strangle?” James: Okay. Omar, thanks for the question. We often consider that every time we do write a strangle. From time to time, of course, one side or the other goes against us slightly while we’re waiting… patiently waiting in most cases. I do like using the 200% rule on the total value of the strangle itself. If you take into consideration the fact that both sides of the put and the call combined premium has to first double before you exit the trade, that is truly putting a lot of room between you and the market and giving you a lot of time, hopefully, to hold onto that position. I do recommend using a 200% rule on the total value of both the put and the call sale. Michael: And that’s primarily because if the market starts moving against one of your strikes, that option on the other side of the market is balancing that out. So, you can afford to let it go a little further because you’re making some of that up on the other side of the market. James: Exactly right. Omar, if you sold your option fairly well, you’re going to have a really good opportunity for the market to stay inside that strangle and, as you approach option expiration, if you choose to hold on to it the very last day, we don’t always do that; however, that window should be extremely large and I do like giving the whole 200% risk tolerance on both the put and the call. If you sold the option fairly well, the market should wind up inside that window when it is time to close them out. Michael: Let’s go to our next question. This one comes from Jonathan Hartwig from Springdale, Arkansas. Jonathan asks, “Dear James, I’ve noticed from your videos that you seem to focus more on some commodities and less on others. I traded commodities about 11 years ago and did markets like hogs and orange juice, even pork bellies. Is there a reason you don’t feature these markets and how many markets do you actually trade at your firm?” James: Jonathan, great question. It sounds like questions from my favorite movie, Trading Places… orange juice and pork bellies. Those are certainly near and dear to our hearts here. Basically, we ant to be in the most liquid commodity markets that there are. Pork bellies, lean hogs, orange juice is a very domestic trade here in the United States. Orange juice, of course, is produced 90% in the United States, pork bellies is certainly a U.S. domestic commodity in market. Lean hogs, of course, is a U.S. domestic market. What that does is it allows the fundamentals to change dramatically in a very short period of time. We like investing in crude oil produced in so many nations. Gold, silver, sugar is produced in over 2 dozen different nations and coffee is produced all over the world. Wheat is produced in almost every nation of the world. So, if the fundamentals or dry conditions in one zone of the United States or in part of Asia, 90% of the world is going to have a different weather pattern or a different structure that’s causing the market to move. That’s going to give the commodity a lot more stability. We always want to sell options based on fundamentals, and the fundamentals in every sector of the world rarely are going to change at the same time. Where if you’re trading a domestic market like orange juice or pork bellies, a small freeze, a terrible draught in a certain location, swine flu in Iowa can determine the entire investment. Here at OptionSellers, we want to be in markets that are extremely liquid and will not have changing fundamentals on a small whim. We sell options based on a 3, 6, 12 month time period. If you’re trading and investing in options that are based on commodities that are grown all around the world, produced all around the world, you’ll rarely have a really brief quick change in fundamentals. Right up our alley for the way we do things. Michael: Yeah, a lot of people are surprised when they’re asking about what commodities you actually trade. There’s really only about 10 or 12 that we follow and those are those high volume markets you’re talking about. It’s not like we’re following 500 stocks here. There’s 10 or 12 markets, you just get to know them really well. James: They all have personalities, Michael. I’ve been trading silver and gold, coffee and sugar, natural gas and crude oil for decades. That doesn’t mean we’re right all the time, but they do have a personality. You get to know the fundamentals and when there’s a little headline or blip here or there it really doesn’t rattle you, nor should it with your investment. Michael: So, the point is, Jonathan, if you’re selling options you’ll probably want to stick to your highest volume markets that are going to have the highest volume, most liquidity in the options. That’s where you’re going to get the safest type of trades. If you’re watching this at home, thank you for watching this month’s podcast. I hope you enjoyed what you learned here today. James, thank you for your insights on the markets. James: Of course. Always. Michael: If you’d like to learn more about managed option selling portfolios here with OptionSellers.com, you’ll want to be sure to request your Option Sellers Discovery Pack. This is available on our website for free. It comes with a DVD. You can get that at www.OptionSellers.com/Discovery. As far as our account openings go, we still have a couple openings left in June for consultations. Those would be for our account openings in July and August. So, if you’re thinking about possibly, you want to make an allocation this summer, now is the time to give a call and get your consultation/interviews scheduled. You can call Rosemary at the office… that’s 800-346-1949. If you’re calling from outside the United States, that’s 813-472-5760. Have a great month of option selling and we’ll talk to you again in 30 days. Thank you.

Michael: Hello everybody. This is Michael Gross of OptionSellers.com. I’m here with head trader James Cordier. We are here for your monthly May video podcast from OptionSellers.com. James, welcome to the monthly show. James: Thank you, Michael. Can you believe we’re going into May already? Michael: It sure went fast. This last month here we saw some key developments in the markets. We have a lot of tensions between China and the U.S. over trade, and then we’re, lately, looking at 10-year treasuries going over 3%. A lot of people are wondering how this may affect commodities. What’s your take on that? James: Well, the trade wars that are supposedly about to take place, I think, are simply negotiation. President Trump mentioned many times going into the election that he was going to do “the art of the deal” and get us some more fair playing field, especially with China. Certainly the deficit that many goes out to China and doesn’t come back is something that he’s going to work on and, I believe, it’s more negotiating than it’s actually going to be major changes, as far as trade tariffs and such. Will some be put in place and some enacted? Probably so, but I know Mr. Mnuchin is going to China I believe in the next week or two, and he’s going to have probably the checkbook ready so he can basically get an olive branch going out. Needless to say, everybody wants a strong economic global growth and a trade war is not going to help that; however, getting a more fair and balanced trade, especially with China, I think is a really good idea and I think that’s what we’re going to get over the next month or two. All the discussion about it, I think, is going to be more of just that: just discussion. Michael: So, you don’t see any major changes in any commodities in the immediate term? Any immediate strategies people should be doing right now or as a result of that or, primarily, do you just see things leveling out here? James: Michael, the discussion of a trade war, like in soybeans or something that’s going to affect the demand for oil, I think a person or an investor should use that to look at the idea that it’s going to be settled. It’s not going to be a large disruption to production or demand in any of these commodities. When the price of a commodity is affected by discussion of it, I think you should take advantage of that. 3-6 months later, the fundamentals that we see now are going to be in place then, and basically it was hype that was going on and I think it’s going to offer opportunities. For markets that you’re following, if there’s trade discussion that’s going to move up or down the market that you were hoping to sell either puts or calls on, I think that’s going to be great picking in order to do that. Michael: Okay. Well, for those of you watching, we have an exciting show for you ahead this month. We’re going to be addressing a very common question we get. A lot of times, people sell an option, they get into the trade, the option moves a little bit against them, and then the question is “Well, what do I do now? Do I adjust the trade? Do I get out of it? If so, where do I get out of it?” What we’re going to do this month is we’re actually going to take you into some of our real trades we are doing in portfolios. Some of these, you’ve probably seen us talk about before. Pull back the curtain a little bit and show you a risk-parameter we might use and then recommend something you can use at home, as well, if you’re trading on your own or just get a little bit better insight into how we might do it professionally. A good analogy, and, James, I know you can comment on this, is we all saw the incident with Southwest Airlines this month where they had the problem with the engine. Certainly a tragedy for the people involved that it effected; however, one thing that really stuck out to me is the pilots that landed that plane and saved all those people. Have you heard the transcripts? They’re just cool as a cucumber. They knew exactly what to do, they had processes in place for every situation or condition, and you pilots out there that are clients, you know exactly what I’m talking about. When people are trading, and you know this more than anyone, James, you should have a contingency. Anything that happens, you should have a plan for that happening and have that type of control. That’s how you avoid that “what should I do” when you get into certain situations. When you’re trading, you deal with the same thing, James, am I right? James: I certainly do, nothing like that pilot was facing this past week, but in a similar note, you do have a plan. We are generally positioned in anywhere from 8-10 commodities and when one is causing the plane or the bow to veer right or veer left you simply need to make the adjustment. It shouldn’t be a huge deal to your portfolio. You should really be able to make a minor adjustment. If you’re in 10 commodities and 1 is going really in a direction you weren’t thinking, you should have a plan for that. It shouldn’t be a panic. It shouldn’t be large turns like this. You should just be turning the wheel like this and we’ve got an adjustment that needs to be made, the cocoa market or the coffee market or the silver market, and you just steer the plane and get it flying level again. Your portfolio, whether you’re having a portfolio with us or you’re investing with one on your own, you should never have a position that makes that much variance to your account. If you have 1 position in your account, name the commodity- it doesn’t really matter, and if it moves 5-10% in a short period of time, if that makes your account move larger than it really should be, it shouldn’t have a large variance because the market moved 5% or 10%. If it is doing that, you’re simply not positioned correctly. Always have in your portfolio 8-10 commodities and if 1 is making the plane go like this then you just pull it back like that. You should never have a position on your account that you can’t, in order to make the plane fly smoothly again, if you would. It happens all the time. We’re not right all the time. We’ll have 8-10 commodities in a portfolio and by-goodness, 1 is going to be causing this to happen and you just straighten the plane. Just like that brave pilot did, he knew exactly what to do. My goodness, 1 engine went out and he was able to do that. We have 10 engines on our plane. We should never have one commodity or another commodity make the plane go like this. It really shouldn’t happen. For your investors at home, if that’s happening to your portfolio you don’t have a diversified portfolio, and that is something that we at OptionSellers.com always strive to have so that when something happens that was unexpected, there’s a big headline in a certain commodity, you just straighten the plane and that’s what we do. Michael: That’s what we’re going to talk about today. If you’re trading at home or you’re checking out this strategy, one of the biggest advantages you have as an option seller is that flexibility James was talking about where if you’re trading, and say you are worried about a Chinese trade war or this or that, you have the ability to build out a strategy that can benefit from nearly any type of economic condition. It’s one you should use if you’re an option seller. We’re going to address and use a specific example this month from a market we talked about. We’ll show you how to adjust a trade if you do get into those type of situations where it’s not working exactly the way you hoped it would, and we’re going to give you a couple examples here of how to do just that. James, why don’t we move into the trading room and we’ll talk about our markets this month. James: Sounds good. Michael: Welcome to the markets segment of the OptionSellers.com May Podcast. We are going to talk about a market this month that we featured in last month’s podcast and that we’ve got a lot of questions on over the past month so we’re going to talk a little bit about it. This does go into the topic of this month’s podcast, which is how to turn a losing trade into a winning trade. So, first let’s talk about the market… this is the cocoa market. You saw us feature this market in last month’s podcast. Cocoa we talked about selling the 32 December call options. The markets rallied a little bit since then, did not threaten a strike, but it’s up a little bit. James, do you want to tell us what’s going on with this trade and this market? James: Michael, what’s going on with cocoa right now is the last several years we’ve had a production surplus worldwide. In 2018 and 2019, some of the largest cocoa analysis around the country is predicting the first deficit in quite some time for world production. Basically, high prices cure high prices and low prices cure low prices. The initial trade is that we’re going to have a production deficit this coming year and then the market must go much higher because we’re running out of cocoa, but in all actuality what happens when the price of something is rising that is dampening down demand. So, for example, when cocoa was trading around $2,000 and $2,100 a ton, chocolate manufacturers were purchasing cocoa. As it rallies, they purchase less and less and less, and the demand has already taken place. So, when we do get an announcement of a production deficit, that usually gets the last of the buyers, the headline traders, to get involved with the market. We saw a spike here recently in the last day or two where cocoa was threatening $2,900 a ton. Keep in mind that’s up almost 50% in price over the last few months. Basically what that does is commercial demand then starts to fall and then basically it’s a speculatively driven market. Usually a market that has moved 50%, we have just a couple percent difference in production, 2-3 years ago up until now, and yet we’ve had a 50% increase in price; thus, we think that’s a temporary move in the market. While we were suggesting selling the $3,200 calls last month, the market did not get anywhere near that level but, as some of the viewers and readers have mentioned, the price of those options are up slightly from, maybe, when we discussed selling them. Michael: Sure. I think that goes back to a good point is, we always say this, we don’t know where the top or bottom of a market’s going to be. That’s why we are selling options in the first place. We’re not trying to pick that anymore. You don’t have to pick that either as an option seller. It’s an important point to make as an option seller… you’re not trying to call the market, you’re just picking a window where you think prices should remain and then selling options outside that range. James: Exactly right. Fundamentally, the price of cocoa over the next 3-6 months should be at this level. The price of coffee or crude oil based on fundamentals will be at a certain level, as well. Basically, you’re selling option premium that puts you out-of-the-money sometimes 40-50-60%, and some 8 times out of 10, that leeway is all you’ll ever need. As a matter of fact, anyone listening to us right now and, of course, our clients are long-term investors. So, if you are, like we discussed just recently, you are flying a plane and you want it to have several engines, okay? Your portfolio should have several commodities; however, when one does exceed a level that you thought it would, you can roll up your position. For example, each day that cocoa gets more and more expensive, the likelihood of it staying above its fundamental value diminishes. So, if you did short cocoa prices at, for example, $3,200 a ton by selling the $3,200 call, you may choose to roll it up to the $3,400 or the $3,500 if in fact it’s something that if you want to stay with the market or you want to stay with your position, but speculatively the market is driven higher than we thought it would do. That is certainly one approach that we often take and someone who maybe has that position on right now might want to take that, as well. Michael: So, what you’ve just explained is how to turn a losing trade into a winning trade, the title of our podcast here today. Let’s go back and just explore that briefly. When we talked about selling the call here, we talked about selling it and we were right about here, now the market has rallied a little bit. As you said earlier, it really hasn’t threatened the original strike. In fact, I don’t even think the original premium has doubled yet. James: No, they hadn’t. Michael: Yet, we got a handful of people writing, “Ah, I sold a cocoa call. What do I do now?” Well, there’s 2 points to that. One, we’re not really an advisory service, we are managed fund here, so we can’t really instruct you all the way through the trade. The bigger point here is when we went back to the beginning of the podcast that James just referred to, we talk about the pilot steering the plane. If you’re putting a trade like this on, you better have a plan for what you’re going to do for when you go into that trade if it doesn’t move the way you think. Now, the movement in cocoa right now, it hasn’t really been extreme, it is pressuring the strike price a little bit. James feels it’s still fundamentally justified trade, but if you’re getting uncomfortable or it keeps rallying or starts pressuring that, he’s talking about rolling the positions up. James, do you want to explain the mechanics of that if you were, or if somebody was holding a 32 call what they would do to recapture that premium? James: Okay, so let’s say you sold 10 contracts of the 3,200 December call strike and the price is now exceeding your risk tolerance. Let’s say you sold them for $500 or $600. Let’s say you have the 100% rule for your portfolio, so the option has now doubled to approximately $1,000-$1,200. Now what I would do, if you were considering staying with a fundamental trade, which I think cocoa will probably be in the high 20’s at the end of the year and nowhere near 3,200; however, you buy back your $3,200 call and you can sell 20 now of the $3,400-$3,500 call. Eventually, the fundamental factors are going to slow this market down and we think that come November, when the December contracts expire, we’ll probably be in the high 20’s… like 2,800-2,900 at the most. So, if we do exceed 3,000 for a brief period, I would use that certainly as an option selling opportunity in cocoa calls. 3,400-3,500, I think, the market will not exceed that level in our opinion. We’ll have to wait and find out, but come November I think the market will be much below that. Michael: So, you’re doubling up on those strikes. So, you sold 10 and then when you roll you’re selling 20. That allows you to, one, get back your original premium, but it also allows you to recover the loss. James: That’s exactly right. Keep in mind as we discuss this, we always want to be in 8-10 commodities. We are selling options sometimes 40%, 50%, 60% out-of-the-money. You can’t, or you probably don’t want to, base your entire investment and the viability of this type of investment for you based on the idea that you sold 10 contracts of cocoa. Okay? We are selling commodity options in approximately 8-10 different sectors and, over the long-term, selling options 40%, 50%, 60% out-of-the-money is going to work out quite well, but, by all means, we stub our toe. We get kicked in the shin once in a while, but if you’re a long-term investor, and everyone should be, whether you’re long stocks or the real estate market or you’re selling options as an investment portfolio, you just know that 1 or 2 may not go your way and you definitely need to manage your portfolio. This is one way to do it. Another idea is, you know, taking a losing trade. If the investment idea wasn’t correct, we’ll take a look at it again. Let’s see if the market continues to rally, we’ll sell options on another day, or we’ll come and visit cocoa again next year. Have that ability to do that. Michael: That’s an excellent point. If you’re watching some of the things we do and you’re trying to trade just at home online saying “Oh I like that trade. I’ll sell this and see how it goes”, that’s really not how these are meant to go. When we are putting trades on a portfolio, we are putting them on as part of an overall portfolio of, as you said, 6, 8, 10 different positions. Sometimes they’re hedged on the other side of the market, sometimes they’re balanced by a long or short position somewhere else. So, these are incorporated into a much bigger scheme. If you’re just taking them and you’re really selling them out of context, so if something like this does move against you it’s a big deal for your portfolio, where for us is just like the captain of the plane. It’s a flip of a switch, just something different you need to do to adjust the position. James: Exactly, Michael. You should always be able to have both hands on the wheel and just make small adjustments. If you sold cocoa calls recently, your positioning should only be going like this and you shouldn’t be turning the wheel like this. If you’re doing that with your portfolio, you’re not doing it right. Michael: And as we talked about earlier for managed clients, we are going to be taking a closer look at this market this month. It is starting to get interesting and maybe look to see what we can do there in the coming weeks here. Let’s talk about another market here for our second part of the podcast this month. That will be the crude oil market. If you want a market that has been in the news lately, one that has been in the headlines has been the crude oil market. We’ve been closing in on the $70 mark for the first time in 2014. It’s been one of the strongest commodities on the board since last fall. James, you want to tell us what’s going on here? What’s behind this rally? What’s been pushing prices higher? James: Michael, Saudi Arabia has done just an incredible job leading the OPEC nations, as well as Russian production. Someone sat down with members of OPEC and said, “Listen. We cut production by 2-3%, we’re looking at the possibility of a 20%, 30%, or 40% gain in crude oil prices.” Lo and behold, that math sounded good to the OPEC producers, they did start cutting production, not a great deal, just a couple percent. Basically, we were looking at a 300-400 million barrel of surplus floating around the world, both in tankers and at storage facilities in some of the OPEC nations. After some 18 months of oil production cuts by OPEC and along with Russia, that 300-400 million barrel surplus is down to some 30 or 40 million barrels… just a huge gain for OPEC. Their ability to cut production has just paid off in spades. We have approximately 35-40% increase in oil prices. OPEC is very cohesive right now, something that a lot of analysts are quite surprised at and we are surprised at it, as well. The ability to keep that production offline when prices are going up, my hats off to OPEC, they’ve done a very nice job in order to do this. The market is now balanced. Basically, for every barrel that is being produced there is a consumer right now. We have a very balanced market and, as you can see, it’s up some $20-$25 from where we were just not that long ago. Michael: Yeah, compliance has been surprising, too. I read somewhere that they’re at like 138% compliance. Before, they used to have trouble even getting half the members to hit their quotas, now they’re above 100%. James: Someone did the math for the OPEC producers and said a small 2-3% cut can possibly increase the prices 20-30%. They nailed it. Here are the final results. Michael: As you mentioned, that’s taking quite a bit of oil off the market. OPEC production down 11.4% since these started in January 2017. So, that’s a pretty good drawdown. That’s really, what James is saying, is behind this rally right now. That and we have a pretty good seasonal in effect that’s helping drive prices now, as well. James: Basically, as we get into driving season in the U.S., the largest consumer of oil and gasoline in the world, you have a ramp-up of production where you’re cracking oil into gasoline and, generally, that happens between the months of March, April, and May getting ready for summer driving season. So, that cracking of oil takes oil production and supply off the market, turns it into gasoline, so you have, once again, a temporary shortage of oil as not only OPEC taking barrels off the market but also you have the largest refining season coming up going into driving times of June, July, and August here in the United States. This takes barrels of oil off the market, they are cracked into gasoline, and that’s why you usually have this seasonal rally going into May and June. Michael: Which seems to be following it very closely this year, the seasonal tendency. Now, one thing we’re seeing this year, and you and I were talking about this earlier, is refineries are operating at a torrid pace right now. They’re really hitting it pretty hard as far as production goes. Right now, gasoline production running about 4.2% ahead of pace for where it normally is. So, you’re thinking that they may hit those levels earlier this year and we may see a topping action in crude a little bit earlier this year? James: You know, consumption for gasoline in the United States peaks in