Podcast appearances and mentions of james what

Play Episode Listen Later Jul 18, 2021 68:23

Mark Rzepczynski joins us this week to discuss ‘algorithm aversion' and the science of how ‘model anxiety' shows investors to be naturally wary of rules-based systems. We also discuss how to evaluate momentum data, how a busy week for market news can still be a quiet week for Trend Followers, the benefits of moving away from ‘peak complexity' as soon as possible, why having too many filters can expose a trader to large opportunity costs, the optimal percentage amount of risk per trade, as well as portfolio construction versus signal generation and which is more important. In this episode, we discuss: How behavioural finance leaves investors under-allocated to Trend Following strategies How to perceive momentum data Why the steady flow of market news often has little value for Trend Followers Embracing simplicity The need to avoid too many filters in your system How much should be risked per trade Follow Niels on https://twitter.com/toptraderslive (Twitter), https://www.linkedin.com/in/nielskaastruplarsen (LinkedIn), https://www.youtube.com/user/toptraderslive (YouTube) or via the https://www.toptradersunplugged.com/ (TTU website). Follow Mark on https://twitter.com/mrzepczynski (Twitter). IT's TRUE

anxiety model narrative algorithms cio curve macro q1 ultimate guide q2 q4 q3 benchmark hayek ctas aversion ttu trend following james what john is 5ct frank what richard brennan

149 Systematic Investor Series ft Mark Rzepczynski – July 18th, 2021

leaders thailand general managers hospitality travelers workforce hospitality industry rebuilding trust james what responsible travel samui

Play Episode Listen Later Jul 18, 2021 68:23

narrative investor cio curve macro q1 ultimate guide q2 q4 q3 systematic benchmark hayek ctas trend following james what global macro john is investors podcast frank what richard brennan

Thailand | Rebuilding Trust in Hospitality Workforce

Truth Behind Travel

Play Episode Listen Later Jul 13, 2021 44:06

General Manager of Poppies Resort Samui and President Skal International - Samui James Francis McManaman shares his insights on a life dedicated to hospitality and tourism. James embodies how industry operators can lead with compassion, humanity and vision and care for the people of the industry rather than the industry of people. During this episode, Dolores Semeraro discussed with James:- What have the tourism operators learned over the past few months- How can the Leaders of the Hospitality Industry rebuild trust (not just in travel) but across the workforce and get the right people to join (or re-join) hospitality-How to handle employees social media exposure or exposè - What is Skal International and the Samui cluster and why it matters to the future of the industryYour Host: Dolores SemeraroHospitality Virtual Keynote Speaker Dolores Semeraro is a Travel Recovery Strategist with more than 15 years of experience in hospitality, marketing, and trading. She is passionate about helping her clients develop the leadership strategies they need to restore travel confidence and win their customers back.www.doloressemeraro.com DOWNLOAD THE TRAVEL RECOVERY IN FOUR-STEP VIDEO TRAININGhttps://thetravelrecoverymethod.com/foursteps For those of you working in hospitality and travel, putting your brand message across and ensure is heard and felt by the travelers of today, is not that easy anymore.And you know why? Travelers' choices and priorities have changed. So if you are wondering why your content online is losing momentum and you see your loyal customers no longer engaging with your brand but buying from the completion instead, I want to share with you the 6 reasons why your message is failing and how you can avoid it.It's all in the Travel Recovery Four-Step Video Training I designed for those like you struggling to re-connect with their travel audience.It's 4 videos, 4 modules, it's all in there and it's free. Get your free video training herehttps://thetravelrecoverymethod.com/fourstepsSeason 1 - Episode 36DON'T FORGET TO SUBSCRIBE TO THE SHOW!Catch up on the latest episode on www.doloressemeraro.com/podcastRATE AND REVIEW THE SHOW ON Apple Podcast

SI138: The 'Holy Trinity' of Security Selection ft. Rob Carver

Play Episode Listen Later May 3, 2021 73:21

We're joined today by Rob Carver to discuss the process of selecting single stocks for a Trend Following system, Rob's holy trinity of security selection, the JP Morgan-backed fund making huge bets, via options, on the market remaining quiet, the knock-on effects from funds who make large, risky bets, the sweet-spot for average holding periods in a Trend Following system, ‘caveman-style' Trend Following versus scaling in and out of positions, how to hedge against inflation, how Trend Following historically has performed really well in rising interest-rate environments, and thoughts on Tesla's recent earnings, a lot of which were from government subsidies and selling bitcoin. In this episode, we discuss: Which stocks to select for a profitable Trend Following system Rob's 'Holy Trinity' for selecting securities The ripple effects of large funds who make large and risky bets The most profitable holding periods in Trend Following systems 'Caveman-style' Trend Following How to hedge against inflation Trend Following's success in rising interest-rate environments Tesla's recent earnings Thanks to Matt for leaving us a voicemail. If you would like to leave us a voicemail to play on the show, you can do so https://www.speakpipe.com/ttuvoicemail (here). Follow Niels on https://twitter.com/toptraderslive (Twitter), https://www.linkedin.com/in/nielskaastruplarsen (LinkedIn), https://www.youtube.com/user/toptraderslive (YouTube) or via the https://www.toptradersunplugged.com/ (TTU website). Follow Rob on https://my.captivate.fm/@InvestingIdiocy (Twitter). IT's TRUE

138 Systematic Investor Series ft Rob Carver – May 3rd, 2021

music radio show guillaume james what

Play Episode Listen Later May 3, 2021 73:21

We’re joined today by Rob Carver to discuss the process of selecting single stocks for a Trend Following system, Rob’s holy trinity of security selection, the JP Morgan-backed fund making huge bets, via options, on the market remaining quiet, the knock-on effects from funds who make large, risky bets, the sweet-spot for average holding periods in a Trend Following system, ‘caveman-style’ Trend Following versus scaling in and out of positions, how to hedge against inflation, how Trend Following historically has performed really well in rising interest-rate environments, and thoughts on Tesla’s recent earnings, a lot of which were from government subsidies and selling bitcoin. Thanks to Matt for leaving us a voicemail. If you would like to leave us a voicemail to play on the show, you can do so here. Check out our Global Macro series here. Learn more about the Trend Barometer here. IT's TRUE

discussion tesla investor cio python macro q1 jp morgan ultimate guide q2 q4 q3 systematic benchmark hedging microsoft excel trend following james what global macro michael how rob carver

Music Alchemistry Lab - Side #097

Music Alchemistry Lab

Play Episode Listen Later Apr 5, 2021 58:31

Radioshow by 12/03/20 01 Samuel Fach, Jonas Saalbach - Great Minds Think Alike (Yapacc Remix) 02 Marco Effe - Die Hexe (Carlo Lio Remix) 03 Manuel Meyer - Panning Sun 04 Guillaume & The Coutu Dumonts - Safety Meeting 05 Aitor Ronda, George Privatti - Hollidays (Djeep Rhythms Remix) 06 James What, Dan Berkson - The Dig (Original Mix) 07 Pierre Deutschmann - Silicate (Original) 08 Robert Solheim - Around 4 09 Guillaume & The Coutu Dumonts - Strange Place of Mind 10 Miroslav Pavlovic - Nebula (Manuel Meyer Remix)

The Solé Way: How Solé Bicycles Battled Back From The Brink and Used Unique Partnerships to Build a Booming Business

Up Next In Commerce

Play Episode Listen Later Jan 26, 2021 40:52

Let’s get this out of the way now: most companies will not have someone go from intern to CEO in a matter of months. That’s a situation unique to James Standley and Solé Bicycles. What isn’t out of the ordinary, though, are the many challenges and hurdles that James and his team had to deal with when scaling Solé into the success it is today.On this episode of Up Next in Commerce, James takes us through the trials and tribulations of the Solé journey, including various shipping and manufacturing disasters and lawsuits that nearly bankrupted the company, and he explains how he worked his way out of those troubles and what he learned along the way. Plus, he gives some secrets on what’s working well for Solé now, such as the strategy of finding different touchpoints to reach customers in a way that has absolutely nothing to do with selling to them. Main Takeaways:Starts With Heart: While the relationship with your supplier or manufacturer might seem like a cut-and-dry part of business, it has to go deeper than surface level. f you are working with overseas partners, taking the time to meet, and understand, the people you work with in person and form a relationship with them will carry you further and ease some pain if there are ever problems in the supply chain process. What You’re Known For: Through unique partnerships and marketing opportunities, there is potential to reach people in different ways, even if that means you’re not necessarily selling them a product with every touchpoint. Having a relationship with customers is more important than selling to them at every opportunity, because if they know you for one thing and then find out you sell something else, they are more likely to buy from you across the board. Shot on an iPhone: There will always be a place for highly-produced, glossy marketing materials. But, more and more these days UGC and lower-budget content is what is resonating with consumers. As opposed to showing potential buyers something they have to aspire to, like a model, highlighting people and experiences that are familiar to them as they are now will convert better. For an in-depth look at this episode, check out the full transcript below. Quotes have been edited for clarity and length.---Up Next in Commerce is brought to you by Salesforce Commerce Cloud. Respond quickly to changing customer needs with flexible Ecommerce connected to marketing, sales, and service. Deliver intelligent commerce experiences your customers can trust, across every channel. Together, we’re ready for what’s next in commerce. Learn more at salesforce.com/commerce---Transcript:Stephanie:Hey everyone. This is Stephanie Postles and you're listening to Up Next in Commerce. Today on the show, we have James Standley. He's the president and founding partner at Sole bicycles. James, welcome.James:Hey, how are you guys doing?Stephanie:Doing good. Thanks for joining us.James:Yes, I'm super excited to talk about all things ecommerce with you guys.Stephanie:Yeah. I was just looking through your website and I am very excited to get a bicycle after this. I didn't even know I needed one, but now I do.James:Totally, totally, yeah. We have tons of great bikes and yeah, and tons of cool different colorways and options and a bike for just about anyone's kind of need.Stephanie:Awesome. Tell me a bit about how you started Sole. I think it was in college, right?James:Yeah. My business partners, that I ended up starting the business with and I, we met back, funny enough, my first venture, which was a music festival I helped start back in college. We were both partners in that.Stephanie:It was called the Coachella for the Mountains, right?James:Yeah. It was called Snowball, and the idea was Coachella meets on the mountains. Yeah, there was this guy, Chad Donnelley, who I knew through the lacrosse world. I played college lacrosse and he came up with the concept and I was always involved in music. Growing up, I was a concert pianist, and I had DJ'ed in college and been in bands growing up. We met through the lacrosse world, and he came up with this idea. He had reached out to me just to ask my opinion on the project and what I thought about it. At the time, I was a freshman in college and he was asking me about it and I ended up just going back to him and say, "Hey, I want to be a part of this. I think this is amazing."James:I was part of that initial team. We kicked off this event with ... Our first, we had Edward Sharpe and the Magnetic Zeros, and Bassnectar, and Pretty Lights, and Diplo and all these amazing artists come out and sold like 15,000 tickets. It was a really cool first venture and a first event. Yeah, so Jake and John, my original founders with Sole, they were partners in it as well, and they helped get some of the money for the project. We met, first year was a huge success and we stayed in contact. At the same time, they were coming up with the idea for Sole, and going back that summer, between my freshman year and my sophomore year of college, they were looking for some additional help on Sole.James:I said I'd come in and I've got a more like operational financial sort of background or mind, and they were more of the creatives and the visionary type of people. I came in, helped clean things up. We got the business off the ground. Then going through the summer, they ended up going and raising some money and starting another business, and I ended up taking over the business. I went from being technically an intern in May to the CEO in August. Yeah, so that's how I got involved. Shoot, that was 2011. So, we're going on nine years ago, and I've been CEO ever since.Stephanie:Wow. Very cool. That's a wild story. How many bikes were you guys selling when you took over, and where are you at now? So I can get the scale of the company.James:Totally, totally. Yeah. Our first year we were featured on this big Forbes article and the business sort of took off, and I think we sold maybe a thousand bikes our first year, which was a lot for a first year business. This past year we're going to sell about 15,000 bikes.Stephanie:Wow.James:Yeah. We've grown quite a bit.Stephanie:That's great. What is the selling point of Sole bikes? How's it different?James:Totally, totally. Yeah, for us, our main selling point is you go look at the bike and it's just going to look different than any other bike you've ever seen before. We're really heavy on our marketing and design and colorways and wanted to make something that's really, really simple, easy to use, easy to maintain, but also looks really beautiful, and something that has a personality, and really people can relate to. I think a bicycle, for most companies, is more of a utility product, something that's really spec-driven.James:For us, we wanted to make something that people were really, really proud of, and it's like, they can relate to, and find a colorway that really matches their personality, or they could this store music fixed tapes or find these other ways that people can relate to the product. That's really allowed us to set ourselves apart from other bike brands.Stephanie:Cool. It seems like pricing is also a big thing. The one thing I've always thought is, why the heck are bikes so expensive? Why? How'd you get your guys cost down so much?James:Totally. Totally. Yeah. Yeah. The biggest way we do it is we work directly with a manufacturer and we sell directly to our customers. Just the natural, by cutting out some of the normal distributors or middlemen, we're able to offer what would be a traditionally higher price point products for a lower price and pass those savings onto the consumer by selling direct.Stephanie:Tell me a bit more about that, because what did that look like finding a manufacturer? I think I saw you found, in the early days, your manufacturer on Alibaba. Right? Which I was like, oh, that's interesting because I feel like Alibaba ... I've been there before and there's a lot going on. There's a lot of people. It's hard to know who to trust, it's hard to know if they're going to send me something good. How did you guys go about finding a manufacturer there? Did it work out well? Give me some behind the scenes.James:Totally. Totally. Yeah. Our first, when we got the business kicked off, we actually were involved in this Ali-Baba business plan competition. Back when we were in college, Jake and John had applied for this business plan competition. They won it and we got a $15,000 grant from Alibaba. That grant or that money paid for them to initially go over, meet our first supplier who Alibaba had helped set up, and we got our first order of bikes in. That's what the initial financing that got the business kicked off. But over time, went through a few different suppliers and really had to iterate our process.James:I spent a lot of time over in China meeting with different suppliers, refining the product, getting it to a place where it is today. It took a lot of trips over there and a lot of refining.Stephanie:In the early days when you're picking your suppliers and manufacturers, what would you do differently this time around? What lessons did you learn or what things did you maybe stumble on in the early days that you can avoid if you were to redo it now?James:Totally. What I would recommend is, we got placed with the supplier via Alibaba, and we just worked with the first person we were placed with. I think we ended up switching a few different suppliers over time, but what really ended up getting us with a supplier that we were super happy with is we went over there, and I went to one of the big trade shows, and we ended up visiting another 15 or 20 during this trip I went on about year two or three, and that trip we ended up finding the supplier we worked with, still to this day.James:We really got to go out and meet these people and do your diligence and find the supplier that makes the most sense for you, and not just use the first one that you end up getting placed with or you end up meeting with. You got to go over there and develop a relationship with them. I mean, it's so important. They have this saying there. It's first, you drink tea, then you drink Maotai and then talk business. What I mean by that is, they want to meet you, the different suppliers and the different people over there want to meet you. They want to build a personal relationship, and then they want to talk business because it's so important there to have a personal relationship, as well as a business relationship.James:If you're going to try to source something from China or overseas, I'd recommend going over there and meeting these people and spending time with them, and learning, meeting them as people, and really developing a relationship, because that's going to help that business relationship over time and make a really, really strong business relationship.Stephanie:Yep. If you don't go and meet them and you didn't really do your due diligence, what kind of problems could a new company encounter? Did you encounter any issues in the early days with some of your suppliers that you stopped working with?James:Totally, totally. Yeah. The supply chain for a bicycle is pretty complex. For our product alone, there's over 50 parts. Those 50 parts come from 20 different other suppliers, and then those have to come into an assembler, the assembler puts the product together and then it's shipped over. There's a ton of different things that could go wrong. A good example would be we had one of our biggest shipments ever, at the time for the business. We had put in an order for summer, and it was like 2000 units. We had also set up a big sale online with a company called fab.com. At the time, they were having ... I don't know if you remember the company, fab.com, but they were one of the fastest companies to a billion dollar valuation, I think, and people were talking about it as the next Amazon.James:It was having this really big moment. We were selling really well on there. We partnered with them and we were like, hey, we're going to bring in a bunch of units. Let's have a really, really big sale. We have this massive sale. We sell like 1,500 to 2,000 units, pre-sell them, and ends up being the biggest sale ever on fab up to that point. So, do the sale, goods come in, and then we ship all the product out. Well, our manufacturer had packaged the bikes slightly incorrect to where ... The crank arm usually woven through the front wheel, which is detached, and then tucked to the side of the bike when it's shipped. They were all packaged slightly off that almost every single bike came with one of the spokes popped off.James:You get your brand new bike that you just bought offline, brand new, beautiful bike, you open it up, and one of the spokes popped off, which it's like ... You can't ride it, but it's a small problem, but it's not an easy problem to fix. Oh my gosh, that situation almost bankrupt us. What ended up happening we-Stephanie:What did you guys do?James:Yeah, we had the product on credit. We had given we had been sold the product on credit, so we went back to the supplier and we were like, hey, this is going to bankrupt us. We got to figure something out, and they refused to take any discount on it. Then, our advisor was like, "Hey, we're going to just hold payment until we get something settled." They ended up serving us a lawsuit. They came to America, served us a lawsuit.Stephanie:Oh my gosh.James:So we were served, and had to go through this entire ... Mind you, I'm like 21 years old at the time. I'm still in school. We get served a lawsuit. I'm like, oh my gosh, what is going on? So, we had to hire a lawyer who was our body. He was only like 30 and we didn't have a ton of money. We had to put together a case and actually go out and defend ourselves.Stephanie:Yeah, did you win?James:We go through this, and we hired this lawyer, and he's like, "Look, you guys don't have the money, [inaudible] afford me, so I'm going to teach you how to build this case." I went and actually built this timeline of everything that's happened, and we came up with a case theory and counter sued them. They responded and deposed me. I had to go through this 40 exhibit eight hour deposition. But we held our ground and got through it. After that, it got to the point where it was like, financially it made the most sense to settle and were able to settle for what ended up being about half off of what the original was. Yes.Stephanie:That's wild. I'm just imagining being in college, dealing with it. How was that experience being in college? I'm just thinking, all of a sudden, you have this company and you're having to go to China and now you're getting sued. What was the college experience like for you when you were having something very different than probably a lot of your peers go on?James:To be honest, it was really exciting. You felt like it was just so cool to be building something and going through this. We were so ignorant, I think, going through a lot of this stuff, which I think ended up actually helping us. It was just very shoot from the hip and like figure it out. Yeah, so many of these different scenarios could have totally bankrupt us or ended us, but I think it builds a lot of character by going through these different situations and surviving it and learning from it and growing from it. Yeah, it was exciting. It was really fun and exciting. The goal was just like, don't go bankrupt, don't die. Keep fighting and figure it out.Stephanie:That's good. I like that. I could see it also just making it seem like, well, what else ... Nothing can really scare me. I've gotten sued. I almost went bankrupt. There's nothing too scary out there after that. I think it's a good place to be.James:Yeah. I think it's part of building a business. You're going to face adversity and a lot of ... There's a reason nine out of 10 businesses fail. There's so many things that can go wrong with building a business, but you have to learn to embrace those challenges and know that you just got to fight through it. There's not always a way to figure it out, but there's oftentimes, if you keep working at it and keep fighting, you can find ways to get through these things. If you do get through them, these are like business cards, I guess you could say, or things that'll stick with you and you could grow and build on as you continue to build your business.James:After going through all this stuff over so many different situations over so many years, we've now learned to embrace the challenge and just know, hey, here there's going to be some new challenge, every year, there's going to be some new thing that's going to ... we're going to get hit with, and you just have to learn to embrace it and take it head on and not let it beat you up.Stephanie:Yeah. I love that. You guys seem really good at partnerships. I've seen some of the very well-known companies that you work with, who they get their own custom bikes built, and you've got things with artists going on and music and all that. How do you how do you view that strategy in your playbook to be able to access new customers and new markets, and how do you even develop those partnerships?James:Totally, totally. A lot of that was built from, again, when we started the company, we weren't the traditional bike guys. We were coming from the music background and fashion background. A huge art scene. We had all these relationships early on, and just out of pure having those relationships, we intertwined it in business, and you have the fixed tape series, which one of our early employees was a professional DJ, so he's like, "Hey, I got this idea. Let's create an hour long mix to listen to while I'm riding our bike, and we'll go get some other DJ friends to do it." That piece of content. Just that, that we created that and it's been rolling ever since. We just launched the Sofi Tukker one, which was, I think our 76th mix tape.Stephanie:That's cool.James:Then that artist creates that mix, and some of these DJs are very globally known DJs. We posted on our SoundCloud and they showed on their SoundCloud, and it creates this nice piece of content that people can come back to and find Sole, or find that mix each month. It's funny because we're not ... you wouldn't think of us as a music business or a bike business, but there's people out there in the world that only know us as the fixed tape company. There are people who'll find out, they'll be like, "Oh my gosh, you guys sell bikes. I thought you were just the fixed tape company or something." It's just organic sort of different little marketing tricks that we've, or little tactics we've built over the years.James:They just are organic, unique way to reach new customers and relate with our customers. We do the different partnerships. Again, I'll use the Sofi Tukker example. They're a big DJ group. If you don't know them, they're a big DJ group, globally known. I think one other fun facts, I think they have a platinum record in every country in the world except Antarctica. They're pretty big and they're up and coming. They had a song that's called Purple Hat. One of the lines in the song is purple hat cheetah print. We thought, how cool would it be to make a purple hat, their purple cheetah print bike? So, we had connections.James:One of their agencies or marketing companies or whatnot. So, we were able to get a pitch in front of them and they were super stoked on it. Yeah, now we're selling purple hat cheetah print bikes. Again, it's a cool way to ... What other bike companies are selling purple cheetah print bikes? It's just a unique way to reach new customers and provide a unique product and put a cool product out in the world that no one else was doing. I think it's just thinking that way with the bike industry has allowed us to build up these partnerships and set ourselves apart from other bike companies.Stephanie:Yeah. When you're doing these partnerships, these partners can also sell it on their website. Right? So, it's not all being sourced back to your website as a central hub. You're essentially letting these partners also sell the bikes on their websites as well. Right?James:Totally, totally. Yeah. For each partnership's bespoke and different in their own way. Sometimes like, we did a partnership with Wildfox, which is a women's centric fashion brand. We did these like really beautiful floral prints all over a bicycle. They took them in and they sold them through all their retail shops, as well as their partner wholesale shops, as well as their website, and we sold on our website. There's a bunch of different ways we can structure it. But yeah, it's usually just bespoke to whatever that partnership is.Stephanie:Well, that's a good segue into, I mean, when you're thinking about, you've got these mixed tapes going out and partnerships that aren't anywhere close to like the biking industry, how are you tracking conversions? Is your goal to try and get people to listen to these mixed tapes and then come back and buy bikes? Or how do you think about what your goals are around these different projects that you're doing?James:Totally, totally. With the fixed tapes, I think we're trying to push out a certain amount of content each month and each quarter. Then we go out and we build content calendars around what are different initiatives that we can tap into? I think when we're thinking about content, we like to look and start with email. Email is like one of our highest converting marketing channels. We're constantly filling and adding to our email list, and then from there, we're trying to push out two to three emails a week. We're mapping out our email pushes. We say, what are the different content initiatives that we can tap into? So, we try to do a fixed tape every two months. We try to do artist series every quarter and large-scale partnership once or twice a year.James:We map out all these different things we're trying to do, and then we funnel, and then that leads into email. With email, where you can't really just send very bland marketing type style emails every month. You're not going to get good engagement. So, we have to create stuff that's engaging. I think we've just gotten so good at creating this stuff very cost-effectively that it ends up paying for itself through the conversions of email. It's also a great brand building. They're all great brand building initiatives, and they all kind of build on themselves.James:If I do a big large-scale partnership with like a Sofi Tukker, that's going to come back and open up new opportunities down the road for other potential brands, or other potential artists. It's sort of all builds on itself as we go bigger and bigger.Stephanie:When you're talking about emails really high, when it comes to converting customers, how do you think about creating that engaging content? What pieces of content are working or what emails work best?James:I think one of them more interesting fun little emails that we came up with years ago and it's like the easiest thing [inaudible] to create ever, is we do what we call Sole Saturday. Sole Saturday, it's one photo by the Sole team and then three user-generated photos. Every bike we ship out has a little tag on it that says tag at Sole bicycles hashtag, and you use hashtag of the bicycle for a chance to be featured.James:Then, what we do is as we're spelling product, customers are going out and taking photos for us, and every Saturday we feature three of our customers. That, again, it's just like ... we're using user generated content and it's creating a nice email that people can go back to and see if they're featured. It's actually very high converting as well.Stephanie:That's fine. Do you think having actual customers and photos is where a lot of brands are going to be headed, less about the models and the people who look perfect and more about ... Is this someone who reminds me of myself and I can see myself riding that bicycle, yeah, feeling a better connection with them?James:Totally, totally. It's funny you say that. Because even when you look at ... you go to our paid spend or paid marketing, a lot of times the [inaudible] produced sort of content where it's on a really ... Get a really expensive content creator to produce it and it looks very professional, versus like content that's shot on iPhone or content that's just shot with customers' photos. That ends up converting a lot better than the higher produced stuff. I think that's just the people can relate more to it.Stephanie:Yeah. I agree. What kind of channels are you putting that content or the more natural looking content that your customers are creating? What channels are you finding are working best right now to convert customers?James:We're constantly testing when we're doing Facebook and Instagram ads. I've been serving different type of ads to different audiences on Facebook and Instagram with different types of content, the more professionals type of content versus the more just shot from iPhone vibe. Even like, over the last year, we've had a big uptick on our online business because of COVID, and people being at home and wanting to find a way to get outside and escape from this madness.James:One of the craziest things that we found was iPhone ads or the story ads-specific, so had to build just enough format for iPhones were converting at like crazy, crazy higher row ads versus just more static or traditional images or ads on the Facebook or Instagram. That was like a crazy thing we came up on this year.James:There's a very beautiful, simple ad where it's just like the bike on the beach and you have the sky in the background and then the sand below it. Then just the brand and a little copy below it. That little ad actually absolutely killed it for us this year.Stephanie:That's great. Are you still using, maybe not that ad, but still putting new ads into the story section on iPhones?James:Yeah. I recommend any brand out there that's doing ... I mean, I've been learning a lot of this as we go and trying to get better at it, but when you're creating your ads on Facebook and Instagram for when you're setting that ad up, you can actually split it so that it's like, you have this certain photo for the stack set up and then you have a different photo for when it's served on story. My biggest eyesore, or I hate is, when you're on a story and you get an ad, and it's like an ad that's built for the display. So, it has the kind of squared picture and then it has the words under that.James:I don't know if you guys have seen that, but it's such an eyesore to me compared to a beautiful ad that's like really built for the stories. Just making sure that you have the ad set, the story specific ads, it'll help your conversion so much. That's helped us a ton.Stephanie:Yeah, that's a really good point. What kind of return on spend should a brand expect from the iPhone story ads versus maybe Instagram or Facebook or Tik-Tok.James:That's a tough question. I think it's specific to the brand and the product they're selling, and then, even the time of the year. For us right now, our ROAS is way lower than like the middle of summer. It's almost like a 10th of what it was during the summer. That's just because it's seasonality, our product. We saw specific ... static first story during the summer, I think it was converting 3 or 4X of what it was static. But that's specific to us. I think every brand is different, every product's different. But yeah, I think that can give you an idea of the potential.Stephanie:Yeah, very cool. Is there any other new marketing channels that you're trying out, that you're like, I'm not sure if this will work, but we are allocating some funds here to try this out?James:No, for now we're focusing just on Facebook, Instagram. We're doing Google AdWords and media retargeting. I want to dip my toes in some other things. I want to try the Tik-Tok and I want to try some Pinterest. I've heard about the Tik-Tok, but the tracking is not that great on it. We haven't done anything yet. Also, Tik-Tok's I think for a little bit lower age or younger demographic than what our target audience is, so we haven't tried-Stephanie:I don't know. We've had a lot of people on here saying Tik-Tok works well. That originally, it was just the dancing videos and younger people and all that. People are like, it seems like there's still a good arbitrage opportunity on Tik-Tok right now, because the attribution and tracking might be worse, but you still get a lot of the benefit of going onto a new platform before they increase the pricing and actually understand what kind of conversions they're hitting. I don't know, [crosstalk] to check out.James:Totally, totally. There we go. That's my takeaway from this. We'll give it a go. We'll give it a go.Stephanie:Yeah, give it a whirl and see. When new customers are coming on your website, I want to talk a bit about like, how do you guide them through the funnel? How do you personalize things and show them, not only content, but also maybe a bike that would work for them or that might peak their interest?James:Totally. Totally. It's an interesting ... there's a few things we do. We have about our bikes page, where it's like, which Sole are you? That walks them through the different, we have like six different models. You have the single-speed fixed gear, you have the City Bike, you have the Dutch Step through, you have the three speed City Bike, and then you have the Coastal Cruiser. Top Bar and Coastal Cruiser are down and slanting more. We have a page that we'll walk the customers through the difference between all of those and the pros and the cons of each of those. That can explain the style.James:Then once you know the style, what we do different than maybe other companies is we actually ... Each product, each colorway has its own product variant versus like, you may go see a single-speed version of one of our competitors and they keep all the colors on one product page. We create the personality and each colorway has its own personality and its own page. It really helps customers, like okay, I like the red bike, and see the lifestyle on it, and just for that red bike. The red bike would be [inaudible] for a walk and it's got its own story, help the customer really fall in love with that product, and tell a story around each of them, versus them all being bundled up on the one page.Stephanie:That's great. Very cool. Then, I was seeing a couple of retail stores that you were partnering with, probably pre-COVID, but it seems like there'd be a really good opportunity to have those partners also kind of market and share for you while they're getting in front of their own new customers as well. It seems like they would kind of take on the budget, the marketing budget to then share your brand under their brand, if that makes sense.James:Totally, totally, totally. Yeah. We're seeing a big uptick with like these online third party wholesalers and distributors. That's been, for us, I think our product, it's got such a great look and feel to it that it can transcend from, not just traditional sporting goods or traditional bike-centric channels. We can sell on sites like an Urban Outfitters or on Zola, or some of these other more lifestyle driven sites that want a cool lifestyle product in the bike space.James:That's one of our big initiatives that we're trying to get on more of these like third-party digital wholesaler channels, because in the last year, what we've seen the biggest takeaway from all this is like, everything is going digital much faster than it was prior to COVID.Stephanie:Yep. Are those partners showcasing your brand? Are they more white labeling, like ordering the bikes and then putting under their brand to say, okay, this is an Urban Outfitters bike, or are they actually saying no, this is Sole [crosstalk 00:33:32].James:Yeah, we're selling us as Sole. Yeah, we're selling us Sole through these third parties.Stephanie:That's good. That's awesome. How are you getting in front of these big partners? Urban Outfitters is huge and super popular. How did you even get in front of them and convince them to partner with you guys to sell your bikes?James:Yeah, just cold email them. Right?Stephanie:I hear you cold emailing. Tell us your secrets. Come on, James.James:Very easy. Yeah, we'll go out there. If we believe our product could fit in someone's store or someone's space, then we'll hit them up. We're very confident in our product and our brand and we'll sell them on it. It works a ton. Then there's other partners that have reached out to us and want us to work with them. I think, a good example we were connecting ... Target reached out to us and we've just recently started selling on Target's website, which I think is ... It's interesting with them. Target's trying to, in each of their product categories, bring a more 21st century brand in. I think like we really fit that really lifestyle driven 21st century brand for a product.James:Normally, there's not a lot of brands in the space that have that kind of fit. I think we really fit those as well. That's an exciting one for us. Then, like I said, the Zola. Zola's a massive, or one of the biggest wedding registry sites. We're one of the only bike brands on there as well, and do really, really well on there.Stephanie:Ooh, that's a good angle. I wouldn't think to put a bike on a wedding registry website, but that's awesome, because a lot of times it's just the same old, same old. You're like, I don't need more plates, but I can go for a bike. I would put on my registry.James:We sell so many likes there. You'd be really, really surprised. It's a great wedding gift. We have a his and hers, so almost every single order that goes there, it's two bikes, obviously.Stephanie:Yeah. That's awesome. Really good strategy. How are you keeping up with fulfillment in the backend? Especially when you're integrating all these partners like Target and Urban Outfitters, what happens if target has a big surge and they've got a bunch of traffic come to their website, and all of a sudden, you've got 500 bike orders? How are you guys keeping up behind the scenes to make sure that you don't go out of stock or have issues on the backend?James:Totally, totally. This was something that this year that we've invested a lot of time and energy and effort into, is leveraging technology to make sure all of this stuff runs super smooth. We're using a third party warehouse that has their own systems. Then, we have to use an EDI software or partner to connect to a lot of these systems. It's just spending the time, energy and effort to really automate all this stuff and make sure all these systems talk to each other, and there's inventory pushes going out multiple times a day. You put in the front end work to automate all this stuff so that you can avoid those problems.James:There's systems that say, hey, there's inventory pushes that happen multiple times a day to all these systems, so if there's a big spike on say Target, that inventory is removed and pushed out to the other channels so that there's no overselling or minimal over selling. That still happens a little bit here and there because the inventory pushes don't go out all the time. It's a couple times a day, but yeah, it's just about leveraging. There's a ton of technology out there, like using the technology to your advantage to automate the stuff.Stephanie:What are some big bets that you guys at Sole are making over the next couple of years? Where do you think the bicycle market is headed? What are some things that you're betting on that you're not sure if they're going to pay off or not over the next couple of years?James:Yeah, totally. I think it goes back to digital. We're super focused on digital right now and we're super bullish on digital. We're investing in this technology to make sure that we're set up the scale and then we want to continue to expand where we're selling and who we're selling in front of. Then, on top of that, it's continuing to expand how we market our product and where we market our product and the media partners we can use to get in front of these different people. I think the biggest thing ... People having a stay at home as a result of COVID has set all these new habits. I think they say like, it takes three weeks to set a habit, and what? We've all been at home since April.James:Everyone's having to shop from shop online and shop at home. Once we come out of COVID, those habits, I don't think are going to go away. For us, we're super bullish on making sure we have a really solid foundation with, not only our website, but the online e-retail partners that we're selling through so that, as we come out of COVID, we continue to have really strong distribution digitally to the future.Stephanie:Yep. I could see some of the retail partners leaning on you guys also for maybe advice and best practices. I've seen some of the bigger companies kind of looking at, not that you're a startup, but looking at startups, looking at people who are able to be agile and move quickly, and trying to figure out like, well, what are you guys doing? Tell us what are the best practices right now, because what we've been doing for the past couple of years was just thrown up into the air and we have to rewrite how we do things now. So, do they ever hit you up and be like, "Hey James, how should we set this up? Or how are you guys doing this so we can replicate this?"James:Totally. No, no, no. There's always like other people in the industry that we're talking to. There's always people that we ... Whether it's people in the bike industry or other businesses, other friends that have businesses. Again, always happy to talk with them. For us, you say that we aren't a startup, we are a startup. We've been doing this for 10 years, I still feel like it's a startup. Our team's still pretty lean. There's only 10 of us. We're super nimble and able to move quick, which is great and allowed us to pivot and make changes when things like COVID happened, that bigger companies can't do.James:Once we find successes, we can double down and grow on those. Yeah, we're staying nimble and going with the flow and learning quick. Yeah.Stephanie:That's great. All right, cool. Let's jump over to the lightning round. The lightning round is brought to you by Salesforce Commerce Cloud. This is where I'm going to ask you a question and you have a minute or less to answer. Are you ready, James?James:I am ready.Stephanie:All right. Stephanie:What is your favorite business book that you think about or refer back to [crosstalk 00:40:28]?James:It's not a business book per se, but it is You Can't Hurt Me by David Goggins.Stephanie:Oh, okay. I like that. I actually have not heard of that. I don't think.James:The quick hitter on it, it's about overcoming adversity and pushing yourself. I think that's so important in business is understanding that you can overcome adversity and always setting your bar higher and higher. Again, it's not technically a business book, but I think there's ton of good business lessons you can learn from it.Stephanie:I like that. That sounds good. I'll have to check it out. If you were to have a podcast, what would it be about, and who is your first guest be?James:Oh my gosh. If I were to have a podcast, I would talk about ... Personally, my favorite thing outside of business and bicycles is traveling. I would do a travel blog and my first guess would be, Oh my gosh, I would pick Barack Obama.Stephanie:There you go. I'd listen to that. That sounds good. What is the nicest thing anyone's ever done for you?James:Oh my gosh. The nicest thing that anyone has ever done for me. The nice thing, oh, this is big.Stephanie:Heavy.James:My friend, Mario and Ken, in the early days when we started up our USC shop, these guys would come out every year and work for back to school, which is our craziest time of year for that shop. We sell like a thousand bikes in two weeks, and they would come out and stay at my place, crash on my floor and help us every year for the first four years. So, shout out to Mario and Ken.Stephanie:Oh, that is really nice. That's a good answer. What trend or tech do you not understand today that you wish you did?James:What trend or tech? Tik-Tok.Stephanie:There you go.James:I don't get it, but I feel like I need to get it.Stephanie:Okay. I've had some other people say that as well, so you're in good company. Others don't also do not understand it. All right. Then the last bigger one. What one thing will have the biggest impact on ecommerce in the next year? It can't be COVID because we've had too many people say that.James:I think the big thing impact on ecommerce, I think it's going to be shipping. I feel like shipping is going to change drastically over the next one to five years. You have like Amazon starting to do their drones. We're starting to see in LA these little robots that are delivering food. Then, on top of that, FedEx and UPS are just killing everyone with all their fees and their pricing. We've been in peak surge charges since July. I just feel like there's so much potential for disruption there, shipping.Stephanie:Yep. Oh, that's a good answer. Yeah, I agree. I see a lot of companies, a couple of them actually are in Canada who are trying to get one and two day shipping. I think a lot of more companies will be leaning into that once they figure out how to make that work, and they also see how reliant they are on the FedExs, the UPSs, and how much it disrupts businesses.James:Totally, totally. Please someone come out here, please help us [inaudible 00:43:54], it's so expensive to ship bikes.Stephanie:Well, maybe James, that can be your next business. You've done a lot in your day. You might as well just start a shipping company as well.James:There we go. There we go.Stephanie:All right, James. Well, thanks for coming on the show. Where can people find out more about you and Sole bicycles?James:Totally. You can check us out at solebicycles.com, or our Instagram, which we update daily, @solebicycles, and then my personal is @JimmyStans.Stephanie:All right. Thanks so much.James:Thank you guys so much. Appreciate it.

Cultivating the Gap between Marketing and Sales

The Marketing Agency Leadership Podcast

Play Episode Listen Later Nov 12, 2020 33:00

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.

