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Investor Focused Commercial Real Estate Opportunities with Ari Rastegar – CRE PN #296

Ari Rastegar  0:00  

I’ve definitely failed, failed more than most and kind of in the words of John Maxwell, you know, fail forward, you know, if you find that failure and I think a lot of people try to separate failure from success and the word failure has this, you know, negative connotation and it has this baggage that I think is just not fair because, you know, failure is how we learn, you know, being on the brink of failure, and failing is when we actually do find success and those that I’ve been very fortunate enough to know and mentors, whether in books, reading autobiographies are friends or colleagues, you know, billionaire friends of mine are the ones that have actually failed the most.

Announcer  0:43  

Welcome to CRE PN Radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast whether you’re an investor, broker, lender, property manager, attorney or accountant We are here to learn from experts.

J Darrin Gross  1:02  

Welcome to commercial real estate pro networks. CRE PN Radio. Thanks for joining us. My name is J. Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio. Today, my guest is Ari Rastegar. Ari is the founder and CEO of Rastegar Property Company has earned a reputation as a thought leader in real estate with his innovative technology driven investment strategies. And in just a minute, we’re going to speak with Ari about opportunities that Biden’s sustainability initiatives will bring. But first a quick reminder, if you like our show, care pn radio, there are a couple things you can do to help. You can like, share and subscribe. And as always, we encourage you to leave a comment. We’d love to hear from our listeners. Also, if you’d like to see how handsome our guests are, be sure to check out our YouTube channel. You can find us on youtube at commercial real estate pro network. And while you’re there, please subscribe. With that own Welcome my guest, Ari Welcome to CRE PN Radio.

Ari Rastegar  2:22  

Thank you for having me.

J Darrin Gross  2:25  

I am so grateful you could join us today I’m looking forward to our talk. Before we get into it, if you could take just a minute and share with the listeners a little bit about your background.

Ari Rastegar  2:36  

Sure, happy to do it. I’m actually an attorney by trade. I started my first investment Real Estate Investment Company when I was in law school with a $3,000 loan from the father of one of my friends that I went to college with and started building single family homes around five o’clock in the morning and driving about 3045 minutes to make it to law school and was a was a pretty busy pretty busy few years. And I graduated in 2008 from law school. And right around that timing should tell you kind of what happened to the world and kind of what happened part of the business. Luckily, I had a great partner and was able to leave with you know my hat kind of you know, in my hand and you know paying back by investors you know not making the money I thought I was gonna make you know for a kid that delivered pizzas through college it was just going to be something pretty great, but I certainly learned a lot and moved to New York City and spent many years on Wall Street working for some of the greatest minds in the business. Today Rastegar has invested in over 38 cities 12 states seven asset classes, our investors, our public pension funds, family offices, insurance companies, high net worth individuals. You can find out more about us by a simple Google search if you just Google Rastegar that you can kind of see in the background or my name Ari Rasta Gar you might see more articles than than you bargained for of what we’ve done. It’s been pretty public. And being in seven different asset classes over the past six years under our own banner. We’ve been very agile, you know, we found a lot of value in discount retail at one point, stuff anchored by target TJ Maxx and Ross and we did some student housing and did some office industrial redevelopment. But we see a tremendous, tremendous amount of opportunity right now in vintage multifamily. And that’s really kind of sub 100 doors very well located properties outside the urban core, very much a post COVID strategy that we started before COVID even started renovating the properties, taking them down to the studs, increasing grand spring institutional risk controls in place and really capitalizing on this renters market. But if you look at it In our global portfolio, which is well, in the nine figures, you know, we were breaking ground on four major development projects in 2021, including an office building a small office building on East eight that I 35. We’re based in Austin, Texas, where I was born and raised. We’re building some condos in Phoenix that in downtown Phoenix in the opportunity zone 500,000 square feet of industrial near the near the airport in Austin, in addition to about 150, condos on self first, outside the urban core, but our core businesses, vintage multifamily renovation, certainly for the foreseeable future, being able to capitalize on the creative financing that Fannie Mae, Freddie Mac, and, you know, HUD has provided being in this kind of low rate, interest rate, you know, kind of era that we’re in, and I see, I see a very, very positive outlook for those asset classes.

J Darrin Gross  5:57  

That’s a quite a list of accomplishments there. And I applaud you from just the start as a student, having the gumption enough to get up and go,

Ari Rastegar  6:08  

I it was stupidity, I think it was a little bit of brain damage. I don’t know if it was, if it was intelligence, but, you know, the old old definition of an entrepreneur is someone that jumps off the side of a cliff and builds a plane on the way down. And, you know, that was certainly me. Luckily, I kind of glide it, you know, there at the end.

J Darrin Gross  6:26  

Well, but but I think also, the important note to that, that I, you know, I encourage people to understand or to dig into or try is recognizing that when you take that risk, I mean, you you are empowering yourself at the same time, you know, there’s, there’s so many people that I think that go to college or go to school, or their ambition is to get a job. And basically, they’re, you know, they’re, they’re capped by whatever their employer will pay them. Whereas what I love about real estate, they should, the opportunity is there to, to, you know, create the terms make the deal. And keep making more deals. And right for you, for you to start at such an early age and see that opportunity, I think is, is, you know, one, it’s admirable, and I’m sure you learned a lot, even in the downturn, on what not to do and is probably made a stronger sense.

Ari Rastegar  7:20  

Yeah, well, I think learning what not to do is been much more beneficial. My book is actually coming out in May called the gift of failure. And I very much, you know, been a student of my failure and using it introspection to you know, to understand kind of what went wrong. And early in my career, you know, I found, you know, a lot of ego kind of coming in wanting to, you know, have the right answer myself. And as the business matured, we’re vertically integrated. Now, we have about 60 construction workers that are full time at our projects, you know, 20 folks and our wholly owned property management company, in addition to the PE firm irasburg our property, you know, so we run the whole gambit, right? And you know, you’re making mistakes and it’s, it’s how you bounce back from them and what you learn from them. But you know, those failures are certainly a gift if you have, you know, the resilience to go in and look at them from a you know, for from a non biased point of view and surround yourself with what I call believable people, you know, people that will really, you know, look at the situation and, and bring believability to whether you’re underwriting a deal whether you’re looking at the numbers and you know, really use mathematics, you know, we see ourselves as you kind of mentioned as a technology data analytics company. The joke Rasta Gar is that light bulbs don’t go out and rest of our buildings. And I say that because we have chips and all the light bulbs and the water heaters you know, we quite literally in real time can see if you turn on your microwave inside, inside your unit and we’re you know, collecting all that data, bringing on data scientists to make better investment decisions and offer a better kind of end user consumer experience because it Rasta Gar, you know, we’re very much obsessed with our, with our customers, and those are our tenants in our apartment tenants in our office buildings, in addition to into our investors, and the better experience that we can provide for them, you know, the better the better it can be. So, yeah, I definitely failed, failed, more than most and kind of, in the words of john Maxwell, you know, fail forward, you know, if you find that failure, and I think a lot of people try to separate failure from success and the word failure has this, you know, negative connotation and has this baggage that I think is just not fair because, you know, failure is how we learn, you know, being on the brink of failure. And failing is when we actually do find success and those that I’ve been very fortunate enough to know and mentors, whether in books, reading autobiographies, or friends or colleagues, you know, billionaire friends of mine are the ones that actually failed the most, you know, but they got back up, and they did it again. And I think that’s a tried and true concept. And, you know, it’s, it’s something that I’ll be talking about a lot of my book called The gift of failure, as I mentioned, coming out in May.

J Darrin Gross  10:22  

Awesome. I want to ask you quick about the different asset classes. You know, I think that so many people know sounds like now you guys are focused on the vintage multifamily. But as you you pivoted or however you you went from asset class to asset class, was there a strategy with that? Or was or an opportunity that you recognize? How did you make a decision to go from one to the other?

Ari Rastegar  10:50  

Well, it’s math, right? I mean, in, you know, for example, you know, in 2015, and 16, we were investing in discount and discount retail a lot. And then you started to see Amazon and online retailers, like, you know, really, really take that void, you started to see big box retailers, like the Sears of the world of JC Penney’s, go dark, and he started to see the writing on the wall and started to really understand the the sales per foot. So one of the metrics that we’d look at in retail is, you know, what are the sales per foot against the price per foot that they’re paying in rent. And, you know, we, you know, that’s called a health ratio. So the higher sales, you know, that you know, that the the area’s generating, in comparison to the rent, that they’re paying, you know, will really tell you, you know, how solvent that business is, and we, we started to see some of those health ratios decline in very stable businesses and great businesses, great companies, we saw an opportunity to exit and I’ve never been scared to sell. So if we find an opportunity to create liquidity, we’ll do that. And you know, I’ve built a business around singles and doubles, you know, I’m not the I’m not the home run guy, you know, I just rather just kind of just keep getting on base and kind of keep it moving a little bit. But agility has been very, very important and taking the emotion out of it, understanding the math, but at the same time, you know, handicapping that against the gut instinct, right, I mean, you walk these properties, you see them, you understand the neighborhoods, when we were investing in self storage, you know, you’d go in there and, you know, you’d, you know, you talk to them about renting a unit, you’d walk the area, you get to know management. And it’s unbelievable how much you can learn from touring an apartment complex that you want to buy, as a prospective tenant, or you know, or self storage facility that you want to be a prospective renter, you know, just from speaking to management, and putting some of these things in place, in addition to the 70 point due diligence, proprietary process that we created over the past 12 years to really understand how we underwrite these deals. And by using our 70 point due diligence checklist, in addition to bringing in a third party to do the due diligence, we separate the two teams together. And then once the two teams are done conducting their diligence, without communication, we do almost a Venn diagram, and what we find is that we miss a lot of things, and they miss a lot of things. And by putting those things together, you can get to a place where you have a high degree of probability that you’re purchasing something that, you know, that would have long term value.

J Darrin Gross  13:39  

Now, I, as an insurance broker, I really appreciate you sharing the, your due diligence or a little look into your due diligence, because I think that that’s something that I find a lot of newer investors are kind of, they may be strong on like one aspect of the due diligence, like the, what the guy is reporting this or what the sellers reporting is, rents, and comparing to what the the market might be, but not understanding, you know, capital improvement budgets, or just whatever else that that Iraq’s they don’t know, to look under. So they don’t and then they, they get into something and have a problem there. So I appreciate Yeah,

Ari Rastegar  14:17  

that’s right. I mean, this is, you know, I’m a risk manager for a living as you mentioned, you know, being an insurance broker, that’s really risk management People ask me all the time, all your real estate investor, you’re an owner operator. And for you know, I’m fortunate in building this business that I still own 100% of the company, you know, starting from literally from nothing and my you know, my wife works at the company and my sister in law is our chief operating officer. And I, you know, this is all for my kids. You know, I have a very, very simple man, I don’t wear fancy watches or, you know, kind of anything of that sort. You’ve obviously built an enormous business but you know, we’ve done it by creating value and doing something really special for our consumers, but I I see myself as a risk manager, that’s what I do for a living is I manage risk. And, you know, I don’t have a crystal ball, you know, there’s, you know, anybody tells you that there’s a, you know, a guarantee or anything about such I would cautiously be a little bit a little bit weary because there’s no guarantee that I cross the street, no, get hit by a car, God forbid, right? So, so we do our best to manage risk and run sensitivity analysis and run stress tests and run different scenarios, and really focus on what could go wrong. Like it’s very, very rare you’ll you’ll hear me talk about making money or you know, how much money can be made in this deal, you know, so much is focused on the downside and understanding what that downside risk is, and, and how that plays into the deal. And what we found statistically is, the more that we focus on the downside, and the more that there’s kind of less scenarios that there could be downside risk to have a possible loss, the higher the probability there is actually generating healthy risk adjusted returns.

J Darrin Gross  16:07  

That’s, that’s so true. If you take care of business there, it’ll take care of you. That’s good. So let me ask you, you touched on a couple of different asset classes that you’re in. You mentioned that your focus now is on the the vintage multifamily. Can you speak a little bit to how you landed on that? And what the opportunity as you see, in the vintage multifamily? Yeah,

Ari Rastegar  16:33  

so there’s a lot of things right. So during COVID, people were very scared of the urban core for the obvious reasons because of proximity. And it’s why you’re, you know, that and many other reasons why you’re starting to see the demise of Silicon Valley, we’re based in Austin, Texas. Recently, you saw Tesla bought 2000 acres here, Oracle moved their global headquarters, and Austin has really become the new Silicon Valley, you know, in many ways, and it’s gonna continue to grow. I’m a native austinite. So I’m, you know, a little bit biased and my love for the city. But when you look at when you look at the math, I mean, you have 156 people a day that are moving here, and it’s it’s tremendous, and most of them are renters, you know, we have a very young population, and millennials, I’m actually the oldest millennial, which is kind of a funny, you know, funny thing I like to joke about and that I’m right on the cusp, Brad, I’m 38 years old. So I’m on the cusp of both, and I’m kind of the API plugin, right, if you use technology terms between kind of the older generation, I’m still kind of the old school that, you know, went to undergrad graduated top of my class went to law school, my bar is still good in good standing, but I understand technology to some degree, you know, and just understanding how those things, you know, really, in a really play into each other, and seeing the millennials mostly are renting, and that doesn’t have as much to do with money, a lot of people like to turn that on that they’re not making as much money or jobs aren’t as plentiful. And the data actually shows that that’s inaccurate, they have the money to be able to purchase things, certainly with interest rates being where they are. But the core values are different. They travel, they travel more, I should say we travel more, we’re interested in being outdoors and more adventurous and millennials changed jobs more than any other generation in history. So you know, having a home or what would have been the American dream to our parents or grandparents is very, very different from a core value standpoint. So having that agility and that flexibility will bode well with renters. And another statistic that was unbelievably staggering to me was if you look at individuals aged 18 to 29 years old, as of the 2020 census, over 53% of them are living at home. So when you take that massive population, as in the United States, we actually are a very young population as a whole 18 to 29 years old living at home 53%, which is the highest in history. That’s what I call shadow demand. So once the vaccine really is populated, is really distributed, and we’re starting to see that happen, which I think is great, giving people a lot of peace of mind. And once we get over the mental toll that you know, people have gone through during this time, which I think is really understated. And you know, Billy and Jane start kind of moving out of, you know, mom and dad’s house, you know, they’re not moving into the fancy shiny high rise and, you know, downtown San Francisco or downtown Austin, you know, they’re gonna find, you know, a nice suitable place that they can live. And I kind of call it the $5 Uber ride. So if you’re within kind of the $5, Uber ride of the restaurants and bars and you know, those things are still well within a reasonable and economical proximity to all the places that you want to be. So that’s really where the strategy has come from, is that we build That shattered demand will continue to increase for this older product. Because when you buy the older product and you fix it up, you can charge significantly less than new development, because in most instances you’re buying at a discount to replacement costs. So you can still hit your margins has still hit the IRR is that you’re looking for. But with that, you know, you can you’re charging much less when it comes when it comes to rent. And I believe that trend is going to continue, certainly for the next five to seven years.

J Darrin Gross  20:31  

So tell me a little bit about your, you know, you mentioned buying discount replacement costs. You also mentioned, you’re going in and down to the studs. What does a renovation for you guys look like? Are you? I mean, is it stem to stern are you going all the way through

Ari Rastegar  20:51  

the Oh, it’s so down to the studs is kind of a term that, that you’ll hear kind of in any kind of industry and what we use and effectively that means that gut renovation, you’re talking new sheet rock, new insulation, doing all the deferred maintenance, changing roofs, plumbing, electrical, and really upgrading the the property from a whether a Class B or Class C, certainly on an interior basis to an A minus product. So a lot of the interiors that we have, whether it’s I mean, it’s brand new lighting, brand new hva sees, I mean, you’re really getting a class experience, but the but the structure itself is kind of like you know, like kind of the old motel six, right? Like you walk up, it’s a two story walk up or three story walk up, you know, in very, very well located areas. So you watch those maintenance costs go down. And a lot of times you can buy these from mom and pops. And you know, the older products have a lot of maintenance issues which bring that expense ratio up. So when you’re able to renovate the interior, you can increase rents, but once you divert do all that deferred maintenance, by changing the roof, there’s not as much leaks, the toilets are breaking, or whatever variety of issues that happen. And there’s always, you know, you know, maintenance calls and things that need to be dealt with. But it brings that expense ratio down significantly, which adds to the bottom line. So, you know, saving money on expenses, in addition to raising rent is really how you pop in a lie, which, which in the long room in a long term is what is going to ultimately create value.

J Darrin Gross  22:28  

No, that’s, you know, you’re preaching to the choir, there’s four, as I said, insurance guy, and also an investor myself, the if you cannot get those capital expenses upfront, you can’t have a an annuity. Yeah, I mean, it is. Yeah, exactly. I mean, a property that’s he basically got the the well located property. You know, and just to take care of all those problems, or potential problems right away, whether or not problems that’s, that’s beautiful, and I’m sure, it’s certain, from an insurance standpoint, that by doing that your insurance companies are are more than happy to insure your risk, knowing that you’ve done all the system updates, as opposed to not, which is more often the case, it’s somebody who’s come in and they’ve put new paint on something and made it look all

Ari Rastegar  23:17  

or they call it lipstick on the pig, right?

J Darrin Gross  23:20  

Yeah. And and I think that, you know, as a an investor, it’s always tough when you’re when you’re trying to calculate these things, if you don’t have a kind of a global sense of what is behind the walls and what what is it you’re buying, if you’re if you’re solely focused on what you can charge more rent for, that’s going to be the new floor coverings, and the cabinets and, you know, updated kitchen and bath. But if you’re not opening up those walls, replacing those systems, and then, you know, you’re basically setting yourself up for a surprise later and, you know, some expense. And, you know, so I applaud you for doing that. And are you is your strategy to hold most of your properties or however

Ari Rastegar  24:01  

long or long term holder? We’re long term holders as a general rule, we’re certainly not flippers. But you know, it’s really on a deal by deal basis. I mean, there’s a deal that we can go in and, like I said, create value and hit the returns that we think are feasible for ourselves and our investors, then we’re not scared to sell but there’s some properties that certainly that are unlikely opportunity zone. As an example, we’re building over 500,000 square feet of industrial on the, you know, 130 corridor, which is close to Tesla’s 2000 acres next to the airport in Austin. Well, that’s in the opportunity zone, and that’s the 10 year old. And, you know, so that’s the strategy there. You know, so as an example, the condos that we’re building in Phoenix and the condos that we’re building in Austin, you know, those are built to sell, right. So it’s really evaluated on a deal by deal basis and the type of capital that you have in those deals or in those groups. So there’s no you know, Exactly the answer to that question. It’s all really evaluated on a deal by deal basis.

J Darrin Gross  25:05  

Right. Now, that makes sense. Here, I did want to ask you a little bit is in the show title, we had mentioned the initiatives or Biden’s initiatives and the opportunities here. Could you speak to, you know, what are the initiatives by God’s plan? And what you see as the opportunities?

Ari Rastegar  25:25  

Yeah, well, look, I mean, so so President Elect Biden is, you know, very, very much into sustainability, obviously, a lot of the mandates around around climate change around technology, using alternative energy and using a lot of these things, solar paneling, etc, which I think are great. And I think they can be used prudently in a lot of in a lot of different ways to create that sustainability. And they work in some instances, they don’t work in others, right. And I think there’s going to be a balancing act there, we’re certainly we can lower the carbon footprint. In a lot of these instances, Austin has done a tremendous job of preserving the green, the green space, that’s here in Austin, we actually have more public parks than any top 10 city in the United States. And it’s very, very difficult to get through zoning and entitlements, which actually, you know, bodes well for real estate values. Long term, right? So you know, a lot of those environmental protections, I think, are very, very important. It’s all going to be an execution and how they’re financed and how they’re used and how those tax credits are used. So I’m excited to see how they’re going to be implemented. Because I think a lot of the ideas are, are great. And people ask me all the time, my Republican or a Democrat? And, you know, my answer is I’m an American. You know, I see the merit on both sides. I see good ideas, um, you know, kind of both party lines, I think, both have made some, you know, have some have some issues that I don’t necessarily agree with, but I’m just kind of one opinion. But I think that done right, there’s a lot of sustainability concepts that can be implemented, that would be a great value add for the country and for cities alike.

J Darrin Gross  27:15  

You know, we talked just a little bit about managing the risk, do you see any potential risk with the opportunities to your, you know, with the sustained sustainability opportunities her?

Ari Rastegar  27:29  

Yeah, I mean, there’s always risk, right. I mean, there’s risk and everything, right, is the, you know, is the generic is the generic answer to that. But I think that I think, the heart values in the right place, I think going towards sustainability, is where we should be thinking, but again, it all comes back to the execution, how’s that going to really be done? Ilan Musk is working on a battery that apparently will, you know, never run out, right, you know, using electricity in different ways, versus gasoline and lowering carbon emissions. And all these things, you know, we’ve spoke about, I think, are all great concepts. And, you know, I’ve seen some, you know, some really fabulous things as a constant. There’s a group called the ocean cleanup plan that was actually founded by a 19 year old kid several years ago. And he’s created a filtration system that’s actually can go through and take out the plastics out of the ocean, I mean, literally clean the ocean. And then, you know, repurpose a lot of the plastics and a lot of that debris, recycle it, and then reuse it, which is pretty innovative. And I think, you know, focusing on a lot of those endeavors, and the right way is where is where the world needs to go. And, you know, using, you know, working with innovators like that, gentlemen, Mike and Mike and Ilan Musk, and folks like that, I think, I think Biden will be very, very supportive of, and I’m excited to, to kind of see the the route that they’re going to go on and see those initiatives. But for me, it’s all it’s always an execution. It’s always in, you know, they used to ask Michael Dell, you know, years ago about his suppliers and who he uses and how he builds computers, and he was actually very open about it, you know, he shared a lot of the things were people were shocked by go, you tell us where you’re, you know, where you were, your supplier is or, you know, kind of this, that and the other and I’m, you know, kind of flub in the quote a little bit, but, but the net net was, he said, Look, I can tell you who my suppliers are exactly what I’m doing, but you can execute like me. And that’s really where this comes down to. So there’s a lot of great ideas, a lot of great minds that he’s surrounding himself by, but it’s going to be in what the execution as

J Darrin Gross  29:39  

well said, Hey, Ari, if we could, I’d like to shift gears here for a second, as I mentioned a couple times here by dam and insurance broker, and I work with my clients to assess risk and determine what to do with the risk. And, most often, there’s three strategies we typically consider. We look to see if we can first avoid the risk. If that’s not an option, we’ll see if we can minimize the risk. And when neither of these are an option, we look to see if we can transfer the risk. And that’s what an insurance policy is. Sure. And I like to ask my guests, if they can look at their own situation, could be your client who properties investors, tenants market, however you want to define it. But if you can take a second and identify what you consider to be the biggest risk, and again, for clarity, I’m not necessarily looking for an insurance related answer. But if you’re willing, I’d like to ask you Ari Rastegar, what is the BIGGEST RISK?

Ari Rastegar  30:41  

The biggest risk is ego, always to me, you know, and I say that in whatever instance that you’re working on, you know, as you know, whether as a CEO, as a father as a husband, you know, early in my career, and I’d like to, I’d like to believe that I’ve improved on this a little bit. I don’t know if my wife would agree with me entirely at home. But, but but the key is looking for the right answer. And we touched on that before, and it’s really being collaborative, and it’s really, you know, taking yourself out of the equation, because a lot of times I’m not the consumer, so there might be a countertop that I want to install. And I love this red, I’m just using I’m just using a random color, but I might not be the consumer. And so doing a focus group, you know, asking other believable people bringing up their, you know, using collaboration to find the right answer. And, you know, whether it’s a father talking to our children, and I might think that, you know, this is the way that I should be talking to them or teaching them or disciplining them, but is that their love language? Is that the way they shouldn’t they need to be spoken with? Is that the way that they need to be nurtured? Is that the way that I need to show up for my wife does she need me to listen to me listen to her, or does she need a solution and you know, and really taking myself out of the equation and and and that’s been one of the biggest evolutions of Rasta Gar. Is is really that is that’s the biggest risk, because when we think we’re right, and Mark Twain said it best he said, it’s not what, you know, we don’t know that gets us in trouble. It’s what we know for sure. That just ain’t so. And and I think that’s been the biggest learning experience for me. And the thing that I’ve really, you know, really focused on. I think, some of my childhood friends would say that was a little bit more of an arrogant man, earlier in life, and I’m looking to find a little bit more humility there, but not humility in the sense that I think less of myself or less of, you know, less confident, but thinking less about myself and thinking more about what that end user consumer is, our investors, the property themselves, investments themselves, and all the other facets that come together.

J Darrin Gross  33:08  

That’s great. Hey, Ari, where can listeners go? If they would like to learn more connect with you? Yeah,

Ari Rastegar  33:15  

I mean, you can just google Rasta Gar, I mean, it’s been up there and I think at the top behind us most of the time, or you can google Rasta Gar, rest of our rest of our property. And it’s been pretty public. We’ve been in the Wall Street Journal, New York Times, Forbes, countless times. So it’s very, very easy to find us. Our website is just Rasta Gar property.com. But a simple Google search will or you can find us pretty, pretty easily we have some incredible opportunities, if I do say so myself that they can fit some certain certain people’s risk profile and in that’s damn that’s our job is to serve our consumers and super serve our investors. And we’d love to hear from you reach out to us and, you know, a human will definitely, definitely get back to you. And a lot of instances I take those phone calls myself just because I very much love the human element. I was a English major and undergrad, believe it or not. And so I’m very much still a voracious reader and love the human element. Love the conversation and you know, love that part of the business very, very much. So I really appreciate you having me today and letting me kind of spew some of my thoughts.

J Darrin Gross  34:32  

Well, and we’re glad to have era. I want to say thanks for taking the time to talk. I’ve enjoyed it. learned a lot. And I hope we can do it again soon.

Ari Rastegar  34:43  

I look forward to it very much. Thank you so much.

J Darrin Gross  34:46  

All right. For our listeners. If you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow. That’s all we’ve got this week. Until next time, thanks for listening to Commercial For Real Estate Pro Networks, CRE PN Radio.

Announcer  35:06  

You’re listening to CRE PN Radio for influential commercial real estate professionals. For more information on this or any of our guests like us on Facebook CRE PN Radio.

Commercial Real Estate Investor Hustle with Joe Bell – CRE PN #295

Joe Bell  0:00  

Making 20 phone calls a day like, basically, if you just, you know, 20 contacts, whatever that number is, if you just focus on that, that will carry you out of whatever challenge you’re experiencing. And it’s it’s very obvious in the real estate industry, but I think it applies in many other industries as well, right? You’re, you’re technically only one conversation away from completely changing your trajectory of where you are to where you potentially want to be by focusing on context conversations, and, you know, bringing into life. Within those conversations, what opportunities lie that neither party is able to see right here right now in front of them.

Announcer  0:42  

Welcome to CRE PN Radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast whether you’re an investor, broker, lender, property manager, attorney or accountant, we are here to learn from experts.

J Darrin Gross  1:01  

Welcome to commercial real estate pro networks, CRE PN Radio. Thanks for joining us. My name is J. Darrin Gross. This is the podcast focused on commercial real estate, investment and risk management strategies. Weekly, we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio. 

Today, my guest is Joe Bell. Joe is a real estate and wealth expert coach. He’s been featured as one of Alaska’s 30 nines. He’s top 40 under 40. And Joe Bell is an expert in helping real estate professionals build legacy, retirement and wealth. He’s the founder of Legacy Beyond Listings, and the author of Assets, Acquisitions and Abundance. And in just a minute, we’re going to speak with Joe about how to focus on your market, build your team, and create real wealth and freedom in your real estate business. 

But first, a quick reminder, if you like our show, CRE PN Radio, there are a couple things you can do. You can like, share and subscribe. And as always, we encourage you to leave a comment we’d love to hear from our listeners. Also, if you’d like to see how handsome our guests are, be sure to check out our YouTube channel. And you can find us on youtube at commercial real estate pro network. While you’re there, please hit the subscribe button. And it really helps us out helps the algorithms and allows more people to find us. With that I want to welcome my guest, Joe, welcome to CRE PN Radio.

Joe Bell  2:47  

there and I appreciate I’m giggling over here because mom always said I had a face for radio so.

J Darrin Gross  2:54  

So it’s funny, the you’ll be just fine. Trust me, trust me. If you got a face, it works for YouTube as well. So

Joe Bell  3:03  

thank you. 

J Darrin Gross  3:03  

But hey, Joe, I want to say again, welcome. And looking forward to our talk. Before we get started, if you could take just a minute and share a little about your background.

Joe Bell  3:17  

Yeah, for sure. I came out of the sports world I was I was supposed to be a professional baseball player. At least that’s what I had in my mind. Until running into the hard truth that I was not going to be that in that game in my early 20s and didn’t really know what to do. I fell back on a, you know, just a natural characteristic of myself of coaching and through coaching, ended up running into a old dinosaur in the real estate industry at the time, you know, I’d spent 25 years in commercial real estate and I just kind of kept poking and prodding at him saying, Hey, get me in real estate, get me into real estate, get me into real estate. And finally He’s like, Alright, I’ll let you in real estate. But first, I need you to open this bar for me. Now as I Oh, well as a young 20s That’s right up my alley. You know, kind of like every guy’s dream and their young 20s or so I thought eight months later that that dream had crashed. And I realized it was not what I wanted to be doing. We were able to have some fun, make some money, but ultimately counting money at 3:34am in the morning and then waking up to receive shipment at 9am. It was a grind that was not worth it for me at that time. So I dragged my my tail between my legs back to the office and said all right, give me a real estate. So off I went he gave me a phonebook. He’s paper a pencil and said alright, start making some dials. So now this was back in. Oh 607. So I grew up in a very challenging market, you know, because we ran into Oh 809 and it proved To be very beneficial, I didn’t realize how hard it was at the time, I was just figuring out how to make money. And through doing so when the tide ended up, rising, once again, it took my boat with it. And all of a sudden, I ran into, you know, some success there. In 2009, I was about 29, I was a little bit of a late bloomer in regards to actually making money. And once I had, once I had a taste of some of that success, and saw how quickly it could grow. I just jumped in, you know, both feet and really ran hard at it. We purchased our first investment property in oh nine, which was also doubling as our primary home, we saw the ability to increase value, and again, was just another glaring opportunity of, you know, an area that we could thrive in. And so we ran out the investment side of the business now that we had a little bit of change in our pockets work with and from there met an investor, they took us under their wing, kind of for me, poking, prodding, pushing, and, and we ended up building a company with them that flips homes. That was, let’s see around 2014. And then for the past five years, we’ve been working at doing that and have become investors along the way. So there you go. There’s my, my long and short.

J Darrin Gross  6:21  

That’s awesome. You know, you mentioned the getting getting the keys to the bar at 20 years thinking, you know, quickly you realize that that’s that’s a tough, that’s tough go i i i’m glad that I had the the restaurant bar experience in my youth, but I can’t imagine doing that, you know, later on now. But cool. So you, you sought out a real estate mentor, he is that kind of guy that you could coach you along the way that

Joe Bell  6:53  

I did? Yeah. So the the pieces that I don’t really highlight in that story are a lot of the failed attempts along the way. Right? I failed in baseball, I failed at running a bar I failed. So many in between. And so what I’ve learned over the years is what I lacked in talent I make up for with persistence. And this was one of those scenarios where I knew this particular investor worked with a particular licensee agent in our market. But I had a direct insight to him because my girlfriend at the time, it was her boss. And so naturally, we just started building relationship. And you know, I kept just, you know, kind of hammering him going, I want to invest I want to become an investor and slowly but surely, I think he started to see a piece of his younger self in me in my girlfriend and I and finally he gave me a call. late in the evening, right around Christmas. I think it was oh 809 somewhere in there. Oh, nine. Oh, 10. Doesn’t really matter. But uh, yeah, at about nine o’clock, I showed up but a Frozen Four Plex. told me to bring some boots I’ve put my boots on we tromped into this crawl space that was filled with liquid. At the time, I didn’t realize it was part human sewage, along with frozen pipes. And, you know, I kind of took a step back, standing amongst the sewage gone. Yeah, this is exactly what I want to be right. Like, this is where I want to be right now. And from there, you know, we just, we, we created a synergy that made sense, because he had wisdom and resources. And I had energy and desire. And you know, it was rocket fuel one of those scenarios. And it just worked. And we we ran forward.

J Darrin Gross  8:45  

Sweet. Now it’s nice to have some of the missing pieces appear that can help you get to the next step there. So that’s cool. So you started out? You said he gave you kind of the phone book and said, Do you get calling? Were you calling on commercial real estate where you’re calling on homeowners where Who are you calling?

Joe Bell  9:07  

I didn’t know what I was doing. To be honest. I had no idea right? I was I was just calling to try and talk to somebody about real estate. And at the time, I was more focused on commercial real estate. You know, one of the one of the beauties about that, that entry into the industry. Being commercial focus, I had always this this dream of my first investment property being a 20 unit plus complex. And so because I didn’t have any business, I filled my time with learning. And I mean, I’d stay up till like two 3am in the morning, just finding properties and then breaking them down financially and analyzing to figure out cap rates, for whatever reason, like the numbers just made sense in my brain and it was fun for me and I was able to pick up on the language, of real estate of commercial real estate space. Typically, and that helped me set myself apart. Because at the time there was, there was a group of younger folks that were getting into commercial otherwise, you had the old dogs that have been there been doing it for a long time. So to have some fresh blood come along the path and be able to speak the language, it created an opportunity for conversation further than just the initial cold call, right. So it was a, you know, this is Joe Bell with blank, blank real estate, calling on your commercial building that you have just wanted to see if you have thoughts about, you know, potentially utilizing some of the equity that you had to purchase another property or, you know, if there were thoughts about selling in the future, I mean, you know, real, really easy real casual conversation, and then go right into, you know, exposing that you have a have an idea about what you’re talking about, you know, at your current cap rate, you know, does it make sense to potentially sell that one off, and, you know, get something new or utilize some of the equity in it. So, we just, we just spun it into a conversation any way we could at that point.

J Darrin Gross  11:09  

I’m curious, you know, I’m a fan of cold calling, I’ve done it all my life. And well, no, I say a fan of it. Because I know that when when I’ve needed to, it’s, it’s the one thing that kind of reconnects me with prospects, you know, if you’re, if you are in a waiting mode, for people to call, a lot of times the people that call are worth, I mean, they’re not worth the effort kind of thing. It’s like, I found that some of my best opportunities have come from me reaching out, as opposed to the the inbound thing. And I know it’s not always true, I don’t want to make a call to business that’s come to me has not been worth doing. But it seems like that, that when I’m in the, in the outbound thing, you know, trying to generate some sort of rapport, you’ve got that one little window there. And if they listen to you, and they stay on the phone, and you find out there’s an opportunity there. Sometimes it can it can be a pretty sweet deal but i i’ve I know it’s it’s it’s exhausting. I’ll say that and I’ve learned since that too fired out a lot of the the outbound calls just to keep keep me fresh when I am talking to people that are looking to buy but

Joe Bell  12:22  

but it’s it’s one of those things. Yeah, it is, it is challenging, and you have to find a way to create you know, vigor around it some some life within it, have some fun with it. And it’s it’s harder and harder, because people just look at telemarketers, right as trash. And they’re very, very mean very short, very quick. So you do have to figure out a different approach in that sense. But one of my mentors, one of my really good friends, Jennifer tumour, she used to quote, somebody that she had heard it from, but it was something along the lines of there’s no financial challenge that you can’t solve it in making 20 phone calls a day, like, basically, if you just you know, 20 contacts, whatever that number is, if you just focus on that, that will carry you out of whatever challenge you’re experiencing. And it’s it’s very obvious in the real estate industry, but I think it applies in many other industries as well, right? You’re, you’re technically only one conversation away from completely changing your trajectory of where you got to where you potentially want to be by focusing on context conversations, and, you know, bringing into life within those conversations, what opportunities lie that neither party is able to see right here right now in front of them.