June and July right around the 4th of July, or so it seems, but the price of crude oil will often top before then. Crude oil is clearly where gasoline comes from, and as those barrels come offline, in other words, they’re cracked into gasoline, the price of oil will often top before gasoline does. So, the demand is still there but it has already been produced. So, while the greatest demand in the United States is around the middle of the summer holidays, the demand for oil to produce that gasoline has already taken place and thus the seasonal comes down sooner than you would think. Michael: Sure, and this chart’s showing you can see a top in crude any time between mid-May to early-July, as you said; however, if refineries are hitting those levels where they deem supply adequate, they’re going to cut back production sooner and that will hurt demand for crude. James: And then the crude barrels start to accumulate more. Michael: Okay. So, we have that and then also, on the other side of the coin, what we have coming up or what’s even surprised OPEC is the level at which the United States has been able to ramp up production. They’re taking advantage of these higher prices and you referred to high prices carrying high prices earlier. We’re seeing U.S. production just blowing up, going up about 10.5 million barrels a day. Is this having an affect right now on the supply? James: Well, basically it’s balancing… the additional barrels coming from the United States is balancing what OPEC’s not producing. The fact that production in the United States is going to probably exceed 11 million barrels a day coming up in 2019 and 2020. We do see this plateauing and the excitement in oil right now is probably going to be rolling over. If the United States wasn’t the largest consumer, let’s say all these barrels were being produced on the opposite side of the globe, getting them to the United States would be difficult and then maybe the largest producer, now the United States, wouldn’t be such a big deal, but the fact that we’re producing it exactly where we need it, here in the United States, that will offset some of the global demand and price shock around the world. Everyone always talked about, “The United States is susceptible to what OPEC does”… well, we’re producing all the oil we need now, so the fact that oil is approaching $70 and here in the United States we can produce it for between $35-$45, how long is it going to stay above $70? It can only exceed it by a certain amount of dollars per barrel and for a certain period of time. If this level gets to 11 million barrels a day or 11.5 million barrels a day, oil will be coming back down into the low-mid 60’s at the very least, and probably setting up a sale here that’s looking like in May or June for option sellers. Michael: Okay. So, your outlook for the intermediate turn, obviously we talked earlier and we’re not trying to predict what prices are going to do, only what they’re not going to do, but do you see a little more strength coming in and then weakening, or what’s just the general outlook for that window? James: What’s so interesting right now is in some global economies, especially throughout Europe, they are going to feel this large gain in the price of oil. Japan is going to start feeling this large gain in the price of oil. Basically, they are 100% consumers and produce nothing, so oil going from $45 up to $70 will start slowing demand from these major consuming nations. At the same time, when the United States is now producing the most they ever have and now the largest producer in the world, we see oil kind of plateauing here this summer right around maybe June or July, but not falling a whole lot. The fact that we had a 400 million barrel world surplus and it’s not approximately 40 million barrels, the market’s extremely well balanced right now. So, we see some of the excitement that’s going on now in crude oil plateauing somewhat, maybe coming down some $3-$5, but not falling through the floor by any means. Oil production right now is down with OPEC. They have been rewarded for keeping barrels off the market, and I don’t think they’re going to forget that any time soon. I don’t see them going back and ramping up production. They’ve been rewarded so well, they’ve learned a great lesson by keeping, at first, some 3% oil barrels off the market, now it’s up to some 9%, 10%, or 11% of barrels off the market. They’ve learned a great lesson and they’re being rewarded for it, so we don’t see production swamping this market. We see oil possibly trading at about a $10 trading range from where it is now throughout the end of the year. Michael: All that media coverage and, of course, the price rally has increased the volatility, which is what we like to see as option sellers. Taking a look at a trading strategy, how to trade that exact scenario you just described, you’re looking at one of your favorite strategies, a strangle. James: It certainly is. You discussed, just now, headlines and OPEC and trade wars with China and the value of a dollar. All of this really has the volatility of petroleum, especially crude oil, at record levels that I haven’t seen almost since I’ve been investing in commodities, but right now you have put premium extremely high, even with a bullish fundamentals, and you have call premium through the roof right now. My favorite position in crude oil for the rest of the year is practically a $45-$50 strangle around the price of oil. So, in other words, we would be selling calls at the $90 level and selling puts at the $45 level. We think that the idea that strong fundamentals right now will keep the market from falling, but yet the fact that prices are high right now and that’s going to start curtailing demand. My prediction for the rest of the year is about a $10-$12 trade range for crude oil and here we have one of the best opportunities I’ve seen to position in crude oil in a long time. That’s putting a $45-$50 strangle around oil. We’re not right all the time and every once in a while we don’t get it right, but for oil to stay between 45 and 90 through the end of the year, I think, is an incredibly high probability position and that’s something that we’re taking advantage of, as you know, Michael, right now. Michael: You couldn’t do that a year ago. You didn’t get that wide of window, and now we have it, it’s on the table, and you want to take it. James: Michael, that volatility is your friend. I know when it first happens and you already have positions on, “Oh, it’s too volatile for us”… that’s what you like. A year ago, 2 years ago, 3 years ago, the widest strangle you would write on crude oil was approximately $15-$20 and now you’re writing a $45 strangle. We, as well, are going out slightly further in writing and $50 strangle around crude oil. We’re pretty confident it’s going to stay inside that window. We’ll have to wait and see. Michael: And again, watching this at home, this is an example. We are not recommending this to you personally as the perfect trade. In our portfolios, we are diversified over December, January, February, and March. Different strategies and different risk management techniques, but in going out to a month like February, a lot of people think that’s a long time out. We’re about 9 months out, but your plan isn’t to necessarily hold these until February or March or whatever you’re writing out there. Often times, with the right decay, you can be getting out of these a few months early. James: Michael, as we discuss with our clients when they first become clients, we will sell options 6 months, 9 months, 12 months out into the future, but not with the idea that we’re going to stay into that position until the very last day and try and collect the very last dollar. It’s really not important to do that. If we select options fairly well, for example, on the position that we’re looking at right here, after maybe let’s say you sell options 9 months out, if you selected them fairly well, 5-6 months later you should have collected about 85-90% of the potential premium. That is a great place to ring the register and lower your risk and be happy with the position and get out of the trade and buy it back early. Often, we look at February or March or April when we’re talking about selling options. Basically, you’re Tom Brady and you’re throwing it to where the market is not going to be. That is what we’re doing. So, when Michael discusses layering different months and different commodities that’s what we’re doing. To own a portfolio like that, it looks like a great deal of layering in the market and that is what it is and it allows you to have 10 engines on your plane so that when one goes a little bit awry you have other positions to make sure that 80% of your portfolio is going the right direction. This is a great example of doing that. Michael: Great advice. If you would like to read more about the crude oil market, what we’re recommending there this month, or going into our managed portfolios, you will want to read this month’s newsletter… that’s the May edition of the OptionSellers Newsletter. That comes out May 1st. It should be in your e-mail box or showing up in your hard copy mailbox a couple days after that. Of course, if you want to learn more about the strategies we discussed here or the rolling or strangle or some of the other concepts James mentioned, if you don’t have it yet, The Complete Guide to Option Selling: Third Edition, you can get it on our website at a discount, on Amazon, or the bookstore. The link to that is www.OptionSellers.com/book. Let’s move into our closing section for this month. Michael: Thank you for watching this month’s edition of OptionSellers TV. James, thank you for those insights on the cocoa and the oil markets. You have any predictions for the upcoming month? James: The month of May 2018, Michael, I think is going to be the realization that the U.S. dollar is not the weakest currency in the world. The U.S. is looking at probably 2 or 3 rate hikes this year. The U.S. economy is still doing quite well and its counterparts, especially in Europe, the economies in Germany, Italy, France, and England have been doing pretty well over the last 12-18 months, but the expansion in countries like Germany especially, the major driver of the European economy, is showing signs that it may be peaking already. Consumer Confidence in Germany is down, a lot of the sales in Germany is down right now, and not that it’s going into recession, if it does that would be the shortest-lived recovery ever, now don’t see that happening, but the U.S. economy still is on this footing and the European economy is fluttering already. That is going to make the U.S. dollar more buoyant than a lot of investors thought it would be and that is going to stabilize a lot of the commodities. So, getting into short options right now, whether it be puts or calls on precious metals, energies especially, and some of the foods, I think it will be a great calming effect in the 3rd or 4th quarter of this year. So, any discussion about the U.S. dollar isn’t doing so good, any discussion about inflation, I would fade those ideas and sell options on those ideas and, I think, later on this year you’ll be well rewarded. Michael: Sounds like a good outlook. We’ll have to keep an eye out for that. Also, May is a very active month in the grain markets. We have corn and soybean plantings going on here in the United States, so that can often create opportunities there, as well, for option sellers, sometimes on both sides of the market. James: Practically every year we have large influx of volatility in corn, wheat, and soybeans and we are ready and waiting for that to happen. Michael: Excellent. For those of you interested in finding out more about managed option selling portfolios with OptionSellers.com, you can call to request a consultation. At this point, we are booked out through July for our upcoming consultations; however, I believe we still have some spots left for consultations in June for those July account openings. I believe I misspoke there. The consultations are open in June, the account openings are for July. So, if you are interested in those upcoming openings, feel free to give our office a call here and speak with Rosemary. The number is 800-346-1949. If you’re calling from overseas, the number is 813-472-5760. James, again thank you for your insights this month. James: My pleasure, Michael. It’s always great to give our wisdoms and our insight. We’re not right all the time, but I do like the landscape for selling options here in May and June. Michael: Perfect. We’ll look forward to the month of May and we’ll talk to all of you again 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 of OptionSellers.com. I’m here with head trader James Cordier. Welcome to your first OptionSellers.com Podcast of 2018. You’ll notice we are doing this in video format this year and we’re hoping we can use some video accompaniments to help you understand some of the concepts we’re talking about. We still will be doing some audios throughout the year, but we hope you’ll like the new format. Here we are in 2018. Stock markets are raging. Global economies are doing pretty well right now. So, we have a lot of global growth going on right now. We’re going to talk about, starting off, what that might mean for commodities. James, maybe you want to lead into that a little bit. What do you see for commodities going on this year? James: Michael, it’s interesting. Over the last several years, quantitative easing, here in the United States and across all of Europe, was thought to eventually make economies stronger. A lot of people were kind of not so hot on that idea, but certainly that has turned the corner. European economies are doing extremely well. China is bolstering once again. Here in the United States, along with some tax implications, the sky is the limit right now on economies worldwide. Of course, the stock market is doing great. Demand now for raw commodities look like it has finally turned the corner. There has always been too much supply. Needless to say, we had the Chinese economic boom of infrastructure spending several years ago. Basically, the market just came down from that and it has been waiting for real demand to finally develop and now we’re here. Copper prices, crude oil prices, some of the energies are making 2-3 year highs based on stronger economic growth throughout the globe right now. Chances for a weaker dollar look pretty special right now for 2018. All systems go right now for commodity prices, probably trending higher maybe throughout the year. Michael: Okay. So, you see this as, at least partially, a demand-led type strength possibly into commodities as a whole in possibly 2018. I know you’ve been talking recently about inflation creeping back in to the conversation here. Let’s talk a little bit about that. What role do you see that playing in 2018 and how might that affect commodities? James: Michael, 2% inflation has been the unachievable mark for several years now. Janet Yellen was trying to produce that. We’re finally there. A lot of some of the most brilliant people who do the bean counting for us for inflation are looking now at 2-½% inflation for 2018. The price of crude oil is such a dramatic input for different price costs throughout the world. A barrel of oil goes into grains and clothing and manufacturing. The price of crude oil has increased some 35-40% recently. That is going to start showing up in the inflation rate. We expect to see that probably the 1st and 2nd quarter of 2018, but investors are getting ahead of that right now. They’re not necessarily waiting for this 2.5, 2.75 inflation number to come out. They see it already and investors and traders want to get involved with it before the “white of their eyes”, they used to say. Michael: Okay. So, many of the people watching this show are interested in option selling or selling options on commodities. Obviously, inflation doesn’t necessarily mean every single commodity is going to be rising in price in 2018, the core fundamentals are really going to be the determinative of that, but it is a supportive factor and something to keep in mind. As an option seller, as somebody that sells commodity options, or you’re thinking about selling commodity options, how does inflation, the possibility of maybe the index as a whole being a little stronger, what affect does that have for commodities option sellers? James: Commodity option sellers can get into a market that has already taken off. For example, the price of oil was recently at 50 and it’s up at 65. A lot of investors are going to say, “Well, how do I get involved with oil? It has already made quite a move.” That’s the beauty of option selling. A person or an investor can still sell a $50 crude oil put just as though their break even was $50 where this bull market in oil started. That is one way an option seller can take advantage of a market that’s already moving… already left the station. With $50 oil right now, everyone would love to have that back. The writing was on the wall with OPEC production cuts… the more demand here in the United States and abroad. Basically, as an option seller, you can get in on that ground floor price that so many people missed out on. The price of gold recently has rallied $100. Do you want to buy gold here at $1,375 an ounce? Maybe, maybe not. We just rallied $100. By being involved with option selling, you can sell puts at the $1,100 mark, so you have nearly a $300 cushion for the market to do a variance. As the market goes higher, if in fact it does, option selling allows people to get in on what was the ground floor, but you get to wait to find out and see if it actually develops or not. The gold market has been trending higher, the crude oil market has been trending higher, a lot of the foods have, and some of these markets you can sell options 30-40% below the current price… A great way to still participate in inflation hedge for investors the rest of the year. Michael: Then you have the other side of the market, too, where often times when markets are rallying they get in the news crude. Perfect example. The general public wants to get in on it and what’s their favorite strategy? They want to buy the calls. So, all of a sudden demand for the calls goes up and people start rushing in and those premiums start going up, and there can be opportunities on both sides of the market. James: Exactly right. So often, the market will overshoot because of hedge funds that are pushing the market up. Then, of course, the public wants to get in and they don’t’ want to trade futures contracts so they want to buy call options. What that winds up doing is pushing call prices way about the fair value of where the market is likely going to reach. Basically, it sets up the perfect strangle, something that we’ve talked about often in our books and some of our material that our readers enjoy so much, I think. Michael: So, overall for 2018, what’s your take on commodities? Do you see this as a favorable environment for selling options? James: Michael, over the last 3 or 4 years, we’ve been involved with option selling on commodities without the volatility, without the public’s participation, without hedge funds participation, so the premiums on both the call and put sides have been slightly tight over the last 2-3 years. That’s about to change. We’re going to see inflated premiums on both sides. Explaining why put premiums inflated in a market heading higher is a little difficult for the laymen, but basically it is blowing up the volatility. It allows you to sell puts at a much greater value than normally you would, but the thing is, as the public comes into commodities, as investors come into commodities, often they want to be involved with the options, and often they want to be involved with the call options. So, while we do see an up market in oil this year and in gold and silver this year, the levels that the public and investors are willing to pay, we’d be happy to take the other side. We’re probably going to see options on commodities inflate to the tune of 30-40% this year, so not only are you picking levels that the market is likely not going to reach, but now we’re going to add just that much frosting to this cake as far as being able to sell options, I think. Michael: If any of you are interested in reading some of our research on some of the markets James is talking about, you’ll want to catch our upcoming edition of the Option Seller Newsletter. That will come out on February 1st. If you’re not already a subscriber, you can get a sample edition at OptionSellers.com/newsletter. James, we’re going to go ahead and move into our next section now and talk to you about some of the markets James is referring to right now and show you some strikes we are looking at. Michael: We are back with the markets segment of the podcast this month, and what we’re going to do is talk about a couple markets that you can follow at home. These are real markets we are looking at for our managed portfolios right now and we are going to talk about some things you can possibly do if you want to try some of these on your own or just maybe get an idea of how we do it when we’re looking at a possible trade. The first market we’re going to look at this month is the wheat market. This is really just a straight-ahead play here this month. It’s a bread and butter market. We’re looking at a market with clear cut fundamentals, discernable seasonal tendencies, we’re not looking for any big moves in the market, we’re just looking for the market to keep doing what it’s doing. Let’s take a look at the fundamentals first. When we look at it right now we are looking at World Wheat Ending Stocks. If you don’t know the importance of ending stocks or stocks to usage ratio in grains, I encourage you to go on our blog and look at our seminar on this… it is OptionSellers.com/agriculture. Ending stocks really measure the supply at the end of the crop year after all the demand has been taken out. It has a really big influence on price. 2017-2018 is expected to be an all-time high in World Wheat Ending Stocks. We’re also at a record level on stocks/usage ratio from a global basis. So, what this tells you is supplies for 2018 look to be very burdensome for wheat for the major part of the year, so that’s a key fundamental you need to keep in mind because what you want to look at is supply and demand and this is telling you that this is going to be weighing on the market all year long. James, you follow this quite a bit. What do you think about the supply this year? James: Michael, it really seems difficult to fathom a really large rally in the wheat market. What’s so interesting about different commodities is copper is produced in Chili, and oranges are produced in Florida, and coffee is produced in Vietnam. Wheat is produced in so many regions of the world and, generally speaking, when they’re all doing extremely well for production it’s very difficult for one crop in a certain country to really shape that idea. Wheat is grown practically in so many different nations around the world. Very large producers are Russia right now is just doing extremely well with their wheat production, here in the United States a lot of production here is winter wheat. Quite often, there’s a lot of grain movements in spring and summer with hot dry weather in Iowa or Illinois. Here in the United States, a big portion of the wheat is produced throughout the entire year. Basically, it is winter wheat. If you look at the other countries around the world that are big producers, another bumper crop again coming up chances are with World Ending Stocks at the level that they are, a little rally in wheat certainly could happen, but the 25-30% increase in prices does not look like it’s in the cards for this year. Michael: Especially with what we’re going to look at next here, which is the seasonal tendency for wheat prices. Now, anyone who follows us knows we do follow the seasonal tendencies closely. These are not guaranteed. What this really is is just a historical snapshot of what prices have tended to do over different parts of the year. It’s not guaranteed it’s going to do it this year; however, in looking at this, what this chart tells us is prices tend to start declining at the beginning of the year and decline through the fall. James, do you want to talk a little bit about why that has tended to happen historically? James: Generally speaking, Michael, the wheat market might have some favorable ideas. People might be looking at possible weather conditions or something like that. Generally, that’s in the winter of the year. It is winter wheat here in the United States, so based on how cold it might be or how much snow they might get, there’s worries about that. So, that does build in a slight premium in the months of January and February. As we go through the winter season where they’re not going to have an incredible amount of harsh cold, the conditions for winter wheat production starts abating. As we see how much wheat we’re going to produce, as we see us getting through this critical of time, the premium comes out for insurance buyers that are making sure that we’re going to have a big enough wheat crop will come March, April, and May. We know what the wheat crop is going to be. Here in the United States, we know that come March, April, and May the crop is basically made, there’s not going to be any weather conditions like there are with some of the other grains, like soybeans and corn. Come March, April, and May, we know how big the crop is and this year it’s probably going to be one of the record crops here in the United States, in addition to what we’re looking at as far as global supplies. As we get into the summer and fall of the year, basically wheat is looking for a home. It has a lot of competition around the world, and that’s generally when prices are at the low in the 3rd and 4th quarter of the year, and I think this chart on seasonalities diagrams it extremely well. The seasonality is extremely bearish as we go throughout the rest of the year. Michael: So, what you’re saying is a majority of the crop is coming in in the spring because it’s winter wheat and in the summer time when corn and soybeans sometimes rally, most of the wheat is already in the barn. James: Right. Whether it’s in the barn or whether we know it’s going to be harvested in a very large crop, we know that in April and May and at that time, then we’re looking for competition from many different areas. The bidders for wheat come July, August, and September few and far between because there is so much of it. In 2018, once again, we’re going to have much more wheat than the world needs and as we get later into the year, as harvest is full blown here in the United States, of course the prices are at their lowest when the crop is the biggest, and at harvest time is when it really has the pressure. It