Alexey Sonar - Live @ Z.BOAT Party (Digital Emotions Day) [30.08.2020]

Alexey Sonar

Play Episode Listen Later Oct 15, 2020 114:42

Alexey Sonar Socials: Instagram: www.instagram.com/alexeysonar Facebook: www.facebook.com/alexeysonar VK: vk.com/alexeysonar Telegram: t.me/skytopresidency Youtube: https://bit.ly/2MCWZXG Download/Stream: iTunes: apple.co/2rnodUg 01. Fake Mood – Lullaby [Ruvenzori] 02. Berkson & What: Dan Berskon, James What, Robert Owens - Keep On (Tim Engelhardt Remix) [Poker Flat] 03. Luka Sambe - People, Be Nice (Eli Nissan Everlast Remix) [Balance Music] 04. NiCe7, Leon (Italy) - Please Don't Leave (Serge Devant Remix) [Crosstown Rebels] 05. Khen - Manginot [Lost Miracle] 06. Roy Rosenfeld - No Drama feat. Nadav Dagon [Rumors] 07. Goom Gum, DJ Pressing – Banabantu [Zerothree] 08. Sebastien Leger – Kanga [All Day I Dream] 09. Roy Rosenfeld - Honey [All Day I Dream] 10. Volen Sentir - The Great Escape [Lost & Found] 11. Goom Gum - Flora [TAU] 12. Aikon – Saturn [Exploited Ghetto] 13. Space Food - Our Time [Heinz Music] 14. Framewerk - Making That Move [Capital Heaven] 15. Tali Muss – Garip [Heinz Music] 18. Yotto - Daydreaming [Anjunadeep] 19. Marsh - Gjipe [Anjunadeep] 20. Matteo Bruscagin, Visnadi, Angelmoon - Rain (feat. Danny Losito) 21. Indifferent Guy, ODYSSAY – Reborn [Diynamic] 22. Dave Seaman - Thonk! (Whitesquare Remix) [Selador] 23. Rauschhaus - What We Expected [Parquet] 24. FarHigh feat. Annett - All I Say [Diynamic] 25. ARTBAT - Upperground [Diynamic]

found boat party nice7 berkson james what alexey sonar digital emotions matteo bruscagin artbat upperground diynamic

S0E1 - Here’s a Spoonful of Sugar (and how not to be a Unicorn)

Only Way To Fail

Play Episode Listen Later Aug 5, 2020 67:57

DescriptionWhere the company is today (Infoplus Story of Right Now), Pandemic checkin - how have we all adjusted with our teams and the company to the new world since we have all been WFH since March, follow-ups, headlines, and a trip to the ER for sugar. Show Notes00:00:00 - Pre ShowRandom chatter on all the things Biased reviews Squeaky chairs and amateur microphone handling00:02:02 - Show Start3 nerds and a business guy00:02:29 - Follow-upsWhat the hell were all those words and acronyms we used last week? MEPS EOS Traction (alternate link to amazon store) 15 Commitments of Conscious Leadership (alternate link to amazon store) 00:16:42 - This Weeks HeadlinesDarin - LTM’s, IDS, and a guy named Joel Garret - How to max out a corporate card from vacation Tyler - Software engineering and automated testing (for the “nerds” in the audience)James - What is a ZOG (Zone of Genius?) and 31 days of vacation coming to an end 00:29:27 - Where Are We Right Now (The company as of today)View fullsizeExcitement, Valley of Death, Wiggles of False Hope, TractionScaling via strategic fundamental change, not effort4 Engineers won’t carry us forever“Single hats only” and respecting the “product sphere”If James doesn’t want Infoplus to be a “startup unicorn” then why does Infoplus exist.00:45:39 - Pandemic checkinHow have we all adjusted with our teams and the company to the new world since we have all been WFH since March“Drinky Hour”Engineers in HeavenInfoplus Mom is losing weightThe good side of life slowing down00:59:00 - Q and AJames left the questions blank00:59:34 - End of the Show (The Sing Out)“Smash that like button” is still hanging onDarin sings us out with an encore that leaves you wondering how he was ever kicked out of choir01:02:23 - The After Show“Mr. Richardson... your oxygen levels could not be any higher.”

death pandemic er single valley sugar genius unicorn richardson engineers commitments wfh ids biased spoonful squeaky wiggles conscious leadership false hope james what if james

Ep#62 Investing in Self Storage with Ryan Gibson

Achieve Wealth Through Value Add Real Estate Investing Podcast

Play Episode Listen Later Jul 4, 2020 28:40

James: Hi, audience and listeners. This is James Kandasamy from Achieve Wealth Through Value-add Real Estate Investing Podcast. Today I have Ryan Gibson from Spartan Investment Group. It's an investment group that focuses a lot on Self-storage. They have almost 4,000 units. They have a lot of units in DFW area and a few other States. I think Ryan's going to talk about in a short while, and they recently started to [00:32unclear] in a mobile home parks, which we'll touch upon in a short while. Hey Ryan, welcome to the show. Ryan: Thanks, James, for having me. It's fun to get on your show. It's great. James: Yeah, absolutely. Absolutely. So why not you tell about yourself and your company, things that I've missed out? Ryan: Yeah, so we are based in Golden, Colorado, and we buy existing and develop self-storage properties. And we do all of our properties and projects through syndication. So we raised capital from private investors and we go out and buy storages that we can buy and get existing cashflow on. And then we can eventually either expand them or just improve operations to make additional income. We also build self-storage from the ground up and we do a little bit of RV park investing as well, but storage is the primary focus. So, you know, previously, we were land developers and built condos and flipped houses and focused on storage mostly just because of the recession resistancy, you know, during downtimes. And when we were first looking at the industry, that really is what you know, attracted us to jump into the business. Was the, you know, kind of how it performed during the last two recessions. James: Got it, got it. Yeah. I mean, I did a lot of research of different asset classes. I wrote it in my book as well. Like how many asset class, six asset class for the past 15 years and just on my own, this is not from Marcus and Millichap or this is not from CoStar. I looked at all the asset class and was looking at all the past 15 years report, which that's a report called Integra Realty Resources. That's the report that all the commissioner pays us a report to, that's the organization. And I was looking at self-storage and multifamily and all that. I was surprised to see that self-storage did do well the past 15 years, even during the downturn. I know at the beginning, you know, 15 years back, they didn't really allocate a specific asset class for it, but they did talk about it. And in general, I didn't see any downturn, even though every other asset class goes up and down. So that's very interesting. And why do you think is that? Ryan: Because it relies on life events and life events never stop happening. No, I'm serious. You get divorced, typically, stuff goes in storage. You renovate your house, stuff goes into storage. In times of good times, stuff goes into storage and times and the bad time, stuff goes into storage. When you get downsized, when you move, when your job relocates, when there's a disruption in the market that triggers self-storage events. And added onto that, businesses use it because not everybody can park their work truck in their HOA driveway, if they're in a covenant restricted community and not everybody can have all their utilities and supplies in their house. And so, you know, simpliest way to say it, you know, for an extra 50 bucks a month, imagine having a whole other room in your house. And that's really been a big driver for demand and self-storage. We like it because unlike other asset classes, when a customer comes in, we have a lien against all of their stuff. So if they don't pay, we can auction that off for a profit. So, you know, the revenue loss is much lower for you know, the potential when a tenant doesn't pay. With COVID and everything, there was still a rental rate, great increases. We still had high occupancy. We still can host auctions and have people move out if they don't pay. We held back on that in a couple of properties and a couple of markets, but for the most part, you know, we didn't have the government restrictions that a lot of other asset classes had on that kind of stuff. James: Got it. Well, I mean, I'm sure the audience is thinking why not James jump on self-storage. So but let me tell you why I didn't, you can always debate this. So one thing I didn't jump on self-storage at that time. I mean, of course, for me, focus is very important. I mean, every asset class has so many nuances in it. I mean, it's not easy, even though self-storage is like four walls and there's nothing in it, but there's a difficulty in finding the deal and difficulty in executing the business plan and turn around and, you know, disposition and all that. So, I mean, but I didn't do it because at that time there was not much of nonrecourse loan available, I think, unless you go really low on the leverage. So how is that right now? Ryan: You can get a non-recourse right now on ground-up construction James: On ground-up construction. Okay. Got it. What about on the... Ryan: Oh, and of course you know, that would be rare in our industry. Of course, on buying existing self-storage properties, non-recourse is widely available. James: Got it. Okay. So now it's available right now, at what leverage level? Ryan: It just depends. I think we just tied up a deal that around 70 to 75% non-recourse institutional loan. So, you know, it just depends on the lender. Depends on the deal. Depends on the play. James: Oh yeah. I had a friend who was like 85 years old. He's a broker, but he's a very healthy guy. And he said he started multifamily and moved on to storage and he owns a lot of storage unit and I was calling him and he said, maybe at that time, he said, yeah, it's hard to find non-recourse loans. The other challenge in storage is, you know, I mean, anybody can build a new self-storage development in front of your storage unit. It's very easy to build Ryan: Maybe. Yeah. So, you could say that as a general statement, that wouldn't apply everywhere. So there's a lot of moratoriums on storage. There is a lot of restrictions. Some communities don't have zoning for it. Some cities quite frankly, would not allow you to use it at all. So, you know, it just depends on where you are. Some jurisdictions it's, Oh yeah, come build it. No problem at all. So you just need, you know, it just depends on the market. You know, we have markets where there's no zoning and we could build whatever we wanted and there are markets where it's taken us 40 years to get a permit. So it really just depends. And then there are some markets where you get your permit and then they slap a moratorium on there and you can't build your storage anymore. That's happened out here in Washington and a few places. So you really got to pay attention. And, you know, and I think really if someone was like, what's the one thing that I could take away from talking to a storage operator? It's the market study. It really comes down to: do you have the demand and is there the supply of people and demand essentially in the market to fill up your property or execute your business plan? It's huge. You know, someone might say, is storage a good play? I don't know, make up a city, Austin, Texas and I will say, well, generally, no, it's not, it's actually a terrible market, no offense, but it might be good on one side of the town and catastrophic on the other side. It's a three-mile business so it's like whatever's happening around in that immediate micro-market is really what it comes down to. So some markets are generally better, some markets are generally worse, but at the end of the day, it's right in that five, 10 minute drive time of the property. In the market study, that makes the difference. James: So, all your details that you're telling me right now, that's why I say there are so much of nuances in any asset class that outsiders may not know. I mean, it's easy to say, you know, it's easy to build but there's so much of a market research knowledge that, you know, only the operators who are specialized in it knows about it. So, and I do have a lot of respect for every asset class operators. There are definitely people who are really good at that. So let's walk through a deal in self-storage. So not in terms of deal underwriting, but let's look at the demographic of that storage. Let's say you found land in a city. Walk us through the steps you would take to say whether this is a good site for a self-storage facility? Ryan: So a couple of things. The first thing I would look at is what's the population. So I would drop in on the facility, we have data and maps that will show us the drive times. And then based on those drive times, we'd get the population within the drive times of the property. And then we would look at saturation levels. James: And what are the drive times? Minutes? Ryan: Yeah, four minutes. I think we use eight minutes and 15 minutes. Think of it this way. If you're in an urban core, you're not going to drive 15 minutes across town, you're going to drive eight minutes so that there's relevancy to where you are in the market. But what we look at is, you know, we'll look at what are the comparable rent comps to what our subject facility is charged. So, you know, we might be getting $15 a square foot on the average but it's important to know kind of what type of facilities those are: three-story glass, Class A facilities, are they first-generation roll-up metal buildings, you know, big difference. Is it non-climate controlled is it climate controlled and in that market, is it a hot market, like a warm climate that likes self-storage to be climate controlled? Or is it a market that prefers drive-up or, you know, climate control would be overkill and people would be unwilling to pay the extra money for that. So we look at price per square foot, you know, probably just like multifamily. And then, for Spartan, we look at the ability to add onto that property, you know, can we expand it and what is the existing dirt that's there? What is it? Is it flat gravel? Are there stormwater requirements, setbacks, easements restrictions, how usable is that land, and how much would it take to get the land pad ready? Cause we're developers. I mean, we take properties and develop them into bigger... James: What about zoning? Ryan: Zoning is important. That's kind of a little bit further down on the checklist. The top thing is demand. Cause you know, you could have, Oh, this is a zone for self-storage. And of course, everybody knew that. And then everybody built, a bunch of storage is there and there's no demand. James: But is it easy to change as zoning from, let's say in multifamily to self-storage? Ryan: Ah, that's a loaded question. James: Maybe not multifamily. I know residential has a lot of high priority in terms of city development. Let's say, commercial office building, commercial land to self-storage. Ryan: I mean, it depends. I know you don't like the word, it depends, but it depends. So like if you are looking in a market where, you know, we entitled the self-storage project in a city that had no zoning for storage. So everything was a conditional use permit. Everything was a public hearing. The public had come in, the city had to make a recommendation to a hearing examiner. Huge process. We've taken a residential land and rezoned it into commercial so we could build self-storage. We had to go in front of the board of county commissioners. We had to go in front of, you know, there had to be room for public comment. There was opposition, but we were successful and got the land entitled, but every jurisdiction is just a little bit different. We've bought properties that are zoned for storage and we've gotten the entitlements and they can take anywhere from two to six months to get it, it's a building permit, you know, depending on how fast you're pushing and assuming no closures in the city and things like that. It just runs the gamut. You know, as I said, I have colleagues in the industry that have bought property, they got the entitlements. So yeah, you can build storage here. And then the city puts a moratorium on storage and now they can't build anything. So they bought this land, they got the entitlements, they've spent all this money, now they can't even build it. James: How do you prevent that kind of thing from happening? Ryan: You don't. James: Because you've already bought the land. Ryan: I mean, you could negotiate the contract to close upon building permits, but then you've got to find a willing seller and you know, of course, that's always a negotiation. James: It's too messy, I guess. Ryan: But yeah, when you develop, I mean, it can be riskier and there's a potential for a bigger return but you also introduce a lot more risks. So yeah. I mean, is it easy to do? It can be, and it can be very difficult to the point of being impossible so it really just depends. James: So when you guys raised the money from your investors, have you already done that, let's say for a [13:57unclear] project. Have you already done that part or are you are still looking at that entitlement? Ryan: Yeah, we've really learned our lessons through the year. So you know, we bought a storage property and when the rezone of the land from, you know, so you have kind of a couple of different phases of development when you're doing like the paperwork to get it ready to go vertical. So the last thing you get is their building permit. So your building permit is pretty straight down the fairway; that is meeting building codes, getting your building permit, not a lot of risk in that - a risk, but there's not a lot of risks. But the phase just before that might be your entitlement so that you can actually do what you want to do, or might even be some type of site plan development where the city has to approve your site plan but you don't necessarily have your drawings done for the buildings they've just approved. Okay. Building here, building here, building here, this is your height. This is your step back. This is how much square footage you're going to deliver and a site plan approval. And then you have the zoning that might be before that. And it might already be zoned that that might be your first step. You know, do I meet the zoning if I don't, I might have to rezone that could take years. So, you know, we just kind of look at the projects and negotiate with the seller to buy the property. You know, when it hit a point where we're comfortable with closing on the land, and then we negotiate the purchase and sales agreement as such, and then we do the raise in accordance with how we feel our comfort level to be. Because we don't want to raise the money until we know we can do what we want to do. And you know, we've really refined our processes for that over the years to know that, Hey, we can close. And we've gotten better at negotiating. Like how can you expect me to buy this land and I don't even know I can do what I want do with it? If it's a hot market, you know, make a decision; you either want it, or you don't. If it's a property that's been sitting on the market for a year, you can come up with some pretty creative ways to keep the property tied up while you go through that process. James: So how many percents of these 4,000 units were developed versus how many were bought from....? Ryan: 25% James: 25% newly developed. Okay. Are you guys more trending towards development rather than buying? Ryan: That's a great question. I would probably say we're buying more than we are developing right now for no reason other than our development pipeline is full enough. Development is expensive and development requires a lot of cash and you don't want too many of them going on at one time. So we have two very large, about $22 million right now with development. Actually, no, we probably have about $30 million in development right now and that's about our comfort level. That's our spend for 2020 for development and we really don't want to get much past that. We also only develop in the states that we live in so Washington and Colorado. Adding onto a property is not a big deal, but we don't like to do ground-up development where we go through the whole process if we live out of state, because inevitably if you want to get things done, you gotta be down at the county, down at the city hall, down at the office, all the time. You're going down there all the time. Oh, you want this? Okay. No problem. James: Otherwise, it's going to just take forever to get a project done. Ryan: And who wants to fly an hour and a half somewhere to drop off a piece of paper and then fly back? I mean, it's just not efficient. So we just like to be in town. I can't tell you how many times I've gone down there to, you know, shake the trees and get progress. James: Yeah. I've done a small land development beside my apartment. We were converting it. We were combining the adjacent plot of land into the apartment. And that itself was a lot of work already. But the city was supportive and it went through well by just the amount of paperwork, the amount of bureaucratic process that you have to go through. So, absolutely. What about a demographic? I mean, we talked about demographics. How do you say that this particular submarket is a good demographic for a good self-storage business? Ryan: We like at least 1% growth. We like to see trending growth. We like to see 50,000 income. We like to see saturation levels like a seven square foot per utilization for storage. James: How do you get that data? Seven square feet per utilization? Ryan: We have Radius Plus and we use a couple of different programs. Radius and there's one other program that James: So Radius is a software for self-storage investors? Ryan: Yes. James: Okay. For them to see the demand, I guess. Ryan: If you gave me an address, within 20 minutes, I could tell you what's the drive time around it. I could tell you the demographics. I could tell you the demand. I could tell you all the permits in the pipeline. So that's another thing. This is great. I can tell you everybody who's building, everybody who's applied, who's canceled, who is coming. And then of course we do our boots on the ground research where we go knock on doors and go to the city and ask them like, Oh, Hey, you know, is anybody else? Oh yeah, John, you know, he was over here last week. You know, that doesn't show up on record but the intent. And then you go talk to John and you say, Hey, you're really going to do this because we're thinking about doing it too. And we've got into situations like that and you know, either we've given up or they give up or whatever, and we just move on to a different market if the market can't supply all that additional. James: So does the self-storage purchase involves stringent requirements or stringent terms like what multi-families like day one, hard money, you know, very tight on inspection, do due diligence process? Ryan: It's extremely competitive. And it might be as competitive or more competitive as multifamily. Because when people think of storage, they're like, Oh, I've never really heard of that. I don't know what that is. And then they do multifamily and they're like multifamily is really hard. You know, there's always people doing it and Oh my God, there's so much competition. Maybe I'll go try storage because it'll be less competitive. And then they go over to storage and they're like, Oh, there's a lot of people that do this. But what the difference is there are so many multifamily properties in the United States. Self-storage, you can't even hold a candle to the wind. I mean there are 50,000 facilities total in the entire United States. So yeah, when you're talking about competition, if you're looking at a property that's a million dollars or less, no problem. You can go bid on it as a mom and pop. When you go a million to maybe 6 million that you can reposition or that, you know, show some signs of a mom and pop operations, you're competing against the best of them. You know, the all-cash, close in 30 days, 60 days, whatever it might be. But generally what we do is we do about 10% earnest money deposit...sorry, not 10%. On a $6 million facility, we might put up anywhere from 25 to 50K. And that doesn't go hard until due diligence is completed and signed off on. James: Oh, okay. So that's not bad. It's not like day one hard money, like what's happening in multifamily, right? Ryan: No. And if we were in that space, we wouldn't play that game. So yeah, whether you think it or not, you're competing with yourself at that point. You're worried about losing that money. I mean, we have a 100% contract-to-close ratio, so everything that we've put under contract we've purchased. I mean, we had a bank pull out three days before closing, we went and raised a private loan. We did our own deal. So we've done everything to really help get the deal closed and we've got that reputation to close. And I think that people value our relationship a lot more than they do necessarily how much earnest money we put up. And we've had a broker bring us a lot of deals and just keeps bringing us deals because we make it real simple on them. You know, it's a very simple process with us. We get everything on the table. We are very transparent and as you know, in multifamily that'll go a long way. Any business, right? James: Yeah. That's true. That's true. Yeah. I mean, brokers, love people who are easy to deal with. Because you know, this is just multimillion-dollar deals and you do not want to have a tough person to work with when you're going to such a big transaction. So at a very high level, what are the value add that you usually do in self-storage? Ryan: Cameras for security, rental rate increases. James: So what, you put a camera and you get higher rental rate or it's just...? Ryan: People walk in and they want to feel secure. So our target customer is a 70-year-old woman, that's who rents our properties. So when they walk to your property, is it dark, are there cameras, is it secure? Does it feel like the fence is going to fall over? So we take the properties, we'll put in a new fence, we'll put in new cameras, we'll paint all the doors, we'll replace doors, we'll rehab the office, we'll put in notary services, we'll put in ice and vending machines. James: Why do you need a notary service in a self-storage facility? Ryan: Convenience. So we like to be a shop of convenience. So if somebody has got an Etsy, Amazon, they have a home-based business and they can come to our storage facility, they can drop their FedEx/UPS deliveries off at one of our properties. They can get their items notarized. They can ship, they can store. We even have a car wash at one of our properties. So, we try to be a place of convenience for people. Not that we were going to make any money on it. It's just a place where people can go and know that I rent my Uhaul truck to move my goods somewhere. At your property, I can notarize my documents, I can store my belongings, I can do a lot of different things to transact and do my business obligations. And so what we try to be kind of a helpful facility. Not all of our facility does that because not every facility even has an office. But the ones that do, you know, we sell retail. We start, you know, people pay cash, we get rid of cash payments and we go to as many automated payments as possible. We enforce the lease. You know, a lot of these facilities we take over, tenants might not even be on adequate leases. So without being on an adequate lease, you don't have an adequate lien against their belongings. You can't do an auction. James: Have you guys done auctions? Ryan: All the time. James: It's like Storage Wars on TV, right? Ryan: Yeah. Yeah. James: That really happens? Ryan: Yeah. The semantics are true or the actual process is true, but the way that it's carried out is not true. So nobody goes in person, you know, there are some old school places that still kind of do that, but we do them online. So you can go to selfstorageauctions.net, you can register. And then in your neighborhood, there could be a storage auction and you get alerted like, Oh, Hey, this unit is going up for auction. You can kind of log into your account and see, Oh, what's in there. James: All right. I can see all our audience and listeners are doing that right now. I didn't even know that. What was the website? Ryan: I think it's selfstorageauctions.net. And so as a company, what we do is we say, you know, that the storage auctions is revenue producing or whatever. They're not really revenue-producing. They're basically just to get you to get out and get a new customer in. Like we clear out the, you know, and it's the threat of losing your stuff, right? If you don't pay, you lose your stuff. James: So it's like an eviction process, I guess. Ryan: Right. James: Except the government can put the moratorium like what they did in multifamily right now. Ryan: The government hasn't touched us. So usually within 30 to 60 days, if you're not...so let's say, your rent is due today. If you haven't been paid in five days, you get a late fee and your unit gets locked automatically. So the gate code that lets you into our properties, the revenue management system will automatically turn the gate off. James: Really? [26:40crosstalk] Ryan: We over-lock your unit. You can't even get into your unit. James: You don't pay your rent and after five days, it locks by itself? Ryan: Just like that. And then we'll over-lock you. So we'll put a red lock on your unit as well. Some of our properties will have the smart locks where it'll lock behind the door so you can't get in, you can't get into your stuff. So if you don't pay after five days, you're automatically locked out. So we liked that. We don't have to really manage that too hard. I mean, there's, you know, we have property managers are onsite staff that deals with that, but the gate code, that's automatic. And then once you pay it, we'll let you back in. But if you don't pay, you're locked out. So now you don't have access to your stuff and after 30 days we do our notices, our legal notices and then, we can take pictures of your property, do our publications and then it goes on this website and then people can buy your stuff. And then you know, any earned income from that auction goes directly to us first, to recoup the costs of whatever the tenant owed us and then any costs of legal fees associated with it. And then anything that's left over after all of our money has been recouped, goes to the tenant, you know, cause they gotta be compensated for their stuff. So, we get paid first and then, but most importantly, we get our unit back and in multifamily or residential, they might trash the place. They're gonna do whatever they do. In storage, I mean, you can try to trash the place, but I mean, it's a box. And you know, we just sweep it out. They moved their stuff out and they're gone. And then, you know, for us, we just get our unit back and we let our customers know when they book, you know, Hey, sign up for our online auctions. You know, so they can bid on stuff and they can also know that, Hey, we do online auctions. So a lot of places we take over, I mean, the delinquencies are a mess when we take over and that's a way to increase value. So we took over property last year, for example. And I just heard from our management that, you know, auctions were like, I mean, there were people that were 180 days delinquent and the manager just wasn't collecting on the units, they just weren't enforcing the rules. So we'll come in and we'll just follow the rules. You know, your lease says this, if you don't pay with this, you go to auction, you know, and then we make money on late fees. And some facilities that we take over don't charge late fees. I mean, if you don't pay on time, you should get charged a late fee. So there's a lot of different things we can do. You know, and plus we'll repaint, we'll redo the doors. Some doors of the old cabinet doors, you know, to open up the lock, the storage locker, we'll put the roll-up doors on them. We'll improve the lighting, we'll redo the asphalt, whatever it might be, we just get it nicer so that the customer feels safe and secure and they feel like they're getting good value for their money. James: Got it. Got it. Got it. All right. Why don't you tell our audience how to get hold of you and your company? Ryan: Yeah, sure. So my email is Ryan@spartan-investors.com. Our website is spartan-investors.com. James: Awesome. Thanks for coming in and adding tons of value to our listeners and audience. Thank you. Ryan: Yeah, you're welcome. It was nice meeting you, by the way.

SL068: Public Speaking Career Tip: How To Get Video Testimonials From Clients and Audience Members

SpeakersU Podcast with James Taylor

Play Episode Listen Later Jun 24, 2020 38:18

How To Get Video Testimonials From Clients and Audience Members James Taylor interviews Jill Schiefelbein and they talk about exactly How To Get Video Testimonials From Clients and Audience Members. In today's episode Jill Schiefelbein talks about Exactly How To Get Video Testimonials From Clients and Audience Members. What we cover: Why you should join a Speakers Association How to ask for video testimonials Keynote speakers vs breakout speakers Please SUBSCRIBE ►http://bit.ly/JTme-ytsub ♥️ Your Support Appreciated! If you enjoyed the show, please rate it on YouTube, iTunes or Stitcher and write a brief review. That would really help get the word out and raise the visibility of the Creative Life show. SUBSCRIBE TO THE SHOW Apple: http://bit.ly/TSL-apple Libsyn: http://bit.ly/TSL-libsyn Spotify: http://bit.ly/TSL-spotify Android: http://bit.ly/TSL-android Stitcher: http://bit.ly/TSL-stitcher CTA link: https://speakersu.com/the-speakers-life/ FOLLOW ME: Website: https://speakersu.com LinkedIn: http://bit.ly/JTme-linkedin Instagram: http://bit.ly/JTme-ig Twitter: http://bit.ly/JTme-twitter Facebook Group: http://bit.ly/IS-fbgroup Read full transcript at https://speakersu.com/sl068-public-speaking-career-tip-how-to-get-video-testimonials-from-clients-and-audience-members/ James Taylor Hi, it's James Taylor, founder of SpeakersU. Today's episode was first aired as part of International Speakers Summit the world's largest online event for professional speakers. And if you'd like to access the full video version, as well as in depth sessions with over 150 top speakers, then I've got a very special offer for you. Just go to InternationalSpeakersSummit.com, where you'll be able to register for a free pass for the summit. Yep, that's right 150 of the world's top speakers sharing their insights, strategies and tactics on how to launch grow and build a successful speaking business. So just go to InternationalSpeakersSummit.com but not before you listen to today's episode. Hey there, it's James Taylor, and I'm delighted today to be joined by Jill Schiefelbein. Jill is an award winning entrepreneur, dynamic keynote speaker best selling author and recovering academic before venturing into entrepreneurship. She taught Business Communication at Arizona State University for 11 years. Today, her business the dynamic communicator helps organization's navigate the digital communication space to track customers, increase sales and retain clients. Her latest book is called dynamic communication 27 strategies to grow, lead and manage your business. And she was also the co chair of the next influence conference which the National Speakers associations premiere event for professional speakers. my great pleasure to have Jayla join us today. So welcome, Jill. Jill Schiefelbein Thank you so much for having James. I'm excited to share. James Taylor Fantastic. So tell us what's what's going on in your world just now. Jill Schiefelbein There's a lot going on in my world, but a lot of what's been going on lately has actually been doing with virtual training, different virtual offerings, different, you know, annual programs, but they're dealing with, you know, a quarterly training program that now supplements things that I'm doing in person at conferences, so speaking not just on the stage, but to the screen as well. So how James Taylor does that that's quite a different medium in terms of being able to speak you know, you're so used to be on the stage of the biggest stage or your body movements that can be quite different as well, when you're in this little box, how do you have to change your communication style? Jill Schiefelbein You know, you do a lot. And what happens is most of the time, I find that speakers who are amazing onstage if they assume that they're just going to meet amazing in an online environment they tank, and it's because navigating the virtual communication space is very different than presenting on a stage. And it's not just about the eloquence in the execution, right? Yes, of course, those things are important. But one of the biggest problems that a lot of speakers have when going into the virtual space is that they're not eyeballs looking back at them. There's not body language that they can read, there's not energy that they can feed off of. And in essence, you have to manufacture all of that for yourself or find ways in the virtual environment to actually create that level of interaction and feedback that you seek in the face to face environments. James Taylor So what was if someone may the speakers out there that who primarily their their speaking and and or training To live audiences, if they want to get their toe in the water of learning how to use the media and also having to create their own online courses or online training, but just want to start getting getting used to what that medium could be and how they have to maybe present in a slightly different way, what's a good way for them to start Jill Schiefelbein the very first way is do your presentation alone in a room looking at a computer screen and record it via audio, just audio, and listen back to it. And if you're bored in certain parts, then you can expect your audience to be doubly bored in those parts. And it's really important not just to have you know, your energy coming through the enthusiasm, the para language, the ups and the downs of your voice. All of those things are important. But just understanding how people are listening through technology, by listening to yourself in those recordings is important because when you're listening to yourself, listen from the learner perspective that you're trying to actually learn information. So that's number one. Number two is test the platforms if you're doing doing it for a client, if you're doing in a corporation or an organization, and you're not the one choosing the software, you need to actually take time to practice in it and learn what tools you have available, for whatever reason, and it's infuriating to me on one hand, and on the other hand, it's great because I get way more business because the average webinar is kind of, at best. Yeah. And the average webinar is I'm going to speak and there's maybe going to be some PowerPoint slides, and we're going to have some q&a. And that's the norm. Well, if that's the norm, then what I do is way above that, so it's really easy to impress, but why would you as a speaker, why is anyone for that matter? Why would you want to settle for the norm? Figure out what tools are at your disposal and what tools for engagement and interactivity within the webinar or within the Virtual Training are open to you to use and then practice with those tools, get a test audience and practice James Taylor now. How did you get mentioned to you, you came from the world of academia and first at Arizona State University but where did The speaking the keynote speaking professional speaking site Have you begin? How did you all get started? Jill Schiefelbein Very funny story. It actually began when I was young when I was in high school in a small town in Kansas. My parents had told me at an early age, if I ever wanted to leave Kansas, I had to get what was called a full ride scholarship. And the nerd that I was I went and looked up what that meant in the library. And then everything I did from that day on was geared towards getting a full ride scholarship somewhere, which is how I ended up at Arizona State. And in doing so, I had the great fortune to be elected to some pretty visible leadership positions for community service and for like Student Government type leadership, and I traveled not only around the state of Kansas, but actually around the country, speaking to other students, and then adult organizations, about community service and about leadership and about engagement and I didn't realize it then. But that's when I fell in love with the power of words because, I mean, you're imagining this as a teenager, I'm standing here, I'm talking and then people are doing things. That's power. And I didn't know what it meant at the time. But when I went to college, my goal was to be and I still laugh and this is no joke. 18 year old Jill, I'm going to be a motivational speaker and Leadership Conference facilitator in Spanish speaking third world countries for you. James Taylor Well, you you had it done you were you there. That was I think, I think what I think when I was 18, I was just thinking about what nightclubs to go to so, so you were like, way ahead of way ahead of me. Jill Schiefelbein It was that focus that I went to ASU and they actually had very good communication department. So that's what I started to study. But as it turns out, two things happen. Number one, four years of high school Spanish that I got a pluses in you know, or A's and a pluses in Kansas does not even equal one real world year of Spanish in Arizona. So okay, so I wasn't as good at that is I thought I was and then number two, I took an organizational theory course. fell in love with the business side of communication. So when I went to grad school, that's what I focused in. That's what I taught. And then really turned it into Oh, so I can teach this. That's great. I fell in love with teaching, but I can also teach it through a corporate environment, which is quite impactful. And that's really where the business idea came about. James Taylor Now, there's lots of, obviously academics that try and make the move from lecture leaner than a traditional lecturing academic style, moving on to being more of keynote speakers on the stage. And some of them are successful at it, but a lot of them aren't quite as good because it's a definite different style going on there as well. I'm wondering for you, when you were making that transition, whether any mentors that you had around you that you could, you could get feedback on your speaking and you could get feedback on your keynote, your presentations, you know, Jill Schiefelbein I really didn't seek any of that. And maybe that's because I thought I was good enough to go as it was, for whatever reason my ego carried me through or it was just because I was so focused on like the business In the side and understanding all the business aspects that I didn't focus on the other, and I think that's really more of the truth. So I joined. Immediately I joined the Chamber of Commerce and I went into small business like group coaching programs. And I went in and just saw out any information that was available to me along business ownership around growing a business and went that way. So it was really through a collective effort of being active in my local Chamber of Commerce, which was at Gilbert, Arizona at the time, that I learned a lot and made many mistakes along the way. But that was my first step. My second step then once I decided that speaking, was going to be a big part of the business, not just coaching and training was I joined the National Speakers Association, which you mentioned earlier. I'm the volunteer co chair of their biggest event this coming summer. And that community really just it changed everything the community as a whole and then meeting certain people who then not really intentionally took me under their wing, but I could come to with questions question It was James Taylor a really powerful organization, have it have a good fortune we met recently in the winter conference. And my understanding is that, that that, that sharing that openness and wanting to share with with your, your tribe with your, your, your peers that kind of came about from the, from the founder from calvet, you know, the founder of the NSA and he was very strong, ready to start saying, you know, we, it's about growing a bigger pie. It's about giving back to your community. Once you once you're kind of on there, and you're starting to learn and you're starting to develop in your speaking career. You have to share and you have to help the people are coming up coming behind you as well. And I'm wondering as you were kind of going in that because one of the things I noticed was this really cool subgroups of of NSA, which I knew nothing about. So, my friend, mutual friend, Erin, Gargan, you know, she said Oh, he This is really cool group. It's called the the, the power woman of NSA and which I'd never heard. She was talking took me about this. And then I spoke to another friend of mine, Denise Jacobs. And she said, Well, actually there's even a sub sub group. There's the, the tall woman of NSA, which I think was at the influence influence conference as well. So, I mean, it's a big organization. So I'm imagining for you kind of just coming into how do you feel as a newbie member just kind of coming into the NSA, when there's obviously some very, very experienced speakers in that group. Jill Schiefelbein You know, it's really interesting. There's some very experienced speakers, but there's also a lot of very experienced speakers who have done maybe, let's say, keynoting for their business the entire time and are looking to learn the Virtual Training who are looking to learn these other skills. And so what's fascinating to me is when I hired someone, actually one this person at an auction who's one of the most arguably successful business consultants in the world, and we're sitting there during the day I hired him for and I needed a break and he said, but you know, do you mind if I ask you a question? And I was just like, Whoa, this person who I think is a mentor, who is I hired to work with me who whatever, asked me a question about some digital communication expertise that I have that he doesn't. And it was just a very clear moment for me that no matter where you're at, you will have something to learn, and you will have something to give. And it's just biding your time and waiting until it's the right time to input on either one of those things. And for me, it's been I've learned so much from so many different people, the spirit of Cabot, the spirit of giving, like, Listen, we don't need to compete with each other for gigs, there's a huge market out there. So let's all just be better together, which increases our fees, which increases our value, which is increases the credibility. It's just a win win win situation. And that mentality has really gotten me to devote a lot of a lot of time to serve the organization, but it's finding whatever communities within a bigger organization really fit you in it and like Aaron mentioned, you know, there's other communities to and I'm a part of a couple of other communities within NSA and it's finding your big tribe like the people that get it right like yes, they get what it's like to be in the green room and have the stress with the AV before you're going on or not know if you did well enough or you're traveling and you're a road warrior, not all people can empathize with that so it's nice to have that community and then it's nicer to even dig down deeper and find that circle of people that you just really connect with. James Taylor So I noticed that one of the things that you've talked and talked about before which is an area that regardless of where you are, as a speaker is pretty powerful to learn about which is idea of using video, especially when it comes to the testimonials so we've already probably all got you know those kind of written testimonials you get from clients or people that attend your events. But I know a lot of speakers myself included, I do a lot of video. I'm kind of a little bit rather than like okay, getting video at the end of my talk, someone comes up to me and says I really enjoyed this thing and and and I always think Good to myself, I should got video I should have, you know, but I'm never quite sure the best way of doing it. So what advice would you give to someone to ensuring that they getting video from those people that are coming up and having conversations with them maybe at the end or during the break? Or maybe after they've actually given their talk? Jill Schiefelbein Yeah, video, I mean, videos just keep we if you've been around marketing for the past, you know, month to year to five years, you know, that video is where it's at. and it converts better than almost anything else right now. But it's video done well. And so when it comes to asking for testimonials, number one, it's pretty awkward to do it yourself. This is where having a staff member and assistant would volunteer or maybe a meeting planner, you know, maybe an intern that they have, they're asking them and of course arranging it in advance that say, Hey, I would really like to capture footage so you make it a partnership effort, right? Especially if you don't have your own staff. Is there someone they can spare make it a partnership so that you give them three different questions that say can you describe the presentation that you just heard by James What's one thing that sticks out most in your mind? See, notice that you're not asking for Did you like James, what would you write this presentation or anything that quite frankly, doesn't matter? What matters is whether they liked you or not that they were actually able to learn something from what you said. Now, our egos want the five star reviews. But what really matters to me when I talk, I don't care if people write me a one star or a five star if they learned something that they can make their life better with. And so when you take your ego out of that equation, and really just focus on what what did you learn, and ask questions around that it's a little different. So you can ask for example, what did you learn from this presentation? What's your favorite takeaway? What's one thing that you can really imagine putting into action right away? And then I love the one words, can you describe James's presentation in one word, because what's great for that is imagine putting 20 of those together, boom, boom, boom, boom, boom, boom, boom, times 20. Right, and you have a great, great piece of video that you can use as Mark You can put it at the beginning of your demo reel. And then if you really want to make meaning cleaner, happy, add one or two questions in there about the event as a whole. And then give that to them as a gift in your post editing. You want to make an impression on a meeting planner, give them that gift afterwards. James Taylor Those are Grameen those are really fantastic and actionable things. That I mean, anyone that's watching this just now can kind of go into that. I'm wondering, I know a lot in some of the written testimonials, like one of the best testimonials you can get is when a client is able to say, we put into practice what Jill said and it increased our revenues by x or improved retention by y. How can you use video to get those because often you won't necessarily have that, that feedback until a little bit later on. Or maybe they'll write to you or you'll reach out to them say, Hey, how are you getting on with that? And they'll they'll email back Oh, getting with a sales rep by this amount. How can you then ask that potential client or that previous client to give you something in return? Video form. Jill Schiefelbein You know what's really interesting about that is if you got video of them initially right, and then you were following up with them after the fact, then you just add that as a text layer annotation on top of the video, right? So it's still coming from the person, you have the right to say it. You can, of course, ask them if they're willing to record a video interview testimonial, but that's hard. Like that's really, really difficult. But what you can do is if you can mutually come with them and do an interview, much like we're doing now, right, where you actually interview them about how your stuff is working in their context. Of course, that's not how you frame it. Right? Like, so let's say your topic is leadership. Right? So James, I would like to, you know, interview you about strategies for high impact leaders. Right, and then you ask them questions that you know, they learned from you, and you're getting that stuff back in the interview, and then it serves two purposes, right. It's a testimony to your work, but it's also great value that you can add to your community. James Taylor That's great. That's a really useful thing. I think people are really Pay attention to that, because that's something you can start using straightaway as well. So let's kind of switch a little bit more to you. I mean, you're built up this this career as a speaker. I'm wondering when it comes to let's talk about the craft part first. And whether when you were starting to develop was there was a particular lightbulb moment for you as a speaker where you can thought, Okay, this is what this is how I need to be thinking about the crafting of my keynotes, or is this something you maybe heard from another speaker and you went, Oh, okay, I understand now I need to really implement this in in how I design my keynotes and present my keynotes. Jill Schiefelbein So when I think of myself as a speaker, I do I would say more breakouts than keynotes what may be different about me than others and some people are following this models. I don't care what type of speak speech I'm doing. It's the same price like I have a half day right and I have a full day rate you get me there and I will rock anything out of the park. Whether you want me to do a keynote and a breakout, or a keynote and three breakouts. I don't really care if it's 100 They are full day. It's one rate on there and I deliver that value. I end up doing a lot more breakouts and keynotes and I'm okay with that. Because I do not feel that my strength is in the huge, eloquent storytelling. James Taylor There's differences. Someone who hasn't made me this was new to speaking. And they've heard keynote, they haven't really heard that breakout. What's the difference between those two types of ways of speaking, Jill Schiefelbein a keynote is typically mainstage. You're in front of being higher conference and your keynote delivers one key note, right, like one key idea, one key experience for the attendees, whereas a breakout, maybe the workshops, right that people go into, they break out into different rooms afterward. And depending on the conference, I mean, I've had breakouts that have been 1000 people which are bigger than a lot of conferences, keynotes are right, it just depends at the conference. But you typically in a breakout or a workshop, you expect a lot more content and you expect a little more entertainment out of a keynote. And that's that's general now this is evolving. There are no hard and fast rules. And when people ask me to do a keynote, I am very clear like, I am a content. Heavy speaker. I think I add humor. I think I add stories. But I am not going to entertain and your audience isn't going to be rolling, laughing. They won't walk away, like inspire necessarily either. But they will walk away with things that they can put into action immediately that will make tangible results in their business. And if that's what you're looking for, I'm very clear on the value that I bring. And I have those conversations with people. That's not everyone's style, right? But that's where I know I can shine. The other thing is for me, once I embraced that I didn't have to follow any certain keynote format that I could create my own and it worked for me. It was so much better, because you try to model after what people have done that successful right? But I am never going to be a comedian. As much as I like to think my humor is great. It's kind of sarcastic and dry and not ever One always gets it. So I just need to own what I'm good at. So if I go up, and I set the audience's expectation, and that's the second thing I've learned is not to fall into anyone else's mold be my own. But then to set the audience expectations, expectations for listening, that the beginning of a keynote, I say, you know, today, I am here to make sure that you walk away with a single idea that is going to change how you fundamentally communicate with your customers in a way that will get them to refer you more business, or in a way that will have them using your product more frequently, or whatever the end goal may be that the meeting planner, and I agree on, if I am crystal clear with that at the beginning, and I'll accept back and say, well, in fact, I hope I leave you with many more than one. But all I'm asking you for is this. If you sit with me for the next 30 minutes and you walk away with one thing that you promised to implement, I can guarantee you that this will be an incredibly valuable use of your time, right. So you set the stage for what you want them to do. Because if they're just sitting there trying to scratch down notes, they're not going to implement anything. But the whole time that they can listen to me and know one thing that they're going to take away, then that's going to be more valuable for them in the end. And what's great as a speaker is, then once they implement that, and it's successful, they're going to realize, Wow, we need to follow up with her, maybe bring her in to talk about some of those other things because that one we focused on really wrong. And James Taylor I think it's an interesting thing about you know, because we talk about these different types, keynotes breakout, what I've seen is the keynote ones bringing many more the elements of what you would think of as a breakout. I think what I'm good friend of mine is a great speaker on similar topic, I speak on creativity and she speaks on creativity as well. And she is an amazing she comes from the world of training. So initially, she you know, you would have thought that she would the natural place vertigo would be a bit more of a breakout speaker but she said Actually, no, because I because I have big ideas but the same time the way I'm going to deliver them is very actionable thing. I want to be very interactive with the audience. And if you're like that The good news is that's the way that events are going. Because, you know, I think, vast majority that even the keynotes I do now I when I'm asking like what kind of blend you want between entertainment, you know, and the kind of content heavy and all we want lots of interaction, we want to and that was never traditionally the way for for keynote. And so I think if you are that person that you really like to do more of the kind of almost a little bit more of the training the you think about more than the kind of breakout style. That's not assuming that that's not going to work for keynotes because it seems to be that's where the that's where the direction of movement is kind of going for a lot of keynotes, obviously, you still get the celebrity stars and, and all those kind of people and you still get those incredibly inspiring people that you just come away with that one idea and it's a really powerful idea. But maybe that's not necessarily the the majority I would say well what's now being asked to as a keynote speaker now Jill Schiefelbein Yeah, I think the beauty of it is is now that we are expected So many different types of speakers and speeches and outcomes. meeting planners are looking for diversity in their attendees experiences, right? I mean, if you had motivational speaker after motivational speaker after motivational speaker, it's like, I'm motivated already Now give me something to do with it. I, I can only sit there and be like, Yay for so long and, and I'm not making fun of those speakers or speeches whatsoever because they all serve a purpose that I am not capable of serving in an audience like we all blend together. But I think the real thing is, is if I had advice to anyone, whether you want to be the traditional keynote, the motivational, inspirational, the content, heavy, whatever it is, really, really get clear on your area of expertise and obsess over it. I know too many people starting out and I did this starting out. Hey, Gil, we trust you with this. Can you also speak on leadership? No, I'm not a leadership expert. Now. Am I an expert in how leaders can communicate for this type of result? Yes. But instead I would say sure I can speak on leadership and then try to spend all this time crap. To talk around something where, you know what I can't quote studies, statistics research, I can't quote a lot of things. You know, and I can't say it from my personal experience. So really focus in on that area and just own it as much as you can and know when it's best to say, you know what, no, I can't speak on that. Here's what I could speak on in that realm. Or I can refer you to someone who can. James Taylor And that last bit the referring I mean, that seems to be the largest part of a lot of people speakers have their business comes into them as being referred either by someone that attended the event or by buying other speakers. Well, so I guess that then gives you an opportunity if I mean, I get asked to speak a lot about innovation. I'm not really an innovation speaker. I speak about creativity, but I know amazing innovation speakers, I usually can say if you want more of an innovation, this is the person here to to kind of go with as well. And I'm guessing then by having that, I mean quite defined as to what you speak about and putting out to your fellow speakers what you speak about as well. There's there's more options for for kind of reform. referrals as well, which kind of brings me to the, the business side. So you've, you've built up this business. I mean, there's so much opportunity out there especially you mentioned the, you know that they kind of break out say every conference you go to, they'll have maybe they'll have opening and closing keynote, maybe the keynote by the CEO. And then you'll have 20 plus maybe breakout sessions. There's lots of opportunity. How do you decide what to pursue? How do you kind of like put some way of if you're just getting into that world of speaking, you say, I want to be that kind of speaker to speak and the more they can a breakout session? How do you start to narrow down the target clients? Do you want to speak focuses? It's gonna sofa whelming? Jill Schiefelbein It is. I mean, the question is, who can you serve? Best? Right, who can you serve best? One of the things that I rallied against when I started my business, because I came from the academic space, because I didn't want to work in that space, because I left it right. But in reality, because I was in it. My unique perspectives of being in it were very different than anyone who would come in from it not having experienced it like, Well, yeah, that may work, but they don't understand what it's like here. Well, no, I actually do understand what it's like, there I lived it. And so a lot of times we escape one job or profession and run away from it, when in essence, that could actually be the best audience that we serve. So don't count that out immediately. Don't make the mistake I did I actually do more, not more now than I used to that because that's an obvious statement. But I do, I would say maybe 15 to 20% of my business every year comes from higher ed in some way, shape, or form. Wow. And that's, to me, that's really interesting. And it's now it's manifested in different ways. Because once you get I was online education and helping faculty be more innovative, and then it turned into talking to administrators about how to retain people like me who have left and it became fascinating now it's not like I have this huge market in this. I don't advertise it. That's All word of mouth but it was a case in point that that's where my network was built up already. So why did I not first look in my existing network? And it's because I was trying to run away from it so unless you really hate the space that you're in before you start don't make the same mistake I did you know look internally first your existing connections James Taylor that's great advice. What about in your you're heading out to your next speaking engagement what is in your speaker bag? What is in that bag of things you never leave the office or home without to take with you to your next speaking engagement? Well, Jill Schiefelbein you know, my laptop the adapters for projectors, power cords, all of that stuff. And for me, it's two different things. And I actually have show and tell because show and tell is fun. I love live streaming on the live stream hosts for Entrepreneur Magazine, in the US and globally. And I you know, that's one of the fun things I get to do in my random world of events, but I always look for opportunity for video. If I'm going to look for opportunities for video, I don't want to have acid, I want it to actually be decent quality. It doesn't mean the production value has to be high. But there are two things and video aside from the content, obviously, that are important. People will forgive poor lighting, they will not forgive poor audio. Yeah. And so you really need to focus on the audio, then make sure the lighting is good. And then of course, rock the content, right. But if your content is amazing, and your audio is crap, people are not going to listen. So you really need to focus on it. So I travel with two things. This handheld mic. It's an iRig HD, and it's actually for iPhone, it goes straight into the lightning port out of there. It's amazing. So if I'm going to do interviews, that's my favorite one because it transitions back and forth really nicely. I mean, I've done interviews with this on top of Time Square where the giant ball is right before New Year's when it's really windy. And this worked beautifully, no audio issues whatsoever. The other one that I do if I'm doing either just one person interviews or I want to do commentary This is the best investment I ever made. And at first you're like $200 for a mic, why would you spend that sit best? The sun Sennheiser and it's a clip on lavalier mic again for iPhone, it goes right to the lightning port. If anyone wants to see my whole list of tools, if you go to bi t.ly forward slash my video tools, you can actually see a whole list with pictures and links and a video of me describing each and every tool that I bring. And then I also bring a mini tripod with me everywhere because there is no excuse for holding up and doing video like this. And unless it's one of those split second I have to do this now and capture at moments or it will never exist again. If you have 30 seconds to spare. You have time to set up a tripod and make it stable and I'm talking a mini one that fits in your pocket. James Taylor I'm just lost Mike you've got where that can be really powerful for is. I've made a mistake in early videoing of me on stage and then you can put a fixed camera at the back you know little camcorder or something and the video looks absolutely Fine, but it's using the audio from that camera, which is the opposite end of the room and I'm like, oh, how can I How can I get the audio for where I'm actually that and I started going to take my iPhone and and stick it close the front of the stage and all these kind of things and that wasn't very good. So that's then you can just put that on, on your, on your lapel, whatever. And just put that into your into your pocket it can be recording that really good audio which you can sync up with the with the video Jill Schiefelbein it could and if you are a person who just heard all that and it's like, well that's a lot of work and I don't have the money to hire someone because I'm early on in this game. What you can do is invest in this. I'm just full of cool tools is called the Hey Mike. It is the world's first Bluetooth mic. And you open it up and it's this little clip on thing right here and you can also make it with a magnet. It's really cool. And it clips on and I think it has a range of like 50 feets you could actually have your phone back. It has an app so you have to record through the app. But then you have the audio and video synced in one So you have no editing to do afterwards. And this is also on the link I gave him bi t.ly slash my videos. James Taylor Very cool. And I actually think on this summit we're going to have Julie Holmes is one of our speakers who is the founders event. She is a speaker. And I think she would you know, scratch your own itch sometimes when you create a product and and she was one of the CO creators of that product, I believe as well. And I haven't got it myself. I've heard amazing things from those speakers about it. Jill Schiefelbein Yeah, for me, and I mean, unbridled review here, if I'm just going to be in an enclosed environment or in a place where I can reach with my lavalier mic, the quality will be so much superior with the lavalier mic, and even though there's a cord attached, but if you're in a place where you need audio from a distance, there is no better alternative out there. James Taylor And what about other online resources or mobile apps or tools? Are there any that you find very useful for yourself as a speaker Jill Schiefelbein Oh, for for quick video editing. If I want to do some very quick video editing in a form that could be used for Instagram or social media I use in shot it's ap IN sH o t, I really like it. It's simple. It's easy to use, it's very cheap. And it just makes editing things simple because sometimes you may be in a place or I may be in an event where I shoot a video, or maybe I uploaded, uploaded, Facebook Live, then I take that video and I can parse out whatever chunk I want and then put it into Instagram, do it all on my phone. And it makes it incredibly easy. It's good for when you're at the airports or on the shuttles or anything like that. James Taylor I've seen a lot of those Instagram videos, they show videos, I was wondering what people were using to be able to because they're really really good. I like that look as well. What about a book if you do recommend one book, it could be on speaking or it could be on on communication more broadly as well. What would that book be? Jill Schiefelbein In all seriousness, one of the best books I've read that helped change the game for me was by Alan Weiss, and it's called million dollar proposals. And he also has a book million dollar consulting if you want to get in this space, but million dollar proposals was so huge for me because I would no longer quote just as keynote, or just, you know, a one byte tip, I will always give a proposal that has multiple options, unless they are very clear, like, Hey, this is all we need you for it, right? So that will be it. But it really taught me how to frame proposals, how to look at them, and how to get way more money out of a single engagement. And it's worked. It's it's really worked. So if you're serious about doing this, and you want to find ways to extend your expertise from beyond the stage, you gotta get it. James Taylor That's a great recommendation. I think. I think I've read his consulting his consulting Bible, which is a fantastic book, and I know that he's be the guest speaker as well. So a final question for you. Let's imagine you had to start again, you woke up tomorrow morning, you've suddenly lost you don't have any context. No one knows you as a speaker, you know, no one, you have to restart. What would you do? How would you restart things? Jill Schiefelbein Number one, I would not stress about my brand at all, because a lot of people when they start like oh, I need a good business name and a slogan and all that No, no. You need a good product, and you need to hit the ground and get it out there. So free speech is free speech is free speech, whatever it is, but targeted right? Be smart about the audience's that you pick. Don't focus so much about the country more, if you will, of what's going on around your business, focus on your craft and your expertise. The rest of it, you can figure out or you can hire someone, once you figure it out the expertise, get clear on that. Number two is really get focused in on who you want to serve. And don't waste time doing social media blasts and random posts and everything if you're not clear on who you want to serve. Doing that makes us feel like we're doing something but it's really not strategic at all. It's really not. And if you get focused in on who you want to serve, you're going to be better off targeting and spending time calling them writing them reaching out to them on social now there's a way to use it right? Not just standard posts, but get really clear on that early on. And then number three is really know that there's not one right way to do this business. I guess there are legal things you have to do. But they're like, oh, you're a speaker and you don't have a book? Well, I know seven figure speakers who don't have a book, don't care to have a book. And that's never part of their game plan. I also know speakers who can't get booked who have 20 books. So it's really not about that it's really about what's going to work for you. But if you start with your expertise first and your craft, the rest will follow. Wonderful. I'm James Taylor interested to how does it feel we were together the the winter conference was a great conference, and Sylvie did used to and Ben will put that together. But I could see at the end, the sheer exhaustion or their faces are at the end. So I'm wondering for someone that has to being a speaker, so you used to speak on them, but then when going from the other side and actually putting on a big event and it's the biggest event probably in the speaker calendar, the professional speakers calendar. How is it How are you approaching it, how you feeling about It Jill Schiefelbein it's overwhelming. I mean, the sheer amount of work and volunteer hours that go into it, it's insane. But I know that for me in 2013, when I attended my first one of these events is influence. as cliche as it sounds, it's 100% true, it literally changed my life, I would not be in the position I'm in, I want to be living in New York City, having my own studio in midtown Manhattan, like, this would not be my life, if it weren't for the people I've met along the way, and what I've learned at that organization, so if you're just getting into this, come, it is worth the investment. You'll spend about $3,000, after travel hotel and the registration, but if you if you're a person who actually follows through and takes action on things, which I hope you are, if you are that person, you will make that back within your first month after attending influence. I mean, and if you don't make it back in the year, at least 10 to 20 fold, then you're I mean, in my opinion, you're not implementing enough because it's it's it's just so overwhelmingly amazing and then you meet cool people And what James Taylor if someone is listening to this just now watching this and there may be a speaker and the they're getting asked Oh, we're looking for the speakers I think Joshi be a great speaker, what's the best way for them to connect with you find out more about the kind of programs that you offer. Jill Schiefelbein Oh, well, thanks for that. I'm everyone on social at dynamic Jill My last name is a pain in the butt. So just dynamic Jill to keep it simple, but you can also visit my website at the dynamic communicator.com and I'm Jill at the dynamic communicator.com and I'd be happy to answer any questions. James Taylor Well Joe, thank you so much for coming on today. I'm I'm definitely gonna be filming my testimonial videos totally definitely. Now after speaking to us thank you for for sharing that and I wish you all the best in creating influence is going to be an amazing event. I know so many of my friends are going to go so. So I wish you all the best for that event. Jill Schiefelbein Thank you so much for having me, James. I'm happy to be a part of your event here. James Taylor Today's episode was sponsored by speakers you the online community for speakers and if you're serious about your speaking career then you can join us because you membership program. I'll speak as you members receive private one on one coaching with me hundreds of hours of training content access to a global community to help them launch and build a profitable business around their speaking message and expertise. So just head over to SpeakersU.com to learn more. Website: The Dynamic Communicator More of Jill Schiefelbein Learn More About SpeakersU