J Darrin Gross  13:44  

Right, right. And I think there’s, there’s definitely ways to be more productive than just complete random, you know, strangers, I think that one of the things I remember when I when I last time I actively did, it was just the kind of kind of honed the, you know, the message or whatever it is to where it’s a little bit more inviting for response, as opposed to getting rejected. And just, to me, there was some sort of building to it. And like, you know, said the, in the numbers, all of sales numbers, and the more opportunities you you know, the more doors you knock on, the more opportunities you’re going to receive kind of thing. So, but no, I I’m just a fan of learning that way, too. I have talked to many people. In fact, like you were saying today, most people kind of screen their calls, I found that the few people that do answer their phones are almost surprised if you have something legitimate as opposed to some sort of recording about, you know, you’ve one of your friends or family recommended that I call you know about something. But

Joe Bell  14:45  

Right, right, if you if you can’t hear the chatter of other callers in the background, right, or it’s a voice message, right, you kind of go away, but it sounds like a

J Darrin Gross  14:57  

real person. Yeah, that’s good. So let’s continue here. So you you got kinda You mean you got rain and you got a mentor, you got some a little bit of training, you got some you were learning the lingo, which I think is a big part of, you know, creating credibility with commercial real estate investors. So were you having success that that? Were you listing property selling priorities, leasing properties? What was your, your Yeah,

Joe Bell  15:29  

so this was this was more on the sales side, the transactional side. And yeah, I was having some success, I wasn’t having a lot to be honest. And there was one transaction that actually kicked me out of commercial real estate. I had been working on this transaction for six months, we got legitimately to the table to sign and buyer walked. Right. So seller got their earnest money of $10,000. And I watched my commission of 38,000, I think it was just gone, 

J Darrin Gross  16:04  

go out the door, the seller, or the buyer?

Joe Bell  16:06  

Yeah, it was. That one was a tough one. At that time, I hadn’t been making a lot of money, I’ve been learning the ropes of real estate. My girlfriend was at the time paying for my portion of rent in any given month, and it was, it was a really hard thing to go through. And I’m glad I went through it because it, it helped me focus, it helped me see, you know, the path of more on the residential side, because that’s what it did. It was like, Oh, crap, I have to figure out how to make money as quick as possible here, and residential just turned a little quicker. So I jumped over into that side of it. And I found that it paid more often more frequent, not as big a, you know, slice of pie. But it was something that was I could see, okay, here, this, this one’s 3045 days down the line. And here are the specific activities. Because there’s a lot more homes than there are commercial properties. And that somehow delineated a lot of competition in my brain, it was like, oh, wow, I can run after so many of these. Whereas I’m facing, you know, the 25 year old, or the 25. Year, that’s in the business over on these commercial properties at the time. I mean, I know I look like a baby now. But I really look like a baby, right going and talking to somebody about the security of their, their future retirement was a little bit more of a challenge. So the houses were easy, the residential side was easier. And I just found a natural groove as I moved over to that side of it. And and then it was, you know, it’s almost like the matrix coming together where the market hit, I started seeing a different income increased and from there was okay, now’s the opportunity to go in and start, excuse me, start personally investing.

J Darrin Gross  18:02  

Got it. So you mentioned that there was an investor that came along in the sun, like you guys partnered and we’re doing flips. Yep. Tell me about what, are you still doing the flips?

Joe Bell  18:16  

Yeah, at this point, we’ve now taking part in almost each sort of investment opportunity that has come across our desk. We’re heavy into a development now currently. So flipping Homes is, is almost second nature. It’s just part of what we do it, I would say it’s probably more of our bread and butter, because we’ve done so many now. And we’re comfortable with them. So but yeah, the at the time, these individuals, so is it was a couple they were shoot, I want to say they were in their mid mid to late 60s at that point. And here we were, we were in our, you know, late 20s, early 30s. And, again, they just kind of took us under our, under their wing, and they have the resources. We have the energy we had the vision and the analysis that they were looking for, in doing flips in doing these projects. And is it just married? Well, you know, and it took a little bit of coercing, but you know, after after really building the relationship, getting to know them. They became very important people in our lives. They’re now the godparents of my daughter, I it This was just a conversation that I kept persisting with, and it turned into something be very beautiful, very amazing. And they’ve now since retired, they sold off all of their assets here this last year and they moved down to Washington and are in retirement mode.

J Darrin Gross  19:48  

Catch. Well, the, again, you know, you you learned you kind of grinded you, you you found a teammate. If you Well, your your investor partner there sounds like you guys did quite a few homes. So So let’s talk about where you found in the success that followed, I guess you know, the thing that I read for the the introduction there is about blowing up, you’re not blowing up but the focusing on your market and you know, building out your team and creating real wealth. To this point, it sounds like you’re really kind of focused on a particular market. Based on I’m assuming is all of this happened in the same same market? Yeah, your experience it,

Joe Bell  20:44  

I’m born and raised in my market. So I have a little bit of a competitive advantage in that regard. Even though I never really paid attention to real estate, or homes or buildings growing up. But yeah, now that I’m, you know, a seasoned vet of 15 years in this market, I know it’s inside now, for the most part, and it’s very easy for me to analyze it. So there’s my there’s my competitive advantage, right. But more it’s time on task, time on task has allowed me to set myself apart in in the investment side, and being able to analyze and understanding the numbers, understanding the cost, understanding timeframes, and how to put all the pieces together, that’s been pure time on task over time, has now, you know, allowed us to become just a different, a little bit of a different machine in that regard. Because we we know what we’re doing, we can do a very quick, and, you know, it’s just something that we’ve, we’ve learned over the years. So part of that is in building the team. So I wrote a book, it’s assets, acquisitions and abundance, it’s on Amazon, there’s my little pitch for to get it out of the way. In that what we do is I talk about assets and highlighting what your personal assets are not in what you own, not a business, not a piece of property, but what your strengths are right in defining those strengths. And understanding those strengths and focusing on utilizing those strengths. And then where you can look for assistance and leverage and, and helping in your market in your network specifically. So we talked about understanding your assets in order to go find the assets and acquire those assets, through utilization of not only your strengths, but other strengths as well. And it’s been very surprising to understand how how many different resources we have in our immediate network. And it’s just a matter of, you know, becoming a resource yourself, so that you create this attraction towards the real estate investing, you know, side of your world. And as a result, people start raising their hands going, Hey, yeah, I have a construction background, I’ve wanted to get into flipping. Yeah, I’ve got a bunch of resources, I want to, you know, do some investing, because the stock market scares the crap out of me right now, you know, and you just you don’t understand until you ask the question, and you start digging into some of these conversations more, what sort of opportunity there is, who, who you have in your network, the resources that are available, and you know, ultimately, then it all comes back to, you know, dealing with your your market and being a part of your market in order to create that attraction.

J Darrin Gross  23:34  

No market familiarity and expertise is, you know, will pay spades. I mean, as far as the dividends, right, you know, I’m just having that that carnal knowledge or let me ask you, though, about the team members in, in the way you’re doing it. Who are some of the key members of your team? And what do they do?

Joe Bell  24:01  

Yeah, so I’m, I’m more on the acquisition and negotiation side, I love negotiating. That’s, it’s my favorite part of the, you know, it’s, it’s almost the art of the deal, right? It’s the chase. That for me is, is the, that’s my, that’s my area, that’s where I, you know, kind of control everything else. I can find leverage points in that regard. So, you know, we’ve been working with the same contractor for for quite a while and we’re starting to open and open up to other contractors as we continue moving forward to create a bigger part of the team. And when you do find that, you know, that general if you if you can find that individual, then you create a you know, a form of leverage for all the subs in handling different specifics of the flip itself. So, you know, and continuing to search, continuing to have conversations and highlight who’s great at The construction contracting side of the world as a, that’s a really big part of it, and that doesn’t come very easy. It, that’s another time on task ritual, where you just have to continue having the conversations and top grading, you know, when you when you come across some of those, those hire talented individuals. So that’s a really big, really big chunk of what we do the resources, so a lot of our investors, you know, because for me, I don’t have to, I don’t have to have the biggest piece of the pie, I don’t have to have all the pie, I just want a piece of the PI, in order to, you know, again, going back to the title of my book, aswhat assets, acquisitions and abundance, this is where the abundance play comes in. And it’s really grabbing folks that are interested grabbing folks that have special strengths that I don’t, and bringing them along with us, and most of the time actually grabbing on to their coattails and going along for the ride and the trajectory that they’re already on. So in finding resources, you know, the investor network is a big part of what we’ve been able to build over the years. And, you know, I can’t even say that it’s not over the years, it is in the last probably 24 months 24 to 30 months, since we close shop on our investment flipping business. And we’ve now carried this on our own forward, really being able to understand and know where your funds are, give you a different error confidence when going out and looking at acquisition. So. So on the repair side, you have, you know, a party or parties that can handle that piece. And on the resource side, you have the financial ability and confidence to know that, you know, ultimately you can go and find the money, if the deals good enough to you know, go and squeeze it.

J Darrin Gross  26:57  

Got it? You’re talking about the money, what? How are how are you structured as far as your capital.

Joe Bell  27:05  

So, it, it all depends, it depends on where we’re at. So we’ve got a development going, and we’ve got, you know, roughly about $600,000 in that development. And, you know, we have another, we have another actually two flips that are coming up. And we’re just utilizing different private resources, we haven’t really gotten to a bank, we don’t do any home equity line of credits, or a line of credit or two or 3k loans or anything along those lines, we are working with folks that come out of our network and are interested in participating. And we offer them, you know, a couple of different structures, and one of my favorite is to guarantee a certain percent of return on their money as much as you can guarantee on an investment right and a risk. And then beyond that we split profits. So you know, it makes them feel comfortable with knowing that bare minimum, we’re working towards their return. And if we do what we say we’re good at and we know how to do, then we’re going to participate in those profits on the back end as well. So it just kind of depends on the on the project and how we structure it and what the what the party is looking for that we’re working with. Yeah, that what you were asking?

J Darrin Gross  28:23  

Yeah, no, absolutely. Just, you know, the, the money, there’s always a little somebody who’s got the money in the deal there. I mean, those Right, right, you get it. But one things I love about real estate is, you know, to you can be as creative as the parties that are involved or willing to be so that’s good, right? So you mentioned basically, you’re on acquisition, you’ve got a contractor, is there any bid and then the investors Is there anybody else that that you you rely on to help you get out the word and find opportunities. And,

Unknown Speaker  28:59  

you know, I mean, social media has been really, really good for us. Every now and again, we’ll put on a little, you know, investment seminar, I mean, we’ve done enough now with social media that folks know that we are in the acquisition game, we are in the investment game. And so once in a while, we’ll just say hey, we’re we’re holding the very, you know, private meeting, where we’ll present what we do and if you’re interested in participating, come and join us. And those have been very successful in highlighting the who we can participate with in some of these and most of the time, most of the time, it’s it’s purely just financial that comes out of that we haven’t really found, you know, a level of talent in regards to any of the construction side or, you know, special knowledge side of things. But it does create the opportunity to continue building out that network and creating another resource, you know, to scale to expand if we wanted to really push on it?

J Darrin Gross  30:02  

Gotcha. So, for the listeners that are considering, either they’re in an Anna market or looking at greater success in their market, what are some tips that you could provide or share that would help them? You know, grow and and help create more real estate wealth?

Joe Bell  30:26  

Yeah, so there’s, there’s really two things that I like to focus on when I get this question. And the first one is just becoming the resource. So if you’re, if you’re new, if you don’t have a lot, you know, under your belt, then becoming the resource really allows you to create an attraction, right? So, so a couple of steps, go find, you know, five podcasts like yours, go find five blogs, go find five websites, go find just information resources, and then share that with your community. And by doing so, you’re you’re doing two things, one, you’re showing that you can be a resource for really great content, and two, you’re supporting somebody else’s efforts, right, and the energy that they’re putting in, so you’re organically growing, you know, that side of the universe. And by doing so, if you do enough of really strong content sharing, then ultimately you’ll start to create this attraction back towards you. And it’s just a very simplistic approach to becoming the source. So when people think about real estate investing, they go, Oh, you know, what, Darrin? Does real estate invest? Oh, wait, he has a podcast, right? And so they think of you because everything that you do should be focused around, how do you carve a percentage of their mind for you, and u becoming that one that they think of? When it comes to real estate specific, right. So that’s, that’s one real easy way to go about it. And the second is just to have conversations, you know, just, uh, you know, if I was, if I was looking to learn or looking to connect with, you know, high talent, or folks that have done investing or, you know, gain a level of knowledge I don’t have, then I would give you a call there. And I would say, hey, Darren, I’m really focused on real estate investing, you have anybody like a top three that I would potentially be able to reach out to, to talk to him about real estate investing. Right, and I just shut up at that point, and see what your responses, this is a high contact sport, you have to either be, you know, focusing on contacts with individuals that can join your network can help find different opportunities, or know somebody that might have an opportunity. And, and that’s really all this is, right? It’s just continuing to have the conversation, because you never know where a conversation is going to lead you.

J Darrin Gross  32:59  

Yeah, no, I love that. And I think the thing that I would add just in, in thinking about it is, is that the, the conversation doesn’t necessarily have to have an end point, like, you know, you’re trying to get them to investor or whatever. But just having those conversations and asking questions and listening, I was amazed by the, and I’ve been guilty of this too. So I don’t wanna make it sound like a part of it. But, but the lack of success when when I’m so trying to, you know, get somebody to or I’m putting I’m giving them all this information, and I haven’t found out, you know, might they be interested? going before I’m giving them all this information? So I think that’s, that’s, that’s great stuff. I appreciate that. Want to ask you a quick about financial freedom? Yep. How do you define it? And how do you when you when you’re working with others? What are your how do you how do you measure that?

Joe Bell  34:03  

Yeah. So right, this is this is almost the same question of what is success to you, right? Because success is different for everybody. Financial Freedom is different for everybody. And so financial freedom to me is being able to make the choices that you want to make when you want to make them is really what it comes down to. Now, we don’t I can be very, very transparent here and say that we don’t always get to make those choices based on some of the other decisions we’ve made in regards to financial decisions and investment decisions. Right. This is a it’s an ebb and flow on our way to get to that point where you have total complete financial freedom, right to make the choice that you want to make when you want to make it but there are times where you go, you know what, I’m going to sink this chunk of money because I see See the opportunity. And as a result, I’ve got to go and make up. Alright, it’s almost like a lot of business owners out there where you know, they have a successful business, but talk to him about a cash flow or talk to him about getting a loan through a bank. Right? There’s a lot of challenges that I run into, in those conversations with folks that, you know, they’re, they’re really producing, but they’re not quite to the level where financial freedom has has graced their presence. Right? So when we’re, when we’re talking with folks, it is more a matter of stripping down the layers to go, really what do you want, you know, and at the at the base level, I run into folks just really want to be of value, they want to figure out their value, and they want to be of value. So where can we help them live in a world that they feel like they are a value in offering value, whether that’s financial freedom, right, or whether that is really hitting their groove of, you know, finding joy in their life, because they are of value and are able to spread that value, you know, amongst their, their resources and network, I should say,

J Darrin Gross  36:16  

Oh, that’s good stuff. Hey, Joe, if we could, I’d like to shift gears here for a second. By day, I’m an insurance broker. And I work with my clients to assess risk and determine what to do with the risk. And there’s, there’s typically three strategies I point to and asked my clients to consider. The first way is we ask, can we avoid the risk, if we can avoid it, then the risk doesn’t doesn’t affect us. If that’s not an option, then we look to see if we can minimize the risk, and what steps we can we can take. And if we’re not able to avoid nor minimize the risk, then we look to see if we can transfer the risk. And that’s what an insurance policy is. It’s a risk transfer vehicle. And I like to ask my guests, if they can look at their own situation. This could be your clients, investors, tenants, the market, it’s a blank slate, you get to define it. But if you could take a look at your situation, and identify what you consider to be the biggest risk. And, again, for clarification, I’m not necessarily looking for an insurance related answer. But if you’re willing, I’d like to ask you, Joe Bell, what is the biggest risk?

Joe Bell  37:43  

Yeah, well, an insurance related answers sometimes a really good step. But beyond that, right? Um, you know, the some of the biggest risk is, is when you you think you know it, all right, you get to that point where you reach the pinnacle. And as soon as you start to feel like you’re there is one of the biggest opportunities to actually get swept off the mountain. I think a lot of us out there, I know myself experienced that, when COVID hit, and we lost $900,000 in investment. It quite frankly, just caught a lot of people with their pants down, myself included. And I was I was to a point where I felt like, you know, I was doing pretty well. And I knew quite a bit of of what there was to know out there. But it was a humbling moment where I had to take a step back and go, No, we’re not even close. Right. So, you know, the biggest risk is to get to that point and stop learning, stop progressing, stop evolving, both as an investor and as a human. You know, so that that, to me is one of the biggest risks outside of all your general pitfalls that typical new investors run into and, you know, trying to trying to do stuff before they really know what they’re doing and that sense. So yeah, for me, it probably applies to a more seasoned individual that has been around the game for a little while, but there is there’s no Pinnacle. It’s a continual evolution and just focusing on that.

J Darrin Gross  39:30  

I think that’s, that’s some words of wisdom there. It gets

Joe Bell  39:35  

harder wisdom, I guess.

J Darrin Gross  39:38  

Yeah, school, Hard Knocks. I mean, you know, it’s, I remember growing up, my parents were poor, not. They didn’t hover. they’d let me make mistakes and, and, you know, they always said, Well, I could have told you that but then you wouldn’t learn so I was like, well, right.

Joe Bell  39:54  

Okay,

J Darrin Gross  39:55  

so I’ve got the battle scars.

Joe Bell  39:57  

Sage, that is sage advice, right?

J Darrin Gross  40:01  

But anyway, Joe, where can listeners go if they’d like to learn more or connect with you?

Joe Bell  40:08  

Yeah, so our website legacy beyond listings dot com legacy beyond listings was initially initially came about for real estate professionals specifically that, you know, I just wanted to drive the point home for them to focus on the real estate side of the world for themselves. Because I had a lot of conversations running a billion dollar brokerage in the mid 2014 2015. Where I didn’t find a lot of those individuals setting themselves up for wealth for the future. And so I put this this website together, and I realized this doesn’t just apply to real estate professionals. This is everyone. So legacy beyond listings dot com, I’ve got a link that folks can schedule some time with me, which is, which is purely just that, right. It’s purely just a conversation. I used to do the coaching thing, but really have progressed beyond not in a negative sense, but just as I just want to find a way to help people and if it’s a conversation then great, you know, sign up for a conversation right? In that regard. There’s also a case study that they can download there. Or if they want send me an email directly on Joe@JoeBell.life, l i f is in Frank, E.

Unknown Speaker  41:32  

J Darrin Gross  41:34  

Got it.  Joe, I can’t say thank you enough for taking the time to talk. I’ve enjoyed our conversation. learned a lot and I hope we can do it again soon.

Joe Bell  41:44  

Yeah, no worries. The pleasure is all mine. I really appreciate the opportunity, Darrin, so thank you.

J Darrin Gross  41:49  

All right. For our listeners. If you like this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow? That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks. CRE PN Radio.

Announcer  42:11  

You’re listening to CRE PN Radio for influential commercial real estate professionals. For more information on this or any of our guests like us on Facebook CRE PN Radio

Eliminate Limiting Beliefs to Grow Commercial Real Estate Portfolio with Ketan Patel – CRE PN #294

Ketan Patel  0:00  

You know, the informations out there, books and podcasts and things on how to buy the property and what to do. Everybody has access to the same information, why are certain people able to make it happen? What’s different about them, versus people who are feeling stuck, which was me at one point, I kept going round and round. I wasn’t making the decision. I was just like, scared of moving through things. And it really made piqued my interest into performance, and psychology and emotions and all of these things. Right. So doing all of that work over the years and my own experience, I came to the conclusion that there are five fundamentals if you want to take your real estate investing business, whatever you do hotels or multifamily or storage, whatever your strategies if you want to take it to peak performance, there are these five fundamentals.

Announcer  0:52  

Welcome to CRE PN Radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast whether you’re an investor, broker, lender, property manager, attorney or accountant We are here to learn from the experts. Welcome to commercial real estate pro networks, CRE PN Radio

J Darrin Gross  1:17  

Thanks for joining us. My name is J. Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly, we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio. Today, my guest is Keaton Patel. He is a high performance coach who helps motivated real estate entrepreneurs create more income and impact by aligning their thoughts, emotions and actions. And in just a minute, we’re gonna speak with Keaton, about transforming real estate entrepreneurs into peak performers. But first, a quick reminder, if you like our show, CR E, pn radio, there are a couple things you can do. You can like, share and subscribe. And as always, we’d encourage you to leave a comment. We’d love to hear from our listeners. Also, if you’d like to see how handsome our guests are, be sure to check out our YouTube channel. And you can find us on youtube at commercial real estate pro network. And while you’re there, please subscribe. With that, I want to welcome my guest, Keaton. Welcome to CRE PN Radio.

Ketan Patel  2:34  

Thank you, Darrin, thank you so much for the opportunity and excited to be on the show and connect with you.

J Darrin Gross  2:41  

I’m looking forward to our conversation today. But before we get started, if you could take just a minute and share with the listeners a little bit about your background.

Ketan Patel  2:51  

Sure. So basically, I’m an immigrant from India, I came here when I was 19. I wasn’t even speaking English, got my Doctor of Pharmacy started practicing pharmacy and realize that my heart is in investments in real estate, the passive income is such a critical piece. So I started buying small multi families slowly got into the syndication and senior care, business and whatnot, eventually to realize that the mindset is the thing that excites me most the thoughts, emotions and actions we play with it have so much impact on the success of our business, how good we feel the fulfillment and overall picture. So then I transitioned into the high performance coach, and I still have my real estate practice where I allocate funds to multifamily investments from my investors.

J Darrin Gross  3:44  

Awesome. So you, you you arrived here at 19 then speaking English.

Ketan Patel  3:51  

Yes.

J Darrin Gross  3:52  

Wow. And then you went on to get your PhD in pharmacy?

Ketan Patel  3:56  

Yes.

J Darrin Gross  3:57  

That’s a pretty impressive feat there. I remember impressed. And then in a while after doing all that education. Yeah. Because how many years of college is the PhD in pharmacology?

Ketan Patel  4:10  

So normally it’s six years, but I did an accelerated program for four and a half years and four and a half years.

J Darrin Gross  4:17  

Yes. And is that from from starting your undergrad to your PhD? Or is that just a PhD? Normally,

Ketan Patel  4:24  

it’s a doctorate program, Doctor of Pharmacy that goes from high school to six years or some people do a four year bachelor’s, and then they do the three years add. What I did is I went in undergrad and I realized that it doesn’t make sense just to take more classes and I transferred into because of the GPA and all of the factors I was able to transfer into the other program without the undergrad requirement, and I was able to get that finished.

J Darrin Gross  4:53  

Good for you. That’s awesome. So you do that and that’s an accelerated program and you work Work your tail off to get that done. Yep. You get out into the real world, your your, your pharmacist. Okay. And for how long did you did you act as a pharmacist before you realized you wanted to get into real estate?

Ketan Patel  5:19  

So I practiced for about three to four years. And in the beginning, everything is good. It’s fine. But I started asking myself questions. And one of the question was, if I still remember that night, I’m like, What if they pay me a million dollars a year asked me to drink as much coffee as I want, and don’t even come to work when you want and leave when you want. You don’t even need to worry about working 40 hours, you could work two hours a week, would I do the job? And my immediate answer was no. And I was surprised at my own hypothetical question. And then I realized that my values are about freedom, are about creativity, innovation, taking risk, supporting people in a different capacity. And these values are not really jiving with the environment. And I’m like, if I don’t tackle this thing, now, what is the point of life, if you are not really expressing your values and getting the fulfillment, there is no end goal where, you know, everything’s just gonna magically click. And that really made me think and, you know, start going into another direction.

J Darrin Gross  6:27  

So let me ask you, I think that’s a it’s a real critical question that you were able to uncover or realize about yourself. The values, was it? Was it more of the corporate culture? Was it? What was it that you realized was the income growth where you were aligned? Sure. So

Ketan Patel  6:49  

there’s a lot of the things too, first of all, the actual work would be somewhat monotonous. And then the corporate environment, I wasn’t really the medications have their use in the society. But I’m seeing that the patients really could use other modalities and things, but the whole world that was created was all about, you know, just more and more prescriptions. And, you know, people need the quick fix. And it’s not really doing what it’s supposed to, you know, and so, you’re part of a thing that we need the pharmacy, we need the pharmacists, and we need the medical system. But I realized, in me growing up in India, I realized people don’t have access to medical care. And yet everybody’s happy for no reason. Something just doesn’t make sense. And I grew up there and I didn’t really had, you know, all of the conveniences and things in life was great. And here I am, a pharmacist making good money living in Boston, I have everything but it just you don’t feel that excited, like what’s what’s going on. Right? So I knew that the answer is you kind of have to go within to figure out what’s going on. And he kind of started the discovery.

J Darrin Gross  8:04  

Alright, so now you realize that you’re at a crossroads, what you’re trained for, and what you’re doing aren’t meeting your your inner needs. Yep. How did you arrive at real estate is the the answer.

Ketan Patel  8:21  

So I tried a bunch of things. First, I was trying to ship aluminum containers, I had a business to do the explored and onecall pharmacy. But somehow I just realized that real estate, it just makes sense. And I’ve started reading a lot of books. And I didn’t do anything with it for a year or two. But eventually I’m like, I have to put all this knowledge to use and let me just buy one property. So I bought my first single family with two friends. But the challenge was I had no money for the downpayment. And I asked myself, do we is my dream that important? Do I believe in the possibilities of my life? If I do, I’m going to come up with the solution. So what I did is I basically lived on credit cards for two, three months, and every dollar from paycheck, I pumped into 401k that the company was matching and I took a loan against that amount to basically get the downpayment to buy the single family.

J Darrin Gross  9:20  

I look at you creative financing. I love that. That’s great. So, so you, you realize real estate is the potential for the way you were looking for lifestyle. I mean, does that was it lifestyle? Or was it more of like a vehicle for a secure future? What was it that you?

Ketan Patel  9:45  

Sure, so in the beginning, it felt like owning properties, it’s a passive thing. And if I’m owning properties and the passive income is coming, I wouldn’t have to rely on the job and then I could figure out what I want to do with my life. Another business or something like that. So I was like, the goal number one goal is to create even the littlest possible income and just kind of test it out. So it was more of that passive income, you know, starting it on the side.

J Darrin Gross  10:15  

Gotcha. So a side hustle, passive income. Alright, so you get the first one. Yeah. How How? How do you go from there into because you mentioned syndication. And in there, there’s a pretty big gap between being a partner in one single family and syndication here. What What was your path?

Ketan Patel  10:35  

So the path was after that first fam, first single unit property, the my partner’s they were an interested in buying more properties. But I went on, and I bought a couple more properties, three unit for unit. And then I realized one day that the map to really replace my pharmacies income. And the dream of being financially free, doesn’t really make sense with real estate. So I went on and bought a senior care business. And one year I turned the business around, where I replaced my income, I only have to work like five hours a week. And I was like, wow, this is what all the fuss is about financial freedom, it doesn’t seems like all the questions are answered. And then, you know, I was somewhat bored with that business, because I overcame the challenges did my thing. And then I realized that all the time and energy that goes into buying the single family and triple family properties, it’s just not efficient first, and second, people started reaching out to me, they wanted to invest with me, because I’m finding great deals. And I realize I can’t bring like a lot of people into one deal, right? And all the pharmacists friends I knew and doctors, I knew everybody who’s professional, they want to invest. And I’m like, Okay, I have that problem, probably like scale. So let me jump into the apartment syndication business. And that’s how I led him to transition. And I didn’t have to worry about making money or income because the senior care business is just taking care of me and it didn’t need it much of my time.

J Darrin Gross  12:15  

Got it. So that that senior care business sounds like it really gave you some freedom to try new things more so than can work second jobs at fair.

Ketan Patel  12:27  

Yes, yes. All right.

J Darrin Gross  12:29  

So So now it sounds like you’ve got friends and colleagues that are seeing your success, and they’re one in Yep. And they start shared, offering it to invest in and you you grew into syndication is that? Yes. Okay. So let’s talk about this. Because I mean, clearly that I was talking with somebody earlier, and I want to say that the number that was mentioned was like 95% of people have never invested in an income producing property. Yes. And so let’s look at that. And if we say if, if only 5% of people invest in, in a an income producing property, I’m gonna say the vast majority of those are not peak performers. They’re just they’re investing. Yes. So you, you started, you got in, and you recognize the the ability to really make something out of the real estate investment? What, what are you? What do you see? What did you do? You know, what was it mindset wise? How did you get there? What do you see when you you see a peak performer and in real estate?

Ketan Patel  13:47  

So first of all, what I realized once I got into the syndication business, that there are no secrets. It’s the way you think, and act. And if I really and I was more interested in that than actually growing my business, so I spend more than $150,000 in the last two, three years going to all the events from Dr. Joe dispenza, to Tony Robbins, having coaches and going with Wim Hof and everything to unravel the psychology because I realized that, you know, the informations out there, books and podcasts and things on how to buy the property and what to do. Everybody has access to the same information, why are certain people able to make it happen? What’s different about them, versus people who are feeling stuck, which was me at one point, I kept going round and round. I wasn’t making the decision. I was just like, scared of moving through things. And it really made piqued my interest into performance, and psychology and emotions and all of these things. Right. So doing all of that work over the years and my own experience, I came to the conclusion that there are five fundamentals if you want to Take your real estate investing business, whatever you do hotels or multifamily or storage, whatever your strategy is, if you want to take it to peak performance, there are these five fundamentals right. And we’ll we’ll go over it briefly because it’s a lot of stuff. But I’ll give you a quick overview. So fundamental number one is we need the clarity and focus, people just don’t have that clarity, you need to be very, very focused into, okay, my outcomes are here, the end to get to these outcomes, this is what I need to do, this is what I lacked, this is what I have, you need to be clear, in the beginning, what happens is we run anyway receive the opportunity, we just don’t have that focus. Once you have that, then you need a game plan, you need a strategy to execute all that make that real. And once you have mapped out that strategy on a macro level, what I need to do for the whole year, and what I need to do on a daily basis, what are my goals and milestones, then you need an execution plan, you need to make sure you’re executing your strategy, the feedback that you’re getting, by executing your plan, you need to keep changing it. So sometimes people would keep hunting for the property in this market for eight months. And I asked them, okay, what is something new that you tried in 30? days? The answer is nothing. If you’re talking to the same agents using the same language or or having the same strategy for your business, you’re getting the feedback, it’s not working, it’s time to change. And then it comes to leverage, you have to leverage the time you have to leverage your network, you have to leverage your emotions, the peak performance techniques. And then the number five thing, if you’re stuck in any of those things is because you have limiting beliefs, and you have fears, everybody has it, we just have to overcome. But once you systematically know what your roadblock is, right, so some people are good with clarity and strategy, they can execute it. Some people are great at taking action and running, but they can’t form the overall picture. So once you put these five components, you really could tap a lot of your potential. And I could see that, for me to raise all this money and run that senior care business on five hours a week, it’s just the same principles over and over.

J Darrin Gross  17:19  

No, that’s, that’s really, you know, kind of simple the way he broke it down there like that i i, I’m sure that you get an each one there’s multiple levels of, of degrees of clarity or the ability to execute but but, you know, I think that, you know, one of the challenges we have in this day and age is the information, there’s so much information out there. And I you know, you mentioned about clarity and focus. I mean, I know on many a day, I start off with a very specific goal. And I’m very clear in what the goal for the day is. And yet, you know, just can be overwhelmed by outside information or outside, you know, attention seeking devices, if I’m not disciplined enough to keep them out. So how, you know, if somebody is is of this mind that and they’re, you know, they’re they’re working towards this, whatever their their goal is, whether it be to acquire a property or multiple properties, raise money, whatever that might be. What does disciplined fit in all this?

Ketan Patel  18:31  

Okay, so very, very important piece that you just mentioned, is that what happens is our brain is very efficient at doing something that we tell it to do. So we have trained our mind to be distracted by opening the emails and jumping from tab to tab and checking the notification on the phone. And if you have done it long enough, it’s been doing it automatically. So the step number first would be to aware of you know, where are you wasting your time? What are you doing the things that are not serving you some cases you’re aware, some cases you’re not aware, and you have to start retraining yourself. So for example, for me, I don’t my business, you don’t really get urgent phone calls. So certain hours of the day or in the morning, my phone’s on Do Not Disturb. So unless somebody calls you two times, and I have all of my notifications off. I put it aside, I don’t check my email, I look at my workload. And I have a time blocked for the two hours what is the most important thing I need to do today in this two hour forget about everything else and everybody else for me that they could be preparing a client proposal or working on some presentation for a webinar or doing whatever and everybody would have that specific. So what happens is if you make it simple, then your brain could focus but when you don’t make it simple, then it’s just like Well, I have to call the broker To talk to the bank, I have to do this, I have to do that, it gets so confused, you’re thinking, you know what I rather be distracted than actually solve that thing. So you go back to emails, just checking things doing unnecessary things that are that could have waited for end of the day. So it would be just retraining yourself having systems in place for your for your business. And that’s what I work with people to kind of implement one thing at a time. So that way, you know, your chances are better.

J Darrin Gross  20:32  

Now, that sounds like you know, very solid, simple plan and, uh, you know, it’s, I’m curious, how long does it you find that it takes for people to kind of retrain their brain, you know, if you’re all caught up, and all your social media and all the the,

Ketan Patel  20:49  

so depending on the person and your intensity anywhere from two weeks to six weeks, definitely in the first week or two, it’s challenging, because your mind releases dopamine, every time you open that email that pin comes. So now you have a circuitry. And I’ve studied a little bit of neuroscience behind this, it the circuitry is just, it’s just like a highway superhighway that’s been built and paved, and you’re running car on it all day long. So he wants it really bad. So you will have to have that real to stop it. And then once you do it for a few days, or a week or two, it’s just going to become less you’re carving a new road now new neural network and nodes to basically not do that. And do do the new habit or routine.

J Darrin Gross  21:37  

So so you start by breaking the the habits of the interruption or whatever the lack of focus, try and gain some focus, get some clarity on what you’re what you’re wanting to achieve. And as a game plan, if we have our goal, how often are you reviewing the goal and making certain that you’re staying on course or, you know, adjusting if you need to? Can you speak to that a little bit? Sure. So

Ketan Patel  22:10  

I’m a little extreme on this angle. But so what I would do is for me, it’s I have a meditation practice where every evening, I’m just reviewing how was My day? Where did I act emotionally? Who Was I being today. So it’s basically like, if you think of a football coach showing the player, the tape of how you’re playing. And if you see yourself as from the outside, you will really learn a lot. So even if you in the beginning, when I didn’t knew all this information, I used to take one day a week, go to my favorite coffee shop for two hours, set my phone, and I’ll really think what did I do this week? Where did I spend time what were really for me, what was connections I made? What are things I did that was moving me in the direction I wanted to. And one of the things that I avoided having full reflection will really make you aware. So then the following week, you will catch yourself. If you have done this practice every week. And if every week your thing comes as, yes, this week, I just watched too much TV or this week, I just keep opening unnecessary emails, whatever, everybody’s different. But once you rewire yourself every week, the following week, you will be careful, you’ll be like, Oh, I tend to do this thing. I need to stop it. So it’s opening that awareness.

J Darrin Gross  23:33  

No, that’s, that’s a good I mean, kind of a mental cue and just the fact that you’re aware of it, it sounds like it’s kind of really the, you know, if you’re aware of it, you can’t not be aware of it. You know, that thing that you’re you’re wasting your time. Yeah. So, so you work through and you get your clarity and you get your game plan. And you start working on the execution and it is this kind of a continuous kind of a review reflection of are you moving forward? Where can you improve or try something different? You mentioned leveraging your your time and your network. I wanted to talk to you a little bit about the limiting beliefs. Yes. Because I think that, you know, the two things that that you book in the the five steps with, you know, clarity and the limiting beliefs seem to me to be very related. In that if I’m, if I’m not clear on what I want, how can I even begin? And if if I’m not clear, I mean, you know, you’re if I have limiting beliefs, how can I get there kind of thing. Can you speak a little bit to the limiting beliefs and and how, how we do limit ourselves and how we can remove that and and reframe that.

Ketan Patel  24:54  

Absolutely. That’s that’s a huge, huge part of my work and what am passionate about is what happens is belief is just a thought that we have thought about so many times that it has became real. And the challenge is most of the times we are not even aware of it. So if we tell somebody, hey, somebody’s thinking, I want to own a million dollars worth of real estate. But deep down, they are not aware of it. But they are thinking, you know what, I’m not smart enough. Or I don’t have the money, or who am I to do this? Some kind of chatters going there. And when you believe that naturally, you’re not going to take action, naturally, you’re not going to go to any event or read a book. But if you believe that, you know what, I’m not perfect. I don’t have this strategy. But I think it’s possible. Let me try it. If that’s your belief, you’re going to do something with it. So I’ll give you an example. The senior care business, I was spending the 40 hours a week, because my belief was and I had 3040 employees. And I was like, if I’m not here, I really how can I really run this business? That was my limiting belief until I hung out with a family friend for a weekend he had 70 or 80 different companies seven year at different visits. I’m like, he’s not there. Like what’s happening there. You need a reference experience, right? He invalidated my belief. And then I started doing the research and whatnot. And eventually I shifted that. And I knew that my most important part is making sure employees are happy. Clients are taken care of and businesses running, does it really matter if I’m there 10 hours a week or 40 hours a week? It doesn’t. But it’s just these beliefs that we have about? Well, if I was young, I could have pulled this off, or somebody who’s young that they are thinking I’m only 25? How can I buy like a multimillion dollar property? Or, you know, I didn’t go to grad school. And I grew up in this neighborhood, what not? Who am I to do it? So So the thing is, first of all, you have to be aware of what that belief is. And if you are not, I will ask you what is your wild dream? Something that you feel scared to even think about? Real Estate, non real estate? And the moment you think and I ask you, why can’t you have it, that’s the limiting beliefs gonna pop up. Because I don’t have the knowledge or because I don’t have the time, XYZ whatever that situation is, right. So the step one is for you to be aware of your limiting beliefs. And once you are aware 50% of the bowels, one now we could do something with it, we could reprogram that belief.