looks like we might get that again in 2018. Michael: Let’s take a look at a strategy here. We’re looking at December 2018 Wheat. James, these are strikes you’ve been looking at, but do you want to talk a little bit about this strike or why you like that strike? James: We do. The wheat market trading just north or south of $5 right now, we’re looking at a slight rally, possibly, in either February or March. If we get a small rally in wheat, we’re going to be looking at selling the $6 calls for December wheat. The chances of a 20-25% rally under these conditions seem quite slim to us. Of course, there’s a large variance. We’re not trying to pick these small moves in the market. Here’s where the current price is. If we do get a small rally, we like selling the calls at $6 and $6.20. It just gives us a huge variance of space for us to be right. Even if the market rallies a little bit, it’s just a far cry from the $6 call strike price. We’re looking at putting this on, possibly, in the month of February or March on a slight rally in the market. We always get gyrations in the market. As you can see, the $6 strike price is very attractive is we get an opportunity to sell those, and I think we will. Michael: If you’re at home and you’re trying to figure out this trade, you still have a $6 call. Prices can do a whole lot of things as long as they stay below that $6 mark. That option is going to expire and you keep the premium as the seller. That’s what we want. Prices don’t necessarily have to go down; in fact, we don’t necessarily think they will. We’re looking at fundamentals right now. We think prices are low and they’ll probably stay low. It can fluctuate a little bit either way, but we think they’ll probably stay low. The right strategy for that is selling deep out-of-the-money calls. A lot of people talk about volatility. Volatility in wheat isn’t extremely high right now, but, at the same time, if you can sell calls up there that’s a fundamentally based trade. You don’t need that volatility. You can still sell the call way above the last summer highs. That was kind of an aberration last year when we saw that rally, but it can still happen. Nonetheless, still below that strike, even in a weather scare. It’s something to keep in mind. Let’s go ahead and move on to our next market, which is the crude oil market. Our next market is one of our favorite markets: The crude oil market. It’s a great market for selling option premium. It’s one we like to trade all year long. The story this year, at least in 2017, was OPEC production cuts. James, those have been having quite an impact on the market here the last several months. James: Michael, it’s interesting… OPEC was really losing a lot of its great reputation that it had back in the 70’s and 80’s. When OPEC spoke, the market moved. When they cut production, the prices went up. They really lost that savvy in the early 2000’s. Here in 2017, this past year, and 2018, someone sat the group down, locked the door, and said, “Listen, guys. If we cut production 2-3%, we can have a 40% increase in prices.” Someone got their calculator out and said, “That makes sense.” We actually have a great deal of compliance right now with OPEC nations. The compliance is thought to be as high as 95-96% going into 2018. That has taken 2 million barrels out of the market recently. The fact that right now we have a great deal of demand for oil because of the stronger economies, that small decrease in production has really ramped up prices. A lot of people are looking at the domestic production here in the United States as likely going to keep up with and then balance the market and take care of those 2 million barrels that OPEC has stopped producing; however, that hasn’t taken hold yet. It does appear that the oil market is on very firm footing. It has increased some $15 a barrel recently for the spot price. It’s up practically $20 a barrel recently. That is setting up opportunities in selling options right now on crude oil, both puts and calls, as well as volatility, which has been missing in the crude oil market for years, is back and back in a big way right now. Michael: When you’re talking about the Sheikhs vs. Shale debate when it comes down to ebb and flow of the crude market, U.S. producers aren’t replacing all of that yet. As you said, they’re not quite there yet, but they are making a dent in it. When we look at U.S. crude oil experts, we had a big surge here at the end of the year, James. That has been a major new development in crude. James: The missing piece to oil rallying, especially here in the United States, has been the fact that the U.S. has not been an exporter of oil for years. Practically a half a century, the U.S. was allowed to sell 50,000 barrels a year and export them outside the country. In 2017, that was lifted. Now, the United States is able to export as much oil as they care to. With the $6 discount to world oil, or the Brent grade, everyone wants U.S. oil. They get a $6 discount, it costs about $1-$1.50 to ship it, that’s a $5 savings for a country that want to import U.S. oil. What always used to happen was the oil market in the United States would increase in summer. Fall and winter, as demand peak takes off to the downside in October, November, and December, this past year in 2017 and possibly again now in 2018, that’s no longer a problem. Driving season, big demand here in the United States. October, November, and December, when demand is less here in the United States, we just export the oil. The seasonality in other countries does not line up with the seasonality here in the United States. There’s a chance now, with oil supplies here in the United States at a 2-year low, we now have that balanced market that so many people have been talking about recently. Something OPEC has been trying to achieve for years, we’re now there. As long as oil doesn’t get too high over the next several months, right now we’re in the mid 60’s for the spot price, demand can keep up as long as prices don’t spike. We don’t’ see that happening mainly because the United States will be producing almost 11 million barrels a day coming up here in the United States. That should keep a lid on prices. Volatility coming in the market right now is tremendous, both on the puts and the calls. We see crude oil, probably, blending in to kind of a sideways market here with about a $5 trading range, probably in the low to mid 60’s. Volatility blowing out on both puts and calls, setting up a great opportunity for strangles, selling puts $20 below the market, selling calls $25 above the market. We’ll see how that plays out, but in March and April that looks like it’s going to be an extremely good position to take on. Michael: Yeah, you’re talking about the crude oil stocks. This is really starting to take a bite out of where we were just last year with the supplies at burdensome levels. Now, we have OPEC shutting the faucet, that’s taking supplies back down towards 5-year averages, which is what James is talking about… bringing that market back to equilibrium. We’re looking at U.S. production here. We’re up over 1 million barrels in just a year. We could be up another million barrels this year. Like you were saying, James, between possibly 10 and 11 million barrels a year. So, it’s not there yet, it’s starting to catch up, it is bringing he market back into some form of equilibrium, we think. James was talking about the seasonal and let’s go back just a second, James, because we were talking about that export ban being lifted. Do you think that may have altered the seasonal for crude oil? Do you want to talk about that? James: Michael, it definitely has. Prior to 2017, crude oil prices would often have a peek in June and July as we enter driving season. The market usually has this large fall-off as we get into shoulder season… November, December, January. That has changed the landscape of seasonality trading for oil for us and for anyone else watching the market. We’re going to now have more of a balanced market throughout the year as far as a seasonality goes. The large drop-off in the 4th quarter is probably going to be lessened now, but the fact that the United States is able to export oil, we probably still will have the highest prices in June and July, but the steep sell-off in the 4th quarter may be history for a while… at least for the next few years as far as we can see. Of course, we’ll look at fundamentals and how they shape up after that. Right now, the large decline in our prices for oil in the 4th quarter, that’s going to take a back seat to the fact that the U.S. is now able to export oil. As long as there’s a $5 discount to Brent, a lot of countries around the world are going to want our oil for sure. Michael: Let’s talk about a strategy here. James, we mentioned the strategy he was considering. James just kind of puts it into graphical format. Do you want to explain your thinking here and what the trader is going to be looking for in a trade like this? James: Certainly. Here has been the sideways pattern that oil has been in for quite some time. It’s about a $10 difference between summer demand and winter slacking in demand. That’s really changed as the U.S. has started exporting oil. The supply here in the United States isn’t that great. OPEC has bit off a big chunk of the additional barrels by reducing production, and that’s what this move is right here. We expect this trading channel to now develop here. With the U.S. now about to produce somewhere between 10.5-11 million barrels a day, why is that important that the U.S. produces that much? Well, we’re the 1st largest consumer in the world. We’re about to go 2nd to China, but regardless of that, the barrels are needed here, we’re going to have them here, and that should prevent oil from taking off to $75 or $80. Being short that level and being long from this level, we think, is going to be an ideal window for the market to stay in. Less oil out of OPEC, better demand. We’re basically going to take this sideways trading pattern and put it here, and then we really enjoy being long the market from this level, we’re really going to enjoy being short in this price. A strangle right now in crude oil looks ideal in 2018 going forward. We’ll have to wait and see. We’re going to adjust these strikes slightly going forward; however, a $35-40 strangle around oil, I think, is going to capture the majority of price swings over the next year or two. With the volatility just coming into the market, premiums are very large on both puts and calls. I think we’ll be able to take advantage of that for the next several months. Michael: So, it doesn’t really matter when you’re in a strangle which way prices are moving on a net basis, as long as they’re staying in that range. The balancing affect, too, of the strangle, where if it’s moving down, maybe your put is moving against you but your call is making up most of that in profits and vice versa if it’s moving up. Strangles are a very versatile strategy, and for a market you expect to be range bound, it is pretty much ideal. What kind of premiums are traders expecting if you sell something like that? James: Both puts and calls right now are trading around $600-$700 each. Prior to the spike in prices, a lot of the options were $400-$500. They’ve increased some 25% on this new volatility in the market. Volatility is kind of a 2-edge sword. You enjoy volatility when you’re selling options, that’s what we got recently, and I think the new 25%-30% increase in options is going to be a boom for us and anyone who is logically selling options on oil over the next probably 12-18 months. Michael: If you want more information on our managed portfolios where we are doing trades exactly like this, similar to this, and in a variety of markets, feel free to go on our website and request our free Discovery Kit. That’s OptionSellers.com/Discovery. You’ll get all the information about our accounts, how you can invest, and that sort of thing. Let’s go ahead and move into our final segment this month and that will be our Q and A with the trader. Michael: We’re going to do our Q and A section this month. This is where we take letters from you, our readers and viewers, if you’ve read our book we get a lot of emails and letters here in the office, so we’d like to take some time and answer them here. The first one starts, “Dear James, I’m looking 6 months out, as you suggest, but can’t find the premiums you are suggesting. What do you recommend when there are no commodities to trade? Jim Oakes, Bakersfield, California.” James, how would you answer Jim’s question? James: Well, Jim, basically there is so many parameters that we follow when trying to identify the best possible opportunities for selling options. Generally speaking, seasonalities will have a shorter duration. In other words, if it is coming up on a weather market in summer or cold conditions in the winter, generally that trade or that opportunity will last maybe from 3-6 months. The fact that it’s going to be a shorter duration means that something’s going on in the market, which causes premiums to build up dramatically because of possible weather in June and July for grains, something along those lines, and investors are willing to pay up large premiums for a relatively short period of time. So, generally speaking, a 3-6 month investment on opportunities in short options will develop from a weather market. For example, a seasonal opportunity is normally going to be about a 6 month sell in premium on options. Generally, when you’re strictly trading on fundamentals, in oil or gold or coffee or sugar, we’ll often go out as far as 9-12 months, which gives us much further out-of-the-money, if you will. We are willing to and more than happy to look at options much further out in time and much further out in price. The fundamentals of the market really don’t change very often. Sometimes they’ll change just slightly. The market will often get a 5% rally or a 5% fall in oil or gold or silver or coffee, and some of the experts will come on the talking shows in the financial community and say, “This market’s going to the moon. This market’s falling out of bed”, and generally they’re really not. That is the reason why we’re willing to go further out in time and further out in price. Usually that’s just noise, usually the market isn’t going to the moon and usually it’s not going to zero. Generally speaking, if you’re too short in time, the market will make a sharp abrupt move, knock you out of your position, and, of course, 30 days later the market is doing exactly what your fundamental analysis thought it would do, except now you don’t have your option and you don’t have your cash. We don’t mind going 9-12 months out. A lot of investors will say, “James, that gives you a long time for us to be wrong.” I look at it as it gives us a long time to be right. Fundamentally the markets move very slowly, technically they move very fast and we don’t want to be involved with those large technical moves up and down that investors get all excited about. Michael: I’m not sure if Jim’s question was that he can’t find options at all or he just can’t find the premiums he’s looking for. If he’s trading in the commodities that we’re talking about, the 10 or 12 we’ve mentioned, there’s tons of open interest. Maybe Jim wasn’t happy with the premium 6 months out, but what you’re saying is sometimes there’s 3-6 month premiums that only come about as a result of a weather market and that’s why we’re often going further out in time to get those bigger premiums. So, Jim, that’s one thing you could look to do if you’re not getting the premiums where if you’re looking 3-6 months out. The other thing is, that I would answer to this question, is it could be the platform you’re using, too, because I’ve heard a lot of complaints about, I don’t want to mention any by name because they’re all good platforms, Think or Swim, Interactive Brokers, they’re good platforms, but some of those, TD Ameritrade, I don’t even know if they do commodities, but some of them don’t go all the way. They only offer you a few months. So, if you really want to see where these things are trading and see the contract months that go all the way out, you should probably be working with a dedicated futures platform. We use CQG, which is outstanding. That’s something you may want to look into. James: Michael, great point. To follow up and expand on that slightly, the fact that we are selling options in so much large volume, we’re selling for hundreds of millions of dollars worth of equity that we manage, we are able to actually contact market makers. The market makers are going to give us bid-asks on options and strikes that might not be available on some of the platforms that you’re referring to. I think that’s the big difference. If you’re trying to sell 10 contracts of a particular strike, it may not appear to be available, but if you’re selling 10,000 contracts in that strike, banks around the world want to do business with us. That might be the difference, as well. We’ll have to see. Michael: That’s one benefit of going managed. If you don’t want to do it yourself anymore, you want someone else to handle it for you, it is one of the benefits you do get if you go with a managed program. We’re managing a large amount of money and some benefits come with that. Let’s move to our next question here. This comes from Paul McDonald of Hempstead, Texas. I believe that’s down in the Houston area. “Most of your examples, you base your trade on being held to expiration. With stock options, I can buy out of them early if they are showing profit. Can you do this with commodities?” James: That’s a great question. Often, we discuss options expire worthless this percentage of the time or that percentage of the time. As money managers, on selling option premium portfolios, we look at a 90% gain as a great time to buy back out of an option. We were just discussing selling option premium further out in time. The sweet spot of decay, after selling probably a million options on commodities, I have found to be further out in time than a lot of the books write about. So, if we’re targeting an option value of $600-$700 each, possibly as far as 12 months out, as we’ve been discussing, when that option has reached a 90% decay factor, in other words, it’s trading at 10% of the value that we originally sold it at, it doesn’t matter if there’s 3 months left on that option, 4 months left on that option, and so on… we will then buy it back. We think that’s a great strategy that you’re utilizing and we do the same thing when managing portfolios. We do buy back out early, we do close out, get rid of the risk, free up the margin, and move on to probably selling the same option and the same strike 6 months further out and do it all over again. Michael: The buy backs are just as easy in commodities as they are in stocks. In fact, that can be a favorable strategy, one James uses often and recommends. There’s no reason not to do that. It eliminates risk, and once you get to a certain point with an option there is very little to gain but you’re still holding that risk. You doing those early buy backs eliminates the risk, you re-deploy your capital, just an efficient way to manage your capital. Good question, Paul. I hope we gave you a good answer. If you’re looking for more answers on strategies and ways you can apply option selling, we do recommend our book, the latest edition of The Complete Guide to Option Selling. That is available on our website at OptionSellers.com/Book. You will get it at a discount there, than where you’ll get it at Amazon or bookstores. Michael: Everyone, we hope you enjoyed the podcast this month and hope you got some valuable tips out of it for making yourself either a better option seller or learning if managed option selling might be a right fit for you. Going into February, we have the Super Bowl coming up. James, do you have a pick for the Super Bowl? James: Michael, as a quarterback in high school, all I ever wanted to go up and down the side line and yell at my linemen for not blocking and not tackling. The fact that we were like 1 in 8, I really didn’t want to yell at them too much. Watching Tom Brady go up and down the sideline and yell at his players and get them pumped up, that just gets me excited about football. Next year, if they start selling options on football games, I’m going to sell puts on New England each time next year. So, I’m a Tom Brady fan. I’m from Green Bay, but I appreciate great football and he’s my guy for the Super Bowl game, so I’m rooting for definitely the New England Patriots. Michael: You better be careful. A lot of people out there aren’t big Patriots fans. I think if there’s any team out there that can give them a run for their money it’s Philadelphia Eagles. They surprised everyone. I’m sorry, if I have to make a pick I have to go with the past, too. We’ll see what happens. James: Michael, I’m a real football enthusiast and during the Super Bowl I just root for a great game and hopefully that’s what we’ll have. I hope the Eagles can bring that. Michael: Me too. I hope so. If you are considering talking to us about an account this month, the announcement this month is we are now booked out into March for consultations for new accounts. If you are interested in talking about a new account, you’ll want to call Rosemary here at the office. 800-346-1949. She will schedule you for our first available consultations that we have. If you’re calling from overseas, the number is 813-472-5760. Also, in this month’s newsletter, we have a major announcement regarding our new accounts. If you do get the newsletter, whether online or a hard copy, you’ll want to take a look at that. This will affect you if you are considering opening an account over the next several months. James, thanks for your great insights this month. James: My pleasure, Michael. It’s always great and fun to do. Michael: Everyone, we appreciate you watching our podcast. If you liked what you saw here, be sure to subscribe to us on YouTube or iTunes. We will see you again in 30 days. Thank you. James: Thank you.

Michael: Hello, everyone. This is Michael Gross from OptionSellers.com here with your August edition of the Option Seller Podcast and Radio Show. James, welcome to the show this month. James: Hello, Michael. Glad to be here and always fun to do. Michael: We find ourselves here in the middle of summer and, of course, summer weather often times can take headlines in the agricultural commodities. That’s what we’re going to talk about this month. We have several things going on in some of our favorite agricultural markets. In the Northern Hemisphere, of course, we have growing seasons for crops, such as corn, soybeans, and wheat. Down in the Southern Hemisphere, we have winter time, which is actually an active time for some of the crops they grow down there because you have crops like coffee and some of the other countries, cocoa, that aren’t planted every year. There’s trees or bushes that tend to bloom every year, so winter can often be a time to keep an eye on those, as well. James, maybe to start off here, we can talk a little bit about weather markets themselves, what they entail, and why they can be important for option writers. James: Well, Michael, many, many years ago, my introduction to commodities investing/trading came along in the summer. There was an incredible hot spell and dry conditions in the Midwest in the United States right during pollination time. That was my introduction to commodities and commodities trading. Weather markets, especially in sensitive times like July and August for the Northern Hemisphere, certainly does bring a great deal of volatility to prices and great opportunity for a weather market to grab hold of particular prices, and that was my introduction into the commodities trading. I’m quite sure that, as summer heats up, of course, here in the United States, so does trading and certain commodities and it looks like we’ve hit that start up again in 2017. Michael: Okay. Being in these markets as long as you and I have, we’ve seen our share of weather markets. After a while, most of them tend to follow a typical pattern. You see a weather scare, you see prices rise in some commodities, and prices tend to immediately price-in a worse case scenario and then you get the real report or then it rains or whatever happens, and then prices tend to force the back-pedal… not always, but most of the time that tends to be the case. If there is a price adjustment upwards necessary, prices will often do that, but often times that spike often comes in that initial wave of buying, and that tends to have an affect on some of the option prices. Would you agree? James: Well, certainly a lot of investors who trade seasonally, or perhaps had taken advantage of weather rallies years before, they will look at the option market. Generally, they are not futures traders, so what they might do is they’ll say, “Well, if the price of cotton or the price of corn or soybeans might be going higher because of dry conditions, lets see what options are out there for me to buy.” I would say that the biggest spike, not only in prices, but in prices for call options, particularly, often happen during these weather phenomenons, and so be it. The call buying that comes into the market during these weather patterns. Usually, as you mentioned or alluded a moment ago, it usually winds up being the high as the public pours into the market. It has happened many times in the past and seems to repeat itself time and time again. Michael: Yeah, that’s a great point, too. You’re talking about that you have a lot of the general public who love to buy options, the media loves to pick up on weather stories and the public reads it, and it tends to feed on itself, and you have public speculators coming in that are buying up options, often times deep out-of-the-money options. These are often times that people who know the fundamentals want to take a look at that and say, “We could take a pretty good premium here with pretty reasonable risks”, and that’s obviously what we are trying to do and what people listening to us are trying to do. So, why don’t we go ahead and move into our first market because we do have a few other markets to talk about this month. First market we’re going to talk about is, actually a couple markets, is the grain markets as a whole, corn, soybeans, wheat, all being affected to some degree by some of the weather. These aren’t raging weather markets, it’s not on the national news, but they’re enough to get those option values up and certainly enough for people listening, or our clients, to take advantage of. When we talk about these, I think we’ll probably focus on soybeans and wheat for this session. As we talked about in our newsletter and in our blog, there has been some drier weather, especially in some of the northern growing regions up in the