Podcast appearances and mentions of james just

Matters of life and death Australia’s death care and funeral industry is big business. We meet death doula Dr Annetta Mallon and funeral industry adviser Martin Tobin, two caring and passionate business owners supporting you and your loved ones through the last step on life’s journey. 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. Dr Annetta Mallon is an end-of-life consultant, doula and educator and grief psychotherapist based in Tasmania. With decades of experience in trauma recovery and personal growth, Annetta helps people understand their rights and options at the end of life – especially those without a strong support network. Martin Tobin is a recognised family name in the funeral business. He is founder of Funeral Direction, a consultancy supporting funeral homes and cemeteries across Australia and New Zealand. A former solicitor, Martin brings legal, strategic and business insight, and is focused on helping the industry evolve through innovation, education and long-term planning. 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 at Myrtle & Pine Studios -- 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: S06EP03_Matters of Life and Death James: Hello, and welcome to Life's Booming. I'm James Valentine, and this season, we're talking about death. In this episode, we're talking about matters of life and death, well, the final matter, how we say goodbye. Death is big business, and Australia's death care and funeral industry is worth more than $2 billion. And with us are two entrepreneurs, two people who work in this area, supporting you and your loved ones through the last step on life’s journey. We're joined by Dr. Annetta Mallon, an end of life consultant, an educator, and also known as a death doula. And Martin Tobin is a recognised family name in the funeral business and is now an expert adviser on the global funeral industry. Annetta, Martin, welcome to Life's Booming. So many places to start. I'm excited. And Martin, I'll start with you. What's it like when the family business is death? Martin: Yeah, well, it's all I've ever known. When I was, you know, when I was born and grew up, I, we actually lived in a funeral parlour. Um, so when I was, for the first two or three years of my life, uh, the funeral parlour was downstairs. We lived upstairs. So when it's all you've known, you don't think anything different of it. And I suppose all of my friends and sort of social groups when I was young and a teenager thought it was pretty quirky and funny, but for me, it was what I knew. My grandfather and his brother started our family business in the thirties. And by the time I came along, it was well, well and truly established. I didn't really work directly in it straight away after leaving school, but it was always in the background. And so I've always been comfortable with it. James: Yeah. But such an interesting thing. Like what's, what's the dinner time conversation. Did you have a good day, darling? Good deaths? Some good deaths? Martin: Well, all of that. You know, I think that's the stereotype, isn't it, that funeral directors are a bit, sort of weird and severe and a bit morbid, but, but it's, it's far from the truth. You know, I think most people who work in funeral service, and the work that Annetta does, are really warm and loving and gregarious people because you have to have those qualities to really survive and thrive in, in what we do in that space. James: You kind of got to love life, Annetta. Annetta: Absolutely. We are fiercely alive until we are dead. And I think that. Whether it's from the professional funeral side of things or more from consumer advocate and personal support side of things, coming in with a joke – why do we screw the coffin lids down so hard to keep the oncologist out. Great icebreaker: show up with cake. Make jokes, because most of us have a lot of laughter and love in our lives and it's important to leaven sorrow and, and grief. Martin: Yeah. Don't let death just drown out the… James: What's the undertaker's joke? Martin: Oh, there's so many. I mean, everyone used to, I used to get called Stiffy Tobin, that sort of stuff. James: Stiffy, Tobin… Martin: …you know, a bit. So a lot of funeral directors get called Stiffy. Annetta: …that's a 1930s cartoon character, isn't it? James: It's like, it's the, the Millers, the Millers and bakers are Dusty. You know, it's that, it's that era, isn't it? Annetta: You're a Tintin character. James: Yeah, exactly. Martin: Yeah. Luckily I wasn't, you know, I don't fit the stereotype of tall and gray. I'm sort of fairly short and not gray. And so when I joined our family business, I was quite young. So I was lucky I sort of didn't fit that stereotype. And back in the early 90s, there was very few women, very few people, young people, very few people from, from diverse backgrounds. So it's changed a lot really for the better in that sense. So there's no stereotypical funeral director now it's, it's a really, really diverse. James: What's a, what's a doula? Annetta: Well, a doula is someone who supports life's transitions. So I've been a birth doula, and it's a very powerful energy when someone comes into the world, but it's really not my jam. I like the other transition, and I'm better at it. I provide an awful lot of information for people who have questions like, what is this going to feel like? Should I be at home or should I be in the hospital? And the point of a lot of my conversations is not to provide answers, but to support people into recognising what's best for them, which I suspect is actually quite a lot of what Martin does, with the way that you work with businesses. James: When do you turn up? Annetta: A piece of string question. I can turn up pre-need, so there's no terminal or life limiting diagnosis. There's a bit of a myth that we turn up magically, like a fairy, in the last 24 hours of life. That's not really great or optimal. James: So, do some people get you, even if, well, I don't have a diagnosis, but I want to start working with a doula? Annetta: If you're a doula like me who does planning and can answer questions and help people prepare their documentation and their wishes, because that's not anything you want to be doing at the last minute and in cases where there's dementia and cognitive decline. It's too late then to get your planning in place. So I also help to support and foster family-wide and network-wide conversations so that everyone understands if someone's interested in assisted dying, let's talk about that. Does anyone have questions, for example. Or have you considered your pets in your planning? Are you including your grandchildren or just your children? Would you prefer to die in a medicalised environment, ideally, or in a home like environment? James: So you can, yeah, so you're there at any point and really every circumstance is entirely different. Annetta: It is, it's unique every single time. James: Same for funerals? Martin: Yeah, I mean, a funeral really should be a reflection of the person's life and interests and values and philosophies, and sometimes, you know, historically, traditionally, in say the last couple of hundred years that, that often revolved around their, their faith. So these days funerals are quite sort of open-ended, quite, quite unstructured, quite celebratory and people are trying to find some ritual in that and some meaning in that and, and that's the, that's the real change that's happening in funeral service. You know, funerals have been going on for thousands of years. They're one of the early rituals of human, human existence. So, and they emanate from the human need to stop when someone from among us leaves us, and reflect on that person's life, to typically grieve that person, if they meant something to us. So that is, you know, invariably people feel sad, not always, but typically. And people have to then say, well, how do we, how do we move forward without this person? And then for a lot of people, that's incredibly difficult. Grief, grief is just our response to loss. You can't control it. You can't make it go away. So if you suppress it in the early days, it comes back to bite you later. So a funeral is a chance to gather, reflect, embrace the reality of the death and embrace the early stages of the grief, the pain that you'll often experience, and to receive support from your community and to let go of that person because they go from being with you to being a memory. James: It's interesting the way you phrased it or the point of view you expressed there was to me it was the person closest to whoever's died, it's for them. And then it's for the community. It's not for us. Funeral's not for the guy that died. The funeral's for us. Martin: Yep, that's right. And we're finding a lot of people now trying to sort of orchestrate their own celebration and say, this is what I want. I want this to happen, that to happen. And that's, that's got a place, but it's really for the living, for the, for those that are left behind. And, you know, the dead, the dead can't tell the living what, how to feel. But they can give guidance and direction, but I think it's really important that the funerals, funerals are done the way that the survivors feel they need, need to do it so that they, that helps them get back into life afterwards. James: Yeah. Yeah. Would you agree? What's a funeral for? Annetta: I think a funeral is an opportunity to remember why your person was so important to you. One of the big changes that I think we're going to see more and more of in Australia now, with assisted dying nationally available, is a fabulous ‘going away party’, as I call them. So people who attend their own funerals, because basically, especially if you're in a hospital, you know when your time is coming. So there's almost like a bookending effect where we have a celebration with the person and they get to say goodbyes and explain to people why they were important and hear all the good stuff. Then there's probably going to be a gathering of some kind afterwards, possibly ham rolls and whisky will play a part, because, as Martin has said, we need to commemorate the fact that this aspect of our lives is now irrevocably changed. I think for a lot of us, the relationship goes on, but it's very different. I still talk to my mother and my grandmother, both of whom are dead. I don't expect them to respond. But there's still kind of… James: …I think that's the sane way to do it. If you expect them to respond, I don't… Annetta: That's a different conversation. James: That's different. Yeah. We're doing another whole episode on that. Martin: Different podcast. Annetta: Different podcast. James: From Beyond the Grave. Welcome. So again, the funeral's not really for the dead person. Annetta: I've never thought a funeral is for the dead person. It is to really bring us out of the immense shock of the raw grief that – and this is a generalisation – is about 72 hours. And that's not a sustainable emotional state. We get to come together. We get to shift from intense grief, the personal experience of loss and that response – because grief is love with no place left to be put – into mourning, which is a more shared communal public sense of loss, which is a really important transitional period in accepting a death, coming to terms with a death, acknowledging a death. And the funeral makes a space that I think is important, not just for the closest people, but for friends, work colleagues, community members. So there is a space that can be welcoming for a variety of community members, which is also really important. Community can be quite intimate and small, it can be broader and more encompassing. Martin: Yeah, look, I think it does need to, I think a good funeral will reflect the person's life. If, if it's, if it's not authentic, if you go to that funeral and you say, Gee, that wasn't about Fred, then clearly the family have got it wrong. So there has to, they have to be the central character, and that has to, you know, has to really reflect who they were, ideally. But if Fred starts micromanaging his service, his celebration, then I think we're missing the point because it really is for, for those left behind to say, what's going to be meaningful for me to help me, you know, take stock of my life now that Fred's, Fred's gone. A good example is, you know, sometimes people these days will often say, look, let's not go to the fuss of a funeral. Let's, let's have a private cremation or burial and we'll have a memorial service, which is fine. And a lot of people choose that. But if Fred's not there, you know, the emotions around how people feel about Fred and the stories about him aren't really aren't heightened enough for people to really feel what they should feel at a funeral. It's hard to sort of get started with your grief, is sort of the perspective I have… James: …But I suppose there's often that, that's often thought of, we're going to do this in a few days, but the memorials in two weeks… Annetta: I think it's individual. And I also think it is broader culture. So for example, in some cultures, from Eastern Europe, there are marker days. So you will have the funeral on a particular day and then you might do something 10 days later. And then the 40th day might be, for example, in the Macedonian community… I still pay attention to ‘death-aversaries’ and I pay attention to it because it's going to affect my mood and the way I go throughout the day because I will be thinking about that person. And ideally, you have had the opportunity to spend time with your person, whether that's in a hospital room. For example, I did that when my mother died. We were allowed to have the room for as long as we wanted with her. Or at home, and you might keep your person at home for a day or two and sing to them, wash them, sit in silence, cry with them, laugh with them. That's, that can be part of the saying goodbye, which the funeral then when it's done properly and appropriately, I think sort of wraps everything up and ties it as neatly together as you can so that you can move into all of the afters of grief. James: Martin, let's talk about the, the business of funerals. It's a big business, isn't it? Martin: Well, it's, it became an industry a hundred plus years ago, something that people started outsourcing to, you know. And initially it was outsourced to cabinet makers who made the coffin. And then they, the cabinet maker said, well I can, not only can I make the coffin, but I can transfer the body from the place of death and… And over a period of time it became an industry. So, it is there, so it is an organised industry in most, most countries around the world. And so the, the organised funeral director will provide a range of services to, you know, support people who've lost, lost someone. In Australia, it's primarily, historically, made up of family owned private businesses that are multi generational family businesses. But about 25 years or so ago, a lot of the well known family businesses were purchased by larger groups. But certainly they're at, in my view, they're at a competitive disadvantage to a generally family owned local community based, family owned business, because they just don't have that essence. James: Yeah. Is it a strange thing? I mean, you've talked very compassionately about grief and about the humanity of what's involved about the moment of death and what people are dealing with. Yet this is something that you'll make profit from, that the company is going to make profit from. Is that a strange, is there a conflict there? Martin: There isn't really. I mean, you know, sometimes I think a lot of the people who are attracted to the industry, yeah, they're talking to a family and they've gone through a loss and there's a lot of grief and pain and there might be, there might be some challenging financial circumstances too that they glean from the conversation. And yeah, that people feel, feel, Oh, gee, how can we add pain to them, or, you know, add, you know, send them an invoice for $10,000, whatever it might be on top of what they're already experiencing. So yeah, it is a little bit uncomfortable, but I think if, if the business has integrity around its pricing and there's, there's genuine options and, and you know, they're not sort of forced into any sort of uncomfortable decisions, then, you know, most people recognise that a funeral, if it, you know, needs to be done in a certain way, there's going to be a cost to that. James: And do you find that, you know, the, the rise of doulas, the presence of doulas, the change… the way in which there seems to be a lot of, a lot of alternatives to those bigger companies or that standard sort of the mahogany casket approach. Is that in a reaction to this sort of somewhat, you know, industrialisation of, of the process? Annetta: Partially, yes, and from my perspective, I think we can, Okay, Boomer, let's give you a big vote of thanks, because at every stage of life, the Boomer generation, it's a cliche for a reason, they've demanded information and choice, and they want things on their terms far more than we'd seen in the silent generation, certainly, and previous generations. So, what are my rights, options, and choices at end of life? What can we do better and differently? It's made space for things like Daisybox Caskets Australia. I'm not affiliated with them, but they offer a lower and a high quality product, but it's less expensive than mahogany, which you mentioned. Not a bad option for families on a budget, not a bad option for cremations. I think, as we are in such an almost overwhelm of information age, people do want to know what's possible and we can readily see that, for example, in the USA, we've got Katrina Spade, who started with the urban death project. James: What’s that? Annetta: The urban death project was an architectural hypothetical exercise. How can we offer a space for respectful memorialisation and body disposition that is not taking up valuable land. And from this, then we have, recompose, which is natural, organic reduction, nor human composting. In Tasmania, we've got the very first water based cremation service. James: What is that? Because I mean, cremation implies fire to me, not water. Annetta: Yes. So it's alkaline hydrolysis. It's a high temperature, high alkaline process of dissolving everything, which at the end you get a product that instead of gray ashes, white, you get a completely sterile liquid, that I personally don't see why we can't use on green spaces, urban green spaces, but it can go down the drain. James: Just water me in the park. Just go water the flowers with me. Annetta: I quite like that. Martin: Splash me into the ocean. James: Splash me into the ocean. Annetta: There we go. And it's, it's about a seventh of the environmental footprint of a flame cremation. Costs about the same, maybe a little bit more, but we also have a team that will transport statewide. We don't do natural burial, we don't have dedicated natural burial, um, spaces in Australia. The UK does it really well. James: Again, what’s natural burial? Annetta: Okay, so instead of going down six feet, like into colder ground, which is anaerobic, there's frequently a lot of concrete involved, you're in essentially like a hotter ground. You've got more microbes and oxygen, you're going to break down faster. And in the UK, the multipurpose spaces where you might be running, sheep, for example, or growing wildflowers or food. In the USA, when you have the composted remains of people, which turns out to be quite a lot, large in volume, they work with a national park, and it actually goes to beautify hiking trails and to recondition public spaces. James: I like all these. Annetta: I like it too. James: They're kind of positive, aren't they? Annetta: There's options for everybody. So it's opening up spaces for non medical community based people like myself. It also means that there's new and exciting ways for funeral directors to then work with people to make the meaningful, personalised, ritual and ceremony and funeral experience. So, thank you, Boomers. We've got a lot of change. James: Yeah.. And is, are the traditional companies, are they embracing this? Are they seeing the need to embrace this? [00:19:15] Martin: The traditional funeral of being in a church and sort of straight to the cemetery with, with everything sort of reasonably structured, that pattern has definitely broken. We're seeing two things in the Australian industry, that is people trending or consumers saying That doesn't do it for me anymore, I'm either going to go for something very simple that's, like, low cost and, you know, where there's not much of a fuss; or people are saying, I want something highly customised, highly celebratory, highly innovative. And the companies that have stayed quite traditional and conservative are actually losing relevance. And so the funeral directors who are seeing those Baby Boomer-led changes, and are responding construct-- who are responding or actually leading the way themselves and coming up with some of those ideas themselves, they're the ones that are becoming or staying relevant and are thriving. You know, there's a funeral company called Tender Funerals who, whose focus and philosophy is that the family are much more involved in the actual funeral, which is, which is a great thing, which is how it should have, how it used to be. You know, the family themselves would… James: So what might take place? What do they, what do they do? Martin: Well, they might wash and dress the body as, as Annetta said, you know, they might, they might carry the coffin in some of the steps that normally the funeral director would, would only do. There's subtle differences and I don't, I don't profess to know a lot about what they do, but, but philosophically their, their message is let's do funerals the way they used to be done, and not outsource everything to the funeral director. So that's a challenge for the organised industry, because people are responding to that, and because people are saying, Yeah, actually, that's how we did use to do it. And I think the work that doulas are doing is getting people comfortable with the conversation, you know, the fact that we all die and that… Annetta: We've checked, everyone dies. Yeah. Martin: Yeah, we worked that out before. Annetta: Spoiler alert. James: Yeah, that's right. Yeah. Martin: So, you know, the organised industry has to realise that with education and Boomer-led sort of innovation, there's a lot more, you know, sort of change and sort of innovation they have to embrace, otherwise they will become irrelevant. Annetta: Whether you're coming from a more business-like perspective or something that's more community led, we all offer skills and services that have value. People train to be funeral directors and celebrants. People train to be morticians, people train to be doulas. And there's an awful lot of ongoing research and continuing education because the legislation is changing very quickly, in terms of documentation, where it's stored, how it's processed. Assisted dying is constantly changing, as we review the laws. And there is a value to that. I'm not a charity. I like to eat meals and sleep under a roof. So, I think one of the unexpected benefits of having more open conversations, generally, is people can recognise, Oh, well, maybe this much for a funeral seems too much, but this is a reasonable sum and I'm happy to pay that sum because we're getting something of value, in the end. That may be more personalised, maybe more ritualised and traditional, but then we have an exchange of something for something. James: But also those pro, the kind of, you know, those newer processes you were describing, even of how we dispose of the body, a more sustainable approach, is going to reflect a lot of people's values, you know, in a way that a traditional cask of being buried at a six feet under. Martin: Funerals don't operate in a vacuum. You know, they're part of the broader society. James: Yeah. Why do you like working in the area of death? Martin: It's a real privilege to, to work with, I mean, you know, the work that Annetta does is amazing. Like to have an open conversation with someone who is facing their own mortality, must, every day, must be an amazing privilege. And the work that I've done historically is after that. So it's, it's not as, it's not as confronting, because it's happened, but it's just really satisfying work to help people, you know, when they are at a low point to do something for them that's valuable, that's meaningful, and to help them with the long-term journey they're about to embark on. A funeral is just one of the first steps in their, their overall journey without that person. And if you can get them off to a good start with a good, you know, this notion of a good funeral, then, you know, then it's incredibly satisfying work. The vast majority of the people that work in funeral service, and I'm sure in the work that you do, are there for the right reasons. They're there because they, they are people-driven people, they love helping. They want to make a difference for people. So, it's a very satisfying industry. But most of what we have, the stereotype of we're all a bit weird and that it's far, it's almost the opposite. James: Annetta, why do you like it? You said you were better than this. You'd been a birth doula but you said ‘I'm better at death’. Annetta: I am better at death. I like puppies, not children, which probably explains a lot. I'm a good story keeper. And someone who is at end of life or is coming to terms with a life-limiting or terminal diagnosis – maybe a slower decline or more rapid decline – there is still an essence of themselves that they would like to have preserved, which I think feeds into this idea of the meaningful, purposeful funeral. The meaningful, purposeful end-of-life, with quality of life until we die, and then trying to offer a quality of life to people as they come to terms with the death of their person, is values driven, I think, in terms of planning. And also, for me, it's about honoring that person and trying to empower them with as much information as appropriate so that they can make informed decisions. I think there's nothing more empowering. When I've done my job really right, I'm not even involved when someone dies. Sometimes I'm in the room and that's okay, but often I will hear from families afterwards. And there's wonderful stories about the time that was spent while their person was dying, caring for their person's body after death, how the family and the friends came together to facilitate all of that, and then how that relationship of community changes, or stays the same, following that. So people then find meaning in their own life, get more excited about planning. The death literacy snowball is a wonderful thing to watch in action. That's my jam. I really love it. James: What do they do? What, what have people told you about death? Annetta: Interestingly enough, for a lot of people, it's not about death itself. It's about being frightened of dying. My pain threshold's in the basement, I don't want to be in pain. That bothers me far more than my moment of death. The people they loved know that they're loved… James: They want that, they want them to know? Annetta: … They want that. They want to know that love has been expressed, which I think is possibly why we're seeing that uptick, too, and people saying, I'd like this playlist at my funeral. I always start with a playlist with planning, you know, control it, be the DJ. Could we talk about this? I'd like these elements. Because it's a way of caretaking in a sense, the people that they're going to leave behind. The messages that people leave are messages of love. I think that's something the film Love Actually got really right, in the beginning. How do I convey that? How can I try and make that my legacy? So we're seeing it arise in, life writing, the narrative of someone's life so that there might be a digital book or voice recordings. We're seeing that with social media platforms where social accounts can be turned into memorial accounts. But I think also we need to prepare ourselves for the fact that sometimes that is all yanked away with no warning, sometimes, by family members who think that that's the right thing to do. And that can leave people devastated. So I think we're all kind of jogging along together, trying to come to terms with all the changes and make them a good fit for individuals. James: Martin, what do you hear? What do hear people say about death? Martin: Most people dread the day, you know, they're dreading the day, they have to get it, get up there in front of all those people, walk through the gathering and everyone's looking at them. And so there's a, there's a lot of dread. People will say, can we just get over and done with? Can we do it tomorrow? You know, when the death's been today, or whatever. So there is that sense that it's going to be an ordeal. So if, after it's happened and you, the feedback is all the conversations you hear are, Oh, that was really special and it went well and, and what a tribute we paid to Dad or Mum, you know, you know, he would have loved it or whatever. You know, that you've lifted all that dread away, and then they move ahead. So they're off to a good start. Otherwise, if we just die and we, we pause for a few minutes and we get back on the bike and start living again, well, you know, that person, all their, what they meant to us and all their stories and history and what they wanted to be said about them just gets shuffled aside and we get on with life again. So I think we, I think most of us deserve a bit better than that. And a funeral is a really good opportunity to just stop the clock for a while. You know, we don't have to wallow in it for weeks. And some cultures do, they actually, they put a real ritual around it. But as a minimum, just have some, some chance where we can say, his life mattered. I think that's, I think that's really good. Annetta: Yeah. James: This has been such a great conversation. Thank you so much, Annetta. Thank you. Annetta: Thank you for having me, James. It's been a pleasure. James: Martin, thank you. Martin: I enjoyed it. James: Terrific. Thanks to our guests, Dr. Annetta Mallon and Martin Tobin. 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.