J Darrin Gross  27:36  

It seems to to follow that, if you believe it’s possible, you are naturally going to present yourself to others in a different light, than if you believe that it’s impossible. Yes. And that if it’s if the the mindset that you’ve you’ve been able to overcome is that I I am capable, I am going to I’m going to figure this out. That that will naturally that that belief you have would come up in conversation and whether it be the you know, whatever it is, you’re you’re naturally doing to get to that goal, it would be it would be apparent to others that you’re in, in, you know, associated with that you are headed in a direction and that that would always kind of manifest itself based on, you know, this, you’ve got from I can to I can, but I can do this. So tell me about what kind of a timeframe would you expect? You know, what would be a? I mean, if somebody said that they want to own $10 million in real estate, I mean, I don’t know what the I don’t know what a goal is, I don’t know how to put a timer, but how should one measure one’s price progress towards, you know, if I, if I set a goal that I that I want to have a million, you know, one of $10 million tomorrow and I haven’t, I’ve got nothing today that’s probably not realistic and find that gonna happen. And, but something that’s, that’s realistic Can I can set with some sort of progress. And I can see, I think, you know, reflecting on where I was and where I am, would be that much more empowering to see that I have made progress, and I’m moving towards it. And can you speak to that a little bit?

Ketan Patel  29:26  

Yes. So as human beings, the biggest thing is progress equals happiness. When we are moving, even though we don’t have the property or the goal, but the act of going towards it. It’s fulfilling and the goal so when I was 26, I was like by the time I’m 30 I want a million dollars in real estate or the financial freedom what not when you get there, your mind is going to give you another goal to kind of put you in another direction right. So the The important part is to the difference between the goal and dream is most people just have They dream, they haven’t really done any action on it. So if I have a dream of owning $10 million worth of real estate, and then if I start thinking about it, okay, what do I want to do about it? Let me pick the first book, that becomes a goal, the moment I do some action around it, right? And like you said, you want to chunk it down that if my goal is to that do that in two years, what do I need to do today? What do I need to do next week, and next month, it’s okay, having aggressive goal. But if you’re not taking actions right now, in the near future, that’s just going to be a goal in the past, and you know what’s going to happen. When you progress slowly, you will love the feeling of making progress. And you forget about the goal, if you you will get so much into the job, you’re having so much fun, doing whatever it is that you’re passionate about rehabbing properties, or buying hotels, whatever. And then that’s when magic happens. Because now you don’t care. You’re not tied to making it happen. You’re just having so much fun with your day to day.

J Darrin Gross  31:05  

No, it’s it is I guess the charge that one gets from moving forward and just feeling alive, as opposed to, you know, sitting on the couch watching TV. That’s all good. I I appreciate you going through this. kind of curious, can you speak to kind of the average person that you you’ve worked with, and see how they’ve been able to progress? And, and, you know, maybe a, an example of somebody that’s, that’s been able to work with you?

Ketan Patel  31:40  

Yeah, sure. So I have clients from I have doctors and surgeons that love buying properties on this side. And then I have people who are in software, and they want to quit their job and make this happens, everybody comes from all over the place. But the big, big work is around the limiting beliefs. Because if somebody starts, I make them realize, you know, that belief is just not sound. And at the end of the day, you could believe in whatever you want to my only question is, is that belief powering you or disempowering you? So if you believe that, you know what, maybe I’ll try this, maybe it’ll work. It’s giving you a hope, a power, you’ll do something, which is a better belief versus Well, this is, this is never going to happen to me, or who am I to make that happen? That doesn’t give you any power, any energy, any good feelings, right? So so the work would be to shift the mindset, the psychology, and once that is shifted, the actual stuff, everybody could read books and go do podcasts and figure out the technical numbers on how the property works, and what to do and what not to do in and everybody’s different. So my job is to kind of figure out on the five elements, we talked about, what is really going there, if they if they are good, they have all this plan, why are they not taking action, they are not taking action, because they believe XYZ, they believe that this is not going to work. If you believe some things are going to work, why would you bother? Right? You would be like, I don’t want to do it, or people, including me, and I’ve gone through all of these challenges big time, like I’ve, like gone round and round. And I’m making things complicated, and overthinking, which which happens, you know, the intellectual over analytical people, some of my clients, you know, and then you just keep going round and round into that pattern, right? So it’s just me and watching them from outside to see what’s not working and you know, working together to shift those things. Because once it’s fundamentally shifted, your behavior would start changing us take different actions and when you take different actions, good chances, you will get different results, which will reaffirm their belief and it will create like a cycle.

J Darrin Gross  34:03  

That’s that is, you know, break breaking the chains and then reinforcing the habit and making progress. It’s, it’s awesome. That’s a good thing. So a Keaton, if we could, I’d like to shift gears here for a second. By day, I’m an insurance broker. And I work with my clients to assess risk and determine what to do with the risk. And there’s typically there’s three strategies we we consider. The first as we look to see, can we avoid the risk? Then we look to see if we can minimize the risk. And if we can neither avoid nor minimize we look to see if we can transfer the risk. And that’s what an insurance policy is a risk transfer vehicle. And I like to ask my guests if they can look at their own situation, whether it be their clients, investors, tenants, the market you You decide how you want to frame the question. But I like to ask my guests if they can consider what or where they can identify what they consider to be the biggest risk. And for clarification, I’m not looking for an insurance related answer. But if you’re willing, I’d like to ask you, Keaton Patel, what is the biggest risk?

Unknown Speaker  35:27  

Sure.

Ketan Patel  35:27  

It’s a great question. So basically, for me, my business Mukhi Capital. I do underwrite deals, conservatively, a very, very conservative outlook. So for me, the biggest risk is not getting the variety of investments to my investors, I work with one or two sponsors, I really, really limit everything because I just don’t see the quality deals out there in the market that meets the criteria I want them to meet. So for me, the biggest risk has been finding additional sponsors that are you know, giving a little bit more variety to the business and to to minimize it. I’m doing what I can and taking actions and changing the strategies.

J Darrin Gross  36:17  

That’s, that’s a huge challenge right now. I think there’s lots of lots of people competing and stuff and staying disciplined and, and like you said, leveraging your network and staying in touch with people that’s, you know, he got to do it all to find the good opportunity. So that’s good. Hey, Keegan, I want to say thanks for taking the time to talk. Before we wrap up, where can listeners go if they’d like to connect or learn more?

Ketan Patel  36:52  

Sure. So listeners could go to my website, Katie patel.com. And I have free resources. I have a little more details on the five things we talked about. And I have some free training. And that’s ke ta n. propel p@aol.com.

J Darrin Gross  37:09  

All right. Well, Keaton, I’ve enjoyed our talk today. I’ve learned a lot. And I look forward to doing it again soon.

Ketan Patel  37:18  

Thank you for the opportunity to spread my message. This was a fun conversation. Thank you.

J Darrin Gross  37:24  

All right. For our listeners. If you like this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow? That’s all we’ve got this week. Until next time, thanks for listening to commercial real estate pro networks. cr e pn radio.

Announcer  37:43  

Listening to CR EPN radio for influential commercial real estate professionals. For more information on this or any of our guests like us on Facebook care pn radio

Public Adjuster or Insurance Company Adjuster with Mike Fried – CRE PN #293

Mike Fried  0:00  

The best thing you can do at the onset of a claim is qualify it. Make sure that you have somebody that can come on site and inspect it, prior to notifying the insurance company, but still timely. And the reason I suggest that is because you want somebody to verify whether or not you have damages that are covered, and that your damages if covered will exceed the deductible. Otherwise, you’re filing a claim, which puts you at a higher risk evaluation from from a carrier standpoint, from an underwriting standpoint, that may ultimately raise your rates and you may recover nothing from a claim due to coverage. 

Announcer  0:33  

Welcome to CRE PN Radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast whether you’re an investor, broker, lender, property manager, attorney or accountant We are here to learn from the experts.

J Darrin Gross  0:52  

Welcome to commercial real estate pro networks, CRE PN Radio. Thanks for joining us. My name is J. Darrin Gross. This is the podcast focused on commercial real estate, investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio. 

Today, my guest is Mike Fried. Mike is the president of all American public adjusters licensed and appointed Insurance Claim consulting firm and Aftermath Consulting Group, a large loss consulting firm, he has extensive experience as an independent adjuster. And in just a few minutes, we’re going to speak with Mike about how to make a commercial property insurance claim work for you. But first, if you like our show, CRE PN Radio, there are a couple things you can do to help. You can like, share and subscribe. And as always, if you leave a comment, we’d love to hear from you. Also, if you’d like to see how handsome our guests are, be sure to check out our YouTube channel. And you can find this on YouTube at commercial real estate pro network. With that I want to welcome my guest, Mike, welcome to CRE PN Radio.

Mike Fried  2:17  

Thank you very happy to be here today. And I hope that this is a wonderful experience for all the listeners, this is a really good opportunity for everybody.

J Darrin Gross  2:27  

Well, I can speak for myself, I’m excited to talk with you as an insurance broker myself. You know, the adjusting of claims is kind of the the fog that a lot of people heard it feels like a foggy time for a lot of people and, and how insurance works and, and the nuances of coverage and policy and, and to learn more about how you guys help clients, you know, get get what they’re looking for. I think it will benefit us all. But before we jump into our conversation if you could take just a minute and share a little bit about your background with the listeners.

Mike Fried  3:05  

So I started my career in construction, working on specialty roofing specialty being non residential shingles. From there, I became an insurance adjuster back in 2004. And this was really lucky timing. I was still in college and being an insurance adjuster really wasn’t on anyone’s goal of achievements, if you will, but started off in insurance adjusting. Right before Katrina happened and everyone remembers Hurricane Katrina. This was really a lucky break for my career as it catapulted the weather from 2004 2005 until today has gotten incrementally worse, and it’s caused a catastrophic amount of damages and insurance claims. So being an insurance adjuster in the right place at the right time getting the training that I received from some of the major carriers that I represented, really put me farther ahead of most of my peers in the industry. From an age standpoint and perspective. I’m currently multi state public insurance adjuster, which is an insurance adjuster whom represents the people against their insurance companies. I specialize in multifamily and commercial assets. That’s where my training started with insurance companies such as travelers and Zurich, I was taught how to manage and represent the entire file as opposed to just look at the damages and apply costs to it. Having that background is pivotal in the career that I’m in today on the public side. And the training skill and knowledge that has come with it has just proven to be head and shoulders better than a lot of the competition who who may not have that carrier background, but I do so I’m currently on the boards of both the Texas Association of Public Looking for and suggesters I’ll be the president of that association next year. I’m currently the sitting vice president of it. I will also be on the ladder for the National Association of public insurance adjusters, which I’m currently a board member of. I occupy a couple of other board seats in the industry, such as the insurance appraisal and Empire Association. And I’m a licensed and appointed study of the Institute of inspection cleaning and restoration certification, the ICRC hopefully that’s a good background listeners. Hey,

J Darrin Gross  5:36  

I know I was gonna say between your your construction background and your training with major insurance companies and sounds like you’ve weathered a few storms and disasters and and been there on the on the front line of some some, you know, catastrophic losses that’s that’s no better way to learn the material than then to be in the field facing live fire. That’s That’s good stuff. So let’s, let’s get into this here real quick. The policyholders the insurance, they buy a policy from somebody like me, an insurance agent or insurance broker. And at the time when they buy the the policy, assuming that they they weren’t trying to cut corners that that everybody was trying to ensure that the property adequately you have a claim that occurs and will just, for example, say, say it’s a cat loss, windstorm. You got, you know, property damage, maybe roofs ripped off, you’ve got people that are displaced, you’ve got clients that that are in a state of shock, or, or just a state of uncertainty. And they call somebody like me, they’re their agent, we turn in the claim. And there’s an adjuster from the company that comes out.

Mike Fried  7:13  

correct? That’s correct.

J Darrin Gross  7:16  

Okay. So my question, is it that point? The adjuster for the company is working with the their client, the insured to adjust the the claim, they’re surveying the damage? Trying to figure out what what happened? A is a covered B, what are the costs compared to the limits that are that are involved and start money, or you know, start payments of the repairs or reconstruction can occur? My question I guess I would start with is, what point do you get involved in how do you get involved?

Mike Fried  8:00  

Sure. A lot of our pre existing clients always call us first. We suggest to everyone new clients, existing clients, whoever it might be, the best thing you can do at the onset of a claim is qualified. Make sure that you have somebody that can come on site and inspected prior to notifying the insurance company but still timely. And the reason I suggest that is because you want somebody to verify whether or not you have damages that are covered, and that your damages if covered will exceed the deductible. Otherwise, you’re filing a claim, which puts you at a higher risk evaluation from from a carrier standpoint, from an underwriting standpoint, that may ultimately raise your rates and you may recover nothing from a claim due to coverage. So having someone evaluate the policy and inspect the damages, is really, I think, the most important first step how to know when to call a public adjuster. Not every case, not every claim needs a public adjuster. However, being on the commercial and multifamily side of claims, most all of them do. You’re dealing with a lot of personalities. Let’s assume this is a multifamily. Let’s assume this is an apartment complex, it being an apartment complex. You’ve got multiple families that are displaced, you may be dealing with an avenue of loss of rents, loss of income, you’ve got a business interruption as a result, you’ve got to relocate some of the families into unoccupied units, if any of them are even accessible at the time, but there’s a lot of moving parts to it that you as a manager or owner of an asset may not have the wherewithal to facilitate that’s something that a public adjuster will assist in across the board. So we will get on site and get with the right people we have in house business interruption financial analysis and CPAs that help with the business transaction of it. And then we have really specialists that focus on On damages based on the cause that specialize in estimating the damages as well. So we verify coverage we verify cost, we verify that you have the right people in place to maximize and expedite your insurance claim. When it’s really case specific, but if you don’t have a public adjuster at the onset, and you wait for an offer to be made, which is very common, you’re setting yourself back at least 30 days and likely 90 days to the process, because a public adjuster still has to start from the beginning, we still have to create the event and determine what the total valuation of the loss is not just what a Delta might be. Based on what a contractor might say, or based off what you think the values might be, we always have to start from day $1. One when creating the loss measure. So the sooner you get a public adjuster involved, the better there’s no financial gain or loss to hiring a public adjuster later. Sometimes it may cost more, but you’re certainly losing time. And time when you have a loss is probably the most important element of it. You need to get done fast, you need to get your folks back in. You need to get your business up and running. And you have a family of your own to attend to there’s people out there that specialize in the actual processing of your insurance claims. No different than hiring a tax accountant. You wouldn’t do your own taxes, and you’re not going to let the IRS do your taxes for you. So why rely on the insurance company to do your insurance claim for you let somebody who focuses on all of those elements handle it for you in a timely and professional manner? The onset is the best.

J Darrin Gross  11:44  

Yeah, no, that’s that’s a pretty good, compelling argument there, you would have the IRS to your taxes. Right. So So we’ve established the win, I guess is the The sooner the better, is what you’re you’re recommending and based on it sounds like you’ve probably got some larger property clients that have you used your services in the past and they think first of you, as part of their, their claim solution. Is that pretty sure, okay,

Mike Fried  12:15  

we operate as a risk. In any sense. Not we don’t sell insurance policies like agents and brokers. But we can advise as to that specific asset, what the best risk analysis might be for them. Again, using apartments as a example, we need to make sure that code is in play in the code upgrade exists, that there’s not actual cash value endorsements on the roofing sections, that they have coverage against fire without limitations, business interruption is in place, we review all of the buckets per se, for lack of a better word that may come into play when there’s a claim. And we make sure that you have the right coverages. So really, it’s a free service that’s offered. But it helps, I guess, bridge the gap between us and you the broker, so that you can make sure the right coverages are in place, we are very anti shopping policies, we always say that now is the time to spend the money on the front side, think of it as an investment because if you ever need it, it will pay dividends. Price shopping on policies is against our recommendations.

J Darrin Gross  13:21  

Well, I think that my experience has been some of my more significant customers. That’s that’s where they start from, they don’t start from a price they started from a coverage standpoint, I think it’s more of the the newer, the less capitalized with less to lose, they are basically trying to make a deal fit. And they’re trying to make the insurance fit their budget, as opposed to worrying more about what they could lose. So it gets you it’s just kind of a nature of people trying to get in in business and get started. But let me ask you this. So I engage you or customer engages you right at the start. How do you fit in in the conversation? Do you now become the contact for the insured with the insurance company? Or Who who are you like another conversation where, where if you come out and you do your kind of a pre qualification of a claim? Do you then become the representative of the of the insured with the insurance company?

Mike Fried  14:33  

Not at that point, we would always want to qualify the loss prior to moving forward anyway. As a public adjuster, we charge a contingent fee. So we don’t get paid unless you do. We used to take every claim that would walk in the door, but that was not a good business model model for longevity. So the advantage of us qualifying a case at the onset gives us the immediate knowledge to know what Claims value might be, again, if it’s covered. And then if if we both opted that it’s a good business decision to move forward at that time, we would move forward, what representation looks like? Yes, it’s similar to hiring an attorney, the state of Texas especially gives us a lot of leeway to represent you, as an individual, we are licensed and bonded, not a crackerjack box licensed for sure. So it’s like hiring an attorney, all communications and inspections would then run through us and your insurance company. We don’t we don’t get to dictate it’s not an adversarial process, it’s more of a higher level of professionalism, because now we’re speaking the same language to them, as opposed to an insurance company. And again, for lack of a better word dumbing things down to talk to a client, without using maybe insurance language, or I call it claim speak. There’s just faster ways to get things done. by communicating directly making sure that our inspections are scheduled exactly as we can both be there. If they’re going to bring an engineer out, we like to have engineers present. Same thing with building consultants. And any we like to match experts, if you will. So we can’t do that if someone else is handling the scheduling, and the insurance company will absolutely try to schedule as soon as possible with as many bodies as possible. Don’t have the the experts matched up on site. It’s not a negative. It’s just a business model. And it works very well for him. Again, not a knock. If it wasn’t for insurance companies, I wouldn’t have a job. So we do think it’s best to, at the onset, schedule together, schedule, jointly inspect together and handle all communications. That is how the letter of representation that we have reads. And that’s how the state approves it. It keeps a lot of the hair, the hair, say and he said she said from happening. And claims are professional. There’s a they’re big transactions for both sides. Oftentimes, they’re some of the largest transactions beyond the buying of the real estate or selling of the real estate that may take place in. So it’s very important to document and inspect directly the answer.

J Darrin Gross  17:15  

Gotcha. So in the process, you mentioned kind of qualifying and, you know, assessing coverage. Do you find that in a typical claim, if you were to compare a settlement offered by an insurance company, is there any difference between what what you have found is that are you finding coverage? Or do you find the insurance company doesn’t offer coverage that’s built into the policy? Is there? Is there anything like that?

Mike Fried  17:50  

Gosh, I’ve seen all kinds. So I’ve done over 5000 claims, I think it’s safe to say I’ve seen it all. I’ll give a good example. The first large claim I handled as an insurance adjuster was Blue Cross and Blue shield’s headquarters after Hurricane Gosh, well, one option was Hurricane Wilma. So 2004 was my first deployment and Blue Cross Blue Shield headquarters. It seemed like the Twin Towers to me at the time. They were just ginormous mega mega towers office space. And I went in that morning representing travelers. St. Paul’s actually. And I said, Man, this is probably going to be a million dollar claim. By the time I got done off the roof, and under the ground Servpro handed me a $1.6 million water extraction only invoice for work that had already been completed. And at that time, I didn’t even realize that there was any mitigation done. So for from an adjusting standpoint, I’m waiting for the day that I get to meet my former self on their first claim, and maybe get to correct a lot of wrongs. But safe to say that I made some mistakes there and it happens.

J Darrin Gross  19:10  

Yeah, no, I and I think there’s a in some cases, there’s a I guess a I’m gonna say a fog if just for lack of a better word, where the customer feels overwhelmed about what has happened, what it’s going to take to get put back together. And just a sense of what’s the next step. Do you guys do you help sort that out and kind of advocate for the insured?

Mike Fried  19:45  

That’s exactly what I do. I’m an insurance advocate ensure that we do not represent insurance companies anymore. So public adjuster can only represent the policyholder and the sole focus is to expedite and maximize the insurance So yes, there’s certainly a personal level to it a lot less so on the commercial side than the personal line side. And your house catching on fire versus your business catching on fire certainly have different emotions that go with them. You’re losing a lot of personal effects in house fire, you’re losing a lot of business, personal property, and another. So the personalities that we deal with on those two sides of the claims are much different. But I would say that, when you have a public adjuster, handling your business and your assets, handling the insurance claim, managing your actual business losses, and quantifying the valuation, you can then go back to your personal life, and do the things that you need to do to stay sane. Unfortunately, being on the disputed claim side of the industry, I’ve seen, marriages destroyed, I’ve seen suicides, I’ve seen a lot of bad stuff happened as a result of insurance claims and the stress that comes with it. Divorce is probably the most common because most click most cases take six to nine months, there’s a lot of personal emotions involved. The husband says he can handle it, the wife says she can handle it. And six months later, nothing’s happened. We deal with the personalities a lot. It’s cost of doing business for us. But yes, we sort all of those things out and that’s part of the the checklist from the onset. The last thing I want to have to do is maybe argue with the client about anything when I’m arguing with insurance company about the cost to fix the building. So I do feel it’s important to manage expectations at the front side, to maybe work on the emotions and personalize what is normally a business to business transaction. Because there are emotions involved. There’s personal loss always whether it’s financial or or personal property, there’s always going to be loss involved in emotions that come with it just a little easier on the business lines, as opposed to the personal lines.

J Darrin Gross  21:57  

Sure. No, I you know, the claims process and I in fact, I always sell a policy, I tell people, I hope that they never have to use it. It’s not that it doesn’t work. It’s just that they’ve got a mess on their hands or life’s an interruption in the normal things that they’d like to be doing. And, you know, it’s it’s a big distraction kind of thing. So you mentioned payment, you guys get paid on a contingency? Is that built into the the fees? I mean, does the insurance policy paying for that? Or is that just a net that you guys collect from the insured?

Mike Fried  22:43  

So, in a sense, yes, it’s built into the claim. Every every complex claim, which is the ones we would handle has what’s called overhead and profit attached to a pin. Some people are going to love and hate this response. But normally, General Contractors would take the overhead and profit from a claim. And let me explain in backtrack a bit what overhead and profit is for the listener, the end user here, overhead and profit is paid in addition to the claim for the claims management and general contracting of it. If you have a $100,000 loss, your claim will be valued at $120,000. So overhead and profit is what’s called 10 and 10. It’s 10% overhead and 10% profit, and it’s on top of the damages. So using the $100,000 claim as an example, if it’s 100,000 in damage to your roof, you’ll have a $120,000 insurance claim. Our fee comes out of the overhead and profit not out of the construction dollars. It’s never our goal to interrupt the construction process. But oftentimes contractors will hire us directly on their behalf for the client, because they don’t have the wherewithal to estimated or to handle the numerous inspections and they have no problem paying it from that 20% anyway.

J Darrin Gross  24:02  

Right. And and you mentioned Did you say contractor for hiring.

Mike Fried  24:11  

We get referred by contractors. I can’t say a contractor would hire us directly because it’s still the policyholders responsibility, but a contractor more often than not, in fact, our biggest volume of claims come from contractor referrals. But the contractor may come out and see that the insurance claim has been screwed up somewhere somehow and may not have the time where with all the fix it they say it’s time to call a public adjuster, let the public adjuster get it resolved. We’ll come in and do the construction. My suggestion for listeners is to get the claim resolved then hire a general contractor. You wouldn’t want to necessarily put the cart in front of the horse or spend the money before you get it. Get the claim resolved. know exactly how much money you have to work with and then start handling the construction process from there. Whether you use a general contractor or whether you You made general contract and yourself. And I would assume a lot of your listeners on the commercial side have some sort of background or wherewithal to do so. And this allows you to have your own expert on your side, again, just like you would a CPA or an attorney, you have to have experts handling these things for you to maximize your return.

J Darrin Gross  25:19  

Right. Most policies that I’ve written are on replacement cost basis, there’s a way that’s usually settled is there’s a partial payment upfront. And then once everything’s put back together, the company settles up on the difference. Do you is that fairly common as far as the the settlement process? And are you engaged in those conversations? Because it comes down to the accounting at the end, and I think that sometimes there’s just so much information traveling back and forth, and depending on on how many contractors you have involved and, and bills you have, and how many months you’re down and loss of rents, blah, blah, blah, do you guys help with the accounting so that the the insured can present a, you know, a more clear picture to the insurance company so they can collect what’s what’s due?

Mike Fried  26:24  

Yes, that’s the whole premise of what we do. So we create the entire damage model, we are the last ones to leave the party. We’re not done till your claim is done to your construction is done. We create the actual cash value and the replacement cost models. And we determine what the depreciation should be consistent. The materials age and condition. Oftentimes, insurance companies will use a blanket depreciation and depreciate something by 30, or 40%, which is sometimes an unfortunate industry standard. And what you’re referring to on replacement costs versus actual cash value, is that deduction for depreciation. depreciation isn’t like driving your car off a lot, it’s an insurance term that is representative of you doing the work, and you’ll be paid in multiple payments, one on the front side, which is the known actual cash value. And that’s the amount of what your material might have might be worth today for what you had 10 years ago. So less depreciation. And that may sound confusing, still, I apologize for that. But actual cash value is the value of the property, less depreciation based on the age and condition of the item.

J Darrin Gross  27:41  

Right. It’s, it’s a little bit of a kind of a little bit of a math equation there to get there. But the the the idea and the way the policy is written is that you have to replace it in order to get the full replacement cost. surance policies are typically written on an actual cash value basis, that’s the initial payment thing there but

Mike Fried  28:10  

cash value depreciation would follow on completion of construction, we see that through and we determine on both sides that the numbers make sense that money has been spent accordingly and we will be the ones that submit for the recovery for you the client or for you the construction company.

J Darrin Gross  28:27  

Gotcha. Well, I can speak from experience on a couple of different claims situations where client decided to act as their own general contractor and did not exactly manage the remediation, you know, the the disaster remediation contractor, as well as could have been and did not communicate as clearly as possible. And in a matter of time, the contractors looking to get the same good back together so they can move on. client, you know, has some different ideas or whatever. But anyway, the long story short, is it doesn’t take much to get things tangled up. And you know, in one case, I can think of there’s you know, contractor liens that got placed on the building because of in a way the way things were going on and another one where there was a customer they they must have had a bad experience at some point with a contractor and they were you know, fearful of, of hiring the contractor and, and anyway, it just the I think the thing that I take away from from property claims is that when you have damage you need to get it taken care of as soon as possible. And if you were to hire somebody like, Mike, you know, I would recommend you do it sooner rather than later in in, get engaged and get going. And if you don’t hire somebody like Mike still you need to get engaged and get going. So that you can get back in business And, and because the insurance companies my experience has been is while the policy may grant certain time limits of coverage, they may feel that the time is not warranted based on expectations. and wonder if you if you probably experienced that with COVID, and other time oriented market constraints.

Mike Fried  30:50  

Yes, I’d love to jump in on that one right now. So, using real life examples with time elements COVID, we were lucky to get a lot of extensions that came from COVID. But a lot of the considerations we needed were the 365 days that are required to complete the claim and the construction. And then COVID happened, and you couldn’t get contractors to come out. And this actually fell on a lot of the 360 fives from last years. So insurance companies at first, were not really willing to extend the clock to recover the depreciation. And finally, due to the the civil civil authority in the policy, we were able to get extensions for just about every one of them. And where this was most important were folks that had fires, fires notoriously take nine to 12 months Anyway, there’s no fast way around it, you have a fire, you can, you can assume that you will not be done quickly. But for folks that have additional living expenses, as a result of their house fires, they have policy provisions that have X amount of dollars or 12 months, and you may not be able to extend past 12 months with with COVID, we were able to get either an additional claim filed for civil authority, because they could not get in or out of anywhere, frankly, they couldn’t get building materials, there was a supply chain issue. You certainly couldn’t get workers and you didn’t want people showing up in your house, or your business that may or may be sick or didn’t know or you know, at that time, we had no idea what was happening. So luckily, the carriers played ball on the time element of COVID especially. But more importantly, knowing that there is a time element is probably of the utmost importance in a claim. Because if you don’t get started promptly, you don’t get your claim settled promptly, there’s no way you can handle the construction promptly. And 365 is most common, but I’ve seen 180 day clauses where you have to have the work done within 180 days of not only getting funded, but from the time the claim was filed. That’s hard to do. There’s very little construction can be done in six months, when you’re dealing with some sort of catastrophic loss.

J Darrin Gross  33:02  

Yeah, independent on the jurisdiction, just getting your permits to get started and stuff I know it can be I know for business interruption, we are encouraging all of our clients to to look at least 18 months of business interruption or, or more just based on what we’re seeing based on just more of municipal. Just kind of a log jam with getting permits, and that. And then if there is a if you are in a market where there’s a lot of work to be done. And there’s a the contractors have more work than they can handle. Scheduling them may may be difficult, you may be able to get the guy that can paint right away, but the drywall is not up. Or you know, it’s not textured or whatever. And if you don’t put everything in in the right order, it’s not going to come out. Right. So I know that’s that’s that’s been a real problem. But what’s

Mike Fried  34:10  

and there’s a shortage of drywall right now.

J Darrin Gross  34:12  

Yeah, no, exactly. Yeah. All the tariffs have created some challenges. And just in just the the the demand for materials based on all the construction going on. You know, there’s there’s plenty of construction. I know. That’s a constant it’s that’s kind of one of the things can keep the economy going and add into it more of the catastrophic weather related claims. Even more demand for the for the materials and labor

Mike Fried  34:41  

this year unique. You had five major landfalling hurricanes. And while that was happening, everybody forgot about all the wild wildfires in California and the duration in Iowa. And you can understand that there’s going to be delays with your insurance claim because there isn’t enough insurance companies Your insurance adjusters to handle catastrophes coast to coast. And we’re we’re not seeing anything happened fast right? construction even slower. It’s it’s not a knock on the contractors, they can’t get material or labor.

J Darrin Gross  35:15  

Right Right now, it’s just I think it’s some constraints that people need to be aware of when buying insurance, make sure you get you know, you ask the questions to make sure you get some limits, because even if even if you have somebody like Mike hired in your coverage doesn’t provide enough coverage, I’m assuming Mikey, you’re not able to pull a rabbit out of the hat if there’s no coverage.

Mike Fried  35:45  

That’s true. So we can’t create coverage and we can’t create damage. But we feel like we’re the best in the industry at marrying the two.

J Darrin Gross  35:53  

Let me ask you this. Do you guys ever offer a any kind of a policy kind of a checkup or any kind of an audit of a policy for your clients? Or is there any any kind of information you provide on what you should, what you recommend, on coverage

Mike Fried  36:11  

we do for every claim that we have. First thing we do is read the policy. And that that’ll happen generally before we even conducted inspection. So we need to verify if coverage exists, and where there’s deficiencies. Now, as far as a risk audit, we do for every one of our clients, we have copies of their policies that we retain. Now granted, they may change every year, they may switch carriers or switch policies, renew update, have changes in the vendors, we always ask that we be included in those changes. But once once you have a claim and the reconstructions done, oftentimes you’re up to code, which is very important, and you’re going to be less risk. So knowing what you have today, before you have a claim is more important than knowing what you have tomorrow after it.

J Darrin Gross  36:59  

Yeah, amen, then. This is all good. Mike, if we could shift gears here for a second, as I mentioned, you and we’ve been talking by day, I’m an insurance broker. And as such, try and work with my clients to assess risk, and determine what to do with risk. And there’s three strategies we typically look to. The first is we look to see, can we avoid the risk? If we can’t avoid it, we look to see if we can minimize it. And if we can neither avoid nor minimize the risk, then we look to see if we can transfer the risk. And that’s what an insurance policy is a risk risk transfer vehicle. And I like to ask my guests if they can look at their own situation, take a look at their you know, clients, investors tenants market. However you want to frame the question and identify what what they consider to be the biggest risk. And for clarification, I’m not necessarily looking for an insurance related answer, although with our conversation today that might that might be warranted. But if you’re willing, I’d like to ask you, Mike Fried. What is the biggest risk

Mike Fried  38:16  

for me and our company, its liability. We don’t have the ability to make a mistake. We have to be forensic. And we have to get everything right the first time, there’s really no going back to the well for us, especially if we get something wrong. So we constantly educate ourselves with certifications with continuing education really means specifically, its liability against making mistakes. And the biggest mistake we have oftentimes is communication, where either we communicate too much, or occasionally we communicate not enough. And it’s hard to meet the expectations of all the clients there. But for us to avoid risk professionally, it has to come down to being mistake free. It’s your claim. And you’re hiring somebody and frankly getting paying them a lot of money. We don’t really get the luxury of making mistakes, because it’s my bond you’re going to come after if I screw it up. So oftentimes, to avoid risk, we have to be thorough, we have to be very expeditious and we have to avoid mistakes while doing both of that both of those. So avoiding risk for us is as simple as avoiding liabilities. And and really it’s it’s with industry education, it’s with communication. And we do the best we can to be mistake free. But it happens

J Darrin Gross  39:44  

and that’s why you have insurance right? Or bonds.

Mike Fried  39:47  

Even I have insurance. policy to boot.

J Darrin Gross  39:54  

That’s good. Mike, where can listeners go if they I’d like to learn more connect with you.

Mike Fried  40:03  

So we have a website, it’s www.my, TX PA, that’s MYTX pa.com. You can always reach out email text call. I do a lot of continuing education for the industry. We have. We have a lot of online now zoom meetings that people are welcome to attend for tapeo, which is the Texas Association of public insurance adjusters. That’s my tabea.org, which is a great resource, you can find a public adjuster in your zip code or in your area just by looking. I do always suggest using a tabea affiliated public adjuster. It’s no different than having a real estate agent who is or is not a real tour. It’s more of a professional association that that really maintains the standards of its individuals. Yeah. But checking out the website is good. You can like I say, call me can reach me anytime the numbers on the website, my cell phone is I would say website is probably best. We do have a lot of blogs that we put out quarterly updates on the website that people can go see. And oddly, I get called for a lot of podcasts, which I love doing. So.

J Darrin Gross  41:21  

Good. Check. Well. Well, this has been good. Mike, I appreciate you taking the time to talk today. I’ve enjoyed our talk, learned a lot. And I look forward to doing it again soon.

Mike Fried  41:37  

Thank you very much. Have a great day. Have a great holiday. And if you ever need anything, reach out.

J Darrin Gross  41:43  

Alright, we’ll do that. For our listeners. If you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow. That’s all we’ve got this week. Until next time. Thanks for listening to commercial real estate pro networks. CRE PN Radio.

Announcer  42:06  

You’re listening to CRE PN Radio for influential commercial real estate professionals. For more information on this or any of our guests like us on Facebook CRE PN Radio

Raising Capital for Real Estate with Dave Dubeau – CRE PN Radio #292

Dave Dubeau  0:00  

The whole networking and schmoozing and turning every conversation into a, into a real estate conversation then following up following up following up, again dealing with massive rejection, most what I call mom and pop real estate entrepreneurs are geared up that way. I mean, they’re doing real estate, they’ve got some, some properties in their portfolio, there’s still, you know, a lot of them are still working at their jobs. A lot of them are doing this part time they got families, you got stuff going on. They don’t have the time or the energy or the inclination to develop this whole skill set of becoming a, you know, a high pressure closer kind of a person. So we offer kind of a different way about going around. raising capital is that say chasing after investors, let’s figure out a way to attract them to us. 

Announcer  0:47  

Welcome to see our EP n radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast whether you’re an investor, broker, lender, property manager, attorney or accountant We are here to learn from the experts. 

J Darrin Gross  1:06  

Welcome to commercial real estate pro networks, CR e pn radio. Thanks for joining us. My name is J. Darrin Gross. This is a podcast focused on commercial real estate investment, and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio. 