Dakotas. Recently, I read a little bit about it possibly moving down into Illinois and further into Nebraska. So, they’ve had some dry weather and this has had a particular affect on wheat, but also on soybean prices. Maybe you can just explain how that worked and what transpired there to push those prices higher. James: Michael, it seems that a weather market can come in just practically any portion of the United States. Years ago, Illinois, Indiana, and Iowa, that was the extent of the corn-belt, with fringes of Wisconsin and Minnesota. With high prices in commodities over the last several years, some of the other areas of the United States, people started planting corn, soybeans, and wheat, as you mentioned. This year, the extreme heat and dryness is in the Dakotas, usually not an area that moves the market as much, but this year it did. I know the media really got a hold of the dry conditions and discussed North Dakota and South Dakota, some of the hottest, driest conditions in over half a century. I know I had CNBC calling practically every day to talk about the weather. That is what gets these markets moving, and it usually happens this time of the year. You alluded, once again, to something that happens often is you’ll have these headlines really create havoc with some of the markets and pushing them higher, but, lo and behold, some 95% of the crop is really untouched as it is in decent growing areas as far as the weather goes. As you get into harvest time, a lot of that talk is now behind them and people forgot about the weather in North Dakota and South Dakota 6 months later. That seems to be developing again this year. We’ll have to wait and see how that plays out. Michael: That’s a great point. Probably we should point out here the backdrop of what this weather market is operating in. Exactly what you described is happening, of course, you have speculators buying soybeans off of the dryer weather, buying call options off the dryer weather. As of the last USDA report, 2017-2018 ending stocks are pegged at 460 million bushels, which is going to be the highest level since 2006-2007. So, we’re going into this with a pretty burdensome supply level. Now, if there is some reduction in yield, yes, that could come down a little bit - something to keep an eye on. You also have global ending stocks 93.53 million tons. That’s pretty substantial, as well. You’re operating on it being a pretty hefty supply environment. At the end of the day, when we go into harvest, prices tend to decline, regardless of what the actual supply is because that’s when the actual supplies are going to be the highest regardless. We’re fighting that big picture of, “We already have hefty supply and we have a seasonal working against the prices here.” So, two reasons why people listening may want to consider selling calls when you do get weather rallies like this because the bigger picture is not that bullish. Secondly, one thing to point out here is we’ve had problems with dryness up in North and South Dakota, possibly coming a little bit further south, latest weekly crop condition report is a 4% decline in good-excellent rating. They’re starting to reflect some of that damage, but one thing to remember is this happens often. It happened last year. It happened a couple years before that where it was dry in July and everybody was talking about weather. Then, they’re talking about pushing yields back a bushel or two an acre and then it rains in August, then all the sudden we have above average yields. So, you have prices right now that can, you can get a little pop or you can also see them roll over. I know you have a favorite strategy for playing markets like that. James: Well, Michael, we wait for volatility to come into the different markets that we follow. Certainly, a weather market in summer is one of those. Probably the best way to approach selling options, whether it be calls or puts in a weather market, is to do it with a covered position. Basically, a strategy that we cover in Chapter 10 in The Complete Guide to Option Selling: Third Edition, it’s really an ideal positioning for weather markets. Basically, what you’re doing is you’re selling a credit spread where as you are selling whatever item you think that the market can’t reach, for example, soybeans this year trading around $10 a bushel based on supply and demand probably won’t be reaching $12.50 or $13 a bushel. What you might look to do is do a credit spread where you buy one call closer to the money and sell 3, 4, or 5 calls further out. The one long position is basically insurance on your shorts so that while the weather is still in the news and while there is still quite a bit of jitters as to how much crop potential we might lose this year, that holds you in the position. You’re basically short with just a little bit of protection and that really does a great job in riding the investor through weather markets and if you are fundamentally sound on your picture of what the market will likely be, as you mention, we have some of the largest ending stocks in some 10 years, you do want to be short this market at harvest time. By applying a credit spread in July and August is a great way to get involved with the market and protect yourself while you’re waiting for the market to eventually settle down. Michael: When you’re talking about and referring to the ratio credit spread, that really eliminates the need to have perfect timing. Of course, all option selling you don’t really need perfect timing, but that really helps out. If you do get a rally, those can be opportunities for writing spreads just like that. If you’re already in it and the market rallies, you have that protection, a lot of staying power there, and when the market eventually does turn around there is a number of different ways you can make money with a ratio spread. Of course, at the end of the day, we want them all to expire. Talking about soybeans right now, this does not look like any type of catastrophic yield loss or anything like that. This looks, at the most, if we get something, they might get a few bushel break or reduction prices may need to adjust a little bit higher, but in that case sometimes a ratio spread can work out even better. Is that correct? James: Well, Michael, it’s interesting. Your long position, for example, in soybean calls or corn calls or wheat calls, there’s a chance that that thing goes in-the-money and your short options stay out-of-the-money. That certainly is an ideal situation for the ratio credit spread, where, basically, the market winds up being between your long options and your short options. That happens rarely, but, boy oh boy, is that a great payday when it does happen. That’s not why we apply the ratio credit spread, but every once in a while you get quite a bonus. That describes one extremely well. Michael: All right. Let’s talk about wheat just a little bit. A lot of the same things going on in wheat, but wheat is affected a little bit differently than the beans, primarily because we have a lot more wheat grown up in those regions where they’re having the trouble. In fact, I read here, as far as the drought goes, North and South Dakota, I don’t have the stat here in front of me, but it’s somewhere between 72-73% of the acreage up there is considered in drought right now. So, a lot of wheat is grown up there. At the same time, that’s one of those markets that may have priced in a worse case scenario and now backing off. What do you think? James: You know, the wheat market probably, it does have different fundamentals than corn and soybeans, clearly, it has rallied over $1 a bushel, which would have been about practically 25% when a lot of the discussion about the Dakotas was taking place. The wheat market looks like it’s priced, you know, the heat and dryness already in. Of course, one thing about the wheat is it’s grown in so many locations around the world that if you do have a loss in production in the Dakotas in the United States, there are many places around the world ready to fill in for any loss in production. All around the world wheat is grown in probably near 100 countries… certainly different than corn and soybeans. Michael: You made a great case for that in the upcoming newsletter, too, the piece about wheat, where all this talk about loss of yield to the spring wheat crop, but that only represents about 25% of the overall U.S. crop. Most of the crop grown here is winter wheat, which wasn’t as heavily affected. The bigger point is the one you made just now. This thing is grown all over the world. The United States only produces about 9% of the wheat grown in the whole world. Right now, world wheat ending stocks are going to hit a record level in 2017-2018. So, again, you’re looking at a little news story here, but when you look at the bigger picture we are going to have record world supply of wheat this year. Again, these can be opportunities for writing calls for when those bigger picture fundamentals start to take hold. It can certainly help your position. James: Exactly. This year, I think, was another great example of that. Ending stocks possibly being records. It’s almost an ideal situation when weather problems arise because later on that year, lo and behold, we have more wheat than we need and the price goes back down. Weather rallies, whether it’s the Southern Hemisphere or Northern Hemisphere, really often plays into the hands of option sellers because the buyers come out of the woodwork and normally, you know, holding the short end of the stick come harvest time. Michael: We should find out where everything plays out in the next USDA supply/demand report. I believe that is on or around August 10th. That’s really going to reflect what the real picture is, if there was yield loss, and how much of it was. If it’s less than traders thought, prices probably roll over and we’re probably done because you have soybean podding in August and markets typically start declining after that anyway. If we do get a little bullish surprise, we’re not saying the market can’t rally if you’re listening at home and saying, “I need to go hands-in short right now”. The market can rally, especially on or around this report if you get a bullish surprise. What we are saying is those can be opportune times to write options, because that’s when that volatility will jump and, overall, the bigger picture fundamentals remain bearish. James, we’re going to talk here a little bit about our next market, but before we do that, anybody listening to our conversation here about the grain markets this summer, you’ll want to read our August issue of the Option Seller Newsletter. That comes out August 1st. It will be received electronically and it will also be available on hard copy newsletter in your mailbox if you’re on our subscriber list. We have a feature article in there on wheat. We talk about credit spreads, some of the things James and I just discussed here, and how you can apply them. It is a great strategy for this time of year and you can read all about it in the August newsletter. If you aren’t a subscriber yet and you’d like to subscribe, you can subscribe at OptionSellers.com/newsletter and read all about it. James, we’re going to move into our next market here this month, which is one of your favorite markets to trade, that is, of course, the coffee market. I know you’ve been doing work with Reuters World News this month back and forth on the coffee market and what’s going on there. Maybe give us an overview of what’s happening in the coffee market right now. James: Michael, it’s interesting. As all of our intelligent readers and watchers already now, as temperatures heat up in the United States, they are definitely cooling off in the Southern Hemisphere, Australia and Brazil for example. What so often happens for traders in the coffee market, they look at winter approach in the Brazilian growing regions and they remember back to when coffee supplies were really cut based on a freeze that developed in Southern Brazil. During those periods, some 1/3 the coffee crop that Brazil makes each year was grown in very southern areas of Brazil, which are prone to cold weather. Chances are freezes don’t develop in the coffee regions of Brazil, but just like the dry weather in the United States a lot of investors and traders want to trade that idea of it happening. That’s what’s going on recently as we approach the coldest times of the season in the Southern Hemisphere. Traders and investors are bidding up the price of coffee and, likewise, buying calls in the coffee market, planning on maybe some adverse weather taking place. I think we all hear about El Niño and La Niña and what that can do to temperatures, both north as well as south, and a lot of investors, if something like that takes place, they want to be in on it. Often, how they do get involved with that is by buying calls in coffee, cocoa, and sugar, and it looks like that’s what’s pushing up some of those soft commodities today. Michael: Okay. So, they’re buying it primarily on freeze-type thing… same type of thing going on here in reverse. Instead of hot weather, they’re betting on cold weather. Talk a little bit about the bigger picture there as far as what supplies are like, what they are buying here. James: Well, Michael, it’s kind of interesting. It’s almost like a carbon copy of what we just discussed on the grain and grain fundamentals. Coffee supplies in the United States, which, of course, is the largest consumer of coffee in the world, are counted each month. Here in the United States, we have something called green coffee stocks. Obviously, that is the coffee that is then sent to roasters. Roasters roast the bean and then turn it into everyone’s favorite morning brew. Green coffee stocks in the United States are at all-time record highs. That fundamental is something that just is very discernable and is not going to go away no matter how many coffee shops spring up in your city or your town. We have record supplies in the United States. As far as the fundamental of new production, especially in Brazil, last year we had a rally in coffee prices because it was dry conditions during some of the cherry season in Brazil, and this year is just the opposite. We’ve had extremely favorable weather conditions. We have an excellent coffee crop that’s being harvested right now in many parts of Brazil and Columbia, and coffee supplies that will be coming in from the producing nations will be more than plentiful as we get into August, September, and October when those harvests wrap up. So, we have practically record supplies around the world, we have excellent growing conditions in the largest producer in the world, being Brazil. This year is what’s called an off-cycle year. A coffee bush, if you will, produces more cherries on one year and then slightly less the following year. This being an off-cycle year, still we are expected to have a record production figure in Brazil for an off-cycle year. There are already estimates for next year’s crop being in excess of 62 million bags, which would be an all-time record. For those of you who are unfamiliar with what 62 million bags of coffee might represent, Columbia, always thought to be the largest coffee producer in the world, they only grow approximately 10-12 million bags each year. So, all of the extra demand for coffee recently over the last several years from all the coffee shops springing up, Brazil has taken care of that and then some, just basically blanketing the world with extra coffee beans. That is what has kept coffee prices, really, trading near-low levels. Many commodities have increased with Chinese demand that everyone is familiar with over the last several years, but coffee is not the case. Record supplies here in the United States and record production down there from our friends in Brazil. Michael: Yeah. I saw that, too. Brazilian Ag-Minister was 62 million bags. That’s a huge crop. Another thing I should probably mention there is that coffee has a seasonal, as well. It tends to start coming off into when harvest starts and our springtime as they head into fall, which is March-May period. Is that correct? James: It is. Generally, the coffee crop is so large and so widespread there the harvest lasts practically 4-5 months. Basically, what you’ll see them do is often sell coffee twice a year in great strides. One is as the end of harvest approaches and then when we’re looking at next year’s crop, May and June, when they can get a handle on how large that crop is going to be, they will then start forward selling that year’s production. So, really there’s two waves of selling from coffee producers in Brazil. Usually it’s August-September for the current harvest and then May-June for the upcoming harvest. Really two large swaths of sales from Brazil, something we’re expecting to happen probably for at least the next 2 years and then we’ll have to take a look at how the conditions look after that. The next 24 months, we’re going to see a lot of coffee hit the market twice a year, those 2 times especially. Michael: I did notice, this year the coffee market does appear to be following seasonal tendency. You know, we started seeing this last round of weakness right about March and it has dropped, so far, into June. We get a little bouncier now maybe just because prices were just so oversold and then we had the weather issue that you spoke about, as well. I know, right now, with prices in the position they are similar to what we talked about in wheat and soybeans, where you had a little bit of a weather issue at the same time big picture fundamentals still looking pretty bearish. What type of strategy are you looking at in coffee right now? James: Well, Michael, we have coffee prices in the mid 1.30’s, approximately $1.35 per pound. Chances are we are going to be rallying maybe 5-10 cents as we go further into the winter season in Brazil, as some investors take a chance on coffee price rally. We could see coffee prices in the mid $1.40 going into August and September. We are targeting contracts 6 months out- 9 months out to take advantage of the long-term bearishness. We never want to play a market on a short-term basis, we don’t want to predict where coffee’s going to go the next 2-4 weeks. What we want to do is take our long-term fundamental analysis of the coffee market, the production and supply that we’re looking at here the next 24 months, we’re going to take a long-term view of coffee… a long-term bearish view. We are able to now sell coffee calls at $2 a pound if you go out a little bit further, another 30-60 days, you can sell coffee options at $2.20 a pound. If we do get a decent rally here in the next 30 days, which is possible, we’ll be looking at selling coffee calls at $2.40 and $2.50 a pound. Later this year, we do expect coffee prices to be around $1.20-$1.25, and there’s a pretty good chance the options we sell are going to be double that level, certainly something we’re extremely comfortable with and we think is going to work out quite well. We’ll have to wait and see. There’s no guarantee in this market or any other, but we do like our chances at selling coffee at that level, for sure. Michael: That far out-of-the-money is exactly the target options that we talk about in The Complete Guide to Option Selling. It’s our third edition of our flagship book. If you would like to get a copy of that, you can get it at OptionSellers.com/book. You’ll get it at a discount to Amazon or bookstore prices. James, for our lesson today, I’d like to directly address a question that we get periodically from newsletter readers and listeners to this show and some of our other videos. I know a lot of people listening to this, they’re watching what we talk about and then they are taking our trade and trying to do it on their own. That’s certainly fine and there’s nothing wrong with that. That’s part of the reason we’re here, is to help people learn what this is and how to do it. A question we get is, “I saw your video/read your article and you talk about selling a strike, and I went and looked at that strike and it’s not the same premium you said,” or, “ I went and looked at it and there’s no open interest there”, or “That platform doesn’t have it. I can’t see it. How are you selling these things?” There’s a couple different answers to that. I’m going to give one and I know you probably have a better one, but one of the first reasons is a lot of the platforms they’re on they don’t carry options that far out. I know some people have mentioned Thinkorswim platform or TD Ameritrade where they only go a few months out with the commodities options. So, first and foremost, you need to get yourself a better platform so you can get further out strikes, and secondly, James, the one thing you pointed out clearly in this month’s newsletter is a lot of times when you’re talking about these things, whether here or on your bi-monthly videos is, you’re giving examples of how this could work, how it should work, what might happen if prices rally, these are the areas we target. We’re not here to give specific trade recommendations for people to take and trade tomorrow. These are examples for people to learn either if they want to invest their money this way or if they want to take the information and think and reason it on their own what to do. So, when we talk about a strike, that could be a trade we’ve already done, could be that it’s passed now, or it could be a trade we’re hoping to do if the right situation sets up. So, you just gave some pretty good examples right now and you probably agree with me there, but there’s another reason that we can target those type of strikes that other people might not be able to do, and maybe you want to talk about that. James: Michael, that is a great point that you bring up. When I’m speaking to new clients, when they first open their account, the one question that seems to come up very often is, “James, I understand how this works, I’ve read your book, I’ve read your material, but who in the world is buying these options?” That is certainly a question we often get. By no means do I claim to experience the very best way in selling commodities options. I’m not sure what the very best way is. I just know what works for us and really being the option selling leader, I certainly believe we are, we are selling options in quantities that practically no one else in the world is. We have the luxury of selling gold options to banks in London and New York, we have the luxury of selling options in the crude oil market to energy companies, and it’s quite possible that when we’re selling options distant strikes coffee, we are likely selling them to coffee companies, like Starbucks and the such, a lot of popular names that a lot of people now. When you’re selling to contracts for your particular own personal account, you’re probably not going to get a chance to deal with London banks or other large coffee companies, but when you’re selling options in very large gross volume, these companies do want to work with you and they do want to listen to you. That opens up these strikes to us. Michael: That’s a great point. Maybe for just some of our listeners that may not be familiar with how that is, it’s not like James is getting on the phone and calling somebody in London and Citi Bank and asking them if they want to buy our options. These are still going through registered exchanges, it’s just a different path we are taking through them where we are working through specialized order desk. These people have relationships with other brokers for these organizations, but the trades are still done on the registered exchange, correct? James: Yes, they definitely are. It’s just relationships that our clearing firm has established and it’s something that, I feel, just the pinnacle of option selling… having those relationships in place and when you need and want to sell options that are further out in time, as maybe some of our listeners or readers have asked about, that’s something we have the luxury to do and we certainly want to take full advantage of that by selling to some of the largest banks or some of the largest companies that are maybe end users in coffee or in sugar or in soybeans. It’s quite a luxury we have working with those relationships that our clearing firm has already built for us. Michael: Something our listeners might want to consider, as well, we are usually here to help people learn how to do this. Whether you want to do it on your own or whether you are considering having it managed, one aspect of managed option selling, and excuse my little advertisement here, but it’s true that if you’re in a managed portfolio, such as this, you do get the advantage of economy of scale, where if you’re trying to sell 2-3 options on your own you could have them sitting out there all month and nobody ever looks at them. When you’re with an organization or a managed situation like this where you could be selling thousands at a time, those not only can get filled but often times at better fill prices than you’re going to get electronically. I know that’s something you have experienced first hand. James: Michael, there is no question that we’re not market timers. We don’t know the exact time to get short soybeans, coffee, or get long some of the precious metals, but what we do want to have is just the best absolute liquidity available, the tightest bid-ask on these markets, and if that can change your entry by, say, 10%, which it often does, once again, it takes the need to be perfect timing entering these markets, which no one has, nor do we, but when you can get a fill 10% better getting in and then possibly getting out, that makes a world of difference. Michael: All right. We’ve covered a lot of ground this month. I think we’ll hold up there for the month. We will be updating the coffee market and some of the other things we’ve talked about here over the next month and on our bi-monthly videos and also on our blog, so you’ll want to stay posted to that. If you are interested in learning more about managed accounts with OptionSellers.com, you can request our free Discovery Pack at OptionSellers.com/Discovery. As far as new account waiting lists, we are well into September right now as far as the waiting list goes for openings, so if you’re interested in taking one of those remaining openings for September you can contact Rosemary at the main number to schedule a perspective client interview. Those will be taking place during the month of August. You can reach her at 800-346-1949. If you’re calling from outside the United States, you can call 813-472-5760. James, thank you for a very insightful commentary this month. James: As always, Michael, all 12 months of the year are interesting, but July and August certainly are one of our favorites. Michael: Excellent. Everyone, thanks for listening and we will be back here with our podcast again in 30 days. Thank you. James: Thank you very much.