Episode 113 (got the number right this week!) is the first definitely not a Thursday but probably a Friday episode of the podcast. In it, Alex, James and Mrs ADHD  expand on this week's theme of ADHD and body-focused repetitive behaviours, answer questions from YOU, our listeners, and generally talk nonsense for ages. Mrs ADHD turns a fan off, Alex thinks ADHD "isn't a disorder, it's a difference" and James ‘Just adds 'a personal touch'...Support the showWritten by Alex Conner and James BrownProduced by James Brown and Afatscientist Ltd.Social media contacts: @theadhdadultsMusic by Sessionz

Do you struggle with anxiety? Do you know someone who does? Do you want to learn more about this common and complex mental health issue? If so, tune in to our latest episode of Late Night Love, the podcast that explores everything love. What we love, who we love and why we love. In this episode, our host James Just shares his lifetime of experience dealing with anxiety disorder and talks about these topics: What are anxiety disorders and how do they affect people's lives? What does a panic attack feel like and how can you cope with it? How can you help someone with anxiety and show them your support? What are some of the causes, symptoms and treatments of anxiety disorders? We hope you enjoy this episode and find it helpful and informative. Please share your thoughts and feedback with us in the comments or send us a message. We would love to hear from you. The Power of Love in Overcoming Anxiety - LNL 168 --- Send in a voice message: https://podcasters.spotify.com/pod/show/latenightlove/message Support this podcast: https://podcasters.spotify.com/pod/show/latenightlove/support

There's no doubt that technology has made selling much easier. However, with the myriad of tools available today, it can be easy for younger sellers to forgo the fundamental skills in lieu of fancy tools. In this episode of the Sales Transformation Podcast, sales development leader James Bawden joins Collin Mitchell to talk about his own sales journey. James talks about how working a sales job during the 2008 financial crisis helped him develop solid foundational skills that he still uses today, even as he is now concentrating on building outbound sales teams, formulating strategies, and conducting outreach experiments.Join Our Free Podcast Community HERE!Want to solve a leaky sales funnel? Get Signup for your Free RevenueGrid trial HERE! Want Your Reps Hitting Quota in 2022? Get Your Wingman Free Trial HERE!HIGHLIGHTSLearning inside sales during the 2008 financial crisisThe lack of technology can be a good thing Sales can help prepare you for hard timesGreat salespeople have always put the customer firstTechnology can be a crutch There's still no substitute for working the phonesQUOTESJames: "That's all through sales. That's all through the different sales jobs and growing in your career. I think you have a unique opportunity to learn how to grind through a really tough time and then feel really confident about your ability to be very prepared for the next one and put yourself consciously and intentionally in positions where, alright I'm not gonna have to worry about this next time."James: "Just because you had a bad day yesterday doesn't mean today's gonna be bad. And just because you had a good day yesterday doesn't mean tomorrow's gonna be good."James: "Some of these core things about providing value for your customer and caring for your customer, they've always been said. Great salespeople have always been doing it. I think what's changed is the leadership and the way that we think about and want to be seen as salespeople." Connect with James on LinkedIn and learn more about what he's been working on!Links to check out:Free Tool for Prospecting on LinkedIn: https://check.outboundview.com/Connect With Collin on LinkedIn and find out what's new in Sales Transformation and other things he's up to!Want to Start, Grow or Monetize Your Podcast? Book a Free Strategy Call HERE! 

Using Body Language [Video description begins] Topic title: Using Body Language. Ali and James are in the presentation room. Ali is speaking to James. She is holding index cards. She looks confident. James listens to her silently. [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— JAMES: OK. Not bad, but you're still a little stiff. ALI: What do you mean? JAMES: You're a little robotic. I know this is just a practice run, but practice looking around at your audience, and consider losing the index cards so your hands are free. ALI: My hands? [Video description begins] The host is in the host space. [Video description ends] HOST: When you speak, your body language is talking, too. Maybe it says that you're confident and sincere. Or maybe it says that you're unsure and nervous. Controlling and using your body language is as important to confident communication as your voice. It's another tool to get your message across effectively. Stand or sit up straight to start. And don't fidget. Look and act like you're in control and belong in the room. And when you're facing a group, you need to make appropriate eye contact. Your audience wants you to acknowledge and speak to them. They want to connect. Staring at your notes, or at a blank spot on the wall at the back of the room doesn't do that. Look at them. They're who you're talking to. [Video description begins] Back in the presentation room, Ali and James continue their conversation. James is speaking to Ali. [Video description ends] JAMES: Yes, your hands. They're not just for holding things. They're also for expressing things. ALI: What if I just kind of wave them around now and then? [Video description begins] James laughs. [Video description ends] OK. I get it. [Video description begins] The host is in the host space. [Video description ends] HOST: Freeing up your hands allows you to use bold, purposeful hand gestures. According to body language expert, Patti Wood, "charismatic leaders use gestures four times as often as others do when they talk." Not only that, making hand gestures helps you think, dispels anxiety, and lets you emphasize key points. It's important to remember, though, to not overdo it, or you might find yourself waving your arms around without purpose. Use gestures for emphasis, not melodrama. And don't make fists, which seems overly aggressive and stressful. Keep your hands loose and relaxed. [Video description begins] Back in the presentation room, Ali and James continue their conversation. Ali is speaking to James. [Video description ends] ALI: These figures alone are pretty impressive. But further results from numerous independent studies have verified, and even surpassed them— JAMES: OK – just one more thing. ALI: Just one? JAMES: Just one. You've got your message down. Your voice is into it. Your hands are into it. But your face is still back at your desk. Use your face to help sell your point. You look flat and kind of bored. ALI: I think maybe I'm trying too hard to look serious. I want them to take me seriously. [Video description begins] The host is in the host space. [Video description ends] HOST: Serious doesn't equal expressionless. Let your facial expressions reflect what you're saying as you're saying it. When you smile, make sure it's at an appropriate time. If you're expressing concern, show it on your face. If your message gets serious, then let your face express it. When you're being upbeat, look upbeat. Your facial expression is part of your body language. Practice using it to your advantage. [Video description begins] Ali is standing in the presentation room. She is using her voice and hands appropriately throughout. [Video description ends] ALI: These figures alone are pretty impressive. But further results from numerous independent studies have verified, and even surpassed them. Now t

DescriptionThis week the guys dive into Rocket Fuel and (un)healthy? V/I friction. Garret hits a homerun, James manages not to buy a laptop, Darin takes action and initiative and Tyler explores “robotic” appreciation. All this plus everything you need to know about the new M1 Mac.Show Notes00:00:00 - Pre ShowTyler and Garret still in isolationDarin can’t talk to humansInterviewing candidates for unknown positionsMore “Delilah” voice00:03:30 - Show Start00:03:45 - Follow-Ups - 8 seconds of pure gold00:03:53 - The HeadlinesDarinProgress on accepting “short weeks” at workAction and Initiative?Wait...where is Darin recording from this week?TylerBig Sprint Release“Large stories are hard”Engineering LTM UpdateProduction PerformanceWhat do we know, what can we fix?GarretChallenges of Covid quarantine“Drunken Raccoon” project updateSupport Quarterly Review Quick, Correct, Empathetic, Less (are they all equal?)Rock Updates - All on track (sort of)James - Just 2 headlines this weekImmediate segue:Real time follow upWanting vs WillingCouldn’t disagree more with Support Review“We don’t want all the continuous improvement, just ¼ of supports effort”Garret takes over James’ headlinesBack to James…Vision and Ethos for InfoplusStrategy for each departmentPeople, Product, Sales, Financials00:28:48 - Topic 2 (1) - Gratitude and Appreciation (it’s Thanksgiving week after all)You’ll never guess who’s grateful for StarTrekRecipe for giving good appreciationCandor and unarguable truths and more“Seeing specific details like the people that taste the wine with nuts and chocolate”Gratitude makes Garret angry?“This week the ‘asshole’ is played by Garret”Six year old Garret hit a homerun and didn’t get proper appreciationGiving robotic appreciationIf others are expecting it, then I can’t give it?Being vs Showing appreciationJames’ morning check in routineJames has a physical inability to do things that aren’t genuineWatershed moments for James01:00:00 - Questions and Long Answers?New Accountability chart, is that happening soon?When does James’ December vacation start?01:02:55 - End of Show We’re on YouTube01:04:02 - After Show - Nerd AlertEverything you need to know about the new M1 Mac 