Ep#58 From Technologist to Real Estate Investor with Raj Tekchandani

Achieve Wealth Through Value Add Real Estate Investing Podcast

Play Episode Listen Later Jun 2, 2020 25:18

James: Hey, audience and listeners. This is James Kandasamy from Achieve Wealth Through Value Add Real Estate Investing Podcast. Today I have Raj Tekchandani from the Boston area. Raj is a co-sponsor/KPGP in 650 units across Georgia, Florida, Kansas City, and Texas. Hey Raj, welcome to the show Raj: Thanks, James. Thank you for having me James: Good. I'm happy to have you here because I want to talk about technology. You are a technology guy turned into a multifamily investor, right? Raj: Absolutely, I can speak technology all day long James: Yeah, absolutely. So I want to make sure I give you an opportunity to explain some things that I missed out. So why don't you tell us about your story? How did you get started and how did you end up being a multifamily investor? Raj: Sure, I will do that. So hi guys, I've been in technology for most of my career, I did Undergrad Computer Science, then I did an MBA in high-tech so purely technology-based and wanted to become the next big company founder. A lot of my jobs were mostly startups but when I realized that I'm sitting on a lot of options and not going anywhere, I said, I need to diversify and started looking into real estate investing that was not until 2012, but that was just a side gig. I still was fully devoted to my job, which was startups and it was in data analytic space and we're building a platform to connect all the data in the world together and put meaning into data, using something called a Data Lake. A lot of formal companies were using our software, financial services, but there was no real estate company using it. But anyway after I finished my five years with that company, my stocks options fully invested. I was like, okay, what is my next startup? And by this time I had started collecting my grants from the little investments I'd done. I had started investing in 2012 in one Condo in Orlando, Florida, and gradually went on to buy more because the prices were very attractive and I could see the prices going up and I said, let me just get in there, so I got in there, fortunately, had a good property manager that helped us take the worries or headache off our head and the cash flow was beautiful. So in about 2016, I said, okay, they need me to see this look and I bought actually a 15 unit multifamily near my house in Boston and I wanted to do more of that because I'd heard, you know, multifamily the whole economy is upscale. So I said, let's get into multifamily and that experience was interesting, to say the least. I had not too much knowledge about the underwritings and how to really look at expenses and that came in as a very expensive learning lesson for me in terms of multifamily. So from there on, I said, this is too much work, I can't do this. I found a good property manager and he quit and then found another one then he quit and it's like, this is too much. So I said, no passive investing is my way to do it, this whole active thing is not my thing and I'm still working full time on my job. So I started nesting passively with some investors. The first time I looked at a passive deal I was like that's too much, there are too many zeros in here, I can't do this but gradually as I understood, I took learning and took all the courses and reading blogs and podcasts and I got comfortable with investing passively and then a couple of passive investments and I was like, this is great, I have my nine condos, I have my fifteen hundred, which has now started giving me cash flow and now has passive investments. Interestingly, it was almost matching up to my startup salary. And I was like the options are great, but what if the options don't mature or do much? So I took a bet and I quit after five years of my job to do real estate full time and that's how I dig more into multifamily. But interestingly at that point, I had this idea of another startup, which didn't go too much far because I wanted to take these learning from data analytics into real estate and now that I'm doing multifamily and doing all this, I'm not seeing too many systems out there. It's still very, laborious jobs, the property management company is a lot of work on paper and even the underwriting was very painful. So I was like, what if there's an automated software machine learning data, whatever we have learned in technology to build that. So I met up with the person at MIT, Jennifer, she had done a Ph.D. in Real Estate Technologies, like Artificial Intelligence Machine Learning for Real Estate. I'm like wow this is a person that I James: Talk to right? Raj: Yeah, so I sat down with her and she went through her thesis with me. In fact, she was nice enough to explain her thesis; there are too many companies out there that are doing what I'm trying to do. James: So what was the thesis about? Raj: The thesis was the use of machine learning and artificial intelligence in real estate James: But is it real estate underwriting, or is it real estate analysis or-- Raj: --Real estate analysis James: Is it for investment or is it-- Raj: So she actually worked for MITs and Darwin program buying the advisory real estate James: Oh, okay. So they're basically looking at investing Raj: So they're looking at investing so mostly commercial real estate, eventually, from her thesis, she came into that, MITs fund. She was working there at that time. But in her research, she had looked at a lot of technology companies, right? From doing everything from sensitivity analysis to underwriting to figuring out where the locations thesis are, property management companies that are looking to do automation based on the [inaudible06:24] so a lot of machine learning in there. Actually, one of the companies that struck me at that time was in [inaudible06:33], which is what I had been thinking about, sort of how to automate underwriting and how to take all the data that's been sitting in, all these Yardi Matrix and all the places that been collecting data. How can we leverage that to say, okay, well, this is a property that I'm looking at in multifamily, this is the address and boom, we'll go and run into algorithms and come back and say red light, green light, yellow light based on all these factors and in [inaudible 07:02] was doing that, some of that, I talked to the CEO there and start using the platform. So I had some suggestions for them into building other plans and other features on the platform but at that point I said, you know what, I'm more of a user now, and they're not technologists, I want to use these technologies that are out there, I can talk about what features they need, like lease analysis. In one of the deals we went inside in the back and you're looking at 150 leases, one by one, what is matching up. There's no use of doing that, those leases should be fed into a system and outcomes, and these are the mismatches James: The lease [inaudible 07:38] should be automated Raj: This is a tenant profile and based on this tenant profile and this property and this neighborhood, this tenant profile will be surviving through any downturn, that’s what you need to know on tenant profile I'm sure somebody will build it in there; I think [inaudible 07:55] was already thinking about doing that. Anyway, from that I said, okay, I'm going to stay as a user, I started using these technologies but then I got stuck more into the whole underwriting piece and managing the properties, finding the properties, I was like talking to brokers, now I'm talking to this and that's how I met a couple of good people through coaching programs that I said, okay, it's time to take the next step, move from passive to active, and see how the big things are done. I wanted to be closer to the action. So that's how I got into active investments James: Got it. I mean, that's a lot of things there. So I want to go a bit more in detail on that, but that's good. I mean, so right now you're a full-time real estate investor, right? Raj: Full time real estate investor. Yes. I mean always thinking of the next technology ideas James: Well, that's the problem with all these tech guys coming into real estate? I also think the same, let's automate this, and let’s create a system on this Raj: Yeah. But I mean, I keep in touch, keep a pulse on that. So I don't know if you know about this organization called CRE tech- Commercial Real Estate Tech, middle of New York and they are looking at all these things, all kinds of who's doing what, which company is being funded. So I keep in touch with them. I'm a member of them, but just looking at ideas, someday somebody has come with a great idea that we are still a little behind than other industries in terms of use of technology James: Oh yeah. Real estate is so manual. I mean, there's not many people investing in technology and it's a bit tricky too because a lot of people component Raj: And I was told one day that, (AI) Artificial Intelligence, the biggest tool, billions of dollars are being traded in real estate based on excel spreadsheets. That is the technology of choice of all these big reads and fund managers and they're just doing Excel spreadsheets James: Yeah. I don't know why the real estate is just so hard to automate in terms of location because even like, if you look at a street, one side of the street can be completely different valuation from the other side. And how do you tell that to the software? You can't tell them that people have different preferences going in Raj: Well, if you feel that, you can tell that by how many murders were on the left side of the street and how many murders on the right side [inaudible 10:16] I mean, I just think the crime rate, our school districts and there are so many factors you can pinpoint it. Now there's so much data being collected on all of this, right? You just have to leverage the data and every time a property gets sold, a property gets bought that data is entered into a system, right? The analysis entered into the system, even for an upgrade, all the data has been entered so you should be able to tell that if I put granite flooring in this, or I put up vinyl flooring in this, or whatever, this is the gorgeous fettuccine down the road, right? Because that's [inaudible 10:50] James: I think that's what [inaudible 10:52] does, right? Sometimes they do a lot of underwriting, they try to predict what is the rent going to be, but I'm not sure how big they are. I know there were some people really excited about it, but some people really didn't like it. I saw it once; the tool looks good for a tacky, right? If you're a second, it looks like everything's done for you. But I don't know for me, I don't feel comfortable yet. Raj: I think there's nothing. So all that said, James, there is no equal end to be having boots on the ground. So this is what I've learned James: Well, for real estate, you have to go to the property, you have to do the cost yourself Raj: Exactly. So you'll do all, that saves you a lot of time, right, because you can do the cost, the real analysis is done when you're there and you're looking at the property because we walked away from a deal that had everything looked good on paper and technology tools and everything, because this one building down the slope, had some structural issues that we didn't know, I mean, no technology tool will tell you that turning on some like pillars that are like fake James: Correct. There's no way to know. I mean, as I say, I love all these tools, but I don't know for me, I don't want to pay so much money for this tool unless it giving me an automated thing. Raj: That's where the progression has to happen. The more they have to get better and they have to get cheaper for that option. Otherwise, excel spreadsheets help people doing their report James: One day will, right? I mean, if you look at it right now, we need a buyer agent, we need a seller agent to do a house transaction and the reason for that is so much people touch, right? I mean, a seller needs to know that he's getting the best value for his product. Only people can see the house and decide whether it's a good house or not, right? It's a bit hard for computer AI to really say that this is a good house for this person, right? Maybe one day it will. Raj: It will. They'll cut short the time or for your needs maybe James: Correct. And I know a lot of startups were trying to do all this right there. I mean, every tech guy who was introduced into real estate in the behind them is [inaudible 12:53], oh, I can do a startup, even syndication people are trying to automate right? They're trying to rank the sponsors, they tried to give stars to sponsors and everybody is trying to do all this but as I said, it's very hard to give a star ranking to sponsor there are so many other things that are involved. I mean, one day probably, yes. But we are not there yet with the technology, the information we have so how do you feel? I mean, you and I are almost the same, right? I mean, we're always in the technology space and suddenly become real estate. Do you think you've wasted all that lifetime in tech space? Raj: No, not wasted. It's a game, it's life as it plays out, now where I am my biggest strength is my value for my time. I mean, I control my time in what I'm doing, when I was working tech job, I mean, you had management meetings on Friday afternoon. I was like an owl, now if you go look at my calendar, you'll never find a Friday afternoon open because I dropped it James: Okay. That's good. Yeah. I mean sometimes people who have studied so much in certain fields, I don't know. I do see some doctors moving from being a doctor to becoming a real estate investor. I mean, at the end of the day it's all about time, right. Time and how much [inaudible 14:13] Raj: I mean it’s time and it's what you enjoy. I mean, I also realized that a lot of what I do in real estate is marketing and I love marketing James: Nobody cares in the tech company Raj: Yeah. So when I'm even in my tech job, my last job was in marketing. So I was basically a demand generation for this data analytics back on rebuilding. So basically evangelizing technology for people that don't understand it, it's sort of marketing. So writing blogs, writing white papers, writing all this stuff, simplifying things for them. That's what I had become in my technology job also because nobody wants to hear the mumble-jumble of data lakes and medication and all that stuff. It's like, bring it down. What does it do for me? And now he's the same thing, syndication and all what does it do for me? I mean, so marketing is basically attracting the right people and getting rid of people that you don't want in your system. So that's why even in capital raise or even the deals that we do it's very important to figure out who your customers are which in our case is investors and it took me a little while, my first four deals, I was like talking to everybody and anybody like, okay, this is what we have and I was like, no, that's not me finally figured out the people who are attracted to my deals, especially are tech executives, like me that have collected a decent paycheck, they have a decent amount of wealth, they want to diversify, they're paying a lot of taxes and they are paying [inaudible 15:50] that. So they want to learn about how real estate can help them with taxes, how real estate can help them diversify, a lot of them have invested completely in the stock market, which we have done that in the past and I've lost a lot of money in stock and that's why I never want to go back to stocks anymore and I'm trying to teach the same thing through my formal education. James: Yeah. Surprisingly not many people know about real estate. I know probably all the listeners here, they will. I mean, you are already learning and listening to podcasts about real estate, you already know, but it's very surprising to know how many people don't know about real estate and don't know what passive investing. I mean, people know that you can go buy a house and give it for rental, but nobody knows that I can put the money with a sponsor who will do the work every time Raj: They know real estate investing, they don't know realistic passive investing James: Correct Raj: Yeah, passive investors have become my passion James: Yeah. I mean, that's why I wrote my book too because not to introduce real estate to passive investors, I want them to be a bit smarter. I mean, sometimes when they got introduced to real estate, they think, wow, my God this is the best thing they just follow one way of thinking, right? So Raj: You just stole my line that's what I say, because, at smart capital, we make you smarter James: Okay, good. Because I mean, first, you get introduced to passive investing, second is how you become smarter, right? So let's talk about that. I mean, you said you have done some really cool stuff for passive investors and incorporating some technologies and all that Raj: Absolutely. I mean, again, nothing was planned. It just happened over time, my first deal, when I presented to some of my friends, they said, Raj take my $50,000. I'm not going to take your $50,000. You need to sit down with me, understand what it is James: Well, that's the problem with me. I don't like just taking money. I want you to understand the deal. Cause I believe it's a good deal Raj: I actually know the four friends that I had, I bought them tandoori chicken. I said, come sit with me and I'll explain to you what it means. So I bought wine and food. I said, look at this, I'm going to tell you what it is if you understand it and if you still want to invest, that's great. I want you to understand it because I can take the money and invest it, I mean, that's not a problem, that's the easiest thing for me, but I really want you to get smarter in my sense, you know, that's why smart capital and so that small group grew into a little bigger group and I created a meet up in the Boston area on just apartment investing and teaching what it is and growly slowly And I kept it small for a number of my first year I did it in my office in a conference room. They were like 35 chairs and who can come but we kept it very educational. That was the thing. We'll take a topic, we'll discuss the topic or make sure that anybody in the room is understanding and if there is somebody else experienced in the room, they're absolutely allowed to speak up and do so, kept it very educational, very different meet ups. A lot of people said, okay, Raj's meet up is educational so we're going to go there, and then I didn't have enough space so I took a bigger space now the membership in that whole meet up has grown to 600 plus people but we now get about 60, 70, 200 people monthly and I've kept it monthly and still, we talk about educational purposes There's no come have beer, learn about network and go back. That's not it. So to answer your point in doing so right, I've internally built some systems to make sure this is a smoother process for me. So in terms of the thought leadership platform, I have my meet up, I started doing blogs consistently. Obviously I'm active on Face book, LinkedIn, and really wherever else I can post my blogs. I also to become a member of the Forbes relisted council so I can do some technology related articles there and talk about what I'm thinking. So yeah, I've done all these things and now I have in a way that I've created this CRM and systems and attracting investors who, whatever platforms that they can get onto podcasts like this and talk more about what I've done in my past and just share my experiences, that's basically it. James: So how do you decide on doing a deal? Let's say someone brings you a deal, right? How do you decide this is a good deal, I really like it. What are the things that you look for? Raj: So the first thing I like, ideal deals only very few people. I mean, as partners, right? I mean, I'm not into numbers of deals and I don't count the number of doors. I don't do that. I like to enjoy myself, I mean, to [inaudible 20:30] my life, you're going to be just chasing money and [inaudible 20:33] James: You want to be peaceful too, right. Reinvesting the right sponsor because you can make an investment any-- Raj: --People that I enjoy, I mean, the deals will have good and bad times. One of our deals is we haven't done distribution, but I will say that I'll invest that deal again. I believe so much in the team that even because I'm so close to the deal and my investor is saying, Hey Raj, we haven't distributed work. I said it'll be fine. It's just because I trust the people that I work with and I could do another deal with them. So I’m very selective about who I work with, these are people from my coaching backgrounds, I've heard them say I hear them strength and they have to be complemented with my strength. So if I'm good at finding markets and I say, what, I'm going to invest in Orlando or Kansas City or whatever markets that I have in my head because I've done some research on data on that and obviously then underwriting should make sense but my number one criteria is the people that I work with and do I add value to them and they add value to me. So I will claim I'm not a good asset manager, I've never intended to be so I will always look for a very strong asset management on the team James: Got it. So you basically look for the sponsorship and how the team complements with you as well Raj: The dealership and the numbers should make sense, but that's true for everybody. You will not invest or be participating in the deal, that doesn't make sense James: Yeah. What do you look for in a very strong sponsorship team? That you really like? I mean, what personality, integrity or--? Raj: --Integrity, number one is integrity, right? I mean, the track record is okay, but I think track record, I've seen these guys done. I mean, it was not done like 15, 20 syndications, some of them have, but some of them are still early in the stage, they have done maybe two syndications before this one, but I've seen them through the coaching classes and going through with them to on due diligence trips. So I always go and make sure that I'm on part of, once we go sign up, form a structure, I'm going to get involved with all the due diligence and all everything. So I'd sit down with them and see what their work ethic is, how passionate they are about it, and will they stay committed with me? James: Got it. Very interesting. What about, on other things, in terms of the underwriting or in terms of market analysis, have you done any; have you incorporated any technology things into analyzing that? Raj: Yeah. I mean, I do my own technology things. I mean, I haven't written software for that, but I do look at a lot of data James: What kind of data do you look for? Raj: So, I mean, a standard feature, like population growth, job growth, and median income. We will also look at STEM jobs, right? I mean, I look at if it's a technology oriented job, are there or not because I mean, in these times the properties that are doing well, are people technology, company, people working from home, right? So all of that is important as well [inaudible 23:34] James: Got it. Very interesting. So is there any proud moment throughout this real estate career that you think oh, I did that and I feel really proud about it and you can never forget about it until the end? Raj: Well, the proud moment was I'm into partner with you on my first deal. I mean, that was a very proud moment. I told you right when the first time I looked at syndication when a friend of mine presented to me, he was on the GP side, I was on the limited partner side. He says "Raj I got the deal." And I said, "What is this? This is like 300 units. I mean, there are too many zeros. There was no freaking way." So now when I did my first deal with that number of zeros, I mean, it was not 300, it was 152 units that deal was a very proud moment for me having gone through understanding what it means and then the other proud moment was to convince some of my investors to partner alongside with me right now that I learned this and I'm sort of sharing my education. I don't even call it capital raising. I'm giving them an opportunity to participate with us. I'm doing them a favor, sometimes I feel that way and that's one way to look at it and I'm saying no, every deal of mine for my side has the same investor. The first investor is always the same, that's me. So I'm going to invest in these deals, I've done the research; I've been to the property. Now I'm presenting it to you this deal, why I like it, and you're welcome to join along, so the proud moment was to getting that achievement, right? The first one and the second one becomes easy. And then the first one was the problem James: Got it. Awesome. Can you tell our audience how to get hold of you? Raj: Absolutely. I mean, I have a website, I'm very active on Facebook, but my website is smartcapitalmgmt.com. My email is raj@smartcapitalmgmt.com. Easy to use to get to me or LinkedIn. Facebook also is there James: Awesome. Thanks so much for coming. It's so refreshing to see how someone from the tech industry moved directly into a multifamily investor. I think a lot of people do, right? But there are still tons of people who don't, right? So it's just the thought process and sometimes the desire to technologize everything, sometimes it's hard, right? Real estate-- Raj: -- Why do you want to do that? I mean, you want to enjoy what you're doing, right? If building a technology company is your passion then real estate will not be the thing, but leveraging technology to get smarter is another issue James: Got it. Awesome. Well, thanks for coming. I'm sure everybody got tons of value Raj: Thank you, James. Thanks for having me James: All right. Good

90 The Systematic Investor Series ft Jerry Parker – June 1st, 2020

covid-19 investor cio macro ultimate guide moritz systematic ctas intro0 trend following james what brian what jerry parker can jerry

Play Episode Listen Later May 31, 2020 81:38

Jerry Parker rejoins us today to discuss how single stocks behave differently to indexes, knowing when to ignore your backtests, multi-strategy CTAs vs trend following CTAs, how to make 3000% in a month, why CTAs should be considered the ‘perfect portfolio’ rather than ‘crisis alpha’, and how luck plays a part in past returns. Questions we answer include: What is the shortest timeframe you look at? What positions are you mainly in at the moment? If you would like to leave us a voicemail to play on the show, you can do so here. Learn more about the Trend Barometer here. IT's TRUE - most CIO's read 50+ books each year - get your copy of the Ultimate Guide to the Best Investment Books ever written here. And you can get a free copy of my latest book "The Many Flavors of Trend Following" here. Send your questions to info@toptradersunplugged.com Follow Niels, Jerry, & Moritz on Twitter: @TopTradersLive, @RJparkerjr09, and @MoritzSeibert And please share this episode with a like-minded friend and leave an honest rating & review on iTunes so more people can discover the podcast. Episode Summary 0:00 - Intro0:51 - Macro recap from Niels3:13 - Weekly review of returns51:23 - Question 1; Brian: What are the main positions that you are in at the moment?53:56 - Questions 2; Daniel: Does it matter how something has made a breakout?57:50 - Questions 3, 4 & 5; James: What is the shortest timeframe you look at? Can Jerry share how his equity portfolio has faired during the Covid-19 crisis? How should you space apart chosen look-back periods?1:18:30 - Performance recap Subscribe on:

#17 | James Carbary & How to Instantly Connect with Anyone You Want to Know

Brand Rounds

Play Episode Listen Later May 28, 2020 42:28

James Carbary is the Author of Content-Based Networking | Co-Host of B2B Growth | Founder of Sweet Fish Media. I ask James:What made you curious to write your book, Content-Based Networking?What are the two key take home messages you want us to receive from your book?You've changed my mindset on reaching out to people and asking them if they'd be willing to share their expertise. Why "less is more" in the request.What do you say to the person, "podcasting is not new, James."Describe your company, Sweet Fish Media, to me as if I'm on a treadmill running at full-speed.You're speaking to brain surgeons, spine surgeons, heart surgeons, and innovative medical device leaders, what can we say about podcasting that might make them curious to learn more?Should healthcare brand agencies, like ours at FEED, think of ourselves as a media lab?Here's a scenario, we have multi-million dollar revenue medical sales distributors listening to us - what marketing media guidance can you provide for them that might make them feel less of a manufacturers sales rep and more of a brand building distributorship?What are the ingredients for a great podcast interview?You and I have interviewed Gary V. While grateful, why are coworkers, clients, even people from other industries, often, the most impactful interview?What's the process for you when you interview these interesting people, return to work on Monday, and want to implement so many ideas for Sweet Fish Media?

describe instantly gary v sweet fish media james carbary james what

Ep#55 Making it big by starting and specializing in Smaller Apartments with Rama Krishna

Achieve Wealth Through Value Add Real Estate Investing Podcast

Play Episode Listen Later May 12, 2020 33:13

James: Hey audience and listeners, this is James Kandasamy from Achieve Wealth Through Value Add Real Estate Investing Podcast. Today I have Rama Krishna from California. Rama has been focusing a lot on apartment purchases which is averaging around 30 to 40 a units and at the largest you have done were 59 units. So it's going to be very interesting especially for a lot of people who are trying to get into the game and also looking for like high cash flow as well, you're going to go detail on why sometimes the smaller deals makes a lot more money than larger deals. So hey Rama, welcome to the show. Rama: Thank you James. Thank you for having me. James: And one of the things that we want to talk about apart from going into Rama's strategies and businesses, we want to go into what asset manager can do during these Covid19 crisis that has been happening right now. Hopefully I can publish this podcast as soon as possible. But I'm sure it's going to be very relevant because it's going to take a few months for this crisis to subside I guess, it may take a few more quarters to fully subside. So Rama, did I miss out anything on your credentials? Rama: No, not much I think. So just to kind of re-summarize, I am based out of California in the corporate Bay area of San Francisco, an IT professional. So just to recap like 90 seconds. I started like from real estate two years back started from single family homes and I always want to actually to do Real Estate but the problem is in Bay Area, really hot market. I cannot get any cash flow. It's kind of very hard to find deals and I didn't want to do out of state because I have a very stressful IT job here. I cannot travel out of state to do these things. I was postponing doing real estate for so long time, but three years back kind of pull the trigger, bought my two single family homes, one in Raleigh and Atlanta, that's where it started and quickly realized that I cannot scale with single family homes and got into multifamily, bought eight apartment complexes between 20 to 80 units. That's a more like a sweet spot for me. Like doing the deals. We can go further into that. One thing, we started, we didn't talk before is that construction projects, two new construction projects, 97 and 92 units in Raleigh, Durham, North Carolina. So they are like devalue adds, value adds and the new construction mostly into that existing apartments and new developments. James: Got it. That's very interesting. I think we should just definitely talk about you and maybe do a separate podcast for the Covid19 asset management because there's so much of information that I want to get from you and I think the Covid19 thing is also very important. So that's going to be another podcast maybe before or after this. So let's go into details; the market that you have been focusing on that, I know we talk offline before this is Florida, Kansas City and Ohio, and you are sitting in California. At what point of your work, you are very stressful IT guy. I mean, I was a stressful IT guy too. What was that aha moment saying that hey, I better go buy something else or did you play around with stocks and realize stocks is not for you? So what was that aha moment that said that you need to go and focus on buying a multifamily apartments? Rama: So I did two businesses, IT businesses, products and the consulting business. I did stocks, options and everything. It was a lot of active businesses, I need to be there, and I am really active, let’s say if somebody can start restaurants, like franchises, you need to be there in that actively. So you are there to be part of the business, then you cannot succeed in that. Even IT businesses or consulting or product development, everything is active here. Even where a lot of people have a lot of money from IT as freelancing or like full time jobs, but the problem is if they stop going Monday morning they cannot make money. That's the main part for me to getting into the Real Estate and then I bought these single family homes, I'm getting like $200, $300 for each single family home as a cash flow. But then I wanted to scale it, but at the same time I thought I cannot scale it. The problem with apartments at the time for me personally living in Bay area, these apartment complexes are so expensive. These are like 20, 30, 40, $50 million. I didn't even know that we can buy a apartment complexes. The two things, kind of the aha moment for me is we can buy apartments as a common man with syndication. Syndication is another thing. I was buying single family homes myself and I know a lot of my friends actually buying single family homes out of state. They buy in Texas, North California; they buy everywhere all the single family homes. But if you combined 10, 20, 30 people combined, we can actually buy larger complexes, larger commercial properties. That was a [05:17unclear] the syndication itself was an aha moment for me. James: Was that from someone talking to you or from bigger pockets or you're talking about syndication or what happened? How did you find it out? Rama: I learned about this syndication with a webinar from Neil Baba, you know Neil? He was having this weekly or acting monthly multifamily fundamentals webinar. So two years back in November 2017, I had this is a webinar from him and the moment that I did the webinar, I first reached out to him Neil, I want to meet you, this is really good, this is crazy. Then met in a Starbucks in Fremont and I told him after this Neil I want to learn this thing. This is exactly what I wanted to do and he said there's a boot camp coming up. He would come in February and I said I'm going to sign up on that. That's when it kind of started, kind of working from single families to multi families. James: Got it. What were the few key things in that discussion with Neil that you have was like, wow, this is suitable for me. What was your personal thing that you think that oh, this is very interesting for me. What are the aspects of syndication that was very attractive to you that you think [06:40unclear]. Rama: Three things, Oral apartments is a kind of a scale in the single family home model that what I'm thinking. I know the real estate passive income, but then I cannot buy a hundred, 200, 300 single family homes. The first thing is scale. The second thing is run as a business, like I did my IT businesses before. So apartments is also a business, you need to increase your income, decrease your expenses, and then efficiently run your operations. Make sure that you know everything like people management and you talk to your property managers and investors and your brokers and seeing like identifying this analysis, everything. Run it as a business. Third thing aspect is a syndication model itself. I have like hundreds of friends here and other acquaintances, old colleagues, a lot of people are high net worth individuals. If I can prove myself in this business, I can definitely syndicate and raise capital. So those are the three main aspects for me that kind of struck the card when was talking to him and also the fundamental thing, hey we can buy larger complexes like this. Like I was not even imagining the common man can buy apartments. Those are the three main aspects. James: Got it. So now you're sitting in California, after you talk to Neil you come out and you already go to his boot camp. Why you went from California to Florida, Kansas City and Ohio? Which deal did you buy for us? Which state was that? Rama: For my multifamily? James: Yeah. Multifamily. Rama: The first five deals, I bought it in Jacksonville, Florida. James: Okay. Why Jacksonville, Florida? Why not Las Vegas or Utah or Texas? Or is it just that you landed there by luck? Rama: So I want to actually buy a multifamily in Raleigh, Durham and Atlanta because that's where I started. When I started researching about markets for my single family homes, with all the research I did, I picked these two markets, Raleigh and Durham. James: Okay. What are the things you saw in Raleigh, Durham and Atlanta that were like awesome [08:49unclear]. Rama: Some of it I think was I'm reading all the articles and reading all the articles and everything with the technology stuff happening also there and jobs moving in, I didn't actually connect the dots at the time, When I did the boot camp from Neil then I was able to connect the dots and say hey, these are good markets. Then I was started offering on deals in North Carolina and Atlanta. Like none of them were pencilling out, like what is this? Even two, three years back it's not working out. I can't imagine now, maybe like with Corona, it's never kind of worked out for me because I never purchased in the last three years. When I started multifamily again I started looking into these two markets, Raleigh, Durham and Atlanta. I was offering ton of properties. I visited brokers’ network. Either the deals are like C minus, really bad locations or bad tenant profile. The income is bad, which numbers are working on but the thing is I don't know how to do the deals there or it's too expensive where it just didn't work out for me. The vision for Jacksonville is when I was trying to expand markets from single family homes, I was looking at Austin and somehow actually got into Jacksonville because of the property manager or the property manager was actually offering, they do turnkey single families home as well. So I was talking to them doing due diligence, everything with them and making sure what kind of deal on single family homes that they can help me on, on rehabbing and the stuff. Then I suddenly like after talking to Neil, I said, guys, I'm not interested in single families. No, we have deals, this is like 60k and we have this 140k [10:39unclear] but they said okay we'll help you in multifamily as well. Let me know if you find any deals. We'll help you manage. That's when Jacksonville started and then they also kind of helped you and due diligence and everything. Then we'll look at a few deals together and we bought this 20 unit deal and that was on market actually, but it's the heavy lifting stuff like the roofs are bad, two, three units are down; it's really heavy lifting. I thought, okay, let me just get into it. The twenty unit is most like a cost of a one condo here. James: Looks so cheap when you look at California? Rama: You know what I'm going to lose here, let me try it out but we made really good money on that. So definitely that's the good, I got the money from my friends and family first, not as syndication. It's more like a joint venture. A lot of my small multifamily is a joint venture. We can go into details how we've structured those. So that was very good deal. Look back right now. We did that and then quickly since I liked the market, I kind of learned about Jacksonville more. The more I know it's like a really hot market, then the found more deals in the end of that eight months to nine months and then they all are smaller, 20, 30, 12, 32 to 59. James: Syndication. I mean syndication; you can put larger money and buy a hundred plus unit or like some gurus say by start with a hundred plus. Why did you start with 20 and 30? And what is the driving motivation for that? Rama: Neil actually encourages to start with small, he never said go more than a hundred units, but I'm part of a team of multifamily Mark Kinney. He suggest only a hundred plus units because of several reasons because you're putting effort on a 20 unit, it's the same as 200 units, go hundred plus. I totally believe it from a mentorship perspective, he's different. I did that because when I did my eight LLC taxes for last year and all the administrative work that goes behind these things. I would totally agree with Mark and also any other gurus out there that say go hundred plus units. I totally agree on that from effort standpoint. But there is money to be made in this 4,200 unit space as well. And a lot of people ignore it. There is definitely a possibility that you can put your operations hat there and your creative hat there to see how you can profit from it. You also know from the investor perspective as well. James: Yeah correct. I started with the 45 units and I really love it just because you really learn a lot from smaller deals and you don't have to go much bigger deal and you forget, you cannot be like skipping elementary school and middle school and try to go direct to high school. I mean you can do it once in a while or when the market's so good but the fundamentals of real estate is really learned on the smaller deals, even with single family. You start with single family and you move to the smaller deals. Rama: There are pros and cons. For example, the pros are you don't need to have payroll. The con is also the same thing. You don't have a staff and then your property manager may be sitting in some downtown office somewhere. They don't know what's happening at the 20 units or forty units. So you need to have very kind of a good property manager, even for a hundred plus units also you need a good property manager, but at least you have staff. If you can talk to them, hey, what's going on? Because the regional might not be at the site all the time. The regional might be like going once in a month, once in 10 days, whatever. But you have a staff day you can talk to, hey, what's going on leasing, what are the foot traffic? What are other strategies that you have always or do you have going on these units? Have you did the make ready? All of these things. There is a long [14:38unclear] clean you can talk to someone. But if there is a 59 unit somewhere in the west side of Jacksonville and my property managers sitting on downtown, they don't even know the pool guy's coming, they don't know that the lawn is not cut for the last two months. So there is good and bad, especially if you're doing out of state property manager, no asset management. That would be more difficult. But there are ways to mitigate that. Have a local partner in your deal that is onsite, on the ground goes once in a week or so. James: Did you have a local partner there? Rama: One in Jacksonville but not in Kansas City and [15:2unclear] but now Jacksonville, I have changed my property managers, she's really hands on and she actually sits in one of our office. Jacksonville Unit has an office actually. So she's really good and now I can think of acquiring more properties in Jackson, I was thinking not be acquired more. But if you have really good property manager who is hands and kind of trustworthy, then you can definitely; these are really cash cows. James: Yeah. I mean the people play the most important aspect in property management. It's a people business. So once you find a really good people, you are motivated. Rama: You are local or have a partner locally in the 40 to 80 unit game and it's definitely worthwhile to [16:08unclear]. James: Because it's not many people look at that space. I mean, the market was so hot right before, pre-Corona, I would say. Now we have to talk about pre-Corona and post-Corona. Pre-Corona is so much of capital looking for deal and everybody just buy the bigger deals. Rama: Yeah, I do buy the deals in the three bands, James like 40 to 80, 80 to 160 and 160 above. 40 to 80 is where I do kind of deals with mostly JBS and then also syndicate patients deal where you don't need an onsite staff, we can operationalize and make sure that let's say if you have multiple 40 to 80 deals in the same market, you can actually have some scale within that. Have a maintenance person who I only see for properties. So 80 to 160 units where our focus primarily from a syndication perspective when we can have staff. 160 plus is an institutional level where the different companies move there, which I'm not going right now. But I would love to go 160 plus. James: 160 plus, okay. I think that still does not answer [17:16unclear]. Rama: [17:17unclear] but at least you have a different set up [17:20unclear] James: Different level of people. Yeah, professional investors I would say maybe. That's good. Yeah. I mean so how did you structure this JB on the smaller side? Because you really don't have to do syndication for everything, I mean, if you have a few guys who are your family and friends who are willing to put some large money, you can just do a JB and explain to the audience how did you do that JB and syndication. Rama: Yeah, even if it is JV, I would want someone like they do perform some tasks. It's not that, you know, hey, like it's a JB and I'll do all the work. They allow us to have to do some work on that. Because they all structure James two options here. One, either I put less money and they put more money and everybody will have an equal share. Let's say I'm giving very rough example. I bought 50K and other people put 100K each or 200K each, whatever it is. And each of the 3% will be attached to person of the [18:15unclear]. James: Got it. Rama: That's one option. The second option is I've also put 100K but all three people will put 100K into the deal, but I get 50%. They both get 25%. It's just very high level examples. Either I put less money in and take an equal percentage with the other investors or I put more money and take higher percentage. But same money as others. James: All these deals you're buying in these different cities is it all value add or de-value add or cash flowing? How's that? Rama: Most are value add as some are de-value adds as well. I'm kind of going away cookie cutter stuff, but the cookie cutter stuff, I'd still do it. But for the long-term part. That is more kind of relevant for a JV structure because for syndication I need to perform two to five years, I need to exhibit. But if I find a deal, which is really kind of a long-term goal and that is also good for this model where I don't need to worry about performing something in three to five years, I can even take a bridge loan and refinance it and keep it for longer term to the cash flow that's fine. If you don't get to cash flow, that's also fine. At least you can get all the rehab money from the lender and renovate it fully and then go to a permanent loan and keep it for like another six to eight years or 10 years. James: Do you finance with the bridge loan in the beginning itself? Rama: Yes. Yeah. Half of the loans I deal with now are bridge loans. James: Okay. Rama: Half of them are Freddie Mac. But see this is a de-value add. I know I can get all the rehab budget from the bridge loan. James: Yeah, correct. De-value adds make sense for... Rama: And then refinance it. James: Got it. Rama: So it's like kind of a cookie cutter or a little bit like value adds, I go with Freddie Mac loans. James: Got it. Yeah. I mean the smaller ones has less competition. Sometimes you make a lot more money because there's no payroll and some people like my 45 units people just like to stay in a smaller community because they don't like bigger and the people, a lot of residents like a smaller communities, they don't need all these amenities. They just say we want housing. Rama: Yeah that's true and another trend is happening, the build to rent. They're doing a medium density bill to rent the whole complex is for Randwick. So they built a town home complex or a single family home complex only for rent because we will be rendered national for some, and especially this post-Corona, it will be delayed like three more years, people will not be looking at home ownership. But at the same time, they don't want to live in apartments. They can live in a town home community or the kind of a little bit less density, a single family home community, maybe more density, single family home community. They're okay with that, right? Because they still have the pride of ownership. You have a better tenant profile and they can also feel that they're living in a regular home than an apartment complex. So the build to rent a town home and a single family home concept is growing as well. James: So let's say you get a deal; every day you get a deal right now, I mean you're getting into brokers I presume. So what are the sniff test do you do on the deal? Because sometimes they list too many deals? Rama: Yeah. I have my 60 seconds rule, 60 minutes rule and I don't know, 60 days like I see the more you go, you're going to spend more time on this deal. So the first thing I do is go to the justice map or CoStar just to see them demographics. For what is the median income and demographics mix on this and how the income is growing in this area. If that is a bad area I just... James: So every deal, the 62nd is that few steps go to CoStar. Rama: Yes first go to; no, I don't need the CoStar, District Map is free. Just go to justicemap.org, just put that address. James: What's that website called? Rama: Justicemap.org. James: Oh justice map, yeah, justicemap.org. Rama: Just go to that, put the address you will see the census block. What is the median income, what is the demographics mix and how the income is changing. Then you will see the first sniff test and then I'll see the rents. Nowadays what I'm seeing is the average rent, like around $750 or about; I'm not going to C minus, C property, C plus or B. So I can quickly take a deal out, 60 seconds or less. And then next step will be go to the bond writing and see what the rent projections are, go to Rentometer or any other, I can go CoStar or Rentometer and see what are the rents. Are they below the market or not because I don't care about the rent growth, what happened in the next five, six years, what is in place rents and what I can achieve the market. That is where I focus. Let's say if it is $75, $150, $200 below, then definitely if it's like a C plus, B area, 45K or 40K median income and the demographics mix is good and everything, then I definitely go to the next level and traditional spend six days or not. Then to go to the 60 days. James: That's probably including the best and final and all that. Rama: Yeah every step that you go 60 seconds, 60 minutes, 60 days you're going to waste your time, effort, money on a deal. You need to talk to programs you need to visit, it adds up the cost, time and effort, energy. James: Yeah. It's crazy how much work you have to do on progressively. So is there a lot of competition even on the smaller deals? Rama: There will be. Yeah. And it sounds especially previously that lasted two years, this competition for everything. But the 40 to 80 unit spaces, James, the smaller people cannot buy those and they still want a track record and know everything. They don't want to give it the deal to anyone. The bigger people are not interested in this because and the same thing that you said it's too much work. Definitely there will be competition but if you do a JV structure and especially you can do a long-term goal or maybe a tentative exchange because on a largest syndication it'd be 20, 30, 40 people. It's going to difficult to convince everyone, hey, let's do a 10, 31 exchange. So on a smaller deal if I get a 42 unit I know the JV people, like we have five people, so once we got a bridge loan, we renovate, and we’ll sell. Say if somebody wants to know by this thing, we have a bigger pool of money in the pot for the 10, 31 now we can from 42 units they can go to 80 units and then they can move to 160 units. I can spin off three fourth, 10-31 exchanges like that and quickly it can go from 200 to 800 units within two to three years or four years. James: That's interesting. You can start from small and just doing 10 31 and start increasing. Rama: Exactly, on syndication it's not kind of very difficult. I have 40 investors, like half of them, hey, I need my money back. I let them say, let's just enter the one. Okay. Then it'll be difficult to coordinate this. James: Oh, right. Interesting. Yeah. I never done a 10 31 exchange up until now because I don't prefer it so much because I'm worried that it costs me to buy the wrong deals. Because all sellers love 10-31 buyers. Rama: TO be active, don't disclose that you're a 10-31 buyer. Have those deal flow, you need to be really active. Every time I have four to five, six deals, then I can pick the right one. Hey, I'm not going to go wrong on this because it's a B property, eighties construction. What are the criteria that you have? The rents are like a hundred dollars lower. I'm okay to even or pay 100K - 200K on this because on the 10-31 you want to certain the deal, you want certain to close it. So picking the right property and make sure you're doing the due diligence and then do the 10-31 because yeah. So worst case, you'd pay taxes and it's not like another wall. It's better than going in the bad deal. James: Correct. Yeah, absolutely. Absolutely. Absolutely. So tell me about your value add strategy. Do you do interior, exterior and from deck and you define what's the most valuable value add that you have seen? Rama: No, I do de-value add, like if the roofs are leaking, like falling down we get a new roof and completely renovating the units to top-notch, [26:57unclear] dollars also into the C properties. I think the thing is weird to see the holistic picture. There is no one specific thing that I do, which is the most value add, just turning it on the property to create the maximum value out of this. Like if it is a exceeded deferred maintenance, the problem with deferred maintenance is you don't get any rent bump if I change my roof. But you need to make sure that you negotiate the deal. Okay. Hey, this has a roof issue and if you're paying the market price, but for a de-value add that doesn't make sense. If there is an exterior deferred maintenance I would love to know everything in place and only do the interior value add. That is the best thing to do if I can get, but I'm not afraid of de-value adds. I did full redevelopments also I'm doing new construction as well, so whatever the maximum value that you can out of the property on the rent. That is what I looked into it. James: Got it. So that's very interesting. So tell me about yourself. I mean so you are an engineer and you are doing real estate right now, where do you see yourself in the next five to 10 years? Pre-Corona or post-Corona? Rama: If we didn't have the same conversation January James, I was thinking I would retire in 2020. Like I had two deals. I was about to go under contract at backdoor on one day I was at the deal also I'm at 80% on the fence to back out. Completely changes. So things like this, you go back to the square one, go back to the drawing board or go back to school. . Then rethink your strategies. Yeah, definitely. De-value adds and new construction. I want to get maximum value out of it. Cookie cutter. I'm like mostly ignoring, but if I can do long-term goal, I'm okay with cookie cutter. If not that I can get out three to five years and do this like kind of churn. It's just a lot of work. A lot of people think when you're just come into syndication or a multifamily, it is a passive income. This is not passive income at all, like zero. For investors, yes. So I would continue doing what I'm doing, but it'd be more conservative. The new rules. The rules have changed. James: The rules have changed. Yeah. Rama: The playing field changed. The game is changed. Everything is changed. But the fundamentals remain the same. We will be renters’ nation. The multifamily will not go away. People need place to live. The next one year will be a little bit at least six months to one year. It will be tough in the operations perspective, fully focusing on operations on what I have and I'll continue the story, but the story now will be much better. You will see what is the need for passive income now you know better. Things might change. People are getting laid off. So you need to get your passive income streams. The story becomes stronger now and nothing changed in that perspective. James: Correct. Correct. Also in the stocks market you can lose your money, but in a brick and mortar real estate, you don't really lose the money. Rama: The capital is reserved, you have a hard asset. You can go and touch, feel it, and then that's not going anywhere. You might have instead of 8% returns, you might have 2% returns or 1% returns, at least your capital is reserved. Stock markets you're bidding down like crazy there. You're losing half of your money or more than half of your money. So the story got better and maybe easier to pass on this thing. But there might be challenges raising capital in the next few months because people might have lost money in stock or lost their job, whatever it is. But eventually it will come back. The people will remember this. They know the value of passive income more than before. I'll continue the value adds, the de-value adds and new construction strategies into the multifamily. James: Got it. Is there a proud moment in your life that you think you're really, really proud that you cannot forget? I mean, until now, I mean, of course you're going to do a lot more things right, but until now when you started this business. Rama: Yeah. The first 20 unit deal, when we actually renovated this thing, I really felt happy. It was actually really bad property. The roofs were really leaking and everything; the tenants were bad, the backyard, everything was all trashed and completely, we re-profiled this thing. We did maybe more than 70% returns on that. The manufacturer, that's one thing. Overall the transformation that you do kind of really was proud moment for me and also the land development deals that I'm doing. It was 18 months of effort for us to get these 97 units a town home project, we closed it in February. So I was really proud of that new development site. James: Got it. So you're like moving from one domain to another domain. That must be a happy moment. Why did you move to development? Rama: As I said, I like this North Carolina, Austin, Atlanta hot markets because I would rather do it in this market, but there are no deals out there in a sense too expensive. You know Austin? All seventies and eighties property itself is so expensive. I would rather build new but there are unknowns. There are risks for new construction. It's not that easy to hazard zone. James: [32:54unclear] building, if it's [32:57unclear]. Rama: Everybody will be building, it has its own staff but overall I want to be patient to find the right deals and find the right construction partners, find the right type of investors. Not everybody will be interested in new development. You want cash flow. You're not going to get cash flow. There are a lot of risk also. You might lose your capital also in that because there are no assets. James: You have to go to so many entitlement process and city approvals and all that. Rama: Exactly, there are red tapes involved, there are so many things involved but I would in a market like Austin or North Carolina I would rather to build than buy a seventies or eighties product. That was the main reason for me to get into new development because I liked the market, what I can do in this market because I love North Carolina, I love Austin, I love North Atlanta. What I can do in these markets from a Real Estate perspective, the only answer for me is the new development. James: Got it. Interesting. So tell our audience how to get hold of you? Rama: Yeah, you can reach out on my website is zovest.com; you can reach out at rama@zovest.com and I'm active in a lot of Facebook groups, you can reach out to me there as well. James: Awesome. Thanks Rama for coming in. Happy to have you here and happy that you add a lot of value to our listeners. Thank you. Rama: Thank you, James. Thank you for having me.