Michael: Hello everyone. This is Michael Gross of OptionSellers.com here with head trader, James Cordier. This is your monthly Option Seller TV Show. James, welcome to the program this month. James: Always a pleasure, Michael. Glad to be here. Michael: We have a lot to talk about this month. We have turmoil in Washington, we have some activity coming back to the VIX, and we have OPEC announcements, so there’s some volatility coming back into a lot of the markets. We’re going to talk to James about how that might affect some of the commodities we’re looking at. James, what’s your take on the new burst of volatility we’ve seen? James: Well, Michael, there is a lot of uncertainty right now. The stock market continues to meander and make new highs practically once a week, it seems, to get a new sell-off, and then buyers come back into the market. The VIX, which has been in the news recently, under 10, which I believe is about a 2 or 3 decade low, basically is saying that there’s no fear amongst investors, continue to pile into the stock market and continue to buy. The volatility index is just starting to pick up, however, in commodities. We’ve seen a dramatic move up in basically the energies and some of the metal VIX indexes, and it tells us that there is some ideas that some large moves in either the stocks or in the dollar denominated commodities might be approaching soon. Of course, we like the VIX going up – that increases premiums on both puts and calls that we follow. Michael: Now, is that spilling over from equities or anything going on in Washington, or is that happening on its own accord for different fundamentals going on in the commodities? James: I think a lot of investors are taking the cue from what’s happening from Washington and abroad. We have North Korea, we have a situation with Russia and the election, we have things going on in the Middle East right now along with Washington D.C. and a lot of the proposed changes are meeting some stone walling right now that’s going on. It is causing a lot of uncertainty and, of course, that’s something we enjoy following. Some investors don’t care for that very much but it’s certainly something that we like to see happening and it pumps up premiums on commodity options. Michael: Well, with that background setting for the month, let’s move into our first market. We are going to talk about the grain markets this month. June is a big month in U.S. agricultural markets. This is typically the month where planting is completed in markets like corn, soybeans, to a lesser extent wheat, cotton, and those type of things. When you look at seasonal factors, the end of planting season can play a big role in that. James, maybe you want to talk a little bit about what that often means for certain grain prices? James: Michael, a lot of our viewers and listeners here today hear us talk about seasonal factors. Corn and soybeans, a lot of people don’t realize, are practically everything that’s consumed. Whether it’s in China, Europe, or here in the United States, it comes from a kernel of corn or from a soybean. Practically everything we eat, dining out or cooking at home, that’s what takes place. Corn and soybeans are an absolute essential to the food system for practically everyone on the planet. It’s a huge market. The corn and soybean market basically has some type of fear or anxiety going into planting season. The planting season has to be just right or a lot of investors feel that we’re going to have smaller yields and possibly a smaller crop. Generally, it’s either too wet or too dry or too hot in May or June, and that does bid up prices often. Generally speaking, at the end of that rally and once the corn and soybeans are planted in the United States, of course, prices then come back down to earth and, lo and behold, the U.S. farmers are some of the best in the world and sometimes a bumper crop. (4:18) Michael: Now, when we talk about a market like soybeans, we didn’t really see that big run-up this year. We had relatively stable planting season and I think that kind of moves us toward what the fundamentals were this year. There’s a reason we didn’t really see a big run-up in the spring. Would you agree with that? James: We certainly haven’t seen that run-up yet. Right now, we have soybeans and corn planting just about on schedule. There was some ideas that there would be delays because of too much rain, but boy… too much rain makes a lot of grain later on this year. There still might be one or two rallies in June or July, possibly, there’s a dry spell in there somewhere. People are also talking about El Niño, which can certainly change weather patterns here in the United States. For the most part, the fundamentals are already in gear for low grain prices at the end of this year. Ending stocks, of course, are extremely high and production out of Brazil is at all-time record highs. So, if we get this weather rally sometimes in June or July, that would probably be a selling opportunity. Of course, for our clients, we are already short the grain market based on the fact that, like you said, the fundamentals right now are going to probably overwhelmed seasonal factors this year. I think we’re on the right side of that market. Michael: I know you were a proponent of selling calls this month. As far as ending stocks go, as you said, global ending stocks are “over 90 million metric tons”, which would be an all-time record for world ending stocks for the ‘16-‘17 crop year. When we’re going into this seasonal time of year where prices often start to weaken in the summer, as you were talking about, we’re going at with a backdrop of record global supplies. Even though prices have come down, I know you were very interested in selling call options on soybeans, not necessarily because you think the bottom’s going to fall out just because you think it’s going to have a hard time rallying in this type of environment. Is that correct? James: Exactly, Michael. Of course, as option sellers, we’re not exactly trying to predict where the market’s going to go but, of course, where it’s not going to go. With world ending stocks at all-time record highs, record production out of Brazil and Argentina, record production likely here in the United States. Do soybeans fall 5-10%? We’re not sure, but then going up 30%, of course, seems very unlikely. Of course, as option sellers, we are basically betting where the market is not going to go as opposed to where it has to. This year, with record ending stocks and just huge supplies from everywhere, a 30% rally in prices seems quite unlikely. Michael: Great. If you want to read James’ feature article on the soybean market for May it is on the blog. You can go back and take a look at that where he really outlines the case for selling calls this month. For those of you that would like to read more about seasonal tendencies and the agricultures or other commodities, you can also read about it in our book, The Complete Guide to Option Selling: Third Edition. That is available on our website at OptionSellers.com/book. James, lets move into our second market this month, which is the crude oil market, which we’ve certainly seen a lot of developments there. A lot has been in the news about crude this month. There’s big talk of OPEC. In fact, today right before we came on camera, we just had a big announcement for OPEC. Do you want to talk a little bit about that and what’s going on there? James: Well, Michael, ever since you and I have been in this business there has been the old adage of buy the rumor and sell the fact. I think that happened in great text today as the OPEC nations and non-OPEC nations decided, and certainly have been discussing for a long time, to extend the production cuts that were announced approximately 6 months ago. They were going to now announce that there were going to be 9 months of further production cuts. Certainly, that has been well advertised. The market did rally on those ideas over the last few weeks. I think crude oil went up from around 48 to 52 recently based on the fact that they would be extending cuts. Today, the cuts were announced that 9 months would be prolonged into the smaller production of many OPEC and non-OPEC nations. The market answered that with a resounding $2 down and the price of oil went from 52-50. Basically, the world is awash in oil, and if the fact that production cuts are going to be extended, they weren’t really that bullish to begin with. Of course, what’s happening in the United States that we might want to talk about is really the deciding factor and what’s changing oil prices. Michael: I know, even going into these cuts, you weren’t really bullish on crude and that was because of the supply and the production situation in the United States. Is that correct? James: Correct. Going into the large announcement from OPEC and non-OPEC nations some 6 months ago, very few people are familiar with the fact that weeks leading up to the announcement, OPEC ramped up production to levels never seen before. Though they did cut for the first time in 10 years, or something like that, production just prior to that went up a million and a half barrels. So, cutting and announcing a 1.5 million barrel cut really doesn’t move the needle at all. Of course, here in the United States, mainly the Permian Basin in Texas, production is now ramping up into all-time record highs. If in fact the U.S. does start producing 10 million barrels a day, which is looking like it will happen late this year or early next year, that completely erases the cuts from OPEC, which were thought to be so bullish, and the bottom line is if we have one more barrel of oil than we need the prices go down. Right now, it looks like we’re going to have approximately 1-2 million barrels more per day than we need going into 2018. The real key is going to be can OPEC stay together, be cohesive with these cuts when prices start to fall in the 4th quarter of this year. They’re going to have to hang tough because if they start cheating, this thing can really snowball and come down. We don’t’ see that happening. There’s something going on in Saudi Arabia as far as their first IPO of the largest extent ever seen before, and they’re going to do everything they can to keep oil prices high. Michael: That in the backdrop of last energy report here this month, still looking at record supplies for this time of year in the states. I think were 528 million barrels or something like that, which is an all-time record for this time of year. All this news, they’ve really been playing up this OPEC deal in the media for the last couple of weeks. Yet, here we are with a backdrop of record supply. A good point you brought up as well in the newsletter was how U.S. frackers have really ramped up production. I think we’re at 9.3 and I think you said we’re headed to 10 here at the end of the year. You can see right where they made those cuts and you put a good chart in the newsletter of where U.S. production starts trekking up again, just making up for what OPEC wants to give away. James: Exactly right. It is an absolutely gift to the frackers here in the United States that OPEC and non-OPEC nations are cutting production. It’s keeping prices still relatively high, giving new developments here in the United States chances to lock-in hedges. We were reading in the Wall Street Journal today that no longer are producers in Texas and North Dakota and everywhere in between, they’re not so susceptible to the large moves in the price of oil. They’re getting very sophisticated. A lot of areas, especially in the south, they’re able to produce oil anywhere from $20-$25 a barrel, some as high as maybe $30-$35, but they are now locking in future production using the futures market. When you can produce oil for $25 and sell it for $50 and lock that in, that’s what they’re doing. They’re taking advantage of that. As prices do fall, possibly in the 4th quarter this year, they don’t feel any pain. They just keep pumping because they’re locked into futures price at $50 printing money basically. What that’s going to do is exasperate the overproduction and the large supplies, we think, and then we could look at some prices possibly in the low $40’s to $40 later this year. Michael: Now, one more thing to talk about here as far as the seasonal tendency goes. We talk a lot about seasonals. Seasonals have kind of been knocked a little bit out of whack since the OPEC announcement back in November, but you are thinking that with the latest OPEC moves, we might see that kind of knock the market back into alignment with the seasonal tendencies. James: We really see that happening. What OPEC will be likely be doing at the very least is coming close to balancing the market again. We’ve had this boom bust every 6 months for oil production and oil prices over the last 2 or 3 years. That did change with the last production cut announcement 6 months ago. We see a slight balancing of oil production versus consumption, and that should throw us right back into the seasonalities that we enjoy so much. We love going short crude oil just as we’re coming out of driving season going into what we call the shoulder season, which means no longer driving season and yet too warm to have to heat homes and businesses in the Northeast. That is shoulder season. The market rolls over in the 4th quarter of the year so we take advantage of selling calls here in the summer and then reverse that position later this year and beginning of next. Michael: So, although we are bearish crude, neutral to bearish, we are not positioning money that we need the market to necessarily fall. Let’s maybe talk about for our viewers that maybe aren’t that familiar with option selling yet how you would position to take advantage of this type of market. James: When we heard of the announcement 6 months ago, we thought that would probably neutralize both bullish and bearish factors. We have too much supply, however we have production cuts from OPEC. We immediately put on a strangle in the crude oil market. We did think that the seasonality would probably take a pause until the end of this year. We basically took the excitement by selling $75 calls, meaning we are betting the market can’t get to $75, at the same time putting on a strangle, and by doing that we sold $33 puts – an absolute enormous window for the market to stay inside. That position has worked extremely well. Both of those positions are approximately 20% of what we sold them for. We should now go back into a seasonal pattern where we top-out in summer. What we mean by that is if oil is trading around 50-51 currently, what we would do is look at the winter contracts, say January, February, March, and look to sell options there. If we sell a $70 call while price of oil is at $50, we are basically betting where the market won’t be. This winter, we do expect the smaller demand season of January-February to take hold of 40% rally in crude oil prices during the weakest season of the year. That’s a bet we like to make and with oil at 50 selling calls, for example, around 70, basically what you’re doing is you’re playing football. You’re not necessarily passing to where the runner is or the receiver is, you’re passing it to where you think the market is going to go. Everyone is bullish in the summer and that’s where you go short. What you do is you throw it to the receiver who is running in January when demand is going to be at its least. Michael: As far as the market goes, the bulls seem to be running out of arguments here. OPEC was a big thing a lot of them were hanging their hats on and that hasn’t taken place. Now we are into summer driving season, which they will probably be talking up a little more, but with the supply where it is right now, prices tend to actually top in early to mid summer. We are just betting it’s not going to go up. It seems like anything can happen, of course, but it certainly seems like pretty high odds position from that point of view. James: I think with what’s happened to the market here in the last 6 months, we will have some equilibrium. You have producers locking in hedges, you have smaller production, so these moves from 30 to 70 are probably behind us. Crude oil prices 40 to 55 are more likely going to be the norm here for the next few years. Selling puts and going long in the low 30’s, and selling calls in the mid to upper 70’s, I think, is going to be a cash cow the next several years. As you said, anything can happen. We will have to wait and see. Selling options 40% and 50% out-of-the-money in crude oil, I think, is going to be ideal. That market is going to start finding equilibrium and some sort of balance, and what we call historic volatility is still in when you price options. The new norm is going to be more of a $40-$50 price and the volatility that was created over the last several years allows us to sell options 40%-50% out-of-the-money. That’s why we talk about volatility. That is the life-blood of what we do. From time to time, whether it’s fear of turmoil in North Korea, something going on in the Middle East, that is ideal for us is something that pumps up energy price options and we like to take advantage of that. Michael: Hopefully the media keeps helping out with that and keeps public buying those distant option premiums. James: That’s the hope. Michael: For those of you that like to learn more about the crude oil market and our strategy there, it is our feature article in the June newsletter. That will be out at or around June 1st in your mailbox. Keep an eye out for that. Obviously, in addition to our outline for crude, we also have some lessons in there about how you can sell options and manage risk is our feature this month. So, there’s quite a bit of new information there. You don’t want to miss the June issue. James, lets move into our lesson this month. This is one we haven’t done on video yet, but it is one we have talked about in our booklets if you have received our booklets in the mail. A lot of people that call in will ask us, “How do you pick the option you’re going to sell?” It’s really a short question with a very long answer, but we thought what we could do is just provide a few bullet points that if you are looking at trying to understand how this is done, the type of things we look at when we’re selecting a trade in commodities. There is really 5 things that we look at, James, that you and I have discussed. We’ll just kind of go down that list and talk a little bit about each of them. The first one on that list is something we are very big on which is the supply-demand fundamentals of that individual commodity. Do you want to talk about how you approach that when you’re looking at a commodity? James: Michael, I think a great analogy is years ago when people were investing in dot-com companies and these are names that you’re seeing on TV, they’re names that people are talking about, and the market started falling and people are looking at dot-com companies… “My gosh, I can buy it at 50% of what the price was just a few months ago. It has got to be a great buy.” They buy XYZ dot-com company, it’s down 50% from its highs, it sounds like a great buy. Then it is down 75% from its high and people are just getting white-walled here back in the crash of 2006, 2007, and 2008. You ask that investor, “What are you getting beat up in?” … “Well, I bought this dot-com company.” “What do they make?”… Not sure. “What do they do?”… Not sure. It is very difficult to stay with a position like that. We do fundamental analysis on about 10 commodities. I’ve been trading silver since when I got my driver’s license. I’ve been trading coffee for the last 20 years. We count barrels of oil constantly to try and understand what the value might be. When selecting short options based on fundamentals, when the market moves a dollar against you or people are on TV yelling about OPEC announced the cut or the market is up or down, for an investment to work you have to have staying power. You can’t get bumped out of the market on a small move. So often, if you have fundamental research and analysis, you’ll know that when the market moves slightly against you it is just noise. Computerized trading is moving the markets a lot more than it used to. We love computerized trading, it’s making our options more liquid to trade, but it also does send gyrations through the market from time to time. Having the fundamental research already in place allows you to be patient with your position. We sell options based on fundamentals. If they are not there, or we’re not sure what they are, we simply wait 6 months for them to maybe become more clear in a particular market. We want to sell options far enough out in time and price so that small gyrations in the market doesn’t disturb our position. How often does someone who does look at selling options on commodities or stocks? They’re attracted to selling the short-term option, selling a 30-day option or a 60-day option thinking, “Well, I only have a short period of time. That’ll have to wait.” But what ends up happening is a small move knocks you out of that position. Of course, what happens once month later is that market’s doing exactly what you thought it would do, except you don’t have your option anymore. We look at selling options 6-12 months out. If we thought the sweet spot for short options was closer in than that, that’s what we would do, but I have found that selling options 6 months out-12 moths out allows you the selling power to stay in your position. We were based on fundamentals when the market goes slightly against us, we just aren’t able to have patience and let the market come to us. Michael: When you know the underlying fundamentals, it’s really giving you the confidence to stay in a position and not get shaken out by this or that or what’s on the news today, which, you know, we talk about over and over and over again in everything we do. James: Writing short options, you are one thing – you are paid to wait. If you know what the fundamentals are and if they’re on your side it makes it much easier to do that. Michael: When we’re looking at trade, we look at fundamentals first. Second thing we’re going to look at is seasonal factors, which we’ve already touched on a little bit here today with some of our other things, but seasonals kind of play into the fundamentals because they’re really just reflecting certain fundamentals that tend to happen at different times of year. James: Exactly right. With the grain market, seasonal factors are there’s fears of planting, too hot or too dry conditions in the summer, and then you go right back to supply and demand in the fall. What seasonals do is they are basically fundamentals. It tells you exactly when the demand might be the most for gasoline, when the demand for natural gas might be the least. What it does is it helps us decide whether we should be long or short that particular market. If you combine that with a supply and demand, basically you are putting everything in place to allow you to put on a position and to stay with it. Michael: So, those are going to be the 2 core factors we look at when selecting a market. Obviously, the third thing on the list is volume and open interest. We have to find a market that not only is seasonally or fundamentally favorable, but there has to be enough options in there for us to go in and sell some. If there isn’t sufficient volume rope and interest, it’s not a viable market, so that’s the third selection process. That’s kind of self-explanatory, you probably don’t need to expand on that I wouldn’t think. James: Just the algorithms and the computerized trading is just making option selling just such a pleasure right now. The volume and open interest is increasing dramatically, even on far-out options. Making sure that there’s the ability to get in and out of the market is, of course, of the utmost importance. With computerized trading it is certainly helping a lot. Michael: We are using those 3 things to really select our market. The last 2 things on the list we are using for timing. What you’ll find is the last 2 things on our list are usually the first things that most option books will tell you to look at, or option gurus or option traders. That’s volatility and the technical setup. Those are the last things we’re looking at because by the time we are looking at those we’ve already picked the markets we want to be in. we are just using those 2 things for our timing, correct? James: Exactly right, if you’re trading a 2 week or 4 week option, you do need to have perfect timing. We have done all of our homework basically telling us whether we want to be long or short a particular market. Once we’ve made that determination, we try to blend in a little bit of timing to help us sell options when they might be at their peak or close to it. The desire or the need to have perfect timing with our form of option selling isn’t there, but certainly when we can see some technical buying or selling it can increase options that we’re looking to sell maybe 10-15%. We will certainly take advantage of that when we can. Michael: For those of you that are interest in this, we do get a lot of questions on this so we are probably going to be doing some new upcoming videos on these things, how you can use them, how we incorporate them when we’re managing portfolios as well. You’ll kind of learn from both sides of that. As far as just a little update here for this month, our waiting list for accounts is booked into July now, so if you are interested in possibly working with us directly, you can call Rosemary to schedule a consultation and she is filling the final slots we have now for July openings. If you haven’t heard about our accounts yet and you’d like to learn a little bit more about them, you can request our Discovery Pack, which looks like this, and that will tell you all about OptionSellers.com managed accounts, requirements, and how you can get started in them. You can request that on our website OptionSellers.com/Discovery. We thank everyone for joining us this month. James, thanks for your analysis this month. James: My pleasure, Michael. Always enjoy it. Michael: We’ll look forward to talking to you again in 30 days. Thank you.

Michael: Hello, everyone. This is Michael Gross, Director of Research here at OptionSellers.com. I’m here with Head Trader, James Cordier, with your monthly Option Sellers Audio/Video Podcast. James, welcome to the show. James: Thank you, Michael. As always, it’s a pleasure. Michael: we are going to talk a little bit about what’s going on in the world right now and we are going to get into some of our key markets for this month. James, obviously anybody watching the news this month has had quite a bit to look at. We have North Korean missile test, we have Russian bombers flying over the Alaskan Coast, so there’s a lot of geo-political things going on in the world right now. It’s bringing a lot of instability into a lot of people’s thoughts about what may be going on over the next several months in the markets. The VIX and the S&P is up 24% in one week here in April as a result of a lot of this. So, just overall, what’s your take on the month of April as far as the markets go? James: It’s interesting, Michael. Over the last 6-8 years we’ve had very little of the news that we’re looking at recently. There’s a lot of muscle flexing going on by both Russia and the United States, and maybe China coming up soon. It does have Wall Street a little bit jittery. As you said, the VIX is up some 24% recently and, actually, I think the VIX was testing multi-year lows. So, it always seems that something comes down the pipe to give everyone jitters and I saw the stock markets sold off here recently on some of the concerns going on around the Middle East and throughout Syria and North Korea. I think that’s a necessity to keep traders on their toes and to make sure the stock market and other markets aren’t always on a one-way street. A lot of the traders like the hustle and bustle of the markets going up and down and I guess we do, too. Michael: Well, we’ll see what happens. I know there’s been a lot of articles as of late. Ron Insana of CNBC, they recently had an article on their website talking about the two things that most often start bear markets and one of them was rising interest rates and the other one was the onset of war. So, let’s hope we don’t have anything like that, but something to keep in mind as you’re planning your stock portfolio or stock option portfolio for the spring and summer months here. Over on this side, we’re going to get into some of the commodities that we feel may be offering some opportunity this month. First on our list is we’re going to talk about the natural gas market. Obviously energy markets is some of the most seasonal markets in commodities. Natural gas, during the month of May, can be a very seasonal commodity. James, you want to give your take on that right now and what you see happening there? James: Michael, thank you. It’s very interesting throughout the year of the 12 commodities we follow. There will be certain times, sometimes the 1st quarter and sometimes the 2nd quarter of the year, that a certain commodity has the propensity to go up or down based on seasonality. Natural gas is certainly one of those. Generally, natural gas prices will rally during the months of March, April, and May, and then we start building supplies for summer cooling needs. What a lot of people are not familiar with is the fact that to cool vs. to hear requires only 10% of the natural gas that it does during the winter months. So, quite often, natural gas has a rally going into spring and summer thinking, “Well, it might be a hot summer” and it turns out that natural gas usage to cool homes and businesses in the winter is like 10% of what it takes to heat homes and businesses in the winter. Subsequently, the rallies in spring and summer do falter. Supplies of natural gas coincide this year with the seasonality of the market falling. We’re approximately 16% here in the United States over the 5-year average. What’s so interesting right now, Michael, is areas like the Permian Basin, which has new drilling for oil, new production for oil, and a lot of people talk about energy that way. The Permian Basin has supplied new production records for the first 5 months of this year. That’s expected to continue. Natural gas production in the United States to pull a million BTUs cost approximately $1. We have natural gas prices trading around $3-$3.50 per million BTUs. That’s a whole lot of anchor pulling this market down when you can produce something for 1/3rd of what you can sell it for. That’s a lot of downward pressure. We think that natural gas at around $3.50 right now per million BTUs is probably fair value for this time of the year. Going on to summer and fall, we probably expect natural gas to tweak down to around $3, and for seasonality traders and for what we’re doing for our clients right now is we’re positioning for weaker natural gas prices for the fall and winter of this year. We are selling natural gas options, right now, double the price of the current value. This is one of our favorite seasonal plays for 2017. We just started walking into it recently and, I think, later this fall and winter, a lot of these natural gas calls that we’re selling will likely be worthless and should definitely add to one’s portfolio this year. Michael: James, that’s a good point. You’re talking about those contract months that are going a little bit further out and you’re already looking at winter 2017-2018. When we’re looking at the supplies right now, as you talked about, we are 14-16% above the 5 year average for natural gas supplies, and when you’re talking about the seasonal and you have a situation right now where this winter is over, supply is starting to build again. As the supplies start to build, obviously that means you have higher supply in storage that also coincides with lower prices because as supply rises price often goes down. So, what you’re saying is we’ll go to the back contract months and take advantage of what we expect to be lower summer prices. That doesn’t mean we’re going to be getting those options all the way to December or January. If we do get to that decline, we could get out of these quite a bit sooner. James: Exactly, Michael. A lot of our clients, and some of the people following us today, are very familiar with what we call the early buy-back. Generally speaking, if you are writing options in a portfolio, of course, if you have a portfolio with us you’re familiar with this, if you’re selling options for $700-$800 per contract and you see them trading 6 months later at $70-$80 per contract, that’s a perfect candidate for an early buy-back. We will very unlikely hold these options until they mature this December and January. Of course, they mature or expire, should I say, a month before they’re named. Odds probably in October or November, a lot of the options that we’re selling now will probably be worth 10% of their initial price-- very good candidates for early buy-backs. A lot of investors who sell options in their portfolio, they are talking about selling 60-90 day options. We feel that the sweet spot for selling options if further out than that. The small movements that happen in the market, technical buying, technical selling, if you sell too short period of time, these small moves can knock you out of your position. We don’t want a headline to knock us out of our position, and that’s why we sell further out in time and price. If the sweet spot for selling options was a tighter amount of days, like 30 or 60 days, that’s what we would do. We feel that the opportunities for very high probability option selling is further out in time. We’re paid to wait and that’s what we do. Patience is the name of the game. When you’re selling based on fundamentals, it gives you the patience to stay into a market. When you’re selling an option simply because, “Well, the decay is supposed to be the quickest between 60 and 90 days” and the market goes against you, you don’t know why you’re in that position and that makes it very difficult to have patience and the wherewithal to stay with a market. If you’re selling options based on fundamentals like this position would be, when the market goes against you a little bit, it allows you to hang onto the position. Quite often, they’re going to expire worthless. You need to be patient. As long as the fundamental is on your side, you don’t mind waiting. Michael: Okay. Let’s talk a little bit more about that buy-back. We were going to do this at the end, but since you got into it now let’s go ahead and talk about it now. It’s an important point a lot of people, when they’re first getting into selling options, especially commodity options, they’re thinking that same point you brought up—“Oh, I need to sell 30-60 days.” Obviously, we prefer to sell longer than that because, often times, you’ll get a primarily portion of that decay long before those options are every scheduled to expire. So, a question I often get is, “Well, how do you know when to buy it back? What level do you wait for before you buy it back?” That’s probably a good question for you to answer. What do you look for? James: Sure. Once an option has decayed 85-90%, the majority of that premium is pure risk. When you’re collecting $700, the option is trading at $70, you really need to do very little homework after that. You’ve collected 90% of the potential premium. Buying back an option with 90 or 100 days still remaining on it, we do this, as you know, quite often. If the option is trading at 60 or 70 and there’s 100 days left on it, that option’s going to sit at that price for a long time. At that point, you’re really not getting paid to keep that risk involved in your account by holding that position. 9 times out of 10 that option is going to go to zero. 9 times out of 10 it would have been an okay idea to hang onto it. When managing portfolios, the risk/reward is always what you base all of your ideas on. You’ve collected 90% of the premium, you no longer have to watch the weather, you don’t have to watch the supplies, you don’t have to look at the calendar, you just need to place the order and buy the option back. Michael: Yeah, that’s a good question. Before the show here today we actually had a client visit. One of the things he was asking was, he was looking at his account saying, “Boy, I see we have a lot of expirations scheduled for September, October, November. Will it be then I can expect to realize the profits on these options?” That was the exact point I was explaining to him- no, not necessarily. You could be taking profits on these things in June, July, August if everything is going well. That was a point, especially if you’re new to commodities option selling or option selling in general, it’s a big point to realize- we’re not always holding these things to expiration. In fact, most of the time, you probably can buy them back early and cut that risk and put that capital into a different investment. If you’d like to learn more about the early buy-backs and looking at the fundamentals in some of these markets, the best resource we can recommend is our book, The Complete Guide to Option Selling: Third Edition. You can get it on our website at a little bit less than you’re going to pay at a bookstore or on Amazon. The link is www.optionsellers.com/book if you’d like to get your copy there. James, let’s move into our second market for this month. One of your all-time favorite markets: the coffee market. Right now, we’re at a key point in time where we’re right ahead of the Brazilian harvest. That can bring a very interesting seasonal into play, one that option sellers can use to their advantage. James, you want to give the overall synopsis of that market right now? James: Certainly, Michael. In 2016, parts of Brazilian’s coffee belt did experience extremely dry conditions and here’s where you need to do your homework just a little bit. Brazil is basically just a ginormous farm, whether it’s cocoa or soybeans or coffee or sugar, basically that’s what the Brazilian nation is made of. The coffee belt is enormous. In 2016, there were dry conditions in a lot of the coffee growing regions. It was primarily in the Robusta region of Brazil. We trade primarily Arabica coffee. The Arabica crop was doing extremely well last year, but all you heard about was the driest conditions in 15 years in Brazil. It primarily was hurting the Robusta crop. The Arabica crop did receive plenty of rain. That volatility and that news headlines that coffee was getting last year pumped up, especially coffee calls, giving it historic volatility that will now create extremely expensive coffee options this year, next year, and probably 3-4 years out. Believe it or not, it does hang on that long. This year, 2017-2018 crop, is the off-cycle year; however, Brazil is expected to produce nearly 50 million bags of coffee this year. Next year, the on-cycle for production would be approximately 60 million bags. This type of production doesn’t mean that coffee will never rise in price. Sometimes it will fall and sometimes it will go up. This prevents the really large move in a certain direction. When you’re able to make coffee beans to that extent, to kind of give you a focus idea, not that long ago Columbia was the largest producer of coffee, producing 10 or 20 million bags of coffee. Everyone counted on Columbian beans to supply the world. Brazil is now making 50 and 60 million bags of coffee. This year’s expected to be an off-cycle crop record year. Next year will likely be a record production year in Brazilian coffee. That is production that we see coming down the pike. How are supplies now? In the United States, it was just broadcast this past Monday that coffee supplies in the United States are at the largest level since they’ve been counting coffee beans starting in 2002. So, supplies here in the United States are at all-time highs. Production in the next 2-3 years is expected to be a record. Seasonality for coffee, as it normally rallies in April or May, the Brazilian starts in earnest in June, July, and August, these coffee beans then are looking for a home. That’s when prices tend to fall. Coffee recently has rallied up to 140-145 level. Selling coffee calls for late this year, beginning of next year, is just a sweet spot and an ideal candidate for option selling going forward for this year. The natural gas looks like a very good opportunity. Coffee is just a great way to diversify your account. We really love the aspects for coffee to be having probably an overabundance supply over the next year or two. We’ll be looking at selling coffee calls this year and next. Generally, you sell them in March and April and the market starts to fall as Brazilian products come in June and July. This year looks like it’s a good setup, as well. Michael: James, we’ve already had a pretty good downward move in coffee and I know you’ve been selling these most of the month. One thing I noticed is even with that downward move in prices, that volatility that we got from the drought you talked about back in the fall, that’s still in the market. So, you can see, even though you’ve had a downward move in prices, you can still sell coffee calls so much further above the market. That’s just the added value of that volatility that’s still working in there. James: The volatility is something, as we were discussing earlier, the VIX on Wall Street rallied some 24%. Volatility allows someone who maybe has missed a position or I missed a buy or I missed a sell on options, or basically anything else. On commodity options, that volatility allows the person who did get in on the low and the market’s rallying, you still have time to sell puts. A market that’s falling and you didn’t get in on the sell on gold calls or coffee calls or whatever it happened to be, that volatility allows you to not have to be in on the high or low day. The volatility still stays there and really gives the person the ability to take their fundamental analysis, put the position on even though you didn’t catch the low, you didn’t catch the high. The coffee market did weaken recently, just like we expected it to. We think that selling calls in coffee on subsequent rallies is still going to be a very good idea. Michael: So, the market’s over sold right now and we get a little bump, that might be an opportunity for some people that are watching this that might want to look to enter. That might be a good opportunity for doing that. James: We’ve been selling coffee calls with both hands here recently and it did just slide over the last week or so. The months of May usually has some up-turns in coffee, so we’re not expecting that coffee is going to be down and out for the rest of the year. We would expect some higher priced days in the coming month of May. We will be looking at that to add into our short position in coffee, yes. Michael: So, much like in the grain market, as the harvest begins supply start to rise and as supply rises that often contributes to an overall lower gravitational pull of prices. That’s what James is talking about taking advantage of here. If you would like to learn more about this trade and the coffee market, you can look at our blog post on coffee that was posted earlier this month. That is available on the blog. If you’re interested in learning more about the natural gas market, that is going to be the feature in our upcoming May Newsletter. You can certainly take a look at that. That should be in your mailbox and e-mail box somewhere on or around May 1st. Keep a look out for that. We also have a good feature in there this month on proper diversification and some of the best ways high-net-worth investors can use to diversify into alternative investments. Keep an eye out for that. James, I believe we’ve covered the topics we wanted to cover this month. For those of you who are interested in a potential managed portfolio with our firm, we do have no openings left available in May. We do have a handful still remaining for June, so if you’re interested in one of those remaining openings in June feel free to call the office this month. You can call Rosemary at 800-346-1949. She will schedule you a free consultation. Those will take place during the month of May for June openings, so if you’re interested in that please feel free to give her a call. James, any last words on the markets this month? James: Diversification really seems to be the word of the year right now. So many investors that seek our guidance and seek accounts with us, that is the word that everyone is using. No one is really quite sure what’s going to happen with the stock market or the economy, for that matter, and diversifying away from stocks is something, I think, a lot of investors are doing. We’re not sure if this economy is a 4% economy or a 1% economy. Lately, it’s going to be the latter, and it’s interesting to see how the stock market’s going to continue its ascent while that’s the case if the economy is slowing. Maybe demand for stocks and certain real estate and such might be waning. This is certainly a sweet spot for us and we certainly enjoy what a lot of investors are seeking right now. Michael: Well, it should be an interesting summer for stocks. Here in commodities, though, I think it’s business as usual and I think we’ll just keep doing what we are doing. Well, everybody, we’ve appreciated you watching this month and we will be back in 30 days. Have a great month of premium collection. We will talk to you in June.