James Kwon is Founder and CEO of Figmints Digital Creative Marketing, a 20-person, full-service, multi-seven-figure digital marketing agency that specializes in accelerating leads to sales. The company utilizes SalesAmp, which James describes as “business development representative as a service.” SalesAmp came under the Figmint's “umbrella” when James and April Williams, now Fitmints President, merged their two companies. (The way these two companies “came together” is described in a short video on Fitmints' website's About page.) Eight years ago, when James discovered that his first chosen career in culinary arts did not provide him with sufficient creative opportunities, he started Figmints with a focus on providing UI/UX (User Interface and User Experience) web services, which he did for number of well-known companies back when few people were doing it. In this interview, James discusses the sales process gap the often occurs because “sales and marketing typically don't like each other” – the marketing department wants the sales team to take leads earlier, while the sales team wants marketing to push leads further along before the “hand off.” In 2018, James was looking for a partner to better fulfill his vision for where he wanted his company to go. The synergy between Figmints HubSpot operations and North Star Marketing's SalesAmp, a marketing process focused on building pipelines for individual salespeople, created a marketing powerhouse that far exceeded the expectations of the two merged companys' leaders. Today, the now-expanded Figmints develops the right content for the exact right audience. As individuals respond (download information, attend webinars, engage with content, open email), the SalesAmp piece takes over with Figments' internal sales team reaching out to prospects on behalf of clients. Over time, Figmints delivers a thought leadership, content marketing, and funnel program that nurtures customers through the client-journey until they are comfortable enough to talk with the client's sales team.  Unlike most agencies where generated leads are handed off for follow-up to client sales/ boiler rooms (which may or may not get the message right), Figmints operates as an “educational ambassador,” running the inbound HubSpot process on behalf of its clients' salespeople. Most of the Figmints' clients have long, complex sales cycles. When the questions get too complicated, the client takes over. In his HubSpot Inbound 2020 presentation, “My Cheat Sheet: How to Growth Hack Five New Companies or Offerings This Year” at HubSpot Inbound 2020, James promoted the idea that entrepreneurs should consider starting multiple companies at a time. He lists a number of reasons that this practice makes sense and lays claim to launching close to nine sub-brands, of which four or five are still active. James is a big proponent of systems, optimization, and efficiency for everything from workflows to automated engagement to follow-up processes. He says he uses “several dozen pieces of software that combine together to make my workflow easier.” But, he admits, people are complicated. Early on, the agency experienced high employee turnover. “There is no way to love people efficiently,” he says. Today, employees stick around a lot longer because the agency invests in employee growth and meeting with them for frequent one-on-ones. He highly recommends utilizing Entrepreneurial Operating Systems (EOS), as described in Gino Wickman's book Traction. James is available on his agency's website at: Figmints.com, by email at: james@figmints.com, on Twitter at Twitter.com/figmints, and Facebook.  ROB: Welcome to the Marketing Agency Leadership Podcast. I'm your host, Rob Kischuk, and I am joined today by James Kwon, Founder and CEO of Figmints Digital Creative Marketing based in Providence, Rhode Island. Welcome to the podcast, James. JAMES: Thanks so much for having me, Rob. ROB: Excellent to have you here. Why don't you start off by telling us about Figmints and what is the superpower of Figmints? Where do you excel? JAMES: I like that. Figmints is a 20-person, full service digital marketing firm. Started here about 8 years ago. My personal background – I guess I'll tell you a little bit of the story. I started in UI/UX and design. Actually, I have a degree in culinary, so that was where my creativity journey started. Got to find out that I couldn't be as creative in the kitchen as I'd like to be, and I wasn't that good at it, so I left to do design work. I could be more creative in front of a computer, so I started to do design and became what I call one of the first UI/UX designers because that category really didn't exist when I started. I was Employee #5 at CVS.com, helped them launch that award-winning site at the time. Worked at BEAM Interactive, got to work on some really high profile, awesome sites like Mini Cooper, Virgin Mobile, Deutsche Bank, the list goes on and on. Name drop, name drop. I started the agency because I really enjoyed working with small to medium size firms. Fell in love with marketing somewhere along the lines. I fell in love with business, fell in love with marketing, just this infinite pool. Today, we're really focused on accelerating leads to sales through a program we call SalesAmp. It's like a BDR as a service. What I've learned through the years – I don't like the term serial entrepreneur, but I guess it describes me because we have probably four or five different sub-brands that I've launched. Over the years, actually, it's like nine. But today we're still working on four or five of them. I've had a blast getting to trial things very quickly, test things very quickly, trying to measure the growth very quickly. And we do that for clients as well as ourselves. ROB: Right on. BDR, business development representative – a lot of times this is somebody who's banging the phones, banging emails, possibly even sourcing or scraping leads or has some process feeding into that. How does that thread go from a background in UX and UI to sales assistance? JAMES: Great question. What I love about design is coming up with creative solutions, and when I started the business 8 years ago, I realized that you get to really be infinitely creative in business itself. There are major levels you can pull within business operations, HR, people, but especially, of course, in sales and marketing that was the area that was closest to the world we were already living in, doing websites and branding and brand story. We merged about 2-½ years ago now with another agency. The CEO there is now our president, April Williams. She had developed a system that she called SalesAmp, and we really added a digital layer as they've folded into our agency. That process, we think, is really transformational. We have a lot of great clients. Philips Healthcare is a client of ours. That's probably our biggest. GE ABB is a client of ours. Lots of medium size clients as well. But the whole idea is sales and marketing typically don't like each other. Well, in a lot of businesses, they typically are frustrated at each other because marketing wants sales to take leads earlier, sales wants marketing to push leads further. There's this gap that happens in the middle, and we thought this was a tremendous need. So we actually developed a process to not only develop the thought leadership, the content marketing, the funnel, but also have an inside sales team that reaches out on behalf of the client to hand-hold that prospect all the way through till they feel comfortable having a conversation with the sales team. These larger organizations have felt tremendous benefit from having this service from us because it reduces that frustration. Salespeople are busy; they flat-out just don't want to do it. [laughs] So yeah, we've had a lot of fun putting this together. ROB: That's really interesting, and that makes your journey make sense. If we were doing conferences this year in 2020, you and I might have been speaking face to face at HubSpot's Inbound conference, where you were speaking. We've recorded there the past couple of years, and quite often we've talked to BDR/SDR as a service companies, but they're usually coming more from the perspective of building lists and then banging out calls for those lists. Do I understand that you're actually generating warmer leads and then also pulling those leads through to some point where you hand them off in the sales process? JAMES: Yeah. Not to give away too much of the special sauce, but for the value of this podcast, for the value of your listeners, I'll share with you what we've found to be more impactful is actually running the good old-fashioned HubSpot inbound process specifically for salespeople. We run that process on their behalf – because you're right, a lot of these outbound sales/boiler room type of “I'm going to call 1,000 people a day,” those tend to fail because they don't get the story right. The game is just numbers, “I'm going to call as many people as possible.” But the inbound process is all about connecting the right content, having as much helpful content as possible to that exact right audience. What we're doing is combining both of those worlds. We want to develop that content, do it on behalf of the sales team, and then as people engage, we're reaching out to those individuals. As people download, as people attend the webinars, as people start to engage with that content or even open an email, those are the people we reach out to. And then on the calls, we're actually leading them into more content, bringing them further through that journey. That I think is pretty different than a lot of companies out there that are just a roomful of salespeople reaching out. ROB: That definitely makes sense. Where do you get to the point where you hand that lead off? Are you sometimes able to bring them all the way through to closing sale, or is there typically a point where you're handing them off to an account executive, an AE or something like that? JAMES: Yeah, we're working on a program where we can bring the deal all the way to close. Of course, there's a lot of complexities. Most of the clients we work with have long sales cycles. They're very complex deals. You have to have some industry knowledge to be valuable there, to actually make the close or get people to sign on the dotted line. But what we do is become educational ambassadors. We know enough about the business to be able to guide that individual, and once it becomes complicated or once the questions become a little too complex for us, we'll immediately tee it up for that salesperson at the company. ROB: Got it. I want to pull on one thread you mentioned earlier. You mentioned a point of merging with another agency. Quite often, especially when you get to being more entrepreneurial, I think a combination of let's say ego and logistics and financial concerns can be an obstacle to getting together – JAMES: Just those little things. [laughs] Yeah. ROB: [laughs] Nobody has those problems. How did you come to this point where it just seemed to make sense to team up and pursue a whole that was more than some of its parts? JAMES: I'm going to throw a lot of that to April, who was the CEO of this previous agency and is now our president. There was a lot of humility from the start. We met each other actually at a faith-based Christian CEO roundtable group, and we've known each other for a few years. That story – we like to use the word supernatural. It feels like it was more about the things that were happening, and we were going along for the ride, really, and submitting a little bit to what we felt like was the best way to move forward. You can see that story, and I would highly recommend anybody to check out that full story, on our website, on our About page. I think there's a 4- or 5-minute video that explains the process there. But all the work that was done to start that humble process was really from April, and I was following along. ROB: We will look to get that video into the show notes. It's a great point that so often, some of these roundtables, some of these accountability type groups where you open up a little bit could be a place where you open up enough to figure out how you and someone else can work better together. Makes a ton of sense there. We mentioned Inbound, and at Inbound you gave a talk, and your talk was “My Cheat Sheet: How to Growth Hack Five New Companies or Offerings This Year.” Tell us about that talk and what some of the key takeaways and maybe even key questions were from that. JAMES: That talk came from our merger, I'd say was really the catalyst. It freed me up to dwell and live in – I think my gifting is ideating, looking towards the future, thinking about where we could create new products, new offerings. In the past, we really only ever had time to do half to one product or offering at a time, and we'd slowly test them. I realized that this probably means we're spending too much time trying to develop that offering before we launch it out. Obviously, as a speaker, I wanted the title to be as provocative as possible, so I made the argument that you shouldn't just start one offering or one new company; you should try to start five. It's kind of an arbitrary number. Three, five, ten – you should start as many as you can that warrants – that you think is a good idea. Go and test those MVPs (minimum viable products) out there. Very quickly into that segment, I talked about a few different reasons why you would want to do that. One, 80% of these ideas are going to fail, whether it's a new company or a new offering. So hey, if you start five, maybe one will succeed. It gives you this massive leap ahead. It gives you this opportunity to play in this blue ocean where your competitors may not be thinking smaller, running those MVPs, making sure that you're testing the biggest parts of the idea. It forces you not to spend too much time on it. And then of course, you get some thick skin. After failing many, many, many times, it becomes second nature, and you start to move forward much more quickly. ROB: This may tie together; you mentioned that your company had at one point up to nine offerings, and now there are five. Are there lessons and maybe an example of one of those that was an experiment and one that was put to rest? JAMES: Yeah, there's so many failures in there. [laughs] Happy to talk about it. Very early on, we built a platform for the wedding industry. Early on, when we introed video as a service, we were doing videos for weddings to make ends meet. We quickly knew that this needed to be not part of our brand, so we created a separate brand for that. The wedding industry is an entire universe. For any of your listeners who might be in the wedding industry, it is complex and unique and special, and there's a lot of people that you need to know and a lot of ways that you do business in it that are different than other industries – which I guess you could make the argument is true for every industry. But we quickly realized that we need a champion for this. We need a champion for any of these products that we create or sub-companies we create, and I couldn't be the best champion for it It did fail. We wound up twilighting the offering. There was actually a software component that was added onto it. But it was a lesson learned that the offering was a little too far away from what we do. Today, a lot of our products that we're testing are things that we can actually use ourselves or we can use for our own clients, which makes it a little bit more – the resources make sense to allocate for ourselves. ROB: How do you think about when it's too soon to put an idea to rest or maybe recognize after the fact that it was a little later than you should've turned it off? JAMES: I think it's always later. In hindsight, we should've stopped maybe at the beginning. [laughs] But I think you realize when you run out of money, certainly. I set some ground rules. “Hey, this can't take more than this much time” or “You can't spend more than this many dollars” or “We want to see this many customers come in and this type of feedback.” It's a good example of where everything was going the wrong direction. Our feedback was starting to get worse, it started to slip way behind in the priority, we couldn't devote as much time or dollars to it, and so we made the – I won't even call it a difficult decision. We made the very real decision that we needed to put an official stop to that project and move on. ROB: When you talk about feedback, some people are very numbers-driven and some people are very intuition-driven. Was that assessment of the feedback and the priority more of a gut feeling, or was that a measured consideration? JAMES: I'd love to sound smarter and say it was very measured. [laughs] At the time, that was one of our early ones, and it was a little bit more gut, which means we probably spent more money than we wanted to or needed to. But today we have much more strict measures of when things are going off the rails or when it feels like it's not getting the attention it deserves or we're getting feedback from our clients. I think you need both. You need to have some soft measures, asking people what they think, scale of 1 to 10. You start to create metrics around soft measures, which I'm a fan of. ROB: What's another offering that maybe is a little bit further along that was an experiment, but now looks a little bit more promising? And where did it come from? JAMES: At the end of my talk at Inbound, we created an offering that was born from this process. I give a little story about Tim Ferriss, which I'm sure you've heard of and maybe your listeners have heard of. Tim Ferriss is a prolific startup and entrepreneurial writer. He wrote The 4-Hour Workweek. There's a story about how he wrote the second book, The 4-Hour Body, and the way he arrived at the decision to write that book was really clever. Instead of surveying people or writing a chapter or anything like that, he designed a handful of book jackets and went to a bookstore – if you remember what bookstores were, they were these places people go to buy books. [laughs] This is probably illegal, so I don't recommend this necessarily. He took the books off the shelf and he swapped the jackets with his book jacket and he put it back on the shelf, and he stood back and actually tallied as people stopped, picked up the book, opened the book. He would give them scores – a point for stopping, 2 points for picking up the book, 10 points if you tried to buy the book. Then he arrived at the decision to write 4-Hour Body. And the subtitle of 4-Hour Body is “An uncommon guide to rapid fat loss, incredible sex, and becoming superhuman” – why would you not want to read that book, right? But that process, since we don't have bookstores anymore, or I don't recommend this same sort of process, we've developed a similar system using Facebook advertisements and other advertisements where we create what we call fake ads. They look like real ads, but they point you to a very generic landing page that captures information and lets you know that this is coming out later. This program, we like it a lot. We think many companies would benefit from it, and we've developed a separate offering just to do these validation tests. We call it BentoSpring. Bento like bite-size, spring like launch, so bite-size launch. The term “Bite-Size Launch” was taken, I think, so BentoSpring was our next best name. We're piloting that now. We're getting that off the ground. I think it's definitely still valid. But this is a great example of a product that we could use that we offer to our clients. It's relatively inexpensive, so when we offer it, we say, “Oh, we actually have an offering we call BentoSpring.” It could be its own separate company, but it doesn't need to be its own separate company. We have the offering out there, and if people want to engage with it, they can give us some money and do it. ROB: I can certainly see that sort of thing – from a distance, you can see the tea leaves. Even if you told somebody, “We have a scoring system like Tim Ferriss's. We give points for likes, we give points for comments, we give points for clicks, we give points for form fills” – the actual process of doing it could very easily be something that a client doesn't want to do. JAMES: Sure. They don't know how to do it. They don't know how to do it, they don't have an ad platform set up. Again, this is designed even if you wanted to start a brand new company and you have two or three in your ideation phase. “Gosh, these are all great companies,” or “These are all great things that I could be doing. Which one should we do?” Well, let's go test it. Let's go build out a bento test and test some ads out there. Let's see which ones are easier to set up, which ones can get the most impressions versus will see the most click-throughs. And then you have these prebuilt ads. Once you get that up and going, you can just re-run the ads and point them to real offerings. ROB: Exciting stuff there, James. JAMES: Thanks. ROB: We've talked a bit about your journey along the way. As you reflect on the 8 years since you took the leap and started the business, what are some things you've learned along the way that you might do differently if you were starting over? Maybe some broader lessons on running the show, more than maybe individual offerings. JAMES: One of the biggest lessons I've learned as an entrepreneur – and about myself, so this may not apply to everybody or all of your listeners – but for me, I'm a fan of optimization and efficiency. I love setting up systems. I think that's why I fell in love with marketing. I fell in love with HubSpot because we can create these systems, we can create workflows. You can automate a lot of that engagement and follow-up and process. I use sequences every day. I have probably several dozen pieces of software that combine together to make my workflow easier. But here's what I found out. There is no way to love people efficiently. You cannot do it. Loving people is designed to not be efficient, or relationships are designed to not be efficient. So early on, there was a lot of friction in the business because I would hire employees and they'd stay a year or two, and I'd get frustrated when people get that millennial itch. I had somebody say, “James, I've been here two years. I learned everything I could. I think I'm going to leave and travel the world.” And that guy did really well. But today, we've held our employees a lot longer. We're invested in our employees to see them grow, painstakingly taking time out of the day to set up one-on-ones with every individual, more one-on-ones with the people closest to me in the leadership circle. Those are the things that have been very painful lessons, but such powerful lessons growing the business to where we are now, about 20 employees, multi seven-figure. But that's something I think could be its own book of lessons, per se, for loving people, caring about people, just treasuring this opportunity that I have to make an impact on their lives. ROB: Really helpful. One-on-ones are such a key connector of that. You mentioned days. Are you doing those mostly weekly, or more often or less often? You said some people are a little lighter cadence if they're not as close to you in the organization? Maybe you do more of a touch base on occasion? JAMES: One-on-ones seem like such a simple answer. If I say it, some of your listeners might think, “Of course, I'm going to do one-on-ones.” But you wind up not doing it unless they're really regimented. I recommend highly that – first of all, we run on an operating system called EOS (Entrepreneurial Operating Systems), a book called Traction by Gino Wickman. Once you start to get into peer groups, you'll hear the EOS model over and over and over again. So I highly, highly recommend looking at EOS because it gives you a framework for meetings, a framework for how you do business, how you set it up, how to look at finances, how to look at hiring, core values, etc. It makes the argument that every business runs on an operating system – some on purpose and some not. The EOS model recommends doing one-on-ones at least every other week. I would say as the visionary or the leader of the company, with my integrator, who's April and my number two, she and I meet every week and we have a one-on-one cadence there. Then with the rest of the leadership team, I meet with them at least once a month. I do two or three one-on-ones a week, and the gaps are filled with the rest of the team. Other members of the team might have rotations with me once every 6 months, which I think is fine, but they're doing one-on-ones with their direct reports at least once every other week.  ROB: It's such a helpful tool. It's so good for empathy, for relationship, and coupled with process. When we do our one-on-ones, I have a cheat sheet. I take notes. I don't take the best notes on it, but even the simplest things of making sure you jot down the names of their family members and key milestones, those sorts of things – it's process, but it's process that, to your point, helps you love people well and maybe at a little bit better scale than just relying on your brain. JAMES: Totally. 15 minutes. Here's just a few of the questions we like to ask. One, we always start off with that personal touch: “Hey, how's your wife doing? How's your husband doing? How's your boyfriend/girlfriend? How are the things that we last talked about? I heard that you just bought a house. Congratulations. How's that going?” Then we dive quickly into “What's going well? What's not going well? What would you be doing differently if you were in my position? What information can I give you that you might be curious about in the company that you may not have regular visibility into?” This is a key one. I love when we both share, “What can I keep doing, start doing, and stop doing?” This is a really helpful framework. Keep doing is an opportunity to say “Hey, you're doing a great job. Love that you're doing X. Please keep doing that. I notice that you weren't doing Y. Can you start doing N? Also, I noticed this thing. Maybe you should stop doing that.” But the opportunity for the other person to say the same to me – what should I keep doing, start doing, stop doing? – opens it up. And honestly, if we'd had the opportunity to do that earlier on, I think we would've kept employees longer, they would've been happier, and I think we would've been able to see those frustrations or those pain points that there're bottling up internally and made decisions about those and tried to make some shifts around those sooner. It's pretty simple. I think employees just want to be heard. ROB: Absolutely. Much like killing a product offering, it's one of those things you will only realize that you started doing too late. We were talking a little bit before we started recording about taking your office virtual during COVID, so I'd imagine one-on-ones are an easy habit to keep going, but in terms of other habits and systems and things you had going in the name of the culture of the organization and connecting people, how has that changed and what are you doing differently now that you've embraced virtual? JAMES: What a great question. I wear this very proudly, so I'm going to take off the humble hat and say that I think we've been doing really well culturally as a remote agency. We've been practicing going remote once a month for the last 5 or 6 years just because we're very capable of it, and employees like going remote. We actually give all employees a day a week where they can go remote themselves. We were built to transition to remote fairly easily. We use Slack, and we have our virtual meeting rooms and things like that. But I'm very impressed by the way April and the team have risen to the challenge and stayed together culturally. We've always done a Monday morning huddle with the team, and that's continued, but we added a second meeting, a Wednesday morning check-in where we don't do any work talk. Or typically we don't do any work talk. We actually play a game together virtually. This has been really fun. We do online Pictionary, we've played Scattergories, Taboo, Bingo. We told scary stories. It's 30 minutes, 9:30 on Wednesday, and it's just a lot of fun. We make it the team's responsibility, so every team member, we rotate, they bring their game, and then they teach the game and we just play. That kind of culture has just kept us sane, I feel like, and it's kept this rhythm of “Oh, it's easy to keep this process going.” So that's been really helpful. And now, as the restrictions ease up a little bit, we're actually starting to do the opposite where we're trying to meet together more often and do things outside, have barbecues, bonfires, and have drinks together. We did a kayaking trip. Here in Rhode Island, we have the beautiful ocean. We're the Ocean State, so we have beautiful water activities we can do. So, keeping those things fresh has really helped our culture, and I feel like we've done a tremendous job at that. ROB: That's super solid. I think you are pulling towards what I'm seeing emerge also. “The new normal” is overused, but I think historically, many companies, including yours, and mine for that matter, have been default in the office. Not in the office is unique. We're probably moving more towards default remote and sometimes you're going to do something together. That's kind of what you're describing. There's a coworking space here that has an outdoor – they have like 50 picnic tables, and it feels nice to be near people without feeling uncomfortable being near people. I know that's kind of a weird, convoluted thing, but in our reality. I think you're really interestingly there. JAMES: Yeah, totally. There's just new things that we need to consider. Like since we're saving on office snacks, we just started to give our employees a stipend so that they can buy their own snacks or buy remote work setup that they can do. We're shifting some of the dollars that we did spend or we have been spending over to areas that make more sense. Those get-togethers or working together, sometimes we have a Zoom room open where we just aren't talking to each other; we just have it open and see each other's faces while we're working, which is really nice. Or getting together one on one to work together for half a day and just work next to each other. Not for any particular reason or particular meeting, but just to be in the same space, which is I think helpful for your psyche. ROB: Awesome. James, when people want to find you and they want to find Figmints, where should they go to find you? JAMES: Figmints.com. Fig like the fruit, mints like the candy. You can reach out to me, james@figmints.com, or on our website I think we have most handles @figmints, so Twitter.com/figmints, and Facebook. But email is pretty good, website is pretty good. We're not so big you can't get in touch with us. [laughs] ROB: Excellent. James, thank you so much. Maybe someday we'll go back to conferences and hear you speak live. Until then, thank you for joining us here virtually. JAMES: Yeah, Rob. Thank you so much for inviting me. I appreciate it. ROB: Be well. Thank you for listening. The Marketing Agency Leadership Podcast is presented by Converge. Converge helps digital marketing agencies and brands automate their reporting so they can be more profitable, accurate, and responsive. To learn more about how Converge can automate your marketing reporting, email info@convergehq.com, or visit us on the web at convergehq.com.