Ep#53 Outlook and Opportunities in Commercial Asset Classes post COVID-19 with Jeremy Cyrier

Achieve Wealth Through Value Add Real Estate Investing Podcast

Play Episode Listen Later Apr 28, 2020 54:41

James: Hey, audience and listeners, this is James Kandasamy from Achieved Wealth Through Value Add Real Estate Investing Podcasts. Today I have Jeremy Cyrier from Boston. Jeremy is one of my mentors, you know, I'm happy to have him here to talk about commercial real estate and Jeremy has been focusing on taxes and a lot of markets out of North East U.S like Rhode Island and you know Massachusetts and of course Texas and he have done a lot of bills, you know, I think he used to syndicate and now he's also investing as a passive investor and he focuses a lot on multifamily medical office buildings, retail and also office. Hey, Jeremy, welcome to the show. Jeremy: Hey thanks, James. James: So, what's happening? I mean with all this covid 19, I know you're not in New York, but you're in Boston, which is, you know, almost near to epicenter there. I mean, what's happening with you personally and the commercial real estate business right now? Jeremy: That's a great question, we're all healthy, we’re home. I've got four kids, eight and under and it's a little crazy, but we're feeling just frankly blessed at this time to have a moment of pause in our lives to focus on the basics together. I think, you know, amidst all the tragedy that's unfolding around us, that's actually a blessing. James: Yeah. Sometimes you know, you have to look for positive things in a, you know, whatever situation that we are in right now. Right? So tell me, I mean, about what are you seeing right now in the commercial real estate space? What was happening in February before this whole covid 19 and now we are in the middle of it. This is like almost in April, mid April to, you know, towards the end of April. What are you seeing right now that has completely caught your attention and create that "aha" moment for you? Jeremy: Well, I'll tell you the interesting thing is we've been over the last three or so years saying, well, when's the recession coming? And we were looking for it, we're looking for leading indicators of a recession and here it is, it's upon us and it's more of a black swan event than really any of us would have expected to have happened to such a point where I've been talking to people about this being similar to our country being invaded and the government shutting down our economy is a defense mechanism. So, that's a pretty fascinating set of circumstances for us to be operating within right now in any business, let alone the commercial real estate space. James: So do you see a lot of transaction has died down right now from what you were doing two months ago and Jeremy: Yeah, so the, one of the things I do is I track data, so I live outside of the Boston market. I track that data very closely to see what the volumes look like and I'll tell you the 2020 Q1 data was up 75% in terms of sales volume over Q1 of 19 and so it was a very healthy start to the year but as soon as you go and you shut down the economy, all the volatility comes into the market and buyers start to pull back, lenders try to figure out what to do, who to lend to, how to lend and then you've got sellers pulling back saying, am I exposed here? Is this a dangerous time for me to be selling my property? So, I'd say the first month of this event was really characterized by people trying to figure out what's going on, what's happening and this last month it's being characterized with more intentionality. Okay, here's what I'd like to see happen in three months, six months, nine months, twelve months. So the discussions are moving forward to a, I'm going to stop focusing on the hourly new cycle and I can see more of a two to three day new cycle and within that environment I can start to think strategically about what's next for me. James: Got it. So do you see, so you're saying sellers are starting to look at more strategically, so, I know some people were talking about V-shape versus U-shape and I think some of the V would have changed to U right now, right? I don't know where the Nike swish. Right. So where do you think we are heading from March, 2020 you know? Jeremy: Yeah. What's the letter of the alphabet are we going to see? You know, I listened to a great webinar, which was done with KC Conway and Eddie Blanton, Eddie's the president of the CCIM Institute. KC is the chief economist, they got on a webinar and I think you can see this; you can catch on YouTube and KC got on and he talked about the letters and he goes through the different shapes. Some of them I'd never heard of before, but they, like, what happens when you have a fiat currency recession, it's a Q, I guess but he said, you know, if early on we were hoping for a V he thinks it's going to be a W and I think he's right, I think the W is, we go through an initial dip, we have a recession now. We start to rebound and recover, in the summer, people start to get outside and start to circulate and you know, return the flow of capital but we go back into a secondary recession in the fall driven by two primary things. One a concern over covid, you know, spiking again and the second being the, all the bad news that accumulated from March through September that shows up and we see a secondary recession as a result of what's happening right now. He said it's probably, and I think he's right, we probably don't start to see the volatility come out of the market until this time next year, 2021 and it's just going to be a matter of writing this, you know, writing things out the best we can in 2020 James: So, when you talk about the second V, right, I mean, I think first of the V and after that is another V which is coming in, which makes it a W? Right? So are you saying the, from your perspective, do you think the second lowest point will be lower than the first low point or will be higher than the Jeremy: I don't know but I know those low points take a lot of pain and they dish it out and so in our business, in commercial real estate investing, is it, people have been asking me: Okay, so when one of the deals are going to show up, you know, where are all these distressed sellers? Well, it takes time. Right? James: What kind of time, why do you think we need to take time? Jeremy: Well, if you look back historically when we go through, we've gone through recessions and they happen just about every 10 years in the last four years. This one was a longer cycle than we'd seen. So typically you see expansion kickoff and the third year of a decade, you see a transition year in the eighth year of the decade we go into a recession, then we come back up and out. This one didn't happen that way. I think it's because the Obama administration didn't push the FDIC to recycle assets like we'd seen in prior recessions, which extended the recovery period, it took longer to recover and expand in this last cycle, so as a result of that, the cycle lasted longer. I think it just was a longer period of protracted growth. So we have, you know, in the time frame of how things tend to play out, on the inside, you might see real estate deals two quarters after a Dow correction, but typically I see like a fourth to six quarter lag off the Dow. And there's a reason for that, if you follow the money, so start with the Dow. What is the Dow? The Dow is a highly liquid market people are trading on nanoseconds and they're trading based on projections and perceptions. So from their companies, their shares are devalued, they, report, you know, revenue, they have revenues coming in lower, their earnings are lower, they start adjusting their P and L's, they lay off people. Okay, so unemployment comes up. Then they start to look at their real estate and they say, well, we need to reduce our exposure of real estate, we're not demanding as much square footage. Let's give some back. That goes back to the landlords. The landlords get the space back, they rent it for less or they can't rent it. They burn through cash? Then they go to the bank and they say, hey bank, I'm having some issues. Bank says, okay, well let's work with you for a little while and see if you can get through it. That takes another three or six months before ultimately hits the point where the bank says you have to get out of the asset, we've got to take it. So, it's a slower moving asset class. That's one of the reasons why people like it. I mean, when you're buying, you want it to happen now you want it to be fast, but when you own this, it has less volatility than the stock market does and that's one of the reasons why people get excited about building durable wealth in the space. James: Really interesting. So, I just want to touch back on what you mentioned just now. So you said during the Obama administration, the 2008 crisis, you said FDIC did not recycle assets as quickly as you know. So can you clarify that because that's completely new and I never learn about that. Jeremy: So, if you look back at the savings and loan crisis, this was back in the late eighties, the tax reform act. What happened was depreciation schedules were changed on how real estate was owned and written off. The tax world had distorted real estate evaluations, that combined with the junk bond industry and banks investing in junk bonds, chasing yield, okay, to make money. So, those two things together broke down the system and what happened was banks, the FDIC went into banks and said, we've got a lot of, your balance sheets are a mess, your ratios are out of alignment, we want you to call your notes and recapitalize. So, banks actually started calling owners up and saying, you have to pay us in 30, 60, 90 days. Pay off your mortgage. Well, okay, but when all the banks are doing the same thing, there's a problem. So owners were foreclosed on, they dropped their prices to liquidate their buildings. They filed bankruptcy and all this real estate ended up coming onto the bank balance sheets and the FDIC came in and said, okay, well now we're going to set up a corporation called the resolution trust corporation to liquidate all this stuff, flush it out. Okay? Establish the market bottom and then we'll come out of it. So, in 08', a lot of people were thinking that was what we were going to see. We had finance and demand induced recession and so we expected to see real estate defaults go back to the banks. The banks would take the properties over, the FDIC would come in and say, push the stuff back out on the street, market down, recapitalize, and then we'll get back to business, they didn't do that. Instead what they did was they came in, they closed the really sick banks and they, a lot of them were set up as M and A deals. So they had other banks buy out the sick banks to dilute the balance sheets and then clear off the sick real estate. But what they ended up doing was they did a lot of forbearance agreements and they extended loan terms so that they could keep the owners operating the assets even through all the pain of the recession. So as a result of that, we never saw a real mark down or mark to market on all those properties. They weren't quote and quote recycled. So if the idea was to keep all the real estate and everyone's in all the owner's hands, you saw fewer deals on the buy side and you just saw these owners just barely making it, holding onto these things, waiting for the economy to start to pick back up and for demand to come back into the space so they could recover the valuations and ultimately refinance the bank off the asset or sell the asset and recover or just break even on it. That takes a little while to do that. So I think that's one of the reasons why we saw this sort of longer cycle this time. I mean, a lot of people were looking at Trump's administration and his policies for continuation of this. I do think that was part of it but I think what we really had was, we had a long recovery and it took us until 2013 to really jump into an expansion phase from 08' but it wasn't like a jump, you know, it, it was kind of a slog to get there. James: Yeah. You can see 2013 onwards and other property, the caplets not comprising a lot more compared to, you know, from 2008 to 2012 right. Jeremy: Yes. James: So do you think that's gonna happen in this market cycle where somewhere there's going to be, you know, FDIC going to come and do inaudible15:42 Jeremy: I don't, I kind of think that's not going to happen because if you follow the logic here with me. So country gets invaded, government shuts down the economy. People are forced out of business. Landlords default on mortgages. Banks have to foreclose on property. FDIC makes them and says; now you got to recycle the buildings. So if I'm the owner of the building that went through that whole horrendous experience, I'm looking at the government going, “Well, wait a second, you shut down the economy and now you're telling the bank to take my building away. How can you do that?” So I'm not sure that's the outlet on this one, I think the outlet's probably going to be just a market and it's going to be buyer demand and what buyers are willing to pay but it's going to be driven by two things over the next couple of years. One is who your tenant is, their stability and their durability to pay rent and number two, the lending resources that you have available. My concern about this situation we're in is banks freezing lending, to attempt to reduce their exposure to the degradation of net operating income? That's a concern because they take the debt liquidity out of the market, when that happens, that slows transaction velocity down considerably and that will bring pricing down and that's, you know, if you're buying and that's the time to buy, when money's hard to get, when it's easy to buy and money's hard to get. James: Would you still be you have a challenge in terms of lending, right? The terms may not be as favorable during the peak tomorrow. Jeremy: But it's interesting, I think the lenders, when we go through recessions, they get picky about who they lend to, having relationships with your lenders is critical so your local banks are extremely valuable. They want to know that they've got strong hands operating these assets and using the money correctly. So those are elements to be very focused on in maintaining those relationships. It's the national banks that concerned me with inaudible18:30, so working on a deal last week and well as Fargo said, well, we're not doing it, we're not doing the deal, we're not lending period. Just shut it off. James: Yeah. Except for multifamily, I presume all of the asset classes, like very less in terms of landing multifamily. I know Fannie and Freddie still doing it even though they have additional visa requirement, which is good for multifamily, but I think it's just hard to do any deals anyway right now because no one knows what's the price. Jeremy: What's the price? James: And no one knows what the cap rate, I definitely know Capita has expanded, right? Definitely not compressed as they, from what, two months ago but how much it has expanded, right? And who's going to take the risk of, what are they buying? Right? No one knows. Jeremy: You get back to good old fashioned cash flow and I always tell people, there's always a market for cash flow in any market cycle, there's a market for cash flow. So the key is figuring out who the tenants are and in multifamily, where do they work? It amazes me when I talked to multifamily investors about their properties, I asked them, when your tenants fill out credit apps, you know, our rental application, you get their place of business, wherever they work, you should be cataloging every single employment center in your portfolio and finding out which industry sector they're in because you could, I mean for all you know, you might have 60% of your tenants working in the cruise industry. You just don't know, you know? So having an idea of what your economic footprint is by income diversity in your multifamily properties is really valuable information to have. James: Yeah. Even multifamily near to airports, right? Where there's a lot of workers from airports and the airports are shut down, right? So that can be a bigger issue as well in terms of demographic, right? So yeah, we never really looked at it because, you know, but I recently looked at, it looks like we have really good diversified in my portfolio, but I don't think so many multifamily bias have done, you know, demographic analysis until now, recently, right? Jeremy: Yeah, it's good to do. James: Now, it's like, okay, you better know who are your dynamics. Jeremy: Yeah, you want to know who is paying rent. So I have a question for you. James: Sure. Jeremy: Okay, so multifamily deal making, where the deals are, where are they going to be. One of the things that KC Conway mentioned on his webinar that fascinated me was he said he expects to see hotels converted into multifamily housing and he also said, we may even see cruise ships become multifamily housing. James: I just heard recently, I mean in fact, this morning I was listening to a podcast, by Robert Kiyosaki and Ken McElroy, who are talking about 10 years ago, someone was pitching this idea, let's convert the cruise ship into a moving condos and sell the condos as an apartment. I mean, if you heard about that, I was like, wow, really? Maybe that's coming back. Jeremy: It may, these crew lines they're going to have surplus cruise ships, aren't they? James: Yeah, absolutely. Jeremy: I don't imagine demand will drop off for a considerable period of time and hotels. James: Yeah. So let's go back to the tenant demographic analysis and the economy. Right? So, looking at what happened 2008, we did some kind of a benchmark with what happened then and what happened now but what happened now is basically the service industry and the people who want a paycheck, you know, paycheck to paycheck, right? People are living paycheck to paycheck, they are the biggest impacted because everything stopped, right? So the people who have higher pay, who are basically living in A class or you know who are working on a normal, you know, highly paid job, they are working from home, they didn't lose their job, right? So, this is my thinking, right? My thinking is just like, yeah, I mean people, once everything opens back up, you know, the paycheck to paycheck is going to go back to work, right? But there's also going to be a global economy slow down because now this virus has impacted almost every country, right? The whole economy, the whole global economy is gonna slow down. So, my thinking is, you wanna multifamily class B and C, you know, where people are living paycheck to paycheck, they're going to go back to work and they might be a quick recovery, but people want class A, who are, you know, who are working from home, the company is going to have impact, right? That's where the Dow is going to have impact cause now your corporate profits going to come down because now you have a global economy slow down, right? So, I think even though now you're saying this is just my thinking, maybe we can just, you can figure it out whether you're thinking of the same, the class B and C is gonna is getting impacted right now. Class A not so much, but it's going to swamp later on, maybe in the second part of the W right? Or the V in the second. Jeremy: Well it's starting already. If you look at, office work and employment and you read the news, you're going to see that companies that didn't lay off office workers are reducing their salaries. James: Okay. Jeremy: And you're hearing about owners saying, you know, the owner of the company saying, okay, I'm going to waive my salary, everybody in the organization is going to take 10, 20, 30% pay cut with a floor, you know, not to be no less than. So following that logic, you're taking all that money out of circulation and it's not being spent, of course that slows things down so the question is how long you, you definitely have a slowdown, that's, inevitable but the second piece is how long those people stay employed? And are they able to get through this and operate at a level that with those cuts they can sustain operations and then start to pick back up when spending returns and it's going to be incrementally returning. It's not, it doesn't just, this won't be a light switch so we're talking about W's and then I talk about it's a dimmer switch, you know the dials so you go and you can flip the switch in the room and the lights come on, but there's the round dial, you kind of push the knob and then you can adjust the, I think we're going to be doing that for a little while, turning the lights up, turning them back down, turning them back up and it's going to be partially in response to people hearing about hotspots or breakouts of covid until we have a situation where majority of the population has been exposed and we've processed the virus or we have a vaccine to manage the virus. James: Yeah but this is going beyond the virus, right? So, I mean maybe the vaccine is already up in the next, you know, eight months or one year. I'm sure people are saying one to one and a half, but I'm sure the administration is going to cut a lot of red tape too, you know, well that. Jeremy: Hey, they built a nuclear bomb pretty fast, right? They had to. James: Yeah because you know, during these times, everything is all hands on deck, right? So all the processes get thrown away or you know, there need to be some kind of leadership happening there but I think it's happening, but I just think the second order effect right on the overall slow down on the job losses on how the world is going to change. Right? And how it's going to impact commercial real estate. So, well, what do you think would be impacting a commercial real estate? Let's say, you know, you have experience in office, multifamily, retail. So let's go to each asset class and see, you know, what do you see it? Jeremy: All right, retail, very, you know significant damage to retail. Okay? I mean, department stores are pretty much talking about the end of their era here this may be an extinction event for the department store. James: So do you think if today we have a vaccine, what would the impact be if you already have a vaccine? Jeremy: If we had a vaccine, for the department stores? James: Yeah, for the department store for the retail industry. Jeremy: I don't know that they really cut, they survive longer, but this is devastating for them when Walmart, Target, Costco and Amazon are seeing 25 to 35% revenue growth, all that money is flowing, you know, flowing in different directions than Macy's and Lord and Taylor and Nordstrom's. So the department stores are definitely, they were weak coming into this, this is terrible for them. General retail, you know, I think quick service restaurants like with drive-thru's come back very quickly, the drive thru is kind of an ideal service model for this environment where we'll be going through and coming out of and the cost hits a point, it's a low cost dinner, you know, dinner for the family, to go to Chick-fil-A, you know, and grab, you know, feed the family for 50 bucks. So quick service comes back quickly, I think some of the other sectors where we've got, you know, experiences, you know, it's interesting, services and experiences were really kind of the bellwether in this e-com impact on retail real estate but they're getting hammered and so you're going to have some service and experience spaces return, they'll reemerge from this and the weaker ones, they just won't make it back. They won't make it back, so it's, I think in restaurants, full service restaurants, maybe half of them come back from this. It's just going to be very difficult to reopen all those. James: But don't you think someone is definitely going to buy that space? Somebody else that have the same vision as the previous owner. I mean, maybe the original owner is no more there, 50% have gone right because they kinda lost it. Jeremy: You're going to see new operators come in and it's, that's, look restaurant, full service restaurants, they can be recycled and you're going to have operators say, well we, you know, we made it through, let's open another location cause it's on sale. We can get the equipment and refurnish it and open and go. So there'll be opportunity there for new operators. James: So the industry is not going away, it's just the operators are disappearing. Jeremy: The operators that disappear, it's a slow recovery for them. It's a difficult recovery and the real estate; there will be some good restaurant real estate that will become available. It will happen. Okay, so I know retail, that's sort of my take on it. I wish I did. James: Are you seeing a lot of distressed sellers right now. I mean are you doing a lot of transactions right now? Jeremy: No, not right now. I think it's early. James: Yeah, I think it's still early. I think people are just riding through their cash flow. Just walk up and watching and nobody knows what's the price and nobody, not many people are distressed. Jeremy: Yeah. Multifamily, I agree with you, if you segment by class ABC, you look at the populations that are renting from those units. The A-class seemed to be more insulated because they tend to be professional, high-income office working James: Those that work from home as well, right? Jeremy: Yep. The B's and C's tend to be more service level and they've got a lot more exposure in this environment. So, you know, they get laid off quickly, but they get rehired first because they're lower cost, the office workers, they get hit later and they, you know, they're slower to come back. I mean, what's that rule of thumb, if you've got, for every $10,000 in salary, it takes you a month to replace, to find a new job. James: This new ratio. Jeremy: I know this new ratio if it's true, but I've heard that. So the bigger question that I've got on multi-family is the suburban versus urban, we've been in an urban cycle the last 10 years. James:Yes. Jeremy: And I've been. James: Explain that a bit, what do you mean by urban cycle? Is it people building more multifamily in the urban areas? Jeremy: Yeah, it's the live, work, play, lifestyle, millennial, you know, millennials and baby boomers wanting to live in the city near where they work, walkability people that live in rich environments. There was a quote that I was reading today from Goldman Sachs and they're saying, they're expecting a flight of millennials to the suburbs from urban markets and it makes sense. What does this suburb offer? Less density, more value for what you rent, you know, you may be working from home more so they may be making decisions about, well I could have done a one bed but I have to get two bed cause I need a home office, that's a consideration to take into or keep in mind and then there's just the overall comfort of, hey, you know, I don't want to be in downtown New York right now. That's not a good place to be, I want to get out to the burbs and just have some more space. So I think the idea of urban versus suburban is it's going to be a big topic here over the next four or five, six years. James: Got it. So I think that's very prevalent in where you are, but you also buy in Texas, right? I mean, from what I see in Texas, everything is a suburban mid-rise apartment, not in style apartment. So I mean there is very people I know who buy apartments near downtown, even though they [33:34unclear] Jeremy: Sure James: It could be depends on which market you're talking about. Jeremy: Yeah, I agree with you on that. In Northeast, we have a very clear urban, suburban experience. You know, Texas, you guys just keep building rings. James: Yeah, we have a lot of land here, right? So everything is garden style and [33:58unclear] Jeremy: Yeah, as long as you got the water. James: Yeah but there could be like tertiary market where it could be more interesting. I'm not sure it would be less density or not, I mean everything seems to be less density for me in Texas just because we have a lot of land here, you know, people move around pretty well, everybody, I guess so. Jeremy: Yeah, you got a lot of roadway. James: Yeah. Could that also mean that there's a lot more investment coming from the coastal city to places like Texas or Florida or where Jeremy: It could mean that, yeah. What's interesting about the last cycle nationally, the suburbs have been kind of out of fashion. So, it didn't have the same run up in value that the urban markets did so I started to see that the last couple of years where investors were starting to look at suburban markets and say, well, I can still get some yield there, so I'm going to go invest in the suburbs. This is now going to really bring that conversation to the forefront. James: Yeah, I think that's why I like places where you are like Boston is called like gateway cities versus you know, places like where I inaudible35:17. Jeremy: Yeah. James: Suburban market, I would say so. Jeremy: Yeah. So industrial, I'm still bullish on industrial. I think we'll see some dislocation in distribution and port industrial, I don't know what the future looks like with China. I mean we import a lot from China through Long Beach and it goes to the inland empire and I think we're going to see some of that shift to other port markets as we start importing from other parts of the world but overall with consumer behavior shifting, it had already started before this. If there's been anything that's going to accelerate the demand for industrial spaces, it's this because you're going to have ghost kitchens, you know, restaurants that basically just, they're like catering kitchens that they just run full time, they have no seating and they deliver food, you know, basically meal prep. You're going to have more demand for online consumption and distribution and shopping, that's going to put more pressure on existing in industrial inventory, I sort of thought the industrial market was peaking in the last couple of years, but that may not be the case, there may still be some runway in that market. James: So when you're talking about industrials, basically, warehouses where, you know, products made and distributed, I would say, right? I mean, I can see that with more manufacturing going to be coming in house right now, I mean, with all this, that's one shift that's going to be permanent. Jeremy: Yeah. James: Everybody knows that, right? So, do you think industrial would be the asset class that most beneficial from that? I mean, because I'm looking it’s going to be a lot more manufacturing factories coming here; I just don't know which assets. Jeremy: Yeah and that's really, I mean, if you remember doing 102 in CCIM and we talked about basic employment. James: Yes, absolutely. Jeremy: As soon as you start to see manufacturing coming back into the United States, that's going to be really good thing for our economy. James: Correct. Jeremy: It's going to really boost multifamily, a lot and it will help retail and it'll help office but you know, it's really a value, it's a power source, it's an economic engine for importing money into economies, local economies. So, I think industrial overall in terms of, if you're on the buy side, it's like you want to be really careful about industrial exposure to China, but the rest of the industrial story I think it's going to be a good place to be, I think it's going to be a good asset to own. James: So, is industrial equaling to manufacturing factories. Jeremy: Yeah, so manufacturing, flex R&D, so that's research and development, Warehousing, distribution, bulk storage, cold food storage. Just there, you're going to see that stuff cranking. James: Cold food storage Jeremy:Yeah, cold food storage. James: This is not the same storage that we are talking about now? Jeremy: No, we're talking about like freezer facilities that type of thing, yeah. James: Why is that? Jeremy: It's because people are going to be continuing to demand home delivery of food and you got to store it somewhere. James: Well, I never seen one when I drive around, so I don't know. Jeremy: Kinda funny looking, you know, if you, sometimes on the outside they're a little funny look. James: Now, it's going to be looking nicer because it makes more money. So how do I position myself or anybody else listening? Let's say if I want to take advantage of this manufacturing coming in house right now. I mean, how would a commercial real estate investor should be able to position? Jeremy: It's a good question. So you want to, you know, the main thing about manufacturing is you want to find buildings that have good characteristics for an efficient manufacturing operation. So grade level, you know, Celeste slab on grade buildings with ceiling heights in them that are preferably 16, 18 feet or higher, that have good loading access, you can get a truck, tractor trailer, multiple tractor trailers in and around the building to access it, plentiful parking for labor so typically you're gonna see, you know, one parking space per 800 square feet is kind of the building code standard for manufacturing warehouse but depending, you know, power supply, how do you have enough power coming into the property and utility services. So you could probably, you know, you're probably going to be able to find some outlier properties that you can bring into that market and you know, convert over and, I mean, the other thing is you might want to be looking at retail and converting that to distribution, zoning is restrictive for that because typically municipalities don't like to see industrial uses in retail locations but you may end up seeing big box or department store or retail buildings that have those characteristics of what I just described cause a lot of them do being converted to that use, it could be manufacturing or it could even be distribution. James: So which market should we be looking at to position ourselves for this kind of industrial asset class? Jeremy: I think you can look at pretty much any market in the U.S, I think this is not a specific market, now if I, you know, I think you do this, you to follow that formula in any market in the U.S now if you want to do a, let's look at the demographics and the economic drivers in a market. You want to look for population growth, employment growth, that it's, you know, if there are more people move in there and live in there and it's growing, that's a good thing because people demand space. James: Yeah. Well I mean the other way to look at it also is like, if there's already a manufacturing hub in that city or state, you know, that could be a good expansion place, right, if you find some assets around it. I guess Jeremy: It could be, the other thing you're going to see are companies trying to find manufacturing redundancy. So if they've got a facility that goes down in their location, they can continue supplying from an alternate, which is, it's really interesting cause it's sort of contrary to what Gordon Gekko would tell us to do, right? Build shareholder value, become more efficient and be more profitable, do things faster and increase volume and the way you do that as you bring everything into one location and make it as streamlined as possible but now we're looking at a situation where, and this has been going on in manufacturing for a little while, customers demand redundancy because if there's an event or a disruption to a location, they want to make sure that they still have a continuity of supply chain. And so they're getting what they need so that's even more important now than it ever was. So we'll see some of that. So I think you gotta kind of get into that world and talk to people and find out you know who's looking at bringing things home who isn't, and then start to think about the properties that they could be using and you might even have the opportunity to go out and pick up some land and put something on the land for someone. James: Yeah. And I'm sure there's going to be some kind of government incentive to do that, right? Because now the government wants lot more manufacturing. Jeremy: So I think so. Yeah. So office. James: Yeah, let’s go to office. Jeremy: You working from home, if you had a choice today to go to the office or work from home, which would you prefer? Is the question and I got to imagine a lot of people are saying, I'd love to get back to the office. I miss talking to people, socializing that's missed and I think the home office thing is great, but boy, when it's home officing and schools are shut down, it's really hard. James: That's a good point. Jeremy: This sort of experiment is, you know, forced home officing can companies do it? We've got a variable that shouldn't be there and that is the kids, the kids should be in school. But it's, I think people go back to the offices, but they, you know, offices may end up seeing a similar thought, which is, hey, instead of piling everybody on the train or getting their buddy into the center of the city to work, maybe we need to have a smaller office in the center of the city and then have some suburban offices, spread people out, improve their commutability and create redundancy in our workforce. You know, with people being closer to their smaller offices. So I think that, I'm hearing that a little bit in the market now with people I talk to, I think that's something to keep an eye on that. So again, I kinda like the suburbs, I think there's an opportunity in the suburbs and office may actually be a suburban opportunity here. James: Got it. So what you're saying is people are just going to go back to office. I mean, it's not going to die. Jeremy: I don't think it dies. No. I mean if anything, you know, we've gone from, in the office space, I mean you see these offices where people are like in their benching and I mean I went into an office building and people were waiting in line to get in the bathroom, in an office building and the reason is that the building was built for more or less one employee for every 300 square feet and when companies come in and they go, we're going to be more efficient, we're going to get 1 employee in for 135 square feet, all of a sudden the bathrooms are overloaded, the parking is overloaded and that the buildings, it's too dense. The amount of people in there, it's not designed to carry that density. We'll throw a pandemic in the mix and the idea is for us to be six feet together in this world we're in right now. Maybe we're going to see that, you know, that office demand change where you know, I want to be able to shut my door to an office, I don't want to be at an open bench next to my colleague sneezing on my keyboard, you know, so that, I think we would go back to the office. It's important, the nature of the office is to bring us together and for us to work and collaborate, share ideas, but also to have deep work time, need to be able to do deep work and we need to go somewhere to do that. So maybe it's not about packing as many people in and forcing them to assemble and work together rather spreading them back out a bit, providing some, you know, some work from home, some work from the office days, maybe your home two days, three days in the office. So I, this is a fluid one, but I think we go back to offices. I think it's how we do work. We can do it this way, you know, we can talk to each other, but it's not as fast in my opinion, information slower than it is in person. James: Oh yeah, absolutely. Yeah, I was talking to a doctor, Glenn Mueller, right? So I'm sure you know him, right? This was like two months ago when we're looking at all of the asset class and office was the opportunity it was going from, into the expansion cycle. Right? So, and I asked him the same question, what about people working from home? He said, well, you know, humans are social creatures, you know, they like to be together, right? And you're absolutely right about communication and deep work and all that, just so hard to do working from home. Right? So I think people are going to go back to the office, especially after the vaccines is [48:47unclear] right? Jeremy: Yeah, I will make this prediction. So just like after 9/11, the U S government moved in security and defense. This is a healthcare crisis; I think the next decade will be a healthcare decade. We tend as people, we tend to overcompensate for a trauma that we just experienced so that we never have to feel it again and so I think we're going to see when we rebound from this, healthcare will come back very quickly because there'll be such a backlog of demand for everybody else who's not suffering from Covid but has a knee replacement or you know, an oncology treatment and everything, they're going to be there, they need to get in for services but we're going to have a situation where healthcare is going to be at the forefront of government decision-making, investment and in development of protective and planned responses to anything like this coming again. So I see that space is a very fascinating space to watch and get involved in as you see us start to come out of this and these discussions come to the forefront. James: So how should we prepare for that opportunity too? Jeremy: Well, it centers around the hospitals and if you follow a hospital strategy, they've been merging with each other to become more efficient as they struggle to operate profitably in a very narrow margin environment and one of the things they've done is they've expanded by going out into retail locations and creating outpatient and urgent care services that essentially become a feeder for the hospital. So I expect to see more of that because that's a lower cost way for hospitals to expand. Hospitals are very expensive and they tend to be constrained geographically because of where they were cited. You don't see a lot of just new hospitals being built around the country. They tend to have additions put on them. So as a result they expand out into multiple locations that become more like a hub and spoke model. So I'd be looking at anything in the healthcare space in the next several years. I think it's just going to be really good place to be. James: So are you talking about like medical offices or you're talking about labs or life sciences Jeremy: Medical office, yes, I can't really comment on life science, I don't follow it very closely, it's so specialized, but I probably should know more being out of Boston cause it's just a center for it, I hear about all the time. I just kind of go,"...oh yeah, labs, ugh" But, that I, anything with healthcare, I'm loving it in the next several years. James: But even on medical offices, I mean, the tenants have a long lease terms, right? I mean, how would that increase the valuation of the property as a real estate investor? One is, we look at the cash flow, the other thing we want to look at value increase as well. Jeremy: Well, there's, it's durability, yeah, that's one of the great things that medical office offers you is 90% and higher renewal probability rate. The you know, historically it's been a recession, quote and quote proof, investment class, not this time. I mean, I was looking at data last week 42,000 healthcare professionals lost their jobs, were laid off. I mean, you go, what, no way. James: Why is that? Jeremy: Why is that? Because hospitals aren't allowing for elective procedures, urgent care only. So they're laying people off, it's a fiscal nightmare for the healthcare system right now. So they, that's short term, okay? There was the version, what is it, version three of the P we're on now that just came out and there's billions of dollars going to the healthcare system, which is a good thing. James: Got it. Jeremy: Good thing. So short term healthcare is volatile that may be the opportunity to pick up some property, I think that over the next decade it's going to be a wealth builder. James: Okay, so you mentioned about some of the healthcare which is located in the retail centers and all of that become like a hub and spoke model. So that's like single tenant healthcare, right? Compared to a multi-tenant. Jeremy: It could be single tenant, could be multitenant. You might have a medical office building with four practices in it. Sure. Yeah. James: Got it. Jeremy: Yeah, I think those are really good investments. James: Okay and it could be offices converted to medical offices. Jeremy: Yeah, it could be. Yeah, I mean it's, I just looked back at 2001. I mean if you were in the like the metal detector, you know, security business in 2000, probably not really interesting. James: Right, like 2001 [54:48unclear] Jeremy: Yeah, so that's what I see here. I'm like, this is going to be interesting, there's going to be an overreaction in healthcare. I think there's going to be opportunity there. James: Could there be like construction of healthcare facilities like medical offices or do you think just buying new medical offices. Jeremy: I think there could be development, we're early on that. I don't know that's anything that we're going to see probably for three years. I'm just following the trend, I'm kind of following how people are, what they react to and then where they go and for us to come out of this and not have a national discussion about how are we going to be prepared for the next pandemic. James: Yeah. Jeremy: Yeah, it's going to happen and money is going to flow there and, and there's going to be a lot of pain and people are going to say, I don't want to do that again. James: Yeah. Jeremy: I don't want to hear about ventilators next time. You know? And so, I think that presents an opportunity for investors to get in front of that now. James: Yeah. I'm sure for the next three, four years people are going to say we didn't want to have that healthcare problem again. Right? And I don't mind paying for this. Right? Some kind of thing. It's going to be a lot more investment. So I think medical offices would be a really good investment. Jeremy: Yeah. I liked it before this and I like it even more after that. James: Awesome. Good. So what about other asset classes like self storage or mobile home parks and you know, what else is there, warehouse I think is probably part of the industry. Jeremy: We talked about warehouse, hey, you know, self storage, kind of a maturing asset class in this last cycle but I think it's still very viable and it's a good place to be. You are going to have dislocation of residences the next couple of years so self storage is going to be valuable to people who need to store their belongings, mobile home parks, I mean, look, everybody needs a place to live and if it's affordable, you know, it's gonna work. So again, there I think I see an opportunity too. James: Got it. I think multifamily; we did talk to her in detail about it, right? Do you think there's going to be a lot of crash happening in the single family space because there's so much short term rentals, people bought a lot of short term rentals as second houses and probably right now there's no short term rentals happening. Jeremy: Yeah, that's not so good like kind of the Airbnb, I mean you're sort of in the hospitality business there so yeah, those folks are gonna need to convert to long term or sell. James: Correct. So I think there's going to be, you know, a lot of people, you know, giving up their second short term rental houses that way to the banks. It could be a lot more houses available I guess. Right? Jeremy: Yeah. That could be an opportunity, you know, if you want to buy and rent or buy in rehab and then resell that space could have some volume coming through. Yeah. James: Okay. Got it. Interesting, yeah, I mean, did I miss out on any asset classes? I think that's the more important. Jeremy: I think we got most of them. James: Yeah and do you think we are going to be much better in terms of economy wise? Just because there's going to be a lot more base employment, which is manufacturing happening in the U.S. Jeremy: I'd love to see that, I hope our companies can come home with that and who knows, I mean with the unemployment rate being what it's going to be for a while and the wage growth that we didn't really see in the last 10 years, and we just lost on that, maybe there's an opportunity for us to employ people that otherwise we couldn't have a manufacturing basis to make it make sense. I don't know. I'll leave that up to the manufacturers to figure out. James: Got it. So, I didn't want to forget one asset class, which is hotels, right? I'm not sure whether we went deep into hotel. So that's going to be, I think the hotels are really suffering right now. Jeremy: Oh, it's terrible. James: Right now. Jeremy: When I hear 9% occupancy rates. James: Yeah. Jeremy: That's bad news. James: Yeah, that's crazy right now. So hopefully hotels survive through this downturn, I guess. Right? Jeremy: Some will, look, we still need hotels. James: Yeah, I know. Jeremy: We still need them so they're the strongest, best located hotels will come out of this thing, others, you know, they'll fail and they'll either get bought at the discount and with a lower basis they can compete in the market and grow back out or you're going to see them reused for something else. James: Got it. Jeremy: That's maybe the multifamily conversion. James: Yeah, if the city allows it of course, then they can be a lot of studios and efficiencies, I guess and I've seen that happening in some cities and some projects. All right, Jeremy, thanks for all the value, can you tell our audience and listeners how to get hold of you? Jeremy: Sure. So you can check out our stuff on CREinvested.com, that's C R E I N V E S T E D.com, I've got an investment course there, that is available and if you ever want to chat with me, you can email me @jeremy that's JEREMY@creinvested.com James: Yeah, Jeremy is a wealth of knowledge. I mean, he's also a senior CCIM instructor, right. So that's a lot of knowledge if we came in, absolutely, you will be a really huge value to connect with you and just to learn from you. So thank you very much for coming on the show. Jeremy: Hey, thanks James, it's a pleasure. James: Alright.