Michael: Hello everybody. This is Michael Gross of OptionSellers.com. I’m here with head trader James Cordier of OptionSellers.com with your February Option Seller Radio Show. James, welcome to the show this month. James: Thank you, Michael. As always, enjoy doing these and brining more and more information and educating investors out there to what we do. Michael: Excellent. We’re going to start off this month, to all of you listening, we’re going to answer some common questions we get through the blog or online. One of the most common questions people ask us is “I really like your stuff. Is there a way I can sign up for your course? Do you offer seminars I can attend? If I pay you, can you coach me how to do this?” … or various forms of that question. We get so many of those and we wanted to answer that question today and maybe shed some light on that for you as a listener. James, do you want to go ahead and maybe take a stab at answering that? James: You know, what’s interesting, Michael, we definitely enjoy getting feedback from everyone listening to this podcast each month. Please continue asking questions and any feedback is always accepted and we enjoy receiving that. Primarily, we don’t mind and enjoy educating the public. So often, investors are looking for alternative ways to take care of their nest egg or try and build the one that they’re trying to create. Basically, there’s a few investments out there. There’s being long in the stock market, there’s buying real estate, and as long as both of those are going up I think they’re very sound, great investments. But for people looking out 5, 10, and 15 years to expect everything to keep rallying indefinitely certainly is not the way. Educating yourself as to how to help manage your own portfolio, I think, is a great idea. We continue to give information and help teach people how to sell options and take in premium and, hopefully, make really good returns each year whether we’re in a bull or bear market. However, the majority of our clients and the most of the work that we enjoy doing is taking and investing with high-net-worth capitalized investors. That is our niche. That is what we do. The fact that we are a relatively small company and we don’t have thousands of clients, we’re able to be more nimble getting in and out of the market for some of these high-net-worth investors. As far as anyone wanting to follow along with what we do, educate themselves to selling options and taking in premium as we do, we’re going to continue educating people and allow them to do that on their own, if they wish. For the investors who are more apt to hire a manager to do it, certainly, that is our bread and butter and that’s what we’re doing here. Michael: It’s a good point, James. To shorten what James said a little bit and maybe sum it up a little bit is yeah, we do appreciate those offers and we do appreciate your questions, but we’re not in the education business here. We are money managers. That is the service we provide. We do provide a lot of educational material to anyone, the general public. We like to make it as high quality as we can. I think some of the things you’ll find on our website or that we send out to prospective investors is comparable to what you might pay thousands for in a course somewhere. That is something we provide for free. We enjoy that, we enjoy brining that message to the public and helping people understand this investment, because there really isn’t a lot of information out there on selling options in general but, especially, selling options in commodities. We’re simply out to help people understand that better and get more people involved in this because it can be a great investment if you understand how to do it. James, let’s move on a little into our main discussion here this month. We’re going to address what’s going on in the stock market because all investor’s eyes are on stocks now. They’ve been soaring. Some people are calling it still a post-Trump surge, but we’ve got some grayer clouds on the horizon. We’ve got North Korea and Iran shooting missiles off, we’ve got a lot of discord here in the United States. What’s your take on what’s going on right now in stocks? How do you feel about the market? James: Michael, I think that a lot of investors have just been waiting for the greatest country in the world to be run like a company and not like a politically correct viewpoint. Lowering corporate taxes, bringing money back to the United States, lowering personal income taxes, de-regulation, making it easier for companies to hire and re-invest, and it’s simply a near perfect platform right now for economic growth here in the United States. If you look at some of the European countries, they are starting to finally lift off. PMI numbers today out of Europe was some of the best in over a handful of years. We are certainly the boat that everyone follows. As the tide comes up, it comes up for everybody. People are extremely optimistic about the U.S. economy right now. Usually, the stock market is 6-12 months ahead and right now the stock market is telling us that the U.S. economy is about to start improving more than a 2% GDP… maybe a 3-4% GDP. So many people have been waiting for an economically friendly environment. Right now we have one and people are voting with their pocketbook. Michael: So, are you concerned at all about the lofty levels that we’re at? On Barron’s last week, Kopin Tan was talking about 76% of world stock markets are now over-bought. Does that concern you at all? James: You know, it’s interesting, Michael, overbought doesn’t mean over. I could see this exuberance probably lasting for a period of time. Right now, investors, I think, are so excited about getting into the market. Will profits match the soaring stock prices? That remains to be seen. There definitely needs to be some catch up. The market is either ahead of itself or very close to that; however, I think investors have been waiting for this for a long time. I could see 2017 probably being a decent return on the stock market, but there is no question that second or third quarter of this year a few people start taking profits and then all of the sudden there’s no one left to buy. For us to get a 5-10% correction on the stock market at some point this year is probably quite likely. Michael: Thus the need for sound diversification and that’s what we’re going to be talking about next here. James, we’re going to talk about one of your favorite markets next which is the gold market. You have a nice commentary this month on your bi-weekly videos where you’re talking about gold and a strategy investors can use right now in that market. Let’s talk a little bit about gold, what you like about it right now, and why you think that’s such a cash cow for investors. James: It really is. We have been following the gold market for a couple decades. It seems to be such a mystery as to what the value of gold should be. Sometimes it trades like a currency, sometimes it’s flocking to gold because of inflation or because of political concerns. It is absolutely, in our opinion, trading right now at fair value and yet there are so many questions about gold. “What will higher interest rates in the United States do? Will that push gold back down? I heard that there might be some inflation”, an investor might say. “That’s usually bullish for gold.” Talk about a goldilocks environment right now for gold. We have a stronger U.S. economy, which should provide some inflation, and yet we are definitely, in the United States, looking straight at at least 2, if not 3, interest rate hikes. That should keep the dollar firm. So we have people just absolutely wondering how high gold might go and you have an equal number of people saying, “With higher interest rates, gold is going to go down.” That uncertainty is the bread and butter of selling options. Gold right now, trading around $12.50 an ounce, there are people very interested in buying calls 50% above the market right now. Similar interest in people buying puts, believe it or not, 30-40% below the market. If you add up those two percentages, you’re talking about practically 100% strangle around the value of gold and, in my mind, trading gold now for some 25 years, that is about the best trade on the board. We think that’s going to probably carry on into 2018, as well. We’re just really happy about the enthusiasm that people have buying options on both sides and we’re going to take advantage of that. Michael: So, a lot of this political turmoil in the news right now is really helping that trade is what you’re saying, because that’s really bringing the public in. Gold is a great market to speculate in for the general public. When you get news of things that make people uneasy, when you see Iran shooting off missiles, when you get the daily news, people don’t agree with what Donald Trump’s doing sometimes, those are the type of things that can bring a lot of investor interest into a market like gold, and that’s why you get these wide strikes. That’s what James is explaining. If you’d like to learn more about the strategy of strangling the market, The Complete Guide to Option Selling gives a thorough explanation. That is the Third Edition. You can get that on our website- www.optionsellers.com/book. You’ll get it at a little bit of a discount there than if you get it at the bookstore or at amazon. James, let’s move on here to our next market this month, that’s the natural gas market. As most of you listeners know, we due follow seasonals very closely here. If you’re trading options in commodities, seasonals are a prime thing you want to look at first, especially in cyclical markets like natural gas. James, you want to take us through where we are with natural gas here in late February 2017 and what tends to happen there cyclically in that market over the next 30-60 days? James: Michael, natural gas is probably the most interesting of all the seasonals, I think, that we follow. Generally speaking, the investor public comes into natural gas to buy it for possible cold winter, they buy natural gas and natural gas calls in November and December. For those who are our clients or listen to some of the recommendations we made, generally speaking, you do the exact opposite. You fade what the public is doing. They’re buying calls, they’re buying natural gas going into winter season. We did that again this year. We saw about a 1 cent spike in natural gas prices. Natural gas generally tops out in December with cold temperatures going through the Northeast and the Midwest, only to come back down in February and March as the winter never seems to be quite as severe as they thought. Then, investors will think, “Well, if the market didn’t rally in this winter then it’s probably going to go down some more in the spring.” That’s just the opposite of what the seasonality is. Generally speaking, supplies of natural gas are their smallest as we come out of the winter heating season, then they start to build supplies and purchases need to be made and natural gas prices normally start heading up in March, April, and May. That is what we’re going to take advantage of the next week or two, is we will be selling put premium below the natural gas levels that we’re hitting right now. We’ve had an extremely mild February, probably March as well. We’re looking at very low prices right now for natural gas and we see the chance for 10, 15, 20% rally in prices starting in March and April. We’re going to be positioning in the coming weeks getting long this market. Seasonally it goes up in spring and we’re going to try and take advantage of just that. Michael: What’s the volatility like there now? Can you sell spreads there or is it primarily naked positions that you’re looking at? James: Well, natural gas used to trade at $10, $12, and $15 per million BTU’s. Now it’s trading around $2.50. It’s so interesting that this is probably the fuel of the future and right now it’s practically being given away. We would be selling naked natural gas puts primarily because the market is so low right now. If the volatility continues, and it has just recently, we’ll be looking at doing credit spreads on the put side, as well. So, basically taking a slightly conservative position and a slightly aggressive position because the market is so weak and so low right now. We’re looking at China’s involvement in natural gas imports for the first time since anyone can recall. At the same time, the U.S. is going to be exporting natural gas for the first time in decades. All of these items are going to be slightly bullish or very bullish for natural gas later this year. We think that’s probably the best seasonal to be getting involved with right now. Michael: Right now, in talking about natural gas, James, about 48% of all U.S. homes use natural gas for heating in the wintertime. Another 37% use electric, which usually comes from power pants fueled by natural gas. So, you do have your peak demand season in the wintertime and what James was just describing is, and we’re going to put a chart up here for you to look at, but gas storage levels tend to hit their lowest levels of the year in March and April. That’s the reason for this. When supplies are lowest, prices tend to get the strongest and they continue to get strong as they rebuild inventory. James, what you were talking about though, selling naked, some people that sell options, some in stock options, they shy away from that; but, in commodities we’re able to sell them so far out-of-the-money that you get a pretty big cushion there and you don’t really have to pick the bottom in the market. You simply sell and even if your timing isn’t right you can still get it. Do you see, if you’re looking at selling naked, what’s your cushion like? Do you still have a pretty good cushion there to give you some leeway if you’re a little early or a little late on the trade? James: Yeah, I think there’s a really good cushion and natural gas is probably one of the more historically volatile markets. When it was trading at $10 and $15, that volatility is still in the market, now it’s trading at $2.50-$2.75. For the spot contracts, we would be looking out September, October, possibly that far out. Those markets are well above $3.00 right now. Might be teetering on that in the week or so to come; however, some 20-25% below the market there’s excellent premium right now. That’s what we’d be looking at taking advantage of. If the market heads a little bit lower, probably selling premium 25-30% below the market. We think that’s an ideal way to get long the market. Natural gas, if you were to buy it at a certain level and fall slightly, that’s one thing. Selling puts some 25% below the market, I think, is an ideal way-- Actually, in my opinion, a conservative way to get into the market. Natural gas over the next several years is going to be in an up-turn based on Chinese demand, Chinese importation, and finally the U.S. getting to export natural gas for the first time in quite some time. Michael: That and even supply right now looking somewhat bullish in natural gas. Supplies this month are 9% below last year at this time… almost 9% below at 8.9%. So, you have a strong seasonal tendency, you have a bullish supply setup, and what you’re saying, James, is you’re able to go 25-30% underneath the market. For an option seller/a put seller to win here, he can take in a premium of what, $500.. $600.. $700? Is that the range you’re typically looking at? Correct? James: Yes. With the recent weakness in natural gas because of some very warm temperatures in the Northeast, yes a lot of options are trading right now between $600-$700 and that is certainly the sweet spot for where we like to write puts, especially in natural gas. Michael: So, what that investor would be saying is that as long as natural gas doesn’t fall another 25-30% at its most bullish time of year with a bullish supply setup, the option is going to expire and he’s going to keep that premium? James: Exactly. In addition, a lot of investors who are familiar with stock options selling and the high margin requirement, natural gas you’re looking at just 2-3 times the premium that you take in for margins. Your ROI looks really good, as well. Needless to say, we don’t know what natural gas is going to do the next 30 days, but we do know what the fundamentals are and the chance for natural gas to get a small or large rally this summer look quite strong to us. Michael: Sounds good, James. For you listeners, I know a lot of you listening have heard us for a while and you know what we’re talking about, you know the strategy, but we are making an attempt to over-simplify things a little bit for our new listeners out there that may be unfamiliar with how commodities options work. So, we want to make sure we hit all the bases for everyone listening. We’re going to take just a minute here and give you a little preview of the upcoming March newsletter. If you are on our mailing list, you can expect this next week first couple days of March. You should also be getting an e-version of that in your e-mail box. We have a pretty full issue coming up. We have a lesson coming up on how to use leverage in commodities. We have a lot of stock options sellers that have never sold commodities options. This is a lesson in the newsletter that’s really going to bring you up to speed on how the leverage works and how to use it to your advantage the correct way. We also have a strategy, it’s another little bit more advanced strategy this month- we’re talking about an options spread. It’s entitled The Crack Squeeze. It is in the energy markets. We’ll have to wait for the newsletter to read that and see one of the strategies we’re employing right now in those markets. Look for that in your mailbox or e-mailbox first week in March. James, talking about energies, let’s move over to the crude market. We have a really interesting situation setting up there between the seasonal and existing fundamentals that often times you don’t see, kind of conflicting things going on there right now. Do you want to talk about that a little bit for our listeners? James: Definitely. Crude oil is certainly one of the most liquid of all commodities as far as volume, open interest, and participation by investors all around. Not everyone is trading pork bellies and potatoes, but a lot of people know what the price of crude oil is. A lot of people bet with their pocketbooks what they think it’s going to do. Generally speaking, crude oil supplies are at their greatest in January and the market starts to rally as we approach driving season. As I think we all know, this year was different. OPEC together, along with non-OPEC nations, put together the first production cuts in over a dozen years and voila, we had a $15 rally. Crude oil is now sitting in the low 50’s to mid 50’s for the later months. I think right now is fully priced. Crude oil supplies in the United States are at all-time record highs. While the OPEC cut took a lot of people by surprise, and there are a lot of bullish factors right now from that, or at least a lot of analysts think so, it really is offering lots of opportunities now and coming up probably in April and May. Generally speaking, there’s a lot of interplay when you talk about energies. Generally speaking, what crude oil supplies and fundamentals might be might be different for heating oil or for gasoline or for natural gas. Probably the next 30-60 days we see crude oil prices very well supported by the idea that a lot of investors are pouring into that market because of OPEC production cuts. Some of the markets like heating oil generally are going to start heading lower after the winter season. So, often you’re going to see March, April, and May crude oil prices inching up while heating oil actually is falling. There is definitely an opportunity involved with that. For our clients, we manage that for them. For the novices, it can be a little bit much, but that’s another reason why you follow seasonality and why you keep well tuned into the market. We think that over the next 60-90 days we’re going to have really long lasting opportunities in energy. I would say in April and May is going to be the biggest one for the year, and that’s in the crude oil market. We’ll wait and see and talk about that when the time comes. Michael: As far as the energy seasonal goes, that is a major seasonal tendency. What James is explaining is being counter-balanced this year by fundamentals. As you mentioned, James, crude stocks at record highs… over 508 million barrels. That’s an all-time high for crude oil stocks, not for this time of year, but forever. That’s the highest it’s ever been. Also, interesting article in the Wall Street Journal today talking about bullish long positions in crude oil. 10 to 1 – is that what we were talking about earlier, James? James: Michael, every morning I have my favorite cup of Joe and I read the Wall Street Journal. This morning I read, and it has been well published recently, but today almost hit a crescendo, that fund traders in the world have amassed the largest long position ever in crude oil. It trumps their short position 10 to 1. That, in my opinion, is the most lop-sided position I’ve ever seen, especially in something as liquid as crude oil. While these speculators have time on their side right now, the months of March, April, and May are generally good demand for oil and smaller inter-production coming out of OPEC. That is definitely a wall that could come crumbling down. I would not want to be the last person to buy in that market and be holding on the last day because for crude oil to trade around $55 a barrel when in the United States, for example Texas, we can produce crude oil for around $15. You know that in many CEO offices right now and on napkins having a cocktail late at night in a bar there are business positions being put together where we’re going to produce oil at $15 and we’re going to sell it on the board of $55. There’s going to be an opportunity probably in April or May to take advantage of what the speculators have pushed up to probably over-valued heights right now. Michael: So, that big long position like that, sooner or later, that’s going to have to be unwound. We’ll see how that plays out. For the time being, you still have that strong seasonal in place that has to be respected, so you may have a little bit of balance there in the near term. That being the case, we have outlined a strategy in the upcoming newsletter called The Crack Squeeze. We’ll show you how you can take advantage of that. The premium available in that market right now, that’s a trade for now and the coming 30-60 days we have one of your favorite trades coming up, James, but we’ll save that for next month. For those of you that are interested in learning more about working directly with us through an account for high-net-worth investors, you can request our investor information discovery pack. You can get that at OptionSellers.com/Discovery. We do have a recommended $1 million account size. If you are interested in something like that, feel free to request our information package. It does come with a DVD. James, let’s move into our final portion of the podcast this month. This is our lesson for investors. We’re going to talk about diversification of asset class this month. In our videos, we talk about two important types of diversification. One is diversification of strategy, which some investors are not familiar with. Then, there’s diversification of asset class, which some investors are familiar with; however, our commodities often are overlooked when it comes to that diversification. We’re going to talk about this month some of the advantages, especially for stock options sellers, who are used to writing options in stocks, you understand how that strategy works, some of the big advantages you have by applying that strategy to commodities. James, maybe you want to cover this first. There’s plenty, there’s a couple right at the top though of most interest. What would you consider the top advantage of a commodities option writer over a stock option writer? James: Well, you know, stock option writers are a lot of our current clients. They eventually were introduced to short options through their stock account writing covered calls and such. A lot of investors started thinking, “Well, why don’t I sell options on stocks? That seems to be my best portfolio gains.” Generally speaking, selling options on stocks you’re selling approximately 5%, sometimes 10%, out-of-the-money, where in commodities when you educate the different ideas of applying short options to different asset classes, investors are absolutely amazed by the fact that you can sell premium 50%, 60%, 70% out-of-the-money. In some of the markets that we sell premiums it’s as high as 100% out-of-the-money with relatively low margin requirements to do so. A lot of investors that study for themselves what to do with their investment and what to do with their nest egg who discover short options, when they stumble across selling options on commodities certainly that is when our phone starts ringing. I think for the fact that we put ourselves out as the premier stock options sellers, rather commodity option sellers, it’s certainly an eye-opener to a lot of people who want to be diversified. Diversification is always the number one goal for a sound investment portfolio. The fact that the stock market right now is in a bull market, it’s at all time highs. At any moment, it can start a 5 year bear market and selling options on commodities allows you to be profitable in bull or bear markets. That’s what’s the real beauty of what we do. Michael: These don’t just come from us. A lot of these come from our readers/prospective clients that repeat this and these are the reasons we hear the most. That’s why we’re repeating them here. As James was saying, the biggest advantages here is, one, you can sell deep, deep out-of-the-money strikes. Two, you get a potentially high RI because the margins are so much lower than they are for stock options. I know the margins, most of the time, we pay are sometimes 100-150% of the premium. So, you sell an option for $700 and maybe you only put up $700 or $1,000 in margin to hold that. Is that what you’re seeing right now, James, in this condition? James: That’s exactly what we have right now. We have some of the lowest margins to hold short options on commodities that I’ve seen since I’ve been doing this. Not all of them are that way, but some of the most lucrative ones like the gold option strangle that we’re doing and the crude oil trade position that’s coming up. I’m looking at that already trying to get our ducks in a row for that. You’re looking at about 150% of the premium that you take in is what’s required for margin. That is really not tying up a lot of money to hopefully have very good results at the end of the year. Michael: We’re talking about selling deep out-of-the-money. That natural gas trade you described earlier, we’re talking about selling 25-30% out-of-the-money. That’s probably about the closest we’ll be to the money when selling options. Would you say that’s a fair assessment? James: Generally so. Any time someone is selling options on commodities on their own or with us, you’ll notice that the calls are always or most often can be further out-of-the-money for a simple reason. A market can only go to zero, it can’t go below that. When natural gas, which used to trade at $10, $15 per million BTU’s, is trading with a two-handle it can only go so low. The fact that we’re 25% below this market currently, I think, that’s way out-of-the-money. If the market inches a little bit lower, we’ll just continue to sell puts on that market. Often, we’re looking at puts some 40-50% below the money. The fact that natural gas is so cheap right now and the fundamentals look anywhere from friendly to bullish later this year, we think that’s selling them quite a bit out-of-the-money. We think that’s going to be a great position for later this year. Michael: Of course, one more thing I want to point out… you mentioned a diversification aspect. Commodities in general tend to be uncorrelated to stocks as a whole, but when you introduce the option selling aspect to it it’s a portfolio that’s completely uncorrelated to anything. It’s not going to correlate to equity, it’s not going to correlate to interest rates, the positions aren’t even going to correlate to each other because a market like silver’s going to have nothing to do with the price of corn and the price of corn will have nothing to do with the price of coffee. So, it’s a completely diversified portfolio that isn’t even going to correlate to the commodities indexes. That’s simply because you have the ability to sell options on either side of it. Those would be the three big benefits for you stock option sellers listening. You’re thinking about giving it a try, giving it a look. Those are the three biggest draws to this type of investment. Of course, they’re described in depth in our book or any of our materials on our website. James, I think we’ve had a pretty full session this month and I do thank you for your insights and your sharing of some of your thoughts on the markets this month. James: My pleasure. Talking about commodities and, not only that, but the approach of selling options on commodities is definitely an eye-opener to many investors and we look forward to doing more so in the future. Michael: Just an announcement here at the end of our podcast, for those of you considering applying for new accounts, we are closed for March. We are fully booked for March. If you are interested in one of our remaining April openings, please contact Rosemary. You can call her at the 800 number… 800-346-1949. You can also, if you’re an international caller, 813-472-5760. You can also e-mail her at office@optionsellers.com. That is to schedule a phone consultation. We do have a few of those left for March and they would be for April openings. Feel free to give her a call if you are interested in discussing one of those remaining openings in April. Everybody have a great month of option selling. We’ll be back here in March and we’ll talk to you then. Thank you.