Today, my guest is Dave Beau Dave is a real estate entrepreneur, best selling author, speaker and investor attraction expert based in beautiful British Columbia, Canada. And in just a minute, we’re going to speak with Dave about how to find investors and raise capital without rejection. But first a quick reminder, if you like our show, CR e pn radio, there are a couple things you can do to help. You can like, share and subscribe. And as always, we would love to hear from you if you leave a comment. Also, if you’d like to see how handsome our guests are, be sure to check out our YouTube channel. You can find us on youtube had commercial real estate pro network. And while you’re there, please subscribe. 

With that I want to welcome my guest, Dave, welcome to CR e pn radio. Well, thanks very much for having me. 

Dave Dubeau  2:27  

Darrin, this is great. Now I’m jealous because you’ve got like the perfect radio voice my friend, my goodness.  Well, as I’m going Geez, I wish I sounded like this guy. You’ve got like the perfect announcer voice. 

J Darrin Gross  2:44  

While I appreciate that, but the reason we’re doing this is to learn about real estate, and all the good stuff that from the good guests we have like yourself. And before we get going here, if you could take just a second and show listeners a little bit about your background.

Dave Dubeau  3:05  

Perfect. Yeah, Darrin. So as you heard, I’m from beautiful British Columbia, Canada. So just a little bit north of where you are there in Oregon and then doing the whole real estate thing for quite some time. kind of grew up in a real estate family. My father, my grandfather built a six Plex up as a family home. As I was growing up. My mother was a very active real estate entrepreneur. As I was a young young man and into my teens, she built up a portfolio of over 50 doors have always seemed like we had real estate going on in the family, but I didn’t pay that much attention to it. And then after graduating from university, way back in 1991, traveled the world ended up living in San Jose, Costa Rica started a business down there, lived overseas for almost 14 years, got married, had kids, when they got to school age decided to bring them back to North America. So they’d have a better education and had to start all over again from scratch. So I was in a brand new city had been gone too long. I didn’t have bad credit. I had zero credit. I had been self employed so long as pretty much unemployable. And there i’d figured out okay, what am I going to do to make a living so, Darrin, I don’t know if you remember those late night infomercials that used to come rolled out across the TV, but one o’clock in the morning? Remember those?

J Darrin Gross  4:25  

Oh, yeah, Carlton Sheets.

Dave Dubeau  4:27  

Yeah, yeah. So I saw one from a gentleman named Ron Legrand, one of Carlson’s cohorts. He said hey, you can get into real estate with little or no money down and I said hey, that’s perfect because that’s what I got. So I sent away for the course got it, dusted it off, got it dialed dove and Dolly I think was VHS cassettes and and you know, binders and all this kind of stuff. You gotta remember I was up here in in British Columbia. All of this stuff was American focus to kind of Canadian eyes it make it work in my market. I did that did 18 deals in 18 months. And then after doing that, because of my background in marketing and, and that sort of thing, I caught the eye of an up and coming real estate guru up here, when I’m bored is the director of marketing for him and his company’s helped him grow from two employees to 128 employees, seven branch offices owe $200 million a year in revenues between, you know, training products and investment stuff that they’re offering as well. And took some time off from real active real estate investing got back into it doing rental home, eventually got out of that. And more recently, since 2013, I focused on partnering up with smart folks who are good at multifamily investing, and getting part of that by helping to raise capital for their deals.

J Darrin Gross  5:44  

Got it. So you’ve been on all ends of the spectrum of real estate from I guess hearing it in the family where you’re growing up to the no money down to working for larger entered entity and and now you’re, you’re raising capital.

Dave Dubeau  6:01  

Exactly, exactly.

J Darrin Gross  6:04  

Well, sounds like you, you’re qualified to talk about raising capital, that’s, that’s good.

Dave Dubeau  6:08  

Well, I’ve done some myself, that’s for sure. But more importantly, I’ve helped a lot of other people raise cumulatively hundreds and hundreds of millions of dollars for their deals. So yeah, the process I’ve come up with has been quite effective. And it’s really effective. For people who are just getting started with raising capital, they haven’t done it before, or they haven’t done it very effectively. And they don’t like the idea of doing the old school dialing for dollars, you know, which involves massive rejection, or the whole networking and schmoozing and turning every conversation into a into a real estate conversation, then following up following up following up, again, dealing with massive rejection. Most what I call mom and pop real estate entrepreneurs are geared up that way. I mean, they’re doing real estate, they’ve got some, some properties in their portfolio, they’re still, you know, a lot of them are still working at their jobs, a lot of them are doing this part time they got families, you got stuff going on, they don’t have the time, the energy or the inclination to develop this whole skill set of becoming a, you know, a high pressure closer kind of a person. So we offer kind of a different way about going around raising capital and instead say chasing after investors, let’s figure out a way to attract them to us. So that’s what the whole idea is.

J Darrin Gross  7:28  

Let me ask you, because, you know, the the your starting point there with the no money down kind of a property, obviously, you know, that’s the no capital. But the reality is in the larger properties, if you want to really grow your portfolio and get into larger properties, there’s a need for capital. So I’m kind of curious, uh, you know, I was just thinking as you’re, as you’re talking that the strategy from, from a No money down a strategy, a starting point, I’m wondering if there’s not some similarities and that you are still, there is still something you’re looking for, you know, in that potential for that deal to work, somebody’s got to have some money to make that work. Whereas now when you’re raising capital, if there’s a is there, is there a thread that a common thread through there, or am I yeah, I

Dave Dubeau  8:24  

mean, at least for myself, during when I was doing the creative, no money down deals. It was all about marketing, to attract motivated sellers, people that were in some sort of a walkie situation with their property, and they needed to get out of that situation, they weren’t looking for top dollar for their property, they’re looking for a solution. So that it all revolved around marketing, because those 18 deals that I did in 18 months, and there’s a pretty small market I’m in it was all by doing marketing and attracting these people. To me, I never used a realtor, I never searched the MLS, I never cold called a single fizbo. seller, it was all by applying marketing and getting these people to come to me. So fast forward, whatever was 10 years or more, yeah, probably more. When I started raising capital, you know, after floundering around and failing miserably and getting you putting up with a ton of rejection. I said, Hey, why don’t I apply what I already know about marketing, to raising capital, and let’s, let’s attract investors instead of chasing after them. So not quite, very different process. Same idea, though,

J Darrin Gross  9:31  

when I also guess another distinguishable difference that I’m heard something I’m hearing you say is that notion of when somebody is reaching out to you, as opposed to you you approaching them. I’m wondering if there’s if you can speak to that as far as the

Dave Dubeau  9:49  

the Well, I’m sure Dan, in your background as an insurance professional, you know, the difference firsthand between chase After a prospective client and having a client be referred to you, by a current client, you know, it’s it’s night and day like, you don’t have to convince that second person, how great you are you, somebody else has already done that or something else has already done that. So same idea here. I mean, a lot of us when we first get into raising capital or think about raising capital, what comes to mind is The Wolf of Wall Street, right, that movie or back in the day Glengarry Glen Ross right? Always be closing, right? Alec Baldwin great movies. But that scares the crap out of most people, the idea of having to pick this sucker up and call everybody you know, and try to pitch them on a deal over the phone. You know, especially when you’re trying to rate you know, your, your listeners are trying to raise hundreds of 1000s of dollars, if not millions of dollars, for multifamily properties, right. So that’s a daunting task, especially if you’ve never done it before. And even if you’re good at it, you’re gonna face a ton of rejection. So most people, myself included, and this is how I learned this the hard way, there is another big concept you guys, you want to write stuff down. When it comes to the chicken or the egg, which comes first the money or the deal, a lot of people think you know, find a good deal, and the money will find you. We’ve all heard that. And Excuse me, but I say that’s complete Bs, that that is Bs, what you want to do is you want to have the capital and your investors lined up first, and then go finding the deals. Because then you can go in, you can negotiate, you know, you’ve got the capital bond to back you up. And you can go in and you can make offers with confidence, knowing that you’re going to be able to close versus if you go and tie up a deal and then you scramble around to raise capital if you haven’t, if you haven’t laid the foundation down. That’s a very, very difficult task. So I remember vividly during my, my whole experience, they got me to focus on this was when I was doing ranch home deals. We’re doing a strategy called tenant first. So we’d actually go find a really good rental client, we go buy them a house, and then we rent owner to them for two to three years while we help them get qualified for financing. So that’s great. And the first I did the first couple of deals under my own steam, I had enough capital I had enough Home Equity I could come up with down payments but then I ran out and of course that’s when the perfect tenant buyer couple landed on my lap. They were absolutely ideal ran out got a property tied up because I’d heard Hey, find a good deal that the money will find you crunched all the numbers figured everything out. saw them I was gonna get my investors really good return. And then I said okay, well I still have to do something right the money’s not gonna magically find me I need to do something around this. So I I heard pick up the phone and start dialing for dollars. So I tried that. Rejection rejection rejection, rejection rejection. Now I admit, I don’t think I was very good at it. But even so it’s it’s a tough, tough road. I my fragile little ego could only handle so much of that before I said, Okay, enough’s enough. I quit. And then I thought, Okay, well, I also heard turn every conversation into a real estate conversation, go out there network schmooze. You know, talk a storm, collect cards, give cards follow up all that stuff. So I tried that local Chamber of Commerce, BMI groups, Toastmasters, wherever, whoever had a group of people together and would let me in the door. That’s what I went. And I talked up a storm use my little elevator pitch about real estate and all this stuff, collected a bunch of cars and cards and stuff and raised zero capital. And I was under a crunch, right? Like I, I had to raise this money. Within two weeks, I got an extension. And then I came up with what I thought was a brilliant idea. And you’re going to scoff at this term. But here’s, you know, desperation. He’s desperate action. So I thought, Hey, this is such a good deal. It’s going to sell itself. It just enough people see it. So I put together little little years ago, put together a little PDF, and email that to a couple 100 people that I knew, that’s how Okay, this is this is gonna work like gangbusters. And this was the first thing I saw any action on there. And I started getting some replies back I thought, Oh, good. I was counting the money already, right? until I started reading these replies. And basically you’re saying date, buddy, I haven’t heard from you in five years or some cases 10 years in one case. 18 years the person hadn’t heard from me. And here you are hitting me up for cash free deal. Take a hike.

Dave Dubeau  14:23  

So the story ended badly Darrin, I had to collapse that deal. I’m in a I’m in a relatively small city. There’s about 80,000 people in town. So I got I ticked off my tenant buyer big time ticked off the seller ticked off the realtor, the mortgage broker, everybody that was involved in this deal, got major egg on my face, in a fairly small market. And that’s why I said there’s got to be a better way than this. And that’s why I get my head shaken as a dummy. If there’s something that you’re pretty good at it’s marketing so why don’t you figure out a way to uh, you know, attract investors get people get Get investors lined up ready to go in the wings. And then you can go make offers on deals. So took a bit of time and effort and trial and error, but I came up with this process.

J Darrin Gross  15:10  

So let’s talk about what was the? I mean, obviously, the AHA is you need people you need money. You need capital lined up here. Yeah. So let’s talk a little bit about that. What are, what is it that you do now? Or that you teach your prospective clients or your clients to do so that they are prepared with the capital when the opportunity presents itself that they can pull the trigger and make the deal?

Dave Dubeau  15:40  

Well, what I do Darrin is I, I encourage people to go after the low hanging fruit, encourage people to go after the low hanging fruit. So what does that mean? That means we need to kind of step back and look at things realistically, in order for somebody invest 5075 100, grand or more with us, they need to know us, they need to like us, and they need to trust us with their money. Would you agree that those those are good starting point? Yeah,

J Darrin Gross  16:07  

yeah,

Dave Dubeau  16:08  

you need if you’re missing any of those, it’s going to be very, very difficult. But most of us when we’re trying this, we think anybody with a pulse and a checkbook, that doesn’t bounce would make a good investor, that that’s very, very dangerous. First of all, from a practical standpoint, you know, if you’re trying to raise capital from complete strangers, that’s pushing a very big rock up a very steep hill, they don’t know you, they don’t like you. And they sure as hell don’t trust you with their undergrad. So you have to create that, that relationship from scratch. And that takes a long time. The other big thing to take into account is that, typically, it’s illegal, right? Unless you and I are licensed to do so. So typically, we’re thinking about a mortgage broker, a stock broker, could be a financial planner, these people can receive capital from the general public, because they’re licensed to do so. You and I, as mom and pop real estate entrepreneurs, we can’t, unless we got things structured properly, unless we’ve got the right exemptions. And caveat here, you guys, you know, I’m Canadian, from north of the border. So I’m just talking about what I’m aware of in the States, the rules are a little bit different. In Canada, we have we do have securities regulators same kind of idea, you guys for what I understand. You have state regulators, and then you got the securities exchange commission on top of that. So before you do anything, go talk to an appropriate real estate lawyer in your area that can get you set up properly, so that you’re, you’re compliant. That’s my, that’s my cover my butt thing there’s lamer. Yeah, but hopefully that worked. All right. So you guys, but basically, the big picture is, let’s focus on people that we have a pre existing relationship with right people who we know, and they know us, because here’s the beautiful thing there. We got two out of the three things taken care of they already know us. They already like us, now we just have to work on will they trust us with their money. So that’s what we suggest we, when you’re getting started with this, let’s come up with a target group of prospective investors. Now I say prospective investors, you don’t know who’s got the capital, who doesn’t have the capital, who’s going to be ready, willing and able and who isn’t. But for most of us is mom and pop real estate entrepreneurs. If you came up with a list of 150 to 200 people that you know, and they know you within that group, this is where I like to save my my training workshops. Everybody I firmly believe has at least a million dollars of capital sitting here, just waiting waiting to get access. The challenge is we don’t know exactly who has the capital and who doesn’t. So we need to come up with that target group of about 200 people. And then we need to let them know what we’re doing. We need to shake the tree and collect that low hanging fruit. So the first step is, let’s come up with that target group of people. And don’t don’t filter too much. Because one thing I’ve learned over the years during I’m sure you’ve seen this is don’t assume that somebody does or does not have money. because quite often the people that are all flash ain’t got no cash. And the people that are very humble and you know, don’t look like they have much money, actually do have a lot of money. So don’t prejudge people. Does that make sense?

J Darrin Gross  19:28  

Yep, no, absolutely.

Dave Dubeau  19:30  

Yeah, that’s a target group is the first thing. The second big part of this whole thing here is don’t make the stupid mistake I did, which is charging in like a bull in a china shop saying, hey, it’s Dave, I got a deal. If you got any cash. We’ve we’ve shown that that doesn’t work very well. So there’s a better way to do it. What I like to do is encourage people to do what we call a warm up campaign. So this is a way for you to break the ice with folks before you Start talking business. So we have a very simple three step email sequence that we send out to people we have our our clients send out to their prospective investors, just reconnecting with people on a personal level first, having a little bit of interaction back and forth. And then giving them the heads up there, we’re going to start marketing to them about what we’re up to with real estate investing. And just kind of set the stage before we actually start the marketing. Does that make sense?

J Darrin Gross  20:30  

No, so far, I’m on. I’m on on board here.

Dave Dubeau  20:33  

All right. Do you have any questions about this part of the process? This is step one of our five step process.

J Darrin Gross  20:40  

Now, I just think it makes a lot of sense on where you’re starting you you have, you know, eliminated those you don’t know and starting with those you do. And I’m guilty. You know, so often, it’s so easy to look past those we know, because we already know them. And we’ve already qualified them wrongly or rightly, without ever asking or even lead letting them know we’re doing this. And, you know, same same true. I know, in my insurance practice, it would be probably more more beneficial to start with those current clients, you know, and look for, for referrals, rather than keep charging and after new ones. But

Dave Dubeau  21:19  

yeah, well, we all will make that mistake, that’s for sure. But again, when it when it comes to just first getting started with with raising capital, I think this is a way to go. And a lot of people are freaked out. They say Wait, you know what, I’ve heard, don’t mix friendship or don’t mix family and business. That’s a recipe for disaster. And, and you’re right, it couldn’t be a recipe for disaster. If you do it the way most people mistakenly do it, they do it on a spit and a handshake. So here’s the recipe, here’s here’s a way to make it work. Bringing even if it’s your brother, your sister, your parent, whatever on board as investor partner, is what I always suggest, treat it as if you’re working with a complete stranger. What does that mean? That means if you were working with a stranger, which I don’t recommend, but if you were chances are, you’d be using the appropriate legal documentation, right. So do the same thing, even if it’s your brother, have the appropriate joint venture agreement, the appropriate contract, or the appropriate legal structure set up again, this is where it’s important to talk with your lawyer. So you know how to set everything up properly, make sure they get appropriate, independent legal advice, set everything up, set everything up. So when you are working on a deal, that you’ve got the appropriate reporting and the timeframes for all of that. So pretend as if your family member, your best friend from high school, or whatever, whoever it is that your investor, pretend they’re a complete stranger and treat it very, very professionally. And that will eliminate all, you know, set the parameters that will eliminate all of that back and forth that awkwardness, potential awkwardness of working with somebody that you really know. Now, here’s the other thing. People think, Well, you know, I don’t want to talk with my friends and family about what I’m up to with real estate investing. I think that’s the wrong idea. I think, you know, if you’re actively investing in real estate, chances are your thought process is or it should be that real estate is the absolute best investment choice for everyday people like you like myself, like our investors. I mean, what other investment class out there is such a solid, tangible investment, what other investment class out there, especially if your listeners are mostly focused on multifamily? You know, there are at least eight different profit centers that I’m aware of with a multifamily deal. What other investment choice out there offers that kind of potential for average people, so you are doing people a disservice by not letting them know what you’re up to with real estate investing. And then the other big mind shift is understanding the value that you bring to the table because a lot of us, when we first get started with raising capital, it’s, it’s all about me, me, me, me, me what I need this money to grow my portfolio I need this money to, to, you know, create more passive income for myself and my family. Well, that’s cool. But also think about what do you bring to the table for your investor partners, especially if you’re doing you know, a an equitable kind of profit split with your investors, you are bringing them an opportunity that they cannot or will not do on their own. So instead of kind of coming to the table, like a beggar with your, your hat in your hand looking for a handout, you can, you know, go to the table with some coneys with with a little bit of Mojo there, knowing that you are bringing massive value to the equation. So, you know, that’s a big challenge. I see a lot of new capital raisers making is they they kind of sniffle and grovel, they come across as needy. They’re kind of desperate. How do I know this? Because that’s how I was okay, needy and desperate and that just repels people. My mentor. once said, needy is creepy. Be very, very true. So needy is creepy goon just smell that. So you need to step into your position as a real estate professional, you need to understand what you bring to the table. And that is actually a much better thing than what your investors bring in, everything’s necessary, but you’re bringing more value to the table than the male, there’s trillions of dollars out there looking for a better home, you’re providing that better home for them. Again, that’s

J Darrin Gross  25:25  

a, that’s a, that’s a great, great point to remember. Because I think, you know, there are so many people that are resigned to what the stock market, how that works, or the little money that they’re getting on whatever they may be doing, as opposed to the opportunity. And I think a lot of this just comes down to a lack of knowledge, they just don’t know the opportunities exist? And who would they rather do? You know, an opportunity with somebody they don’t know, or you they do know, and already like and trust? So I think that’s, that’s a great, great point. And just keep in mind, I mean, I think really that that first, or that last point you made about just the value you are bringing, like you said they have money, and they’re looking for some sort of a return and a safe return it gets those are, those are great points. Great point.

Dave Dubeau  26:17  

Well, I think it’s our patriotic duty to educate people in our sphere of influence people who have that relationship with about what we’re up to with real estate investing, educate them, not manipulate them, not pressure them not, you know, arm wrestle them into investing with you, educate them about what you’re doing, and allow them to make their own educated decision as to whether investing with you Makes sense. So my whole process, my whole way of doing things is very, very, you know, no pressure, right. And it works very, very well is kind of counterintuitive to everything that we’ve seen on TV and in the media about, you know what, what it takes to raise capital, I don’t think you have to beat people over the head. To get them to invest with it, I think you need to provide that edgy education, allow them make up their own mind compare and contrast, when investing with you in a real estate deal looks like compared to keeping the money in the stock market and mutual funds when the bank. All right.

J Darrin Gross  27:18  

So, so let me ask you, can you describe a a typical student client of yours in their experience? They’re in real estate or wanting to raise capital? Can you describe some of the experience some of your, your clients have had

Dave Dubeau  27:38  

before they started this process, or once they start the process? 

J Darrin Gross  27:41  

Yeah, just the I guess more of like, once they start and how long it’s taken and, and the amount of money they’ve been able to raise and, and 

Dave Dubeau  27:50  

it’s all over the place there. And so it really depends on what kind of strategy they’re doing. So a lot of my clients come on board, and they’ve done maybe one or two deals under their own steam, maybe it’s a single family home, maybe it’s a single family home with a basement suite, and they want to do more of those, or they want to start stepping up into multifamily properties. That’s kind of that it seems to kind of work that way. So they start with single family homes, and then they start raising capital, they do a few more of them. And then they realize, Oh, you know, one, z, two Z’s are great. But if you can get eight doors in one property, or 16 doors, or 24, doors, or 54, or whatever it is, that’s a lot better. So it’s, it’s usually that kind of a progression. They’ve hit the wall, they sell finance, the first couple of deals, or maybe they they bumbled around and actually raised a little bit of money, but it was the old way it was painful for them. So they’re looking for, for better ways, and what are the results? You know what it’s all across the board. And we’ve had people get started just with this first step I was telling you about, which is coming out with that target group of prospective investors and breaking the ice and getting some people putting up their hand and saying, Hey, you know, Derek, I didn’t know you’re doing real estate, I’m interested. Tell me more. And then they have a meeting with them. And they show them what they’re doing. And they get investors right on board right from the right from the get go. I had one client not that long ago, Bruno was new to the country. He’d had. He’s from Mexico originally came to the country had some experience in Mexico, but none here and not even a big social network here. But went through the process. And his very first presentation, he got an investor on board for $200,000. Now, Is that normal? No, that’s not normal. That’s exceptional. But it does happen. I had another nother you know, typically it’s more like 80 to $100,000. I did have because the next step of the whole process is make sure that you’ve got your investor presentation put together I call this your your million dollar presentation, I usually recommend a slide deck. I had one, one client, I call it the million dollar investor presentation because typically over a period of months, you can probably quite easily raise a million dollars using this presentation. But one client of mine, Curtis, he did this process and he had his his very first presentation was with his dentist, and the dentist at the end of the whole thing he loved it loved what Curtis was doing love the presentation is Amen. So curious like, okay, so are you interested? He said, Yeah, I’d like I’d like to invest. And Gary said, Well, how much would you like to invest? When you said, you know, what, I’ve got a line of credit that I’m not using right now is for $1.3 million. Do you think we could do something with that? And Curtis scratched his head? And he said, Let me think about it for a sec. Yes, I do think we could do something with that. Bank. So that was, that was a biggest example of the fastest that I’ve seen. And that’s definitely not typical. But that’s, it’s definitely possible. So it’s all across the board, you know, from from $50,000, to $1.3 million, quite quickly, typically takes a bit longer than that to raise the big bucks. But you can start very, very quickly.

J Darrin Gross  30:58  

Knowing Hey, I think it’s all good. I know, you know, the, the notion, you go by yourself, eventually you will run out of capital. Well, and, you know, if you want to continue, you’ve either got a partner or I mean, you know, you’re gonna need more capital, and you have to sell something and try and, you know, move that around or partner up with somebody else. And I mean, I think that, you know, if you look at the largest deals, so the syndications and that, that they’re, they’re groups of people, they’re not just one guy. And even some of the largest investors I know. They get they get others to partner with them. And, and, you know, join capital in that. So

Dave Dubeau  31:47  

even the the biggest guys, pool capital, right? It’s, it’s the way it goes, I kind of use this analogy, I say real estate is our vehicle that we’ve chosen to get to where we want to be financially. So we’ve chosen real estate as the vehicle. And when it comes to every vehicle needs a driver, you’re the driver of your real estate vehicle, every vehicle needs fuel. And when it comes to our real estate vehicle, we can use our own finances, our own resources, that’s kind of like having a little jerrycan of gas, you put that in, and it gets you started. But sooner or later, you’re going to run a gas, you’re going to stall out, you’re going to get stuck, right? Now, when you’ve got access to other people’s money. When you’ve got a group of investors lined up ready to go in the wings, like I’m recommending here, that’s like having your very own gas station, you can pull up anytime you want 24 seven, and you’ve got the fuel that you need to keep your real estate vehicle going. So that’s the analogy I like to use. And again, it’s all about, you know, we talked about, find a good deal and the money will find you. That hasn’t been my case, unless you’ve done this. Now, here’s the ideal situation. You’ve got your investors lined up ready to go in the wings, then you go find a good deal. And then you say, Hey, guys, here’s what I’ve got. First come first serve. Right? You get first dibs on this, the people who put up their hands the first, get it first. And that’s the ideal situation to be in, instead of desperately creepily chasing after people in their mind.

J Darrin Gross  33:19  

No, no, it makes a lot of sense. And I think the other thing that I’ve seen in talking with other guests and just other investors is that once you raise that capital, when you return capital, the investors are typically looking if they’ve had a good experience for your next deal. Yeah. And I’ve seen the people be able to, you know, get into multiple properties based on those initial raises. Over time, there’s that’s, that’s all law, good

Dave Dubeau  33:49  

business, and referrals and all that kind of stuff. That’s actually step number five of my process. But yeah, it plays a huge, huge role, that’s for sure. So, so we’ve got our target group of prospective investors, we’ve broken the ice with them. We want to make sure we’ve got our investor presentation ready to go. And what I mean for that for most people what I found, the best thing is to have a, a slideshow, like a PowerPoint, or Keynote presentation, something you can show people, especially these days with old COVID thing going on, so that you can, you know, jump on zoom like we are and share your screen and walk people through a well structured, well organized, logical presentation that shows them what you’re up to. Right. And then the goal of the presentation isn’t again, somebody cut you a check for 100 grand necessarily. The goal of the presentation is to get them to say yes, when you’ve got a deal. I want first dibs, I want to be taken into consideration. That’s how we get our investors lined up ready to go and waste. And then this way, capital raising doesn’t need to be a sporadic thing. You don’t have to be waiting until you’ve got a deal to start raising capital. In fact, that’s the worst time you start raising capital now and then you go find the deals. Knowing that you’ve got the investors ready to go into wicks. So step number three of the process is called marketing, what I call constant, consistent communication, you want to be coming out on a regular basis, you know, rock bottom minimum, absolute minimum, once a month, you need to be communicating with your list of prospective investors. That’s the absolute minimum, you know, get up to the point where you can be communicating once a week, that would be pretty good. You can even do more often than that, but you know, shoot for at least once a week eventually. But start with once a month, find something that you at least don’t mind doing. Most people do not know I’m a real estate weirdo, and I’m a marketing weirdo. I like both. But most real estate entrepreneurs are not marketers by by choice. So pick something that you enjoy doing, whether that’s writing, if you want to do electronic newsletters, could be blog posts, could be video logs, blogs, short, three to five minute little videos, whatever it is, pick something and do it consistently. So that’s that and have it come out on a regular basis basis. And then the other thing about consistency is talk about focus on one thing. So most of your listeners, most of your viewers are into multifamily investing. So if you’re going to be talking about real estate, talk about the big benefits of multifamily or commercial real estate invest and talk about the big benefits of the market, or the markets that you focus on, talk about the profit centers that are available. But always keep in mind, this is important to always keep in mind that your prospective investors are probably not real estate enthusiasts like we are. Right, they are regular people. And the stats I’ve seen is 95% of the general population has never purchased a revenue property. So you always have to keep that in mind, the majority of your investors, or prospective investors are not real estate weirdos like us. And I say that with love and affection, you know what I mean? So keep the keep your marketing, pretty high level make it edutainment a little bit educational, and hopefully a little bit entertaining as well. What they want to know is that you know your stuff. So don’t overwhelm them with data, don’t overwhelm them with charts, don’t overwhelm them with graphs, all this kind of stuff, keep it big picture, make sure they understand the you know the details. But keep it very, very Reader’s Digest level for them. So they’re and I don’t know if you remember the old magazine, Reader’s Digest for back in the day, right? It was it was a magazine written for adults, right. But it was written at a level where any 13 year old kid could easily comprehend everything in that magazine, same idea with our marketing, keep it at a level where any average 13 year old kid can get it. And you know, you’re right on target doesn’t mean that your prospective investors are dumb, not at all. It just means we want to keep it, you know, pretty light, and pretty easy to understand and consume. Does that make sense?

J Darrin Gross  38:01  

Yeah, no, that’s, that’s definitely something to keep in mind. And it’s really easy when you when you’re constantly talking with other real estate investors to, you know, get into the weeds and that but three, I thought was interesting, that stat he said, it was a 95% of, of people have never purchased correlation

Dave Dubeau  38:20  

of the general population has never purchased an investment property, their own

J Darrin Gross  38:25  

revenue generating property. I mean, that’s, that’s that right there to me is one of the key. I mean, that’s so critical to the whole understanding of the value of the real estate opportunity. Because I think most people, when they look at when they, when they do walk into a house, they think about living there and they think about, you know, having the the party or you know, whatever the Christmas or whatever, there’s that image as opposed to the the economic opportunity there. So that’s, that’s good.

Dave Dubeau  38:55  

Exactly.

Dave Dubeau  38:56  

So that’s that is step number three, that’s all about that constant, consistent communication, the marketing. Step number four, is really important. This is all about the trust factor, right? Because we talked about this earlier for somebody invest 100 grand with you, you need to know you like you and trust you with their money. So the good thing is if you follow this process, two out of the three are taken care of they already know you they already like yet. Now we got to work on that trust factor and the marketing out with a lot of that. But there’s also other ways, and again, here’s the cool thing. We need to be able to step into our position as a real estate professional. And a lot of people are freaked out about this and they say I’m not worthy. I’m not ready. I don’t have enough deals under my belt. Or remember that 95% of the non real estate people you know, have never ever purchased a revenue property have even got one deal under your belt. You’re ahead of 95% of the general population. So the other thing you need to remember is we’re not trying to make you a real estate expert in the eyes of the entire world. That’s not necessary. You’re not you’re not going to go head to head against Robert Kiyosaki. In Rich Dad, Poor Dad or anything like that, what we want to do is you want to make you seen as a real estate professional and expert in the eyes of your list of prospective investors, those 200 people, alright, so there’s all sorts of different ways you can do that. You know, getting interviewed on a podcast is an amazing way to do it. interviewing people on a podcast another great way to do it. Even just some simple stuff, dress the part if you’re meeting with somebody about and talking about their money, dress up a little bit, you know, guys put on a blazer, you know, show them some respect, it’ll get you respect back as well be able to speak knowledgeably and simply about your real estate investing strategy, whatever your main focus is, and your market be able to explain it again, Reader’s Digest level, and have good looking sharp materials. One of my pet peeves, Darrin is so called professional real estate investors with crappy business cards, crappy little things they printed out at home, or, you know, an inkjet or whatever, invest a few bucks in some really sharp looking business cards, invest a few bucks and getting some professional headshots taken. And use those in your presentation, use those on your website, have a good looking website, all of these things help a lot to creating that trust factor and being seen as a credible authority in the eyes of your prospective investors.

J Darrin Gross  41:24  

Got it. So we’ve got through for that. I mean, we’re building the trust. Yeah. And today hear you say number five was the

Dave Dubeau  41:33  

five is is starting to snowball effect and you’ve been in business for yourself, you understand as most mom and pop real estate entrepreneurs don’t. But once you get an investor on board, you know, do the absolute best job you possibly can for them, make them soup, it’s you know, under promise over deliver, we always hear that, but do it right, under promise over deliver, make them ecstatic, they’re going to reinvest with you. And if you do it right, you can get very effective testimonials. And you can get warm referrals to their friends and their family because they hang out with other people with money to so do a good job for them. And that can help you just expand your sphere exponentially.

Dave Dubeau  42:15  

And that’s a five step process.

J Darrin Gross  42:18  

That sounds so simple, but it’s the execution there. You know, and I think it’s I think we we fundamentally, I think at a base level understand all of that. But but actually the the doing it and and also, I think that, you know, what’s key that I just heard there was about the the communication and the level of the communication, I think so often that it’s, it’s a kind of a challenge to try and demonstrate how much you know, so you start laying down a bunch of lingo and stuff. And it just kind of goes whoosh, you know, right past them. And

Dave Dubeau  42:51  

it That’s exactly right. My big plus is all my big brother, Dan is a very analytical guy weighs, you know, numbers, way smarter than I am. But the challenge is, when he talks to a normal person, and he throws all this data at them, their eyes glaze over, they roll in the back of their head, they get confused. And a confused mind always says no. Right? So he struggled, he struggled with with trying to raise money because he overwhelmed people with too much information. So it’s, it’s always keep that in mind. Right? They, they want to know that you know, your stuff, they don’t want to know everything, you know. And at the end of the day, Darrin, this resonate with me, at the end of the day, your investors are really investing in you. And the actual deal is just the security for their money. They’re really investing in you. The property itself is just the collateral. All right. That’s something took a while for that

Dave Dubeau  43:48  

to sink in for

J Darrin Gross  43:50  

months. That’s good. That’s really good. Hey, Dave, if we could, I’d like to shift gears here for a second. By day, I’m an insurance broker. And I work with my clients to assess risk and determine what to do about the risk. And there’s three strategies we typically consider. We look to see if we can avoid the risk as a first option. If that doesn’t work, we look to see if we can minimize the risk. And if we we find out that we can’t avoid nor minimize risk, and we look to see if we can transfer the risk. And that’s what an insurance policy is. It’s a risk transfer. Risk strategy.

Dave Dubeau  44:31  

What Yeah,

J Darrin Gross  44:32  

yeah, risk management strategy. And I like to ask my guests if they can take a look at their their own situation, whether it be their clients, investors, tenants, the market, however, you know, they can identify the situation and identify what they consider to be the biggest risk. And just for clarification, I’m not necessarily looking for an insurance related issue. Sure. But if you’re willing, I’d like to ask you, Dave Dubeau, what is the biggest risk?

Dave Dubeau  45:10  

Well, do you mind if I give you two answers? No, we will. So the biggest risk is staying stuck. That’s the biggest risk, right? Just trying to sell finance your deals and not growing your portfolio because you’re not going to achieve what you wanted to real estate in the first place. Okay? So beyond beyond the hoody, Flutie whoo, whoo, kind of big risks. The tangible risks, the biggest tangible risk I see with people when it comes to raising capital is crossing the line with the Securities and Exchange Commission or your your local authority. I see people making this mistake a lot. And sometimes they get away with it for a while, but eventually it catches up with them. And it can cause a whole world of hurt and expense that you don’t want to go through. So the process I’ve walked through through here today is a very good one. And it also I also highly, highly recommend, talk to a real estate lawyer in your area, explain what you want to do, and see what do you need to have set up to do it properly, maybe you don’t need anything, if you’re bringing somebody on board, as not only a money partner, but actually a joint venture partner in a deal, you might not need to do anything, because they’re your equity partner. And they’re actively involved, not just with money, but they’re actually doing something. So you might be exempt that way. But make sure that however it is that you’re bringing your investor partners on board, you are compliant, and you’re not crossing the line with the Securities Commission.

J Darrin Gross  46:51  

Now, those are our words of wisdom that I think any investor looking to raise capital should pay heed. He certainly wouldn’t want to be that guy that, you know, crossed that line and ended up having all sorts of additional problems. Dave, Where can the listeners go if they would like to learn more or connect with you? Well, thanks, Dan. So

Dave Dubeau  47:15  

basically, my main business is I have a boutique marketing agency. And everything I just talked to you guys about today, we help our clients actually implement everything that we’ve been talking about. So the best first step would be for you to get a complimentary copy of my book called The money partner formula. I’ll trade it to you, I’ll trade you a PDF of my book, in exchange for your name and your email address. And that’s how we can get connected. And the way you can get the book is that investor attraction book.com. Darrin, I have spared no, it’s no time or expense of putting this sign together for your for you and your listeners. There you go. Investorattractionbook.com. That’s where you can get a copy of the book. And that goes much more in depth into everything we talked about here today. And then you’ll be in the loop. And if you’d like to attend one of our full day workshops, where we really roll up our sleeves and dive into this, that would be great. And if eventually you decide that you’d like to work with us as a client, we’d love that as well.

J Darrin Gross  48:20  

Awesome. 

Dave, I can’t say thanks enough for taking the time today. I’ve enjoyed our talk. I’ve learned a lot. And hope we can do it again soon.

Dave Dubeau  48:30  

My pleasure. Thank you very much there and keep doing what you’re doing.