Ep#51 50 Strategies Apartment Operators/Asset managers can use during COVID-19 interesting times with Rama Krishna

Achieve Wealth Through Value Add Real Estate Investing Podcast

Play Episode Listen Later Apr 14, 2020 37:13

James:. Hi, audience and listeners, this is James Kandasamy from Achieved Wealth through Value Add Real Estate Investing podcast. Today we have a special session with Rama Krishna from Zovest Company from California. Hey Rama, you want to say hi to our audience and listeners? Rama: Yeah. Hi James. Thank you for inviting me on this special session. I know definitely the primary reason is we are attending so many webinars on this COVID19 impact for multifamily, a lot of other groups that we're discussing. I wanted to just compile all that strategies that I have compile and also mine as well. What I'm actually going through right now with my properties, compiling the blog posts and whatever you wanted to talk about it. James: Yeah. Today's a special session. I'm trying to make all this podcast release. I'm actually rearranging all my podcast releases to make it really timely. So all of you guys, listeners, can we take action from whatever you're listening from this podcast and listening to podcast that was recorded one or two months ago, which is like super boring because all that is pre-Corona. I'm sure all of you guys are wondering what is this guy talking about. 3% rent growth at that time, so this is timely. We're going to release as soon as possible. Rama has done a really good job compiling fifty strategies for multifamily operators and asset managers to tackle Covid19 and we're going to go to each one of those quickly and also in detail so that each one of you can take a pencil and paper and write down what are some of the things that you can use right now. Rama, let's get started. Rama: Yup. James: What's the first one? Rama: I think before even getting there, I'm reading the primary thing that we need to do here is, people lost jobs in the sense that we need to become passionate about the way how things are going. I think we are actually suffering as operators. We also have to put ourselves in the tenant's shoes and they got impacted. Some of these strategies to also have to work with them to see how they can weather the storm, including us, have to weather the storm here. Another thing is, I mean, there are federal regulations right now that we cannot evict tenants. So in a sense, even though, we can do some of these things, but the strategy is what we have before we cannot do it because of the regulations in place and then also shelter in place right now. The first primary thing that we wanted to do to alleviate the problems of tenants is the late fee waiver. We actually wanted to not to communicate this thing until the fifth, but we did communicate before that itself, just wanted to give some assurance to the tenants saying that you're not going to charge late fee for the month of April and May. That's the first strategy you want to do. Also they cannot; they are impacted. The primary thing we wanted to do, James is when you're working with the tenant that they have an issue, you want to get a proof from them that they got laid off from their job and then put it into your resources, your folders so that in case if you're applying for any other benefits in the future, any ADL program or a PPP program, or maybe a forbearance or forgiveness, you can have all these things noted in your documentation. The second thing is some of the tenants are not misusing this thing. There is a late fee waiver. There's a flexible payment plan, but if you're not impacted, you're not eligible for that. That's the reason. The second point where we wanted to put them into a payment plan, if they are impacted and then they can continue catching up these payments. The second thing again and then typical guidelines to the tenants saying that you need to do the shelter in place and follow the state or CDC guidelines to make sure that there are protected. The last thing that you need is a Covid19 patient in your properties and then they're spreading and they don't know what, and God forbid there's a death. There are lot of things that you need to do to make sure and also fundamentally you want your tenants and everyone to be safe. Then follow the state guidelines and what you have to do or they have to do somebody tested positive in your property. How they can do self quarantine and how you can help them also. I know maybe there is one more point in here is to, for us as an operative to disinfect the common areas and especially, I think we'll come back to those points again in the later strategies is to disinfect the common laundry mailboxes and other things, leasing office and other things. The other thing from a financial standpoint was security deposits. When we found out about this program called [05:15unclear] there other insurance programs, even not just for this one later also the operators can use this strategy to actually use in lieu of security deposit. They can actually get into some of these insurance programs like the Rhino or like Nash tag, Lemonade, where in this strategy, James, I think you might already know. Let's say the security deposit is thousand dollars. They need to pay $5 per month as insurance and they don't need to deposit this thousand dollars. So somebody coming in new as a tenant instead of paying first month's rent plus a security deposit of say $2,000. Now the need to only pay $1,000 and an insurance program for $5 a month. If it is $2,000, it will be $10 a month. It covers both security deposits and also any damages that they do, including they haven't officially confirmed but when I talked to rhinos representative, they're saying even wear and tear. Say if we want to do and make ready and there is damage that you have under the unit it covers that. So the way how it works is, so let's say if the tenant vacates and you go and do the move out inspection and you saw overall to make ready of this is twelve hundred dollars, and you do it claim to rhino and then they pay you within 48 hours and they collect from the tenant later because it's still learning deposit. There is wear and tear or some damage happened to the unit. James: So that is a sayrhino.com, that's what you're saying? Rama: Yeah. James: And there are a few other people as providers? Rama: Providers, yeah. James: Let me get a bit more structured here. We are on that line item number five, which is basically the first one, is look at late fee waiver. Second is look at payment plans for your residents who are impacted, make sure they are impacted. Third one is a make sure that you communicate to residents and make sure they follow the shelter in place and follow the State and CDC guidelines. Fourth is basically if they are exposed to Covid19 patients who are tested positive you want to do a self-quarantine as well. If you as a property manager knows about whether any residence has been impacted, usually a lot of property management software have given us access to additional fields in the tenant information to mark them as Covid19 quarantined and all that. I do have it recently on my property management software. So check with your property management company, so they can mark it as someone was impacted or quarantined or what's the status. The fifth one is basically using some of the security deposit for some of the two months rents using some companies like sayrhino.com where you can use it as an insurance for evictions and if they evict out or if for any make ready, if the tenant cannot pay. Rama: If you collected the security deposit, you can convert to a sayrhino agreement. James: Okay. Rama: The minimum is at least they need to have six months more left in the lease because at least whether the new person coming in or maybe like another two months are done in the... James: But this program already existed before Covid19? Rama: No, sayrhino has 700,000 units insured. James: So they already existed right now. So you can just use this at this stage, I guess. Use some of the current security deposit and convert it to this insurance program, I guess. Rama: Exactly. James: Okay, got it. So sayrhino.com and REIG insurance, call home, [08:59unclear] king.com and these are the some of the providers? Rama: Yes, there are some other insurance providers in lieu of a security deposit. James: Okay. Let's go to number six. Rama: Okay. Let's say from an operator perspective you feel that there is one more point here that we can come back to this. I think I haven't ordered this in the right format, right numbering. The first thing before doing that is to privately segregate our profile tenants. Go each lease by lease and profile your tenants how exposed are they with this Covid19 impacted businesses. Are they in restaurants, are they in travel tourism industry or whatever it is to see what would be the impact of it. Say if you have 50% of your tenants are in medical profession or maybe some other which are not really impacted into that. So at least you will know yourself if you own [09:55unclear] unit, Hey, like, I'm 50% of my tenants are restaurants, maybe. Then you can actually be really alert and also do go to these programs, what we're talking about here. Talk to your Fannie/Freddie lender and see if they have any mortgage forbearance or relief. No, they already have it. Fannie and Freddie already rolled it out, for 90 days you can forbear your mortgage not to pay that. Then how the payment plan of twelve months to catch up on this 90 day payment. But make sure that there will be some negative remark or agency loan history and to see, make sure you go through all the agreement before actually signing up. But yeah, if you're really impacted, definitely if you're going on water with not being able to make mortgage payments, for sure you should consider this mortgage forbearance. James: Okay, good. Let's go to the next one. Rama: Yeah. And then so that is one aspect of it. The other aspect of it is the SBA disaster loans. There is an EIDL emergency loan... James: I think it’s called Economic Injury... Rama: Economic Injury Disaster Loan. So that's the loan that SBA is giving up to $2 million for small businesses including rental apartment owners, there is 3.75% interest and then there is some times that you need to pay. The idea here is based on your situation you can actually apply for this a disaster loan for EIDL program so that you can weather the storm for the next three to six months or nine months. There's another loan for a payroll protection program, PPP, which I can update this as well. If you have a payroll that you're running by yourself, you can actually apply for this PPP program to get two and a half months of payroll from the government or if your property management company actually runs the payroll, you can ask them to apply for this PPP loan so that they cannot bill you for the next three months for the property management personally. James: Yeah. I think the caveat is anybody who's applying for it to be having less than 500 employees. Rama: Exactly. I think they figured out some more than 500, but overall, yeah, up to 500. Yes. And then also thing from I think from a tenant perspective some of this one's four or five points series. If they are actually having some hardships right now how they can use some of these federal programs. They're actually sending a $1,200 to $3,400 checks every person who actually filed their taxes. Also they can apply, if they are a small business, they can apply SBA loan or they can apply a PPP loan and they can weather the storm and actually use that money and then if they get referred, they can file the taxes immediately and use that money to pay rents. Some of these aspects that you can think on their shoes and see how these federal programs can help them as a tenant. Maybe one of your tenant is a restaurant owner, then you can see how the federal programs can help them so that they maybe they can file an employment benefits and then you can tell information about that or you can find local companies which are hiring and then see if some of these tenants that actually wants to find a job right now. Then you can ask them to continue pay the rent. James: Yeah. Let me add some more things. Some of the apartment association in many big cities have given renters resources, which includes how to file unemployment. What are the resources for them to get different types of help from different organizations. Rama: Yeah. So again, two aspects of our operations, one is income and the other is expenses? Right now we've talked a lot of stuff from income perspective and some are expenses perspective. The other aspect that we kind of brought in is with all these people talking about are expenses. So in the non-essential expenses, even send email like a message to all the tenants, memo the tenants saying that, if you have any emergency only like create a service request, non-emergency service request will be done once the things settle down. Now if you are a light bulb vendor where you can fix it yourself or you leave the light bulb at the doorstep, let them fix it. Instead of you exposing your maintenance staff to more people, either they can fix it themselves or we can drop the light bulb there or they can wait for a few weeks until these things settle down so that you can cut your non-essential expenses and other controllable expenses that you can eliminate and you can close all the amenities, pool, the common amenities so there is no need to continue maintaining them. James: I think also you do not want to people to use that and spread the virus more. Rama: Exactly. Those are shelter in place, not using the common amenities, throw a party in a club house then you will have 50 people infected there. Primary thing is the common amenities. You have laundry room, everybody's coming in there to do the laundry, how they can sanitize this thing or maybe one person at a time or have a roster, Hey, this building one to ten people using Monday to Monday 9:00 AM to 12:00 PM some roster so that not everybody coming in Saturday morning to do the laundry. Or maybe some mailbox to see if somebody is there at the mailboxes, have some instructions that say wait for them to leave and then you go, wait for a minute and then you can go and pick up your mail. Some of this stuff that you can instructions at the mailing and laundry, or in any common areas. The other thing is aspect of income perspective is primarily focused on the leasing aspect. Can you put some deals on renewals or lease modifications or if you already gave notices and then maybe cancel the notices and then pause the rent increases right now to make sure that you're at least a hundred percent physically occupied and then later on 100% how it can be economically awkward as well. At least at this point right now if you can make this a hundred percent thing, James, both physical and economically, you can weather the storm for the three to six months and come back and again go back to your typical asset management strategies to increase the valuation of the property. Right now it's more a fight or flight mode right now. Let's see how to make it smoother for the next 90 days to 120 days is the strategy here. James: Yeah. So what you're saying is rather than pushing for rent, try to keep people in the units, whether they're paying or not. Rama: If you renew it, we're going to not increase it, let's say if you renew it in April, May, we're not going to do any rent increases. The last thing for you to do is make this unit empty right now and then we don't know what the situation of leasing activity in that building. So continue withholding rent increases, especially if you renew it in the next two months, we will not increase the rent, for example and the things that were discussed already, it'd be sympathetic and then also profile your tenants, see what jobs they do. Another strategy on this is, you don't need to pay April or maybe May but that rent will be amortized in the next 12 months. That's another strategy they're doing. Hey, you know, you're affected. We're not going to charge you for April or maybe half of May as well, but that $1,500 will it be amortized for the next twelve months. James: Okay, so you'll give them a break for one month and you take that money and amortize over 12. Rama: Yeah. Just like forbearance from a mortgage, same thing. That is amortized for the next 12 months. Same thing that you can do here, but some of these are lease modifications and see how painful it is, but whatever that is kind of, it takes it to get this thing done right and extending the leases. One more thing in the leases we can come back to later on is usually when you do a short term rentals at the three months lease, six months lease, you have a premium. You can actually reduce the premium, no premium for short term rentals. Say, hey, like, we are leasing right now. Hey, you want a six months, and then it will be same as the 12 months’ rent. So at least you can fill up your units by doing that. James: Yeah, even on a month to month. I think they can usually we charge premium for month to month, but you can either reduce it or don't charge that for now. Rama: Exactly. So I think maybe for them also they also wanted to try for month to month, three months, and then they can do an annual release after two to three months. So you can at least fill them in coming in, let them pay, and then you can think about this after three months. The same topic we discussed before is the go to a local; even though there are jobs lost, some are trying to hire. Amazon is hiring for the warehouses, grocery chains, hospitals; some of them, they're not able to have enough staff. So you can find these in your market, in your sub-market and see and take those information and then send you to your people who actually came, Hey, I lost my job. Hey, why don't you try to go to Amazon warehouse five miles from here, they're actually hiring. That you can help to see if they can come back to the employment at least for temporary for the 90 days until this thing comes back. A lot of these people are furloughed right now just because they can get unemployment benefits, but if they can get some other job for the next 90 days, because what if just delays more, they can get some job for the next six months and come back to the workforce later. Another thing is something similar is lot of charities and churches and they pay the rent and if they're part of the local church or a charity program now there are so many people paying rent and also their utility payments. James: To help our residents and one good resource that you guys can use, all the listeners can use. It's findhelp.org, that has all the completion of all the organizations which are helping people in terms of money, housing all kinds of things there, so use that resource. Rama: Yeah. And like this is the first step. So whatever that's happening for us or for them, the message to tenants is the rent is due, just because we have to have utility payments, we have to have mortgage payments, we have to pay salaries for employees. This is a laser thin business. This is not; we're making 50% as profits here. So we had to send that message properly that we also have expenses. We cannot just not forego this thing, not paying rent. That's the message that I might not be putting into the right way here, but you have to [21:24unclear] because some of these articles in some of these markets saying, Hey, don't pay rent for three months. So it's just showing a wrong message, but they're not thinking about the operators. James: Yeah and the government or our mortgage providers did not give us a break on our mortgage. The rent is still due, we do sympathize with all the residents. Let's work out some plan. But rent is rent and it still needs to be paid in some way. So we have to figure that out and see. Rama: Then another thing is if you're doing renovations, if you have draw requests, it's already competitor immediately do the draw request because there might be some delays right now because of this demo here, the inspector might not come in to verify that renovations that you did to approve the draw request. Submit your draw request as soon as possible so that your money, you had to pay your vendors. James: So this is the capital or replacement reserve, what we're talking about here? Rama: Exactly. So you renovated like say five, ten units and usually the bridge loans, other loans which we have escrow money. Get the draw request and then get the money at least and then you can pause. The idea here is to release what you did to now, get the money, pay your vendors and pause your renovations for some time until this is done. Another aspect is until it is utilities, because now everybody's at home. They're going to use all their deliveries for the maximum, the water, the electricity, the heaters, the air conditions, and the internet, everybody utility company is right now maxed to the capacity. So just keep it down on the utilities and see how things are going on that. All bills paid or you're doing the reps program. Do you need to increase the reps? Like whatever it is, just keep an eye on it. It'll definitely be a much higher. James: Yeah. I think because everybody's staying at home right now and the one or two months when the utility bill hits to everyone is going to be much higher and now I appreciate why all this spend people go to work, somebody else is paying for their utilities when they are at work. Now operators do feel the heavy load here, but it is what it is. Rama: And also the load on this, if you're continuously using something like your HVACs maybe break broken, or your water, something that issues that you need to make sure that you do the regular maintenance of these stuff and then make sure that you have ducks in row. Like, hey, we're talking to the Water Company, talking to your Plummer, talking to your electrician or HVAC Company, making sure they're ready for any service request that comes in. Because if the HVAC broken or some water broken, last thing is that the tenants are not happy. James: Correct. Correct. Rama: So I think we discussed it the month to month of high risk tenants, rental increases on this. Yes. Pausing all upgrades and the distribution side. Another thing is we've talked about lenders, talked about the tenants but you did not think about the investors. If you're syndicating this deal or if you have the private money that you raised or whatever that you have investors in your deal, make sure that you inform them about what's going on and how well your assets are performing and what are the things that you are doing as an operator to get some of these strategies are what your strategies that you're already applying to whether this storm and maybe there are some other great topics, uncomfortable things that you need to talk to them. Say there might be some pause on distributions because we don't know what's going on here. We need to preserve the cash, preserve our reserves right now, what if this goes beyond 90 days. So maybe pause or reduce your distributions or pause it for now and then you can catch back once everything kind of settles down. That's one of the conversations you should have. James: Yeah. Make sure, I mean, just a caution to everyone who's listening. Make sure that any operators are communicating to the passive investors more frequently than what they used to know. This is very important right now. Just because everyone knows Covid19 is happening, the whole country is in a lockdown, doesn't mean that you can't communicate. So make sure you communicate all your plans and what are you doing to your passive investors? Rama: I think we kind of came through this reprint reserves. We need to make sure that you're are person maintenance; so make sure that now is the time that you have a pause. So you can actually flag kind have all your depreciated items, have HVACs these other things. Make sure that you have all of them done properly. Also, again, the same thing, use audit, full use audit to categorize your employers. So their dependents are at risk or not. James: Yeah, I mean, you can do a general lease audit as well because most of the time, right now our offices are closed for public. Most of the apartment office. So in my company, most of my staff are doing lease audits. Just as part of the normal thing, but to keep them busy. Rama: So this is the right time, everybody give it time we are running, now is the best time to profile your tenants lease audits and make sure that what strategies that you can employ to make them in place and again, same thing as utility, like just how you can do savings of utilities. Is it a new water leaks that are happening. Let's see your old bills in the last six months or one year. See any patterns that you can identify or any other measures that you can save utilities because the utilities will be stressed in the next a few months. Again from the expenses side, completely renegotiating all your contracts and [27:30unclear] every insurance, everything that you spend, your controllable expenses like non-controllable, property taxes and mortgage. You cannot do anything. Maybe yes, if you can refinance now if you have ability you can do that, if the rates are low. But if the controllable expenses you have the negotiating ability, your pool vendor, hey, pause for a few months or maybe renegotiate the contracts, go through every line expenses that you have and try to get renegotiate these things. There are even companies it seems, which can do like this, that can help you go through all your bills and then find anything that you can renegotiate the contract. The thing is noise notices because now everybody's home. There will be a lot of complaints. Hey, like my neighbor is making a lot of noise. Make sure that you again send it across back to the tenant notification saying after nine o'clock it is a quiet time for what it is like in the night. Any of the notices that you want to do, the courtesy notices to make sure that everybody's people are working from home. Whatever it is and again, so a lot of people kind of saying maybe on the section eight, what's yours? Maybe this is a time to think about rethink... James: It's the best time to get section eight vouchers because that's guaranteed income for now. Rama: Exactly. So if your property is already approved and you have a few tenants in section eight now go through, go to your city and say, hey, do you want any more? We have vacancies right now. Hey, absolutely we have so many people are looking at it and we are already approved as section eight for your property, they'll let them send your way. And you can fill up easily and these are at least for the next one to two years, it'll be like in a way standard and then not all section eight is bad, just make sure that you profile your tenant properly and then... James: Yeah. And I also heard that the government provided a lot more funding for housing people so there could be a lot more section eight vouchers coming in and what you're saying, they're not bad people. I mean they are definitely a lot of good people there you just have to make sure that you screen them properly and make sure you get the good ones. Rama: Yes. I think we kind of briefly touched based on this too about the [29:57unclear] and all the forgivable loans or the loans and then property managers can use some of these loans. Each LLC, that own asset can use this. Check with your lending terms to see that it's not violating any terms. There are a couple of things, I got it from the CVRE webinar, make sure that you have fire productions on the building equipment and backups and mission critical operations that you have. These are kind of into the back-end of it that we already usually ignore. Make sure that all the buildings are inspected properly by the fire inspection because now that everybody's at home, there are higher chances of some of the stuff they could make big dormant happen. Do you have your backups of emergency? And then any mission critical operations your cooling any heating water or anything, we have redundancy on these things. Make sure that you're building physical aspects of your buildings, make sure that you do those and then if you don't have credit card payments, for rent payments, make sure to enable them and also inform tenants that you can pay rent through credit card or maybe in that you can actually give back the money or the transaction fees. Usually in a credit card payment there is a two and a half percent transaction fee. Hey, you can use credit card. If you use a credit card, let us know. We can refund you the transaction fee. James: Yeah. That's something that we are happy because we moved all to online payment for the past one year. So now it's so much easier during this kind of thing because... Rama: Especially if you're not yet on the credit card payment option, make sure that you talk to your property management software and enable that and then also inform them, Hey, like you already have ACH but you have an option to pay through credit card. That's another thing and also another incentive is, I think Neil was using his, if you can give some credit, if they pay the rent before fifth of the month, or if you pay April and May upfront now you'll get a $100 off or $150 off. Give them incentive to pay for the next two to three months upfront. So that if somebody has that capability to do it now they can use up the program and they can get, they can get a credit for that and make sure, again, this one is, I think should be the first stop. If you're working with the tenant, either a late payment waiver or a traded audit, lease modification, any other that you're working with them, make sure that they show the letter that they lost their job. Otherwise people will make use of these features that you would actually giving. So that's the primary and then the couple of things we already talked about the short term rent leases and renegotiating the contracts and other one is primary, the model unit. Now that nobody's coming in and seeing the units, maybe you can use your model unit as lease apartment for short term, but this is the [33:07unclear] idea and lease to traveling nurses because right now with the Covid a lot of these hospitals are actually getting healthcare professional from outside, from other towns, other places and they're hiring more people as a temporary staff, but these traveling nurses and healthcare professionals need to have some place to stay. You can go; I had to find this link, James. I'll talk to Ellie and then send it to you as well later on; you can put it into your notes. James: Is this a link for traveling nurses? Rama: Yeah, there is a way to find out these people and then post your apartments there. Hey, if your apartment is say five to ten miles from a hospital major hospital and you can actually use these resources to actually post, hey, we have available short term rentals, maybe for lease or not, we can give you this for the next 90 days to 120 days. That's another way to actually fill a unit. James: That's awesome, it looks like we went through the list. So let me add one more thing, which I just remembered. If you have never done a virtual 3D tour of your units, you want to prepare right now, there's a lot of photographers out there that they can do a virtual 3D two of the units. Right now that's very useful because right now we can't use our leasing agents to go and tour the units, we just tell them to go themselves or drive around or look at the pictures or look at the videos. But if they have a really nice virtual 3D picture, there'll be a really good way to attract leases to you. Rama: Rentally has a self-touring technology. You can purchase webcams. So if you're using Rentally, also Rentally is also an app into existing property management. You can put the webcams there. You don't need to be there, your leasing staffs are not exposed. So they can come in 24/7, you'll send them the lock core. You'll open the unit and you can monitor from your leasing office or whatever desk you are and then do that, Rentally has that. James: Yeah, I did look at that as well. So that's awesome. Rama, thanks for sharing this. Is there anything else you want to mention to the audience and the listeners? Rama: Yeah, I think we have some light on the other end of the tunnel. The government is helping us. Hopefully I think this will pass and we'll back stronger and stay safe. James: Yeah. Yeah. Multifamily is still one of the best asset classes to invest in because there's so much help we are getting from all our different sauces. Imagine if you are an office or warehouse or industrial or everything is closed down, or hotels. Right now things are doing really badly in that asset classes. But shelter is part of the Maslow's hierarchy of needs, food, shelter and safety. So absolutely everybody needs housing to stay on and live on. So thanks for coming in and hopefully we can add this as soon as possible and that's it. Thank you very much, Rama. Rama: Yeah. Thank you, James.

Ep#50 Apartment financing world during COVID-19 with Anton Mattli

Achieve Wealth Through Value Add Real Estate Investing Podcast

Play Episode Listen Later Apr 7, 2020 67:04

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

James - What we speak during the crisis | Your Online-Service 2020-04-05

FCG-Bayreuth Predigt Podcast

Play Episode Listen Later Apr 5, 2020 16:23

James - What we speak during the crisis | Your Online-Service 2020-04-05 by Freie Christengemeinde Bayreuth

crisis speak online service james what

Ep#43 Commercial Real Estate Market Cycle State of the Union with Dr. Glenn Mueller