Michael: Hello everybody, this is Michael Gross of OptionSellers.com, here with James Cordier for your March Option Seller Radio Show. James, welcome to the show. James: Michael, as always, a pleasure doing this and speaking to our audience and everyone worldwide. Michael: Well, we have a lot going on in commodity markets this month. James, let’s start off with the metals markets. We are having another surge higher here as we enter into late March. What’s going on over there? James: Well, we started rallying here, over the last week or two, with negative interest rates worldwide. Certainly, both in Europe, China, and Japan the first time people have been discussing negative interest rates. That certainly gives the catalyst for investors in these parts of the world rationale to get into precious metals. Obviously, when you’re putting your money in a bank and you have to pay the bank, that certainly gets under people’s tragh, and why not look for other investments? Certainly, Michael, when interest rates are negative, people think about inflation and we haven’t seen inflation yet. It appears to be right around the corner, and that’s what gold is pointing out with this recent rally. Michael: Yeah, they’ve been interesting markets to watch. Also, over in the energy markets, a market we’ve been talking about a lot over the last couple of months – crude oil, pushing the $40 level. Where do you think we’re going from here? James: Michael, you and I talk about seasonalities, especially in crude oil and gasoline, we’ve been trading these markets for over a decade. In regards to seasonality, one of the most ideal setups right now is taking place in energy. We are looking at perfectly fairly priced oil market, based on both supply and demand. We will often see energy prices fall October, November, December, going into what we call “shoulder season”. Then we expect this seasonal rally as driving-season approaches, and that’s exactly what’s happening now. So many people are pointing toward OPEC getting together and cutting production, and, actually, this past week they didn’t do that. They simply froze production at what level? The highest level ever. Yet, crude oil rallies $15 a barrel and gasoline rallies 20%, simply on seasonalities, and I think that’s what’s going on right now. Certainly, here in the United States, we have crude oil supplies at all time highs. You have Russia, Saudi Arabia, Iraq, and Iran producing the most oil ever, and yet the market rallies. This is the power of seasonality and it’s certainly flexing it’s muscles again this year. Michael: Well, I’ll say in a big kind of way, and bringing up seasonals, this is a very active time for seasonals in commodities. We’re going to talk a lot about that today, simply because we’re entering into a time period here… April, May, where you have a lot of strong seasonality in a commodities markets. James brought a great one up, crude oil… perfect example. We also have some strong seasonals in the grain markets this time of year, and even over into softs markets in coffee. Coffee is a highly seasonal market, as well. Grown in Brazil, their seasons are opposite of ours, where we’re having spring right now they’re having autumn. James, I know coffee is one of your favorite markets to trade. What’s going on right now? First of all, let’s talk about the seasonal. What’s the typical seasonal for coffee this time of year? James: Generally, the seasonal factors have switched to demand for this time of year. Fourth quarter and first quarter, in the Western Hemisphere of course, is the largest demand season. It’s thought that people drink a lot more coffee when it’s cold, and down here in Florida, I think we drink the same amount, but certainly the populations, northeast especially, and also regions in Europe, it’s thought that someone drinks 150% of the coffee they do in the winter, versus the summer. Generally speaking, demand is largest in the United States in January, February, and March. That often kick-starts a bit of a rally in coffee prices. That’s what we’re seeing right now. Harvest in a lot of the Central American countries and Brazil, as well, isn’t in earnest at this time of the year. We’re looking at that starting in the next three to four months. Then, supply comes on at the same time that demand weakens, and that’s why this seasonal, that we’re going to talk about right now, is going to be in play probably in the next thirty to sixty days. Michael: … and that seasonal is from the seasonal charts. Looks like we get a pretty steep drop off in coffee prices, at least historically speaking. We typically see that at the end of our spring, sometime in the April-May time period. Is that a function of harvest beginning? James: That’s a function of the end of demand season and a function of the beginning of harvest season. It’s almost the perfect storm for coffee prices. Generally speaking, demand has sapped a lot of the supply once winter is over. At the same time, we’re looking at big production in most of the Central American countries. Vietnam right now is thought to be sitting on the largest stockpile of coffee ever. Brazil is going to be producing upwards of sixty million bags this coming year. Once we get past the flowering season, once the flower turns into a cherry, and once the cherry is in good shape in Brazil, you can start counting coffee bags. Right now, we’re looking at a record for 2016-2017. Seasonally, ideal situation for the market to fall off again this year, starting April and May and the low of the years, normally made in June and July, and that is something we’re certainly going to be positioning for going forward. Michael: Record crop out of Brazil is a big story. Coffee, I know, could be one interesting development here that you mentioned earlier, before we started the show here. We have report of some type of bug in the northern part of the coffee crop from Brazil. What’s going on with that? James: That is correct. Certainly, El Nino has produced certain weather conditions in coffee crop, sugar crop, cocoa crops, all around the world. The Brazilian coffee crop is no different. The regions that are experiencing this bug that’s been eating some of the berries is in the northern fringes of the coffee plantations in Brazil. It’s primarily where the Robusta coffee is produced, not the Arabica. So, it’s not so detrimental to the coffee production this year, as if it was eating the cherries on Arabica trees. It’s not doing that. So, that will dent probably a couple million bags of production in Brazil this year. Fortunately, for someone who is going to go along with this seasonal play that we are going to be doing, the Robusta crop we probably can afford to lose a couple million bags, because the Robusta is what’s grown in Vietnam, and they’re sitting on stockpiles as high as you can see. We will not be short of Robusta coffee this year. As a matter of fact, we have quite a glut. Michael: James, one thing I was thinking, as well, is you get a news story like that where the media grabs it, you bring speculators into the market. That pushes up the volatility one the options, especially the calls, wouldn’t you think? James: Exactly, that’s playing into our hands perfectly. We’ll see, in fact, if it does play out that way. Once again, just like we have seasonalities in grains here in the United Sates for planting season, there is a seasonality for coffee prices, as well. They normally have a bit of a rally in either the months of March or April. Low and behold, here we have a rally going on right now. Primarily, it’s from the dry condition in the northern parts of Brazil. Also, this bug has been hungry for cherries recently, and who can blame it. I would be too. What a beautiful cherry to ravage, and that’s what it’s doing. It looks like it’s going to possibly reduce this year’s production by a million or two bags. We don’t think that’s going to make a big difference come harvest time. Michael: And as far as strategy goes, we have a market now coming into a time where typically it has a bearish seasonal. We have somewhat bearish fundamentals, this strategy we probably look to do there would be put together some type of call selling strategy. What do you see there, James? James: Well, quite often, a lot of the markets that we’re following right now are fairly priced. However, coffee is not going to be fairly priced. We’ve been trading around 130, 133 recently. If, in fact, the market gets up to the mid to upper 130’s, possibly 140, that will be above fair price. That will be above fair value. That should spur call buyers in coffee all the way up to the $2.40-$2.50 level, practically double the price of coffee. If we time that to sell these options to expire in fall and winter, later on this year, we’re expecting coffee price to be back down to the 120-125 level. If we’re short from $2.50-$2.60 strike prices in coffee, ideal for a seasonality and ideal for option sellers over the next 30-60 days. Michael: That’s a great point, and, if you’re listening to this, coffee is a great market to trade fundamentally and one of the big advantages if you’re an options seller. If you’re trading in this market, there aren’t a lot of traders out there who understand the fundamentals behind this market. They’re trading it technically, they’re watching the news, but if you understand the fundamentals in markets, especially like these- coffee, where you don’t have a lot of mainstream media coverage, it can be an advantage to you as a trader, especially if you’re selling deep out-of-the-money options. So, that’s one of the things we try and bring you here. James, there’s a lot of seasonals this time of year. We can’t cover all of them in just this podcast, but grains are a market that has a lot of seasonals in the spring. Corn is one market that we covered earlier this month. If you got our e-mail, you get our monthly e-mails on the markets, we did feature the corn market, we’re also getting some volatility there. Let’s start off talking about corn, James. We have a seasonal, tends to go down once we hit March-April. Can you talk a little bit about that? James: You know, the seasonality for grains, corn and soybeans, grown primarily in the Midwest, here in the United States, generally we have an idea that it’s too wet, it’s too dry for planting season. It can be either delayed, it can be the ground is simply too dry from the previous year. It seems to have a rally as we go into the end of the first quarter. We’re getting a small rally right on the grain market, and that might be primarily what’s happening right there. We expect, with corn supplies at ten-year highs, we have carryover one of the highest in almost two decades. We expect corn prices to probably head back down in late spring, early summer. Certainly, with supplies as large as that, corn is going to have a difficult time reaching some of the levels that we can sell corn calls at. Any strong move to the upside here in March or April would be ideal for selling corn calls for the end of September, October time frame. That’s something we’re going to keep our eye on, certainly. As you know, Michael, the best thing about selling options on commodities, it’s purely supply and demand. There is nothing technical that creates a bull market, there’s nothing technical that creates a bear market. It’s simply having not enough of the commodity to go around, or there’s too much of the commodity to go around. That causes prices to fall. At the end of the year, the weather is not going to be an issue, the technicals are not going to be an issue, the United States is going to be flooded with Corn. That is going to be meaning lower prices and corn calls purchased by those who buy lottery tickets, as you like to describe them. I think they’re going to be throwing them out the window, because that’s what they’re going to be worth this fall. Michael: Yeah, I agree with you, James. In corn you have a market similar to coffee, where you have a strong seasonal tendency for prices start to break right into planting season. Interesting conversation this week with Jerry Toepke with Moore Research, who is going to be featured in our upcoming April issue of The Option Seller. Jerry plays a big role in building those seasonal charts we all see online. We were talking about the corn market and corn’s one of those markets where, just as you mentioned, sometimes you get some anxiety building up to planting season. Once the crop starts going into the ground, corn tends to go in a little bit earlier than soybeans, they tend to finish up a little bit earlier than soybeans. That anxiety starts coming out of the market, price starts to break. So, you have a strong seasonal tendency for this to happen, and we also have, on top of that, some bearish fundamentals. It’s hard to state them any other way. You have corn stocks at 10 year highs- 1.8+ billion bushels. Planting intentions are expected to be 2 million acres higher this year than they were last year. At the same time, we have some things putting a little bit of volatility into the market. You have the anxiety over planning coming up, there’s some talk of some wetter soil levels in southern growing regions, and we also have the USDA planting intentions report that comes up on March 31st. We’ll get a little bit more refined picture of what planting is expected to be this year. Right now, they’re expecting it to be higher over last. Two things- you have bearish fundamentals and a bearish seasonal, so any one of those things that brings more volatility pushes call prices up, unless there’s some type of real challenge to planting this year. I agree, I think we’re going to have some great call selling opportunities there. It’s a market to watch. James: It sounds as though we’re piling in on corn, but the fundamentals don’t lie- the numbers are true. Any excitement or pandemonium over weather conditions this spring is going to create a great selling opportunity. Hopefully, we get that excitement in volatility, and, if we do, laying out calls is going to work real well, I think. Michael: Yeah, I think so, and soybeans are in the same boat to a certain degree. We’re going to be talking about them later in April. The point there is they’re a great time to trade grains this time of year, certainly a market to keep an eye on. As I mentioned, coming up in the April newsletter, you will hear my interview with Jerry Toepke of Moore Research- some great insights into seasonals. We’re also going to be featuring the coffee market, one James just talked about here, spell that out a little bit, and show you a strategy you can potentially use there, depending on where we go. While we’re talking about seasonals, James, I thought we’d go ahead and move in and talk a little bit more about how traders can use seasonals, because I’m sure a lot of people listening they’re saying “What are seasonals? I’ve heard of them. Maybe I’ve never heard of them at all”. In commodities, there are seasonal tendencies of certain markets. It’s not guaranteed, but they can be a powerful tool to use, and we use them here extensively. I think they are a very important part. James, maybe it would help some of our listeners if you talked to them a little bit about how you use seasonals. What’s the type of thing you look for in a seasonal chart when you’re looking at these things? James: Michael, quite often, commodities are fairly priced. Each day, when the bell rings on the exchange floor in New York and Chicago, the price of corn, the price of coffee, the price of gold, trades at exactly the level it’s supposed to be. Fair value. We decide that by auction, open outcry, that anyone can vote on at the end of the day, and that is where the market settles each day. For certain reasons, technical trading takes place, speculators get into the market, sometimes it’s fundamental selling or buying. The idea of trading seasonally is it reverses what inevitably is an incorrect rating. In other words, the market is falling in crude oil again this year. We are sitting at $27-$28 a barrel January and February, and everyone in the world is betting that oil is now going to $20 a barrel. Watching CNBC, watching Bloomberg, watching Fox, one talking head after the other is talking about $20 oil, $18 oil, $10 oil. That sets up the perfect seasonality for what we do. Going into January and February is when supplies are at the largest and when demand is at the least. Low and behold, what do you do? You start selling puts for the June-July time frame. Why? Because the seasonality kicks in in March and April in the United States, and that is when the beginning of driving-season happens. Seasonality allows you to define how you should be positioning yourself in the market. You don’t listen to the noise trading seasonally, you don’t get excited when the market’s at it’s high, you don’t get scared when it gets to the low. It gives you the intestinal fortitude to trade commodities, and if you allow the 82% of the time when options expire worthless, that gives you the rationale for getting yourself in the market when listening to the pundits on TV would make you fearful of doing so. Seasonality gives you guts that you need, seasonality gives you the idea that, in fact, the market is eventually going to come around to your thinking, it gives you the timing that’s needed. Trading commodities, even though we don’t need great timing selling options, it’s just one more piece to the puzzle to put the odds in our favor, in my opinion. Michael: Yeah, that’s a good point. It’s one piece in the puzzle, and, if you’re thinking about trading seasonally, these can be a powerful tool, but you can’t just look at them and use them in a vacuum. One of the things you have to understand about seasonals is there are fundamentals that tend to cause these seasonals every year. They don’t just happen on their own. So, if you can look at the seasonal that will reflect it, but to really get the most value out of it you have to understand the fundamentals behind that seasonal. James, I know one thing you do is you keep an eye on and monitor those fundamentals. Are they happening the same way they tend to happen each year? What’s different? You brought up a good point about coffee- there’s a bug in the crop. Could that have an impact that could override to seasonal? Right now we’re thinking no, but it’s still something that you have to keep an eye on, you have to understand what’s driving that seasonal to really get the most out of it. The seasonal is really reflecting what’s going on under the surface. Do you agree with that? James: Michael, we follow around 8 or 10 commodities. As seasonals start approaching, we do nothing but analyze fundamentals, we research what the fundamentals are. Quite often, going into a seasonal period, the fundamentals will be, once again, fairly valuing the particular commodity. Certainly, when oil made a low in January and February this year, there was every reason to be bearish on the market. The thing is, we go from the least demand period to the highest demand period in a very short period of time at the very beginning of each year in the United States. We go from the smallest amount of demand of energy to the largest amount of energy usage from January to April- very short period of time. The fact that we’re trading options on futures, the market doesn’t wait for that demand to increase. It expects it to. Low and behold, April, May, and June, people start driving their automobiles, and demand goes up from 20-30%. This is what spurs this seasonal to work. It is a fundamental factor that makes the market go. Knowing these seasonals in advance allows you to get in when everyone’s selling, get short when everyone’s buying, and that’s what makes this just a great piece to the puzzle… utilizing seasonality and adding it to your option selling. Michael: And as an option seller, if you are selling options, the reason we stress them so much is they’re almost a custom made tool for this type of strategy. It used to be, 10-20 years ago, there was a lot of talk about seasonals and commodities. The way people would try and trade them was “Well, let’s see. The chart here says the seasonal falls on April 20th, so we sell it on April 20th, and we buy it on June 1st, and that’s worth 12 of the last 15 years”. So, they go and do that. Low and behold, the thing goes up and they lose. So, the thought process is “Well, seasonals are no good. These things don’t work”. What people don’t understand is these are merely reflecting averages. It doesn’t mean it’s going to fall right on that day. It might not fall at all. The key thing as an option seller is you don’t have to be guessing what the market’s going to do on a daily basis. All you need is that general, typical price trend that you can look at, and then sell deep, out-of-the-money options, way above or way below it. So, even if it doesn’t happen at all or you missed it by a week or three weeks or a month, as an option seller you have so much room to be wrong that you can still end up profiting from it at the end of the day. I know that’s something we try and look for a lot of the time in our trading. James: Michael, whether our audience today is selling options for themselves or they’re considering selling options with us, or they already are, fundamental analysis on the grain market, the softs market, the energy market, it’s available to anyone. All you have to do is go online, you can find out what the supplies are, you can find out what the trends are in production. Make sure, going into a seasonality, that everything is neutral. Make sure that there’s not an underlining factor that’s going to cause the market to not trade seasonally. It’s something that we work on all the time. Our listeners who possibly are selling options on their own, you can do the same thing. Don’t simply look at a seasonal chart. Do the fundamental analysis prior to getting into the market. That’s going to put the odds in your favor, something we’re always stressing. It’s not that tough to do. Michael: For those of you who’d like to learn more about seasonals, we do cover them extensively in our book, The Complete Guide to Option Selling, 3rd Edition. They are a big component of selling options on commodities, if that’s an investment you’re looking at getting into on your own. Obviously, for our clients here, we monitor and do that for them. Speaking of, we do have some consultation dates still open for April for anybody interested in possibly talking about an account. Feel free to call Rosemary at the 800 number: 800-346-1949. She’ll let you know what we have left available in April. James, I know you have another video coming up this month. Is that correct? James: We’re going to be talking about one of our most near and dear commodities, KC, also known as coffee, probably one of the best seasonalities available in all of the market. I’d compared it to the seasonality in energy. Supplies in coffee going forward are going to be heavy to the market, and this rally that we’re getting right now in March and April, I think, is going to set up, ideally, for seasonal call selling. So, that’s something we should probably hit in this video and get everyone very well on board as this trade approaches in the next 2-4 weeks. Michael: Yeah, that will be a great video. I know we’ve gotten some e-mails and people are certainly interested in what we’re doing in metals. We’ve been mining a lot of premium there in the gold and silver markets, and I’m sure you’ll be talking about that, too, possibly in the upcoming video. That will be before the end of March. You can look for that in your e-mail box. You can also be looking for the Option Seller Newsletter. It should be to you sometime within the first couple days of April. I appreciate everybody listening today. I hope you found this podcast on seasonal tendencies interesting. As always, feel free to give us a call. If you’d like to learn more information, get a discovery pack, you can also find us online at OptionSellers.com. Thanks for listening, everybody, and have a great month of trading.