J Darrin Gross  48:34  

All right. For our listeners. If you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow. That’s all we’ve got this week. Until next time, thanks for listening to commercial real estate pro networks. cr e pn radio. 

Announcer  48:54  

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Boise Ground Up Construction Multifamily Investor Returns with Shannon Robnett – CRE PN #291

Shannon Robnett  0:00  

They realize that they don’t want to hold that for five to seven years, because it marginally improves from there. But the main value like you said before we started the show, the original value add was the ground up development, putting the sticks and stones together, creating the value by putting the tenant in and creating that cash flow. And liquidating at that point as soon as you can, because the sooner you can get your your 25% return, the better that looks because if it takes you eight months to do it, versus 12 months to do it versus 16 months to do it, you’re still getting a 25% return but your IRR or your return for the year is substantially affected by the duration of time.

Announcer  0:40  

Welcome to CRE PN Radio for influential commercial real estate professionals who work with investors buyers and sellers of commercial real estate coast to coast whether you’re an investor broker, lender, property manager, attorney or accountant We are here to learn from the experts. 

J Darrin Gross  0:52  

Welcome to Commercial Real Estate Pro Networks. CRE PN Radio. Thanks for joining us. My name is J Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio. 

Today my guest is Shannon Robnett. And for the last 40 years, he lived in Boise, Idaho. He’s been building and developing there for over 25 years. And two years ago, he moved to Puerto Rico for tax purposes, but still has three companies in Boise. And in just a minute, we’re going to speak with Shannon about the benefits of new multifamily ground up construction. 

But first, a quick reminder, if you like our show, CRE PN Radio, there are a couple of things you can do. You can like, share and subscribe. And as always, we would encourage you to leave a comment. We’d love to hear from our listeners. Also, if you’d like to see how handsome our guests are, be sure to check out our YouTube channel. You can find us on youtube at Commercial Real Estate Pro Network. And while you’re there, please subscribe. With that I want to welcome my guest, Shannon, welcome to CRE PN Radio.

Shannon Robnett  2:29  

Thanks, Darrin Glad to be here.

J Darrin Gross  2:32  

Well, I’m so glad you could join us today. And I’m looking forward to our conversation. Before we get started, if you could share with the listeners a little bit about your background.

Sure. So there and I grew up in a construction and development family my my dad was a general contractor, my mom was a third generation realtor, I had my license for a period of time and I’ve got a 24 year old son who was in real estate as well. And that’s just kind of how I grew up. I just always, you know, I looked at it growing up when I was always working with my dad and working on stuff and and cleaning up job sites as I didn’t really see it as an internship then, but it really turned out to be the backbone of what my experience has been from there. And I just saw, you know, I was I was working on a job site for my dad and I got to know the crane operator. And he was complaining about he didn’t have anywhere to put his stuff and I got to know the little lady next door and she was looking to sell her place and go to a nursing home and all of a sudden the light went on. And I didn’t take my last 500 bucks. Darrin It was my only 500 bucks. I mean, I was you know, I was nuvo broke man, I just decided I was moving out of my parents house. I had no money. I got that property under contract contingent on getting it rezone with the city. I did just that. And I sold it to the crane operator. And I made about double what I was making for my dad working that whole year on a $500 investment. And from then I had no choice I had to be hooked, right? I mean, I was in.

Yeah. No, that’s awesome. And like said kind of a unique kind of a lifetime internship. You know, you get the both ends from your parents and and being around. That’s awesome. So let’s talk a little bit about what you’re doing. Now. You You are now in Puerto Rico. You were in Boise, and you’ve still got some companies in Boise. What are you doing in Boise?

Yeah, so Puerto Rico is they’ve got a great program here is called act 2022. That, that if you’re spending 183 days outside of the continental United States and or in Puerto Rico, you create a residency here that changes your tax status. But I didn’t want to give up my companies in Idaho because after 25 years of building and developing there, I was just getting going things were just starting to get going very well. But as we’ve all figured out with COVID, you don’t actually have to be there every day all day long to get the same things going if you’ve got great people in place. So I was doing zoom calls two years ago, and everybody thought I was just this really cutting edge contractor, right? I mean, that’s almost like the biggest oxymoron out there, cutting edge contractor, right, because we were doing zoom calls. And we were this and we were that, and I could only meet on certain times of the week when I was back in Idaho. But the reality was, I just kept everything going. And I have people that have been with me that are great people that can handle things day to day. And I’m in the development phase of things. So as a development company, we’re building our own product, ground up, whether that’s multifamily or industrial. And then we kick it over to our own property management company that doesn’t really act like a property management company, it acts more like an asset management company who’s more concerned about your noi, because they know what the noi does, when you do it for development proper for investment property, commercial real estate, functions, everything off of a cap rate. And without that without being really cognizant of your noi, you’re likely to get yourself in trouble a little bit by just having a property management company, that’s just managing the tenants.

No, I couldn’t agree more if the property manager and I think some of the best property managers I’ve I’ve gotten to know, or, you know, understand that their philosophy is, they try and keep the property ready for you to sell at any time. And it’s, you know, both physical, but also on all the financial stuff, and that, you know, collecting rent and all that, but they recognize that the value is in that noi. And so that’s, that’s, that’s well said, 

Shannon Robnett  6:50  

Yeah, you know, something as simple as just turnover, you know, managing your turnover better. You know, trying, I mean, when you’re looking at a property management company, a lot of times they’re concerned with the fees, because they get a higher fee for a new tenant. So they’re going to take the 15 day vacancy, you’re going to clean it, you’re not going to you know, your security deposit is not going to cover, maybe you’ve got to replace carpet in between tenants, and those kind of things cost money, and they affect the noi in a huge way.

J Darrin Gross  7:16  

Yeah, no, exactly. So So let’s talk a little bit about your approach. You know, I think a lot of the people I’ve talked to, or had the opportunity to talk to on this podcast have been multifamily investors or in some way shape, whether they’re investing directly themselves as a passive investor, or they’re syndicating. And I think, you know, by and large, a lot of the, the energy is to get in and get out to find something that’s, you know, has room in it, whether it’s, it’s old and tired, maybe it’s poorly managed, but do some sort of a value add. And then upon the, the increase in the value, liquidate and pay everybody and then move on to the next one. The fact that you’re starting from new construction, is your long term objective. Is it more of a, a build and hold? Are you are you building and selling the finished product?

Well, you know, Darrin, I, I built my first building to own for myself at 28 years old. And I didn’t know anything about cap rates at the time. And so once I’d filled the building, I had somebody come and offer me 25%, more than it cost me to build it. For the building with the tenants in there. I look back on that building that I sold back in 2001. And three of the six tenants are still there, right? I mean, you got a guy that rebuilds fuel injectors, you got to gelato ice cream guy, I mean, you know, just salt of the earth, people that have businesses to run. And so I’ve looked at that. And I’ve said, Well, what what kind of investor Are you really encountering, right? And I think that you’re finding two basic kinds of investors, there’s those that want to hold on to the asset because they want the cash flow. And there’s those that want the growth on their money, and they’re looking for the fastest way to get there. And I think what happens a lot of times is we try to put those two together in the same syndication or the same partnership, and you’re trying to accomplish two different objectives. So we have a couple of different strategies that we use with our ground up that fit more the investor. So if you’re looking for, for growth and strictly growth, we have that if you’re looking for some value add, where you want to get in on a deal. We’re going to build a building, we’re going to build some multifamily, we’re going to stabilize it, we’re going to do a refinance, we’re going to hold on to it. We can do that, too. We have that strategy. But what we find that is a lot of times when people really come down to it and they realize that they can make between 25 and 35% with our growth strategy where we build it and we liquidate it. They Realize that they don’t want to hold that for five to seven years, because it marginally improves from there. But the the main value, like you said, before we started the show, the original value add was the ground up development, putting the sticks and stones together, creating the value by putting the tenant in and creating that cash flow. And liquidating at that point as soon as you can, because the sooner you can get your your 25% return, the better that looks. Because if it takes you eight months to do it, versus 12 months to do it versus 16 months to do it, you’re still getting a 25% return, but your IRR or your return for the year is substantially affected by the duration of time.

No, that is it’s so true. I know. There’s a property I’ve got. And I was looking at it and thinking like, wow, we’ve done so well, you know, if you divide by the hold time, that’s pretty impressive return, you know, and then if you start thinking like, well, what if we hold it another year? Or, you know, do this and the returns are marginal? I mean, they they really, you know, it’s kind of a fast hit. And, you know, turn and turn is, I guess the optimal, I guess, get that money back working into another opportunity kind of thing. Yeah. And, but, but I think the, like you said there’s essentially two classes of investors, those that are looking for a steady return versus those who are looking for an equity boost. And let me ask you, because you’ve been in Puerto Rico, I mean, most of the the the people I know that are doing the you know, like the syndication with the the kind of the quick value add or return once you distribute that money in because you’re you’re in a syndication, my understanding is the most are unable to, to take advantage of a 1031. It’s basically it’s, it’s similar to like a stock return from a standpoint of you by yourself, you know, you pay your tax, you move on kind of a thing.

Are you being set up in Puerto Rico? Are you subject to those taxes? Or is that?

Well, the reality is that that the IRS says that the where the money is made is where it’s subject to be taxed. So, but but let’s go back to your question, though. I mean, we’ve all heard the adage that the money is made on the buy, you don’t make money when you sell you make money when you buy. And that couldn’t be truer in what we do. Because it’s not necessarily when you buy, but how you buy. So if you know that you’re going to be in and out of this deal. And it’s going to come to you as ordinary income. What’s the safest way to do that without paying taxes, we’ll use a self directed IRA, right? Whether it’s whether it’s a traditional or non, you know, non conforming IRA, use a self directed IRA, so that your returns go straight back into your IRA, and you’re not subject to the tax penalties that you would face. If you made that 35% and then turn around had to pay Uncle Sam. Right. The other reality is, I mean, if all you’re doing is holding on to something, for a period of time to avoid the tax today, the tax bill is going to come due at some point. Right? So I mean, we all get caught up in the fact that no, I got to do it, I got to do a 1031. But Darrin, you know, you know how to do basic math, if you’re getting a 35% return this year. And next year, you’re getting a six cap. That’s a 6% return, right? You average those two together, you just torpedoed your return? Was it really worth that to not pay Uncle Sam a little bit of money or not think about some advanced tax strategies before you purchase. 

Right? No, I think what I what I’ve kind of resigned myself to as far as a the conversation in the line, I think it’s a hold time. If you’re if you’re planning on holding, if you’ve held something for a long time, and you’ve depreciated it down to almost nothing, your motivation to do an exchange is probably greater than if you’ve got something that you’ve got a you know, pile of cash you want to put to work and it’s not it’s not going to encumbered by any kind of real estate or subject any kind of a game you I mean you’re looking to put it to work to me it makes more sense to kind of keep that work and faster. But it’s I think where I I’ve gotten in this a lot of self analysis kind of thing is recognizing that that you know a lot of the properties I’ve got I’ve had them for a long time and it’s either you know, I would need something just you know, I guess I need to sit down really go through it. But I guess I’ve just felt like I’ve gone past that the line of demarcation of easy and easy out based on the whole time the depreciation schedules.

Well then there’s also the the opportunity zone stuff, right. I mean, there’s some great opportunity zone opportunity toonies that we’re dealing with in an Idaho that are brand new product in in a great area, whether that’s multifamily whether that’s industrial, but you know, opportunity’s own provides for that you do pay the tax, but you pay the tax in six years from today.

Right. And if you’re going after you get the in the game, you get the game free.

Yeah, right. Yeah, hold it for 10 years. And so we’re doing a couple of those projects yet this year, where you’re coming into the opportunity zone, you’re getting about a 14 to 16% cash on cash, you get that for about six years that pays about 65 or 70% of the taxes you would owe. We’re also doing a cash out refi at the end of year one was stabilization. So you’re getting returned of most of your money anyway. But just like anything, the IRS believes that when you bought $100,000 of a syndication, and you refinanced it, it doesn’t matter to the IRS, right. It’s just like refinancing something that you’ve depreciated out, they don’t care how far you’ve depreciated it, they’re still looking at it, that you have $100,000 investment in there. So you’re now deferring that, into that, that program into the opportunity zone. And then when you’re extracting your funds at the end of that 10 year period, you’ve essentially washed them you paid you paid for your sins of depreciation. Right, you’ve you’ve done that, and you’re seven, and now you’re you’re off to capture your gains, again, without taxes.

No, it makes a lot of sense. And again, utilizing one of those unique strategy structures available right now. The What is it the opportunity zone opportunity zones? qualified opportunity zones? Yeah.

So, well, let me ask you, so your your primary territory building? Is it Boise? Is that where you?

Yeah, 40 years there. I know the valley? Well, if you look at the last five years in Idaho, last seven years in Idaho, we’ve hit about every top 10 list there is. So I’ve got a really target rich environment, I’ve got a portfolio of about 1000 doors and about 150,000 square feet of industrial to build in the next three years, I really don’t have to look outside of my immediate area. Plus, I gotta admit there, and I’m not that smart. I can’t learn the demographics of Tallahassee, meanwhile, trying to figure out what’s going on in Kansas City, look at another deal over in Santa Monica, California, it’s just beyond my capacity to understand those markets. So I can do what I do, right where I’m at, I can get fantastic returns for myself and my investors. And we get to stay in an environment that I work in and live in. I know I’ve got subcontractor relationships that are two decades old. I mean, I’ve got everything I need. And it puts me in a position where I’m not trying to learn a new market and moving in other areas.

But I think you touched on there just having the I mean, the relationships. I mean, knowing knowing the area and having the people you can count on to get the job done. Right. That’s, that’s huge. That’s great. So and you said you, you have 1000 doors plus industrial space?

Shannon Robnett  18:08  

Yeah. 

J Darrin Gross  18:09  

Okay. And are those a long term kind of portfolio? Or is that more?

Like I said, we’ve got some that’s opportunities on that we’re holding for a minimum of 10 years, we’ve got some other stuff that we’re going to hold for about five, we’ve got some other stuff that we’re building and selling immediately creating a liquidity about on that. So we’ve got just about something for everybody. It just really depends on you know, but then again, back to your statement, the original value add was new construction. So if we’ve made the majority of the money in the first 12 months, why would we continue to hang on to it? Right, right. I mean, it’s not like we’re in New Jersey, where there’s not much ground left to build new. You know, we’re not we’re not like a lot of value, add syndicators that are stuck, looking for the next deal that fits their parameters because I can create a brand new deal tomorrow, with the property next door or the property down the street or the property three blocks over five miles away. We can just create another one.

And what are the current growth? estimates for Boise? Is it I mean, everything I’ve heard, it’s like you said it’s red hot, but it’s a lot of  industry coming in there.

Yeah, we’ve got I mean, we’re seeing a lot of jobs move in there. We’re seeing a lot of people move in for quality of life. We’re seeing a huge retirement community move in. So we’re really seeing across the gamut. People looking for an affordable, safe environment to live and work in. And so you know, I just saw some stats from from a realtor friend of mine that came across today that showed that we are anywhere from 15 to 25%. appreciation in home prices so far this year across the valley, we’ve seen an 11% appreciation In a number of units closed, and we’ve seen a 73% reduction in inventory. So we have I mean, I don’t know how else to qualify it red hot. But that’s pretty red high, you know, in one of the one of the biggest worldwide crisis, health crisis, we’re having people flood to our area, because we check a lot of those boxes. I mean, you know, listen, San Francisco is a great place to live. But being in lockdown with 9 million of your closest friends, isn’t everybody’s dream boat.

Right, right. Now, I think, you know, the lot of the I don’t say rural, but more, where there’s room to operate, I think it’d be definitely, definitely a lot more appealing. I know of people that I I, and I’m familiar with that have like even in New York, New York City have sought out upstate, you know, more resort slash rural kind of areas to have a kind of vacation home or, or even, you know, just even with all of the the cost of living, and a lot of the employers have basically realized the cost savings by having their workers work remote. They’ve kind of given the employees the green light to relocate to wherever they want. And a lot of us are looking for a lower cost of living. And I would think that Boise would certainly be a little bit more cost effective than a cost efficient than a coastal. Yeah, well,

you know, even Darrin, look at the conversation we’re having, right, we’re you you would be really hard pressed to be farther apart in the United States, other than you being in Alaska, to have this conversation yet. We’re talking like we’re right next door to each other. And that wasn’t an wasn’t available five years ago, right. So the whole concept of having to show up for work, I think, is, is a thing of the past, and you’re going to see that in multifamily, you’re going to see, you know, we’re already looking at changing some of our floor plans to accommodate work from home situations. You know, in our complexes, we’ve already done that, to a large degree in our clubhouse settings. But we’re really seeing where as a as a nation, we’re able to unplug. I mean, if you work in at a tire shop, or you’re working at a lumber mill, you’re working in a restaurant, you’re you’re not going to be able to call it in, right but but by and large, I mean, you’re an insurance, you can do most of what you’re doing right here in your living room. And, and we can do that. So as we see that happen, I think you’re gonna see a lot of the benefit of being in Silicon Valley fate, a lot of benefit of being in New York in the financial industry, that’s going to fade, you’re going to be able to do the same thing. from Kansas, from Dallas, Texas, from Boise, Idaho.

Yeah, no, I think that a lot of those metro areas, as far as the commercial real estate, there’s going to be a pretty big reset on valuations in that and, and, you know, that’s, that’s kind of the cycle of things. So, right, hope you got in on the right side and got out before, you know, or you’re, you’re prepared to ride it through, I mean, the cycle lap again, I mean, these these have their way. So let’s talk a little bit about just the the strategies that you you know, you look for when when, you know, when you’re working with prospective investors, and you mentioned the IRA accounts, is that primarily the the source of the capital that you you found to be most available and willing to go forward invest with you or,

you know, in our growth scenarios, for sure. In our opportunity zones, we got people that are looking at it going, you know, what, who knows what’s going to happen when this election is finally over? I mean, he, we don’t even know, we don’t, it’s not even over at this point. But But you know, if the 1031 does a go away, is now the time to maybe cash in on some of that. I mean, capital gains is capital gains, right. But there’s a lot of people that did very well in the stock market that are selling that out, they’re moving into a capital gains situation, and they’re looking at it going, Hey, if I cash out now, I can put that capital gains into an opportunity zone. And I can have that benefit of being able to defer that out and not pay the taxes on that for seven years. So for us, we’re using our biggest thing there is to sit down with people that want to be an investor, okay? And to make sure that what they want to do, we’re using the most tax advantaged situation and and scenario to do that so that we don’t wind up in a situation where, hey, we made you 30% returned. But Uncle Sam swinging him for his 37% of that, we want to make sure that we would, we’re doing things right, we’re doing things in a in a fantastic version of the slimmest tax consequences we can do for you to make sure that you’re getting your needs met. And you’re, and you’re making your return the best that can be in an after tax calculation. So if you’ve got an IRA sitting around doing nothing, it’s a Roth from your job from five years ago, and it’s just sitting there, you don’t even know what to do, it’s in a mutual fund, let’s convert that to a self directed. If you’re in a situation where you can put funds away in a non qualified IRA, let’s do that. And let’s use those funds because at least they went in tax paid. And now we’re going to invest them in real estate, it’s going to grow, you’re going to be tax deferred to when you come out of real estate, but you’re growing it without having to cut off a big chunk of it for Uncle Sam every time. And so I think there it’s more about sitting down with people and finding out what they want to do and what avenues and funds they have available. We got people that we use their whole life policies, borrow, borrow against those to put into real estate deals, right. So we’re able to use just about any source of funds that benefit our client, the best that we can figure out how to do to create the scenario that’s optimal for them.

Yeah. So let me ask you this for your development. Schedule. You’ve mentioned a couple different timeframes. 912 18 months? Are you are you doing traditional financing and just raising the capital for the the down payment? Are you doing? are you raising for the entire project? or How are you? How are you structuring your capital?

Shannon Robnett  26:44  

Yeah, well, you know, as you know, the bank is a great partner, but they don’t like to cover all of it, right? I mean, if you can pay, if you can pay a 1% loan origination fee, and six and a half percent interest on a construction loan, that’s going to be much cheaper than involving 100% equity. So what we do in a typical situation, let’s talk about this 36 units that were midway through in Nampa, Idaho, the total cost of that was $5.3 million, the appraisal from December of 19 came in at $6.3 million, I went to the bank, the bank said we’ll loan you $3.7 million, so you got to come up with $1.8 million to do this deal. So I went out to LPs, I raised a million and a half bucks. And for that I gave them 35% of the profits. So I was bringing 250,000 of my own money to the table, we are building the project, we’ve already received several unsolicited offers on the project at closer to 7 million than six. And we will be able to liquidate that thing. And out of that the investors will will reap the return. But we use leverage, right we use 60% from the bank, we used the rest of it from the LPS in myself, just depends on what the situation was. But typically on a construction deal, you’re getting between 60 and 65% loan to cost on your original construction. So you have to bring in a little bit more liquidity from your LPs on the upside. But I don’t think it’s really any more than if you bought the apartment complex with an 85% loan to value and then put in another 20%. And in your value add you know, in your cap x this gets it gets dispersed, changing it from the Oasis to the three palms or you know, something like that.

J Darrin Gross  27:52  

Right? No new tile and grout? Yeah, um, no so but but I think the the, you know, one of the things that that is always recognized if you’re at the front end of just looking at an investment opportunity in your in your thinking about the value add because the value add strategy makes complete sentence, you know, you can get something that undervalued, you can put a little bit in and based on you know, the metrics of the cap rate, you can increase the value exponentially and, you know, read through words on sale. But what would that doesn’t account for I mean, just on the philosophy is a lot of times a lot of the value and strategies for more about the high polished finishes that you can, you know, you can charge more for they don’t always account for the behind the walls and and, you know, the things that are supposed to work the systems that haven’t been touched and nobody accounted for. And oh, by the way, you’ve got some electrical issues because the you know, the boxes are outdated or the waistline is, you know, crumbling or backing up or just all those systems things were new construction. There’s none of that. I mean, it’s new. It’s exactly what what the the buyer that’s coming after you want.

Yeah, and I think that reflects in our projections, right. So when you’re doing a value add anything that’s over 15 years old, you’re probably estimating somewhere between 45 and 50% expense, right? In New construction, we’re somewhere between 31 and 36%. Right? We’re working, we’re putting away $250 per door a year. Because we know that 10 years from now, we may have Heating and Air issues. But we don’t have to worry about a tree growing through the sewer line, we don’t have to worry about, you know, that pecks pipe that they use a lot of in the 90s, that likes to blow apart in the middle of the night, we don’t need to worry about the mold is growing behind the sheetrock that we never knew about. Those are the things that we don’t have to deal with. And so the reality is, when you’re looking at that, that second group that just want the cash on cash, and they’re willing to take a little bit lower return, if they know that there are no moving parts. Again, that’s where brand new becomes their, their their drug of choice, because they’re able to look at and go, Oh, great, I got all the high polished finishes, I’ve got the brand new floor plans, I’ve got the granite countertops, I’ve got everything I wanted, plus, I know what’s new, so we’re not going to have major expenses that are going to interfere with my cash flow in the next five years.

Yeah, no, and even even with that, I mean, you know, worst case scenario, for whatever reason the market got saturated, or there was a, it wasn’t as appealing of a sale opportunity in your hand to hold it. It’s not your repairs aren’t going to be unexpected, or, you know, eat you up kind of thing, which is, I think the flip side of the whole ground by an old you’re very right there. So well, you know, you’ve certainly made the case for new construction. And, you know, the the self directed IRA, if you’re if you’re going into that kind of investment as an LP and you’ve got debt on it, is, is there any kind of penalty for for using the unrelated debt, finance income, or,

let’s see, since you’re not, you’re never part of the debt solution as an LP, you’re not signing for any of the debt, it’s never your concern, you’re strictly putting in your hundred thousand a year 50,000 or, you know, whatever it is you’re putting in, that’s your only contribution to it. And for that you’re exchanging that for shares that are of the full value of that, that initial deposit, so that none of that plays in really. And so it’s just a straight exchange.

Gotcha. Gotcha. All right. And as far as your your projects going, in Boise, you’ve got a bunch lined up, or what’s your 2020 got?

Like, yeah, we’ve got 191 units that will start before the end of the year, we’ve got about 40,000 square feet of industrial, they’ll start before the end of the year. And then next year, 2021 looks just as cool as this year, we’ve got about 400 doors to build on about 100,000 square feet of industrial to take care of in 2021. So we’ve got a pretty full calendar already. And we haven’t even got there yet.

That’s awesome. And with that, what kind of a lead time do you anticipate for a project like that, just to know that you’ve got, you know, your 2021 calendar lined up? How long have you been working on those? Well, the

reality is Darrin because I am not seller dependent, right. I mean, I I am to some degree, but I’m buying the land. So some of my projects, take some entitlement work. So there’s six to nine months in entitlement work. So I have a longer lead time than most syndicators have because this deal hit the market on Wednesday, we’ve got to get our offer in you know, then there’s a highest and best we go to the second round two weeks, we know if we got the deal done. We got to close in 60 days. You know, all that craziness that happens with normal syndication, none of that happens with us. Right. So we had a we had a building that went under contract last week that left us with a little bit more capital than we thought so we went out we bought on the lot. We’re going to do another syndication other 25,000 square feet of industrial warehouse that will come online before the end of the year. And it’s that simple. You know, so we’re we’re more of a we’re not at the mercy of what’s going on out there in what’s available for sale that’s already built. So we’re, we’re not as Herky jerky as what a lot of people have to deal with where they’re making you know, $100,000 commitments from their from their LPs in a very short period of time. I hope you like it if you don’t, you know, we haven’t seen anything in six months. We don’t know when we’ll see another deal. You know, buy something of mine. I’ll put another deal together and another two weeks. You know, it’s pretty simple where I’m at. Love it.

Curious, you mentioned two projects. You said the you got one currently 36 stores and you’ve got another one 191 and then sounds like 400 doors in 2021. Is there a like a sweet spot As far as the size of project that you, you found that you really like? yeah, we’ll probably we’ll probably do the 3640 unit, you know, infill projects, and just build them out, stabilize them and sell those off.

Gotcha. Hey, Shannon, if we could, I’d like to shift gears here for a second. As I mentioned, before, we started by day I’m an insurance broker. And I work with my clients to assess risk, and determine what to do with the risk. And there’s three strategies we typically work on and and try out. And the first is we ask, can we avoid the risk? If that’s not an option, we look to see if we can minimize the risk. And when we cannot avoid or minimize the risk, we like to transfer the risk. That’s what an insurance policy is, it’s a insurance or excuse me, a risk transfer vehicle. And as such, I like to ask my guests if they can look at their own situation, whether it be their their investments, their clients, investors, tenants, the market, etc. and identify what you consider to be the biggest risk. And for clarity, I just want to make sure we understand that I’m not necessarily looking for an insurance related answer. But if you’re willing, I’d like to ask you, Shannon, Robnett, what is the biggest risk?

I think in my business, the biggest risk is having the wrong people in the right places. You know, you talk about risk transfer. You know, I’ve always found that when I, when I’m looking for a property management solution, I need something that’s customized to me that that is looking after my property like it’s an asset. And so I could do that. And I could make that happen. And I could, I could become a pseudo property manager. But why not go find the best property manager in the valley that I’ve always admired and wanted to hire? And why don’t I hire him and make him an offer, he can’t refuse to make my mind machine run smoothly, and take that risk out of it. Now, I know that I have somebody that’s tied to the bottom line that’s financially responsible to me, for the well management of our assets, that’s doing it in a phenomenal way. And I’ve done that in in several key places in my business. And I think that when you when you aren’t taking care of your people, when you’re not looking at the personnel you have, I think you’re taking some pretty big risks. And so having great people that are in it, to win it that are part of your team, I think is the biggest way to mitigate that risk. And the biggest way to ensure that you’re going to be successful is because you’re partnered with the right people, you’re working with the right people and you’ve hired the right people.

No, that’s well said.  The human capital, it’s it’s part of the equation that if you’re not paying attention to, you’re going to spend, I mean, you can spend a lot of time training and retraining and you know, blaming others and all that. But if you have the right people that actually everything seems to work pretty well.

That’s good. And you know what’s funny, most people that lose people lose good people, they don’t lose them over money. There’s this there’s another line underlying issue that’s in there, that if you’re paying attention to your people in your in your and you’re rewarding them in the way that they’re looking to be rewarded. You’re always going to find that you’re able to keep good health because not everybody’s looking for the bottom line being the money. Yeah,

so true. Shannon, Where can the listeners go if they’d like to learn more or connect with you?

Sure, Darrin so the easiest place to find us is at Shannon Robnett Industries.com we’ve got a great website there that’ll hook you up with all of our different subsidiaries. You can find me all over Facebook at Shannon Robnett Instagram. Shannon Robnett. just about anywhere. It’s it’s just my first name. So if you’re going to Shannon Robnett.com. You’re going to find it Shannon Robnett Industries will also take you directly there.

Awesome. Well, Shannon, I

can’t say thanks enough for taking the time to talk today. I’ve been

Shannon Robnett  39:37  

Darrin, I appreciate the opportunity. I hope your listeners and you got something out of it.

J Darrin Gross  39:41  

Totally. I’ve enjoyed it. And I’ve learned a lot and hope we can do it again soon. 

Shannon Robnett  39:47  

Look forward to it Darrin. 

J Darrin Gross  39:49  

All right. For our listeners. If you like this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow. That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks CRE PN Radio.

Announcer  40:09  

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How You Can Make Passive Income from Land with Brent Bowers – CREPN #290

Brent Bowers  0:00  

The realtor said, Well, you could put it on the on the MLS for maybe $10,000. And I was like, shocked, completely shocked. I knew it was a beautiful property. But I was like, Okay, I think this is a deal. So I hung up with her. And two minutes later, she calls me back and says, Hey, would you be interested in selling that land to me? And I just thought she was messing with me. I was like, well, what’s your offer? Just kind of playing with her, you know? And she said, I could probably do $5,000 and me being the amazing negotiator I am. I said, Okay, let’s do it. When do you want to buy it? And she said, we could do it next week. So her title company contacted me. So it was a Tuesday I paid the guy that $325 for the land and Wednesday I got my $5,000 check. 

Announcer  0:31  

Welcome to CRE PN Radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast. Whether you’re an investor, broker, lender, property manager, attorney or accountant We are here to learn from the experts.

Welcome to Commercial Real Estate Pro Networks, CRE PN Radio. Thanks for joining us. My name is J. Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly, we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio. 

J Darrin Gross  1:00  

Today, my guest is Brent Bowers. Brent was an army officer spending way too much time away from home. And he knew he needed to make some changes. And that is when he found land and the ability to create a passive income with land. And in just a minute, we’re going to speak with Brent about how to build passive income through land. That gives you a life that allows you to do what you actually want to do. 

But first, a quick reminder, if you like our show, CRE PN Radio, there are a couple of things you can do. You can like, share and subscribe. And as always, please leave a comment. We’d love to hear from our listeners. Also, if you’d like to see how handsome our guests are, be sure to check out our YouTube channel. And you can find us on youtube at Commercial Real Estate Pro Network. And while you’re there, please subscribe. With that, I want to welcome my guest, Brent. Welcome to CRE PN Radio. 

Brent Bowers  1:44  

J. Darrin Gross. Thank you so much for having me on CRP, CRE PN Radio with a name like that, you know, this is an elegant show. And you know what? My mom always told me that I’ve had the face for radio, not the face for zoom, or YouTube. So this is new to me. So I will try to do my best. And I’ll try not to, you know, do weird things with my face while while I’m looking at it here. So hopefully, it’ll be fun for the listeners. Thanks for having me.

J Darrin Gross  3:05  

Yeah, glad to have you. And you know the listeners Be sure to go check this out. Because I mean, you mean this is quite the site here. You’re gonna like it. There we go. Little little teaser. No, no, yeah, this is great that I welcome you. And thank you so much for taking part in this. Before we jump into our conversation, if you could take a minute and just share with the listeners a little bit about your background.

Brent Bowers  3:31  

Yeah, absolutely. So my background, I got a real estate license in 2007. I also bought my first home which it turned into a rental property pretty quickly in 2007. Because I was moving to the coast to rock my real estate license. Everyone knows what happened in Florida in 2008. I was kind of hitting the ground running at the absolute worst time and I had to sink as low as driving people around in my car all day long. and showing them rental properties. I would get to these properties early and open the windows and turn on the air conditioners because for some reason these landlords didn’t believe in leaving the air conditioner on and it usually smell like a stinky old cat. And just things weren’t working out for me in real estate in 2008. So I joined the military in 2009. I still had a great passion for real estate I still I was studying. And I had rented that property out get back from my first one year deployment from 2000 from November 2010 to November 2011. And I come home to a trashed house where we had to evict the tenant and my wife was really upset with me because I just been gone a year and we didn’t have any money because it all went into a rental house and oh by the way, I was managing it from Germany. So it was literally hell on earth for me at that time. Did a second deployment about a year later. And I was just always gone. So I knew there had to be a better way. Then the military, I love the military, respect it in six days, actually Veterans Day. Thank you.

J Darrin Gross  5:09  

I was gonna say I wanted to say thank you for your service and recognize that it is Veterans Day. So

Brent Bowers  5:15  

Yeah, thank you to all the veterans out there. And I mean, I believe that so much I was in the military eight and a half years. But my last couple years, I knew I had to find my way out. Because I had, I went from enlisted to an officer. And what I, I always was just an all these officers. But what I didn’t see was that they would get there a couple hours everyday before all the enlisted soldiers and they will stay a couple hours longer just to make a little bit more money. And it just wasn’t for me. So I got it. I got back in the real estate started looking at rental properties, wholesaling. But I stumbled upon this great little niche called land. And it’s actually been one of the biggest game changers for me, because there’s virtually no competition, everybody’s going after the houses. So that’s a little intro about me, I don’t know how much you want to get into it and how you want to go from there? 

J Darrin Gross  6:09  

No, we’ll definitely get into it. So the sounds like you, you had kind of more of a traditional start to real estate you got into single family rental had the frustration of a trashed property than sound like you’re making any income either with money going back into the property Is that a fair assessment?

Brent Bowers  6:30  

That’s 100 cent per cent fair, it actually got trashed three times. And you know, for those guys that do residential rental properties, or even commercial rentals, you learn through those hard knocks, I no longer put the highest paying tenants in the house anymore, I put the lowering the basically the high credit, the lower paying tenants because the guys that have the 700 credit scores, they don’t have to pay top dollar so we learned that lesson the hard way it only took like three times figure it out.

J Darrin Gross  7:00  

And been there been there done that the credit scores and actually calling references and all that stuff. Definitely a good good note any any listeners out there that are looking to become landlords? So then you did you or you were doing real estate as a as a realtor, you went into the military when you came back? What was the the path? Or did you? Did you look for more rentals? Did you get frustrated? And then you found land or what was the?

Brent Bowers  7:32  

Yeah, it was kind of more more rentals more frustration. When the army pulled me out of Afghanistan, or Afghanistan the second time to send me to school to be an army officer, they sent me to a place called Melbourne, Florida. I went to the Florida Institute of Technology. And I actually was renting a room from a guy for a little while because it was like a quick transition. I had like two days to start class I found a rental and it was actually a room. And you know the guy, it was just kind of a dirty house and he never took care of the cat litter box. And I didn’t grow up with cat. So I was like changing this cat litter box every day. Because it stunk It was like right outside of my room and I was feeding this cat and I was like, You know what, I’m gonna buy my own house. And I can do the same exact thing, but on a way better scale. So I did that and then kind of refinance about three months later pulled some cash out and bought another one. And I was like, you know, there’s something to this. However, there’s got to be a better way a faster way. So I started looking into wholesaling houses. And I did that a couple times. And it was actually perfect timing because I had to pay for some classes. And it just wasn’t really my thing. Um, so I started mailing the vacant land list as well. And once I mailed that vacant land list, my phone absolutely exploded. And this list was the tax delinquent list. But it was a vacant parcels of land like when I say vacant, I mean nothing on it. No structures, no house, no Well, no septic no driveway. These guys were blowing my phone up because they’ve never seen an offer or a mailer on their land. So I went and looked at this land. And I still remember the first one I bought, it was actually non buildable, you couldn’t access the property without trespassing on state land. And the guy couldn’t figure out what I wanted with it. And I ended up paying them $250 for this parcel of land, so and come to find out he had traded it years ago because he was a CPA. So you got a question there. I see your face. Go ahead. Well,

J Darrin Gross  9:41  

no. The the kind of a landlocked piece of land. You mentioned the trespass? Non buildable $250.

Brent Bowers  9:52  

Who would want that right?

J Darrin Gross  9:53  

Yeah. So yeah, let’s talk about what what were the what were your thoughts that cause you to to buy it.