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Episode 252: California Dreaming 2.0. James Just is a Sacramento, California, native who studied marketing management at Western Governors University, with a lifetime focus on self-education. Just has had a career in family and blue collar work, from gig work, office work, warehouses to the assembly line. Just excels at managing small, diverse teams focusing on continual improvement, personal growth, and community leadership opportunities. He has used these skills working on a campaign for governor, being Vice-Chair for the Sacramento County Libertarian Party, and being on the production team for a public access television show.

Episode 252: California Dreaming 2.0. James Just is a Sacramento, California, native who studied marketing management at Western Governors University, with a lifetime focus on self-education. Just has had a career in family and blue collar work, from gig work, office work, warehouses to the assembly line. Just excels at managing small, diverse teams focusing on continual improvement, personal growth, and community leadership opportunities. He has used these skills working on a campaign for governor, being Vice-Chair for the Sacramento County Libertarian Party, and being on the production team for a public access television show. --- This episode is sponsored by · Anchor: The easiest way to make a podcast. https://anchor.fm/app

James: Hey, audience and listeners, this is James Kandasamy from Achieve Wealth True Value-add Real Estate Investing podcast. Last week we had Kevin Bupp who's an awesome syndicator and a sponsor in the mobile home park space. And he gave a lot of insight on why did he choose mobile home park and what happened during 2008. And you know, how he rebounded in his real estate career and a lot of other things. So you guys want to check out that episode.  Today we have Todd Dexheimer. Hey Todd, welcome to the show.   Todd: How are you doing?   James: Good. Good. Very good. Very good. So Todd owns almost 550 units and he has been buying in Minnesota, Wisconsin, Kentucky, Ohio, Tennessee. Is that right, Todd? I mean, is this all that you're focusing, which is completely different from the usual guests that we get who buys in Florida and Texas, right? So I want to really dive into these States, which is not the usual focus or not the usual point of discussion that you know, a lot of multi-families syndicators and investors have. So let's talk, you know, Todd, why not you introduce yourself in case I missed out something?   Todd: Yeah, sure. I mean, you know, a little bit about my background. I started doing this business actually right when the crash happened. I started in 2008 so the timing was great. At the time people were telling me I was stupid and crazy because the sky was falling, you know, but luckily I didn't listen to them. I, you know, buck the Trendon instead of running away, I ran headfirst in. So started buying single families, did a lot of fix and flips, did a bunch of them, probably 150 or so, and was really, they'll want you to focus on rentals at the whole time. So while I didn't have any money as I flipped, I would just keep a little bit of that cash that I would get from the flip and buy some rentals. And that's how I was able to build up my rental portfolio.    Bought a lot of one to four families, some small apartments, did that all locally in the twin cities. And I got up to maybe close to a hundred units just under that at one point in time before I kind of transitioned them. Yeah. Out of the flips, out of that smaller one to four family stuff and into apartments, I've since sold a few buildings in the twin cities, but I've been buying in mostly out of state; in Cincinnati, Kentucky area Tennessee. That's been my main focus now is just buying... I went from buying kind of 20 to 30 unit type buildings to then now and buying larger hundred-plus unit buildings. So that's my main focus now is looking at a hundred plus unit buildings and doing value add syndication.   James: Awesome. Awesome. I mean, looking at your bio, you also have done some office, some ski resorts, some mobile home park. And finally, I think now you're focusing a lot on, I mean, you have been focusing a lot on apartments, right? And why is that? I mean, didn't the other businesses make a lot more money than apartments?   Todd: Yeah, I mean, everything made plenty of money. They all make sense. And that's the beautiful thing about real estate and the confusing thing about real estate is it all make sense, right? I mean, you know, I can make a lot of money in office, I can make a lot of money in retail and warehouses and all kinds of stuff, and I can make money in development and owning land and mobile home parks. I mean, you talked about Kevin Bob, he's a fantastic guy. He's making a lot of money, I'm assuming, in mobile home parks. And so that's the beautiful thing about real estate, but you got to pick your focus, right? And so, yeah, I did some development, I did some land, like you said, I owned a ski resort, which is just super random.   James: Do you still own it?   Todd: I don't, I sold it. It was a distraction. It was a beautiful place. Look, it was like 190 acres or something like that. It was beautiful. A really nice river ran through one of the edges of the property. It was nice hills and it was an amazing property, but you know, it was a distraction and you've got to get focused. And I actually talked to my...   James: Can you hold on? Sorry, my dog is disturbing. Hey, Todd so it looks like you have done, you know, quite different types of business, right? Like an office, some ski resort and some mobile home park and you know, you started with smaller common, complex and all that. But finally you ended up focusing a lot on a common complexes. Right. And why is that?   Todd: Yeah. because apartments make you a lot of money. No, the answer is I needed to focus on one main thing. And I could've chosen office, I could've chosen retail and warehouse or buying, you know, distressed land, like the ski resort and I did all that. But there's just no focus when you're doing just random stuff like that. And I wanted to really focus and I wanted to build something big. And so ultimately, it was a choice of, okay, what do I really enjoy and what do I really want to focus on? You know, the beautiful thing about real estate, there's so many different options, every way makes money.   And I've gotten friends that do note buying. I've got friends that, you know, flip houses that wholesale, that do land development, everything. And they all make a lot of money if they focus on it and they do it well. So that's why; I just had to focus. I just had to have one niche that I picked and ultimately I was most attracted and most led to multifamily.   James: Awesome. Awesome. So looking at the States that you have invested right now, I'm not sure whether, you know, like the popular state, I would say like Texas, Florida, Las Vegas, Arizona, Phoenix and all that, right? I mean, how is the market different compared to this populous state? How's the market in Minnesota, Wisconsin, Kentucky, Ohio, Tennessee, different from the other markets that a lot of people know?   Todd: Yeah. So first of all, Minnesota is a totally different market than all of them. Minnesota is a extremely competitive market. You and I talked offline. I mean, it's a super competitive market. There's very little inventory, very competitive. Cap rates are extremely compressed. almost impossible to find deals. Not that you can't, but I mean, extremely hard. There's just not a lot of deals that sell, especially when you're talking a hundred-plus unit deals, just not a lot of deals itself.   James: The twin cities are there, right?   Todd: Yup. This is Minneapolis and St Paul, the twin cities. You know, if you go way out state, it's a different story, but you don't want to invest there cause nobody lives there. So if you're going to remain populous, which is Minneapolis, St Paul or the Rochester area, which is where the male clinic has...a lot of people know what the male clinic is. It's one of the best hospitals in the US, those are the two areas of most people are investing in and it's next to impossible to find a deal.   James: What is so special about these twin cities? I mean, now it's like what Phoenix and Las Vegas, but past three, four years, I mean, I used to read Marcus and Millichap report and they always say the top city to invest in is twin cities. And I can never Google it. And now you're telling me that it is the twin city, right? What's the real definition of it, where it's located and what is so special? Why is it the top city?   Todd: Yeah, well, look, I mean I think we're the 16th largest Metro in the US, if I'm correct and I think we've got 3.8 million people in the whole Metro area, which we called the twin cities. We have a large portion of Fortune 500 companies are based here. It went down recently because there have been some mergers, but they're essentially still here. It's just a couple of companies that merged. So we've got a very large amount of Fortune 500 companies. It's just a stable, steady place, right? We're never going to have big population gains, but we don't have population loss and our rents never go skyrocket up. I mean, they've skyrocketed recently, but we call skyrocketing three and a half percent increase, you know, that's skyrocketing for the twin cities as far as rent goes.    But we're going to see, you know, that just stable, that really stable, it's never that up and down. It's not like a Phoenix, it's not like a Florida, it's not like that. Just that roller coaster ride, we're just straight. And so people like that. Our occupancy rate in the twin cities is, I mean, I think we've now come down a little bit, but we're at about 97% occupancy up until fairly recently.   James: On average. Wow, that's really good.   Todd: That's amazing. People couldn't find places to live. I mean, if you were an okay landlord, you were full. The only people that weren't full were just the slum Lords and even they were close to being full.   James: And that probably could be the reason why, you know, you can't find inventory, right? Just there's no inventory. Right.    Todd: Yeah. Yeah, it's good. So the difference, that's one market. And then, the other markets that I'm really focused on are going to be like Cincinnati. Now as you start to really look, Cincinnati's in some of the lists now, market is to be looking at, and I just looked up the other day, like the cities with the best population growth, job growth, and Cincinnati was on there. So you're starting to see the markets that I'm invested in beyond those lists and they weren't on there before. So basically what it was is through my research, I wanted to find markets that hit all the criteria that I'm looking for. That's job growth. That's population growth, that's strong government and independent support for businesses, bringing in businesses. That's good rent affordability. That was huge on my list. I wanted cities that had good rent affordability, opportunity to purchase assets that were cash flowing with decent cap rates.    I wasn't necessarily looking for like a 10 cap, but I want decent cap rates. I wanted a market that I didn't feel like compressed to the point of where when we do see whatever recession is coming next, that they're gonna go way back up. And so those were the markets that I really tried to focus on. And that's what I feel like I've found. Now, since I found them, they have definitely compressed a lot more. You know, it's challenging, but when I first started in those markets, there's a lot of opportunities and there still is.   James: Got it. Got it. So how was your experience from going from buying and flipping houses into syndication, right? Why did you make that leap into syndication?   Todd: Yeah, flipping houses suck. It's a lot of work.   James: I mean, I've tried two times and I promised myself I'm not going to do it again.    Todd: Yes. It's just so much head damage in flipping houses. And can you make some good money? Yeah, I made some good money. I'm not gonna say I didn't, but there's just a lot of liability, a lot of head damage. You're dealing with a lot of contractors and you're in use always, and homeowners and emotions and it's just...you're always grinding. You're never...not that like I care about it, I enjoy grinding. I mean, I do it in multifamily right now, but I feel like I'm actually getting somewhere; where with the flips I felt like I was on that hamster wheel or I got to buy one and I got to immediately find another one and I'm always like running in a circle. And so that was kind of the reasoning that I wanted to get out of it.   Plus I'm paying, you know, short term capital gains or ordinary income, I just didn't like that. Now multifamily syndication made a lot of sense because I had a lot of investors. When I was doing flips, I was bringing in private money to my flips. I wasn't using hard money. I was using just private money. People I've met that wanted to invest in my deals and that's how I got them involved. And so when I wanted to transition into multifamily, it was pretty easy to say, Hey, this is what I'm doing. If you want to come on board or not. And all my investors said, yeah, let's do it.    Ultimately that was what James I wanted to do from the very start. When I first started this real estate journey back in 2007 when I started reading books, before I ever bought anything, I read several multifamily books, one by David Lindel called multifamily millions and another one by Ken McElroy called ABC's of real estate investing and I loved those books and that said, this is where I want to go. And I had always been kind of obsessed with it, but I had no clue how I was going to take down $1 million-plus building. And so, I just kinda got scared and let it fall by the wayside.   James: So how did you take that leap? Who helped you and was it like a aha moment? One day you wake up and you bought it or?   Todd: I had a business partner and ultimately it was time for us to kind of separate and go our own ways. I wanted to do something different than the flips and wanted to take this multifamily leap. I started by buying some smaller, you know, as I said, 10 to 20 to 30 unit buildings and that was making a big step there. And then just started like listening to people on podcasts and going, no, why am I doing this? I hired a business coach too and I remember talking to him and going, I think he said, like, what? Why are you buying another 20 unit? And I said, well, you know, like I got to keep on buying these and then eventually I'll get up to, you know, hundred-plus unit buildings. Why not do it now? And I'm like, Oh yeah, why not do it now? So it's just like somebody just needed to tell me like, what are you doing? Let's just do it now. Like, and it wasn't like, Oh wow, that's a scary thing. When he said it, I was like, well, yeah, yeah, let's just do it now. You're right. Yeah. So I don't know, sometimes you just gotta be told like, what are you doing? Just go do it.    James: Just go do it. Yeah. You just need someone to, I mean...   Todd: Just a little kick in the pants sometimes.   James: A little kick or a knock on the head, hey, you can do it now. Right. Why not you do it? Right. So that's very interesting. So what are the things that you when you started syndication, right? I mean, when you look at a deal, when you get a deal, I mean, first of all, you're already finding it hard to find inventory, right? But whenever you find an inventory that comes to you, what kind of things do you look at?   Todd: I'm sure kind of the same as most people. I'm looking, you know, beyond the city and the neighborhood, which I already kind of mentioned. I'm looking for that population growth, that job growth, I'm really digging into the neighborhood too. And I want the neighborhood to have the same fundamentals that I'm looking for in the city. I want that specific neighborhood to have too and low crime and that growth is what I'm looking for. So beyond that though, as property-specific, I'm looking for an opportunity that has something wrong with it. And it might have really high expenses that I can take down. You know, utilities are a big one where people aren't, you know, we can put some like led stuff and we can put low flow toilets and we can do energy-efficient stuff that's really going to cut down on our bills and increase our ROI.   We can do RUBS which is ratio utility billing and where we're charging back to the tenants,  those people who don't know. And then potentially, you know, depending on how the property is being run, there might be some other potential small things that we can do. And then of course on the income side, we're looking at can we raise rents by doing improvements to the property? We don't like to raise rents just to raise rents, I like to provide something good for my tenant base. And then, you know, there might be other things, like there might be a just occupancy issues that the other management company or other owner just wasn't on top of things, collection issues. Potentially. there are crime issues or there's other just management issues at the property where they have the wrong tenant basin and we can correct those problems that are happening.   James: Got it, got it. I mean, out of these five cities, five states that you invest in, is there any difference in landlord friendliness within this city?   Todd: You know, they're actually all fairly similar as far as this landlord friendliness. They all have different quirks to them. You know, some of them might have to give a like a five-day notice to the tenant before you can evict them. Some of them, you can't set their stuff out on the curb right away, you have to give them, you know, like in Minneapolis, if you evict a tenant and they leave stuff at the property, you have to hold onto that stuff for 28 days. That doesn't have to stay in the property. You can put it in storage or whatever. They have time, it used to be 60 days but they have time to be able to get their belongings. So they're all a little bit different. But I would say, all in all, they're kind of probably less right in the middle.   You know, I hear some other States are being better. For instance, Texas I hear is really good. But yeah, you just kind of raised your eyebrows and rolls your eyes a little bit and I've heard that too by other people. And I think what happens is, you know, and not saying every state is the same cause there are some states that I'm sure are really hard on landlords, but I think if you know and understand the laws and understand what you can and can't do to get your tenants out and that type of stuff, most States are just fine. Like it's not that difficult to move tenants. So, for instance, Minnesota, a lot of people have that kind of misunderstanding. I don't know where it comes from that you can't kick a tenant out in the winter and that's not true.    My company just evicted one of our tenants and there's date to be sat out is, I think December 12th. You know, so you can, you know, it's winter here. I mean, December 12th is...next week is going to be zero degrees out. So, you know, you just have to understand it and if you understand the landlord laws, the tenant laws, you're going to be just fine. So get the right people around you, surround yourself with the right people.   James: Got it. Got it. And also, I see in your bio that you have a passion to teach undeserved youth and adults on how to create financial independence. So can you explain about that?   Todd: Yeah. You know, so I've volunteered for a nonprofit called Junior Achievement, a lot of people know that and my passion and I don't know exactly where I'll take it, but my passion is just to continue to do that and raise awareness, raise money and for people who don't have the opportunity to have what we have and do what we do. A lot of people don't even know a business or being a business owner, being an entrepreneur is even like a possibility for them. And it's possible for everybody. Cause there's a lot of people that come from nothing especially, you know, I see people from different countries come here that have nothing or start with nothing and they do amazing things. And there are people living in this country that just don't even think it's possible. Like they don't know that it's there. So I want to just really educate people.    The other thing is I love to figure out somehow how to get financial education into the schools. And that's a tall task, I know, and it may never happen, but that's one of the things I really want to do. I used to be a high school teacher. I really think it's important to teach our youth about how to be responsible financially and just about the amazing opportunities that there are out there.   James: Yeah, absolutely. Especially in the US right. Where it's a capitalist country, right? Anybody can, you know, make a lot of money, as long as they're willing to work hard, you find the right people to be coached on, right. You're on the right path, you work hard, you should be able to make a lot of money. I mean, it's completely different from a lot of other countries out there. I mean, people may not appreciate how much freedom to create wealth in the US unless you have travel outside and you have lived in other countries, right? So a lot of people did not know that, so that's really good. Yeah. I mean, a lot of people take it for granted and a lot of people do think that somebody else owes them something.   Todd: Yeah. It's a hard mindset to change. I mean one of my very first tenants, and this is partly where it came from, one of my very first tenants in a single-family house, she moved in. She had section eight and she said, "You know, I'm not going to have this section eight for very long so could you take me when I drop out of section eight?"  I said, "Oh, absolutely, yeah, as long as your income and you meet the requirements, no problem."  "Okay, I'm going to do that. I'm getting my real estate license. I'm going to get out of this. My mom had section eight, my grandma had section eight and I don't want to be part of this circle." She never got out of section eight. I had to actually evict her because she wasn't even paying her portion of the rent and I don't know where she is at today. I'm hoping she's out of section eight but my guess, my gut is she's probably still in section eight and never learned really what to do and how to get out of it. And I'd like to be able to help end that cycle.   James: Yeah, that's a very good thing that you're doing because I think sometimes they need someone in the business circle to go back and, you know, just tell the possibilities out there in the business world. So, yeah, that's very important. So, Todd, when you look at the multifamily apartment, I'm presuming you're doing a lot of value add deals, right? Is there anything that you find in terms of what the most valuable value add when you're doing all this turnaround?   Todd: I mean, it's different for every project, but one of the things I like the most is trying to find expense, just expenses that we can cut but efficiently cut. Like I don't want to just cut repairs and maintenance because those are going to come back. And they're going to probably come back and bite me because I tried to cut those and be cheap. But now if we can do things, we can cut down by buying in bulk, by buying the right materials, by being efficient at our scheduled repairs versus just randomly doing it when it finally breaks. If we get into a more of a rhythm and a schedule, we can actually cut expenses, which a lot of people don't understand. Like how is that possible? Cause we're always on the property and always scheduling things.   But preventative maintenance is actually going to save you money versus having something that breaks, I mean, think about a furnace, right? If you go and you change the furnace filters, every month, you're going to extend the life of your furnace by potentially 10 or more years just by doing something like that. So that's one big thing. The other big thing with expenses and this is my favorite one, and I already mentioned this, is the utilities and cutting back on a lot of the utility costs by doing, there's a lot of different things we can do. We can replace the toilets with the low flows, we can put on a water reading system where it can tell and it can send us a rating if we have a water leak. You know, just silly things like that that seem like they shouldn't, you know, save you that much money, end up saving you a ton of money.    And the reason why this stuff is my favorite, the expense reduction is my favorite is because this is a recession-proof system, right? If we cut our expenses and a recession whacks us, guess what? Our expenses are gonna go way up. But if we jack our rents up today and a recession happens, what happens with our rents? They go back down. Right? And they do, and I don't care what people tell you that multifamily rents don't go down, they do. And so, so raising rents while I like that, and I'm not going to tell you we don't raise rents, but we know that by cutting expenses down, as long as we do it the right way and not just cut to cut because we want to be cheap, but if we do it the right way, that's recession-proof and that's going to continue to keep our NOI high during the recession.   James: That's a very interesting perspective because yeah, you're right. I mean, rents can go up and down, right? But once you optimize your expenses, you're probably going to be, you know, sticking to it, right? So you could invest on your expenses. That's a very interesting perspective. That's good. So Todd, let's go to a bit more personal side of it. So do you have any secret sauce to success? I mean on your personal side?   Todd: You know, I mean, there's no secret sauce, right? It's all out there. It's all about yeah, several different...if you can do the few things, focus, following one course until success...keeping yourself completely focused that's extremely difficult, right? But because we got so many distractions out there, but limiting those as much as we can. You know, never giving up, always pushing on, always continuing to persevere, being consistent and persistent. Those are all really big. I mean, it's very easy in this industry and in any industry to get kind of discouraged. You know, you get beat out on 10, 20, 30, 40 properties and you don't get one and you get discouraged. Look, I haven't bought a property since May. Do you think I'm excited that I haven't bought a property since May? No. I would love to have a property right now under contract, but I don't.    But I'm not discouraged. I'm going to keep on going and keep on pushing on and keep on putting on offers until I get one. So I think those are just really important things to focus on. I think obviously you need to be clear, you need to have goals, you need to understand where you're trying to go with this business. Those are all so important. So there's no secret. I wish there was and I found it, but you know, it's hard work. Being an entrepreneur can be lonely. That's out there all alone. You're getting your butt kicked in but it's a fun business at the same time, there's a lot of reward in the end when you're building something bigger than yourself.   James: Yeah. It's interesting. And even on the previous podcast, we were talking about how the world has changed compared to like past five to six years to now. Because now with social media you feel a lot of FOMO, right? Because you start seeing people are closing deals and doing deals and you are like, Oh, I didn't buy since March. You know, so you have to really, really control your fear of missing out. Especially when you can see everybody, what's happening.   Todd: Stop comparing yourself to others. For one, you don't know what others are doing. You don't know what type of ownership structures they have or anything like that. And when I look at my properties and I really probably dive into them, I have a really good ownership structure on my properties and some people that have three times the amount of units, four times the amount of units than I do, they probably have less ownership, less overall, whatever you want to call it, equity than I potentially have. And so if you want to compare yourself to others, you're always going to be disappointed. You just have to look at yourself and go, I'm happy where I'm at today. You know, where are the goals that I have for myself in the future and where am I today and what do I need to do to keep on pushing on? That's how you gotta look at it. If I look at what you're doing and what everybody else is doing, what Kevin Bop is doing, I'm going to be disappointed in myself. I'm going to want to buy these properties and I'm going to end up doing stupid stuff.    James: Correct. Yeah. I mean sometimes it's surprising. Sometimes people can claim they own a half a billion dollars in assets, but he may be poorer than the guy who owns a hundred units on his own. Cause they had half a billion, they probably own like a what, 10-20% out of it and out of the 20% they probably own like...   Todd: Or half a percent.   James: 30% out of it. And out of that 30% they probably gave so much money for all the capital raises that they are hiring.  And they probably wouldn't do the 0.001 of that billion. Right. So you know, I mean just audience, I mean, you guys really want to make sure that you don't get caught in all this marketing hype that you're seeing in Facebook or LinkedIn. So the real guys are really working. So you'll be able to identify the real guys just by talking to them in terms of what are they doing and how are they portraying themselves? And, you know, talking to their passive investors.   Todd: Yeah, yeah. I mean, there's a lot of noise, like you said.   James: It's a lot of noise and sometimes the rise of social media, I mean, you have a Facebook group. I have a Facebook group. Sometimes they know the amount of I mean just in general, Facebook itself, there's so much of noise out there that it creates a lot of FOMO in a lot of people, so you have to be really watching out for that. Yeah. Was there any proud moment in real estate that you think I'm really, really proud of that moment? I'm really proud that I did something that's gonna stay with you for a long time?   Todd: Boy. you know, I guess just getting started from the beginning is probably what I'm most proud of is that well, like I said at the beginning, everybody goes 2008 that was an amazing time. you're a lucky guy. But at the same time ask yourself this, did you invest in 2008? You know, most everybody listening has to say no because they were either, well, maybe too young or they're running the other way. And I was young in 2008 but I just took that risk, I believed in it and I saw what was possible. And so that's probably what I'm most proud of when everybody else was running the other way, I ran right to the fire hydrant.   James: Yeah, yeah, that's true. I mean, even now it's hard to find deals. I mean, it was the same thing in 2008, it's hard to find deals. Even in 2010, it's hard to find deals, all the time. It's always hard to find deals.   Todd: Well that's the thing is, and you said it, that's perfect right there. And I'm glad you said that because it's always hard to find deals. It's always easy to say there was a lot of deals back then. We might be saying in 2025 that every deal in 2019 and 2020, we should have bought. We don't know right now, but in 2011, 2008, you know, all those years while it was happening, there was not a lot of great deals to buy because the market was totally different than it is today. And you didn't know where it was going to go. You just didn't know. You have to buy on today's fundamentals. You can't buy on to tomorrow's fundamentals because we don't know where that's going.   James: Yes, absolutely. Absolutely. Hey Todd, why don't you tell our audience how to get hold of you?   Todd: Yeah, so I've got several things. If they want to listen to my podcasts, they can definitely listen to that. It's Pillars of Wealth Creation. They can reach out to me if they want to learn more about my company and invest in that kind of stuff. They can reach out to me at my websites venturedproperties.com or they can email me, todd@venturedproperties.com. And then I do coaching as well, run some mastermind groups and coaching. And if they want to learn more about that, they can either email me at the email address or they can go to my website, which is coachwithdex.com as well.   James: Awesome. Todd, thanks for coming on the show, you added tons of value. Give us a lot of perspective of different markets that I'm not familiar with and I'm sure a lot of listeners are not familiar with and how did you, you know, came up in life and you know, you have been giving back as well. So really happy for that. Thank you. Todd: Yeah, definitely. Lots of fun. Appreciate you having me on.   

