J Darrin Gross Podcasts -

Shared Office Space Makes Vacant Commercial Real Estate Profit with Barry Greenfield – CRE PN #318

Barry Greenfield 0:00

So there are a significant portion of the population who really are starting to get used to working from home. But there’s a much larger percent of the population who don’t have that luxury of even having a room in their house that they can use to have a conference call to make calls from to do a zoom call, you know, what I what you and I would call a quiet space. You know, the average American doesn’t live in a 3000 square foot home or larger. They live in an apartment or a smaller boat, and you’re sharing that with other people. And those are the people who need to and they want to run a business and they’re working 12 hours a day and they need to find a place that they can be really productive. And that’s away from home.

Announcer 0:36

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 0:55

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 Barry Greenfield. Barry Greenfields local works since 2011, has a new take on co working spaces, which means a win win for those with empty offices and leases on their hands, or for small businesses leaving big leases, or for empty law firms. And in just a minute, we’re gonna speak with Barry about local works and how that works.

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. 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, Barry, welcome to CRE PN Radio.

Barry Greenfield 2:21

Thanks so much, Darrin for having us.

J Darrin Gross 2:24

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

Barry Greenfield 2:33

Sure, so I’ve I’ve got a broker’s license here in Massachusetts. And I dabble a little bit in real estate on the commercial side, but quite frankly, got involved in the whole co working shared office space concept as a result of having a small software company about 10 years ago. And I needed to get out of the house because I had to hire a couple of employees. And I was looking for a way to defray costs and ended up bringing in a bunch of other associates and friends to share the office space with us. And that kind of morphed into a couple of locations. And then basically in 2019, we struck a partnership with a very large commercial real estate office company that has a very large portfolio in in the Boston area called Cummings properties, and they had a mezzanine space that they just weren’t able to rent. And so they brought us in to fill it up for them with individual office renters, until we essentially created a shared office space for them. And we partner on it and we share the revenue. And so once we got that up and going and saw the success from that, we looked to expand on the concept and then COVID and COVID actually became a boon for our business because so many commercial real estate office properties started seeing vacancies where they hadn’t for a solid 10 years and the market was very strong. And so we just started approaching people with a new concept where we said Listen, you can either hire us to run a shared office space business for you in your space or we can do it as a revenue share. And now we’ve got 22 locations going on 30 and we’re in five states and you know, private care property owners are getting more comfortable with the concept of saying hey, I don’t have to sit there with making space. These guys will fill it up for me. And it’s a win win we can start bringing in revenue within 30 days.

J Darrin Gross 4:33

I love it. Now the whole concept I am so glad you mentioned COVID and its effect because I think that you know this this shared workspace or the you know the the space between work and home or just some somewhere out there for small business, big business, whatever it is a concept that I feel like was kind of like really on a growth. pattern factory cameras. What was that there was a big company that went public and all that. We work. Yeah. And kind of the the rise? And I don’t know, are they still in business? It seems like they ran on some rough times I’m really kept up with them. But

Barry Greenfield 5:15

yeah, they’re acquired out of bankruptcy by a couple of large brokerage firms and some venture capital. And they’re actually doing very well now, because they’ve scaled back the operation and really, you know, focused on running business from a bottom line perspective versus a brand perspective. So, yeah, they took a pretty big hit, and they they weren’t really necessarily running the business properly. And now they’ve got it in line. And there’s a ton of companies out there now that are doing it at a very high level industrious is another one knotel, which also went through bankruptcy. And, you know, because they’d all signed these long term leases that, you know, quite high rates that that once COVID hit, they got wiped out. You know, for us, we market to a different audience. So the larger brand name, co working companies tend to focus on the enterprise clients, the large fortune 500 companies at the top of the pyramid, which is great, you know, and that’s it’s sexy, and that everybody wants to be. But there’s an enormous amount of Business at the bottom of the pyramid in the middle of a pyramid, which are primarily individuals and small businesses and entrepreneurs, who typically are find commercial real estate unaccessible, for a couple of reasons. Number one, they don’t have the financial wherewithal to sign a seven year lease, and come up with the pre payments and the, you know, the cost that’s involved with that. And they also can’t make that kind of commitment. These are people who are maybe working a second job. Or maybe they have a full time job. And this is a new startup for him. And so there’s a couple of interesting trends going on at COVID. Also accelerated, which is this whole what I call the SC model, where people have really started to dive into starting their own craft businesses, and just businesses in general and homecare nursing is I can’t tell you how many tenants or what we call members rent space from us to run their homecare, nursing headquarters. accountants, lawyers, you know, individual lawyers, people have left large firms and started their own practices, CPA accountants who left large firms and now run their own CPA practice. It’s all over the map. But what you have is a lot of individuals, a lot of women, and a lot of minorities, who previously were kind of closed out of the care office opportunity, and they come in through us on a monthly rental. And they stay for a long time, there’s not a lot of churn, and they are so excited to have the opportunity to go to work in a productive, clean, quiet office, dedicated private office that you know, includes Internet, and coffee and water and everything they need. It’s, they’re very, it’s a satisfying business for us, because we’re helping a lot of people who really need office space, and are excited that they’re getting the opportunity to get into a Class A or B or even a seat belt.