Brent Bowers  9:59  

So when I looked at this piece of land because I actually went and drove and looked at it, I don’t look at my land anymore. But when I looked at this parcel, I just fell in love. I mean, there were beautiful pine trees. And it’s just the most beautiful piece of land. And I know, a property that if I can get this at such a massive discount, there’s got to be a buyer out there that would want this. So what did I do? I just stuck it on Facebook, took some pictures. And once again, my phone absolutely exploded. Oh, by the way, I disclosed, you know, not accessible. There’s no road going to this. It’s not buildable. Yeah. So you know, and this, this property was actually in Colorado. So I’ve gotten to Colorado this time. So I and I hit the ground running. So I wasn’t in Colorado very long. But I just knew that this parcel of land in this area was worth a bunch of money if somebody could figure out how to get ingress and egress to be able to get in and out. And you know, a realtor told me that you can’t stop someone from getting to their land. So I figured that something that an attorney can take care of right. So I put in Craigslist ad that not buildable not accessible, need an attorney to get access. And I marketed it for $5,000. And before I knew it, I had someone that put roughly, I think it’s $500 down and paid me $500 a month until the whole whole note was paid off. So it’s just and we did those multiple times. I can tell you that. How

J Darrin Gross  11:27  

long was the so you close on the deals to $250?

Brent Bowers  11:33  

Now Yeah, $500 down. But I don’t know, but you bought it for 250?

J Darrin Gross  11:37  

Yeah, yes. And then you got 500. So what was the time between the acquisition and the and the sale?

Brent Bowers  11:47  

Oh, two weeks, two weeks. So $500 a month for 10? Or it was like nine months because they’d already gave me five $500 down. I didn’t charge any interest because I didn’t know how to calculate all that stuff. And people asked me today, why don’t you charge interest? or Why didn’t you charge interest? I didn’t know I was just kind of we were building it as we went. And it’s just it was just incredible.

J Darrin Gross  12:10  

So you’re hooked.

Brent Bowers  12:12  

I was hooked. I was I did a second one. And I called the realtor. The closest I bought a second property that was not buildable. And this one was overlooking the pike national forests. Another property I think I paid $325 for this one. Well, I call a real estate office a mile away. And the realtor tells me Yeah, that land is not buildable. Here’s the reason why. It was one Ingress egress, they were afraid that if the firefighters went in, they can get pinned down. So they had to build another road over the railroad tracks. I was like, well, what’s it worth I got, I’m gonna buy it. But I want to be able to blast it out really quick, because I can’t keep like I didn’t have the money to just leave it sitting in a property like that, even though it was $325. That was that was grocery money I was spending. So I was literally pre selling this land. The realtor said, Well, you could put it on the on the MLS for maybe $10,000. And I was like, shocked, completely shocked. I knew it was a beautiful property. But I was like, Okay, I think this is a deal. So I hung up with her. And two minutes later, she calls me back and says, Hey, would you be interested in selling that land to me? And I just thought she was messing with me. I was like, well, what’s your offer? Just kind of playing with her, you know? And she said, I could probably do $5,000. And me being the amazing negotiator I am. I said, Okay, let’s do it. When do you want to buy it? And she said we could do it next week. So her title company contacted me. So it was a Tuesday I paid the guy that $325 for the land. And Wednesday, I got my $5,000 check. 

J Darrin Gross  13:48  

Wow. 

Brent Bowers  13:50  

I was hoping that I was hooked on the second one, actually. Because the first one I didn’t believe it.

J Darrin Gross  13:55  

Right. Right. a fluke, right? For Now. Now. It’s now it’s actually workingax work and you’re making money

Brent Bowers  14:01  

Yeah,  making money.

J Darrin Gross  14:02  

So so that’s so let’s back up for a second because I think there’s there’s a couple pieces in here that I think people that aren’t familiar with the whole land you know, opportunity. The first is that you bought low and sold high. But with that you also have the the financing aspect of that. And you mentioned that the first one, you didn’t charge any interest. I’m assuming that given that that’s a point that that’s been made or mentioned that you’ve since figured out a way to make more with even charge or per for interest for an owner carry kind of a of a sale. Is that fair?

Brent Bowers  14:48  

Absolutely. We still do a lot that are zero percent interest but on our larger parcels, the bigger parcels because we’re now doing 30 year mortgages for some of them. We do charge interest on those and we also charge interest, whenever someone’s like, Ah, this is you can’t sell this piece of land, you’re asking too much. So we’ll lower the price and then charge interest and we could pretty much get the same price. Just amazing people just see Americans, they just see, like monthly payment.

J Darrin Gross  15:15  

Yeah, it is a kind of a trap we’ve all been exposed to and encouraged to participate in. Let me ask you so that the parcels you’ve described here, the two that we’ve talked about have primarily been unbuildable. Are these acres are they you know, 50 by 100, you know, describe some of the the size and what’s the, you know, what, what the, I guess, give me a sense of what the scope of opportunity and the different types of land that you’ve come across.

Brent Bowers  15:49  

So yeah, there there’s a couple different types of land with they call them infill lots like the buildable lots in the city, that’s 5000 square foot, 7500 square foot, and then you’ve got recreational land, it’s like a, it’s like an acre, two or three acres, maybe in the mountains that you would want to build a cabin or a tiny home. And then you’ve got the large parcels, which I call agricultural land, I don’t generally buy a lot of agricultural land, because if a farmers working their land and making money on it, or ranchers ranch in the land with cattle or sheep or whatever, they’re probably not going to give it to me at a massive discount. I’m looking for that landowner, that usually doesn’t step foot on that land, or they inherited that land, or you name it. husband bought it or builder bought it and passed away these type things. So these two first parcels of land that I gave the example of one was four acres, the first one, and that was the one that I got the $500 down 500 a month on, I would call that recreational land because it was like four acres in the mountains. This second one, the one that I sold to the realtor for five grand The next day, that was like a that was kind of like an infill lot, because they were all subdivided. They’re all I think 7500 square foot per parcel. So though that’s what I would call an infill lot. Now we kind of focus on the infill. And the recreational mostly, because those are the ones that are easiest to grab, you know, and, and really will still buy agricultural land, but it’s usually not generally something that’s being farmed or ranch as well. So I mean, I’ll buy any land that we can get at a massive discount and turn around and sell it at easy payments.

J Darrin Gross  17:36  

Got it. So it sounds like kind of the key to this is you find a property that the seller doesn’t, it’s kind of a don’t want, or they’re just there’s not, there’s no attachment to or they’re there, they’re ready to get rid of it.

Brent Bowers  17:54  

Because that’s exactly right. They’re ready to get rid of it. They might be out of state out of county. I mean, we bought land from people that actually own land next door, and they don’t have any plans to do anything with it. So most of the time, they’re behind on taxes. But sometimes they’re not either. It’s just really weird, though. But the funny thing is, is that emotional tach, it’s not like houses, like they didn’t grow up in the house, or they didn’t have their children in the house. It’s just vacantly, and it means nothing to them most of the time,

J Darrin Gross  18:24  

right? You mentioned taxes, is that a source of potential sellers that you that you look to? Or is it more of just it’s got to be vacant?

Brent Bowers  18:36  

Yeah, I’ll start with the low hanging fruit first. So that’s behind on taxes and out of state. And once we run out of mailing, those guys will mail all the vacant land in a particular area that we’re interested in. So obviously, we’re gonna start with the low hanging fruit, and then kind of move up. What’s cool, though, is if they’re not behind on taxes, you know, there’s less problems to deal with. Because sometimes, you know, the taxes are so high, we’ll always have to get the land for next to nothing. And that always hurts making that offer.

J Darrin Gross  19:06  

Right, right. So, you know, this is kind of a new, a new thought for anybody that’s always thought they had to have a tenant, you know, to make make money. You know, like you experienced in your first couple of rentals, you had the tenant destroy your property. And that’s kind of more of a tenant selection lesson that you talked about. So in in land, it fair to say that the the way you make money is to turn it fast. I mean, there’s no, there’s no income if you have just a piece of land that you own.

Brent Bowers  19:45  

Right, get that monthly payment come in as fast as possible. So we generally have a rule of what we want to make. So if we buy the piece of land for safe, you know, $5,000 and we want to sell it for 15,000. And someone can only come Come up with, say, $300 in 250 a month for the next however many months to get to that $15,000 Mark, we’ll get a buyer in there as fast as possible. Because when we don’t want to break the bank of the buyer, we want them to be able to pay every month on time. But yes, absolutely a piece of land that’s just sitting there is costing us money in taxes. Maybe it’s in a land owners Association, or an HOA, like we don’t want that we don’t want the liability, like as Robert Kiyosaki would say anything taking out of your money out of your pocket is a liability, anything putting money into your pockets and assets. So as soon as we put a buyer into that land that pays us the down payment, and the dock fee, and the monthly payment, it’s now turned into an asset. So we’re kind of like the, you know, the planet fitness model. But for land, you know, Planet Fitness has all these members paying a monthly fee. And that’s kind of what we’re looking for, for the land. And once they pay it off, we transfer the deed over to them. And they’re now the new owner.

J Darrin Gross  21:00  

Okay, and let’s talk a little bit about that. Because you mentioned it’s once they’ve paid off the property that you transfer the deed, can you go into that a little bit and compare that to it to typical property sale?

Brent Bowers  21:16  

Yeah, there’s two ways to do it. Well, here’s two ways I’ll explain that we do it. Generally, we like to do a land contract or a contract for deed, same thing, you know, talk to your attorney in the state that you’re doing this in, but all land contract is just says, Hey, Darrin, we’re going to sell you this piece of land for $5,000 down, you’re gonna pay us $100 a month for however many months. And as soon as you’ve paid that full 5000, I Brent Bowers will transfer this land to you, I will transfer basically do the transfer deed or, or transfer document or a deed, I’ll put the deed in your name, we’ll record it will file it for you, send you a copy, send you the original, whatever we try and do it within 30 days. And now Darrin, you are the owner of this piece of land. Another way you could do it is we can go to a title company, we just did it with a subdivide that we did in Florida, we bought 27 acres in Florida and turned it into three parcels of land. So these guys are putting $40,000 down for this land. And the total purchase price is 74,000. So they came to the title company with 40,000 put it in escrow. And we actually transferred the top of the deed to the buyer. And now we have a deed of trust and a promissory note. So if they don’t pay will foreclose and take the land back from them. So there’s two ways of doing it. You know, my, my attorney, you know, she was a little, you know, skeptical of the contract for deed until she wrote me a contract for deed that she felt comfortable with. The reason why I like to contract for deed is, you know, when you do $500, down and $100 a month, you’re gonna have something we call default, you know, there’s gonna be people that lose her job or get tired of the land, or they figure out that they’ve actually got to put a well and a septic in a driveway in a covert and actually do things to make this land buildable. And sometimes they’ll just say, Yeah, I don’t want it anymore. And that’s the sad part about this business. However, we just send a cancellation of contract, you know, we certified mail it, we send them an email text, we always try and work it out a new payment plan with them, whatever it takes, and we’ve been successful working it out. But sometimes we get the land back by canceling that contract for deed. And it’s so simple. It’s a mutual agreement. We don’t have to foreclose, we don’t have to pay an attorney. So I prefer a contract for deed, unless they’re putting a massive amount of money down for that for that property.

J Darrin Gross  23:52  

Right. But But even in that, I mean, you just mentioned the foreclosure, there is no foreclosure.

Brent Bowers  24:00  

Graphic contract for deed. No,

J Darrin Gross  24:01  

yeah. If they haven’t met their contract their contract. What do you call it a contract fail? Or is it just a failure? I mean, what’s the

Brent Bowers  24:10  

Yeah, and if somebody call it a cancellation contract, contract. Gotcha. And now you could have someone that gets behind and they want to fight you. And you might end up having to go to court for that. And a judge will pretty much make a decision on that, you know, like we try and make sure that the land buyers happy. We’re not going to fight with somebody on it. But we haven’t had any issues. In the few years we’ve been doing this, but I mean, you could have someone that says no, I’ve been paying on time and go to court with that, but usually you’re not going to go to court with someone that can’t afford to pay their payments.

J Darrin Gross  24:46  

Sure. No, I mean, I think that you know, the point of all of this is it’s not like your first option that you’re looking to is to take the land back. Now. No way you want to get sold. You want to get your money and and You know, give them back, give them the deed, move on to the next deal.

Brent Bowers  25:06  

Amen. Because when they get that Deed, they’re now happy land buyers. And guess what? Birds of a feather flock together. And they have friends and they refer them. It’s just amazing process how that works. They’re happy.

J Darrin Gross  25:18  

Right? So So when when was the What time did you do the first deal? You’ve talked about a couple of points here. And I didn’t get the year, when was it?

Brent Bowers  25:28  

I did the first land financing deal around 2017. So I haven’t been doing this a very long time. And this is still relatively new for my business model. I mean, it’s not like I’m some guru that’s been doing this 25 years, that’s I’m still in the business, I still have a team that I talk to daily on this, I don’t have to do the sales anymore, or the buying, which is really fun. But I get to have fun and see the process happening over and over and over?

J Darrin Gross  25:59  

Well, let’s talk about what is your your process, we’ve talked about basically the, you know, the mechanics of it, find a find a property, you know, somebody doesn’t want, make an offer that they accept, and then promptly list and sell the property. Let’s talk about how you find the properties. You mentioned the the list? What I mean? Is there a I mean, is the list the secret? Can you talk to us a little bit about what your system is? How Yeah, what are the what are the keys that you need to be successful in land?

Brent Bowers  26:38  

Key number one is, figure out what to do. And then key number two, I can sum it up in two keys, figure out what to do. And then number two is actually do it. And I would say the third key the bonus is hire people to help you do it. So you know, it’s getting done every single day. That was I see that’s the missing link from a lot of real estate investors that are not successful, they don’t build a team. So I would say that’s what’s made us the most successful is building themes. So process, here’s the process. So we pick an area I first started in my backyard. But now we’re in a few states, we’re in three states, eight counties. So let’s just use simple County, Pueblo, Colorado. So what we do is we went first for the tax delinquent list in Pueblo, Colorado, we sorted that list, some people call it scrubbing. I call it sorting, I hired someone a virtual assistant off of upwork.com to help me find all the vacant land on that tax delinquent list. And that’s how we started mailing first, eventually you run out of those guys to mail, and then you pull another list of all the vacant land in that county. So what we do is we send out what we call a blind offer letter. So we’ll start in like neighborhoods, or subdivisions, or a small city area. And we’ll figure out what that land goes for as far as retail price. Let’s just say it goes for $1,000 an acre, well, then I’ve got to back up and see what my offer price is going to be I generally try and offer anywhere 20 3040 cents on the dollar. Depending on the land, if it’s really obscure, or it’s just in the middle of nowhere, never going to have water power, we might offer 10 cents on the dollar. So we’ll offer the exact amount we’ll pay the seller in that letter, and then we will mail them well mail every single day of the week, and will start getting phone calls. And those phone calls will go to a voicemail say, Hey, thanks for calling about our letter. We’re interested in buying your land, please leave your name and the reference number. So we know what what we’re looking at. And then my intake manager, I call her my acquisition manager, Jen. She’ll call them back. And I think sometimes she’s actually taken live answer which I never could do because I had to be in the right frame of mind. I wanted to know the due diligence, but she’s gotten so darn good at this. She knows what what an area is worth. Now, because we mail the same areas. It’s not hard to master seven or eight counties in this short amount of time. So they’ll tell us what they want basically, or they’ll call or they’ll sometimes fax the signed offer letter back the blind offer letters. And sometimes they’ll email it sometimes they’ll mail it, and sometimes they’ll call which we prefer the least we want them just to send it back to us. We’ll look at it. Yep, we can pay that we contact them. We send the notary out there, we get the property deeded to us now if it’s a big enough property for spending a certain amount of money will will generally go through a title company. But we obviously do our due diligence, run the title search all that stuff that oh any the owners in a conference, we’re not just buying the stuff blind and then we take ownership of it and we immediately They start marketing it to our buyers list, we’ve now built a buyer’s list on a lot of websites, Craigslist, Facebook, we put signs out. So we’re always having people call in that are looking for parcels of land. So send an email once a week and sign them up to buy this piece of land, pay their downpayment, their Doc, their documentation fee, and we get that monthly payment coming in and rinse and repeat. So we have two machines, a buy machine and a selling machine. And then we just constantly turn it over. That’s really my my process in a nutshell.

J Darrin Gross  30:35  

I think that’s that’s kind of what you know, I’ve come to come to understand that’s, that’s the key to this is you have to have a system. I’m curious. Can you talk about any little bit about the numbers? Yeah. How many numbers of properties? Are you? If you start with a list of 1000? Is that kind of a Yeah, that’s a good is that a big numbers add like a just about to what you need to start with to get some results? or?

Brent Bowers  31:02  

Yeah, you can start with the list of 1000 General, I try and be at a 1% offer acceptance rate. We’re not always there with this whole COVID thing. A lot of people are buying land. So I’m kind of seeing like way, way less, I used to be able to send out 100 offer letters and get one one property. Now it’s somewhere around 200 to 250 letters to get one one deal under contract one property under contract. So 1000 letters, you know, I generally would try and buy five properties with 1000 letters as what my numbers have been left the last quarter. Last year, it was way easier to buy land than it was to sell it now it’s you know, it’s shifted a little bit. It’s been way easier to sell the land than it is to buy it. It’s just like houses, you know, buyers and sellers markets type things.

J Darrin Gross  31:56  

No, I mean, there’s there’s a cycle to it. It sounds like so you you do then you should do your mailing daily.

Brent Bowers  32:04  

Yeah, we generally mail daily. Right now we’re on 26 letters A day going out automatically. I’m trying out a new system. Howard Zander owns land speed. I’m we’re trying out land speed right now. So it’s like 26 letters a day? We’re not mailing on Sunday, obviously. So technically, what is that? 25 times five would be? One 125. So roughly were mailed about 150 a week, on average. So that’s, that’s 900 a month? Well, that would be three. Yeah, 900 letters A month? Is that what we’re mailing? So it’s it’s pretty crazy for the house guys out there. You have you know, you have to mail like five or 6000 letters to get a house land. We’re mailing so much less like our mailing expenses is so little.

J Darrin Gross  32:56  

Yeah, it seems very manageable. And are you What’s your persistence? I mean, you just send one and one you’re done? Or do you have a follow up letter? Or is there any kind of a cycle, if you don’t hear from somebody to you to try again and reach out to them again, we’ll change it

Brent Bowers  33:12  

up. So after they, if they do not accept our blind offer letter like to where we offer them an exact amount, will send a postcard, which is way cheaper than the letter. And we’ll get callers that call on that, that would never call on the offer letter, and vice versa. So we’ll change it up. And generally, we only mail list twice, we probably could mail it more. And it’s about every 12 weeks is our cycle, we could probably mail it a lot more often. But this this is very cyclical, too. So we’ll buy a bunch of properties. Or we’ll come across a land wholesaler. Yes, that is a thing. There are guys out there that get tons of properties in their inventory. And in wholesale to guys like me that want to seller finance it. Some guys just like to do the Quick, quick cash. So we’ll come across those guys from time to time and buy 117 parcels or four parcels or 11 parcels. So I love it because I didn’t have to mail those guys. So we’ll pause mail and from time to time, which I don’t recommend pausing very long because it’s nice to cherry pick land too, because sometimes, like we just got a property under contract for $16,000 that we’re buying in Colorado Springs, the comps are 115 115,000. So we’re buying the property for 16,000. And we’re going to sell or finance it for 115,000. Now, what’s the return on investment for that 115 divide that by 16,000. That’s like a 700% return on investment. And oh by the way, I’m gonna have a buyer lined up before we pay for it. So we use their cash, they’re gonna bring that $16,000 to the title company as their downpayment.

J Darrin Gross  35:00  

An infinite he didn’t he I mean, there’s no no money,

Brent Bowers  35:03  

that’s true, then it turns into infinite. That’s exactly right. Because I’m gonna use his down payment. And then I’m going to hold the deed of trust and the promissory note, he’s actually going to own that land. But I’m going to be the bank on Infinite return, because he’s going to pay for the land.

J Darrin Gross  35:19  

Awesome. So let me ask you, somebody who’s listening, says this is what I want to do. What? How much time? would you encourage them to kind of budget to, you know, get this, I mean, you’ve had some initial success. But But to get a system to where you have this to where you can actually, you know, this is passive income, and you can live the life you want kind of thing, what are we talking about? What’s a realistic timeframe?

Brent Bowers  35:46  

You know, why when I started out, now, I wish I would have just had this system from the very beginning, I was the guy buying I was the guy selling I was the guy collecting the payments, the cash, I would say, realistically, you could build a system like this in three, four months. Now you’re gonna have, you know, expect errors, expect, expect challenges and problems, like that’s what we’re if we expect that it’s not such a big deal. But, you know, someone can realistically have a system like this built in three months, easy. I just started coaching in June, I’ve had guys making passive income and roughly 30 days. Now, granted, as far as the time it took, for me, personally, I was an army officer, I was on base at 6am. And usually leaving base six or 7pm. Now, I may have taken my lunch hour a few times, few times a week, maybe five days a week to make calls, return calls to sellers. And then I would also, you know, post on craigslist and Facebook during my lunch hour. But I would say I probably spent about two hours a day, Monday through Friday, getting this off the ground. And I would say we’re always improving our systems, but it probably took me about six months to have have a system actually built. And then Luckily, I got an acquisition manager, that was a first thing I hired out, because I just couldn’t take the phone calls. And the second thing we hired out was the sales side of things.

J Darrin Gross  37:24  

No, that’s, that’s awesome. I mean, you know, it’s exciting to have success. And relatively quick, I mean, I think about, you know, all these people I talked to and see their posts and stuff about how they’re working and work and work and work and work and work and work, work work and trying to find a deal. And, you know, the, in a lot of the commercial space specially like the multifamily, which I think is probably got interest had most of the buzz here for the last, you know, four or five years. There’s a lot of competition in there, you know, and if you’re, you know, you’re, you know, trying to get started, you you, you know, have to get to know the brokers, and then, you know, if you don’t have enough money yourself, you got to raise money, and you got to have all these other you know, connections or vantage points are just, there’s additional pieces to it. Yeah, this sounds to me, like, a guy could get started with almost a credit card, just from the standpoint of the low cost of entry from, from, you know, some of the size of the deals you’re talking about. It’s not like it’s, you know, a big I mean, obviously, it sounds like some of the deals, you’re, you know, $16,000 may be more than what what, you know, somebody might start with but, but you know, you’re talking 250 or $500 purchase points on some of these ones you start with that’s, that’s pretty attainable.

Brent Bowers  38:54  

Yeah, absolutely. I mean, we’re doing bigger deals now. Because the way I look at it is we spend the same amount of time doing a bigger deal as we do one of those $300 deals. But yeah, you’re right, that was my initial attraction. I didn’t have you know, tons of money, I couldn’t go out there and make offers on houses or, or apartment complexes because, you know, it takes a lot of money and like the brokers have to believe in you. You know, what was cool as I was just dealing with everyday people that own the piece of land, and Me too, I was an everyday guy with, you know, a few hundred dollars or a few thousand dollars, and then I would just try and turn that money as fast as possible. I that was my initial attraction. It was like, Okay, I can do this. Like, this is easy, like you don’t need tons of money. And you know, eventually people will start finding out what you’re doing and will offer you money at five 6% interest or partner with you all day long. You know, there’s so many people out there with money that one To do something with it besides putting into the stock market besides buying a rental, like I did on my first one that netted me $150 a month, from 2007 to 2019, that something always broke. Like I was never profitable on that rental. But every one of my land deals I’ve been profitable on

J Darrin Gross  40:20  

Oh, it’s, that’s awesome. No, it’s it’s definitely a another option and an asset class that anybody’s that’s looking for an opportunity. And, you know if this, this sounds appealing, I mean, clearly you’ve demonstrated that it’s, but it’s something that works. And you’re not alone, I may have talked to other people that that have had success and and I think one of the things you mentioned is lack of competition, although you did say COVID ramped up the the competition, but I’m assuming that’s not from people making a business out of it’s just an actual demand for buyers looking for for land is that

Brent Bowers  40:58  

Yeah, demand for land. And I’ve noticed that on some of the the larger tracks because now we’re you know, like I said, people come to me with like 117 parcels, where I was selling those for 1900 dollars an acre, now selling those for $3,900 an acre. So it’s, it’s helped me on my sales, but also on noticing like these, these sellers, aren’t coming off of the property as easily. And I don’t, I can’t say that I’ve got my finger exactly on what it is. But I track my numbers, which is so important. Most people don’t do that. I know that I have to send at least, you know, 250 letters now when I could get away with it with 70 or 80 or 100. Before. Now granted, I’m not doing a sniper approach, as you know, three years back taxes out of state, it’s kind of on the general vacant land for certain areas. But yeah, I’ve seen the pickup and where I’ve had to mail more. So that’s kind of an indication to me, I, I try and run the business off of data. I have some students that say, I’ve mailed thousands of letters, and I haven’t gotten anything, and we break it down. And they’ve really only mailed 800 letters. And they’re offering too little, you know, that’s it’s tracking numbers, data, not drama.

J Darrin Gross  42:17  

Yeah. Well, and that’s, that’s, that’s a system, right? I mean, if you’ve got, you know, what your input is you you know, what the output will be based on the system. And, you know, it’s interesting that just the the cycle that you’ve talked about that they call markets, there’s a cycle and and the longer you participate in any market, you’re going to experience the highs and lows of that so that that market, amen. So yeah, just gotta have kind of more of a longer view of it. But hey, Brent, if we could, I’d like to shift gears here for a second. As I mentioned to you, before we we started by day, I’m an insurance broker, and I work with my clients to assess risk can determine what to do with risk. There’s a couple of different strategies we typically consider. We look to see if we can avoid the risk. If we can’t avoid it, we look to see if there’s a way we can minimize the risk. And then if neither of those are an option, we look to see if we can transfer the risk. And that’s what an insurance policy is. It’s a risk transfer vehicle. I like to ask my guests if they can look at their own situation. This could be your clients, investors, tenants market, you you frame them the reference point. But with that if they can identify or if you can identify what you consider to be the biggest risk. And just again, for clarification, I’m not necessarily looking for insurance related answer. But if you are willing, I’d like to ask you, Brent Bowers, what is the biggest risk? 

Brent Bowers  43:57  

Yeah, I want to talk about a property we buy. It was late 2017. It was the last vacant parcel of land in a mobile home park. And it was from a lady her husband had died. And he was a builder. And he pretty much he went bankrupt. So long story short, we had to reactivate his his LLC to be able to take ownership of that piece of land. And we went through all these steps and I had a buyer already lined up for $16,000 that I found on Craigslist. So I had about $900 into reactivating this LLC back tax his lawn service fee from the city and paying the seller so the seller really only made like 200 bucks off of this parcel land. Well, when I had sold this parcel for 16 grand to another builder that was going to put a brand new modular home on that title company found out that there was $157,000 IRS tax lein on it. So I did not do my due diligence in the beginning and run, like owners and encumbrances or O & E is what we call it, or even a title search at that point, you know, I was kind of just shooting in the dark. So I was just, I was so sad because I mean 2000 beginning of 2018 at this point like that, that was life changing, like I had just had I had a brand new baby, first first child. And actually, no, that was my second child by then let me let me back up that second child. But that would have been game changer, you know, a profit of 15 grand basically. So what I did was I waited a year I cried a bunch now, continue refining my system continue buying land, but I never took that deed into my name. Like, I never took ownership of that. And this poor lady would call me and never return a call. She’s like, are you ever going to record that deed? Because I’m still receiving calls from the city and blah, blah, blah, I would just ignore because I was scared. I didn’t know what to do. $157,000 IRS tax lien I didn’t want to take on that I was like, Man that would bankrupt us from the very beginning. So long story short, I found a title company A year later, heritage title. They said, Listen, these things sometimes fall off, let’s figure it out. So they cleaned everything up. I still did not take ownership of this. But it was good to go. So like go ahead and sell it, you’re good. It’s dropped off. The IRS drops these things off every so many years. I don’t know how it works, just called dumb luck, or God blessed me I would say it was probably God, God’s blessing, which we you know, you get lucky. The more you do that, the more God bless you. Um, so long story short, I found another buyer I think this time was on Facebook marketplace or buy sell groups, but found another buyer for 35,000. So one year later this I got confidence in myself in my process. So I doubled the price basically, I also got $5,000 down, I only had 980 into the property. So I got $5,000 down and it’s a 52 and a half month term at 534 a month so I’m still getting $534 a month and I will be for another I think two two years two and a half years on this property but that’s the biggest risk not checking the chain of title making sure that if J Darrin Gross leaves this property to Brent Bowers and you leave out Jay we just broke the chain of title so that’s that’s one risk and two is doing your background your due diligence and your title search and making sure there’s no IRS tax liens or encumbrances or city liens. You name it. So there’s my risk story.

J Darrin Gross  47:49  

No, that’s that’s awesome. The due diligence gotcha kind of thing. I think that’s really is the, you know, one of many opportunities for issues in real estate, but I think it’s it’s probably the, the one that you have most control over if you do your due diligence. And it sounds like it all worked out for you. You found you found a solution in the process. So that’s Yeah,

Brent Bowers  48:12  

thank God, man.

J Darrin Gross  48:14  

That’s awesome. Hey, Brent, where can listeners go if they would like to learn more or connect with you?

Brent Bowers  48:21  

Thanks so much for asking. Yeah. So like I said, I’ve been coaching students since June, I do have a course. One on one coaching, support calls, go to thelandsharks.com I’ll spell it out. Thelandsharks.com. The land sharks dot com. Schedule a call with me. I’d love to jump on the phone. And if there’s any questions I can answer. This is what I do now.

I love it.

J Darrin Gross  48:53  

Awesome. Well, it’ll be listed in the show notes. And Brent, I just want to say thanks for taking the time to talk. I’ve enjoyed it. I’ve learned a lot and I look forward to doing it again soon.

Brent Bowers  49:07  

My pleasure. Darrin, thanks so much for having me on the CRE PN Radio.

J Darrin Gross  49:13  

Right. And for our listeners, if you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow? That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks CRE PN Radio.

Announcer  49:34  

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Investing in Midwest Mobile Home Parks with Jonathan Tuttle – CRE PN #289

Jonathan Tuttle  0:00  

Allow the big Wallstreet of the biggest private equity groups and sovereign wealth funds are coming into our space because it’s been so resilient and especially this year too. It’s about a 93% collection rate reported by institutional owners but go back to a question mom and pop mostly so that’s another way to add value a lot of these people they’re not super tech you know they’ve had these parts for you know, 40-50 years they’re worth every parks worth a few million if not more, obviously a lot more they’ve you know, the cash flowing few hundred thousand year they don’t really they’re not really super focused on having you know, QuickBooks and, you know, Facebook ads to like bring in new residents. They’re still you know, this is what got me here I’m sticking to it. So when you take over you could bring in some management efficiencies technology efficiencies.

Announcer  0:44  

Welcome to CRE PN Radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast.  Whether you’re an investor, broker, lender, property manager, attorney or accountant We are here to learn from experts.

J Darrin Gross  1:03  

Welcome to Commercial Real Estate Pro networks, CR e pn radio. Thanks for joining us. My name is J. Darrin Gross. This is a podcast focused on commercial real estate investment and risk management strategies. Weekly, we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio. 

Today, my guest is Jonathan Tuttle. Jonathan is the principal at Midwest Park capital, a mobile home park fund. And in just a minute, we’re going to speak with Jonathan about trends and opportunities going forward in 2021 and beyond, in commercial real estate. But first a quick reminder, if you like our show, CRE PN Radio, there are a couple things you can do to help us and we’d love if you would you would do the following. You can subscribe, like and share. And please consider leaving a comment we’d love to hear from our listeners. Also, if you’d like to see how handsome our guests are, be sure to check out our YouTube channel. And you can find us on youtube at Commercial Real Estate Pro Network. And while you’re there, please subscribe. With that, I want to welcome my guest, Jonathan, welcome to CRE PN Radio.

Jonathan Tuttle  2:24  

Thank you so much for having me. I’m excited to be here.

J Darrin Gross  2:27  

I’m looking forward to our talk today. Before we jump into it, if you could take just a minute and share with the listeners a little bit about your background.

Jonathan Tuttle  2:36  

Sure, sure. Yeah, it’s a pretty extensive real estate background. I grew up in a real estate family. My dad was a general contractor. So he built around 8283 Custom Homes, single family. And so I was a kid growing up, he had the real estate brokerage offices, yeah, three of those. They developed custom homes. And then also he did flips with investors. So basically, as a little kid, I’d be playing with the staplers in the office or being on the job sites. And even as a, you know, as I got grew up, I’d work on the job sites like clean the dumpsters and fill the dumpsters, you know, like all the trash and being all around real estate from the ground up. You. You pick up some things over time. On Yep.

J Darrin Gross  3:21  

So you started off on the job site, kind of osmosis, kind of watching your dad and and just taking it in. That’s That’s great. So now I’ve got you down is the principal of Midwest mobile. What was it? Say mid? I’m sorry, Midwest, Park capital. mobile home park fund. What are you doing there?

Jonathan Tuttle  3:49  

Yeah, great questions. Basically, we’re acquiring a portfolio of secondary tertiary market mobile homes parks with a focus obviously with as the title says, Midwest we’re also we also like Texas and Tennessee because they have strong growth, growth drivers and great economies. Basically, the goal is to help keep affordable housing for the everyday Americans while also providing a credit investors a nice stable return. So

J Darrin Gross  4:17  

Got it. So do me a favor and compare the mobile home parks to some of the other asset classes. That you know, I know, a lot of times it seems like we talked with people about, quote, multifamily, the traditional sticks. You know, one one building kind of thing. Can you kind of break it down for us kind of compare and contrast? How the two are different from an investor standpoint?

Jonathan Tuttle  4:48  

Sure. Yeah, that’s great question, because we our closest similarity is definitely multifamily. What’s gonna be like C class apartments most likely. The challenges it’s the same premise, the whole Ideally, when you’re buying a mobile home park, there is a little complications, one of the things that differentiates us is we have a lot of like older laws like grandfather laws, because it’s called legally not legal but non conforming, for zoning. So a lot of these were built in the 50s 60s and 70s. And the laws have changed, they’ve kind of become, you know, some of them have somw stigma. And so suddenly, cities don’t, or towns don’t want parks in their, you know, in their communities. So that’s the one biggest differentiator because harbor buildings, you could pretty much as long as they have the zoning, it’s pretty easy to get approval, comparatively, there’s only about 10, or about maybe 10, new depart developments in the last 20 years. And then there’s some been a few more, they’re kind of under the table, but they’re usually RV conversion, so has an RV component or has a self storage, it has some other but a strictly mobile home park, it’s almost impossible to get the zoning and it’s also not really economically viable. Unlike you know, what the family where you’d actually develop it, you bring in the market, and you fill out the units. And you know, it fills up right away mobile home parks is kind of like building a subdivision if you had to do it from the ground up, because you have to bring in all these, you know, manufactured housing, and it’s not cheap, and that the new the average price of a new mobile home is about $80,000. So you can just imagine if you have two or 300, lots, you know, it’s multifamily. If you’re doing ground up development, it’s a lot better play. But our true value is just buying a park that’s already, which is almost all of them is buying a park that’s already cash flowing. And that’s where you could you know, you’d already know the cash flow. And actually right now, to kind of give you some context, is the first time ever that Fannie Freddie, so Fannie, Freddie, obviously, there’s financing the government backs in the cmbs and traditional banks, but for the first time ever, Fannie and Freddie, they have to allocate about 30 or 35%. Towards affordable housing. So who’s available? 10 years, it was almost impossible to get. Now

J Darrin Gross  7:06  

you can you back up just one second, you were the audio broke down a little bit, I just wanna make sure we get this. You were talking about Fannie and Freddie, and you mentioned 30%, but I didn’t catch the balance of that

Jonathan Tuttle  7:18  

about 30% is allocated towards affordable housing. So which is a new thing that passed with a, I think was the cares act or when they act in 2017. I don’t remember the exact name. But it’s the first time in history that Fannie and Freddie’s financing terms are better with mobile home parks than they are with multifamily. So we’re seeing high twos, low threes, nonrecourse. And it’s about, you know, I think we’re just a little bit slightly better than multifamily right now. So again, that type of financing so we have those nice spreads. And that’s where you get the cash and cash. You know, if you have a six and half – seven cap, which is kind of what you’re seeing for parks nowadays, depends obviously your market and the quality of the asset, you get that nice teen cash and cash if not a little bit higher. So we’re IRR eventually, too, as well. So that’s another aspect of you know, the zoning, it’s almost impossible to evolve that. And just as you know, a lot of different laws with the city, the city kind of is your biggest challenge, usually because they have, you know, their own preferences of what they want for, you know, type of commercial properties. They want their neighborhood because, you know, mobile home parks don’t necessarily have like the Greatest Name. You know, people kind of have the stigma behind it. But if you’ve driven through some of them. There’s a lot of really nice ones. I mean, most of them if it’s maintained, right, it’s a nice asset.