Achieve Wealth Through Value Add Real Estate Investing Podcast

Play Episode Listen Later Feb 25, 2020 55:29

James: Hey audience, this is James Kandasamy from Achieved Wealth Through Value Add Real Estate Investing podcast. And today we are doing a slightly different format. We are doing a podcast plus a webinar and I have Dr. Glennn Mueller here. So Dr. Glennn is someone I have been following for many, many years looking at his real estate market cycle studies and he's a professor at University of Denver. He has been doing this almost 36 years, if I'm not mistaken, has gone through many, many different market cycle. And, Dr. Glennn, why not tell our audience what I didn't cover in terms of introducing yourself. Glenn: Sure. So I've actually been in the real estate field for the past 45 years. Started out as a loan analyst at United bank of Denver and by chance got put into the real estate group after a couple of years, realized that real estate people made a lot of money, went out and started my own construction and development companies and built custom homes for about seven years and then decided that I wanted to have a change and a different lifestyle. So I went back to school, got my PhD in real estate and started teaching at the University of Denver. I hired away by a big institutional investor, Prudential real estate investors and then onto a Jones Lang LaSalle. And then started working on the security side with Wreaths Real Estate Investment Trusts at Lake Mason. I ran the research group there and then one of my client's black Creek group invited me to come and head up research for them. And I've been with them now for the past 15 years and at the same time teaching as a full professor at the University of Denver. So I guess I'm a typical real estate type A personality running two jobs at the same time. But a lot of my research is focused on real estate market cycles, which is what we're going to talk about today. James: Yes, yes, correct. And real estate is very interesting because sometimes it's very hard for us to make it into a very analytical format. And when I look at your charts and the work that you do, you have really break it down to science. I mean, of course, definitely there's art in real estate but there's a lot of science to it as well. And it comes from years and years of research, like what you have done. And that's very important for people like us who are basically active investors who are buying deals day in, day out and going to different market cycles and it's also more important for people who have never gone to a full market cycle. Like, even for me, I've not gone through a down cycle yet and there are tons and tons of people who have not gone to a down cycle, so we always wonder how this different cycle is impacted by different property types. What do you call us, like industrial, self-storage, apartments, office and retail and few other things. So this presentation that you're going to be doing on the webinar and throughout the podcast, we're going to try to clarify some of the slides that's going to be covered here so that the people who are listening to the podcast is going to be able to follow too as well. And this going to be difficult [03:26unclear] Glenn: So do you want to... James: Go ahead doctor? Glenn: So if you'd like, if you want, I've got my slides ready to go. We could probably go to that. I can start in. James: Let's start, I mean I'm going to name this podcast, A State of the Union of Commercial Real Estate Property [03:46unclear] so let's go through it. Glenn: Throw the word cycles in there someplace because I do real estate cycles. So let me actually bring that to full screen size to make it easier to see. Is that clear for you? James: Yes that's awesome. Glenn: Okay, great. So basically I believe that real estate is a delayed mirror of the economy as the economy goes, so goes real estate when the economy is doing well, real estate does well. When the economy turns down, real estate lags by about a year and about a year after the economy starts to turn down, real estate will turn down. You can see that here in this first chart and on the demand side of real estate, there are three key things we look at. The first one is population growth. The US population is growing at nine tenths of 1%. We are 330 million people. So we're actually growing by 3 million people every year in this country; and let's put that into simple real estate terms. That means that we need to build one city, complete city the size of Denver, Colorado, which will actually hit 3 million people this year, to give them a place to eat, sleep, shop, work, play, pray, store things, et cetera. So here you can see GDP growth, the great recession in oh nine and the beginning of 2010 with negative GDP growth. And then it has rebounded and it's been running at this nice average of right around, just a little over 2%. And the forecast is that that looks like it continues forward with a little bit of a dip here in in late 2020. But to be honest, economists are always wrong. Their numbers never perfectly accurate and there's a fairly high probability that doesn't happen. The reason for that dip is actually the employment growth below, which again, you can see the negative number back in 2009. It starts to recover and go positive in 2010 and has been running about 2%. And then you see the forecast for a slight decline back to down to close to zero in 2021. That's actually a mathematical calculation of the number of baby boomers like me getting to retirement age of 65 versus the number of millennials who are just coming out of school. The only thing and one of the reasons I believe that that number is wrong is that most baby boomers like me, we enjoy what we do and we're not necessarily retiring or if we do within six months to a year, we're out with another job. It may be a totally different kind of job. I love up here in the mountains of Colorado and a lot of my friends that retired are working as ski school instructors or driving a shuttle bus or my wife is a host and tour guide, Arapaho area ski area. So those people are still working. So that decline in employment growth sort of forecasted decline in GDP growth, my guess is that doesn't happen. And a lot of economists now are saying maybe we're in the lower for longer term. As you probably all know. We just hit 10 years of economic expansion. So we're in the longest economic expansion in modern history and a lot of economists do say, well, it can't go past that, but I don't believe that because right now the country in the world that's had the longest economic expansion is Australia and they're in their 28th year of expansion with no recessions. So I believe that the way that we're set up with this more moderate growth is something that is potentially sustainable as we go along. James: So let me recap that because that's very important point because that's a lot of notion out there that we are too long in expansion cycle, we must come to an end, it's cyclic but what you're saying is the way the employment growth and the way that GDP growth has become moderate right now for the pass many how many years we have, and that's a good thing. So what you're saying is with that moderate growth, we might be able to go longer on expansion cycle. Is that right? Glenn: Right. We're at the beginning of the longest ever. James: Correct. So when you talk about Australia, I mean, I know it's one of the longest expansion cycle and things are getting very expensive there, but is that the same case in Australia? Were they like moderate growth for very long time and that's how they're able to sustain it? Glenn: Yes. James: Okay. Got it. Got it. And what's driving the 0.9% population growth, where is the growth coming from? Glenn: That is new births over deaths plus legal immigration. James: Okay. Glenn: And so we're actually growing at a higher rate than that from illegal immigration as well. But there are more people; we're at a very low unemployment rate at this point in time. So anybody that wants a job, basically you can get a job and that's a good thing. James: Okay. I'm going to ask about inflation and you are showing the chart on inflation, okay let's go to inflation. Glenn: So on the flip side of the coin is as we look at, and this talk that we're talking about, by the way, we're talking about income producing real estate, not homes, not home ownership. So we're focusing on the income producing side of this as we go along. So the two things that we look at, so we've got good demand as we put up new properties for people to us. On the cost side inflation is running at again about 2% and has been since the great recession when it was actually negative and that is expected to continue. And then we look at interest rates and of course we are at, actually, I'm going to jump ahead here to a different graph, I think. No, I'll wait on that because it's too far ahead. We're at a very low interest rate. As a matter of fact, the lowest interest rates in 60 years. And then in income producing real estate, commercial real estate you can't go out and get a 30 year mortgage on an office building. The longest you're going to see is 10 years. And so we look at 10 year treasuries, US treasuries as our benchmark. And here you can see that 10 year treasuries and these graphs are actually wrong, they forecast going up to 4%, 10 year treasuries are running a little under 2%. So if you're going to go out and get a commercial loan, you might get in a 10 year treasuries plus a 2% premium. So that would be a, today, 10 year treasuries are running right about one seven, one eight. So you would be getting a 3.8% 10 year loan on your property, which is a very low interest rate. Hence good return to equity on investment after the loan amount. James: So the chart that you showed is basically a forecast but we are running much lower than the forecast I guess? Glenn: Yes. Yup. We are. James: And who came up with the forecast? Glenn: Every economists forecast what is going to happen. The forecast that we look at many times are the congressional budget office. So that's cbo.gov, if you want to go get their stuff; they do 10 year forecasts on GDP growth, limit growth, interest rates, all kinds of different things. So that's a very good place and it's free to go look at what's happening. And just underneath that they've got a lot of different things. Just click on the economy one and all that information will come up. James: And why do you think the economists are wrong? Why were they forecasting at 4% [11:41unclear] 1.7? Glenn: It's a statistical method called reversion to the mean. Interest rates over 60 years have averaged close to 6%. So now that it's low, it has to go back up. James: Got it, got it. Glenn: And every single year they did forecasting within two years, 4% and every year for the last 10 years they've been wrong. James: Last 10 years they've been wrong. Is there a chance for them to be continuously being wrong? Glenn: Again there's an old saying for kindness, forecast often. James: Well, the reason I ask is because every year people are forecasting the interest rates are going up or coming down when everybody's wrong all the time. Glenn: Yes. James: And it's very important for interested for investors like us, like where we are predictive because we do exit cap rate and we have buying deals, hoping on the cash flow, but also this market appreciation would be a bonus for us, so that's why I asked. Glenn: So let's actually go right to talk about real estate and my market cycle analysis. So I believe there's really two cycles in real estate. The first one is the physical cycle, which is demand and supply for real estate. So people renting and space available for rent and that drives the occupancy rate which is just the inverse of vacancy. I like using occupancies and you'll see why here and occupancy drives rent growth. So if my occupancies are up, which means there's more demand, I can raise my rents. If we're in a recession and occupancies go down, people aren't renting. Landlords are going to drop their rents. And if I add occupancy and rent together, so if I get an increase in occupancy, in other words, I rent more space and I get an increase in rent, those two together will tell me how much income I'm going to get off my property. That's the physical cycle. The financial cycle talks about the price of real estate and we're going to do that second and we're going to do it separately. So here's my market cycle analysis and you see that I've got four quadrants, just like the account, just like an economic cycle or recovery and expansion. I have a supply and a recession phase. There are 16 points on the cycle because historically real estate cycles have lasted 16 years and so at the bottom we've got obviously declining vacancy on the way up and increasing vacancy on the way down. We don't build much there in the recovery phase. We build a lot in both the expansion and the hyper supply phase. And then we don't start anything but we complete buildings that have been started in the recession phase. So actually we'll go to this slide. So the study that I've done and published that I get quoted on all the time is the fact that if you know where you are in the cycle, you'll know what kind of rent growth you might expect. So you can see here at the bottom, I don't know if my arrow is showing up here or not, but at the bottom of the cycle points one and two, you've got negative rent growth, so landlords are dropping their rent. So if it was $10 a square foot last year and it's going down 3%, 3% of $10 is 30 cents or it's going to go down to $9.70 a square foot to rent. As we start to come up through the cycle and occupancies increase you can see rent growing and at positions six, at the long-term average there, 0.6 is on the long-term average dotted line; you can see that rent growth was 4% and during this historic cycle time, inflation was running 4% then. So when you get to long-term average, you get basically the rate of inflation. Then in the green shaded area here, which is the expansion phase, you can see rents really rising quickly to a peak and a high of 12.5% in position 10. Then when we hit the peak of the cycle, which is the highest level of occupancy after that, rent still grows positively, but it starts to decelerate or slow down, back to around inflation at 0.14 and then low and negative again at the bottom. And then one of the things to notice here is that 0.8 on the cycle is green and because that is the cost feasible rent level. By that I mean that if it costs $400 a square foot to build a new office building here in Denver and investors are looking for a 10% rate of return on that $400 investment, 10% of 400 is $40 a square foot. So rents in the market have to hit 40 before we can cost justify building the new building. Makes sense? James: Got it. Makes sense. Makes sense. Glenn: Okay. So every quarter I look at the major property types, look at that demand and supply, look at the occupancy levels and as you can see today five major property types office downtown or suburban office is at 0.6, downtown offices at 0.8, retail, which will surprise everybody at 0.9, industrial at 0.10 and retail industrial warehouse up at peak occupancy rates. And the only property type that's over the top into hyper supply is apartment. An apartment is there not because of a decline in demand, we've got all these millennials coming out of school and so every year demand is going up for apartments, but we're just overbuilding it a little bit. So for my company and for other investors, what I do is I analyse the 54 largest cities in the United States and where they are in their cycle. And as you can see here they're kind of spread up because demand and supply is very local in nature. Notice what's happening in New York office, which is driven by the financial sector and the stock market is going to be different from what's happening in Boston or Chicago or in New York or any other city. So you can look at the companies that are there, the industry that's driving the growth and what you see here is national average at 0.8. But some markets moving up the cycle and some markets over the top. And I'll give a quick example here. We've got two markets that are in the hyper supply phase, Austin and Houston, both in Texas James: [18:19unclear] Glenn: The Austin market is driven by technology companies. A lot of tech companies like being there because they can hire young people that want to live in Austin, It's a cool city. Actually [18:31unclear] James: I'm in Austin. It is very cool to live here. Glenn: And so, what's happening there is since that's been going on for a few years, the developers are putting up just a little bit more space than you need. So the occupancy rate is starting to come down just a little bit because there's too much space there. So that's a situation of too much supply. Houston is exactly the opposite. It's a place of declining demand because the oil industry is driving Houston and with low gas prices, the amount of exploration and other things going on has dropped off and they've laid people off. So that's a position of declining demand. So since you're in Austin, let's watch Austin as we look at this. So that's where office is, here's where industrial is. So warehouse space, again, Austin is just one point over the top. A lot of markets are at their peak, demand for an industrial warehouse space has been very strong because of Amazon and people buying things online. So we've got a huge demand growth on the industrial side and there are some cities again where it's easy to build. So we're overbuilding just a little bit. Now we look at the apartment market and Austin is at the top at the peak point at 11 because you aren't putting up apartments fast enough for all these millennials moving in. But you look at, there's a lot of other markets where they are putting up a little bit too much space. In other words, we're oversupplying almost half the market. So the national average is just a little over the top. Every time I talk to developers I'd say if you just back off on building apartments by about 10% of what's being built, you'll come right back into balance and be back at peak equilibrium point 11. When we look at retail, you can see that the majority of the cities are at peak and Austin is there as well. This is the one surprising thing because everybody hears about retailers going out of business and we’ll talk about that a little bit more in just a second. And then finally hotels here you can see that hotels, the majority are in the expansion phase with some over the top. And again, Austin, you're oversupplying by just a little bit. So what I want to do now is jump to and looks at the historic cycles. As you said, you haven't been through a full cycle yet. Well here we're going to go back to 1982 and that's a point in time at which I was building. And you can see that occupancies in office were very high. They came down and bottomed out in the early 1990's with a small recession and we'd actually over oversupplied a lot. They peaked in 2000 with the technology boom, they bottomed in 2002 and three, with the technology bubble bursting; came up to a lower peak in 2006 and seven as the economy was doing well, bottomed out in the great recession in 2010. And today has come back and are reaching a kind of a lower level equilibrium occupancy level than we've seen in previous times. But it looks like it's going to last for at least another two or three years. So the other line that you see here is the rent growth line. And you can see that those two are very highly correlated. As a matter of fact, they're correlated by almost 80%. So if occupancies are going up, rents are going up, if occupancies are going to go down, rents are going to go down. Pretty simple and straightforward to look at. So let's look at my forecast and here's the forecast and it looks very much like the monitor. And you can see that markets are again, majority in the expansion place. Austin, as you can see there is in the hyper supply phase at position 13. And again, that's because I'm forecasting that you've got a lot of new properties coming online, so your occupancy levels are actually going to fall a little bit in the coming year. If we look at industrial, you see basically the exact same cycle of occupancies and rent growth and we've got this really nice equilibrium that happened back in the mid-nineties and another one that's happening today. Rent growth has been really high in industrial because of the, I call it the Amazon effect up at 7% more than double the rate of inflation and we expect that to kind of work its way back down over the next few years back to kind of a more normal by 2017 we expect to see kind of inflation type things there. So again, half the markets at peak or equilibrium, the other half building just a little bit too much, but that's the way it is and Austin, again, just one point over the top. Oh, one other thing is you notice I've got some numbers after each city and those numbers tell you if the city is moved from the previous quarter, for instance below Austin there you've got Cincinnati at a plus one. So Cincinnati was at peak number 11, and its occupancy occupancies dropped enough for me to move it forward to position 12. So it's rent growth is going to be decent James: And the bolded city are the biggest cities? Glenn: Right. Okay. Yeah. So the bolded cities make up, one of the things I found was there are big concentrations. So in each of the different property types there is anywhere between 11 and 14 cities that make up 50% of all the square footage in all 54 of these markets. So what city is bolded may not be the same in each case. So like Riverside is here in the industrial, but it's not in any of the others. Las Vegas will be in hotels, but it's not a big city for office or any of the other property types. When we look at apartments, you can see that we actually hit a peak in occupancy back in where am I? James: 2019. Glenn: Yeah. We had a peak back in 2014. It looks like we had another peak here in 2019, but because of the overbuild; we slowed things down a little bit. But going forward, we just have a lot of it in the pipeline and so we're going to overbuild it looks like for next three or four years and hence rent growth, which was as high as 5% back in 2015 has dropped off. And in 2019, I think it's going to run about two and a half percent. James: But looking at that chart, you're predicting 2019 after 2019, rent growth is going to slow down because of the oversupply stage? Glenn: Yes. Yup. James: Got it. Glenn: Exactly. James: And does it matter on which class apartment is it? Which location? Which city? Tertiary, primary market? Glenn: Oh, well. So here are the cities for apartments. And you can see Austin I think is still at its peak. You're not putting up quite enough. Most of the other cities are in that hyper supply phase. Where they're putting up a little too much. And so they're occupancy levels are dropping. Denver had a number of years of 8% rent growth. And because we're over building and you can see Denver way over, further down the cycle there at a position 13, our rent growth now is only running about 3%. James: Yeah. So for example, like the city on the hyper supply, I mean going to the recession on the point 14. So what you're looking at is you're looking at the supply that's coming into that city and looking at the demand for that city and that's where you're determining the point 14 for that particular city. Glenn: That's right. Yup. Because when I combined supply and demand, I can then forecast the occupancy level. Okay. James: Got it. Glenn: So there were no cities of Memphis, Miami, Orlando, and San Jose. I don't expect them to get anything more than inflation, which is we're right about two percent. James: Oh, you mean rent group, right about 2%. Glenn: Right. So their rent growth is only going to match inflation. James: So at point 14 is supposed to be deaccelerating rent growth and recession. It should be like almost negative rent growth. Glenn: 12, 13 and 14 are decelerating rent growth. And point 14 is when rent growth should only be running at the rate of inflation, which if you remember back to your economics class, we have nominal inflation and real inflation or nominal growth and real growth. All that is, is nominal growth if the price of something goes up, that's inflation. So if we have 2% inflation, if you've got like GDP growing at 3%, that's nominal GDP growth. So 3% nominal GDP growth, subtract inflation of 2% and real GDP growth is 1%. James: Got it. So what about at point 11, the cities who are estimated to be at the final phase of expansion, still in expansion where; what is the percentage of expectation of rent growth for that kind of cities? Glenn: Well it will vary by city, but it's probably going to be, well, let's back up one slide there. And when you're at peak occupancy, you've seen historic rent gross as much as here's four and a half, here's almost 5%. This little peak here is that 3%. Okay. So again, and I do this model that you see here individually for each city. James: Okay. How do we get access to that data to get a rent growth prediction for each city? Glenn: So, well that's what researchers do is we model and project things and I get my historic data from CoStar, the company that does all the major property types and I get supply information, demand information, occupancy levels, rent growth. So I can model every city. James: But your model of forecast is not available for public consumption, that's mainly for your research, I guess? Glenn: This is my forecast report that you're looking at here. And my regular market cycle report I give away free. It's actually on our website at the University of Denver. So if you go to du.edu/burns school, I'm in the Franklin Burns School of Real Estate, scroll of the bottom of the page and you'll see my market cycle forecast so you can get those for free. We sell a subscription to my forecast report that comes out four times a year. It's only a thousand dollars and that money goes into a fund to support research on real estate and sustainability. James: Got it, got it. So my question is on a specific city, for example, I'm buying a deal in Memphis and I'm trying to do a five year projection on my performer to show it my investors and raise money for you. So usually a lot of people use a 3% or 2% rent growth for next five years. But what you're saying is that's not correct, right? Because that's not how it's being forecast. Glenn: They need to take a look at the city where it is in its cycle and it might be doing better and might be doing worse than that. James: So how do we get that number rather than saying three or 2% blindly, is there a place where we can go and say it's 3% the next one year but after that it is going to be 1% for year 2 or second year or third year? Glenn: Yep. So CoStar, you can subscribe to CoStar. James: Okay. Glenn: They do projections on all this stuff. City by city property type by property type. James: Okay. CoStar for projections. Got it. Got it. Glenn: Okay. Also Jones Lang LaSalle has their own research and forecasting group, so you can go there as well. For your individual investors who probably aren't doing enough to spend that kind of money on research. Most of them are probably working with a broker when they're looking to purchase properties operate the properties, lease the properties, et cetera. When they're talking to a broker, they should ask, do you have CoStar access for your city and your property type. And the broker is allowed to share that information and those forecasts with them. James: Got it, got it. And what about the cap rate? I mean, when we talk about rent growth, deaccelerating it's also meaning cap rate being expanding, right? So is there a place... Glenn: Okay, so we're almost there. Let me just finish this and then we'll jump right over to the financial cycle. Okay, here's retail; and the key thing here is that you can see that we are at the highest level of occupancy ever in retail. People go that doesn't make sense, got all these companies going out of business and everything else. So series is going out of business. What am I students family owns a mall in Macon, Georgia and series goes out of business. They open up the center of roof of the building on one side they put an experience retail, two restaurants, a movie theater and an escape room. On the other side, they're building four stories of apartments on top of the space. So they're actually going to have higher occupancy and rent going forward. We're replacing these department stores with experience retail and remember supply; we're not building a lot of new retail, number one, but we're also repurposing a lot of retail. So many times a retail center that's not working, convert it to office space or today Amazon is trying to get that last mile delivery to you on the same day, convert that into closed in warehouse space where you can deliver it to someone the same day. So retail is doing well because it's got a low level of demand growth, it does have some. But it has an even lower level of supply growth, hence the high occupancy rate. But you can see that the rent growth is really pretty low too. It's only one and 2% going forward. James: So retail is more of a play off, people have given up on retail and there's not many people building but it's still a demand there that's why the occupancy is much higher. Glenn: Right, right. So again, most of the markets at the peak and then hotels, we are again at the highest occupancy rate we've ever seen. That's because millennials like experiences versus things. So they're doing a lot more travel. And we're in the process because hotels are extremely profitable at that high occupancy rate. We're seeing a lot more new hotels being built. So a lot of markets kind of heading over the top and Austin being one of those, where you're actually putting up a lot of new hotels. So when you think about it, the one property type that's the best in Austin is actually apartments at this point; highest occupancy, highest rent growth. So that's the income side of real estate. All we talked about is occupancies and rent growth. How much income can I get? James: Yes. Glenn: Now let's talk about the financial cycle and its capital flows that drive the prices and we look at that as cap rates. So the blue lines is the real estate cycle, the black lines, the capital flow cycle, and it should work as when things aren't very good, not much capital. The line's flat there at the bottom. As things get better, capital goes up. The highest rate of growth is when we go through that 0.8 now yellow where we reach cost feasible rents; capital flow peaks out in the hyper supply phase and then drops off very quickly. Now remember that we've got two types of capital flowing in the real estate. The green shaded area up here is capital flows to existing property. So if you buy a property from me for a higher price than I paid that's more capital flow. The other capital flow at the bottom is capital flows to new construction, adding more buildings in, so producing more properties. Real estate, I consider it a separate asset class. So we've got stocks, equities, bonds, and commercial income producing real estate. It's about 20% of the marketplace. So for me, as I talk to and have worked with for 25 years, institutional investors, they should have a separate allocation to real estate. You should have a separate allocation to real estate in your retirement account. If you could only do public equities buy rates. Directly you can buy into funds or you can actually own properties yourself. But remember, when you buy a property, you just bought a business. You've got to operate it, you got to rent it, you got to take care of it, you got to maintain it, pay the taxes, you're operating a business. So when we look back over history, here's the history of ten year treasuries, you can see it going from 2% back in the 50's to 15% in 1982 to today, back to 2% with the forecast that it's going to go up but of course for the last 10 years, that's exactly what that forecast has looked like and it's always been wrong. We've been running in the 2% range since the year 2010. So notice the total return between 1981 and 2017 is 8.4%. That's because as interest rates go down, bond values go up, your bonds appreciate. But if you think bonds are a good place to be today, go to the left hand side and when you go from two to the long-term average of five, eight, the total return has only one nine because if you bought a bond at a 2% interest rate, $1,000 bond at 2% and interest rates go to four and you want to sell that bond, the new buyer is going to want a 4% yield. So they're going to give you $500 instead of a thousand for that bond. So you're going to lose money on your bonds. So that's why today bonds kind of don't make any sense. Real estate versus stocks and bonds. It's only had five years of negative returns versus over 20 for both stocks and bonds, and it is capital flowing. That money coming in that makes a difference. So here's a company, real capital analytics that collects data on every commercial real estate transaction in the US over two point $5 million. The bars go up, the bars go down and their price index, which is along the top there, you can see follows that pretty closely. So as more people buy, prices go up. When people back off, like during the great recession of oh nine prices come down. James: Is that the international money coming in or is that local money coming in or it's just [37:20unclear] you're easing Glenn: I will be answering that question in two slides. When we look at the cap rate, which is the simple way to describe that, it's like a bond yield or cash on cash return. Back in 2001 cap rates were around eight to 9% and then as prices went up, cap rates dropped to a low in 2007 of around six to 7%. Great recession happened, property prices drop, cap rates go back up, so you're getting a better cash yield when you buy. Since then cap rates have been coming down and they're down at a low of mainly in the six and a half to 7% range except for apartments which are at five and a half. Now of course hotels are higher because they're riskier at eight and everyone says, well, so interest rates have to go up, therefore cap rates have to go up. Not true. All the historic studies done, and I've done some myself show that the correlation between interest rates and cap rates is no more than about 20% that's not what drives it. It's capital flow. As a matter of fact just came from a conference where two different real estate economists say we expect cap rates to go even lower next year because there's so much money out there around the world trying to find yield, trying to find income and bonds don't have it. Today the US stock market [38:51unclear] 500 dividend yield is 1.2%. The 10 year treasury, which is risk-free, is 1.7%; corporate bonds are running around three to three and a half and you can buy into properties earning six. So that's quite different isn't it? James: So what you're saying is the capital is going to continue, I mean your prediction is the climate is going to continue to go down in apartments and any, is it within all asset classes...? Glenn: Cap rates are most likely going to be staying about where they are or coming in and it depends upon the property or coming down just a little bit. They probably won't go down in retail because people don't believe that retail's coming back yet. So one way to look at this as take the risk free rate of the 10 year treasury, ask how much additional yield income am I going to get over that risk free rate of the 10 year treasury. So that's the spread above the 10 year treasury. Here you can see that the spread was 375 back in 2001 it dropped down to only 150 basis points in 2007 but today you're getting somewhere between 275 and 600 points over the 10 year treasury for taking that additional risk of investing in real estate. So from that standpoint, real estate looks like a very strong buy as an investment and because of that, what we see is real capital analytics collects data from all over the world and this shows money going from one country to another. So at the top you see the United States in 2018, we don't have the 2019 yet numbers yet, sorry; into Spain, put $11 billion into Spain, that was 15% higher than the previous year. Because they believe the Spanish economy has finally figured itself out and is going well. The next one was France coming into the United States with money. $8.8 billion of French investors buying us real estate. The next one, the United States going in the UK, a $7.9 billion, that's a 20% decrease. Why do you think it went down? James: Because of the Brexit? Glenn: Yes, everybody has... James: [41:03unclear] Glenn: When Brexit happens, the economy in England will go down and hence if the economy slows, occupancy rates will go down and rent rates will drop. So you can see that money moves around the world and the most expensive property in the United States today, would be a class A office building in downtown New York City. It will go for a 3.8% cap rate. In London, the same size class A office building will go for a 2% cap rate. James: Got it. James: In Tokyo or Singapore, a class A office building will go for a 1% cap rate. So an English investor looks at the US and says, Hey, I can buy a top quality property for half price and an Asian investor goes, wow, I can buy a property in the US for a quarter of the cost in Asia. So we are the largest economy in the world. We're the safest economy. We have good laws that protect investors. In China you could invest there, but the government, since it's communists, could next year decide that oh, we own everything anyway, we're taking it away from you. So capital is flowing in the United States and I believe that keeps prices high and cap rates low. James: What about this trade war with China? I mean, I know it's a bit cooling down, but it's cooling down and heating up; so how is that going to be impacting the money flow to the US? Glenn: Well we've already hit the first level of agreement on it and it certainly did not hurt our economy in any major way. If you look here down at number seven, China and the United States $8.375 billion up 8% back in 2018 when it was first in process and our president was threatening. Chinese investing in the United States went up not down. Why? Because Chinese investors are trying to get their money out of their country where they thought it might slow down and move it into our country or where it was safer. James: Correct. Glenn: Okay. James: So this is a very awesome slide because it shows where all the money flows in the world and you can clearly see that a lot of money coming to the US which is important for capital flow too or real estate prices. Glenn: Right. So here's a slide from NAREIT, the national association of real estate investment trusts; you can find this on their website and they're showing historic cycles at being 17 years long. So the first cycle there from 1972, which is when they start having data through 1989, the green line, the total average return per year for publicly traded rates was 13.9%. The next cycle, 1989 through 2007, just before our great recession total return was over 14% a year. And here we are kind of halfway through the next cycle. 10 years in and so far the average return has been 3.9, but that's because of that big drop during the great recession and you had to recover the money that you lost. So I believe we're kind of mid cycle and a fair amount of expansion to go. James: So we are not going to die of old age I guess. Not because of the cycle is too long and we are due for a correction. Glenn: Correct. So that's my story and I'm sticking to it. If you want, we can do a quick summary or any other questions you have? James: I have a few questions. So in terms of development, so in this market cycle, let's say for example in apartments, if you look at the apartment, the market cycle that we put in, we are in hyper supply. I mean, of course you say we have like 10% additional supply it's not because there's no demand, but is this the right time to do development? Because I saw somewhere in your studies that the best time to start your development is 75% on the expansion cycle. If I'm not mistaken. Glenn: Right. I would love to be developing at points six seven eight on the cycle James: That's 0.6 or 67% of the whole cycle on the upward trend before it reached the equivalent, right? Glenn: Well, I know, let's go back to my cycle graph and we want to be, let's go to the apartment one as a matter of fact. So I would like to be developing points 6, 7, 8 and maybe 9 in the cycle. What's happening is a lot of people are over here putting up new properties at 12, 13, and 14. James: So right now, I mean, your chart shows the apartments at the 13, which means it's not the best time to really do development ideas. Glenn: Correct. James: And what about people, I mean, some of the investors who are doing like bridge loans or long-term loans. I mean there's pro and con in both, but what would you recommend in this market cycle? Glenn: Well, when you say a long-term note, you mean give me a mortgage on a property? James: Yeah. Getting a mortgage with agency debt or fixed rate long-term versus a bridge loan, which is a short term financing. Glenn: So bridge loans are basically taking the risks that properties being developed or redeveloped and that it will be successful upon completion. Whereas a long-term mortgage you get the first money, so the rents that come in and have to be high enough to pay your mortgage payment and if there's nothing leftover, then the equity investors aren't making any return in those years. So again you can buy an apartment and it most likely is going to cash-flow but it's a full time job to manage a big property, make sure it's done right, and finance it properly and everything else. That's why pretty much every university in the country today has a real estate program. We are actually at university of Denver, the second oldest real estate program in the country started in 1938. Where you are both an undergraduate or graduate and an executive online program so you can be at home and get your master's degree in real estate from us. James: Got it. Got it. Right. Wow really, I should probably look at that. But the other question I have, especially on this chart, why is it not symmetrical? I mean, I know during the recovery and expansion, it's just a longer cycle and update like a slight down. Glenn: Great question; and that's because historically we've had 11 years of up cycle and only three or four years of a down cycle. As a matter of fact, I'll go back to the, one of the slides that I bounced past earlier on, and that is this here you can see previous economic cycles, they last anywhere from 5 to 10 years historically and recessions are normally one to two years long. The great recession at two and a half years was the longest recession that we've seen since the great depression in the 1920s. James: Got it. Got it. And what about the the industrial office and other property types what do you think would try for in the next, I mean other than apartments, among all these property types, what would be the best property type to invest for the next five years? I would say from your perspective. Glenn: Here's the chart. Office has got the longest run in the expansion cycle followed by retail. Power centers doesn't mean that stuff can't sit at the top for a long time too. So if it keeps going, I believe we've got a good five year run of demand for industrial space going forward. James: Got it. By is office being driven by some factor. I mean, technology, right? I mean, a lot of technology people work from home too, right? So I'm not sure where that drive is coming from for office. Glenn: Basically more and more of the jobs in the United States are office using jobs and people start going crazy sitting at home and we're social animals. And so being together with other people and that social interaction actually benefits the work for every company, that's why we work. When you start a company, instead of working on your garage, you can now go and rent some, we work space on a daily, weekly, monthly basis. They charge you plenty for it, but now you've got a space to be in, all the amenities that are necessary there. There's a receptionist, there's copy machines, there's all the different things that you need to be successful; collaboration, conference rooms, all those kinds of things. So most new companies start out by going to you short term office rental space. Last year that was 10% of the demand in office. James: Got it. And what about the Amazon effect? Is that just on the industrial? Because I read somewhere that they own like 25% of the... Glenn: Last year Amazon rented 25% of all warehouse space, new warehouse space rented in the United States. That's how much they're growing. They opened a 1 million square foot warehouse North of Denver and hired 1500 people. James: Wow. What about this boom in marijuana and all that happening on some of the coastal cities is that impacting any of these property types? Glenn: The, I'm sorry, the? James: Like, they have this marijuana, right? Like you know like medical marijuana and...? Glenn: So yeah. Well Colorado was one of the first and it created a huge demand for warehouse space here in Denver and drove our rents from $3 to $6 over a two year period. I can see if you went to basically 100% all the old crappy warehouse got rented up to grow marijuana. And since we're one of the first States where marijuana tourism became very big. Now that other States are picking it up, less people are coming and we've had a couple of marijuana companies go out of business and so all of a sudden, and we built a lot of new space for them and so now we're in the hyper supply phase because that economic base industry in Denver is shrinking. James: Got it, got it. What would you advise an investor, let's say for example an apartment investor who are more in the hyper supply stage right now, what would you advise that person to be cautious of as we move forward for the next five years? If keep what? Keep on buying or do you want to be more defensive? Glenn: Well, if you believe that there is a recession coming, then what you want to do is have what we call defensive assets. You want to be in the best markets, the highest, the bigger markets like the ones that I show and the ones that I have in bold and italics. You want to be in higher quality properties that can attract and retain tenets and you want to try and get the longest term leases you can get to bridge you through the next down cycle. James: Got it, got it. And what about tertiary market? Is it a good idea to go into tertiary market looking for yield? Because I know some of the tertiary market is [52:52unclear]? Glenn: Yes, but you have to be careful and very selective. You need to look at what is the economic base industry that's driving the growth in that market. So for instance, an economic base industry produces a good or service it exports outside of the local market that brings money in. So in Detroit, Michigan for decades it was auto, the auto industry did well, so did Detroit. When the auto industry turned down and we got a lot more foreign competition, Detroit became pretty much a ghost town. Now you've got a billionaire, a tech giant who came in and started buying up a bunch of office space in Detroit to run his company out of at next to nothing and hire people in saying, come here and live in oh, by the way, you can go buy an existing house here in Detroit for like 10 or $20,000. So instead of spending 3000 or $4,000 in San Francisco and rent, you can have a mortgage that's only a couple hundred bucks a month. So Detroit is starting to turn around because of the new economic base industry. This tech company creating demand for office and when you create demand for employment, then people buy things. So retail goes up and the demand for rental goes up, it just, it moves everything up and plenty of growth is the number one key thing to look at for demand for real estate. James: Got it. Got it. What about some of the government controls like rent control and some of the cities, some of the States that's happening right now, how is that going to be impacting the cap rate and the rent growth? Glenn Right. so rent control is the government interfering with the free market and it has shown that when that happens it severely restricts supply because no one wants to build if they're going to end up with rent control on their property where they can't raise rents to at least meet inflation. And so every place where that kind of stuff is coming into play, investors aren't buying and property prices are going flat. In the long-term they will hurt the market. It will create exactly the opposite. They're saying, oh, we're trying to make apartments more affordable for people. Well, it does just the opposite. People that are there end up with a lower rent and then they sit on it even when they now have a good job. And I'll give you an example. I have a good friend who owns an apartment building in San Francisco. He has four of his 20 units are rent controlled. One of the people in it was a guy that when he got in, he was in school. Now he is a very wealthy person and he continues since he had it, it can't be released. His rent is less than 25% of what market would be on his property. And he's there maybe one or two nights a month. And my friend keeps asking, why do you rent this for the month when you're only here two nights? He goes, because it's cheaper than a hotel. So it's bad government policy in my personal opinion. James: Yeah. It's crazy [56:25unclear] like, so does that mean some of the cities which doesn't have rent control will have a lot more price run up because a lot of people want to be investing in like for example, in Texas or maybe Florida, which doesn't have a lot of space doesn't have rent control. Would that mean that a lot of people from the East coast or West coast will be investing more on these states? Glenn: Potentially, yes. James: Okay. Okay. So I think I covered most of the questions that was asked in the Facebook group. If audience and listeners, you guys want to join this multifamily investors group in Facebook and we have almost 4,000 people there and now we are recording this as a podcast and a webinar, so you should be able to get the webinar as well as you register. So Dr. Glennn how do people get hold of you and get in touch with you? I believe you mentioned it halfway through, but... Glenn: Right. Yup. So they can go to the university of Denver website, which is du.edu/burnsshool, and a scroll to the bottom and they'll be able to see my cycle reports there. And there I've got my profile and all the other information there. That's the easiest way to do it. James: Awesome. Thank you very much for coming into the show and doing the webinar as well. Thank you very much. Glenn: Okay, thank you. Have a blessed day. James: Have a good day. Glenn: Bye.

Ep#40 After Mobile Home Park, Ski Resorts and now Buying Multifamily in Midwestern States with Todd Dexheimer

Achieve Wealth Through Value Add Real Estate Investing Podcast

Play Episode Listen Later Feb 4, 2020 35:07

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.

Ep#39 Vertical Integration and Creating Fund model to Buy Mobile Home Parks with Kevin Bupp

Achieve Wealth Through Value Add Real Estate Investing Podcast

Play Episode Listen Later Jan 28, 2020 56:25

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

Ep#38 8000 Units in Multifamily , 20 Years Experience with Rich Fishman

Achieve Wealth Through Value Add Real Estate Investing Podcast

Play Episode Listen Later Jan 21, 2020 48:45

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

america new york california texas las vegas washington dc san francisco arizona rich european ohio microsoft north carolina alabama detroit pennsylvania tennessee indiana iowa cleveland states baltimore wall street south carolina mississippi midwest columbia columbus tampa san antonio berkeley jacksonville shanghai charleston excel crm el paso reno fundamental goldman sachs mumbai tucson southeast fort worth commons wells fargo asheville real estate investing greenville corpus christi hoover scandinavia units bloomington gino davenport huntsville harbor dfw neighborhoods carlisle san francisco bay amarillo multifamily blackstone cpas lubbock best places amtrak rents eo fannie mae freddie mac so i've fishman abilene irr aon berber michael becker wheelbarrow profits there're sierra vista james what james kandasamy james it james good so rich james yeah james so james right dallas fort james okay james exactly rich you rich it

Ep#37 How being ready, creative and buying right One Apartment Complex can launch a lifetime of Wealth with Jake and Gino

Achieve Wealth Through Value Add Real Estate Investing Podcast

Play Episode Listen Later Jan 14, 2020 55:25

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

Monday January 13, 2020 (Ask the Theologian)

RWM: Ask the Theologian

Play Episode Listen Later Jan 13, 2020 72:37

Monday January 13, 2020 (Ask the Theologian) from Ask The Theologian by Dr. Randy White. Released: 2020. Track 1,038. Genre: Speech. Why did the wise man bring gold, frankincense, and myrrh to Jesus after he was born? Can you please give your thoughts on the dating of the Epistle of James? What version of the […] The post Monday January 13, 2020 (Ask the Theologian) appeared first on RWM Podcasts.

jesus christ track released epistle theologian randy white james what genre speech rwm podcasts

Ep#36 Depreciation 101 and Real Estate Tax Law love at Congress with Yonah Weiss

Achieve Wealth Through Value Add Real Estate Investing Podcast

Play Episode Listen Later Jan 7, 2020 40:35

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

Ep#34 Buying Deals in five different states, Lifecycle from W2 Job to Business Owner to Real Estate Investor with Mark Kenney

Achieve Wealth Through Value Add Real Estate Investing Podcast

Play Episode Listen Later Dec 24, 2019 51:44

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.

texas real miami michigan tips management building south alabama tennessee abc investing fortune wealth mba states investment bridge arkansas taxes achieve income san antonio property deals reports intel jacksonville suddenly estate cpa interior houses business owner northeast salesforce gp flipping bye generally io southeast makes rental sap smaller real estate investing chattanooga real estate investors robert kiyosaki gainesville lifecycle so i'm landscaping kk co star w2 syndication shanti aig when i'm flooring irr capex characteristic markit so mark mark kenney t12 james what james kandasamy mark two mark you yardi kpmg consulting james it david shore james yeah mark yeah mark kenny right maybe mark well mark no mark so mark yes james so mark oh james you mark right mark there james well james oh james right james just mark okay mark all james absolutely mark thanks james okay

GARTH HILL | UP 071

Underground Politics Radio

Play Episode Listen Later Nov 29, 2019 85:20

GARTH HILL | UP 071 Mixcloud | Soundcloud | Spotify | Apple Music fanlink.to/undergroundpoliticsradio 1. Soul Button, Photographs - Awaken The Soul (EarthLife Remix) 2. Colyn - Eriador (Original Mix) 3. Robert Owens, James What, Berkson & What, Dan Berskon - Keep On (Tim Engelhardt Remix) 4. Undercatt - Alien (Original Mix) 5. Pedro Mercado & Karada - The Genius (Peter Makto & Gregory S Remix) 6. Brigado Crew, Crisstiano - MsWhy (Original Mix) 7. Armonica - Zama (Original Mix) 8. Rafael Cerato - Home feat Eleonora (Chus & Ceballos Remix) 9. Undercatt - Atlantico (Original Mix) 10. Marcus Meinhardt - Lost Paradise (Lunar Plane Remix) 11. Oliver Winters - Walls (Original Mix) 12. Miss Melera - Hue (Original Mix) 13. Arude - No Man's Sky (Original Mix) 14. LADS - Eli (Matchy Remix) 15. Florain Kruse, Julian Wassermann - Trivia (Original Mix) 16. Sharam, Bengle - The Rain (London Extended Mix) www.facebook.com/garthhillofficial/ Follow UP Radio: www.facebook.com/Undergroundpolitics www.twitter.com/UndgrndPolitics

garth robert owens sharam soul button brigado crew ceballos remix berkson james what sky original mix pedro mercado gregory s remix

Ep#29 5000 Units, $450m in Assets, Deep Value Add, Vertically Integrated. This is a killer combination of Multifamily operator skills with Kimberly Radaker

Achieve Wealth Through Value Add Real Estate Investing Podcast

Play Episode Listen Later Nov 18, 2019 42:49

James: Hey audience, welcome to Achieve Wealth Podcast. This is James Kandasamy. Achieve Wealth focuses on commercial real estate and especially focusing a lot on Value Add Real Estate. And today we have Kimberly Radaker Bays from Dallas, Texas. Kimberly has done almost 430 million of assets specifically multifamily. And this is just under her own asset management. And you know the 430 million represents almost 7200 units. Currently, they still own like 5000 of those units. And they focus a lot on deep Value Add which is an asset, not say an asset class, it's a type of Value Add that you know, gives you the highest return, right. So they have done almost 10 deals up to now. One important thing that I want to mention before we bring Kimberly live is that Kimberly owns; construction management, property management, asset management and she also owns materials management, which is an important aspect of Value Add in vertical integration as well. So hey Kim, welcome to the show. Kimberly: Hi, thanks so much for having me. James: Good, good. So I mean, you own a lot of units. You have been very successful in your Value Add Real Estate acquisition and you're playing in one of the hottest market, Dallas. So, can you briefly walk our audience and listeners through on how was your journey since the day you started? What year did you start? And can you just walk through your whole experience? Kimberly: Well, I started in 2007, with some single-family houses and kind of did that when my kids were really little. And then as they got a little bit older, it was harder to take them into Value Add, fix and flips and rental houses and that sort of thing when they were getting into stuff. And so, took a little bit of time away from single families and then got into multifamily in 2011. So bought the first property, was a 77 unit property in Irving, Texas. And went full cycle with that one in only 15 months and then did 1031 into 244 unit property. While we still own that one, we brought 444 unit property in Arlington. And then kind of as we sold, it just kept growing. So purchased three properties in 2015, which have now all been sold. And we bought three in 2016, three in 2017 and seven in 2018. And then one so far this year. So all of those, we still own; the 2016 and on, we still own at this point. So that's 4874 units across 14 properties scattered all across the Metroplex, Easter Garland and West to West Fort Worth so. James: Awesome. Awesome. And you do a lot on deep Value Add, right? So can you explain why did you choose deep Value Add? Kimberly: I guess we weren't scared of it. And we had sort of a knack for it from doing some of the single-family stuff that we had done previously. So we got started with that. And so because we do self-managed because we have our renovation teams in-house because we have the materials import it's a lot easier for us to undertake some of those projects. I mean, there's some of those projects that I definitely would never hand over to third party management. It would just be a real mess if you did, probably so it really takes an awful lot of hands-on stuff. And even then there's plenty of speed bumps that roll along with deep Value Add. We have a property that we purchased almost two years ago, that had 200 hard down units that hadn't been occupied in at least 13 years that we know of. My guess is closer to 16 or 17 years. So that's been an ongoing project. And it's definitely hit various little bumps along the way with city inspectors and various things. And, you know, pipes that hadn't been used in forever, most of the copper was gone, all those sorts of things. But we finally have all, almost all the way back online so. James: So when you analyze deep Value Add, right, I mean, I'm sure you look for the value like you bought deals where there was a lot of units down and I think there's a lot of mismanagement and I mean, is that kind of deal easy to find nowadays? Kimberly: No, it's not. The ones that are that deep Value Add are very, very few and far between at this point. But there is a ton of Value Add still available, just kind of depends on what you're looking for. So there's a lot of properties that have had some work done to them. But maybe more of the exterior has been done in the units, haven't seen as much on the interior. And there's also a lot of room for Value Add on the management side. There's a lot of owners particularly that have owned for a long time in the market that haven't kept up with the rental increases that DFW has seen over the past five years. And so oftentimes, even a property that's in pretty decent shape, you can go in and definitely do some renovations and add some value there. But a lot of value can also be generated just by getting all the units up to the market. James: Yeah, I know it's harder to find the deep Value Add nowadays. And for example, the last deal that you did, you bought one deal this year, right? Can you describe how many units is that? And can you describe the characteristics of that deal? Kimberly: Sure, absolutely. So that property is 650 units in Dallas. And that one actually is a pretty good example of what I'm talking about as far as just making a difference in management. Some of the units have been renovated, not quite to the way that we would renovate them. So there's some stuff that we're adding to that. But they're at least kind of some partial renovations done there. But they have third party management on that site and occupancy had really dropped. And they replaced the third party management company and the new management company to get it filled back up, but not really at market rents. And so the rents were quite a bit below. So just kind of walking in the door, we were able to lease many of the units for $100 or $140 more the day after we took over than what the prior management was leasing for right before then. So there's a lot of Value Add that we're achieving just by taking a step up closer to market. James: So Dallas is a very hot market, I'm sure. I don't know, I'm not sure about this or is there a lot of people looking for that kind of deals and how did you get that deals? Why did the broker bring it to you or you have to go through the entire bidding war process? Kimberly: On that one, there was sort of bidding but it was, one of the things I think that really helped on that one it's the broker that we've had transact with many times before, but also sort of a neat story. The seller and I ended up on a panel together at a local conference in the offer process. And so I think it was right when we were at best and final. And I was like, hey, this is the property that you own right? And he's like, oh, yeah and so anyway, we became kind of friends through the whole transaction. And even a little bit before that. So I think definitely, that relationship with the seller helped as well. So there's a lot of sellers that we've purchased from that helps us find deals. It is a very, very competitive market right now. I will tell you, we've looked at probably 120 deals since then and there's two or three that might work out depending on kind of where the pricing shakes out. So but that was, you know, it's really, really hard to find anything in this market at the moment. But there is something occasionally. And there are some things that we're able to do that some other groups might not be able to because of the import because of the stuff that we have in-house because of those synergies and cost savings that we're able to achieve. James: Got it. So, I mean, you said you underwritten like almost 120 deals, right? So do you do a sniff test? And can you explain to us what a sniff test and all of that 120 deals? Kimberly: Sure. Well, I have somebody that helps with acquisitions and gets everything kind of loaded up for me, runs all the preliminary underwriting. So that definitely helps a lot because being able to do that all by myself would be very challenging. We also had an intern this summer that helps with some of the properties that we get less than ideal data for as far as bad formats. And when you get, you know, a PDF rent roll that doesn't convert well and all those sorts of things. So, but definitely, we have sort of a preliminary underwriting that we do and the spreadsheet that we've built in terms of what we feed in and what we can get out of that. And then obviously, much more detailed if it passes the initial sniff test. But there's a lot that we do look at, just in terms of what percentage is renovated, the general area, what we think we can do with the property. Fortunately, because we own in so many different areas of the Dallas, Fort Worth metroplex, it makes it pretty quick and easy to underwrite a lot of the properties because we can look at them very quickly. And we own a lot of properties, that would be a comp or we have owned something that was a comp or we've already evaluated something that was a comp. And so oftentimes we're able to look at the rents and kind of know whether or not something's going to work pretty quickly. James: Got it, very interesting. And I mean, because you know, deals are hard to find, right? And you have to have that big funnel of deals and that's a great tip to use some interns to do some underwriting. Because underwriting does take a lot of time, especially when you have you know, rent roll in PDF that doesn't convert and look at a lot of things inside the rent roll. and how's your company structure right now? I mean, I think you are like the CEO and how many people working for you? Asset Management, underwriters analysis? Can you describe -- Kimberly: Maybe 160 people under the total umbrella. So we own the management company. So that includes both management and maintenance personnel that are out on the sites, regional managers, our accounting department, the material sales division, the guys that work in the warehouse, all the guys want our renovation crew. And then as well as you know, people that handle a lot of the investor relations, the acquisition and underwriting all those pieces. James: Did you say 60 or did you say 160? Kimberly: 176. James: 176, okay, I was writing 60. So yeah, that's a big crew. And so you have the whole construction management, property management and materials as well, right. So can you describe how is the materials companies being set up on top of the property management, construction management, or maybe the whole, how the whole chain of vertical integration works? And how does it benefit in terms of giving you a value proposition for you to win deals or do very well in certain deals? Kimberly: Sure. So in this multifamily is sort of our, the materials' import arm, also we have a graphics division. So we have started doing signage, both internally and for other groups as well. So materials and graphics both do internal business for our projects. And then also, a good amount of sales is from other investors in the area. So we have, we do sell the parts. But as far as to our properties, one of the big advantages were able to have it both on the graphic signage, branding and then also on the materials' import. We pass all of that through it just basically loaded costs. So I mean there's some cost allocation just in terms of the staff at the warehouse, in the storage facilities and those sorts of things. But it's all basically at cost. And so that's a huge saving to our investors, that translates into additional return for them. We also, the construction arm is really a big partner to the property management arm. What we do for the construction is really the internal stuff. There are tons and tons of great general contractors as far as the exterior. It's very easy to get different people to compete on projects. And there are quite a few really good players in town. But the interior renovations are really something that a lot of construction groups struggle with. And so that's the biggest reason that we brought it in-house. A couple of times we've tried using third-party vendors and every time we have, we've always sort of regretted it and brought everything back in not too long afterwards. So we really have enjoyed having that piece. The big thing that enables us to do is we're actually, our renovation crews are actually, the person that's managing though this is kind of plugged in through our property management stuff so we know exactly what the status is. We know when a new unit is coming up. We know how to prepare for it and schedule it, to get everything ready to go on that front. James: Got it, got it. I mean, do you have any partners of managing this 176 people company? Kimberly: My husband now kind of runs the exist side of the business with the materials and construction and graphics. He kind of took that over. He was healthcare executive for a long time and then came in, join the team a few years ago. But otherwise, I don't have any actual direct partners, just an outstanding team of people around me so. James: Wow, that's very impressive. You're managing 176 people. Kimberly: It's really long term place, that are very close friends and everybody really does an awesome job. I've got a really strong team around me, certainly couldn't do this without them. But as far as actual partners, don't have partners at this point. James: Absolutely. That's really impressive. Kimberly: Had some partners earlier on but they -- James: Yeah, I don't think, ever interviewed anybody, I mean, even though I interview a lot of operators relating to someone who has, you know, $430 million in assets under management, I think 5000 units are pretty common. But someone who has completely vertically integrated, including materials and have 176 people to manage, that's a big accomplishment. And congrats to you. Kimberly: As I said, I have an outstanding team around me. James: Yeah, absolutely. Absolutely. The team. Kimberly: [inaudible 0:13:34] the whole leadership team is really incredible and each plays their own piece of things very well. James: Okay. And I want to give credit to your materials companies exponential materials group, right? Kimberly: Right. And so we actually rebranded recently as exist multifamily. So from the EX from exponential and then import services and technology, because we actually are developing some technology to help with the Value Add process. And then we have the import division, obviously. James: Okay. So let's talk about that. Kimberly: Multifamily, what we rebranded as this spring. James: What technology are y'all developing to help with the Value Add process? Kimberly: Well, so the pieces that we already have kind of completed and ready to go are all of the due diligence pieces. So both the lease audit and the unit walks, getting counts for all the units so that we know exactly what we need to have in our material kits to do the renovations. So that piece of it's done. And then we're just continuing to work on integrating it into our property management software. So that a lot of the things that we have to do a little bit more manually now, in terms of processes to walk through, you know when units need to be walked, what the processes, what pieces they need and all of those sorts of things will be much more automated as we go through them. So we just keep automating more and more pieces as we can. James: Got it. So what you're saying is you are creating a due diligence software. So when you do your due diligence also on top of giving what needs to be changed, it also it gives you the materials needed to change and also packages into certain kits? Kimberly: Yes. James: Oh, that's awesome. Kimberly: Think about our material business through. Right now, it does due diligence, but it's really more going to be Value Add software when everything is kind of complete. It's really going to manage the whole Value Add process, really kind of cracking some of the key pieces of asset management along with the due diligence process, the materials, supplier acquisition, tracking and kind of really being able to monitor staff and progress very easily, even when remote. So it's all a work in progress. And everything always takes a little longer than you think it will. James: Yeah, I mean, creating software and a structure does take a lot of time. But at least you have a really good vision to integrate the whole process because I know I do a lot of Value Add as well. And you just have to manage, how many units we have, what is the cause and you know, do the exact right thing for that particular unit or not, right, because after closing, you know, yeah, we are running like 100 miles an hour, right. And we don't have a team. Kimberly: Sure, absolutely. So, my husband, Matt is actually really, really good at kind of all of that process flow stuff. So he's been kind of really leading a lot of the stuff on the development side. But we do have the due diligence available. So it's really convenient for us because, the material side of the business, we actually offer kits to our customers. So we will come out, walk through the various floor plans at your property, get it you know, accounts for this is how many vanity lights, this is how many cabinet poles, this is how many tiles you need if you're going to replace the backsplash, all of these things, make the whole parts list so that the manager is actually able to call and just say, hey, I need a kit for AHU and B1 this week. And we will deliver a single box that has the ceiling fan, the tile and everything that you need for that unit, exactly down to the precise number that you need in that box. So that everything could just go into the unit, everything gets installed, all the trash goes back in the box, and you can throw it out again. James: Wow, that's awesome. Kimberly: So it's a really cool feature that we have that is unusual from us to the materials suppliers. James: Got it and how much volume do you all do? Or how much revenue you all do in your materials business? Just to get the scale of how much it -- Kimberly: Think we are going to hit about 5 million this year if memory serves. James: And that's for everything, right? When you guys use for yourself and you sell to others. Kimberly: Right. We're probably about a 30% customer would be my best guess at the moment. The other 70% is all third party business. James: Wow, 70% is for other people and 30% is for yourself. Kimberly: I mean, we're starting to do some of the marketing efforts on that now. And now that we own 100% of it. But everything that it's grown to that point has all just been kind of word of mouth. A few other friends of ours that were investors were like, hey, can we get some of this stuff, too? Yeah, sure, we can work through that. And so it's just kind of grown from there. James: Got it. That's very interesting. And let's go into to Value Add, right. So let's say your budget got cut into half, right, let's say you're supposed to have a $1 million in rehab budget, now you only have 500,000 rehab budget, right. So what are the most important things that you would prioritize in a Value Add repositioning of multifamily? Kimberly: So I think a really big piece of it is just hitting the Wow. So there's obviously different, you know, arguments about how far is too far and what you need to renovate in particular unit. But basically, the thing that I have found is, you just want to make sure that you have enough there to get the Wow. So if you don't have enough, you don't want anybody to ever be looking at it and go, oh my gosh, it's this beautiful apartment. Oh, there's that brass doorknob over there. So I've seen some other renovations that other people have done. So I'll say don't forget the inexpensive details that make the Wow work, even if you are kind of cut on budget. So there's definitely some bigger things that are more expensive. But some of it, a lot of the unit interiors make a huge difference. You know, as far as making sure that everything is fixed up nicely, I mean, you know, get I guess getting a rehab budget cut in half would never be a very fun thing. James: Yeah, that's what I mean, it forces you to think right, what is the most valuable Wow you can get right. Let's say you can spend $1 and get that big Wow versus spending $10 and getting smaller Wow. So which one is the biggest wow versus the amount of the money -- Kimberly: I mean, if the painted exterior is really horrible, then that can make a really huge difference. If it's in pretty good shape and it's not in bad condition, then that's probably on the lower end of things. So it sort of just depends on that particular properties. There are certain properties where I would say the exterior has to be a huge piece of the Wow. And you absolutely have to get that right. And then there are other times when it's like the exterior really isn't bad. So if you focused on your interiors for a while you could probably get your rents up and then generate enough income to be able to check most of the exterior. James: Got it. Kimberly: Apologized for the ringing in the background. James: No worries, no worries. So what's there a deal, a deep Value Add deal that you have done? And you know, you had set an expectation in terms of proforma and what you can expect, but when after you close on it, you realize your proforma was completely out because of something, right? Can you describe that kind of deal? And what did you learn from it? Kimberly: We haven't had any that we weren't able to work through the proforma. I mean, there's certainly been bumps in the road and everything. I suppose with [inaudible 0:20:51] one of the properties that we have right now as I said, we're coming up on two years. And finally, now all of the down units are going to be done before the two-year mark. But we were really kind of hoping when we walked into it that it was going to be done in a year. And we hit various different problems along the way. One big thing was when we got the first building online, everything was fine. People were moving in, everything's been working great. But we got to the electrical inspections on the second building. And electrical inspector came in and said, well, you can't have electrical panels in the closets in new construction. I said, well, it's not new construction, it was built in 1974. And they're like, nope, you can't have it in new construction. So we have, I mean so kind of had to pause on work for several months while we work through that issue because we didn't want to continue working on the rest of the buildings without knowing whether or not that was going to be an issue that we were going to have to move later on. So there was definitely some delays regarding stuff like that with the cities. The cities are always a little bit challenging to work with. So those can cause some timing delays, which can impact proforma a bit. But we've been very fortunate, we've always been able to really hit the rents that we were projecting. Oftentimes, you know, there can also be issues on any project with property taxes, property taxes are really a big thing. And so one of the, we've shifted some of our underwriting for stuff that we're looking at now. Dallas County and Tarrant County are completely different in terms of how they respond and what you have to do on underwriting and new properties at the moment. So Tarrant County, we have numerous lawsuits pending that are about to be filed, I guess, based on property taxes. But all of those basically got assess, 97% to 98% purchase price. James: Wow, both in Tarrant and Dallas County? Kimberly: Just in, Tarrant County, James: Oh, in Tarrant, okay. Kimberly: Dallas County was much, much more forgiving. But then Dallas County also has some of its own issues as well. So you know, there's some really good rent growth going on in Tarrant right now. And we'll see how all the litigation turns out on the properties taxes, but that always takes a long time to play through. But that's definitely been a big piece of the underwriting at this point, in terms of how things are impacting the performance of the portfolio that we bought in the middle of last year. We're actually very fortunate, I guess. It's partially in Dallas County, partially in Tarrant County. And so we were way over budget on property taxes on the Tarrant County side, but way under budget on the Dallas County side. And netted out to about $3,000 below budget across the whole portfolio, six properties. James: Okay. Wow, that's interesting. Kimberly: It's amazing how close you can tie out to your performance in a way that's completely unexpected. James: Yeah, I think deep Value Add, I mean, it offers you a lot of parameters to be forgiven, right, in case you found something that is not as what you thought about because there's so much of upside that you can make mistakes and still come out really good. Kimberly: Oh, absolutely. That's very, very true. And also, I mean, just anytime you have a good rehab, I mean, any deep Value Add, you're going to have a really large rehab budget. So even though things can go wrong, it's still a small percentage, just exactly to your point. You know, if you have a million-dollar renovation budget and you encounter a $200,000 expense you weren't expecting, it's not any big deal. If it was a million-dollar renovation budget, that's a pretty huge deal. James: Yeah, absolutely, absolutely. I mean, I realized that, whenever I do deep Value Add, you know, there's just, you find things that you didn't expect in the beginning before you close. But you know, you always have some things to work around because you have so much cash to play around, right, in terms of Value Add? Kimberly: Well, we try to be really conservative too in terms of what we budget, make sure that we have some contingencies. I always try to make sure that we have a decent bit of cash on hand like that's really one of my big focuses, is trying to make sure that we always have enough cash in the bank. That when things don't go quite as planned, it's not the end of the world for anybody, you know. A huge priority for me is to make sure that we never have a cash call, we never have and I don't ever plan to if there's any way I can avoid it. So that's one of the big things that I really focused on is making sure that I maintain enough cash. We have enough cash at closing, to be able to do what we need to do, cover some bumps in the road, cover a few delays. Make sure we've got some contingencies just in case, you know, as you're going through your Value Add process occupancy slips a little bit more than you plan, all those things I try to really plan for and try to hang on to the majority of any cash flow. And so we've got everything really sort of wrapped up at least the big line items taken care of and completed. And then at that point, we know what kind of cash we have to work with them. And we can start paying it out but without ever having to worry about missing a distribution or cutting a distribution or anything else. So that's always just a constant kind of steady or steadily increasing process after that. James: Got it. So what are the tools that you use for asset management? I mean, you have like 5000 units right now. And can you tell us some of, you know, tips and tricks in asset management that you're using nowadays to manage all these 5000 units? Kimberly: Well, I guess we've got a lot. I mean, I've been very, very fortunate over the past year because I used to do a lot of the oversight on the accounting side very personally, I still do review the financials every month. But I've been very fortunate to really build out the accounting team. Got some great people on the accounting team now, to where getting to the point where the last couple of months, by the time that the financials have actually gotten to me to review, I really have basically no questions. And so that's definitely sped things up a lot. I think we're getting some really good interaction between the property managers and the accountants. So that they are asking the right questions, we're getting the right information back. If something isn't working well, it's getting put in front of the Director of the Operation or the Regional Manager so that we can address stuff and change policy. So that's a big piece of it, is really kind of the interaction between the asset management, the accounting, the property management, getting all the teams to kind of work together. We obviously have, you know, an inordinate number of spreadsheets and different tools and reports that we look through as far as the out of our property management software to determine kind of how the assets performing. Got monthly reports that kind of track where we're going on the projects, where things are heading, where we're over budget, where we're under budget, how we want to prepare for all of those things. James: Got it. That's very interesting. And before I forget, so are you, I mean, I know a lot of deep Value Add does need a lot of short term loans. And are you still doing short term loans nowadays? Kimberly: We do bridge loans. I am not a huge fan of huge prepayment penalties. So I really have sort of shied away from doing most of the, if any long term loans. We did one, we were actually able to sell and kind of the buyer covered a lot of the cost of getting out of that loan. But that was multimillion-dollar prepayment penalties that would have been owed. So that can definitely have a big impact on returns in the future. So especially because a lot of our investors are really looking to increase their net worth so we do shorter-term hold periods. It never made sense to me to get tied into a 10-year loan if the plan is really to hold three to five years. So we've been very, very fortunate recently. We've been able to work with a lot of really good bridge lenders. We have a bank that has done several loans with us, some that have already been paid off and some that we still currently own. And then also a life insurance company that also does some bridge loans. So we try to really look for things that give us a decent bit of exit flexibility. So that have prepayment penalties that burn off within two to three years at the longest. But then hopefully that have some extensions available or that have longer terms than that, to give us some flexibility so that we don't get caught in terms of having to refinance in a really tight window. James: So aren't you worried about now, where we are at in the market cycle? And you know, bridge loan does costs certain expiry, right after a few years. Aren't you worried about that or do you think that risk is mitigated? Kimberly: Not really because like I said, so the properties that we bought last summer, we actually have a five-year loan with a two-year extension available. That has basically no prepayment penalty, once you've paid about two and a half years of interest. So I can enter and we actually are able to pull various properties out sooner as long as we still hit that interest reserve. So if we sold one today, we would have to hold the others maybe two years and 10 months or something instead of two years and six months to break even on that. But really we have pretty much free exit from two and a half years to seven years from purchase. So that gives a long time that you can still sell some things ahead of time, if you know things stay good for longer. And at the same time, if things go bad soon, you have time to hold through. So been really looking for stuff, not real short term. The real, real short term bridge loan two years, you know, with some extensions and that sort of thing, I think can be kind of risky at this point. But we've been able to get quite a bit of stuff that's, you know, sort of a five year fixed, but that's free and clear exit after three, sometimes with some extension flexibility in there. So it's got a lot of, you've got long enough to ride through things. We've also been able to find some of those, fortunately, that are bridge loans that are fixed rate, which is very nice. So it is a little bit higher interest rate than a Fannie or Freddie. But having that extra flexibility really matters to me, because even with like a Fannie Mae loan, yes, you have time now to get through a downturn. But none of us really know where the economy is going to be 10 years from now or 12 years from now, either. So on any of those, it's really just sort of oftentimes a three month free and clear exit at the end. So that's still a very narrowed point of time to transact or to refinance. Even if it is a long, long time from now, it's still a pretty narrow window to hit. And so a lot of the loans we've been able to do, give us quite a wide window of, you know, a couple of years in which we can transact or refinance, whenever it makes sense with the market. James: Got it. Very interesting answer. I really like having a five years fixed rate. And after that another two more years extension because I thought the bridge loans only three years plus two looks like the other options as well available on that. Kimberly: There's a lot of different options. I mean, there's a lot of people that are just doing like a three plus one plus one or a, you know, three plus two kind of thing. But there are definitely others that will do different options. And that will get more creative and really do what it needs to do in order to meet your project. And so we've been very fortunate to find some of those and develop good relationships with some of those lenders that think a little bit outside the box. And we've been able to structure some stuff that really does give us a nice window in which to exit it sooner or if it's later just depending. Because nobody quite knows, everybody thinks something's going to happen, but nobody knows when. James: Got it. Very interesting. So can you name your secret sauce to success, like a couple of secret sauce, that you think, you know, this is my secret sauce to success? Kimberly: Well, my team is a huge piece of my secret sauce to success. The fact that [inaudible 0:32:22] barely needs any sleep certainly helps. So I think a lot of it really is just how hands-on most of us are with the projects, with the process. Even as we've grown, obviously, each of us has smaller and smaller pieces across. But we really do pay attention to those things, we pay attention to the details. I think it's been really important that we do genuinely care about our team members and our employees. I think that they get that and I think that gets us better people. And for the most part, it's allowed us to retain better people. Obviously, this is a very, very tough labor market. So anytime there is a position that's open, it is a challenge to fill it. And it's a challenge to find the right person to fill it. But I think some of that really kind of genuinely caring about the team has made a difference for a lot of other people. Other secret sauce, I guess, I always kind of looked at the renewals a little bit differently than was standard in the property management industry. I think things have shifted a little bit more towards my way of thinking about it now. But I remember when I first kind of joined the industry in 2011, everybody was very used to well, okay, are we going to do a 3% increase or we're going to do a 5% increase? Everything was the percentage increase over what the person was paying at the time. And so one of the things that I always looked at was, now you really have to look at it in a more finite dollar amount. Because if you have somebody let's say that's already $20 over market, for whatever reason, maybe they took a short term lease the first time around and then you've got somebody else that's 150 below market, why would you give the bigger increase, if you do a percentage increase to the guy that's already paying over market, then you went to the person that's hundreds of dollars below market. So really kind of structuring some unique formulas to try to balance things out. That's one of the things I've learned a lot about as times gone on. It was always kind of my original, foundational idea was that you should give a bigger increase to the person that's further below market. But then also really kind of gotten to fine-tune a lot of that through the years. And it varies it through various seasons and through different properties and different areas of town. But really have found kind of a matrix of stuff that I do to try to find the right balance on renewals, so that we get as much more additional rent as we possibly can, without dropping occupancy too far. James: So what is that metrics? Can you share it with the audience? How do you decide, let's say, -- Kimberly: It's a lot more complicated than that. I don't even know the [inaudible34:49]. As I said, I guess that's part of the secret sauce. I will give some of it, but it is just kind of, you know, really bouncing through and finding the right balance. Like I said it varies considerably property to property. I have some properties where they can, you know, you can bump people straight up to the market even if it's $150 increase, it doesn't matter. They'll just pay it. And I've got others where you know, if there's if it's nearly that large, then you, you just kind of able to tweak it, going through it. James: Yeah, we do a lot of that, too. I mean, when someone is below market, we usually go person by person and make sure you know, is there anything that you can do to upgrade and don't hurt them, right. I mean, you give them something and you do partial increase, rather than just completely bring them to market. So that some of the things we do as well, find the right metrics, I guess, right. Is there a proud moment in real estate ventures that you think I'm really, really proud of this particular moment and I'm going to remember that for my life? Can you describe that moment? Kimberly: I guess there's a lot of really big things. I guess, one of the biggest is just hearing some of the investor testimonials that we've done recently. This is the first time that we've ever had a five or six C offering open which allows us to do advertising to the greater populace. Everybody before was just a five or six B where somebody had to already be on our list prior to the time that the offering open. And so we actually had some of the investors come in and do testimonials. And that was pretty cool to really, I've heard a lot of stories. But to have people that were actually willing to even go on video and tell their story and tell about the difference that it's made in terms of what they've been able to do with their family, people that have been able to retire, that didn't expect to be able to retire. People that were able to stay home with kids or retire early or take trips that they never thought were possible. That's been a pretty huge thing to kind of just really hear the difference that it's made to people. I mean, that's sort of the biggest goal is to make a difference. And I guess one of the other really proud moments is just kind of some of the programs that we have at the sites as well. We partner with a lot of level 1C3 that do different benefits. So we've got some that will help with during hard times to cover rent, we do Angel trees for some of the residents. We've got vendors that have work through us to try to help various residents along the way. We have an organization that actually teaches classes to improve job skills and financial management skills with some of our properties that are in a lower-income area. And so I actually remember when he was calling, the nonprofit was calling to work with us and you could tell I guess, well, you know, he kind of gave us his pitch and whatever. And we're like, yeah, that sounds great, we'd be happy to help. And he just kind of didn't know what to do with it. It was kind of funny. He had -- James: Because everybody rejected them, right? Kimberly: He had more objections ready but had no idea what to say when somebody just said, sure we can do that, we'd be happy to, we'd love to work with you. So that was pretty cool to relate. We work on trying to bring programs and really try to make a benefit to the residents as well make sure that we're taking care of the people that take care of us. James: Yeah, it's amazing how many people treat, you know, real estate as just a money-making tool, right. But I mean, it's more of a life-changing tool, right. You can change a lot of people's lives by not only collecting rent but providing other services that they may not have access to which a landlord can do, right. Kimberly: I mean, it's a huge way to really benefit the lives of others. I mean, yes, we make money for the investors. And we're very fortunate one of the cool things about our company is that we have had lots of smaller investors. There are lots of investors that have been with us since early on, that have doubled and tripled and quadrupled their net worth. And so there's many of them that were not accredited when they started with us that now are and so that's one of kind of my own personal goals is to help 100 people become millionaires, that that's kind of what my personal goals. But then also just the difference that it makes to employees. We try to give everybody a great place to work. And so, you know, when we first started with that first property, we had one manager and one maintenance guy, two employees, I think there were six contract guys that were helping with some rehab, but that was about it. And now we're over 176 employees. And all of those people have a good solid job to come to where they're treated like family and where they have benefits and everything else. And we've given the employees opportunities to invest periodically throughout the projects. And so that made a big difference for them as well. And then just really making a difference for the residents. We try to give them a good place to live, yes, we do increase their rent. So sometimes we are the big bad wolf in that regard. But we try to at least give them a really nice place to live. We try to take care of things, fix things when they're broken. It's amazing the properties that we've bought that have had tarps on the roofs and you ask the residents and they're like, oh, we didn't. But why didn't you tell us sooner? We didn't really think you were going to do anything about it. It's been like this for three years. Like, why should anyone have to deal with a roof leak for three years, that's just ridiculous. And so it does make a difference to go in and clean up some of those properties that have been sort of ignored or just treated as an ATM. James: Yeah, it's amazing on how much people owning apartments, but never really cared for the apartments. It's a complex asset class to manage, right? I mean, you have to manage the property, you have to manage rent increases, you have to manage tenants or to manage vendors, you have to manage banks, right? There are so many things that you have to manage and it's just not easy to manage. And not many, very few property management company can do that. And whoever can do that, they need to be really good at it. Kimberly: It is definitely a challenge. There's a lot of investors or people that have been interested in investing. They're like, oh, I want to do what you do. And I'm like, okay, well, make sure you think through it really carefully first. It's a great thing to do. It's a great business to be in, don't get me wrong. But this is not easy. This is not just I'll buy an apartment, you know and it'll print checks. And it'll be so simple. You're going to to have staff that has to run them. And even if you have third party management, you still have to watch the third-party management company. And you have to figure out how you're going to step in when you have, you know if there's an issue with that. And there's a lot to keep up with and a lot to manage if you really want to do it well. It is a pretty forgiving asset class as you mentioned, especially on the Value Add side. So you know, yes, if you're trying to hit 100% return and you know, you only hit a triple oh, shocks, we only made 80%. James: Still awesome. Kimberly: So far we've been able to hit our targets, but that is definitely much easier. I suppose than buying something that's really just cash flow, where all you have to do is upset one resident and your occupancy slip just enough that you're not making quite as much as you thought you would before. James: Yeah, correct. All right, Kim, why don't you tell our audience how to find you and how to get hold of you? Kimberly: Sure, you can reach out to us at exponentialpropertygroup.com is our website. There's lots of information on there, as well as some of those investor testimonials that I talked about. Some pictures of the properties that we own and have managed and also ways to contact all of us for any more information that we can provide. James: Awesome, thanks for coming into the podcast. It was one of the huge Value Add podcasts. I mean, you gave a lot of Value Add advice, at the same time, you give a lot of tips about Value Add as well. So really appreciate it and thanks for coming in. Kimberly: Yeah, thanks so much for the opportunity. I really appreciate it. I'm glad I finally got to meet you. James: I'm really glad to meet you too. Thanks.