J Darrin Gross 7:54

Yeah, no, it is interesting, just the the COVID effect on you know, real estate, specifically the office real estate, and then also just that kind of the notion of everybody or I shouldn’t say everybody, but there’s this kind of a sense of like, well, there’s people work from home, well, you got dogs bark in the background, you got kids, you got noise, oh, I mean, there you go for on cue, the, the, just all of the, the the home environment, noise that can create a, you know, a challenge for the workspace kind of thing. And I know myself, I forever have always gone to the office. Except for you know, since COVID, I’ve been kind of more of a remote worker, but but there’s still something about the workspace and just the ability to get in to a space and in you know, actually be more focused and, you know, be able to leave that space as opposed to be in the 24 seven kind of thing.

Barry Greenfield 8:53

Well, you bring up a great point. So there are a significant portion of the population who really are starting to get used to working from home. But there’s a much larger percent of the population who don’t have that luxury of even having a room in their house that they can use to have a conference call to make calls from to do a zoom call. You know, what I what you and I would call a quiet space. You know, the average American doesn’t live in a 3000 square foot home or larger, they live in an apartment or a smaller abode. And you’re sharing that with other people. And those are the people who need to and they want to run a business and they’re working 12 hours a day and they need to find a place that they can be really productive and that’s away from home. So we you know, we see a you know, there’s a couple of trends going on there. We see a lot of the most of our tent most of our what we call members are 30 to 60 years old, and tend to live in the suburbs. That’s where most of our locations are, although we’re starting to get opportunities in the urban core areas. But we’re also seeing is you know, the 30 and under set, they’re excited to go back to work in the downtown areas. Single people who live you know, live in an apartment they want to get out and they want to get back into the office but people People live in the suburbs who were commuting into downtown areas an hour each way or 45 minutes each way, are now saying, Listen, I’m just as productive at home. But I may not stay at home, but I want to have an office much closer to my house. And so you’re seeing again, I keep using this word acceleration. But you know, Regis has been around for since the 80s. And they’ve been doing these workspaces, although they’ve couple 1000 around the world. So and then, you know, we were co working kind of was adopted as more of an open space type of model where people come in and share desk, co working is kind of dried up during COVID. Because most people don’t want to be sitting next to someone else in an open space. We primarily market private offices, which are very, very much in demand. And we think that’ll probably continue for quite a while.

J Darrin Gross 10:50

So, the, me you’ve been doing this for quite a while I was since 2000, levels, what I read there, when, tell me how that your model is changed from when you started tall to when the COVID the COVID effect.

Barry Greenfield 11:07

Yeah, so you know, when we, when we launched our first location back in 2011, that was primarily just a big room with a lot of desks and people that come in and random desk for a couple $100. And then we opened up one more, and really, we’re just doing co working. And when we entered into that partnership in 2019, we really moved our model away from we no longer lease space, local works no longer interest in total lease, what we do is the property owner provides the space and then we run the business. So it’s a true partnership. And then at the end of each month, we cut a check based on the gross revenue to the property owner. And it’s really a hands off operation for the property owner because most care office property owners want to deal with one tenant per suite, they don’t want to deal with 20, or 30, or 40, or 50, or 60, what we call members, and all the customer support that comes with that all the amenities that come with that. So we’re an end to end solution that they can bring in, essentially hire to run a business for them in that empty vacant suite, whether it’s 5000, or 50,000, square feet of wish, there’s a lot on the market right now. And with sublets, and even new construction, there’s going to be even more more space coming on the market. So that’s kind of how we’ve evolved the model away from leasing space on our own, which tends to be higher risk. And now just partnering with the property owners who have the vacant space

J Darrin Gross 12:32

makes a lot of sense. And you said that the the property owners have been pretty receptive to this.

Barry Greenfield 12:38

So it first you know, it’s a relatively new concept working under a management agreement, where they bring us in, you know, they’re traditionally used to people coming in signing a long term lease, and, you know, paying each month and then that’s it. So it is early in COVID, when we first started talking to people and I was driving all around New England and flying to DC and Chicago to talk to property owners, there was a lot of hesitancy also because people didn’t know how long COVID was gonna go on for. So they’re like, well, we’ll wait it out. And you know, we’re confident the markets gonna come back to where it was pre COVID, which, you know, occupancy rates were never higher, you know, the quarter real estate market was grooving. But as COVID began to go on, and people started to sink in, and maybe things even if 10% of the market didn’t come back, that’s a lot of vacant space. So, you know, we started getting calls returned, and now we actually get inbound calls from property owners saying, Hey, listen, you know, we heard about you, or we read about you, here’s a floor plan Woody, you know, can you put mock up a pro forma for us? And let us know what you think you could do for us on, you know, in the first year? And that’s where a lot of the conversations go. And that’s typically the first step.