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

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

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The Achieve Wealth Podcast Host: James Guest: Ben Label Title : Underwriting Phoenix with Ben Leybovich   James:  Hey, welcome audience to Achieve Wealth Podcast. This is where we look at operators around the countries and learn from them. And I really appreciate you being here just because you have thousand and one things to do somewhere else. But listening to us or listening to me on this podcast gives me great pleasure to be with you all. So today I have a very nice guest and I would say a well-known guest in the bigger pockets and outside of bigger pockets community as well. Today we have Ben Label, which is from Phoenix; hey, Ben, thanks for coming.   Ben: How are you? It's a pleasure to be with you. I do a lot of these podcasts, but I have fun every time.   James: Yeah, that's awesome. Yeah, we want to go a bit more into detail, so I'm sure you've gone into a great line in other podcasts as well, but there are a few things that we look for. I mean, I'm an operator. We would like to go into a lot more details, into the numbers and the strategies and all that just because we want to learn and my audience want to learn and we listen to podcasts to learn, right? Because everybody's spending the time to listen to each one of those podcasts and there are thousands of those out there but I think it's important that we learn from each other. Right? So, Ben has been almost investing in multifamily residential real estate for over a decade and he has been on numerous times featured in Bigger Pockets Podcast. I've been following him since the very early days when I started in single family and I've learned a lot of things from Bigger Pockets.   He has been featured on like three different episodes in Bigger Pockets, he is also the creator of Cashflow of Freedom University and author of House Hacking. He and his partner, Sam Grooms, has been a buying deals in Phoenix market. I think they close on 98 units and recently you close on 130 units, is that right? Ben: 117, it's 117, last week we purchased.   James: 117. Okay. So why don't you tell us about yourself to our audience on aspects that I've missed out about introducing you?   Ben: Well, thank you again for inviting me, I appreciate it; I like doing these things. Who doesn't like to talk about themselves, especially when you were so good-looking like me and I guess most often do, it's fantastic, right? Sam is like, not showing up for this, he knows how it's going to go. I don't know, my story has been very kind of public, through Bigger Pockets and elsewhere. Folks, you know, my website, justaskBenwhy.com, my stories are all over that website.   I basically was informed that I have a medical condition called multiple sclerosis when I was in college. I'm a professional fiddle player, but I wasn't able to do that because it's kind of hard to do that when your hands don't work like they're supposed to. So it was a kind of a long path toward discovering some way of making money that wasn't reliant upon my physiology to the extent that music would have been. And I kind of,  through zigging and zagging through this rationale, I ended up eventually in real estate. I bought a few single families first, figured out that I didn't like it, went onto small multifamily, syndicate larger apartments today, with my partner Sam Grooms in Phoenix. And that's kind of my story.   James: Yeah. Hey, thanks Ben. So I remember you, were in Ohio and you moved to Phoenix, what is the reason for that transition?   Ben: Well, there are many reasons. Like everything in life, I think there are synergies that need to take place in order for things to really work and gel and work properly. For one thing, I'm 43 years old, I was 40 years old at the time we relocated. My mentor, who is no longer with me, once upon a time told me, whatever you're going to do, do it by the age of 40. If you don't do it by the age of 40, you're not going to do it in your life. It's a lot easier to keep the ball rolling that's already going than it is to start the ball rolling at the age of 40, midlife basically.   So that was one kind of driving force is that I felt like Ohio wasn't the place where I want it to be but you know, the driving force for that timing happening the way that it did was really, I was cognizant of my age and I just wanted to offer myself and my family a good opportunity, [05:42inaudible] start in a better world. That's one thing.   The second thing is I wanted better weather, I wanted blue skies, palm trees; I wanted low property taxes, I wanted a good business environment, I wanted a lot of growth. If I never see snow in my life is going to be too soon, I'm completely done with snow. I wanted educational opportunities for my children that I simply wasn't able to attain where we were in Ohio. All of those things, just kind of synergize together and we moved so far, everything's working out absolutely beautifully. My kids are having fabulous educational opportunities and my wife has been a very successful Real estate agent; she makes a lot of money. I am syndicating buildings that it's not something I could do in Ohio just because I wouldn't allow myself when we talk about the underwriting, we can touch on why I wouldn't do it in Ohio or Midwest in general. And then, my job as a function of sitting down by my pool and working my way through some spreadsheets and making some offers and my life is a beautiful thing right now. So that's how and why we ended up in Phoenix.   James: Yeah. Let's talk about markets in a short while. So once you moved to Phoenix, I think you met Sam here and you guys started a partnership, right? So my first question is, why do you want to partner up? And second is, how did you choose the partner or how did you choose Sam and what are the skills that you guys see that was complimenting?   Ben: Sure. Well, first of all, the reason I wanted to be in Phoenix is because I want to be in a growth market. We buy only in Phoenix because it is a very, very serious growth market and I happen to be very bullish on it and see quite a bit of runway still. Now, for instance, we took a look at Texas because Texas, everybody likes Texas, but Texas was a market that started recovering like 12 years ago so it is a very seasoned recovery at this point. There are other places, Phoenix among them that is a younger cycle still. So I feel because of that and a lot of other, be it income growth, rent growth, occupancies, a lot of other metrics are just looking better to me in Phoenix than in a lot of other markets so that's why in Phoenix.   The way we met is I was putting a deal together that didn't materialize, it fell apart, but Sam was going to be one of the investors as a limited partner in that deal. It was also a red D and after the fact, after the thing fell apart. Well, actually before the thing fell apart, he called my attention to the fact that I had a mistake in my underwriting. It wasn't a very serious mistake, but it was an oversight on my part and like nobody finds mistakes in my underwriting. So I'm like, who the hell is this guy and how is it that you know? So I started looking into him and the thing about him was he took the offering memorandum and he milked the spreadsheets to reverse engineer my offering memorandum and he found an inconsistency that I had missed. And I was just like, wow! So we had lunch and when that deal didn't materialize, the two of us just kind of got together.   He's a CPA with SCC reporting background, so he obviously has a lot of strengths that are complementary and scalable, complementary to mine. He didn't have operational experience, but he had a lot of bookkeeping and accounting and paperwork wise, corporate level, institutional level experience. And he's obviously a very strong underwriter because spreadsheets are like his bloodline. So that worked and that's why it worked. And the main reason that works, because I like him a lot and I trust him. I don't have to worry about him stabbing you in the back. I would be amazed that ever happened and I don't believe it, he's just a good person. So that's how that worked and that's why we're in Phoenix, kind of the high level, tips of the trees; we like the market and that's why we're together because we have a very complimentary skill set. James: Good. Good. So let's go down into a little more details into the deals that you guys do. So you have told me why Phoenix. So at a high level, Phoenix did go through a huge upswing and the downswing when on the previous market cycle of market correction in 2008, so aren't you worried about that? [10:41inaudible] I think you froze.   Ben: Yeah, we froze up a little.   James: Okay, go ahead. Yeah, I can edit that out. So did you hear my question?   Ben:  You're freezing up again. Yeah.   James: Okay. So nothing now it's good. So my question is, Phoenix did go through a huge downturn, it was a huge swing in 2008 so aren't you worried about Phoenix going through that again?   Ben: You're freezing up, James. Breaking up real bad.   James:  I'm not sure what's happening. Is it good?   Ben: It's good now.   James: Okay. Let's see.   Ben: No, freezing up again.  Wow!   James: Really?   Ben: Okay, you're back now.  Okay, let's try it again.   James: So let's go into the details of the market. Phoenix went through a huge downturn during the last 2008 crash, the real estate and the economy crashed so aren't you worried about that?   Ben: No because Phoenix today is a different market from Phoenix 10 years ago. So Phoenix 10 years ago was very heavily reliant on construction. A lot of the GDP in the state and Phoenix, in particular, was all about construction. Construction is like 10% of our economy today. We have a very diversified economy, meaning; tech, banking, health-care are the three kinds of big industries, they're very well diversified. So additionally, the population growth that we experienced in Phoenix prior to the last cycle was all driven by a snowbird housing. There was a lot of housing being built for people from the Midwest, from Canada. Well, what happens when the economy crashes is these people lose nothing but just dropping the bag and making themselves scarce so we had a lot of foreclosures because of that. The dynamics are completely different now because of the population growth, while we still have people coming in, snowbirds, but we have a lot more true retirement. So this isn't a second home, it's actually the first home for a lot of people that are relocating here. We also still have snowbirds, but by and large, our population growth is driven by economic growth. We're located in a place where you have California over here, Texas over there and Mexico over here, top 20 economies in the world and we're within a day's drive so it's a good place to be in terms of commerce and trade and all of that. And then there are little things like, listen, 20 years ago the HVAC units couldn't even keep up with 115-degree weather and today it's just really a non-issue at all can so life in Phoenix has become more comfortable.   The infrastructure is very new because the whole place is new. The property taxes are extremely low as compared to the Midwest or Texas. The regulatory environment is very friendly to business and as California experiences what it experiences, we are certainly benefiting with x coming out of California and we are one of the places that they're going, Seattle being another one, Texas being another one, but they're definitely coming here. So the economy is very much more diversified than it was prior to the last crash. So that's kind of the big picture view of why would answer no, I'm not, I mean, I'm always concerned. People ask me, what are you afraid of? I'm afraid of everything but you have to be logical about how you kind of respond to things and look at facts. And the facts are that nationwide, last I read, average apartment rent stands at $1,470 per month; in Phoenix, we're at 1070. Maricopa county, which encompasses all of Phoenix and surrounding MSA is the number one growth county in the entire country.   Phoenix is the number two growth city in the entire country. We now have a population of 5 million so we're number five largest city in the country. And with the proper regulatory environment, the low taxes on property, all of those things, insurance costs are lower because we don't have hurricanes, we don't have fires, we don't have all the nonsense right? We don't have the freezing pipes in the middle of the winter, we don't have any of that stuff so there's a lot of positives. So the question people are asking is, hey, here's this growth market. Our rent growth in 2018 clipped at 8.2 %.   James: Wow! That's huge.   Ben: Well that's because we're 1070 and nationwide, you're at 1470. There's a 25% delta in the highest growth market in the country so you are asking yourself, why? Basically, you're saying, why would an average rent in like Cincinnati, Ohio cost more than it does in Phoenix, which has the good weather, all the growth and all of the income growth and all of the job growth and everything and the population growth? So that's why the investors are asking themselves, can Phoenix organically catch up to the national averages? Like forget surpassing the average, can we catch up to the national?   And if you say yes, it's because you see what's happening economically. If you say yes, then if you deploy your capital at five cap and you just sit on it until that process kind of happens on your basis, you're at six and a half gap three or four years later without having to do any value-ads. So this is why the cap rates are so compressed in Phoenix is because people are just making a play on the fact that Phoenix has undervalued. For the type of economic prowess that is currently taking place in Phoenix, it's just undervalued; rents are undervalued, property is expensive relative to the rents. But if you consider the prospects of rents going up, if you look at Marcus and Millichap, they're predicting this year at 6.2%; if you look at Colliers, they are over 7% so again, depending on who you look at. I think we're going to be closer to 7% just because we have such delta and because of what I am personally experiencing in this environment.   We just have a lot of upside, the ceiling is very high. Juxtapose this against Austin, which is stalling out at this point, it is a very seasoned market. The rent growth is stalling out, the vacancies are taking up, so now it's Texas, so can it continue being Texas for the next five years? For all I know, yes, but given the choice to be in a younger cycle such as Phoenix or to be in a seasoned cycle, but in a very strong location, historically that's proven itself, I don't know, that's where people kind of make their bed, I guess and make their beds. I like Phoenix, I'm bullish on Phoenix and I'm not even looking to any place else because if you can be in Phoenix, why would you look at anything else?   James: Yeah, that's exactly my point as well. I'm in Texas and I'd rather invest in my backyard even though it's competitive over here. But in your backyard, you have a lot of control. You can go and drive by and see it compared to somewhere else. I mean, real estate is so localized, it's important for you to know your own back yard. So coming back to the sub-market, how do you choose the sub-market, is there a specific preferring for sub-market compared to the deals itself?   Ben: I don't really worry about sub-markets because I don't buy buildings, I buy stories. So if there's a good story for a specific building, because all it is is that you are looking for a delta, the money is always in the delta. So if you can purchase the building here, but the story suggests that the building,  the future valuation is going to be recognized here, then that's the delta I am paying for, that's what I'm buying. I'm not actually buying the cash flow, I'm not a cash flow investor when I syndicate these things. Cash-flow is there as a pathway to generating wealth and generating equity but that's it. There are not cash flow investments because you can't drive the IRR on cash flow, it's discounted too much over time and you need the appreciation. The appreciation is in Delta and the delta is in the story.   So we bought a Kenyan 35 and that's half a mile away from a university, a Grand Canyon University that grew from 2000 students to 20,000 students in 10 years. Received public status Accreditation, is investing $1 billion into their campus, gentrifying everything around them, of course, as usually happens with the universities when they grow and they're going to be at 30,000 students within next five years. So I'm buying a building half a mile away, that's my story there. I buy another one over here that is in the middle of a huge redevelopment and rejuvenation by the city. The city is deploying a lot of capital. There's a lot of class A infrastructure coming in, both in terms of retail and office space and everything else. So I buy this class C building, it's surrounded by all this class A stuff. It's uniquely positioned to be able to compete with class A on finishing textures when I'm done remodeling, but at a much lower basis. So my rents don't have to be anywhere near where the class A rents are and so, it's a story, it's always a story.   What is happening economically that is going to give my building desirability that is uncommon at the basis that I will be at. So the sub-market itself doesn't really, I mean, yeah, I guess there are places you wouldn't want to go, but we wouldn't look in those places because nothing is happening in those places. The whole point of where we want to buy buildings is because things, good things are happening in that location, that's why we want to buy a building there, especially in this season cycle.   James: Yeah. So what you're saying is there are places that you wouldn't even look at it, right? It's basically a sniff test. Yeah, this area, I'm not looking at it.   Ben: Well, there's area and there's a building. I mean, I get these emails, 100 a week and the vast majority of them go into the trash before they're even opened. And of those open, vast majority go into the trash and that's got to do with age, quality, construction features because you can put lipstick on a pig, it's still a pig. You can put a gold plated toilette in a pig, it's still a pig. Because of what it is, where it is, it's gonna attract the audience that it's going to attract, there's nothing you can do with it and I don't want those buildings like that.   