Ep#28 Land Flipping with Jack and Michelle Bosch

Achieve Wealth Through Value Add Real Estate Investing Podcast

Play Episode Listen Later Nov 12, 2019 62:58

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

Podcast #59 - The Lighthouse (2019)

spotify soundcloud google play lighthouses nabil james what spoiler section

Play Episode Listen Later Oct 23, 2019 68:14

Episode 59 is here! Listen as James and Marco go alone on this one and break down what they've been watching these last few weeks. Followed by a Topic of the Week where the guys go over what makes a horror film great and then of course a review of the new horror film The Lighthouse (2019). 00:31 - Intro 00:51 - What We Watching? 31:30 - Topic of the Week (by James) - What are the ingredients for a "great" horror film? 46:22 - Review of The Lighthouse (2019) 59:56 - Spoiler Section for The Lighthouse 1:06:41 - Outro/How To Reach Us/What's Next? Please subscribe and leave a review! We appreciate you listening! Thank you to Michael Parkham for Designing Our Logo. Contact us at our email: themoviepalspodcast@gmail.com for any submissions for topics! Follow Us on Instagram: @moviepalspod Subscribe to us on: iTunes, Soundcloud, Google Play & Spotify! Follow Us On Twitter: @moviepalspod - our podcast Twitter page (submit a topic!) @rufio1617 - James' Twitter @marcore - Marco's Twitter @nlothae - Nabil's Twitter Follow Us On Facebook: Facebook.com/moviepalspod (once again submit a topic or movie!) Be sure to check out @waterfrontcomics for a variety of comics and collectibles!

08 "Oh How They Cry"

The City Within The Walls podcast

Play Episode Listen Later Oct 16, 2019 17:27

https://discord.gg/Mmn2FPW Come talk to us on Podcast Junkie discord server. https://discord.gg/napQ3Cb (Beeping noise, buttons being pushed.) [AI voice] Reference number, 38.42.456.32, playback commence… [Random person] It was like I told him, no one gets there on their own. You need a team of people who can handle certain aspects for you… [Saris] No, no, no. (Beeping…) [AI voice] Reference number, 16.29.394.46, playback commence…. [Jarratt] I'm not sure. He seems a bit shaken. I have faith however, he'll be able to take necessary measures to procure the desired results… [Saris] Pfft, whatever. (Beeping…) [AI voice] Reference number 89.34.672.96, playback commence… [Saris] You're right Sorrel...all will be revealed soon enough. (Beeping…) [AI voice] Reference number 23.45.185.87, playback commence… [Ross] It would appear so. I don't need to remind you how dissatisfied I am with Tharins interruptions do I? Then take care of it… [Police officer] Hey! Hey you! Don't move! (Man running away...policing running up to machine.) [Police officer] James Corrin is signed into this terminal. [Police officer 2] I think we'd better call commissioner Grady. [Ross] Whatever you have to do...TAKE CARE OF IT. (Call ends.) (End scene) [Narrator] In lieu of recent events, I dare not call this city, a fine one. Never in her history has an Enforcer abandoned his post as the protector of the law and gone full revolt. I fear my friends, I fear for the future, I fear for this people, I fear for this city...the city Within the walls. (Music) [James] Hello [Tharin] James? [James] Yes Tharin? [Tharin] Mind telling me why you were sneaking around, looking up old phone records in the catacombs? [James] What? What are you talking about? [Tharin] Well...either it was you or someone has your access code. [James] It definitely wasn't me. [Tharin] Then apparently we have a problem. Who could have access to you code? [James] I have no idea. I don't have it written down anywhere. The only people that would know it is you and… [Tharin] Ok then, we need to find him...and we need to find him, now. [James] Why would he be doing this? [Tharin] Not sure, but he's beginning to make me very angry. I'm coming to your depot. I'll be there shorty. (End scene) [Jones] Ah, miss Harris. It's been a while. What have you been up to? [Aleen] Why can't you just leave me alone Jones? [Jones] You and I both know why I can't just leave you alone miss Harris. You're an important asset to the Theosin. Now...I hate to interrupt your day, but I need an update. What do you have for me? [Aleen] Nothing...I have nothing for you. [Jones] Miss Harris...do not lie to me. [Aleen] I'm not, I don't have any information for you. [Jones] I want you to listen to something miss Harris. I want you to listen closely. Tell me...is this not you? (Jones plays Aleen some audio of her discussing the case with Tharin) And then there's this one… (Jones plays more audio) [Aleen] How did you?.... [Jones] I told you, we're everywhere. [Aleen] You have me bugged? (Aleen begins to get angry about the situation) Why even call me then? If you have me bugged, why do you...even… [Jones] You need to decide. Are you going to continue to help us? Or are you willing to face a panel of councilmen, who may very well put you to death. [Aleen] But...I can't… [Jones] Miss Harris...we did not ask you to have the kind of relationship with Tharin, that you've developed. Your job was simple. Get close to Tharin and gather information from him. Now either play by the rules...or face the consequences of your past. [Aleen] I can't, I can't just… [Jones] The choice is yours...goodbye miss Harris. [Aleen] (Breath of anger. Phone beeps) Sky? [Sky] Aleen ...wow, it's been a long time. How are you? [Aleen] I need to talk to Swipe. I have a problem and I need his help. [Sky] Sure, hold on...Aleen is...everything ok? [Aleen] No, everything is definitely not ok. (End scene) [Narrator] As Aleen deals with her chaotic situation, Tharin finds yet another, for himself. Approaching James's depot, Salistine informs him of the situation. [Salistine] Arriving at southern policing force complex. It would appear Tharin, that a large group is gathered outside the front door. Would you like me to land on the roof pad? Or in the street Sir? [Tharin] What? Land in the street Salistine, we need to figure out what's going on down there. [Salistine] Very well Tharin. Proceeding to street. [Narrator] Salistine lands on the wet street below. Tharin exits vehicle and people are yelling. Cautiously he approaches the crowd. A mob of people is something Tharin, nor James or any officer for that matter, has ever seen before. He slowly makes his way up the steps trying to figure out what the people are yelling. Finally he realizes they are yelling "innocent". He raises his hands to address the crowd. [Tharin] Everyone just calm down. [Random guy] Hey look, it's our fearless commissioner, Tharin Grady. The one who killed an innocent man...get him! (Crowd yells and James grabs Tharin and pulls him inside.) [Tharin] Goodness. James. What in the world is going on? Who are these people? [James] I don't know, they just showed up. [Tharin] And you didn't try and disperse them? [James] I tried, but they attacked me like they attacked you. [Tharin] Well, we're going to handle this right now. [Narrator] Tharin holds out his hand and his glove forms a glob in the palm of his hand. That glob then forms a 9 millimeter pistol. He grabs the door and flings it open. (Gun shots.) [Tharin] Now listen up. You are all committing high treason against the council of this fine city. You now have two choices. Either go home and calm down or be arrested for treason and face exile, where you will receive your wish, of a life free of the council and the gratitudes of your fellow citizens. Do you all understand? [Random guy 2] Ya, we understand...but don't think for a second that this is over. The council has lied too many times. [Tharin] Arrest that man...anyone else wish try their luck before the jury?...no? Good. I promise you all, things will begin to get back to normal soon. Until then we all...are going to have to endure this bit of inconvenience. Now go home and get some sleep. (End scene) [Narrator] Tharin, unbelievable angered at this point, heads to the council building to talk to his father, when his father receives an interesting phone call. It would seem Gypsy would like to add a bit of light in this time of dark chaos. Let's listen in shall we? [Gypsy] Councilman, how's my favorite pretentious old man doing? [Jarrett] I see no pretentious old men around here Gypsy. Now, what could you possibly want? [Gypsy] What? The overlord of the underground can't call the devil to say hello from time to time? [Jarrett] Enough games Gypsy. There must be a reason you called. [Gypsy] Alright, alright, keep your suspenders on. There is infact a reason I called. (Bit of a pause, to which Jarrett becomes impatient...just another game Gypsy likes to play with people.) [Jerrett] Well? Are you going to tell…. [Gypsy] So, the reason I called is because I have some info you might be interested in. Some info that might help us both keep our positions within this rotting cesspool of a city. It appears councilman, there's a mole in the system of the council. They've been feeding your enemy, our now mutual enemy, information on the council's moves against them. [Jarrett] That's impossible. [Gypsy] Is it? I'll be sending the info your way. Once I have all the evidence in order, that is. [Jarrett] Who is this "mole"? [Gypsy] It's a surprise silly. You'll see soon enough. I just wanted to give you a heads up before I sent the file your way. Let's just say this person is in a position that gives them the ability to listen...as if they were just a fly on the wall ...Anyway, that's all for now, tootles. [Tharin] Oh father, thank the council your here. [Jarrett] Tharin? What's happened? You look terribly distraught. [Tharin] I was just over at southern policing complex. There was a crowd of unruly, ill mannered degenerates protesting. I had to fire shots in the air to calm them down. [Jarrett] Things are worse than I suspected. [Tharin] Yes well, don't feel too bad I didn't see this coming either. I need more men. If people plan to...I don't know, rise up…then I need more men. [Jarrett] Yes, yes of course, whatever you need. (Pause) I highly doubt a public address would have any effect right now. [Tharin] No! It would have absolutely zero effect. These people...I mean just who do they think they are? I will gun down everyone of them if I'm forced. The city does not need people like that reproducing. [Jarrett] I'm upset as well Tharin, but we need to keep calm and handle these matters as delicately as possible. [Tharin] Delicate, has gotten us nowhere. I'm done with delicate. I'm going to go talk to Ross. [Jarrett] About what? [Tharin] I'm going to offer him an ultimatum...results...or death. [Jarrett] Now Tharin, I think you need to calm down. [Tharin] I'll calm down when the city calms down. Goodbye father. [Jarrett] Tharin...Tharin! [Narrator] As Tharin exits his father's office in a rage, the printer begins sending over Gypsys report. [Jarrett] No, no it can't be...THARIN! Oh my council. (Scene ends) (Phone sound) [Saris] No need to say anything, I just want you to listen. I know who you really are...boss. It's funny, I never thought it'd be you...you really are brilliant. Just not as brilliant as you think you are. Anyway, you have 24 hours to relieve yourself of your position within the city and retreat to the huts of the scrappers outside the city walls...or die. Simple enough right? Goodbye for now old friend. Oh, and don't worry about the commissioners...or Dayton...or Jones, I plan on taking them out, before I take care of you so,...your welcome. (Scene ends) [Salistine] Incoming call from councilman Grady, do you accept? [Tharin] Absolutely not! [Salistine] Very well...incoming call from Ross Ajin, do you accept. [Tharin] Why yes. I'd, much like to talk to that swine right now. [Salistine] Patching through now. [Ross] Commissioner, where are you? [Tharin] On my way over to kill you Ross. [Ross] Well that'll have to wait, I finally have it. [Thatin] Have what? [Ross] The signal...I've found Saris. [Tharin] What? It's about time Ross, you may have just won your life, for another day. I'll be there in a minute. [Ross] Hurry commissioner, we don't have much time. (End)

music man land ai simple police phone harris crowd gun goodbye bit reference sir jarrett swipe enforcers proceeding cautiously sorrel james what podcastjunkie gypsys saris james it james why ross it

Podcast #58 - Joker (2019)

spotify soundcloud joker google play dc comics nabil james what spoiler section

Play Episode Listen Later Oct 10, 2019 68:11

Episode 58 is here for your listening pleasure! Listen as James and Marco are joined by Michael Parkham (filling in for Nabil this week)where they break down what they've been watching and talk about their most anticipated films remaining in 2019. All followed by a review of the new DC Comics film Joker (2019). 00:33 - Intro 01:47 - What We Watching? 27:39 - Topic of the Week (by James) - What's your most anticipated film remaining in 2019 (as well as an honorable mention)? 37:12 - Review of Joker(2019) 52:15 - Spoiler Section for Joker 1:06:45 - Outro/How To Reach Us/What's Next? Please subscribe and leave a review! We appreciate you listening! Thank you to Michael Parkham for Designing Our Logo. Contact us at our email: themoviepalspodcast@gmail.com for any submissions for topics! Follow Us on Instagram: @moviepalspod Subscribe to us on: iTunes, Soundcloud, Google Play & Spotify! Follow Us On Twitter: @moviepalspod - our podcast Twitter page (submit a topic!) @rufio1617 - James' Twitter @marcore - Marco's Twitter @nlothae - Nabil's Twitter Follow Us On Facebook: Facebook.com/moviepalspod (once again submit a topic or movie!) Be sure to check out @waterfrontcomics for a variety of comics and collectibles!

Ep#23 Finding Great Operators in Non Multifamily asset classes with Brian Hamrick

Achieve Wealth Through Value Add Real Estate Investing Podcast

Play Episode Listen Later Oct 8, 2019 48:50

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

cramela mix show 225

Cramela Mix Show

Play Episode Listen Later Sep 8, 2019 56:45

Dalfie - Control Freak Enda Gallery, Nicone - Acid Heart Steve Bug, Cle - Bliss Air Dan Berskon, James What, Robert Owens - Keep On (Tim Engelhardt Remix A Gorge - Be Youself Tolstoi, Andsan - Kuramati (Josu Freire Remix_ Beatport Exclusive mix) Leonardo Gonnelli, Matteo Gatti - You Got The Beat (Original Mix) [Moan A Sagittairun - Vanishing Point (Original Mix) [Hypercolour Eli & Fur - Into The Night (Extended Einmusik - Spume Ki Creighton, Medusa - Rendezvous Doomwork - Natural Beat Metronomy - Salted Caramel Ice Cream (Moscoman Remix)

mixshow james what leonardo gonnelli

Top 10 of August 2019

Musical Decadence Podcast

Play Episode Listen Later Sep 1, 2019 51:35

Hernan Cattaneo, Soundexile - Flair (Original Mix) Namito - Covert Affection Feat. Manaa (Club mix) Andhim - Last Song (Original Mix) Joris Voorn - Dark (Extended Mix) Guy Mantzur, Khen - Where Is Home (Original Mix) DJ Grad - 99 Piano (Ivan Starzev '2019 NASA' Remix) Sebastien Leger - Kanga (Original Mix) Robert Owens, James What, Berkson & What, Dan Berskon - Keep On (Tim Engelhardt Remix A) Silicone Soul - Leaf Guy J feat. Clarian - Night Rescue (Original Mix)

nasa hernan cattaneo berkson james what musical decadence

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

god america texas canada chicago china man dogs real phd government spanish market board network price healthcare finance bear hospital medical atlantic insurance commerce tampa literally trees disneyland san antonio bc pakistan east coast average port jacksonville lords industrial depending interior chamber indians excel san jose typically beverly hills correct immigrant analyst usb logistics broker central florida jacksonville jaguars mandarin mayo clinic suzuki cfa so i'm brokers san marcos interiors median shanti sugarland jacksonville florida underwriting panama canal irr panhandle right it omar khan in atlanta yes yes texas city millichap right because duval county right like north dallas south dallas mna james what james kandasamy elementary schools james it southern georgia right let james yeah north atlanta james no james how rochester minnesota healthcare center james is james you james yes james so chicon james oh james why james just james who omar it right again james can james absolutely james i'm james at james okay

Being the Brother of Jesus

Faith with Jamie Greenwood

Play Episode Listen Later Jun 25, 2019 42:11

Who is James? What was it like to be the brother of Jesus? Plus who did he become? We are going to explore the letter written by the brother of Jesus and get a glimpse into the church in Jerusalem as it experienced trials and temptations through persecution and how James encourages us to hold on to the truth.

jesus christ jerusalem brother jesus plus james what

Ep#8 Scaling to 7000 units within 5 Years with Michael Becker

Achieve Wealth Through Value Add Real Estate Investing Podcast

Play Episode Listen Later Jun 25, 2019 54:13

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

SL019: How To Achieve Mastery In Your Professional Speaking

SpeakersU Podcast with James Taylor

Play Episode Listen Later Jun 13, 2019 6:02

In today's episode of The Speakers Life I talk about how to achieve mastery in your professional speaking by using the ancient Japanese concept of Takumi. How to go from good to great as a professional speaker The concept of Takumi (60,000hrs) Learning your craft Finding your purpose Leaving your mark In harmony with the future Why you should get a coach or mentor SpeakersU membership Artificial Intelligence Generated Transcript Below is a machine-generated transcript and therefore the transcript may contain errors. This is James Taylor here keynote speaker and founder of SpeakersU. How do you go from good to great as a professional speaker? How do you achieve mastery in your professional speaking, there's a wonderful phrase that they have in Japan is called tech Kumi. Now you've probably already heard of Malcolm Gladwell, his concept of the 10,000 hour rule to become skilled and expert in something you need to do 10,000 hours. Well, in Japan, they go a step further, they have this concept of tech who me people who achieved 60,000 hours in their chosen profession, or their craft 10,000 to 60,000. Once you get the 60,000 you have achieved real mastery, whether that's as a chef or as a professional speaker. So let's talk about what happened has to happen. Each of those big milestones within that 60,000 the first 10,000 hours in what you do, is about learning your craft. So in the case of professional speaking, is about developing your stage skills is about how to use your voice how to use your body on stage is about how to create that almost perfect speech is about learning your craft. You know, sometimes people come to me on my own coaching when I coach with them and they asked James What should I be should be trying to find my my big idea first or should I be just going to get out the starting to develop my skills I always say start with the craft first. As you go through developing your craft the ideas about what you really want to speak about what your core topic what your niches your USP will start to develop because that's the next 20,000 hours or 20,000 hours you find your purpose. So craft and then discovering your purpose at 20,000 hours. A 20,000 hours you'll have done enough speaking to have you know the basics have been very good on the stage. And also to find what you like and what you don't like what topics you enjoy speaking about what reverberates with you and also an audience, what kind of audience sizes you like speaking to what type of audiences he likes been wearing the world you like speaking all this helps you discover your purpose, so 10,000 hours learning your craft 20,000 hours is finding your purpose than a 40,000 hours, it's really about leaving your mark. So really, you've learned your craft, you found the purpose, what you want to speak about. But then you need to leave your mark. It's about creating something which is uniquely you, you're going to lead to the world you could argue is your legacy. For example, you know, I think about some of the great speakers in the world, people that have left their mark, people like Ziegler, for example, or who like Sally hawks are talking about fascination. They've done all those thousands 10s of thousands of hours, and then now left their mark on the world of professional speaking, but other people to learn from them and leaving their mark on the world. So you got 10,000 20,000 40,000 and then we go to our 60,000 hours, 60,000 hours in speaking imagine how long how many hours and the level of commitment and mastery you have a 65 Average, when you get the 60,000 hours, but academies is all about having harmony with the future is about really understanding what your place is being in the world. So you've left your legacy. And it's about being open. It's almost like having that beginner's mind be open to new ways, new ideas, new ways of taking things. In my case, I speak about creativity and artificial intelligence, very ancient concept of creativity and a very new concept of artificial intelligence, I look to bring those things together and an idea I called Super creativity. So for me, I'm always thinking of how to get harmony with the future, how my ideas can work 50 years ahead, hundred years ahead. So that's the concept of being at the Academy. Now, the other thing that's very important without the roomies is having this master and apprentice type of relationship, someone that you can look to a mentor that you can look to that can help take you through These different thousands of hours as you develop your craft and your your skills as a speaker and find your purpose, you know, there was a great movie I remember watching as a kid, The Karate Kid, with Mr. Miyagi, you know, wash on, wash off a year, watch that movie. And I often think about that. And I think how important is to have a mentor someone who is not just saying, this is the way to go, you know, this is how to do it. There's also someone that can say, actually, don't go down this path just now. Someone who has the scars of having done it themselves. And this is what I do in my speakers. You program. I work with speakers all around the world, who are different levels of their speaking someone just getting started. They haven't done their first thousand hours and speaking others who are really developing the craft, the 10,000 others who announced are finding their purpose what they want to speak about the USP there. Then there's a mother who and now they've got very experienced speakers, it's about leaving their mark. Maybe they're transitioning the changing what they think speak about. And then there's a few number of speakers I work with, who are at that 60,000 hours they are the keys of the professional speaking world. And for them, it's about this idea of bringing harmony with the future. So I hope you find that useful. This idea of mastery going from good to excellent. My name is James Taylor. Thanks for watching. This episode of the Speakers Life is sponsored by Espeakers. The innovative platform that connects speakers will event organizers and associations. Espeakers provides cutting edge tools that will elevate your online presence. streamline your speaking business and maximize your exposure in the Speaking industry with over 15 years in the business 10,000 speakers in their community and over 20,000 events managed annually each Espeakers is the preferred choice for top speakers. You can create your own profile on a Espeakers today by going to speakersu.com/Espeakers.

learning japan future speaking japanese leaving academy craft achieve concept average mastery karate kid malcolm gladwell usp james taylor miyagi ziegler kumi professional speaking takumi james what

Episode 49 - Is This James' Real Ghost Story? (Yes)

Play Episode Listen Later Mar 1, 2019 51:19

Oh hi! Season 2, Episode 5 asks James - What you thinking hun? He's thinking about something it's taken us long enough to put off - his real life ghost story. Hear about the haunting in his student house, the leaking that comes from nowhere and the mysterious happy birthday song. Poo & Review, subscribe & Email us at - whatyouthinkinghun@gmail.com @whatyouthinkinghun (instagram) Everywhere else you get your pods (even Spotify!)

spotify ghosts james' ghost story poo james what

Episode 45 - Does Death Smell of Garlic?

Play Episode Listen Later Feb 1, 2019 36:03

We're Back! We're hunning in seasons now so Season 2, Episode 1 asks James - What you thinking hun? Well, he's as per usual thinking about death as per the usual. Hear the story of Gloria Ramirez, the death that ended up evacuating a whole hospital! Poo & Review, subscribe & Email us at - whatyouthinkinghun@gmail.com @whatyouthinkinghun (instagram) Everywhere else you get your pods (even Spotify!)

death spotify smell garlic poo gloria ramirez james what

Podcast #40 - Glass (2019)

marvel dc glass m night shyamalan nabil james what spoiler section

Play Episode Listen Later Jan 23, 2019 72:58

Episode 40 has arrived! The guys bring us back after the special top ten episode and let us know what they've been watching. This is followed by a topic of the week by James where he asks the pals to recommend a non Marvel, non DC super hero film! Then what you've been waiting for the guys review the new M. Night Shyamalan film Glass. This is our last podcast before we announce the winners of the Funko Pop Aquaman Pop Figures, so listen if you haven't yet to find out how to win. Thank you to our sponsors Waterfront Comics & Chosen Wan! 01:10 - Intro 03:22 - What We Watching? 27:06 - Topic of the Week (by James) - What's a non-Marvel/non-DC super hero film that you can recommend? 43:33 - Review of Glass (2019) 59:51 - Spoiler Section for Glass 1:11:36 - Outro/Giveaway Update/How To Reach Us/What's Next? Please subscribe and leave a review! We appreciate you listening! Thank you to Michael Parkham for Designing Our Logo. Contact us at our email: themoviepalspodcast@gmail.com for any submissions for topics! Follow Us on Instagram: @moviepalspod Follow Us On Twitter: @moviepalspod - our podcast Twitter page (submit a topic!) @rufio1617 - James' Twitter @marcore - Marco's Twitter @nlothae - Nabil's Twitter Follow Us On Facebook: Facebook.com/moviepalspod (once again submit a topic or movie!) Be sure to check out @waterfrontcomics for a variety of comics and collectibles! Also check out www.thechosenwan.com for the best in Nerd Kind merchandise including hoodies, shirts, hats and more!

The Bible Geek Podcast 19-003

The Bible Geek Show

Play Episode Listen Later Jan 16, 2019

In a recent (or, recent to me) episode, you said the Reformation was, to some extent, based on how one shouldn't read secret meanings into the Bible. Can you elaborate on this? Can you shed any light on Passover terminology in Hebrew and Greek?: Is there any historical reason to think that John the Baptist was beheaded on Herods birthday? It seems to "foreshadowed" by Pharoah beheading the cupbearer on his birthday. I know that the gospels often say events in the OT "foreshadow" events in Jesus life. What can we know or surmise about the Jerusalem Church led by James? What does Paul mean by “Lord?” He often writes “the Lord Jesus Christ.” What is this word “Lord” in Greek and its meaning? What if Q was none other than one of the Jewish Christian gospels (The Gospel of the Hebrews, The Gospel of the Ebionites, The Gospel of the Twelve, or The Gospel of the Nazarenes)? Why do the lists of 10b Commandments in Exodus 20 and 34 differ? Theme music provided by: Peter Benjamin - composer for media www.peterbenjaminmusic.org peterbenjaminmusic@gmail.com

Talk Tagalog | James and Angel: Episode 4 – Filipino Food Dining Out

Talk Tagalog - Learn Tagalog the Natural Way

Play Episode Listen Later Jan 3, 2019 3:07

James and Angel are eating together in a restaurant. They order popular Filipino dishes. Tagalog Transcript: James : Angel, parang ang sarap ng pagkain sa restaurant na ‘to. Angel : Oo nga James. Salamat sa pagdala mo sakin dito, ha. James : Ano ang gusto mong kainin? Angel : Mahilig ako sa gulay, lalo na ‘pag sariwang-sariwa. James : Ako rin. Pero samahan natin ng karne. Angel : Sige. Ako naman, gusto ko ng isda, pritong tilapia. James : Miss ko nang kumain ng sinigang na baboy. Angel: Oo masarap ‘pag may sabaw. Subukan din natin yung nilagang baka nila. James : Dagdagan na rin natin ng adobong manok. Angel : ‘Wag din natin kalimutan magorder ng panghimagas. James: Siyempre naman. May leche flan at halo-halo sila. Angel: Anong drinks mo? Soft drinks or ice tea? James: Tubig na lang siguro ako. Sayo? Angel: Gusto ko mag-mango juice. James : At siyempre, dapat may kanin. Mageextra rice ako. Angel : Uy! Ano ba ito? Sa dami ng pinaplano nating orderin, baka hindi natin maubos. James: Oo. Mukhang fiesta na ang kalalabasan nito. Angel: Tara tawagin na natin ang waiter. James: Waiter! English Translation: James : Angel, it seems like the food in this restauramt is really good. Angel : You’re right, James. Thanks for bringing me here. James : What do you want to eat? Angel : I’m fond of veggies, especially if they’re really fresh. James : Me too. But let’s have some meat too. Angel : Sure. As for me, I want some fish – fried tilapia. James : I miss eating pork tamarind soup. Angel : Yeah, its great when there’s soup. Let’s try the beef soup as well. James : And let’s add some chicken adobo. Angel : Ang don’t forget to order dessert. James : Of course we should. They have custard cake and halo-halo. Angel : What are you having to drink? Soft drinks or iced tea? James : I’ll just have water, perhaps. And you? Angel : I want to have some mango juice. James: And of course, we must have rice. I’m going to have an extra serving of rice. Angel: Hey, what’s happening here. With everything we plan on ordering, I don’t think we’ll finish everything. James : Yup. It looks like we’re going to have a fiesta. Angel: Come on. Let’s call the waiter. James: Waiter!

pero soft filipino ano ako tagalog salamat james what filipino food angel what james at food dining angel you

Podcast #36 - Ralph Breaks The Internet (2018)

internet disney marvel netflix ralph breaks nabil ralph breaks the internet james what spoiler section

Play Episode Listen Later Dec 5, 2018 72:51

Episode 36 is here in all it's glory! Listen as the pals go over what they've been watching, followed by a Topic of the Week by James where he asks the guys opinions on the Marvel Netflix shows being canceled. Then hear the guys different opinions and review of the new Disney animated film Ralph Breaks the Internet. Thank you to Waterfront Comics for sponsoring us! 0:37 - Intro 01:05 - What We Watching? 33:34 - Topic of the Week (by James): What's going on with the Netflix Marvel Shows? 48:40 - Review of Ralph Breaks the Internet (2018) 1:00:55 - Spoiler Section for Ralph Breaks the Internet 1:10:09 - Outro/How To Reach Us/What's Next? Please subscribe and leave a review! We appreciate you listening! Thank you to Michael Parkham for Designing Our Logo. Contact us at our email: themoviepalspodcast@gmail.com for any submissions for topics! Follow Us On Twitter: @moviepalspod - our podcast Twitter page (submit a topic!) @rufio1617 - James' Twitter @marcore - Marco's Twitter @nlothae - Nabil's Twitter Follow Us On Facebook: Facebook.com/moviepalspod (once again submit a topic or movie!) Also be sure to check out @waterfrontcomics for a variety of comics and collectibles.

Episode 39 - The Dancing Plague of 1518

spotify dancing plague james what

Play Episode Listen Later Nov 9, 2018 30:11

Episode 39 asks James - What you thinking hun? He's thinking about the Dancing Plague of 1518 for some reason? Hear us talk about the funniest and weirdest epidemic anywhere on earth whilst trying to figure out how and why it happened and what we'd do if we saw it happening (join in until our feet were bloody). Email us at - whatyouthinkinghun@gmail.com Poo & Review, subscribe and visit us or listen at - @whatyouthinkinghun on instagram whatyouthinkinghun.podbean.com/ & everywhere else you get your pods (even Spotify!)

Podcast #31 - The Nun(2018)

spider man playstation 4 nun rotten nabil rotten tomato james what spoiler section week brought

Play Episode Listen Later Sep 14, 2018 65:44

Episode 31 is here! Listen as the guys go over what they've been watching (and Nabil even goes over the new Spider-Man game on PS4!. James has the topic of the week where he asks the guys what's their favorite "Rotten" Rotten Tomato movie (40% or lower) that they actually like and can recommend. Then it's all topped off with a review of the new horror film The Nun (2018). Thank you to Waterfront Comics for sponsoring us! 0:00 - Intro 0:53 - What We Watching? 25:31 - Topic of the Week Brought to You by James - What's a "rotten" Rotten Tomato scored movie (40% or less) that you actually like and can recommend? 44:56 - Review of The Nun (2018) 53:02 - Spoiler Section for The Nun 1:03:51 - Outro/How To Reach Us/What's Next? Please subscribe and leave a review! We appreciate you listening! Thank you to Michael Parkham for Designing Our Logo. Contact us at our email: themoviepalspodcast@gmail.com for any submissions for topics! Follow Us On Twitter: @moviepalspod - our podcast Twitter page (submit a topic!) @rufio1617 - James' Twitter @marcore - Marco's Twitter @nlothae - Nabil's Twitter Follow Us On Facebook: Facebook.com/moviepalspod (once again submit a topic or movie!) Also be sure to check out @waterfrontcomics for a variety of comics and collectibles.