J Darrin Gross  8:44  

Got it. So your strategy is to to go into these markets. You mentioned secondary and tertiary markets. Midwest. Is it a value add play? I mean, I typically I think of, you know, from a value add standpoint, it seems like there’s something you’re updating certain aspects, you know, and, you know, making it a more desirable place to where tenants are willing to pay more thereby increasing the the cash or the income. Can you describe what a value or what is the the strategy is basically just take it over and then refinance or can you break it down a little bit? Sure, sure.

Jonathan Tuttle  9:27  

The biggest probably, there’s a couple of key components to really bringing the value of the park and bringing the noi up. The first major is if the water and sewer are of the tenant, if it’s built back to the part. You want to bill it back to if it’s allowed. You bill it back to the residents. So right there, that’s your biggest expense. One of the first ways you could bring it in, obviously doing little a cap x, like the signage, you know, amenities You know the you know the roads, trees depending on where you’re at cutting down the tree is to make sure there’s not a trees falling down on the houses because a good thing would be also like make the park look like you know beautified three obviously raising the rents ethically raising the rents taxes always go up most likely unless there’s some some because they haven’t mostly the assessors Haven’t you know, they don’t have any idea what this thing’s really worth. So yeah, being able to you know, raise the rents you know, ethically and then just a bit better management of the asset so faster like if there’s any vacancies, making sure you get them on you know, market them correctly online and having your manager on top making sure you bring in the right tenants.  The average tenant says 14 years this is another competitive you know, on average because typically what happens mobile home mobile home owners in the country they typically own their actual unit so yeah, that tenant like two or three especially like apartment buildings are hopping to the next apartment building or the newer apartment building. So because it’s there’s nothing cheaper than mobile homes. So and then the last

e

up for the value add obviously at the last moment info loner and Val can

J Darrin Gross  11:30  

Hold on, can you hear me? The the audio is breaking down. You said, “the last thing”, what was the last thing?  

Jonathan Tuttle  11:36  

The infil..

J Darrin Gross  11:38  

The infill.

Jonathan Tuttle  11:38  

Yeah. So bringing in, sorry about my internet Comcast, give em a little word of mouth.

J Darrin Gross  11:45  

No, I just wanna make sure it sounded like is important. I want to make sure we got

Jonathan Tuttle  11:48  

Yeah, yeah. So the infill? Yeah, that’s infill. Easiest way to bring it wasn’t easy, but bringing it in empty lots or lots bringing in new units. Because every unit you bring in depends on the valuation the park and obviously the area. It’s 30, or 30 to 50,000 equity to the asset plus the cash flow. So right now there’s a short like everyone’s trying to buy the older units depending on you know, the age of the park and what the homes are, but because you get the homes for so much cheaper. So if you’re buying a new home, it’s $80,000. But if you get for $20,000 houses, obviously that’s a really value add. So,

J Darrin Gross  12:27  

Got it in these markets. Do you find that most of the parks are managed professionally or they managed by mom and pops?

Jonathan Tuttle  12:37  

Mostly? Yeah, that’s a great question. The industry is about 92 to 93 mom owned, mom and pop and Blackstone, which is the biggest private equity. Paolo, a lot of the big Wall Street are the biggest private equity groups and sovereign wealth funds are coming into our space because it’s been so resilient. And especially this year, too. It’s about a 93% collection rate reported by institutional owners. But going back to a question mom and pop mostly so that’s another way to add value a lot of these people they’re not super tech, you know, they’ve had these parks for, you know, 40-50 years they’re worth every parks worth a few million if not more, obviously a lot more. They’ve you know, the cash flowing few hundred thousand year, they don’t really they’re not really super focused on having you know, QuickBooks and, you know, Facebook ads to like, bring in new residents are still, you know, this is what got me here, I’m sticking to it. So when you take over, you could bring in some management efficiencies, technology efficiencies, like rent rent managers, like an online billing system, which is really efficient and keeping track because obviously, if you’re not keeping track, some payments could slip through. And even though things are getting paid mom and pops, you know, they’re they’ve  got their money they don’t really care about you come in as a good more seasoned investor, that’s one of the things you definitely improve upon is the technology aspect.

J Darrin Gross  13:54  

guys got it. So when you purchase the park I’m assuming most of the the actual units are owned by the resident’s. Correct?

Jonathan Tuttle  14:08  

The ones we go for? Yeah, it’s called like a land lease community. But there’s about 12 million mobile homes in the mix. But the parks we acquire are definitely we want we want to have that offer hands especially to if you’re doing for institutional going back to Fannie and Freddie financing. They will only allow up to like 20 to 25 units to be owned by the park. And that’s an actually that’s another way to acquire Park. Getting those off your books is another great way to add you know the value add. So those are some techniques you could use.

J Darrin Gross  14:40  

Got it. And you mentioned that the the communities, the local cities, and they’re not really gung ho on these things. I can see that being an issue and like a primary or a larger city is you find it all the way down and tertiary markets as well?

Jonathan Tuttle  14:58  

Yeah, those actually And that’s part of the due diligence, we’re taking over property talking to when we looking at property, we boots on the ground walk in, like we’re our Grandma, our mom’s moving in. So we get a voice for the residents, what houses community like, not just what the owner says, but actually what the residents say, cuz I’ll actually give you a paint a better picture, go to the local police, local government see what their, their viewpoint is. But something if you’re in the tertiary markets we’re looking at, we’re also looking at bigger parks like 75 to 250 units. But if you have like a 30 unit Park and a small town is something small towns think they own, you know, it’s it’s like that saying, we’re here like, like, if you’re in a major city, and you’re driving 10 miles and over their name, you’ll look at you. But if you drive in a small town that has like, 5000 people, and you’re going five miles over, it’s like, that’s their big highlight of the day, you know, the big crime of the day, it’s kind of the same premise with the park industry, the small, really small town a 30 unit park, and it’s somebody on their high horse, and they kind of feel powerful. So that’s kind of that’s kind of what we know, in our industry here. So get rid of that son, it’s crazy.

J Darrin Gross  16:07  

So on the the acquisition and kind of the due diligence, you mentioned, you kind of you you know, you do some boots on the ground, you talk with the residents talk with the community. Describe what what are some of the things you look for in a in the physical due diligence, since you’re not really buying the structures, right, what what else? Kind of give us a rundown of what what are what are some critical things you could look for?

Jonathan Tuttle  16:39  

Yeah, yeah, I’d still recommend going into the units and trying to see especially if there’s any park on homes, because it might look good on the outside, but you come in the inside and it looks like somebody ransacked it. I mean, it doesn’t cost too much to replace, like an actual, the fixed inside of units like four to 5000. Like top to bottom like that’s, that’s like top notch. But that could be you know, four or 5000 times 20 units, obviously, it’s an extra hundred K. But yeah, definitely like the roads, the potholes and also going back to some some towns or townships, while a lot actually. Like for example, in the Midwest, if you’re by like a you know, if it’s snowing, for example, some communities will actually plow the streets for free and maintain the roads for you for free, or the lighting. It’s pretty cool. Let’s actually, to give you an example our operating expenses are about typically for sure. You mentioned before with multi family, typical operating expenses around 50-55, sometimes 60, the average mobile home park operating expenses, because like you said alluded to, it’s there’s not a lot of structural components mostly land. So you’re about 35-40. I think 42 is for institutional owners. So you have that much lower operating expenses, but the things you want to look for the trees, we can sure if these big old trees I have a huge branch falls down that’s gonna take out a home, obviously, the blacktop, obviously cement is way better, but 95% of time is to be blacktop. So doing just to make sure that the blacktop, you know, how many potholes.  The community center. If you get in the old homes that’s Park owned, definitely check those out. Talk to the residents talk to local police talk to the city kind of get a vibe what’s how the park and community is run. So making sure you’re not buying like a like, you know, a meth lab park or whatever. But those are those kind of things you would notice if you drive through and you’re actually boots on the ground. But that’s a lot of stigma. Like the ones a majority, the parks are just everyday Americans looking for affordable housing. And when you live in, for example, in like Illinois, if you lived across the streets, I’m a glare if you lived across the street, and because we have really high real estate taxes and the say it’s $150,000 house in the same town, and you live in a $300 lot rent mobile home park, you’re only paying 10 bucks a month for real estate taxes and across the street, you’re paying $4,000 so at the end of the day, get the same schools which taxes pay for fire, police schooling, everything’s the same, but they’re saving three, three to $500 per year. And it’s kind of like equity, you know, like how people like oh, I’m gonna buy my house and over time and build up equity as I paint my note for 30 years. It’s kind of the same thing with home parks, but they’re doing it through real estate taxes. And that’s another reason why the cities don’t like it because they don’t get they lose money and the tax bases. The park owner pays the majority of it obviously, but the tenant they it’s 10-20 bucks in a lot of these states. You know, obviously it’s, you know, California Oregon, West Coast would be different than Midwest but every it’s going to be significantly cheaper than the surrounding houses. So

J Darrin Gross  19:43  

So in property taxes paid by the the park owner

Jonathan Tuttle  19:49  

Park taxes, an individual unit has to pay their real estate taxes.

J Darrin Gross  19:53  

I was going to ask it based on that. I always thought the mobile home itself given it that it has As a VIN number like, I thought they were like registered with the DMV almost as opposed to do they? Do they also, is there a property tax? Like a residence as well?

Jonathan Tuttle  20:11  

Yeah. And it’s like, yeah, 10 15 20 bucks a month, and they have to have insurance. But yeah, you’re correct. It’s just like a, yeah, when you want your titles and your VIN’s, it’s just like, when you’re when you’re fixing them up, it’s kinda like flipping cars.

J Darrin Gross  20:24  

Right? Right.

Jonathan Tuttle  20:26  

Which makes a it’s like, there’s not a lot of the beauty about it, too, you’re going to have a lot of complication. So even if you’re going to flip a unit or remodel a unit, you’re not tearing down walls and putting in custom kitchens. Right? I mean, can but it’s like, it’s very minimalistic stuff you could do. So it’s not very complicated. There’s not going to be any challenges in that regard, which is a really nice thing about mobile homes. So

J Darrin Gross  20:49  

got it. So how many parks do you have in your fund? 

Jonathan Tuttle  20:54  

Well, we have to individually with a family we had, we had a third one, we just launched the fund about two months ago, okay, we’re going to be acquiring we’re doing a 10 million raise this fund run. And then next year when do 20 25 million raise but we’re looking to add about 2000 units aproximately, because the pricing is actually getting another byproduct of this whole COVID situation is like alluded to before the 93% occupancy rate currently being reported. Everyone’s trying to get into our asset class, because for the last 50 years, we’ve been the most stable real estate based on being data. And then Wall Street Journal had an article this year, that they’ll since the last downturn, there hasn’t been any other real estate as the class has been performing as well as ours. I think Self Storage is very close second, but we’ve been kind of running away with the, just the stability during downturns. There’s 60 million Americans in affordable housing. So we’re going to try to add about 2000 I think that’s kind of a number but the pricing is basically getting the cap rates are going down because it used to be you can see articles like all mobile home parks have such great cap rates. They do but it’s not the five years ago pricing because everyone’s trying to get into space where competition prices, you know, prices go up the sellers like well, I get this for it, I’m gonna just sell it for way more the cap rate 10 cap was big, like 10 years ago, then eight cap was like five years ago now we’re seeing six six and a half for like Midwest. But like if you’re in the coastal stuff like fours, just like multifamily. So the but the other play about it is too it’s it’s its to stability, so you don’t have to worry about you at least rather have a four cap that pays you then a four cap that’s not getting paid, you know, especially if you think in retail, you know, restaurants can open so many states, they can’t pay you hospitality hotels can open so although byproduct of that least we get the four cap and still get paid. And another benefit to I forgot to mention is the taxation. multifamily has a 27.5 year tax, depreciation schedule, which is really, really good. Traditional commercial estates 39. mobile home parks are 15. So the taxes are better for your K ones, because you depreciate the about 75% 70 to 75% of the the purchase. So land improvements, basically, the land improvements can be deducted 15 years.

J Darrin Gross  23:16  

So was it basically your blacktop and and signs and you’re community center? 

Jonathan Tuttle  23:21  

Yeah, exactly. And then you have like you do cost segregation, but they and everything could have some things like 20 years or something and then you personal property is like five and you have your you got your accountant CPA come in, basically. And it’s it’s pretty, it’s pretty fascinating that we have that ability hopefully doesn’t change with whatever happens with the election. So we’ll see. Right? hearing from some investor owners and investors. 

J Darrin Gross  23:47  

Right. I’m just kind of curious to do. I mean, the things you can see are also like the underground, is that your stuff to them?

Jonathan Tuttle  23:55  

Yeah, that’s a key. Yeah, that’s implemented diligence. Yep. I forgot to mention that for that’s when you’re really you’re doing your due diligence for 30 days. That’s the key is the underwater, the water sewer, the lines making sure that’s good. Because sometimes then also making sure I mean, due diligence as a whole, it’s a whole stack list of things that could go on, really in depth zoning, obviously setbacks, because if what’s grandfathered in, because if sometimes these part would go on like this small towns, you acquire a park and all of a sudden they say on the setbacks now is different than it was when you it was really developed. So now, you know, you can’t add any more units because, you know, we need 15 feet, and you only have 10 feet, because it’s like the grandfather rules. So they don’t like to bring in new units or because the older units, let’s say from like the 60s. Now we have double wides and we have a lot of bigger units that’s not going to fit so you have to have a smaller unit in there, which obviously less rent so yeah, but also the main Yeah, underwater, the water, all that electrical all the underground is definitely key to making sure there’s nothing no No hidden surprises, because if you have to replace, you know, all that that can be hundreds of thousand dollars or you know, if it’s water treatment plant things of that nature, usually, I mean, the old school way everyone wants city sewer city wire, because obviously, they maintain it and has the highest standards, but there’s still avenues for some of the other, you know, the lagoons water treatments, depending on a case by case and depending on what it costs, you know, the local city. So it’s not all you know, they will book the books would say, hey, you have to be city water to see store. Obviously, that’s usually best, but there’s also some opportunities, sometimes other water sources on a case by case scenario.

J Darrin Gross  25:40  

Got it.  So give me an idea on on what space rent runs kind of the What are you seeing what’s what’s, uh, I mean, I’m sure it varies from Market to Market, but just kind of curious if not, if you can even compare to like what, uh, you know, multifamily, you know, space rent, or not a space but a unit rent, or, and I just kind of curious how you assess.

Jonathan Tuttle  26:08  

No, that’s no you’re a hundred percent on the money with that question. That’s one of the best ways to evaluate because do you, typically a mobile home is about one third of a single family home or half the same an apartment building. So I would say the house is 1500. And the apartment is $1,000, then you want to be like $500, they need to go up to that it still makes sense. Market a market, Midwest and they did a survey for economics professors as I bought two years ago from Duke. And it said if mobile home parks, a lot of these, like I said, alluded to in the beginning is a lot of these parks that are 60s and 70s developed. And some of these people are second third generation, they’ve got millions of dollars of equity. And you know, they’re making 300 – 400,000 revenue a year just from cash flow. So they sometimes they don’t raise their rents, because they already have as much money that they need. And especially if you live in like a small town in America, and you have like $400,000 coming in a year, you’re doing pretty good. So a lot of times they’re saying that for the going back to the Duke professor, he was saying their lot rents than say the early 60s are 50 50 bucks approximate across America, that would equate to about $500 today, and today’s you know, with inflation, but we’re seeing if you don’t include you’re in Seattle, correct, like washing problem for that same same thing. Seattle, California, the whole coast up there is that it’s crazy compared to what we see in the Midwest. So Midwest, we’re seeing a lot rents depends on market three to 400. If it’s closer to a bigger city, five to 600. Same with like Texas and Tennessee, but California, Oregon, and some of those states are seeing high like seven 800. In California, obviously you have the park in Malibu when Matthew McConaughey lived and Pamela Anderson, that thing was like $2,000 a month. But you’re right on the beach in Malibu, and the houses across the street are like $30 million. So yeah, see, it’s all across the board. But on average across the country about 350 to 425. It’s kind of like the number you proximately. See. So it’s still below what it should be if you’re doing it based on inflation, according to that Duke study.

J Darrin Gross  28:20  

But even even with those numbers, you’re able to I mean, they’re trading it like said, anywhere from a six I mean a six cap, is that kind of acheivable based on? Yeah. So I mean, it’s easy to get caught up in the big numbers opposed to the rate of return, which is really at the end of the day. That’s, you know, what, you’re what you’re looking at there. You mentioned financing. You know, typically you think of like, you know, I guess a you know, a larger Freddie or Fannie property you can get by more often I think we’d like 20% down. How is that? In your experience with with a mobile home parks? What’s kind of the Down Down Payment requirement?

Jonathan Tuttle  29:05  

Yeah, it’s actually for us. It’s about we’re seeing about 30 35% right now. And then reserves have gone up from about six to 12 months, and sometimes up to 18 months depends on the asset. They hold it for about a year. So obviously, what the the basis, the 10 year Treasury were like historic lows, it’s just it’s, it’s it’s a no brainer to get these things financing right now, because we’re about 100 basis points less than last year, this time last year, and they were kind of expected to hold for this next two years, kind of to provide stability for investors and they’re kind of you know, mentioned that, but about 30 35% down cmbs it’s pretty similar. And then like I said, two and a half or 2.753 and a quarter rates non recourse great. 10 year 10 to 12 year terms, mostly 10. So your most common.  Local banks is your biggest curveball because if They’ve had a relationship with the other Park owner, like they were collecting the rents and they saw the revenue, they might take it over, because they just know they’re familiar with the asset class. You could run into issues like in a small town or even like a secondary market, like oh, yeah, we love mobile home parks. Yeah, we’ve heard so much good things about them. And then they go on the, you know, they go once you’re about to close, they’re like, Oh, we went through our board. We’re not comfortable with this.

J Darrin Gross  30:27  

Oh, really? Have you had that happen?

Jonathan Tuttle  30:33  

sloshed Rania their backs down and like, it kills deals? Not us. But I knew a lot. I’m not alone. Yeah, no, not for us. We haven’t had that happen for us. But I know people have had that issue with the banks. Definitely just backing out at the last moment. So and the rates are higher, they’re about five, five and a quarter, five year terms. So they’re not, they’re not as attractive. And usually, if it comes to that, and if you have relationship with the seller, see if they do a seller carry for a few years, then go back, improve the park and make it appealing to Fannie Freddie. As long as it has the visual appeal and you hit their you know, their checkmarks thing go back to Fannie Freddie like here. I know you guys have a 35% whatever quota for affordable housing, I got this great asset personally managed by me. Can you do? You know? Can you do a loan on this?

J Darrin Gross  31:20  

Got it.  You were talking about the expense ratios? 35 to 42% kind of a range? That includes third party management are you guys manage it yourself? Or how do you take care of that?

Jonathan Tuttle  31:35  

Yeah, that’s including that’s why it could be in number 42 is like using what third party management? Yeah, but we have the biggest property manager or the ones we own personally and we do it ourselves. They’re they’re smaller parks, so it doesn’t need as much but and we’ve we found still is when you’re buying parks, the bigger is easier. It’s more operational efficiencies and 75 and above, that’s why we’re focusing on that 75 or 250. For our fund. We have a third party manager which is the biggest third party management in the country, they have 32,000 lads they manage including Apollo groups and they’ve 35 years experience so we have that plus we train the management that in place in 80% will stay but we’ll have them we have certain criteria what they have to do and we’re going to bring in technology efficiencies over each other management call rail, everything to make sure we’re monitoring them like trust but verify Ronald Reagan, but still provide best practices but we’re on top of everything. 

J Darrin Gross  32:31  

Got it.  okay. So describe for us what a an ideal just you know, I’m a fat pitch looks like for you guys something that would be just something you would love to have

Jonathan Tuttle  32:45  

pretty much everything right now for Parks.  It’s a four or five year run, in our opinion to acquire. It’s, it’s because you can’t remember, you can’t develop new ones, it’s almost impossible or it’s not economically feasible for four or five years before you can start breaking even. So right now and that’s why you’re seeing all these, you know, other institutional players coming in they’re building portfolios, and people are just trying to build portfolios to funds or, you know, high net worth families and these mom pops are getting these huge paydays. But if you build a portfolio, we want to build a big portfolio and then sell it later. Right for in terms of acquisition, like Tennessee, Texas, Midwest, six and a half cap and above, depending on like, I mean, there’s not just cap rating, obviously, there’s other factors like what’s the property manager, like the shape of the property and the underlying issues, but just to clean Park, senior parks love SR products, they do extremely well. Obviously, they don’t, you know, they stay forever, then they’re great tenants, they’re cleaning their yards and maintaining it and like we have one of our parks is senior Park, you have a former military guys kind of like the police. You know, the sergeant of the parks have any suspicious vehicle drives by he’s out looking at it. So drives away any issues like senior parks are phenomenal. Just like pride of ownership because they come in they it’s their their pride of ownership live in this park. So those are great, fantastic. And then anything we’re the expenses are a little bit in the high 30s low. Anything below 40 is great. So because it’s comparatively if you compare it to multifamily or other asset classes in the 30s. I mean, your your expense ratios is so much cheaper. So

J Darrin Gross  34:26  

No that’s awesome. I appreciate sharing them. Hey, Jonathan by day, I’m an insurance broker. And if we could, I’d like to shift gears here for a second. One of the things we do with our clients is to do some risk management, we kind of try and assess the risk and come up with a strategy. And there’s a couple different strategies we typically look to the first as we look and see can we avoid the risk. If we can’t avoid it, then we look to see other ways we can minimize the risk and when Those aren’t necessarily options. And we look to see if we can transfer the risk. And that’s what an insurance policy is. It’s a risk transfer vehicle. And I like to ask my guests, if they can look at their own situation, it could be your, your way you invest your clients, the market, interest rates, the economy, however you want to identify or, you know, focus on what you consider to be the biggest risk. But I, you know, I’m just trying to get a range of risk. And for clarity, I’m not necessarily looking for an insurance related answer. But if you’re willing, I’d like to ask you, Jonathan Tuttle, what is the biggest risk? 

Jonathan Tuttle  35:46  

Sure, sure.  One thing we try to do as mitigate risk, and that’s one of the reasons we call ourself as the safest risk adjusted return in real estate. I mean, we’ve, it’s historically been really low. But the biggest challenges are like, could be the city if it’s a small city and not allowing you when you’re purchasing making sure that they don’t allow to not allow you to basically transfer ownership of it, or you can’t bring in new units, which I mentioned with the setbacks. We’re not we’re not doing coastal. So we have to worry about hurricanes, and flooding and things of that nature and making sure you’re not in a flood zone. Because even though you’re you know, 30 to 36 inches off the ground, you still want to be in a like next the Mississippi River and it goes over the house. In California, obviously, we’re trying to be away from California with the fire. So we we’d like to Midwest we don’t have as many challenges. It’s usually more snow related stuff. And that’s, you know, it could be accidents, you know, cars driving through. But, and our industry specifically has a lot of insurances really tight. Like you can’t even have certain dog breeds, because or pools or trampolines they’re really stringent and like what could be allowed in a park before they’ll even do insurance on the park asset because like a dog bite or, you know, kid falling off a trampoline or break his neck, it’s, you know, the park owner has multimillion dollar asset, they’ll get money off of that, obviously. The other challenge, I guess would be to, it could be rent control. We’re fortunate enough to be in states that really don’t have rent control, and we identify that but long term and even like multifamily or any real estate, investing, rent control, is going to be a big issue because people have to look at two ways then when the investor comes in. Taxes always go up, maintaining things, just think of anything you buy anything after you have it 10 20 30 years, your car, your house, your each fact goes out your roofing goes like breaks down your car, engine, whatever your breaks, there’s always routine maintenance. And if you can rent raise your rent in accordance to a) inflation,  b) to also maintain the capital expenses that need to be put back into the asset over time it’s going to the perks are in real estate, it’s going to quality is going to go down the park owner or the real estate owners be like, I can’t even make a profit on this. If I can maintain rents to pave  a) to keep up the inflation and b) to maintain this asset. There’s going to become slumlord. So that’s kind of like an issue. It’s kind of how I find that happy medium. The rent control could be a big issue where I know because you guys did something but it was like eight or 10%. Right? It was like percentage, and then it was a percentage above inflation. They factored it in I forgot exactly what it was or eight or 9% I think Oregon, but which is which is fair for both sides. But because that’s still the average mobile home park. rent increases like 4%. So it’s basically a little bit above inflation. So it’s not like the big issue is some people here the private equity comes in, and they buy some mom pop, they’ve had it for 30 years. And like I said they haven’t you know, care, because they have millions of dollars of bank, they have three hundred lot rent, and private equity, Wall Street comes in like, well, let’s charge 600 because we can. So then that goes around and then the local governments like all you raise the rent double This is not fair, which Yeah, I mean, we try to do you know, 25 50, whatever is reasonable, and also put in improvements. They come in and like double it, it gives a bad name. And then then of course they have these huge returns their investors. That’s why you if you Google, some of the articles like manufacturing, mobile home parks have had crazy returns because people have had the assets for 30 years. It’s supply and demand, you can’t develop them. And then you have you control the price of like what you want to charge for rent because there’s nothing cheaper. So that’s fine, that happy balance. And I think that goes back to the whole risk is like as long as governments don’t come down on rent, because rent is the biggest driver of the noi. So that’s the biggest risk for shurearing his future regulation.

J Darrin Gross  39:52  

No, I appreciate you sharing that the that whole rent control thing here in Oregon. I know it was if you look at historically It was basically one year, where the rent actually increased beyond, you know, on a percentage basis, whatever this I forget what the percent was. But historically, it’s always been like three to 4%, ya know, what people have gotten. And basically it was it was a function of you had a lot of people losing their homes, and the demand for rent rental properties far exceeded the and so what ended up happening was, you know, you just had this influx, kind of a market thing, which was, so it’s kind of funny how they, they blame the landlord on that, but but you’re right, though, I mean, with with the the fear of, you know, some of these big wall street funds coming in and in buying it and not being sensitive to how you can do that. You could throttle it up so fast that it draws attention, and kind of sours the whole thing. I think that’s, that’s a, that’s a real risk. So I appreciate her now. Hey, Jonathan, where can listeners go? If they would like to learn more connect with you? 

Jonathan Tuttle  41:05  

Sure. Sure. Yeah. So the fun is called MidwestParkcapital.com, or if you’re looking to see the ppm, which is like the private placement, which actually breaks down the company in depth, go to Midwest Park, capital, fund.com, everything how sounds are 833MHPfund.com somehow got that. So that’s kind of for somebody wants to find more about mobile home parks. The good thing about the fund aspect is you get a taste of the industry get the tax benefits. We do all the heavy lifting for you, you get quarterly payments distributions. And you get a nice stable, you know, sleep a night return without all the risk. And it’s a way for people to get in without putting down to even buy your own small park and have to put in five times seven times just the down payment. And you have to do diligence and you have to run it, we do all the work for you. So MidwestParkcapital.com, or my Facebook is a Jonathan Tuttle official. So those are the two best ways.

J Darrin Gross  42:05  

Got it. Well, those will be in the show notes. And, Jonathan, I want to say thanks for taking the time to talk today. I’ve enjoyed it and learned a lot, and I look forward to doing it again soon.

Jonathan Tuttle  42:18  

Sounds great. Appreciate it. Thank you.

J Darrin Gross  42:20  

For our listeners. If you like this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow. That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks. CRE PN Radio.

Announcer  42:39  

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Senior Living Multifamily with Vinney Chopra – CRE PN #288

Vinney Chopra  0:00  

My investors in multifamily for the last 13 years have been wanting to get cash flow from day one, I close on the deal, and I start paying them cash flow every quarter from the day of the closing. Right? So I should come up with a better plan to tell them first year it’s dirt. So I’ve been using the word Dirt, dirt, dirt. And they understand that and say no, don’t worry about it, because we give you a monthly review of what’s happening with your money with the ground being broken and bulldozers and drone footage of you know foundation and everything. So we got it all planned, where people can go log into their our Appfolio website, they could see everything happening with their money. Then second year, they get not 7% return, giving them 10% or 11% return cash flow because we build it in 12 months!

Announcer  1:03  

Welcome to CRE PN Radio for influential commercial real estate professionals who work with investors buyers and sellers of commercial real estate coast to coast .  Whether you’re an investor, broker, lender, property manager, attorney or accountant We’re here to learn from experts.

J Darrin Gross  1:23  

Welcome to Commercial Real Estate Pro Networks CRE PN Radio. Thanks for joining us. My name is J Darrin Gross. This is the podcast focused on commercial real estate, investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide your experience and insight to help you grow your real estate portfolio. 

Today, my guest is returning guest Vinney Chopra. Vinney is a real estate investor. He’s a syndicator. He’s an author. He’s gone full cycle on multiple syndications. And in just a few minutes, we’re going to talk to him about the new venture he’s invested in, which is the senior multifamily living and why Senior Living multifamily is so essential. But first, if you like our show, there’s a couple things you can do to help.  One you can like, share and subscribe to our podcast. And if you’re inclined, please consider leaving a comment we’d love to hear from our listeners. Also, if you’d like to see how handsome our guests are, be sure to check out our YouTube channel. And you can find us on youtube at Commercial Real Estate Pro Network. And while you’re there, please subscribe. With that on welcome back my guest, Vinney, welcome back to CRE PN Radio.

Vinney Chopra  2:48  

Thank you. Thank you so much. Darrin, it’s such a pleasure. I’m so tickled. We are on the show again. And thank you for inviting me. I know you have done quite a few really great shows last year also we did it and even a year before. I’m back with you. I’m so glad. Yes.

J Darrin Gross  3:05  

And we have actually if the listeners or viewers are interested if they go to YouTube, there’s actually I’ve got a playlist that’s got all the Vinney interviews we’ve done and we’ve covered a number of topics over the years. We’ve we’ve gotten into multiple topics on multifamily. We’ve done how the numbers work syndication, buy sell agreements. Operation I think the list is extensive. And it’s it’s definitely an educational platform. I encourage anybody to go check out. But today you know, you’ve been very, very busy. I mean, we were just talking before I push the record button. Here we are. We’re recording this today. It’s It’s October 14 2020. We all know that 2020 has been a humdinger of a year as far as all the challenges with COVID in that. But you while sitting in your your home area. It’s your I mean, you virtually not traveled at all,

Vinney Chopra  4:09  

Not at all, zero. 

J Darrin Gross  4:10  

But right before COVID You are like a globetrotter you were like I mean, I remember seeing pictures all over the globe. You were weren’t you? Weren’t you traveling all over?

Vinney Chopra  4:20  

We were in Ecuador. You’re right Darrin, and also Amazon and Galapagos. And thank goodness, my wife and I, we love to travel, we had six trips planned this year yet, you know, after our Amazon travels, because it’s our 40th wedding anniversary. So we started planning this year to be the best year in travel. every two months we were going to be gone away, right? But we did get one trip in and as soon as we came back, we had to cancel them because of COVID-19. But you know, my life. I always believe whatever is happening, it’s going to happen. So never fret about it. Never think it’s second you know that What if?  You know, so even our children were going to go with us this year Neal and Monica in several other trips, and we are paid a lot of monies and everything, but you know what, we’ll do it next year or the year after watching who cares, right? So right, that attitude that, you know, hey, we are here, let’s make the best of it. That’s what it really got. Well, and I, you know, started two new companies. I also did the branding company, and then we got the hospitality and then the senior living, which we’re going to talk about it today.

J Darrin Gross  5:33  

Yeah, I was gonna say, just but you know, while maybe the world has been in a little bit of a pause, you’ve had the accelerator to the floor. I mean, you’ve literally been tearing it up. And let’s talk a little bit about what you’ve done here. You mentioned you you’ve done how many syndications Have you done. This year,

Vinney Chopra  5:52  

I’ve done 33 so far. So I did 28 as of last December, many of you might know, then I did one more just recently bought a $35 million deal in Austin, which was very good 308 units with my partner, actually, the son and his team, I love to work with them were in part 50 million last year, and then 35 million in December, but then our new partner Shahe them wrong, who is a very good partner and in senior living, that we have been talking and now we are drilling, you know together. So I did four syndication for that. So that’s why it is 29 plus four is 33 syndications. 

J Darrin Gross  6:38  

Wow.  So let’s talk about your senior living. What you’re doing in senior living? 

Vinney Chopra  6:44  

Surely, I didn’t actually, I’ve been thinking about senior living for the last three years, three years, because when I read lots of articles, I read a lot. By the way, I listened a lot, read a lot. Look at where the trends are the big ship book game, and I started reading it, how everything is merging down south into, you know, Florida’s and Arizona’s how the population there is silver tsunami going through USA, and the world, which really caught my attention is 10,000. Baby Boomers like me, are turning 65 every midnight, every midnight 10,000 of them. And that’s like almost 60 some million, you know, a baby boomer at 65 Plus, right now, in 30 years, they’ll be hundred million. Hold on. So everybody’s aging in USA now. 85. and above. That’s another statistic, almost five or 6 million are right now. They got to grow to 20 million.

J Darrin Gross  7:52  

So if you’re saying there’ll be 20,000,that are 85 

Vinney Chopra  7:55  

85 plus 85 Plus!

J Darrin Gross  7:59  

Wow! 

Vinney Chopra  7:59  

20 million in the next 30-40 years. I mean, it’s tremendous that it’s so much demand is going to be there in real estate. See, we are in real estate. So we need to really look into the forward looking forward looking. Where is the demand coming? Where are the demographic shifts happening? Why you know we should be in this market is because they be so much shortage of housing in the senior with the 85 plus and 75 plus and 65 plus. So that’s why we decided I’ve been sending messages out in the universe. Let’s just say that, I believe in law of attraction, the secret and everything manifestation. And then I find John Lewis and my good buddy, and he’s brother of Joshua Roosen, and he joined my VP of the Academy. And I said, John, I really want to get into senior living. He says, Vinney, you’re going to talk to my buddy, I went to school with, Shahid Kahn.  He’s been building senior living in luxury kind for the last 10 years. I said what?  Here I never knew Shahid at all, he comes in my lap, and we do few zooms. And his passion is to build the best of the best of the best for such a reasonable price. And look at that. rest is history. So we have started already within few months 100 million dollar worth of senior living ground up hundred million

J Darrin Gross  9:37  

Ground up. So this is this is a little different than just buying something that is existing product and and adding value to it. You’re starting from raw this piece of dirt and you’re going through the whole process

You saw. So right there. So essentially what I’m learning right now and I’m a student of anything, I mean, I believe believe that, you know, when I study when I don’t learn, I die. I that’s my thinking is I’m you know, so essentially you’re right. It’s like buying a land trust a lot of studies, find out where the needs will be where seniors are going, what’s the population of 85 plus 80-85? Then find out what’s out there in that marketplace, right, like market comparison, very similar multifamily. Like I buy those, right. But the biggest thing I love in this market is I don’t have to go out to jobs, jobs jobs, which I’ve been chasing for 14 years. If right whose job I have to give concessions or delinquencies, I mean, we have turnover a lot of things that are happening right. But in the assisted living when we build it ground up, it’s Class A plus. It has zero deferred maintenance, it got everything brand new appliances, everything new air conditioning,  youJunaid right. And no turnover, no delinquency and no concessions. And the rents are four times Hold on. So expenses there because we have a commercial kitchen in all our facilities. We have two chefs, we have Restaurant Style dining restaurant style, five star restaurant, in the place in the place. We have movie theaters, we have spas, we have a salons, we have meeting rooms, we have billiard rooms, we have got pianos, I mean, there is a night life right in that multifamily for seniors there one story, there are four to six courtyards hold on courtyards, where people can go out and really enjoy the fresh breath there. No elevators, seven acres of land for only 88 units, seven acre. So we are just building this Taj Mahal, in all these different communities where people have very old, stinking, you know, very old style 2 3 4 story buildings, and our residents are not getting the same kind of service and the food and everything like we do. And we have our own transportation, buses, everything, um, you name it.

So you are also not, you’re This is not just a quote landlord, you are the operator, which you mentioned the the kitchen facility, but is there any care that’s built into that as well?

Vinney Chopra  12:35  

Yes, it’s total care.  This is assisted Senior Living luxury, and memory care. And memory care.