I want the building, which inherently the bones of it are just something that's not coming through in a recognizable way, shape, and form for the marketplace. But if I put some money and energy into this asset, I can bring back what it already is. I'm not trying to take a pig and make it into a unicorn. I'm trying to make a unicorn that's been completely messed up and it looks like a pig, but it's a unicorn, it's not a pig. I just have to re-sculpt it, redo it, I have to clean it up, improve and then the market will see it for what it is, which is a unicorn. That's what I want and that's a function of both location and the asset itself.   James: Yeah, I mean, so I think what you're describing is what I would describe as building upside. So I look for deals where I know today I can go and just improve on it; either by capital or reducing expenses and just realize that upside that has been hidden inside that building and that's a lot of it in multifamily, right? And it just you're to find that kind of deals. It's hard to find that kind of deal, but that is the real deal, right? Compared to buy [24:23inaudible]    Ben: Right. Then it's a needle in a haystack. In fact, I mean, if you are not doubling, almost practically doubling your NOI in the first three years, you are not buying the right kind of building because that's what it takes in my experience is almost doubling the NOI in three years.   James: Yup. So let's go to underwriting. So where are you getting your deals, are you getting from brokers?   Ben: Brokers; they're off-market but they're brought to me by brokers. James:  So why do they come to you?   Ben: Because I close.   James:  Okay. No, there must be, I mean brokers do a lot of off-market but they look for qualified buyers, right? So especially people who have done deals with them so maybe...   Ben: Right, so that's why, and I mean, even if I didn't do a deal with this broker---I don't know, I don't want to drop names because I don't want to but the national brokers, one of them reached out to me yesterday because even before we closed last week on the last one, somehow everybody already knows that we're going to close on it. And so these guys started coming out of the woodwork. Well, this schmuck emails me, he calls me twice in a row, he says, Oh yeah, I got an off-market property for you. I said, okay, go ahead and email me the nondisclosure agreement, I will sign it and email me the stuff. Well, he emails this property to me; well another broker already showed it to me two months ago, not requiring any kind of nondisclosure.   It was a pig; it was the very thing that we're describing, the 'don't do'. It's the wrong shape, it's the wrong footprint, it's the wrong mechanical layout, it's the wrong age, it's the wrong location; It's the wrong everything. And these guys call you and they say, well, you know, you can get it for 75 per door. While I'm like, I would rather pay a hundred a door but get quality, that's going to be worth 180 when I'm done with it, rather than paying 75 per door because whatever money I put into it, it's still going to be worth 75,000 per door when I'm done because the market has decided this is a pig. It's worth 75 per door, that's it. There's nothing you're going to do to move that hurdle and so you get a lot of that.   But you also get some serious brokers. Like the biggest brokers in Phoenix is not national brokers, they are local, but they're the biggest by volume. They do the most deals in the apartment space and those guys bring me deals, they're deals, and they're not the only ones, other people do as well. We've tried to go after some deals with other brokers, we came really close. We weren't able to, for one reason or another, to execute those deals, somebody else got it or whatever. But sometimes brokers have deals and they're off-market deals. The question of, what's it gonna take to get those deals? I just don't have an answer. It's all about relationships and I'm going to have to convince somebody that you are worth having a conversation with and that you have a good chance of executing. Obviously, it gets easier immediately after the first deal closes, immediately.   James:  Just because of the credibility.  Let's say today a broker sends you an OM, right? So some random broker and he said it's a deal and you know it's not a pick, right? So, you know there's something more I need to do my secondary inspection here or my secondary underwriting here, right? So how would you go about underwriting the deal? Ben: Well, the first and most important thing in the underwriting process is to place after renovated rents because if you mess that up, everything else just doesn't matter. Where most of the money is, is knowing down to the dollar and the cents where those rents are going to be after you are done fixing the community and fixing the unit. So that's the first thing I do is like if it's well located, it's the correct year, it's the correct HVAC, it's the correct roof, it's the correct XYZ, which I can tell just by looking at this thing, it's in the correct sub-market, where I know I would want to be, the next step in the process is just to put it through the underwriting that begins with placing rent, understanding what the rents are going to be.   James: So how do you place rents? I mean, how do you do the rent comps?   Ben: So, for me, if a broker is sending me something like this, what is accompanying it is some kind of Yardi report or metrics or something; some kind of report on the sub-market, which is going to give me the comps. Now those reports aren't correct, they're probably within 20% margin correct. We are looking in the market that's trending seven, 8% per year, obviously, those metrics will be off. First of all, I know what the rents are in Phoenix, MSA for the class of asset I want to buy in, in the kind of location I want to buy in. To validate myself, I then look at that report. Now, the underwriting, for the most part, is an automated process because we kind of know what the OPEX is. There's really very little magic to how much it costs to run these buildings.   There are a lot of reports that study and track by the state, by the locality, by the city, what the operating costs are running and so we underwrite to the averages and we have our own trailing numbers, which we use in the underwriting. So we do massage those for every deal, depending on the size and the complexity of the mechanical and things like that. The R&M is going to vary and certain services are going to be required here they're not required there, contract services, things like that. But by and large, I know that on the operating side, I'm going to be somewhere between $4,200 per door and $4,600 per door. $4,600 per door is on a smaller asset, maybe 100, maybe 95; $4,200 per door is 120, 140 is going to tick up because now I need more payroll. And so you know what those dynamics look like. We can kind of, we're both, Sam and I, are starting with numbers filled in because we know where those ranges are and this is just for the first path, right? First time through. Now, if the first time through, I mean, like it takes me about...   James: Let me quickly interrupt you. So how many percents of operational income is that? [32:06 crosstalk] do you look at percentages as well?   Ben: Yeah, that's the beauty of Phoenix. You're talking about being under 40% on a stabilized basis.   James: Under 40? That's really good.   Ben: Between 35 and 40%. Well, this is the thing about Phoenix. I have to tell you; like I studied the operating costs all over the nation, I will tell you that in Texas it's over $6,000 per door because the property taxes are so high. In Cincinnati, Ohio, it's over $6,000 per door. Over there, it's for a different reason; it's all hilly, the buildings are all older, there are boilers involved, there are flat roofs involved, pipes freeze all the time and building sit at the bottom of where water flows and you just got RNM and contract nightmare.   In Phoenix, because property taxes are so low because the insurance is so low and because frankly a lot of things are easier in Phoenix because of the weather, it never snows, such things, the operating costs, If you look at the national reports that indicate per city, you will see that Phoenix is in the mid $4,000 per door. Now, as a relationship to the rent though, that's very low because even though Phoenix is lower than the national average, still when you're running at $4,500 plus or minus like we just purchased last week. So my underwriting for that asset is right around 45 $4,600 per door on the OPEX. But dude, we're running, let me calculate, we're running, which is 98 units at about $34,000 per month.   James: That's awesome.   Ben: $4,000 per month divided by 98 times 12. Yeah, 4163, under $4,200 per door, that's OPEX. Now obviously you're going to have cap acts that you are exchanging blinds fixed. It's not part of the scope is just part of the turn on each unit. But with my underwriting, 4,600, I really don't think we're going to need it. In fact, we can run a 117 unit on the same payroll that we run 98 unit. So theoretically that OPEX number, it should be closer to 4,000. So in terms of relationship to the top line, you've got very, very pleasant circumstance in Phoenix that you can't achieve in a lot of other places.   James: Yeah, I think your rent is high compared to the Texas market. I mean, forget about Austin, Austin is a different market, right? But if I look at my San Antonio deals, usually my expenses are 4,500 4,600 but my rents are also lower so I end up my expense ratios like almost 50%. But what you're describing to me in Phoenix, looks like mobile home parks expense ratio because I know there are mobile home parks expense ratios like around 35 to 40%. So if you can run at 40% that's a really good market because your income is high and your expenses are low.   Ben: I'm going to look at it right now.   James: Okay. That's really good numbers in terms of percentage relationship.   Ben: Yeah. So in the first year, I'm projecting 49%; second year, 39%; in the third year, 35%; and then it ticks up a little bit because I'm using a little more O&M as my remodel gets seasoned and it gets older, a little more money for turns, a little more money for O&M and those kinds of things. So, but yeah, we're staying underneath 40%.   James: That's very interesting. So is that what you're consistently seeing even on the broker O&Ms? Ben: The broker O&Ms are going to be even lower. The broker O&Ms on deals like this, come with like $3,900 of operating costs; 38, 39, which is unrealistic. If you go to the bank, trying to get financing on that, it's not possible. So for the bankers, you have to show underwriting in the mid four thousand, you just do. But I have to say that in Texas if you are showing 45, $4,600 per door, that's really good. [36:47inaudible] a lot higher than that.   James: Yeah. We have our own operation, we want to be integrated so we are able to run it much leaner.  And the question I have for you on the property taxes, how do you [37:05inaudible] property taxes in Phoenix? I mean do you have the same or do you increase a bait? Because I know in Texas   Ben: In Phoenix, there are regulations in place that were passed about three, four years ago. Whereby the municipality is not allowed to raise property taxes any more than 5% per year, this applies to the assessed value and the actual tax bill so it's regulation on the books. So the tax on the writing and Phoenix is the simplest thing ever because you don't have to guess, you don't have to take a basket of properties, you have to do nothing. You know you're not going to go up any more than 5% so in my underwriting I use 5% a year, which is the worst case scenario done. Now there are caveats if you are going to put another building on the property and trigger reassessment, that triggers all kinds of circus; we don't do that. I won't buy anything that requires me to move exterior walls, to do that kind of stuff.   James: So what are you saying is even though the property has changed, hand the maximum they can do is 5%, wow! It's awesome.   Ben: And this is what I'm telling you about the regulatory environment being conducive to doing business. They don't change the chase sales. And everybody says in Texas, oh, just buy the LLC, they will never know what you pay. They're not stupid, they're going to look at the loan. They're going to apply the LTV in reverse, they're gonna get what you paid and they're going to assess your taxes up to Wazoo. I mean, the glutens up there, it's laughable, it's hilarious. And Texas has always scared me because of that because I can't underwrite taxes. The same is true in the Midwest, the Indianapolis. I remember I'd paid an attorney, we were looking at a deal in Indianapolis. Well listen, it has in place property taxes of about $60,000 but if I were to follow the letter of the law, I was getting three times that much. Which obviously is going to penalize the building and obviously the broker wasn't showing that much increase.   So I paid an attorney to speak to an attorney. Even they can't tell you because yeah, they're not chasing sales, but they are going to take a basket of properties, like properties and like location, they're going to kind of synergize all of that data and they're going to increase everybody by the same amount. But who knows what kind of basket of properties it is, which properties make it into the basket, when were they sold? So the only thing you can do there is looking at trailing billings and back into the probable increases. But it's not scientific, over here, no more than 5%, boom. And so far that's exactly what has been 5% per year. James: That's awesome. I mean in Texas is just so crazy in terms of property taxes. You do not know what to underwrite. So I always underwrite to a hundred percent increase, just to be safe in terms of underwriting but it's also a problem because you can buy a deal, which is like 24 years, not changed hand and now you're at a hundred percent, which can be huge. And it's mismanaged expectations between buyer and seller because the seller is going to say, hey, this is what I'm running and buyer's going to say I've done completely different and it's just hard to do business, but that's very interesting on how they do it in Phoenix. So how do you underwrite like miscellaneous income in terms of after you take over?   Ben:  Well, the next step in the process. So once we put it through the underwriting and it looks good, Sam and I drive out to the property. We'll look at the property, we like it, we go home, we really dial in our underwriting; what do we think the rents are going to be? What do we think the expenses are going to be? If it still looks like it's a deal, the next thing that happens is we send it over to our property management company with 20,000 units under management and obviously all kinds of access to all kinds of trailing data that we don't have. So the ultimate decision on where the rents are going to be, where the OPEX is going to be, all old form of it that ultimately is all approved or okayed by them or adjusted whichever way they see fit.   The rubs, the utility income is a very simple proposition. I mean, I underwrite 90% recovery and sometimes we can do better, but I underwrite 90% recovery. Whether you do it, whatever methodology you use, a third-party or Rubs or whatever, RPM likes to use third party, but because of legal absolve, so to speak, they like to offset the risk in that way. And as of late, past few years, regulatorily, it has become more and more difficult but I shoot for 90% recovery of the properties, utility bills, and other income is just purely specific to the property. What I'll tell you on the other income is that when we're taking, I have to back into that conversation a little bit.   What different about Phoenix than it is about most other places including Texas, value-add means something very different here. Usually, when we do value-add, we're looking for a mismanaged department [quote-unquote]. Well, mismanaged usually manifest itself in vacancy. So a big part of our value-add is to put proper management infrastructure in place and to capitalize on that vacancy and to bring it from 12% 14% to 6% which is, according to the market, that's where you supposed to be, right? So you do what you gotta do to fill those units. The issue with Phoenix is that they can see, pretty well doesn't exist. It's such a high growth market and there's such a lack of demand of 800 to $1,000 units; there's just such a lag because you can't afford to build it. So there's such a lack of that demand that that asset class is basically full. Even like the most poorly run properties are operating at full occupancy.   James: So you're saying lack of supply, not lack of demand.   Ben: Yes, lack of supply, I'm sorry. There's a lack of demand and there's a lack of population growth, but there's a lack of supply. Specifically in that price 800 to 1200, because the basis of building it, will fall at $200-225 a square foot, you got to get higher rents than that. And so, for the huge section of the population that needs those 800 to 1200 rents, there is a lack of supply on that. So what is value-add? Well, value-add is $300 per door in this case. Well, let me walk you backward; we just closed on 117 units. The physical vacancy on an annualized basis in that sub-market is 2.6%. Now, can I underwrite that? No, I have to underwrite 6% plus economic vacancy.   But just speaking about the physical vacancy, I have to underwrite 6%. I am penalizing my underwrite because the seller is operating at 2.4. When we took over, there was zero vacancy. There's one down unit and zero vacancy.   James: What about the economy occupancy, how much do you underwrite that?   Ben:  I underwrite economic occupancy, 9%. Somewhere between nine and 10 but on this deal, I did 9% and so five to six of it is physical vacancy and three to four of it is, the rest of the economic vacancy. But what I'm saying is that if the building is operating at zero vacancy and the sub-market is operating a 2.6% vacancy and I am underwriting 6% vacancy, I am penalizing my underwriting 3.4% so I need the first amount of value-add just to compensate that so I can break even. And then I need a whole bunch more value-add so I can actually create the delta so we can create enough profit margin for the IRR to work. So what this ends up looking like as value-add in Phoenix is $300 per door.   James: How did you come up with $300 a door?   Ben: It's just what it takes, in order for me to back into the IRR to the partners that is going to be attractive for people to invest. What it seems to me, I need, and it seems to be across the board for every deal that we do, what it's requiring is $300 per door value-add. So we're buying these deals that have, talk about a unicorn, $300 per door on value-add; only because we don't have a vacancy.   