Episode 25 - What Happened in Room 1046?

Acts - An Expositional Thrill Ride by the Hampton Roads Church

Play Episode Listen Later Aug 24, 2018 40:44

Episode 25 asks James - What you thinking hun? He's thinking about death (again)! But this time an unsolved murder in room 104666666! Hear us unpick the murder come up with our own theories and meet the towel generous maid with the best name of all time. Got any ideas on how this happened? Want to ask us some questions for our upcoming Q&A? Email us at - whatyouthinkinghun@gmail.com Poo & Review, subscribe and visit us or listen at - @whatyouthinkinghun on instagram whatyouthinkinghun.podbean.com/ & everywhere else you get your pods (even Spotify!)

spotify james what

Acts 12 A Sovereign Over and Under Suffering

Play Episode Listen Later Jul 11, 2018 34:13

What about James? What about the prayers of the saints for James? Is God not sovereign over suffering? Indeed He is, but He is also a Sovereign who underwent suffering. Walking With God Through Pain and Suffering informs some insights for the midweek lesson at Hampton Roads Church. Acts 12:1-8, 1Corinthians 15:54-56, Galatians 3:27

suffering acts galatians 1 corinthians sovereign acts 12 james what walking with god through pain

Podcast #26 - Jurassic World: Fallen Kingdom (2018)

jurassic world fallen kingdom nabil james what spoiler section

Play Episode Listen Later Jun 28, 2018 73:59

Welcome to Episode 26! Listen as we go over what we've been watching. Followed by some news about our favorite things: movie clubs. Then James presents his topic of the week which becomes a sort of opinion corner/rant moment for what the pals don't like about the movie going experience. This is all topped off with a review of Jurassic World: Fallen Kingdom (2018). Thank you to our sponsor WaterFront Comics. 0:00 - Intro 00:53 - What We Watching? 21:27 - What's In The News 28:36 - Topic Of The Week (by James) - What things about movie theaters (and home viewing) do you not like and how would you fix it? 53:18 - Review of Jurassic World: Fallen Kingdom (2018) 1:01:53 - Spoiler Section for Jurassic World: Fallen Kingdom 1:12:13 - Outro/How To Reach Us/What's Next? Please subscribe and leave a review! We appreciate you listening! Thank you to Michael Parkham for Designing Our Logo. Contact us at our email: themoviepalspodcast@gmail.com for any submissions for topics! Follow Us On Twitter: @moviepalspod - our podcast Twitter page (submit a topic!) @rufio1617 - James' Twitter @marcore - Marco's Twitter @nlothae - Nabil's Twitter Follow Us On Facebook: Facebook.com/moviepalspod (once again submit a topic or movie!) Also be sure to check out @waterfrontcomics for a variety of comics and collectibles.

TD Ameritrade Interviews OptionSellers.com's James Cordier on Selling Options

OptionSellers.com

Play Episode Listen Later May 31, 2018 10:52

Ben Lichtenstein: We’ve got a real treat here for you this morning, traders. We’ve got the founder and head trader of OptionSellers.com. Traders, we’ve got James Cordier with us this morning. James, welcome to Futures with Lichtenstein & Hincks. It’s a pleasure to have you on the show. I want to dive right into it. When we’re talking futures versus options I kind of think of it as futures for me are kind of easy versus options. It’s sort of like driving a VW versus flying a Cessna. Talk to us about some of the benefits of trading options and why they’re appealing to you, considering what we’re seeing here in the energy markets as of recent. James: You know, I think that’s a great question. So often, people talk about options and they kind of go like this. I understand they are puts and calls, but I think the gentleman you had on just a moment ago is just a great example as to why selling options can be a good idea for mainstream investors. The gentleman prior to me was talking about trading in currencies and he talked about close stops and you’ve got to watch your lows and watch your highs, and you need to have a close stop on all of your positions. Shorting options and selling premium is just the opposite of this. If you want to take a long-term fundamental view on gold, as you’d just been describing, or crude oil, this is the way to do it because perfect timing, I’ve been in this business for almost 30 years, I don’t know anyone who knows how to do that… not on a consistent basis; however, we’re looking at energy prices right now. The crude oil market is extremely frothy, especially with slowing global growth. Europe right now is probably what brings us to mind right now, as far as the oil price, might be at a reflection point. With PMIs going south, with consumer confidence in Germany, I was just in both Italy and Germany this past week and, while pizza sales were really good, and I can attest to that, the rest of the economies are not doing so well. $80 and $82 oil Brent is going to probably be very detrimental to European economies. We’re looking at a possible reflection point right now in crude oil. Instead of trying to pick the exact copy, because of course no one else is of course able to do that, we’re going to start looking at selling a call premium on crude oil. We’re going to go out 3 months, 6 months, 9 months, sell the $90 calls and the $95 calls and that way we don’t need perfect timing, but we simply need to be right the market eventually. A lot of the fundamentals we’re seeing in oil going forward into the 3rd and 4th quarter lead us to believe that we’re going to be right on this. Kevin Hincks: Good morning, James. Thanks for coming on the show. It’s always a pleasure for me to talk about options when I’m on this show. I spent most of my career doing that. So, you are talking about the 90 calls above the market, right? Selling something very safely above the market here, about $18-$19. You also talk about selling the 45 put so you’re creating a short option strangle, right? Where you basically want a range-bound trade in between your strikes. Now, the question that option traders have is, “Do you think, based on the risk that you’re assuming, now you’ve given yourself a nice wide in between the navigational beacons, I call it, of your short strikes. Are you getting paid enough for the risk that you’re putting on?” James: That is such a great question. So many of your investors, I’m sure, are familiar with selling options on stocks. I hear about this all the time. When we have a new investor they’ll say, “James, I was introduced to short options through my stock broker. We started writing covered calls and then I got a little creative and started selling options on stocks. I hear that you’re selling options 2%, 3%, 5% out-of-the-money.” In commodities, crude oil, gold, coffee, we’re selling options 50-60% out-of-the-money in some cases. When we’re identifying a strangle, the window is just absolutely enormous. The crude oil market, based on fundamentals right now, is not going to fall into the 40’s. We have, of course, Brent around 80 right now, WTI right around 70-71, but it’s not going to go above 90 and that is just a fantastic window for the market to stay in. Identifying fairly priced commodities is probably the most wonderful thing that we do for our clients. Often, an expert comes on and he talks about, “Well, the coal market’s about to go to the moon” or “Soybeans are going to go to zero.” As we all know, quite often that’s not the case. Finding a window that a market is going to stay inside is just a fabulous way to create a strong performance at the end of the year. We’re collecting $600-$700 for the $90 calls. We’re collecting $600-$700 for the 45 puts. Basically, selling a strangle, as you know, is one position babysits the other while you wait. So many investors want to get paid right now and when they’re talking about selling options on commodities they need to get in “right now”. We don’t do that. We want to sell options much further out in price and much further out in time than most people, but we get paid to do it. Ben Lichtenstein: Yeah, James, I know that you think that 85 is a bit of a tipping point, and possibly that tipping point that would bring Europe back into a recession. Talk to us and tell us a little bit more about why you think that. James: What’s interesting is all you have to do is look at the Euro, and you look at banking stocks in Italy and Germany right now. That tells us that the European Union cannot withstand $80 oil. OPEC right now has to have another discussion. 2 years ago, they discussed cutting production. That has worked tremendously. They need to not be too greedy right now. $80 oil, everyone is making a ton of money producing oil here in the United States and everywhere else. Pushing Europe into a possible recession could absolutely kill the golden goose, if you will. Other producing nations produce oil for $35-$40 a barrel. It’s trading at $80. The last thing they need is a recession in Europe because you know what’s going to happen after we start talking about Greek bonds and Italian bonds? Then the stock market starts to dive and $80 oil prices will be history if that happens. Kevin Hincks: Hey James, as you know, when it comes to the oil markets that there’s a mid-June OPEC meeting coming up where they’re going to re-look at or re-investigate the production cuts. Here’s my question for you: Is the most important person coming to the June OPEC meeting a non-OPEC member, being Russia? I think that they’re chomping at the bit to up their production and get back in this game, back to their old levels. Are they the most important player in this mid-June OPEC meeting? James: Yes, they are. Saudi Arabia and Russia have been just great partners recently. Saudi Arabia’s probably the smartest OPEC nation in the room and they are going to be siding along with Russia. We’re looking at the spigots opening up. They have to. They are very extremely great traders and they understand that throwing a slow-down in global economy is the last thing that they need right now. I think they would be very happy with a $72-$74 Brent price. I think producing more oil, especially in Russia, is going to help that happen. We do see, at least by the 3rd quarter, production cuts going away and oil prices probably settling down $5-$7 from where it is right now, at least. Ben Lichtenstein: All right. Lastly, James, I’m curious your thoughts on Shale production because everybody’s dialed in on the increased production up about 10 million barrels per day as we’re nearing 11 million barrels per day, but, you know, not everybody’s focused on the fact that without this added production levels that we probably see crude oil at a lot higher prices. A lot of people are saying, “Why hasn’t this increased production, keep the price of crude down?” Is it your thought or opinion that without all of this added supply that we’d be up and through this at $75 level right now in the WTI. Is that production what’s actually holding us down a bit? James: What’s holding us down right now is the production. If 11 million barrels a day were being produced in a country that is a third world nation and doesn’t have a huge population of drivers and such, that would make a big difference, but, you know, we are using basically all the oil we need. What really changed the market recently is the fact that the U.S. is now exporting oil and that has really made it more of a global market. The fact that we see such a discount to WTI versus Brent tells us that oil production in the United States is around 11, adding up to 12, and, at that point, $80 oil for Brent and $70 for WTI is not going to last very long. We really see Brent down, like I was saying, $5-$10 this year. What’s going on in the United States right now will keep oil prices from doing the super-spike and I think we’re at a reflection point pretty soon. Ben Lichtenstein: Yeah, we’re watching that spread closely, too, right around 7 ½ right now. Traders, that’s James Cordier joining us this morning and he’s the President and Founder of OptionSellers.com. He’s also the author of The Complete Guide to Option Selling. James, it’s always a pleasure to have you on the show. Really good insightful thoughts there in terms of options and the energy markets.

X - Military

Play Episode Listen Later May 25, 2018 80:58

Brace for impact! The Imaginauts return with a bit of a situation on their hands, as the ship is under attack my a disgruntled former crew member and they must divulge all the strange and wonderful things they've discovered on the topic of Military. Time is short and no one knows where the torpedoes are or how to activate the shields. With quick thinking, some good humour and cheap sound effects maybe the Imaginauts can live to laugh another day...In this episode:James - What's the stupidest military idea ever conceived?Phil - What's the nicest thing about war?Sean - How can our animal friends help us fight our battles?Got anything you want to say to us? Email babybeardmedia@gmail.comAlso, check us out on Twitter, Facebook & Instagram. 'Baby Beard Media' for all!

time history science comedy space action war adventure military sci fi imagination trivia brace james what phil what sean how

X - Military

Let's Talk! The Pastor Is In - from KFUO Radio

Play Episode Listen Later May 24, 2018 80:58

time history science comedy space action war adventure military sci fi imagination trivia brace james what phil what sean how

Turning A Losing Option Sale Into A Winner

OptionSellers.com

Play Episode Listen Later Apr 30, 2018 40:12

Michael: Hello everybody. This is Michael Gross of OptionSellers.com. I’m here with head trader James Cordier. We are here for your monthly May video podcast from OptionSellers.com. James, welcome to the monthly show. James: Thank you, Michael. Can you believe we’re going into May already? Michael: It sure went fast. This last month here we saw some key developments in the markets. We have a lot of tensions between China and the U.S. over trade, and then we’re, lately, looking at 10-year treasuries going over 3%. A lot of people are wondering how this may affect commodities. What’s your take on that? James: Well, the trade wars that are supposedly about to take place, I think, are simply negotiation. President Trump mentioned many times going into the election that he was going to do “the art of the deal” and get us some more fair playing field, especially with China. Certainly the deficit that many goes out to China and doesn’t come back is something that he’s going to work on and, I believe, it’s more negotiating than it’s actually going to be major changes, as far as trade tariffs and such. Will some be put in place and some enacted? Probably so, but I know Mr. Mnuchin is going to China I believe in the next week or two, and he’s going to have probably the checkbook ready so he can basically get an olive branch going out. Needless to say, everybody wants a strong economic global growth and a trade war is not going to help that; however, getting a more fair and balanced trade, especially with China, I think is a really good idea and I think that’s what we’re going to get over the next month or two. All the discussion about it, I think, is going to be more of just that: just discussion. Michael: So, you don’t see any major changes in any commodities in the immediate term? Any immediate strategies people should be doing right now or as a result of that or, primarily, do you just see things leveling out here? James: Michael, the discussion of a trade war, like in soybeans or something that’s going to affect the demand for oil, I think a person or an investor should use that to look at the idea that it’s going to be settled. It’s not going to be a large disruption to production or demand in any of these commodities. When the price of a commodity is affected by discussion of it, I think you should take advantage of that. 3-6 months later, the fundamentals that we see now are going to be in place then, and basically it was hype that was going on and I think it’s going to offer opportunities. For markets that you’re following, if there’s trade discussion that’s going to move up or down the market that you were hoping to sell either puts or calls on, I think that’s going to be great picking in order to do that. Michael: Okay. Well, for those of you watching, we have an exciting show for you ahead this month. We’re going to be addressing a very common question we get. A lot of times, people sell an option, they get into the trade, the option moves a little bit against them, and then the question is “Well, what do I do now? Do I adjust the trade? Do I get out of it? If so, where do I get out of it?” What we’re going to do this month is we’re actually going to take you into some of our real trades we are doing in portfolios. Some of these, you’ve probably seen us talk about before. Pull back the curtain a little bit and show you a risk-parameter we might use and then recommend something you can use at home, as well, if you’re trading on your own or just get a little bit better insight into how we might do it professionally. A good analogy, and, James, I know you can comment on this, is we all saw the incident with Southwest Airlines this month where they had the problem with the engine. Certainly a tragedy for the people involved that it effected; however, one thing that really stuck out to me is the pilots that landed that plane and saved all those people. Have you heard the transcripts? They’re just cool as a cucumber. They knew exactly what to do, they had processes in place for every situation or condition, and you pilots out there that are clients, you know exactly what I’m talking about. When people are trading, and you know this more than anyone, James, you should have a contingency. Anything that happens, you should have a plan for that happening and have that type of control. That’s how you avoid that “what should I do” when you get into certain situations. When you’re trading, you deal with the same thing, James, am I right? James: I certainly do, nothing like that pilot was facing this past week, but in a similar note, you do have a plan. We are generally positioned in anywhere from 8-10 commodities and when one is causing the plane or the bow to veer right or veer left you simply need to make the adjustment. It shouldn’t be a huge deal to your portfolio. You should really be able to make a minor adjustment. If you’re in 10 commodities and 1 is going really in a direction you weren’t thinking, you should have a plan for that. It shouldn’t be a panic. It shouldn’t be large turns like this. You should just be turning the wheel like this and we’ve got an adjustment that needs to be made, the cocoa market or the coffee market or the silver market, and you just steer the plane and get it flying level again. Your portfolio, whether you’re having a portfolio with us or you’re investing with one on your own, you should never have a position that makes that much variance to your account. If you have 1 position in your account, name the commodity- it doesn’t really matter, and if it moves 5-10% in a short period of time, if that makes your account move larger than it really should be, it shouldn’t have a large variance because the market moved 5% or 10%. If it is doing that, you’re simply not positioned correctly. Always have in your portfolio 8-10 commodities and if 1 is making the plane go like this then you just pull it back like that. You should never have a position on your account that you can’t, in order to make the plane fly smoothly again, if you would. It happens all the time. We’re not right all the time. We’ll have 8-10 commodities in a portfolio and by-goodness, 1 is going to be causing this to happen and you just straighten the plane. Just like that brave pilot did, he knew exactly what to do. My goodness, 1 engine went out and he was able to do that. We have 10 engines on our plane. We should never have one commodity or another commodity make the plane go like this. It really shouldn’t happen. For your investors at home, if that’s happening to your portfolio you don’t have a diversified portfolio, and that is something that we at OptionSellers.com always strive to have so that when something happens that was unexpected, there’s a big headline in a certain commodity, you just straighten the plane and that’s what we do. Michael: That’s what we’re going to talk about today. If you’re trading at home or you’re checking out this strategy, one of the biggest advantages you have as an option seller is that flexibility James was talking about where if you’re trading, and say you are worried about a Chinese trade war or this or that, you have the ability to build out a strategy that can benefit from nearly any type of economic condition. It’s one you should use if you’re an option seller. We’re going to address and use a specific example this month from a market we talked about. We’ll show you how to adjust a trade if you do get into those type of situations where it’s not working exactly the way you hoped it would, and we’re going to give you a couple examples here of how to do just that. James, why don’t we move into the trading room and we’ll talk about our markets this month. James: Sounds good. Michael: Welcome to the markets segment of the OptionSellers.com May Podcast. We are going to talk about a market this month that we featured in last month’s podcast and that we’ve got a lot of questions on over the past month so we’re going to talk a little bit about it. This does go into the topic of this month’s podcast, which is how to turn a losing trade into a winning trade. So, first let’s talk about the market… this is the cocoa market. You saw us feature this market in last month’s podcast. Cocoa we talked about selling the 32 December call options. The markets rallied a little bit since then, did not threaten a strike, but it’s up a little bit. James, do you want to tell us what’s going on with this trade and this market? James: Michael, what’s going on with cocoa right now is the last several years we’ve had a production surplus worldwide. In 2018 and 2019, some of the largest cocoa analysis around the country is predicting the first deficit in quite some time for world production. Basically, high prices cure high prices and low prices cure low prices. The initial trade is that we’re going to have a production deficit this coming year and then the market must go much higher because we’re running out of cocoa, but in all actuality what happens when the price of something is rising that is dampening down demand. So, for example, when cocoa was trading around $2,000 and $2,100 a ton, chocolate manufacturers were purchasing cocoa. As it rallies, they purchase less and less and less, and the demand has already taken place. So, when we do get an announcement of a production deficit, that usually gets the last of the buyers, the headline traders, to get involved with the market. We saw a spike here recently in the last day or two where cocoa was threatening $2,900 a ton. Keep in mind that’s up almost 50% in price over the last few months. Basically what that does is commercial demand then starts to fall and then basically it’s a speculatively driven market. Usually a market that has moved 50%, we have just a couple percent difference in production, 2-3 years ago up until now, and yet we’ve had a 50% increase in price; thus, we think that’s a temporary move in the market. While we were suggesting selling the $3,200 calls last month, the market did not get anywhere near that level but, as some of the viewers and readers have mentioned, the price of those options are up slightly from, maybe, when we discussed selling them. Michael: Sure. I think that goes back to a good point is, we always say this, we don’t know where the top or bottom of a market’s going to be. That’s why we are selling options in the first place. We’re not trying to pick that anymore. You don’t have to pick that either as an option seller. It’s an important point to make as an option seller… you’re not trying to call the market, you’re just picking a window where you think prices should remain and then selling options outside that range. James: Exactly right. Fundamentally, the price of cocoa over the next 3-6 months should be at this level. The price of coffee or crude oil based on fundamentals will be at a certain level, as well. Basically, you’re selling option premium that puts you out-of-the-money sometimes 40-50-60%, and some 8 times out of 10, that leeway is all you’ll ever need. As a matter of fact, anyone listening to us right now and, of course, our clients are long-term investors. So, if you are, like we discussed just recently, you are flying a plane and you want it to have several engines, okay? Your portfolio should have several commodities; however, when one does exceed a level that you thought it would, you can roll up your position. For example, each day that cocoa gets more and more expensive, the likelihood of it staying above its fundamental value diminishes. So, if you did short cocoa prices at, for example, $3,200 a ton by selling the $3,200 call, you may choose to roll it up to the $3,400 or the $3,500 if in fact it’s something that if you want to stay with the market or you want to stay with your position, but speculatively the market is driven higher than we thought it would do. That is certainly one approach that we often take and someone who maybe has that position on right now might want to take that, as well. Michael: So, what you’ve just explained is how to turn a losing trade into a winning trade, the title of our podcast here today. Let’s go back and just explore that briefly. When we talked about selling the call here, we talked about selling it and we were right about here, now the market has rallied a little bit. As you said earlier, it really hasn’t threatened the original strike. In fact, I don’t even think the original premium has doubled yet. James: No, they hadn’t. Michael: Yet, we got a handful of people writing, “Ah, I sold a cocoa call. What do I do now?” Well, there’s 2 points to that. One, we’re not really an advisory service, we are managed fund here, so we can’t really instruct you all the way through the trade. The bigger point here is when we went back to the beginning of the podcast that James just referred to, we talk about the pilot steering the plane. If you’re putting a trade like this on, you better have a plan for what you’re going to do for when you go into that trade if it doesn’t move the way you think. Now, the movement in cocoa right now, it hasn’t really been extreme, it is pressuring the strike price a little bit. James feels it’s still fundamentally justified trade, but if you’re getting uncomfortable or it keeps rallying or starts pressuring that, he’s talking about rolling the positions up. James, do you want to explain the mechanics of that if you were, or if somebody was holding a 32 call what they would do to recapture that premium? James: Okay, so let’s say you sold 10 contracts of the 3,200 December call strike and the price is now exceeding your risk tolerance. Let’s say you sold them for $500 or $600. Let’s say you have the 100% rule for your portfolio, so the option has now doubled to approximately $1,000-$1,200. Now what I would do, if you were considering staying with a fundamental trade, which I think cocoa will probably be in the high 20’s at the end of the year and nowhere near 3,200; however, you buy back your $3,200 call and you can sell 20 now of the $3,400-$3,500 call. Eventually, the fundamental factors are going to slow this market down and we think that come November, when the December contracts expire, we’ll probably be in the high 20’s… like 2,800-2,900 at the most. So, if we do exceed 3,000 for a brief period, I would use that certainly as an option selling opportunity in cocoa calls. 3,400-3,500, I think, the market will not exceed that level in our opinion. We’ll have to wait and find out, but come November I think the market will be much below that. Michael: So, you’re doubling up on those strikes. So, you sold 10 and then when you roll you’re selling 20. That allows you to, one, get back your original premium, but it also allows you to recover the loss. James: That’s exactly right. Keep in mind as we discuss this, we always want to be in 8-10 commodities. We are selling options sometimes 40%, 50%, 60% out-of-the-money. You can’t, or you probably don’t want to, base your entire investment and the viability of this type of investment for you based on the idea that you sold 10 contracts of cocoa. Okay? We are selling commodity options in approximately 8-10 different sectors and, over the long-term, selling options 40%, 50%, 60% out-of-the-money is going to work out quite well, but, by all means, we stub our toe. We get kicked in the shin once in a while, but if you’re a long-term investor, and everyone should be, whether you’re long stocks or the real estate market or you’re selling options as an investment portfolio, you just know that 1 or 2 may not go your way and you definitely need to manage your portfolio. This is one way to do it. Another idea is, you know, taking a losing trade. If the investment idea wasn’t correct, we’ll take a look at it again. Let’s see if the market continues to rally, we’ll sell options on another day, or we’ll come and visit cocoa again next year. Have that ability to do that. Michael: That’s an excellent point. If you’re watching some of the things we do and you’re trying to trade just at home online saying “Oh I like that trade. I’ll sell this and see how it goes”, that’s really not how these are meant to go. When we are putting trades on a portfolio, we are putting them on as part of an overall portfolio of, as you said, 6, 8, 10 different positions. Sometimes they’re hedged on the other side of the market, sometimes they’re balanced by a long or short position somewhere else. So, these are incorporated into a much bigger scheme. If you’re just taking them and you’re really selling them out of context, so if something like this does move against you it’s a big deal for your portfolio, where for us is just like the captain of the plane. It’s a flip of a switch, just something different you need to do to adjust the position. James: Exactly, Michael. You should always be able to have both hands on the wheel and just make small adjustments. If you sold cocoa calls recently, your positioning should only be going like this and you shouldn’t be turning the wheel like this. If you’re doing that with your portfolio, you’re not doing it right. Michael: And as we talked about earlier for managed clients, we are going to be taking a closer look at this market this month. It is starting to get interesting and maybe look to see what we can do there in the coming weeks here. Let’s talk about another market here for our second part of the podcast this month. That will be the crude oil market. If you want a market that has been in the news lately, one that has been in the headlines has been the crude oil market. We’ve been closing in on the $70 mark for the first time in 2014. It’s been one of the strongest commodities on the board since last fall. James, you want to tell us what’s going on here? What’s behind this rally? What’s been pushing prices higher? James: Michael, Saudi Arabia has done just an incredible job leading the OPEC nations, as well as Russian production. Someone sat down with members of OPEC and said, “Listen. We cut production by 2-3%, we’re looking at the possibility of a 20%, 30%, or 40% gain in crude oil prices.” Lo and behold, that math sounded good to the OPEC producers, they did start cutting production, not a great deal, just a couple percent. Basically, we were looking at a 300-400 million barrel of surplus floating around the world, both in tankers and at storage facilities in some of the OPEC nations. After some 18 months of oil production cuts by OPEC and along with Russia, that 300-400 million barrel surplus is down to some 30 or 40 million barrels… just a huge gain for OPEC. Their ability to cut production has just paid off in spades. We have approximately 35-40% increase in oil prices. OPEC is very cohesive right now, something that a lot of analysts are quite surprised at and we are surprised at it, as well. The ability to keep that production offline when prices are going up, my hats off to OPEC, they’ve done a very nice job in order to do this. The market is now balanced. Basically, for every barrel that is being produced there is a consumer right now. We have a very balanced market and, as you can see, it’s up some $20-$25 from where we were just not that long ago. Michael: Yeah, compliance has been surprising, too. I read somewhere that they’re at like 138% compliance. Before, they used to have trouble even getting half the members to hit their quotas, now they’re above 100%. James: Someone did the math for the OPEC producers and said a small 2-3% cut can possibly increase the prices 20-30%. They nailed it. Here are the final results. Michael: As you mentioned, that’s taking quite a bit of oil off the market. OPEC production down 11.4% since these started in January 2017. So, that’s a pretty good drawdown. That’s really, what James is saying, is behind this rally right now. That and we have a pretty good seasonal in effect that’s helping drive prices now, as well. James: Basically, as we get into driving season in the U.S., the largest consumer of oil and gasoline in the world, you have a ramp-up of production where you’re cracking oil into gasoline and, generally, that happens between the months of March, April, and May getting ready for summer driving season. So, that cracking of oil takes oil production and supply off the market, turns it into gasoline, so you have, once again, a temporary shortage of oil as not only OPEC taking barrels off the market but also you have the largest refining season coming up going into driving times of June, July, and August here in the United States. This takes barrels of oil off the market, they are cracked into gasoline, and that’s why you usually have this seasonal rally going into May and June. Michael: Which seems to be following it very closely this year, the seasonal tendency. Now, one thing we’re seeing this year, and you and I were talking about this earlier, is refineries are operating at a torrid pace right now. They’re really hitting it pretty hard as far as production goes. Right now, gasoline production running about 4.2% ahead of pace for where it normally is. So, you’re thinking that they may hit those levels earlier this year and we may see a topping action in crude a little bit earlier this year? James: You know, consumption for gasoline in the United States peaks in June and July right around the 4th of July, or so it seems, but the price of crude oil will often top before then. Crude oil is clearly where gasoline comes from, and as those barrels come offline, in other words, they’re cracked into gasoline, the price of oil will often top before gasoline does. So, the demand is still there but it has already been produced. So, while the greatest demand in the United States is around the middle of the summer holidays, the demand for oil to produce that gasoline has already taken place and thus the seasonal comes down sooner than you would think. Michael: Sure, and this chart’s showing you can see a top in crude any time between mid-May to early-July, as you said; however, if refineries are hitting those levels where they deem supply adequate, they’re going to cut back production sooner and that will hurt demand for crude. James: And then the crude barrels start to accumulate more. Michael: Okay. So, we have that and then also, on the other side of the coin, what we have coming up or what’s even surprised OPEC is the level at which the United States has been able to ramp up production. They’re taking advantage of these higher prices and you referred to high prices carrying high prices earlier. We’re seeing U.S. production just blowing up, going up about 10.5 million barrels a day. Is this having an affect right now on the supply? James: Well, basically it’s balancing… the additional barrels coming from the United States is balancing what OPEC’s not producing. The fact that production in the United States is going to probably exceed 11 million barrels a day coming up in 2019 and 2020. We do see this plateauing and the excitement in oil right now is probably going to be rolling over. If the United States wasn’t the largest consumer, let’s say all these barrels were being produced on the opposite side of the globe, getting them to the United States would be difficult and then maybe the largest producer, now the United States, wouldn’t be such a big deal, but the fact that we’re producing it exactly where we need it, here in the United States, that will offset some of the global demand and price shock around the world. Everyone always talked about, “The United States is susceptible to what OPEC does”… well, we’re producing all the oil we need now, so the fact that oil is approaching $70 and here in the United States we can produce it for between $35-$45, how long is it going to stay above $70? It can only exceed it by a certain amount of dollars per barrel and for a certain period of time. If this level gets to 11 million barrels a day or 11.5 million barrels a day, oil will be coming back down into the low-mid 60’s at the very least, and probably setting up a sale here that’s looking like in May or June for option sellers. Michael: Okay. So, your outlook for the intermediate turn, obviously we talked earlier and we’re not trying to predict what prices are going to do, only what they’re not going to do, but do you see a little more strength coming in and then weakening, or what’s just the general outlook for that window? James: What’s so interesting right now is in some global economies, especially throughout Europe, they are going to feel this large gain in the price of oil. Japan is going to start feeling this large gain in the price of oil. Basically, they are 100% consumers and produce nothing, so oil going from $45 up to $70 will start slowing demand from these major consuming nations. At the same time, when the United States is now producing the most they ever have and now the largest producer in the world, we see oil kind of plateauing here this summer right around maybe June or July, but not falling a whole lot. The fact that we had a 400 million barrel world surplus and it’s not approximately 40 million barrels, the market’s extremely well balanced right now. So, we see some of the excitement that’s going on now in crude oil plateauing somewhat, maybe coming down some $3-$5, but not falling through the floor by any means. Oil production right now is down with OPEC. They have been rewarded for keeping barrels off the market, and I don’t think they’re going to forget that any time soon. I don’t see them going back and ramping up production. They’ve been rewarded so well, they’ve learned a great lesson by keeping, at first, some 3% oil barrels off the market, now it’s up to some 9%, 10%, or 11% of barrels off the market. They’ve learned a great lesson and they’re being rewarded for it, so we don’t see production swamping this market. We see oil possibly trading at about a $10 trading range from where it is now throughout the end of the year. Michael: All that media coverage and, of course, the price rally has increased the volatility, which is what we like to see as option sellers. Taking a look at a trading strategy, how to trade that exact scenario you just described, you’re looking at one of your favorite strategies, a strangle. James: It certainly is. You discussed, just now, headlines and OPEC and trade wars with China and the value of a dollar. All of this really has the volatility of petroleum, especially crude oil, at record levels that I haven’t seen almost since I’ve been investing in commodities, but right now you have put premium extremely high, even with a bullish fundamentals, and you have call premium through the roof right now. My favorite position in crude oil for the rest of the year is practically a $45-$50 strangle around the price of oil. So, in other words, we would be selling calls at the $90 level and selling puts at the $45 level. We think that the idea that strong fundamentals right now will keep the market from falling, but yet the fact that prices are high right now and that’s going to start curtailing demand. My prediction for the rest of the year is about a $10-$12 trade range for crude oil and here we have one of the best opportunities I’ve seen to position in crude oil in a long time. That’s putting a $45-$50 strangle around oil. We’re not right all the time and every once in a while we don’t get it right, but for oil to stay between 45 and 90 through the end of the year, I think, is an incredibly high probability position and that’s something that we’re taking advantage of, as you know, Michael, right now. Michael: You couldn’t do that a year ago. You didn’t get that wide of window, and now we have it, it’s on the table, and you want to take it. James: Michael, that volatility is your friend. I know when it first happens and you already have positions on, “Oh, it’s too volatile for us”… that’s what you like. A year ago, 2 years ago, 3 years ago, the widest strangle you would write on crude oil was approximately $15-$20 and now you’re writing a $45 strangle. We, as well, are going out slightly further in writing and $50 strangle around crude oil. We’re pretty confident it’s going to stay inside that window. We’ll have to wait and see. Michael: And again, watching this at home, this is an example. We are not recommending this to you personally as the perfect trade. In our portfolios, we are diversified over December, January, February, and March. Different strategies and different risk management techniques, but in going out to a month like February, a lot of people think that’s a long time out. We’re about 9 months out, but your plan isn’t to necessarily hold these until February or March or whatever you’re writing out there. Often times, with the right decay, you can be getting out of these a few months early. James: Michael, as we discuss with our clients when they first become clients, we will sell options 6 months, 9 months, 12 months out into the future, but not with the idea that we’re going to stay into that position until the very last day and try and collect the very last dollar. It’s really not important to do that. If we select options fairly well, for example, on the position that we’re looking at right here, after maybe let’s say you sell options 9 months out, if you selected them fairly well, 5-6 months later you should have collected about 85-90% of the potential premium. That is a great place to ring the register and lower your risk and be happy with the position and get out of the trade and buy it back early. Often, we look at February or March or April when we’re talking about selling options. Basically, you’re Tom Brady and you’re throwing it to where the market is not going to be. That is what we’re doing. So, when Michael discusses layering different months and different commodities that’s what we’re doing. To own a portfolio like that, it looks like a great deal of layering in the market and that is what it is and it allows you to have 10 engines on your plane so that when one goes a little bit awry you have other positions to make sure that 80% of your portfolio is going the right direction. This is a great example of doing that. Michael: Great advice. If you would like to read more about the crude oil market, what we’re recommending there this month, or going into our managed portfolios, you will want to read this month’s newsletter… that’s the May edition of the OptionSellers Newsletter. That comes out May 1st. It should be in your e-mail box or showing up in your hard copy mailbox a couple days after that. Of course, if you want to learn more about the strategies we discussed here or the rolling or strangle or some of the other concepts James mentioned, if you don’t have it yet, The Complete Guide to Option Selling: Third Edition, you can get it on our website at a discount, on Amazon, or the bookstore. The link to that is www.OptionSellers.com/book. Let’s move into our closing section for this month. Michael: Thank you for watching this month’s edition of OptionSellers TV. James, thank you for those insights on the cocoa and the oil markets. You have any predictions for the upcoming month? James: The month of May 2018, Michael, I think is going to be the realization that the U.S. dollar is not the weakest currency in the world. The U.S. is looking at probably 2 or 3 rate hikes this year. The U.S. economy is still doing quite well and its counterparts, especially in Europe, the economies in Germany, Italy, France, and England have been doing pretty well over the last 12-18 months, but the expansion in countries like Germany especially, the major driver of the European economy, is showing signs that it may be peaking already. Consumer Confidence in Germany is down, a lot of the sales in Germany is down right now, and not that it’s going into recession, if it does that would be the shortest-lived recovery ever, now don’t see that happening, but the U.S. economy still is on this footing and the European economy is fluttering already. That is going to make the U.S. dollar more buoyant than a lot of investors thought it would be and that is going to stabilize a lot of the commodities. So, getting into short options right now, whether it be puts or calls on precious metals, energies especially, and some of the foods, I think it will be a great calming effect in the 3rd or 4th quarter of this year. So, any discussion about the U.S. dollar isn’t doing so good, any discussion about inflation, I would fade those ideas and sell options on those ideas and, I think, later on this year you’ll be well rewarded. Michael: Sounds like a good outlook. We’ll have to keep an eye out for that. Also, May is a very active month in the grain markets. We have corn and soybean plantings going on here in the United States, so that can often create opportunities there, as well, for option sellers, sometimes on both sides of the market. James: Practically every year we have large influx of volatility in corn, wheat, and soybeans and we are ready and waiting for that to happen. Michael: Excellent. For those of you interested in finding out more about managed option selling portfolios with OptionSellers.com, you can call to request a consultation. At this point, we are booked out through July for our upcoming consultations; however, I believe we still have some spots left for consultations in June for those July account openings. I believe I misspoke there. The consultations are open in June, the account openings are for July. So, if you are interested in those upcoming openings, feel free to give our office a call here and speak with Rosemary. The number is 800-346-1949. If you’re calling from overseas, the number is 813-472-5760. James, again thank you for your insights this month. James: My pleasure, Michael. It’s always great to give our wisdoms and our insight. We’re not right all the time, but I do like the landscape for selling options here in May and June. Michael: Perfect. We’ll look forward to the month of May and we’ll talk to all of you again in 30 days. Thank you.

The Rev. Mark Hawkinson Is In - 2017/11/10

Play Episode Listen Later Nov 13, 2017

We welcome guest pastor Rev. Mark Hawkinson, Donor Care Coordinator and host of Moments of Assurance on Worldwide KFUO. Today’s program is a rebroadcast from April 28, 2017. He and host Kip Allen dive into the following questions: How do I tell my non-LCMS friends that they can’t take communion with me? From listener Jeff: “Why do LCMS minsters refer to themselves sometimes as Pastor and sometimes as Reverend?” From listener James: “What is the danger of giving more authority to the office of the ministry or the voter’s assembly than scripture affords?” From listener Robert: “I heard an argument that Jesus could not be Messiah, because he would need a blood relation to David. Due to Jesus’s virgin birth, there’s no blood relation. How do we respond to that?” From listener Bill: “If someone is convicted of a serious crime and sentenced to death, but an innocent person dies for that person, on a natural level that’s a double injustice. How do I justify that in my mind, with Jesus’s innocent death for my guilt?” From listener James: “Talk about the parable of the frogs and the duck, that Pastor Hawkinson talked about on the Lutheran Hour some years ago.” What are angels? What is the fate of those who commit suicide? Send us your questions! Email letstalk@kfuo.org with your questions for our guest pastors.

jesus christ rev pastor assurance moments lcms james what james talk jeff why hawkinson rev mark

Podcast #8 - Blade Runner: 2049 (2017)

Play Episode Listen Later Oct 18, 2017 100:20

The eighth episode has landed and with it comes a ton of Fall television! We go over what we've been watching which may have gone on a bit too long this time around...followed by a mini-review of the 2001 Studio Ghibli Animated Masterpiece Spirited Away. We give an update (probably final) on Movie Pass and go over the other movie subscription service Sinemia. James brings up his topic where the Movie Pals go over what Star Wars spin off film they want to see next! This is all then capped off with our review of Blade Runner: 2049. Thank you to our sponsor WaterFront Comics. 0:00 - Intro 0:57 - What Are We Watching? 30:57 - Mini-Review of Spirited Away (2001) 43:08 - News: MoviePass Update, Sinemia 48:52 - Topic by James: What 3 Spin Off Star Wars movies would you like to see next. What film sounds absolutely terrible? 1:11:45 - Review: Blade Runner: 2049 1:20:15 - SPOILER Section for Blade Runner: 2049 1:39:05 - Outro/How To Reach US/What's Next? Please subscribe and leave a review! We appreciate you listening! Thank you to Michael Parkham for Designing Our Logo. Contact us at our email: themoviepalspodcast@gmail.com for any submissions for topics! Follow Us On Twitter: @moviepalspod - our podcast Twitter page (submit a topic!) @rufio1617 - James' Twitter @marcore - Marco's Twitter @nlothae - Nabil's Twitter Follow Us On Facebook: Facebook.com/moviepalspod Also be sure to check out @waterfrontcomics for a variety of comics and collectibles.

star wars fall blade runner blade runner 2049 moviepass spirited away nabil sinemia james what mini reviews spoiler section what are we watching review blade runner

VI - Magic

Play Episode Listen Later Aug 24, 2017 60:07

When Captain Phil comes to talk to the Imaginauts crew about airlock use, they discover janitor/pilot (Jilot) Evie has taken a break from her duties to discuss the mysterious phenomenon of Magic from an entirely rational and scientific standpoint.What spells, incantations, seeds and roots can help you win in court? Where does one get 'dragon ink'? What's a good price for a magic amulet? How far back does ball cupping go? Has anyone been in touch with Houdini since his death? What's the strangest thing about Dr. Strange? Who the hell is Stigiro? How much acid do you need to write a comic book?All these questions answered and more on the Imaginauts!In this episode:James - What spells can help you in 'trying' times?Original Botanica - https://www.originalbotanica.com/High John the Conqueror Root - https://www.originalbotanica.com/high-john-the-conqueror-root/Dragon's Blood Ink - https://www.originalbotanica.com/dragons-blood-ink/Psalm 35 - https://www.biblegateway.com/passage/?search=Psalm+35Win in Court Amulet - https://www.originalbotanica.com/win-in-court-amulet/Galangal Root - www.foodrepublic.com/2014/01/22/what-is-galangal-and-how-do-i-use-it/The Worst Things for Sale - http://theworstthingsforsale.com/Toothpaste for Dinner - http://www.toothpastefordinner.com/Bitcoin Erotic Novel - https://www.dailydot.com/unclick/bitcoin-erotic-novel-king-bitcoin/Phil - How has magic changed over the years?Dedi and the Westcar Papyrus - http://www.reshafim.org.il/ad/egypt/texts/westcar_papyrus.htmCups and Balls - https://en.wikipedia.org/wiki/Cups_and_ballsIsaac Fawkes - http://geniimagazine.com/magicpedia/Isaac_FawkesJoseph Pinetti - http://geniimagazine.com/wiki/index.php?title=Chevalier_Giuseppe_PinettiJean-Eugène Robert-Houdin - https://www.britannica.com/biography/Jean-Eugene-Robert-HoudinHarry Houdini (Eric Wiess) - https://www.thegreatharryhoudini.comIndian Rope Trick - https://en.wikipedia.org/wiki/Indian_rope_trickPenn and Teller: Fool Us - www.imdb.com/title/tt1811179/Dorothy Dietrich - www.dorothydietrich.com/The Grim Game (1919) - www.imdb.com/title/tt0010195/Breaking the Magician's Code: Magic's Biggest Secrets Finally Revealed - www.imdb.com/title/tt0207261/Houdini's Death - http://www.history.com/news/what-killed-harry-houdiniDerren Brown and Simon Pegg - https://www.youtube.com/watch?v=sEmCQzueyEQSean - What's the strangest thing about Dr. Strange?Magic: The Gathering - http://magic.wizards.com/enDr. (Steven) Strange - http://marvel.wikia.com/wiki/Stephen_Strange_(Earth-616)Ages of Comic Books - http://www.playbuzz.com/spider10/the-ages-of-comic-books-explainedStan Lee's Letter regarding Dr. Strange's name - https://geektyrant.com/news/2012/1/26/stan-lees-letter-to-a-fan-reveals-dr-stranges-original-name.htmlSteve Engleheart - https://comicvine.gamespot.com/steve-englehart/4040-42211/Sise-Neg - http://marvel.wikia.com/wiki/Sise-Neg_(Earth-TRN206)Clea and Ben Franklin - http://www.therobotspajamas.com/once-dr-stranges-wife-cheated-on-him-with-ben-franklin/Marv Wolfman - http://www.marvwolfman.com/marv/frontpage.htmlDr. Strange (1978) - http://www.imdb.com/title/tt0077469/Dr. Mordrid (1992) - http://www.imdb.com/title/tt0077469/Bob Gale: Dr. Strange script - https://heraldiccriticism.wordpress.com/2013/02/09/review-doctor-strange-bob-gale-draft/Now You See Me (2013) - http://www.imdb.com/title/tt1670345/Bewitched (2005) - http://www.imdb.com/title/tt0374536/The Incredible Burt Wonderstone (2013) - http://www.imdb.com/title/tt0790628/Got anything you want to say to us? Email babybeardmedia@gmail.comAlso, check us out on Twitter, Facebook & Instagram. 'Baby Beard Media' for all!

VI - Magic