J Darrin Gross  12:42  

ok

Vinney Chopra  12:43  

So about out of maybe 88 or 92 units about you know, 68 or so are or 73 is 68 are regular assisted living.  Then we had a memory care also right in the same building. So that because when people are that old 80, 85 you know, they will probably be our average stays 2.4 we manage all our communities also.  Just like we’ve been vertically integrated in my life for multifamily. You know, we have the same procedure here. Care givers, we have 55 caregivers for 88 residents Hold on, 

J Darrin Gross  13:23  

Oh wow. 

Vinney Chopra  12:36  

55. It’s a three shift. See, it’s a around the clock. And it’s caregiving. And it’s like the bathing and medicine and you know, all those, but it’s not acute nursing home. It’s not rehab center. There are no doctors, right. So we have had zero COVID effect and zero deaths in our facilities, which Emraan has built and we manage seven of them right now. Seven of them.  He has built 21 of them, you know, so he’s really done this over and over again. He’s got the general contractor’s He’s got the whole recipe, right? So it’s just my good fortune that I found him through John. And now we are in partnership together like anything. I’m the money raiser, we can raise hundreds of millions of dollars. Next year. My goal is $100 million to raise. And we’re going to be building six to 10 of these facilities every year for the next 10 years. 

J Darrin Gross  12:36  

Wow. 

Vinney Chopra  12:36  

Yes, yes.

J Darrin Gross  14:28  

That’s awesome. And we’re all are you doing this where you mentioned the Sunbelt kind of thing where?

Vinney Chopra  14:33  

 You’re right see because as the age groups you know, that 80 85 or 90, gravitation is that the seniors have a better lifestyle in the warmer climate, warmer climate. So that’s why we are going in Virginia, in Florida all over the place, Texas. We’re going big time in Texas. It’s hot there, and Arizona, even coming up here in the Bay Area. We’re in my backyard. And then coming to Washington where you are Portland in Washington, because a lot of seniors are retiring, you know, and my partner based in Michigan, because he’s from Michigan. So if anybody wants to check us out Hampton Manor, just google it Hampton Manor is our brand. And Michigan just say Michigan, you will find there are like 17 different towns in Michigan, where there is a Hampton Manor in every town.

J Darrin Gross  15:31  

That’s fascinating. So now is this are your plans to build and hold build offering the holder? Is this a like a sale? Is there an exit date? Like in a traditional syndication?

Good point. Good point. Darrin, I’m an engineer, right? I always think and I see, okay, how I’m going to sell it to my present investors, right? I have the grace of God, I saved hundred 68. Now I have 207. I think I just saw a list going like crazy through click funnel and branding and everything. So we do three point contact and meet with them. And then in the future, when the deal comes we offer right, just like syndication is done. The good part is that we I knew that it’s a ground up construction, my investors in multifamily for the last 13 years have been wanting to get cash flow from day one, I close on the deal. And I start paying them cashflow every quarter from the day of the closing. Right. So I come up with a better plan to tell them first year it’s dirt. So I’ve been using the word Dirt, dirt, dirt, and they understand that and say no, don’t worry about it. Because we give you monthly review of what’s happening with your money with the ground being broken and bulldozers and drone footage of you know foundation and everything. So we got it all planned, where people can go log into their our app for your website, they could see everything happening with their money, then second year, they get not 7% return, giving them 10% or 11% return cash flow. Because we build it in 12 months, we build it and then we start managing it. Actually we are 50% occupied the day we open, because we have a marketing arm that goes in advertises locally, and everything and we get executive directors hired and everything marketing starts. And then by the time we do ribbon cutting for opening, we have 50% already leased pre leased, which is unheard of By the way, within nine months, we are 100% full hundred percent full.

Wow, that’s awesome. So the the target market you mentioned 85 to 90 is that’s kind of the the age of the occupants is that the

Vinney Chopra  18:06  

It is.  See what happens during this to your audience to assisted senior living as the Word says it’s not independent living, it’s not living in your own home, right. You know, if you don’t need assistance, you could live in your own home, right, as long as whatever age, but if a spouse passes away, we find that the degradation of the life starts to happen. You know, people need that somebody significant, you know, somebody they could talk to, and live with, and you know, get to know and have a social life, there’s the word right social life. And then if they cannot cook, or that’s another trouble, you know, and then if they cannot take medicine and properly and all that, or if they had a slip and fall. Wow. So then families get together and they say you know what mom and dad, you’ve got to get into assisted living. So they start looking for within the 20 30 mile radius where they’ve been living to see where is a good place to go. Right. So that’s the what we do. In our case, we don’t take any medical, any Medicare, no nothing because our facilities for regular people. We don’t charge $7,000 $10,000 a month at all. It’s luxury at a budget, we call it because we charge only 3,800 to 44  or 4,500 depending on the level of service, which includes three meals, snacks, and the use of in of course all the utilities paid their linen, their laundry, everything is taken care except the cell phone. That’s the only thing. Entertainment, ADL says activities of daily living all that done.  Care giving is all included in their transportation is all included in there in that price. So that’s what we provide to the our seniors. And they have to do the due diligence, we have to check their health, full health, because we had zero COVID effect, because we are so particular and be locked out. Even the families could not meet their parents, we made ait sure, because we didn’t want anybody to die, you know. So they have been doing this birthday’s through the window, hold on, through the window through videos and all that. So we’ve been very, very particular now we have done quarantine, one segment of our building, we somehow planted where it’s an independent unit with kitchenette and everything. So we are able to put plexi glass and the families have to show 14 days of negative to see their family to their mom and dad. And we would even notice by governor of Florida hold on cutting edge. So on our side, we were the first one, Cape Coral, if you google us, Cape Coral of Hampton Manor of Cape Coral, we were in the news. And then we did the same thing in Michigan. So we got recognized because we are on the cutting edge in making sure that we are able to follow the CDC guidelines, lockdown, zero deaths, zero COVID effect. So we are just very, very particular. Because this age is like that. And our residents live in our communities for 2.4 years average. So it’s not the working class who come in and out turnover is so strong, right? In our case, they come in, then they are there for life. And when we want them to live for five, six years, even their families tell us that Oh, my mom and dad have gained 10 pounds. Yeah, good thing, which is because we are very particular about the five star dining, five star dining. It’s not the same food, which is made for everybody. And everybody gets it. No, no, it’s made to order made to order. 

J Darrin Gross  22:13  

That’s great. 

Vinney Chopra  22:13  

The head chef and the junior chefs and all and served in a beautiful dining. They know I just sent to that movie of the place. So you will see that right the whole movie put together we’re putting it on YouTube soon so that he could share with the world. Yeah.

J Darrin Gross  22:30  

Well, it’s it’s fascinating from from being more of a an apartment operator with the the general population where you’re like said, You’re constantly chasing jobs, where are the jobs where the jobs are the job? Now your view is totally different where the seniors, right I mean, we’re where’s the

Vinney Chopra  22:47  

I don’t need any jobs, I mean, I’m in communities and the lakes and very good lifestyle, and we’re the seniors would like to move, and you know, there is need to be there, you know, so we do captivate, want to share that capture rate is because our product takes six to nine months, sometimes 12 months to pass the ordinances to get the permits to get architectural drawings. So and then we take about a year to build it. So we are coming, looking into the future two years from today, to bring a product out. So we have to be very careful with our millions, that we spend our own millions to do all these things, you know, so, I mean, you know, it sounds easy, but it’s not that easy. I just want to mention everybody, but the good part is the rewards out there.

J Darrin Gross  23:39  

No, that’s that’s fascinating. And and I think the thing that I’m most impressed by is just the all the success you’ve had with multifamily syndication. And now you found this new kind of a vein of opportunity with the senior living and it sounds like it’s even, you know, that much more based on way, you know what you have available or what you are working with.

Vinney Chopra  24:02  

while you’re working. So true there and then it’s good for next 40 years, I wouldn’t be alive. I’m 68. Right? So I’ll be hundred eight. Maybe I’ll be one in

J Darrin Gross  24:13  

See you in the dining room.

Vinney Chopra  24:14  

You know our goal, play bridge and cards and billiards and so we’re putting pianos we’re putting all these great things, movie theater, right inside this place, salons and beauty, you know, and the small dining places and just you know, sitting down in the cafe and the Bistro, and going to the swimming pool and putting green, every single one has putting green also, and waterfall functions and everything so that they could really enjoy the life. Our motto is to spoil the generation that has spoiled us. So

J Darrin Gross  24:53  

That’s great. That’s great. Well, just the the numbers I mean, you mentioned You know, two and a half years average stay the I’m just thinking about the the type of tenant I don’t imagine they’re too tough or rough on the property, the ability to, you know, the need for touch up or whatever, when we do have somebody move out. I mean, I can’t imagine being here.

Vinney Chopra  25:18  

minimum.

J Darrin Gross  25:18  

Yeah, yeah, 

Vinney Chopra  25:20  

you’re right there. And, you know, these are specially designed communities that we build with, you know, high ceilings, right. And also, the doors are wider, everything. And within the apartment, you don’t need too many doors, because they are so frail, in the age group is at 8485 to 90 to 100. So they just should be able to go in and out, as you can see in the movie. So we have just perfecting what it should be, you know, and they love it. Yeah.

J Darrin Gross  25:55  

That’s, that’s great. I’m, I’m so happy for you. And congratulations on all your success, sir. That’s, that’s awesome.

Vinney Chopra  26:02  

Thank you. And we’re coming up with the book too, by the way, you know, your audience know, this book did really well. And if you have not seen it, please do go and buy Spanish, you know, partners and readers, please go ahead and look at Spanish version of the same book. And then my other book came out, which is the Positivity Brings Profitability. Again, please look at my third book is coming on Investing In Senior Living Made Easy.  So we’re really teaching everybody what senior living is about why we feel so compelled that we want to be in this market, along with others. So I have about four businesses right now. Five, six. Anyway, it is buying apartments, which I’ll keep on buying B class B plus, in good growth areas, just like I’ve been chasing that. The other thing is my hospitality, because we’ll be buying we just bought Hilton Garden Inn may be buying Marriott’s and Comfort Inns, we’re looking into now with COVID, we’ll have even better deals come on our table. So we’ve been buying them, you know, when my partners, then my other business is Senior Living ground up, ground up. So that is the one we just share. And it’s a three year hold and everything. We are not selling any securities. But if you’re interested, just reach out to Darrin or myself, you know, and so on. Third one, is we becoming a REIT.   What is that? Because Emraan our partner was selling after all this hard work and running the operation and everything. Guess who was buying them?  REITS. Or some big fund or something? Then he sat down with them two months back, I think they said, Ron, we want to make you a partner with us. That’s what he said. He said, Really? Okay, how does it work? He realized quickly, he was going to get peanuts, just like 10% in the whole REIT. Here he could that whole hundred or 50% with me if 50/50 right. So he said Mr. Chopra, we’re gonna sell nobody nothing, we could achieve them ourselves. So that’s what we are doing now. So we’ll be buying everything we have building will cashing out our investors. After three years, so two and a half years, get new investors in for the next five to seven years. And then flip it again, get another LLC, the exciting part is there, you’re ready. You do cost segregation every single time when you sell a new in new entity, right? New entities brand new and you do cost segregation, then flip again, sell it yourself for another entity do cost segregation again. And this way I can give my investors so much money back. And then they could even do 1031 so never have to pay any taxes at all ever. They just keep on going from one to next to next next.

J Darrin Gross  29:09  

That’s That’s awesome. You keep figuring out the ways to make the money rain. That’s awesome. That’s great. Hey, Vinnie, before we wrap up here, I always like to ask people about risk. You know, the I think you’re one of the first guys I asked it, but it’s been a while. So I’m going to see if you if you don’t mind, I would like to let people know that by day. I’m an insurance broker. And we assess risk. That’s what we do with our clients. And we look to see if we can, what we can do to manage the risk. And there’s a couple of different strategies we look at we first looked to see if we can avoid the risk. Yeah. If we can’t do that, we look to see if we can minimize the risk. And then if neither of those are an option, we’ll see if we can transfer the risk and that’s what an insurance policy is. And I like to ask my guests if they can look at their situation, whether it be their clients, their investors, their tenants, the market, however they want to frame the answer. But if you can identify what you consider to be the biggest risk, and, you know, just for clarity, I’m not necessarily looking for an insurance related answer. But if you are inclined, Vinnie, I would love to hear from you. What do you Vinney Chopra considered to be the biggest risk? 

Vinney Chopra  30:30  

You know, I’m so glad I mean, you know, I’ve raised $140 million I was just counting in my wife. My wife is my Investor Relations. As many of you know, our daughter, Monica is now VP of operation, and we just grown so much. But the key thing is, as the investor gives you money, you know, Darrin, they want to know, Vinnie, what if you die tomorrow, right? So we have to really as business owners, and I highly recommend everybody listening to us to really sit down with Darrin or anybody who can really change you and tell you, what are the risks involved in your business? You know, it could be your death, it could be your transferring of the wealth, right? It could be like, we’re into ground up construction, what are the different risks involved, when the GC runs out, or runs away, or doesn’t have or slip and fall and, you know, anything, fire is there or wrong, mechanical, you know, systems are put in. So those things are very, very important. Of course, buying the multifamily, the renter’s insurance is so, so huge. Not only that, also the property has to be properly insured. And the lawsuits and the directors insurance, I mean, I got, I had three or four lawsuits in the last 12 years, and I cleaned up, I totally didn’t have to pay with $3 million lawsuit was going on with me, mediation came and the insurance setting for 500,000 I think I have to pay zero money. Zero money. If I had really said, Hey, I’m totally bankrupt, you know, I wouldn’t be bankrupt. But the thing was, I just didn’t let it bother me. I just kept on going kept on going in my thing. I knew my insurance company’s gonna take care of me, right, you know, so it’s very important that we get the best of the best. And, you know, like the GL general liability, right? umbrella policies on every property, I’ve had 6 million to $10 million, even the smallest of the smallest properties, because I believe paying that small premium is well worth the nighttime sleep, which I like to have really good sleep. And then it takes the risk of a you know, I can racial discrimination lawsuit. I got mechanical lien on property. So things like those happen right there. Yeah.

J Darrin Gross  32:58  

Yeah. No, they do. They do.

Unknown Speaker  33:00  

Yeah.

J Darrin Gross  33:01  

I appreciate you highlighting the the the insurance aspect of that that’s always there. And, you know,

Vinney Chopra  33:08  

thank you so much. It’s a pleasure to spend time with you. And I hope if anybody would love to find out more about senior living, investing, and so forth through Darrin, please call Darrin and we touch base together.

J Darrin Gross  33:23  

And Vinney for the listeners where where can they go to find more learn more about you? You know,

I have actually on over the internet, I don’t do nothing. I just get up in the morning. I’m all over with the posts, because by branding company, you know, I pay them some money in to name India, then you’re using them. And they do all the things for me, but just Google me Vinney Chopra. I have three websites now. One is Vinneychopra.com. Vi nn, e y ch o pra chapra.com. Monealinvest that kid’s name Monica and Neal invest.com. Then my third website, which is getting this for many great great investors is Senior Living investing.co Senior Living investing dot CO or senior living investing Made Easy, the new book that we are coming out with, we have taken the website domain on that one also.

Awesome. I will list all those in the show notes. And I appreciate you doing this thing. I always enjoy the opportunity to talk to you and learn. You always come with great lessons. And I look forward to doing it again soon.

Vinney Chopra  34:45  

God bless you, your family and stay healthy, stay safe. You know this COVID is going to pass but let’s just use this time to grow our businesses and to learn more and be more passionate about life because I can spend more time Time What a great thing with lunch and dinner and, you know, breakfast with my wife and kids and do the kind of things we always wanted to do. And that can be right now. So God has given us an opportunity. It’s the silver lining in the dark cloud, we should always look for.

J Darrin Gross  35:18  

Oh, amen to that. For our listeners, if you like this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow? That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate pro networks. cr e pn radio.

Announcer  35:39  

You’re listening to CRE PN Radio for influential commercial real estate professionals. For more information on this or any of our guests like us on Facebook, CRE PN Radio

On Demand Affordable Legal Counsel with Johnny Merritt – CRE PN # 287

Johnny Merritt  0:00  

Started with them just charging them a monthly fee. And and for that they we have an engagement letter that sets out what typically an in house General Counsel would do. And so the business can budget for that. And then then frankly, we encourage calls in the front. Like, I think about the old cell phone example where you have free minutes, you know, they’re not actually free. But But what we found through the years is that this this relationship actually encourages the clients to call the attorney and frankly, if the attorney wants to promote the business, and so I think in a very simple sense, it just puts the attorney in the business more in a partnership arrangement where they’re working together to accomplish the same thing. 

Announcer  0:51  

Welcome to CRE PN Radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast.  Whether you’re an investor, broker, lender, property manager, attorney or accountant We’re here to learn from the experts.

J Darrin Gross  1:10  

Welcome to commercial real estate pro networks, CRE PN Radio. Thanks for joining us. My name is J. Darrin Gross. This is the podcast focused on commercial real estate, investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio. 

Today, my guest is Johnny Merritt. Johnny is an equity partner of Hajjar Peters LLP. He’s an attorney with over three decades of experience in complex corporate and real estate matters. And in just a minute, we’re gonna speak with Johnny about how a on demand fractional General Counsel relationship can work for you. But first, a quick reminder, if you like our show, CRE PN Radio, there are a couple things you can do. You can like, share and subscribe. And as always, we invite you to leave a comment. We’d love to hear from our listeners. Also, if you’d like to see how handsome our guests are, be sure to check out our YouTube channel at Commercial Real Estate Pro Network on YouTube. And while you’re there, please subscribe. With that I want to welcome my guest Johnny Welcome to CRE PN Radio.

Johnny Merritt  4:05  

Thank you so much for having me. It’s it’s exciting for me to be here. excited for me to talk to somebody from Austin to Oregon. What, what great, great opportunities we have to share information.

J Darrin Gross  4:18  

It’s gonna be good. Looking forward to it. Before we get going, Johnny, if you could take just a minute and share with the listeners a little bit about your background.

Johnny Merritt  4:29  

I’ve been an attorney since since the late 80s. As you can probably tell from my gray hair and I graduated from law school late 80s wanted to be a transactional lawyer was focused on being a transactional lawyer and I graduated and accepted the job of the transactional law firm and the savings and loan crisis hit the light 1980s.  And shockingly the federal government hired the law firm I was going to work for the handle directors and officers liability cases all over the nation. And so for the first 10 years of my practice, I went to a transactional law firm and did litigation for 10 years. And but I’m not a litigator and transactional attorney. So after 10 years, this was between 20 and 25 years ago, I decided to stop doing litigation and focus entirely on the transactional work.  Since that time, I’ve done corporate work, done a lot of real estate work, and and has served as a outside General Counsel for $1.5 billion company, which, which frankly, showed me the value of relationships between attorneys and their clients. So the last 25 years, I’ve done real estate corporate work, and kind of been the go to guy for businesses who need help with their transactional work.

J Darrin Gross  5:59  

Gotcha. That’s an interesting introduction into the legal profession there the the crash, and go in and litigating the directors officers type claims. You know it’s funny,the, it’s just trying to think of as you were saying, you know, your background wanting to be transactional, but yet ended up litigating, is it not? Kind of a thought that if you don’t have your your transactional paperwork set up properly? That are you I mean, one of the reasons to have the transactional paperwork, and all the contracts set up is to avoid the litigation? Is that not?

Johnny Merritt  6:45  

I think, I think that’s absolutely correct. I mean, one and we’ll talk about whenever you’re ready to fractional General Counsel of one, one reason I want to do that is because I want to encourage communication between myself and my clients. And and certainly to the extent that we can help clients in setting up their transactions and or reviewing contracts we do, we can help avoid litigation. But I will say this, I was speaking to a group of Baylor Law students a couple of weeks ago and about and asked them the question the class, what do you want to do? And then I explained to them, what you probably will do is whatever comes in the door, and and then explain my experience with with becoming a transaction that litigator in spite of the fact that I wanted to do transactional work, but you’re absolutely right. We, the goal, frankly, after being in litigation for 10 years, I don’t like litigation. And so my goal is to help clients avoid that, and frankly, at all cost, if we can.

J Darrin Gross  7:51  

I would think also, having had that experience, like you said, wanting to help people avoid that it would give you some insight as to, you know, ways it can be avoided is that did you find that to be the case?

Johnny Merritt  8:06  

I do. And and through the through the 25 or so years, as a transactional attorney, there have been lots of instances when I wish a client would have called me beforehand, so that we could have avoided problems and and and but but it does, the other thing that it does is as I’m reading a contract, or as I’m setting up a company, or as I’m thinking about the structure for a specific deal, it’s my first 10 years of practice is always on my mind. And I’m always trying to avoid those. What litigation is a lot of times it’s transfer of wealth, I think from from the the disputing parties, frankly, to the attorneys. And so to the extent that we can avoid that we tried to do that.

J Darrin Gross  8:57  

No, I have a few clients that would concur with that. I have I’ve, I’ve seen it. And I think that, you know, like any industry, there are those that deserves a reputation and others that that basically are, you know, fall to the reputation of others kind of thing, but just that notion of that, you know, the attorneys are in it to, to, to get paid, you know, and to, to keep it going as opposed to seek a solution kind of thing. So, but like I said, there’s no there’s reputations in in all all different fields of work. There are some some, you know, good ones and some bad ones.

Johnny Merritt  9:43  

Well, there’s, there’s no question a lot, a lot of the reputation that attorneys have are well deserved. And, and but, and frankly, at my age, I’m 59. So it made you reflect back on your career and I’ve had the opportunity to look back on the history The law profession and and and have studied where the law profession came from. And it’s unfortunate the way that that that the law profession has has, has become perceived. But But listen, I’d be your listeners would turn me off if and turn the program off if I didn’t acknowledge that the reputations in lots of instances well deserved,

J Darrin Gross  10:28  

R ight? Well, and again, I don’t mean to count cast a broad brush and insurance we have the same kind of a challenge sometimes. But let’s talk about, you know, legal representation and and you know how a traditional relationship might work as opposed to kind of your fractional on demand model?

Johnny Merritt  10:57  

Well, what I’ve noticed is that attorneys are really compensated in two ways in a very traditional sense. One is the, what you typically hear of is a contingent fee case where, you know, the McDonald’s coffee is spilled, and the attorney sues on behalf of the person who was injured, and they get between 30 and 40, sometimes 50%. Well, and that doesn’t work very well for a business model. But the way that that that transactional attorneys typically bill is by the hour. And what I’ve found through the years is that that creates a natural conflict, if you will, or perhaps conflict is too strong a term but perhaps not. The hourly fee, I think discourages calls the attorney, the businessman who are looking at their bottom line, they want to save money, they want to budget for things and and as they look at this contract, they think to themselves, I can call my attorney, but they’re they’re there, they’re going to start their clock and their clock going start taking and for what seems like a minute or two call, I may get $150 bill and, and and frankly, attorneys, particularly in the real estate arena, we don’t provide sexy drawings with the things that architects provide or, or plans where they they set out things that are the real estate person loves to see, what we’re doing there typically is just an expense. So I’ve started I started thinking many, many years ago, how can we change the paradigm? How can we make put the attorney on the same side if you will, with the client. And and as I said at the beginning, I’ve been essentially an outside General Counsel for $1.5 billion company for over 20 years. And and so I started with them, just charging them a monthly fee. And and for that they we have an engagement letter that sets out what typically an in house General Counsel would do. And so the business can budget for that. And then then frankly, we encourage calls. And in the front, I think about the old cell phone example where you have free minutes, you know, they’re not actually free. But But what we found through the years is that this, this relationship actually encourages the client to call the attorney. And frankly, if the attorney wants to promote the business, and so I think in a very simple sense, it just puts the attorney in the business more in a partnership arrangement where they’re working together to accomplish the same things. So that’s that’s kind of a general introduction of what what we we are doing.

J Darrin Gross  13:55  

That makes a lot of sense. I know. You know, there are those things that that I’m resistant to do. And I know others you know, just like you’re saying the budgetary concerns are just the unknown. And in a lot of times in legal things, if you sit on it or wait on it, it’s not going to get better. And I’m assuming that that your model is allowed you not only to build that relationship but also to kind of nip things in the bud before they kind of fester and and become something that’s a little bit more challenging is that Do you find that to be the case,

Johnny Merritt  14:37  

you’re you’re you’re directly on point at the end and you use the word that that is is is just critical and that is relationships. In this type of concept we deliver we we develop long term relationships with our clients, we get to know their businesses. We get to know what they like and and free Legal issues are just a small part of the formula for success of a business. And so although we partner with them, we also have to understand how to stay in our lane. And we also understand that ultimately, we may give them our clients advice on what the consequences of certain actions or decisions may be. But ultimately, it’s up to the client decide what what’s in the best interest of our of our operation going forward from a legal standpoint. So yes, we were able to nip things in the bud were able to assist in in structuring things and putting puzzles together. So it’s the business operates properly. And the other thing I might say is to the extent we do something, and we operate for a while, and we determined You know what, this has created a little too many headaches for the CFO of the business, we can then go in and alter things and make things work better for the business.

J Darrin Gross  16:06  

So that’s always a good thing. So let me ask you so that the the historical model has been a call the attorney and then get the bill based on the time spent, and like you said, it always felt like you had a two minute call, but you’re not totally aware of all the time they spent, after you hung up kind of thing. And what shows up on the bill, your model, I’m assuming just kind of, can you explain how you come up on the pricing? Because I’m assuming if you got a a smaller firm, versus a larger firm, is there a kind of arithmetic, or some sort of a formula there for how you determine whatever that raterate would be?

Johnny Merritt  16:49  

 We do. We do. We still keep every week, we record our hours, just as if we were billing per hour. Let me digress for a minute and say one thing that I love about the this system is the hours aren’t always the best measure of good lawyering, for instance, I was working on a corporation the other day that involved a professional entertainer. And and so I wanted to put that make some changes to that that corporate agreement that would be more appropriate for that professional that your listeners would know if I were to tell them but but the fractional allows me flexibility to spend more time to do things. But to answer your question specifically, we still keep our hours. And every month, we send a statement that that includes time entries of everything that we’ve done. And and and then there’s a flat fee at the bottom. And what we have found is that the the clients, I like it better when the clients are getting a better deal, when they’re when they’re actually getting a discount. But what we have seen through the years as in this is it’s it’s I guess it’s to some extent, it’s selfish, but it just works this way. As, as the the clients understand the value of the service we provide, they use us more. And so what we do is every six months, we audit the each of our clients accounts, we tell the report to them where they would have been had they paid us an hourly fee and what they have paid. And historically they they got a very good deal. But we we asked for adjustments not to equal the hourly fee, but just just because they’re using this more so so very transparent. So that the clients know exactly how it compares to what they would be paying if they were paying the hourly fee.

J Darrin Gross  19:00  

So kind of like thinking on I think it’s maybe our gas bill or something like that we have that kind of a level pay kind of a thing where you get the right, you know, the year end, remember the first year we bought a house and the winter months came and the heat went on and the bill would, you know, through the ceiling kind of thing and we called and got on quote level pay was like some, you know, something was spread out a little bit more and it adjusts annually. I know kind of thing. Right? So but I think the important thing that I I recognized and sounds like you’re you know you’ve you’ve touched on Is it just the ability to budget for that and not have that. That reluctance to call the professional that can help you navigate something before it becomes something that shouldn’t have.

Johnny Merritt  19:52  

That’s that’s exactly that’s exactly right. I mean we we lot of our clients have been big transaction. It takes a lot Time that month, they’re going to get a really good deal. And, and, and frankly, I like that in, I don’t care what business you’re in, you want those people who are interacting with you to feel that they’ve got a good deal, they’ve got value. And I love that. And so the fact that we’re, we may be substantially less and less on what our monthly routine what our hourly fee would be. Frankly, that doesn’t bother me, it thrills me, because that just shows we’re providing good services to our clients for good value.

J Darrin Gross  20:34  

Right. So let me ask you with the way you’re set up, in talking about relationships in that in, I guess it would be kind of like even a value kind of a question. The law changes, it seems like it’s constantly changing. Are you able then to communicate this on a more regular basis to your, your clients to, you know, advise what the changes are? How they will affect them? Or what, you know, is that part of this as well?

Johnny Merritt  21:15  

Yes, once once we if we see a development in, in in the law, for instance, only give me an example, the PPP loans, when the when COVID hit, and the PPP loans became available, I read that that’s that legislation very, very carefully. And because I wanted to see whether that was something that I should recommend to my clients, and, and frankly, we sent an email to all of our existing clients relating to the advantages and disadvantages of that, that loan, and that loan program. And frankly, we wanted to do it very quickly, because as as your listeners will recall, the first amount that was authorized, was used up very quickly. And and so those people that moved quickly, that that needed, or felt they needed that loan was was were able to I don’t know what any of my clients that were unable to get it if they wanted it. And so that’s a good example of the services we try to provide to the to our existing fractional counsel clients. Yes. Good question. Thank you.

J Darrin Gross  22:31  

Well, and even with that, he is a recall there was a question about taxable non taxable, or I don’t remember, there was some, I remember there was the the the Hurry up, like you mentioned there, but it seemed like there was something that changed in the way it was presented versus the the backside of that, I don’t know if that was like on a condition of the way you use it or something. But I, but I would think certainly the COVID has given you guys an opportunity to keep your clients informed on the changes and potential consequences of actions based on all the just crazy things that COVID brought.

Johnny Merritt  23:14  

I think COVID has has really given us an opportunity, because iOt covered scary. I mean, you know, we can all put a brave face on and we should and we’ll get past COVID there’s no doubt in my mind, but but there has been an impact in the real estate market, particularly of COVID. And having the opportunity to have an existing relationship with an attorney for an amount that’s budgeted is I think, is has been very helpful. I guess the proof would be in the pudding that the real issue is what am I What are my clients saying? But I think that they would say that, that, that, that having that relationship, one of my biggest clients is in the food industry. And and, gosh, we were trying desperately to deliver food to grocery stores. And and I was I wrote an article in there’s, as attorneys, we don’t often get to say very specific things. There’s always issues, but I was able to say write a sentence that for the first time it was absolutely true. And and what that was was on this specific COVID issue is a 30 year plus attorney and I have exactly the same amount of experiences every other attorney in the state of Texas. And so but I think those existing relationships are helpful.

J Darrin Gross  24:42  

No, no, that’s that’s, that’s fascinating, just how you like said that the situation changes. And, you know, is the and I think the other thing that I this this applies to is just the realization of how the laws are formed. They’re, they’re conceptual, when they’re passed, but they’re not really tested until they get to the court or whatever. I mean, is that right?

Johnny Merritt  25:11  

Well, and again, I got that great, very good question. Another, that’s another time I bring up the PPP loans. You know, the PPP loan, the statute said was very specific on who was eligible for those loans. And then after the statute was written, a lot of the politicians became concerned about some of the uses and some of the some of those businesses that were eligible, frankly, under the statute. And so we were able to provide our counsel our clients, I think, very good counsel, on on, you know, that not only what the law said, but then the politics that followed that. And, of course, everything’s exaggerated in COVID. But, but, again, I think it provides a good example of the type of services that we like to provide to our clients, thank you for asking that. 

J Darrin Gross  26:08  

So, you are based in Texas.  Are you limited to Texas real estate type clients, or do you have clients all around?  Can you speak to that?

Johnny Merritt  26:07  

Well, we, of course, I’m only licensed in Texas.  I do have clients from many, many other states.  But for the most part, we limit our legal representation to relating to Texas legal issues and to the extent we need experts there are attorneys in other states we’ll call in other people.

J Darrin Gross  26:50  

Gotcha. In the real estate market, in Texas, I mean, I always think of Texas as kind of its own entity as far as economy and, and size and just the ability to kind of be its own market. Any lack of activity going on in Texas right now?

Johnny Merritt  27:12  

Oh, gosh, it Have we got six hours of this program. The it’s fascinating, what’s going on? Is is fascinating, it’s disturbing, it’s great. It’s all I would say in a, from a residential standpoint. Talking to an appraiser the other day and he said for the first time ever, he he seen a both a seller and a buyers market, he’s never seen that. And that’s because the prices are high, but interest rates are low. So as a result of that, that is promoting sales. Here in Austin, we’re seeing it’s kind of turned on its head. Before COVID,  Everybody wanted to be downtown. Now everybody doesn’t want to be there. Nobody wants to be downtown. So there’s there’s an exodus from the urban areas. On a commercial standpoint, it’s it’s, you know, the, the point where I think we’re gonna see a pretty significant change because people can work from home. And but those, the office leases are typically more long term, and so that we’re having a lag to see how that’s going to impact retail, of course, has been horribly impacted. Unless you own an industrial building, like Amazon, or Walmart. And so, the sexy buildings now or the interest industrial buildings, whereas used to retail strip shopping, and then also finished with this. The anchor tenants in the retail shopping centers, they faltered used to it was the retail stores that carried those centers, that’s the service stores, the the the the nail salons or the the the healthcare facilities, and those are curating those retail shopping centers. So but but right now, the economy is very strong. I think it depends on what’s going to happen within employment. It depends on what’s going to happen with politics. And and it depends on what’s going to happen with more government assistance, I think. But there’s a lot of balls in here on that on real estate in in Texas, and I frankly frankly think that’s nationwide.

J Darrin Gross  29:48  

Yeah, definitely some interesting times, Johnny, if we could, I’d like to shift gears here for a second. As I mentioned before we got started recording by day I’m an insurance broker. And as such, we do risk management with our clients. And there’s three strategies we typically consider, we first look to see Is there a way we can avoid the risk. And if so, then we we eliminate the risk. If we’re unable to avoid the risk, we look to see if there’s a way we can minimize the risk. And if we cannot avoid nor minimize risks, and we look to see if we can transfer the risk. And that’s what an insurance policy is. It’s a risk transfer vehicle. And I like to ask my guests if they can look at their own situation. This could be their clients, investors, tenants, the market, etc. I let you identify what you consider to be the biggest risk. And for clarity, I’d like to make it clear, I’m not necessarily looking for an insurance related answer. And if you’re willing, I’d like to ask you, Johnny Merritt, what is the biggest risk?

Johnny Merritt  31:10  

Very sincerely in this comes from my relationship with this $1.52 billion company that I’ve represented for over two decades. I think the greatest risk of business has is not having a good relationship with an insurance person. There are a couple of, as general counsel, what what you what you’ve learn to do, is you, your’re a generalist.  You provide those services that the the business typically would need.  You review contracts, you you attend board meetings to you. You look at real estate transactions. But then then you get calls on for instance, intellectual property. But that’s when you call them the expert. They’re all there are a handful of people that I that I rely heavily upon. One is accountants. And you need to be able to call your accountant. Another one again, for my clients, I have a great IP attorney and intellectual property attorney. But I also have a an insurance broker, that, frankly, I am in constant contact with.  Weekly is probably an exaggeration, but it’s over four times a month, it is I believe strongly that that you that every business needs to have a relationship with somebody who understands can they can recall and rely upon.  And in frankly, this comes from experience, we represented an entity that did not have enough insurance. And in it, we found ourselves with a substantial liability, they had not allocated the kind of using your formula did not evaluate the risk properly. They had not and then they had not allocated or taken care of. So I it sounds like it’s so self serving in your favor. But it’s just the truth is is having just like having a great attorney, and having a great accountant. You need to have a great insurance person who you trust to who you understand is not just out to sell insurance, but is there to help you protect and minimize your risks.

J Darrin Gross  33:52  

Johnny I really appreciate you saying that it’s I mean it’s something we try and do our best to communicate with our clients. But it’s always nice to hear it from some someone and I appreciate you saying that.  Johnny before we wrap up where can listeners go if they’d like to learn more or connect with you?

Johnny Merritt  34:17  

Johnny Merritt, johnnymerritt.com is I have a website they’re also the law firm is hajjaessentially our h h h a r Peters or Johnny Merritt in Austin. We the websites probably the easiest, you can get our phone number there, it’s easy to remember, it’s just my name dot com and we’d be thrilled to visit with any of your listeners to that. Let me also say if some of you listening to our attorneys in Oregon or elsewhere that that this concept sounds like something they would like to consider. I’d be thrilled to talk to them. As well, I really am interested in changing the paradigm altering the view of attorneys, instead of just being an expense and a hardship. We’re actually partners with our clients.

J Darrin Gross  35:13  

Awesome. Johnny can’t say thanks enough for talking today. I’ve enjoyed it. I’ve learned a lot. And I hope we can do it again soon.

Johnny Merritt  35:24  

And we appreciate this, this opportunity to speak to you and to listeners and, and hope that what I’ve provided is somewhat helpful and we, we’re gonna make it through this COVID and they’re exciting times. 

J Darrin Gross  35:43  

For our listeners, if you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow? That’s all we’ve got this week. Until next time, thanks for listening to commercial real estate pro networks. CRE PN Radio.

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