In most places, like if you have physical vacancy of 10% that you can fill, then maybe you just throw some lipstick on the pig and make another $75 a door, paint the cabinets, do some resurface countertops, do something like that, get another $75 of value-add and you are good; your IRR works because there was vacancy in place that you are able to fill. We don't have any vacancy so we actually have to do the heavy lifting to recapture the loss to lease and to get the renovation bump and cumulatively what it's taking us is $300 per door. Anything less than that and we can't get the margins that we need.   James: So my understanding when you talk about $300 a door, I mean when I underwrite my deals, the $300 a door is basically just the rent but you are saying the $300...?   Ben: No, it's cumulative between LTL so about 175 of it. The reason the occupancies are zero is that obviously, the rents are too low.   James: Okay, got it.   Ben: You should never have zero occupancy. If you are staying with the market and you're pushing your rent, you should never have zero occupancy. So the fact that the occupancy is zero is because the rents are too low so on day one, we're walking in and we're raising rents at 150 to $175 on the renewals and the rest of it is a bump due to the renovation so cumulatively.   James: Okay, got it.   Ben: So you have their stated rent, then you have their actual rent roll, which there's a bunch of loss to lease between the rent roll that they're actually getting and their stated rent. Now we're coming in, we're saying no, no, our classic rent is going to be this right here. So now we're going from their LTL all the way to our classic brand. And then on top of it, we're saying, but after we remodel, there is another piece of it that gets tacked onto the end. Cumulatively, that entire process in Phoenix, MSA in Class C value-add property, in my experience, $300 per door plus or minus is what's required.   James: That's awesome. And what is the total IRR that you look at for?   Ben: I look to deliver to partners, something in the mid 14 to 15 if I hit 14% IRR on a 10 year hold and I always underwrite 10-year hold, I don't want to sit there for 10 years but especially because we're late in the cycle, I underwrite a 10 year hold. So on a five-year hold, it ends up somewhere around 17, 17 plus. And of course, if we can exit sooner, then those numbers get [49:52crosstalk]   James: So let's talk about once you close on the property, right? So yeah, you underwrite everything on the paper and it all looks good so now you close on the property, right? So now you have a task of pushing up that rent. So how do you go about pushing up that rent?   Ben: So I don't do it, my PM does it.   James: But you're going to hold the strategy to it, right? I mean, are you going to tell them how to write it?   Ben: Correct. So we had a meeting on the day after we closed at the property. We had a meeting, the meeting was the property manager that's on site, the regional and Sam and myself. And what we discussed is that because, in the next three months, there are only about three or four leases coming up for renewal each month on 117 unit property. Right now we don't have a classic rent. As leases come up, you can either stay in the unit as is and pay us our renovated pricing, but you're welcome to leave. And then we'll renovate the unit and somebody else will move in and pay the renovated pricing because the business plan calls for rent, so much renovated pricing to be entering to payroll each and every month. So because we don't have enough vacancy coming up, we're basically not renewing leases and we're not putting any in place. I mean, it's unreasonable to ask people to pay the rent as if the apartment has stainless steel and granite but I don't care if they leave, they're entitled to leave and they should leave. The fact of it is, is that they're probably not gonna find anything better to go anyhow. At the end of the day, as long as I'm getting the rent, I don't care if I remodeled it or not because as long as I'm getting my rent projections, I'm in good shape. But I am prepared for a certain number of people to be, I don't want to say forced out, but they're welcome to stay as long as they pay our rent.   James: Yeah. So you're renting is like 300 so there are two components to it. One is just a loss to lease even without renovation. And on top of it, there's a renovated you need so you can do two ways, right? One is you can just not renovate and just go halfway up there. But I think what you're saying is you write a business plan calling it.   Ben: We don't want to do that for one very specific reason. This has been the model over the past five years. The model is $4,500 of renovation buys you painted cabinets, refaced cabinets, resurface countertops, maybe upgraded appliances, not stainless steel, maybe black, some fixtures, some flooring, and some paint. That's what $4,500 buys you. We're spending $7,500 per door and that gets us, granite, it gets us 100 hung sinks, It gets us stainless steel appliances, it gets us nicer flooring, paint all the rest of that. So the reason we're doing that is not so much that we couldn't make our numbers work, it's driven by the cycle. We are late in the cycle and when the cycle changes, I want to have the best product in the sub-market at that price point.   When everybody starts taking on 'loss to lease' when everybody starts taking on concessions when everybody starts the race to the bottom, my thing is I'm paying for my staying power at that point, but I'm paying for it now, I'm doing the Rehab now. So we're accomplishing two things with that; number one obviously we're repositioning the property, we're repositioning the tenant base, we're creating a more manageable situation. And number two, the product that we ended up with three years down the road has a lot more staying power then another kind of product that wasn't as renovated.   James: Especially if you're going to fork out that much of money right now and make the deal work, you can always invest in that product right now as well.   Ben:  So these are syndicated deals so we collect the money up front. There's nothing worse than coming to your partners and saying, hey, we need $1,000 more. So we collect all the money up front and we deploy it right away and we re-positioned the property right away and 18 months down the road, we arrive at a situation where we start having an exit. Now our buyer may look very different 18 months down the road from the buyer three years from the buyer five years from the buyer seven years down the road. But we have a compelling story to tell at that point in time. We start working on that story right away, on day one. But yes, our renovations are good renovations; we replaced the cabinets, they're getting new kitchens, they're getting new bathrooms. These are seriously upgraded units when we're done with them. The pricing is phenomenal; we're getting stuff done for 7,500, $8,000 on the interior that other people are complaining costing them $13,000 to do and they're not wrong. It's one of the benefits of having a PM with 20,000 units on her mat and there's a pricing power that comes with that both in terms of subcontracting and in terms of materials, how they source their materials. We could work our IRR having deployed half the funds, just get lower rents but for less money, we could work it.  Then there's just the other piece of it, which is that three years from now when the market does cycle, potentially, what do I want to own at that point?   James:  You want to one of the best product   Ben: I want to own the best quality that people can buy for that amount of money.   James: Got It. Got It. So what do you do, I mean, we have a few more minutes to go, very quickly; what do you do in terms of asset management? Are there any systems that you put in to manage the assets?   Ben: Yes, we use IMS.   James: The IMS is on the investor side, I'm talking more about the property side. I'm looking at property performance.   Ben: They use Yardi. The PM uses Yardi and then we get reporting weekly from on site in terms of, it'll have things like to date collections, it'll have vacancies, it'll have remodeling information, like how many units were remodeled, how many units of pre-leased, how many units are leased, all that stuff. Vacancy; it'll have delinquency, it'll have a promise to pay all of that stuff. So it's a one-page report that kind of gives us a bird's eye view in the whole thing. And then once a month, at the end of the month, we get a packet this thick. I mean, I've never tried to print it off, but I'm sure it'd be this thick, from the PM and that includes everything; everything, trailing, everything.   James: Yeah. So one question that I ask all of my podcast guests is, what is the most valuable value-add that you see in your experience?   Ben: I think the finishing textures inside of the units. I think that people are willing to forgive you. And you know, we do things like upgrade laundry, little rooms we build out. We don't build a separate building, but like if our laundry room is this big and it only needs to be this big, we're going to put a wall here and make a gym over here and add and the laundry room over here, things like that we do. But people are willing to forgive you so much if you create an interior that looks good and functions well. I mean, I don't care what you do on the exterior, if the inside of the unit is not great, it's just going to be difficult to drive rents. Now, once the inside of the unit is great, there's a bunch of other things you need; you can't have an ugly looking laundry room, you can't have no amenities, you can't have a shitty looking office, it's a complete packaging thing.   But I don't know, I mean, I guess my perspective is different on it. I don't nickel and dime my renovations because I'll never get the rents because of what we talked about. I don't want a hodgepodge unit, like painted cabinets that are 30 years old and resurface countertops. I just don't want to be left standing holding that bag if I have to be in this property for another five or seven years, for example, I don't want to be holding that bag for that long. So I've never really gone through and said, okay, how much is the countertop worth? How much are new cabinets worth? Because we're doing all of it. I have my scope, I know what's included. And at this point is just the easiest thing because we dialed it in, we know where everything is coming from. The PM just orders everything, we know how much it costs. If this kitchen is a little bit bigger, it's got one more extra cabinet, well, pricing goes up by $135. It's not difficult at this point to know what the remodel is going to cost.   James: Yeah. So you primarily focus on all of it inside the interiors?   Ben: Yeah.   James: So a lot of people are trying to start in multifamily nowadays. I mean, multifamily is a buzzword right now, right? I mean, the economy is doing very well, everything is so good. What would you advise to a Newbie who's trying to get started in multifamily? That's a long sigh.   Ben: I don't know because the economy's doing really well, that means the competition is very stiff. The thing is, you really got to know what you're doing it, this isn't a good time for newbies because the economy is doing very well and it'll probably continue doing well at some point and they'll go down and it won't do so well. And the decisions you make today could hurt you tomorrow and if you are just starting out and you are a Newbie and you're looking at, I can't imagine how you do large multifamily and you haven't bought some four-plexes before and some six-plexes, having to internalized all that stuff, you're better off just investing money in somebody else's deal, honestly, I feel at this point, because the stakes are too high. I am buying at four and a half gap, you can't make money at four and a half cap, you can only lose money at four and a half cap, which is why I buy a needle in a haystack; a very specific asset. If you are a Newbie, what the hell do you know to be able to do anything of what I do?   James: Correct. Right. That's so many details in renovation, finding deals, underwriting deals so many skills involved, right? It's not like anybody can jump in and do it right now.   Ben: Which is why we have this conversation, which it should be attractive to more seasoned people, to people like us, people that already have that ball rolling and they're maybe trying to break out to the next level. So if you're talking to me about newbies, this isn't a conversation they should even listen to because half of it they will not understand.   James: They wouldn't understand. You have to do it to really appreciate it. At least you should have flipped one property. [1:02:17 crosstalk]   Ben: Listen, underwriting is expressing with numbers, a behavior of people and the interaction of people and property, that's all it is. If you've never dealt with a tenant once in your life, how do you know what those dynamics even look like?   James:  Correct. I've seen a lot of newbies right now immediately, they're buying 100 units, 200 units. I mean, yeah, the market is so good right now, you're relying on property management, there's a lot of wind on your back. Right? The appreciation itself carries you up, but that's not going to be happening all the time. Everybody is a champion of bull market. So yeah, we started in the single-family, we did so many single families. We learned through the hard way when contractor management, it's a skill by itself, right? The whole timeline management. So that's really good advice, Ben. And is there any other things that you want to share to our audience that you have never shared in any other podcasts?   Ben: Yes, I think I shared everything about me in every other podcast, I want my own podcast to share the rest of it. And I'm not sure what the hell I'm going to talk about on my podcast because I already said everything on everybody else's podcast.   James:  Yeah. We already listened to Ben in something else.   Ben: But it's going to be very, very high level and like, I'm not going to make those excuses. I'm like if you're a Newbie, you probably shouldn't listen to this because we're going to be talking about stuff that you have no idea about. A friend of mine who's no longer with me has always said to me, 'stumbling blocks and stepping stones look a lot alike from a distance'. So if you are a Newbie, what I am telling you is be really sure that you know the difference between a stumbling block and a stepping stone before you step. So many of you guys are stepping first and then figuring out if it was a stumbling block or a stepping stone and that could be a very painful process. So I don't know, education.   James: Education Yeah. Go through the hard work of going with smaller deals first, that's what I would say. Just learn the ropes, learned the whole thing, make sure that you can do it. Syndication, turning around properties is not for everybody, that's how I would say. I mean, there are a lot of people who can do it but start small and grow and learn the skills.   Ben: Yeah. I very much disagree with the gurus who say, hey, it's just as easy to buy a 100 as it is to buy 10. This is true; it is just as easy to buy 100 when you know what you are doing. But the way you get to know what you're doing is by having bought the fourplex and the six-plex and the 10 unit. I disagree; I think it's criminal advice to send people directly into large multifamily. Have this be your goal, be excited about it, be whatever. But you need to internalize the dynamics of the game. People act in ways that are going to shock you and the numbers reflect that, don't be stupid. Don't be going and saying things like, ah, okay, here's the income. Let's just use 10% from property management and 10% for vacancy. Those things,  get a little intelligent about what you're doing.   For instance, the conversation I have with people all the time, listen, in a $500 rental, if you have to replace a furnace, it costs you $2,500; in a $1,200 rental, if you have to replace the furnace, it also costs you $1,200 or a $2,400. As a percentage of the top line, you see how that's a totally different figure. That's because all of the expenses in real estate are dollars, they're not percentages. We back into percentages. So James and I know what our percentages are because we've studied the dollars and we backed into the percentages. So if we ever use a percentage, it represents a dollar. What you guys, newbies, do a lot is you take this rent and then you divvy it up percentage wise to this, this, this, this, this. That's just not how real estate works and that's how you get hurt.   James: Correct.   Ben: Simple things like that that amaze me, that people don't think about and don't know and they jump into this stuff because Marcus and Millichap says on the proforma, this is how much percentage you need to allocate to XYZ, that's just nuts.   James: Absolutely. Absolutely. So Ben, thanks for being here. Do you want to tell our audience how to reach you?   Ben: Yeah. You're not getting my personal phone number. You're not getting that, James can have it, but you can't. But you can email me at Ben@justaskBenwhy.com or you can just go to, justaskBenwhy.com and we'll look over my website. You can email me through the website as well if you'd like. But yeah, I have a couple of different email accounts for like serious people and then people like you, I'm not giving up those.   James: All right, thanks Ben for being..   Ben: To all the people that I offend, you know, I get on a podcast with one goal in mind; offend as many people as you can, Ben because like if this is your brand is what you do, so go for it. I think I offended a few people, didn't I?   James:  No, I think I like the real numbers, the real details because sometimes some gurus out there makes real estate and multifamily so easy. I mean people don't realize it, people are selling education as far right. So it's not that easy, there is a lot of science behind multifamily, there's a lot of hard work behind it. It takes a lot of experience looking at hundreds of underwriting numbers and trying to figure out, and of course, there's also another aspect of, now I already buy it, now I'm going through the whole real asset management stuff and they realize, oh, whatever and the road was completely different from what I'm doing asset management, right? So realizing that it takes a lot of experience as well. So it's a learnable trick, but there's also a lot of hard work involved in growing and doing the real stuff, that's what I see. So that's really good advice, Ben. So thanks for being on the show for my audience. Thanks for being here. As I said, you have a lot of things to do outside of listening to this podcast and I really appreciate you guys being here. We hope we really delivered value to you guys. That's the reason I'm doing this podcast, to give true value to listeners and learn as much as possible before dabbling into real estate and multifamily commercial real estate. Thanks. And I'll talk to you all soon.   Ben: Thank you.  