Welcome to the Strategic Investor. Join us as we interview some of the world’s most productive asset managers and uncover sophisticated and unique investment strategies in the markets. Here is your host, Charley Wright: Charley: Hello and welcome to Strategic Investor Radio on OCTalkradio.net where we bring new investment strategies you are not hearing elsewhere. I’m Charley Wright and today is February 26th, 2016. We’re very pleased to welcome back to our show, as a guest, James Cordier of OptionSellers.com. James speaks to us from their headquarters in Tampa, Florida. James, welcome back to StrategicInvestorRadio.com. James: Charley, it’s certainly my pleasure to be here. I always enjoy doing your show, and the fact that we are speaking to investors that think outside the box, it makes us that much more inviting to do your show. Charley: Well, we’re very pleased to have you and you folks are certainly an out of the box thinking crowd here. James, first of all, let me recommend to all of our listeners, we last interviewed James about a year ago, and the date of the post on our website is February 11, 2015. We recommend to all of our listeners to go back to that and listen to it, as well. It provides a very strong foundation and much of information that we will not be covering today. So, James, give us 30 seconds on your background here. James: Charley, basically our background is commodities, it is spent futures trading in the far, far past. So often, people want to get diversified and they want to get involved with real markets, crude oil, gasoline, coffee, soybeans… things that they use and they enjoy every day. However, trading futures certainly, it is too much like trading, too much like gambling. We have discovered and tried to perfect, we’re not there yet, a strategy that allows the average investor to get involved with commodities, and it’s been a great way to diversity. We have certainly been very busy with new clients just because of that reason. Charley: So James, a little more focused on your background here, you were an employee for a couple of decades, right, working out of the pits of Chicago? James: Yes, my background is in the Midwest. I started in the Chicago-land area, basically understanding the fundamentals of the market. Chicago is certainly not northern California where everything is computerized, and everything is driven by databases. I learned a great deal of fundamental information, why the price of coffee goes up and down, why the price of crude oil goes up and down, and the such. Basically, we’ve been trading the exact same commodities for over two decades. It allows us to have a rationale and thesis as to why we should be in the market, as opposed to just charting and technical analysis. Certainly, those two forms of approaching the market have their day; however, we base everything we do on rationales of supply and demand, probably the best way to approach trading commodities. Charley: You know, we want to get into that later, because that certainly causes you to stand apart from most commodities traders, most futures market traders, and, certainly, most options traders, because they’re so technical analysis focused. Let’s start here, James, with a few questions. Question number one: why sell options? James: For you having the thinking audience, very easily to start out by saying selling options is going to put the odds in the client’s favor. It said that approximately 82% of options sold out of the money will expire worthless. So that would be assuming a darted aboard 82% of the time, selling options would become profitable. The fact that you’re able to sell options further out of the money, if in fact an investor does that, the odds of it expiring worthless increases even more so, so certainly putting the odds in your favor, I think the largest investors in the world, and I get to speak to some of them just every once in a while, I run into them and they’ll say “Wow, I saw you wrote the book on option selling. What did you do that for? You’re letting the cat out of the bag.”, because that’s what we’ve been doing. I think the largest investors look to write options and the public is looking to buy them, and that is the big difference between what we do and, probably, most retail houses. Charley: So, you don’t buy any options at all. You always sell options. James: That’s exactly right. Charley: Okay, why the futures market as opposed to the stock options market, the equities market? James: Well, that’s a very good question. The majority of our investors were introduced to selling options through their stockbrokerage account. Basically, their stockbroker mentioned this stock is sitting here at 20, it just continues to go sideways, and he finally introduces the client to writing covered calls. Lo and behold, every time they do that, their selling of the calls winds up making money and then the light bulb goes on. The fact that we sell options on futures in commodities is because of several reasons: One is because you have the ability to diversify away from the stock market. If the stock market were to go up every single month and every single year, an industry wouldn’t really need us. fundamentals in the economy, and such, are starting to change. The ability to sell options on futures in the commodities arena allows an investor to diversify, and it also gives them the ability to be right with their investment, whether the market is going up, down, or sideways, and that is certainly a great way to diversify, relative to simply being along the stock market. Margin on selling options in commodities, is approximately 20% of holding a short option on a stock. In addition to that, quite often stock options sellers are looking at calls or puts, sometimes 5% out of the money. When we’re selling options on commodities, believe it or not, the options strike prices are often 40, 50, 60 percent out of the money, which gives the investor a very large window for the market to stay inside while they’re waiting for the option to decay, which, of course, is what we do. What we’re doing is selling high and buying back low. That is the approach. Charley: You know, James, I have your book right in front of me. It’s a little booklet, actually, about 60 pages long, Options Selling on Steroids. I read it recently, and it’s a fairly new book, correct? James: Yes it is. We have three different editions of The Complete Guide to Option Selling, by McGraw Hill. This one, Option Selling on Steroids, really digs into the very most finite measures of options selling in the direction that we take it. It talks about smaller margins, versus selling options on stocks. It discusses real diversification, as opposed to simply being long equities. It really brings an investor through the ABC’s of selling options on commodities. I know those two things are quite a buzzword, commodities and selling options, but as investors who do work for themselves, investors who do study the market for their own portfolio, it’s an easy read and it’s a very easy learn, and I think a lot of your listeners would be surprised as to how many people could do this, and might find it an attractive investment. Charley: Well, you know, James, in reading this, I can’t tell you how many books I have read on options. I get offers all the time through the email, and all of these people have option approaches. In fact, the book that you recommended last time, during our last interview a year ago, Get Rich with Options by Lee Lowell, I had read many years ago. So, I’m reading this book, and the frustration that I have felt repeatedly that you guys address very affectively is that people get me excited about selling options, but then when I look at the real world and I look at an ETF or I look at a particular stock, and I see that I have to be so close to the price to sell that option in order to generate any kind of premium to make it worth my while, that any kind of movement of that stock, or that ETF, is going to put me out of the money. James: That’s exactly what we hear. Charley: Yeah, and so, I’ve been so unimpressed. Again, I can salivate looking at okay 82% of the time. The calls or the puts expire worthless. Okay, let’s get involved in that, but there was no premium in there to make it worth while to do the investing and make $25 or something, you know, and risk $1,000. I mean, it was ridiculous. So what you demonstrate is that through the futures market, somehow I don’t know enough about it, but through the futures market, the relationship and elements are such that you can be much further out of the money and still have a very strong return. That’s why you’re investing through the futures marketplace, as opposed to the equities stock options. James: That’s exactly right. Of course, our backgrounds are in commodities. We’re not trying to investigate 1,500 different companies, we’re simply watching the same ten commodities, and I’ve been doing that for a couple decades now. You almost get to learn the personality and what moves the price of soybeans, or the price of gold, or the price of silver. Quite often, here’s an interesting example, Charley. We have negative interest rates around the world, we have a lot of markets that are in flux, and a lot of investors, recently, are looking to possibly be in precious metals, with the idea that diversifying with negative interest rates around the world is probably going to be a pretty big candidate. Silver prices, for example, I think a lot of listeners and a lot of people have been watching any markets are probably familiar with the price of gold and silver. The silver market’s been trading around $15 an ounce; however, it’s just recently had a rally. So, how does an investor approach getting long silver for possibly an investment? What we would do, is, we would sell puts below the market, which is a bullish position on silver, and with silver trading around $15, we’re not selling the $14 puts. I’m going to sound like an infomercial. We’re not selling the $13 puts, we’re not selling the $12 puts. There’s a great deal of money to sell the $10 puts. You’re putting up approximately $1,500 to sell a $1,000 put at the $10 strike price. This is an example of option selling on steroids. You’re selling the market 25%-35% below the underlining futures contract. So, if silver goes up, the option expires worthless. If silver goes sideways, the option expires worthless. If silver actually falls 25%, the option still expires worthless and you keep the premium. That is option selling on steroids. Charley: And what kind of time frame would you guys be investing in a situation like that? James: It’s interesting, Charley, so often you read books about option selling, whether it be in stocks or commodities, and a lot of books talk about selling a 90 day option. We look at it as we are long-term investors, so we look at options, as far as building a portfolio, we look at it as 12 months at a time. So, right now, we’re in February. When we’re building a portfolio we’re talking about December 31st. What we’re going to do is stagger different months throughout the year, so that on December 31st, for example, we’ve had a round of options, hopefully, that we’ve sold, expire worthless or very close to it. We often sell options 6-9 months out. A lot of investors will say “Well, that gives the market a whole lot of time for you to be wrong”, but we don’t look at it that way. We look at it as “That gives the market a whole lot of time for us to be right”. With options selling 50% out of the money on the call side, sometimes 30% out of the money on the put side, you’re going to find, whether you’re doing this yourself or you have someone doing it for you, you will be right most of the time, and that’s what we usually look forward to. Charley: James, this is fascinating stuff. I could talk about this all day. We need to take a short break. When we come back, I want to talk about fundamentals versus technical analysis here, and a couple of other things. We’re talking with James Cordier of OptionSellers.com. You’re listening to Strategic Investor Radio on OCTalkRadio.net, and we’ll be right back. Charley: Again, we’re talking with James Cordier of OptionSellers.com out of their headquarters in Tampa, Florida. So, let me summarize just a little bit, James, make sure that we all understand here and our listeners understand. You take a particular commodity, and this particular example you used was silver, silver currently at about $15 an ounce, and you say you believe the silver is going to rise, so you’re bullish on silver. So, you take a deep out of the money position, which means you go down from it’s current price of $15, down to $10, and you sell, not buy, but sell an option for some time in the next 5-9 months. You sell that option, you get paid a premium for selling it, and when that option expires, as long as the price is over that strike price, in this case $10, you keep that premium. You have a margin, which basically is your risk, and you would have a profit. That premium, in this particular case is silver, would be approximately what percentage of the risk that you’re taking? James: The risk that you’re taking, Charley, in that scenario, is you’re long the market, the silver is put to you at $10. Just like selling an option, a put option in the stocks, you would be put to you long silver from $10, and then your risk would be for the market to fall below that. Just like a stock at $10, your market falling below that is your risk, as well. The margin to hold the position that I was referring to, in that example, was about $1,500 to hold about a $1,000 put. That is the premium that you’re looking to collect. What’s interesting is in stock option selling, the margin is enormous. Quite often, in commodities, when selling options, you’re looking at approximately 150% of what the possible potential profit would be is the only margin that you’re putting up. The risk is that the market goes below 10. Of course, if you’re bullish at 15, that gives you a lot of leeway for you to either exit the trade, or it gives you a lot of leeway for the market to not fall below $10. The scenario that we talked about would be if silver were to go up, if silver were to go sideways, if silver were to fall as much as $5, and eventually that option would still expire worthless. That’s just a really large window for most investors to feel comfortable inside. Trading gold, silver, and coffee with a futures contracts, I’d recommend no one to do that. Basically, we’re building portfolios based on a similar trade to what we were just referring to. We would also do it in 6 or 7 other commodities. That’s what a portfolio would look like. Charley: And the reason to do it on the futures market, versus the equities market, because there is a silver ETF, is the premiums collected for selling those puts in the futures market are substantially higher than the premiums to be collected in the regular equities market stock options. James: Exactly. If anyone were to visit our website or read one of our books, it describes it extremely well. This isn’t something that you have to have an expert do for you. Your listeners could do this on their own; however, finding someone with experience probably goes a long ways. The first time you hear selling options on commodities, it seems a bit foreign, but anyone, especially in the current environment of investing, a lot of investors are looking at ways to diversify and willing to do a little bit of reading. I think it’s going to be quite fruitful for them to do that. Charley: So James, let’s change the track a little bit here. In your book, you recommend that you like fundamental analysis as opposed to technical analysis. Now, any options traders I have ever looked at were focused totally on technical analysis, because they say an option expires at a particular time. So, you want the certain movement to occur prior to that expiration. Whatever the fundamental analysis is, it may be good for Warren Buffet and his buy and hold approach, but for options that have a particular expiration date, we need to know what it’s going to be doing prior to that. You don’t focus as much on the technical, you focus more on the fundamentals… tell us why. James: Well, we can use a couple examples, but the fact that we are putting on positions that are 6-12 months out, we’re going to see, Charley, technical analysis that shows probably 3 times the buy and 3 times the sell during that period. We find that when selling options at, say, 50% out of the money, that is a lot of noise. It’s for the short-term trader, and I understand that some people are able to do that. If you have the right technical analysis and you have the intestinal fortitude, getting these buy signals and sell signals using intraday stochastics or Bollinger Bands, which we’re big fans of all of these, I’m quite sure that, on a short term basis, that would work. The fact that we sell options based on fundaments, we’re looking at a much longer term than what the technical analysis might give the investor or the trader. Basically, we’re selling options where, fundamentally, the market can’t reach, and the fact that we’re going to be in 8 different commodities, some of them will be bullish, some of them will be bear, some of them will be neutral, we’re simply going to build a portfolio based on what the fundamentals can allow the market to do. We don’t want to be getting in and out of the market with short-term moves and short-term investments. Charley: So, you sell puts if you’re in a bullish position, a bullish direction, and you sell calls if you’re in a bearish direction. James: Exactly. Charley: Okay. So, tell us here, a good question is, our readers may be a bit confused here, what they should do here. So, what is it that OptionSellers.com does? We know about your book, okay, what service do you offer to those who would like some kind of service? James: The service we offer, and the reason why we have been so busy lately, is diversification, in my opinion. If the stock market were to go up 15% each year, people wouldn’t need us. They’d simply need to be in wholly and nice diversified stock portfolio. A lot of investors are thinking that, maybe, that time might be changing. What we do is we take nearly 3 decades of experience in trading commodities, we apply the percentages of options expiring worthless 82% of the time, and we take that fundamental analysis and build a portfolio for individual investors. So, if someone had a portfolio with us, say a quarter of a million dollars or a million dollars, we would margin and place in their account positions based on examples and ideas that we just mentioned. We would be slightly long silver, we’d be slightly short coffee, we would be long some of the grains. When the crude oil market rallies this spring and summer, and it does every year, we will look to then short the crude oil market based on fundamentals. As the crude oil market maybe rallies this spring and summer, and gasoline prices start edging up, a fundamental analysis for us would be will crude oils not going to get to $80. It’s all based on rationale and thesis of the market. The market often rallies in summer, I think we’re noticing that crude oil is, for example, starting to make low and starting to rally up. It usually goes up in April, May, and June, and then what we do is look at the weakest demand period, which would be, for example, December. As the market rallies up and the technicals look good, we’re going to sell the $80 or $85 crude oil calls for December based on fundamentals. So, we’re constantly rotating commodities based on seasonalities and fundamentals, and as some options, for example, in silver, start falling off and we’re still bullish silver, we’ll sell them to next silver puts 6 months out. It’s not a lot of trading, it’s a very small amount of trading. However, it’s based on layering, in other words, possibly having options expire every month or every other month once the portfolio is built. It seems to be quite slow at first because we’re not finding 8 opportunities all at once, but it’s something we build over time. Of course, accounts are completely transparent. The investor sees why and what they’re in. We write a weekly newsletter that describes why we think crude oil is going to be a good sell at $80, and why we think silver’s a good buy at $10. A lot of investors are going to say “well, it’s not at $80, it’s only at $40”. Well, there’s the magic of option selling. That’s how we build portfolios. We do the trading, we manage the account, and, of course, anyone’s account is perfectly transparent. By reading our weekly and bi-weekly newsletters, it gives the investor an idea and an approach as to what we’re looking at in the market, and, therefore, people who watch commodities but are not quite familiar with them, can make themselves familiar by reading our analysis on them. Quite often, it makes a great deal of sense, and then we’re going to sell options far out of the money. Those are the portfolios that we help people manage. Charley: So, OptionsSellers.com, besides having the book, you guys manage money and separately manage the accounts, I presume. James: That’s exactly right. Charley: Okay, and then you charge a fee to the investor for doing that. James: Yes. The fee that we charge is roughly 10% of the option premium that we take in. So, that would be something that the investor would be understanding and realizing. Charley: Okay. So, that’s what you guys do, but, in addition to that, tell us briefly again about your book, the title, and how people can get it. James: Okay. Approximately 9 years ago, we wrote The Complete Guide to Option Selling, published by McGraw Hill. We were so amazed by the perception and the interest that so many investors have purchased our book and just about so many countries and so many languages. The second edition was put out 5 years ago, the third edition was put out, now, just about 1 ½ years ago. It’s done extremely well. To fine tune and make the reading a little bit faster, we recently made a smaller book, Option Selling on Steroids, and instead of reading a several hundred page book, it’s in a much smaller form and it allows to get right to the nitty gritty for people who want to possibly get involved with selling options, maybe with us. It gives you all the best ideas and approaches in a much quicker read.. something you would read in one afternoon. It’s called Option Selling on Steroids. It’s available at our website, and anyone that would be interested in getting it could simply request it, and we would get something right out to them. Charley: You know, I could put in a plug for OptionSellers.com, the website here. James, a lot of helpful and valuable information there, and educational material on the options market, futures market, etc. It has several videos of you on there, and it’s an excellent site. I could recommend that anyone go to that site and access it and look at it. Again, I have Option Selling on Steroids sitting in front of me. I read it this week, and a very interesting, rather quick read, and an excellent approach to investing. Again, not of 100% of anybody’s money, I’m sure you tell them that all the time, correct? James: It’s just part of a portfolio, absolutely. Charley: Correct. So, James, we really appreciate you being with us today. How about some final words for our audience before we sign off here? James: I would say that the more books you read and the more of the best investors you ever listen to, or have a chance to read some of their material, the one thing that they never forget is to be diversified. I think a portfolio similar to ours allows the investor to do that. Our investors can participate in bull and bear markets. Does it mean we’re right all the time? By no means are we, but the fact that options expire 82% of the time worthless, it’s certainly putting the odds in your favor, and that’s not a bad place to start. Charley: James, thank you very much. We really appreciate you, again, sharing your information with us today. We very rarely, by the way, have guests on for a second time, but you have a very interesting approach, and I’m sure productive approach to investing, and we really appreciate your time today. Thank you very much for coming. James: Charley, it’s been my pleasure. Charley: So, we’ve been listening to James Cordier of OptionSellers.com, and you’re listening to Strategic Investor Radio on OCTalkRadio.net, where we bring you investment strategies you’re not hearing elsewhere. Again, we’d love to hear from you at info@strategicinvestorradio.com. This is Charley Wright, wishing you an enjoyable week and productive investing.