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

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 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.

Welcome to the second episode of Totally Made Up Tales, an experiment in improvised storytelling in the digital age. We hope you enjoy our tales of wonder and mystery. Let us know what you think! Music: Creepy – Bensound.com.   James: Here are some Totally Made-Up Tales, brought to you by the magic of the internet.   This is the story of Dr. Rich. Andrew: Once upon a time, there was a doctor who specialized in curing diseases only of the very rich. Inevitably of course, they were in some way or other. James: He would travel round in his large, black car made specially for him by Mercedes-Benz himself, and visit them one by one, his rich clientele, ringing on the doorbell and asking, "Are you ill?" Andrew: In fact, one of the things that he had identified, and the reason why he himself was so successful, was that he realized that money did not in fact make you happy, but filled you with a deep sense of malaise. James: In fact, to put it simply, money made you ill. Andrew: His expertise was to remove money from the rich in order that they could feel better, and indeed many of his patients who were bankrupted by his bills went on to lead happy, fulfilled, virtuous lives. James: Even before they'd got to that state, merely at the point that he presented them with the bill for having cured their sniffle or subdued their pox, or whatever it is that he had been called upon to do today, they felt better, relieved, as if the air was flowing more freely through their lungs, as if the blood was moving more smoothly through their veins. Andrew: The problem was that over the course of his long and successful career, he himself became extremely wealthy, deeply unhappy, and died. James: There was no one who could minister to him in his last days. He was as ill as you could possibly get from money, and indeed was quite capable of diagnosing himself as dying of wealth, and yet, without having trained an apprentice or one to come after him, there was no one who could cure him. He died sad, despondent, very, very wealthy, but utterly ill.   Josephine Andrew: wanted James: children, Andrew: but James: her Andrew: husband James: was Andrew: emperor James: of Andrew: France. James: "Not Andrew: tonight," James: he Andrew: said James: repeatedly. Andrew: The James: end.   Keyhole Andrew: surgery James: is Andrew: performed James: using Andrew: keyholes, James: which Andrew: are James: available Andrew: from James: B&Q Andrew: and James: similar Andrew: retailers.   Judith James: went Andrew: to James: Cardiff Andrew: for James: her Andrew: sister's James: wedding. Andrew: It James: was Andrew: a James: beautiful Andrew: weekend James: full Andrew: of James: dancing, Andrew: sunshine, James: and Andrew: happy James: bridesmaids. Andrew: The James: bride Andrew: herself James: was Andrew: sick, James: and Andrew: vomited James: all Andrew: over James: the Andrew: vicar. James: The Andrew: end.   Victor James: went Andrew: to James: war Andrew: and James: fought Andrew: bravely James: time Andrew: and James: time Andrew: again. James: When Andrew: he James: returned, Andrew: he James: discovered Andrew: his James: country Andrew: had James: changed Andrew: and James: he Andrew: no James: longer Andrew: belonged. James: The Andrew: end. James: Now, Abigail the Mistress Milliner. Andrew: Abigail was a milliner, and made the finest hats in the kingdom. James: She was renowned from city to city. The aristocracy would always use Abigail's hats, or risk the disapproval of their peers. Andrew: She was totally dedicated to her craft. It was her life's work, and every fiber of her being, every drop of her blood was dedicated to the making of hats. James: Since she had passed from apprentice to journeyman to master hat maker, she had had one perfect master work in mind; the ultimate hat. Andrew: It was a hat that she knew once she had made it, there could be no better hat made by human hand until the end of time. James: She had resolved at the tender age of twenty-two to dedicate her life to creating the best hats she always could while always striving towards the perfect hat. Andrew: It was rumored that she kept in her safe at the back, behind the box in which she kept her money and other valuables, a small box in which she was working on a secret project. James: Many rumors were started about the project. Many rumors were started about the safe and about the other things that she had done to protect her most vital and important secrets. Andrew: Other milliners throughout the kingdom were jealous, suspicious, and met together one evening in the back room of a dusty tavern to discuss their suspicion. James: One of them, Brian the Hatter, was convinced that she had already created the ultimate hat, but was withholding it for fear that others would copy her work. Andrew: "There is only one way for us to find out, brothers and sisters," he said, "and that is, we must take possession of the box within the safe." James: So began the most delicate planning. Milliners around the country contriving a way to steal a box from within a sealed safe that even the most dedicated cat burglar would have had difficulty getting near. Andrew: "Let us hold a festival," they proposed. "Yes, let us hold some kind of celebration, some distraction, some occasion on which everybody's back will be turned." James: They worked their connections long and hard, and finally were able to persuade some lady of the court, and through her some gentleman of the court, and through him some knight of the court, and through him, some lady of the bedchamber, and ultimately to the king and queen themselves that there should be a grand banquet where all the greatest people of the land would come, and of course the desire for the best hats would be unrivaled throughout history. Andrew: So it was that in the following days and weeks as the banquet was made ready that there were queues around the block to every suit maker, every boot maker, and every hat maker in the kingdom as more and more finery was demanded so that everybody could appear at their very best at this once-in-a-lifetime feast to be given by the royal family. James: Of course, nowhere were the queues longer nor more densely packed than outside the shop of Abigail the Milliner. For many months, she serviced the next person who came through the door, measuring them, measuring their head, considering the weight of their brow and the movement of their lips and of their nose, and taking into account the other clothing that was being made for them. Day and night, she would work in the back, making hats from the measurements she had taken. Andrew: Each customer demanded a hat finer than the one that the customer before had received, and so it was that after a lifetime of training, even she was nearing the end of her store of creative energy as each masterpiece, slightly better than the one before, went out the door in its beautifully wrapped box. James: Meanwhile, Brian the Hatter and his cohorts were plotting how to get inside the safe. Andrew: "Would it be better for us to cut a hole in the wall and slide it out into a side street, or cut a hole in the floor and let it down into the vaults of the cellars or the sewers below?" James: "Perhaps we should cut through the top of the building and employ a crane or some small children with rope to haul it up high into the gables and from there escape across the rooftops of the city." Andrew: "May I make a suggestion?" Came a voice from the back of the room.   "Of course, go ahead brother. Tell us your suggestion."   "What we should use is the psychology of the artist." James: Well, they were all very impressed with this idea, even though most of them didn't really understand, and they voluntarily gave up control to the owner of the voice, Mr. Jim Blacklock. Andrew: "The true artist is only satisfied when his or her craft is applied as close to the standard of perfection as it is possible for human endeavor to reach. Each person has demanded a hat more superior than the one before. How many more hats can this woman make before she is forced to reveal the greatest hat of all time?" James: The hatters, from their conniving congregation, went out back into the land and plied their connections and persuaded the lords and ladies who had got early hats from Abigail the Milliner to go back for better ones now that there were better ones available to their peers. The line once more became long and winding throughout the city, and Abigail, working as hard as she ever had, wracked her brains for more ideas to top the last ones that she had put out. Andrew: Finally, when the line had dwindled to one person, and that person had been handed their finely-wrapped box and left and the door swung closed and the little bell rang and she was left alone, she knew that she was spent. She had no more hats available for her to make. It would be impossible for her to service another customer, and indeed there were no more customers. Everybody owned a hat of hers who had a head to wear a hat on. James: Just then, there was a knock at the door. Andrew: "Who could this be?" She thought to herself. "A customer who had left behind a pair of gloves, or wanted a duplicate invoice for tax purposes." James: She got out of her chair and felt her way across the dark shop front and opened the door. In front of her was the king. Andrew: "Your majesty." She said, and curtsied low, for she was a very correct lady. James: "Abigail," began the king. Andrew: "If your majesty has come in search of a hat, I'm afraid I must disappoint you, for I have no more hats left to make." James: "Come, come," said the king, for he was a kindly man, but also used to getting his own way. "Come, come, you would not disappoint your monarch." Andrew: "It would pain me to do so, sir, but I really do not see how I could supply a hat finer yet than any that I had supplied without ... " James: There Abigail stopped. Andrew: "Without ... ?" Said the king. James: "I should not have spoken." Said Abigail. Andrew: "Yet you did speak," said the king, "and now you must surely explain yourself." James: "The only way, your majesty, that I could hope to top the previous hats that I have made for all in the land and to satisfactorily clothe your royal head, would be to open the book that I have been keeping these last forty years as I have worked on perhaps an impossible dream of the perfect hat." Andrew: At this, the king's eyes lit up, for he was a man who liked the finest things, and the idea of owning the most perfect hat that had ever been made or could ever be made appealed very deeply to his regal heart. James: "I must have it." He said, and left. Andrew: Abigail wept, for she knew that the hour had come where either she must make the most perfect hat of all time, or she must leave this place that she called home, abandon her shop, her career, her profession, and begin a new life somewhere else, for no one had ever successfully denied the king his wish and lived. James: Uncertain of what her choice would be, she stole back to the back room and opened the safe, and within it moved past the money boxes and the certificates of birth and death and the other precious objects that were necessary for a satisfactory and legal life in this complicated time, and at the back pulled out a small tin which contained folded paper of her notes over the years. Andrew: She reviewed the scraps, shuffled them, paced, lit a fire, made tea, stoked the fire, paced, shuffled the papers, and so continued through the night, all the way through to the crow of the cockerel and the rising of the sun. James: She was still pacing when her young apprentice entered the shop in the morning, expecting to be up and at the business before she was. He was surprised, and did not attempt to hide it. Andrew: "Mistress Abigail, whatever is the matter? You seem troubled, agitated, as if you haven't slept." James: "I haven't!" She cried. "I can't sleep. I cannot sleep until I ... Until I at least try." Andrew: So it was that they embarked together on making sense of the diagrams that she had drawn, and little by little began to compose the finest hat that had ever been made. James: There was every conceivable material, Andrew: and yet somehow, even though it was composed of parts as diverse of silk and leather, it formed a beautifully coordinated whole in which every part was neither too much nor too little, but in perfect proportion and place. James: Spent, they sat on the floor and looked up at the perfect hat. The ultimate hat. The end, indeed, to millinery itself. Andrew: As to the rest of the story, well of course the king collected it and wore it and achieved universal admiration. The great feast was, exactly as it promised to be, huge, memorable, spectacular, once-in-a-lifetime experience, and Abigail was, as you would expect, done. Done with her career. There was no way that she could continue now. James: As for the other hat makers, well, walk down a high street in your town any day you like and try to find a milliner's shop. They're all gone now. All gone.   I've been James, and I'm here with Andrew. These stories were recorded without advanced planning and lightly edited for the discerning listener. Join us next time for more Totally Made-Up Tales. Andrew [outtake]: "Would it be better," they said, "if we cut a hole in the floor and let it down into the core of the earth?" No, no, that's a ludicrous idea. Sorry.