J Darrin Gross 13:46

So let me ask you, when you’re looking at a potential property, what are some of the considerations that you guys look at? for, you know, for determining performance or minister too small of a market or too large? You know, what are some of the things that you’re looking at?

Barry Greenfield 14:04

Yeah, no, it’s a great question. So there’s a lot of factors involved. But pretty much any building as long as they can, you know, as long as there’s 15, to 20 private offices in the space, because again, we’re not right now focusing on the open desking, which a lot of people call hot desking. And what we call co working. We are the folks that we market to and that we find who want to rent space, they all want a private dedicated office. So if there’s 15 offices and 2000 square feet, the less open space there is, the higher the gross rate, we’re going to be able to return versus a 10,000 square foot space that is 20 offices, half of which is open space, the returns not going to look as good because we can’t really monetize that open space as well. So that’s one factor, the density of private offices. You know, is is there is there parking on site. Is it accessible to highways is there natural light coming into the perimeter office? Is what kind of shape the space is in. So we focus on. And I think this is important for the property owners out there to hear, we don’t ask for any tenant improvement, we’re, you know, we take second generation space, that’s heavily office, so someone else has already put the money in the carpet might be a couple years old, you know, we asked for the carpets to get cleaned. And if there’s any paint touch up, and maybe some ceiling tiles that are stained, to be replaced, and then we’re off and running. And that’s really it, we don’t, we’re not looking for you to spend a couple $100,000 and redo the whole space, because we recognize we’re not signing a long term lease. So we’re trying to, we’re trying to reduce the amount of risk on the property owners and to the point where they literally don’t have to invest anything. And within 30 days, we’re going to start showing them revenue. And that’s probably the biggest differentiator between us and anyone else who’s doing anything even close to similar to what we’re doing. Just to give you an idea, you know, if a property owner wanted to open their own shared office space, they could go out and franchise, they could buy a franchise for anywhere from a half a million to a million dollars from a company called venture x, and then invest another million to a million and a half to fit out the space. And so probably take six years, six months, six to 12 months, and a huge investment, or they can work with local works and be up and running in 30 days for no investment at all. So what we do is, regardless of the space, whether it’s an A building a C, Class A Class B, Class C, will price it accordingly. And we’re very transparent with the people that we market to and you know, we we do a ton of online advertising to find the what we call them members to come in and rent space, and we price it accordingly. And we tell the people listen, this is a classy building, it’s going to be clean, it’s going to be quiet, you’re going to be productive. But this is not the Ritz Carlton, it’s not the four seasons. And they love that they’re, you know, they’re they, as long as the value is there, they’re going to be happy and they’re going to stay

J Darrin Gross 16:53

well on I think another thing that you mentioned, in just the proximity, I’m assuming a lot of the the proximity is something close to where they live or something as opposed to the hour long commute to, you know, an office place kind of thing. That would be a, I would think that would be a big primary driver, because one of the things I’ve recognized with COVID is how little I drive compared to what I used to do. Is it is that one of the things when you’re when you’re identifying a property, they do look at the the RADIUS server or kind of the concentration of a man, I’m trying to figure out how you guys to determine the, the the size of the opportunity, cuz I know you mentioned that kind of space, but just what about the density of the population around?

Barry Greenfield 17:36

Absolutely. So right now, the areas that we focus on are primarily the Boston area, the DC area in Chicago, in the Chicago suburbs. And so you’ve got, you know, heavy population, so we’re looking for as high traffic density. So where people were don’t want to deal with traffic high, you know, dense amount of office buildings, maybe even where there’s been overbuilding in the last 10 years, which is pretty much everywhere. And the people we draw tend to live within five to five, no more than 10 miles away from the office space. So as long as there’s a decent amount of population size, we look for, you know, also not always suburban, but x urban areas that are further out where there’s been a ton of development. And so those people usually have the longest commutes. So as a result, they’re sitting in traffic the longest. So the likelihood that they’re going to they’re going to find they’re going to want to find a space closer to home is pretty high. And so we you know, we’ve, we’ve had one location out of the 23 that we’ve opened that did not work out, and we just you know, it was not for whatever reason was not the right location, but other than that, we typically can fill up a space within four to six months to about 90% occupancy.

J Darrin Gross 18:46

That’s impressive. So, in the, I would think like you mentioned, the landlords would I mean, as a warm up to it, and recognize that they’re gonna have one, you know, one year the the the tenant that they’re dealing with, as far as the I mean, the the revenue stream as opposed to have to collect separate checks from everybody you’re doing, you’re facilitating that. And just to I’m in a shared or you’ve partnered with them, I think that would be a pretty well received thing once they get past the traditional model of long term leases, and, and all that kind of thing. So what is the most common space requirement that you’re finding as far as the your end user member? What are they looking for?

Barry Greenfield 19:40

So we, they like the fact that we provide a desk in a chair. So it’s furnished, although a lot of people I’d say a third of the people bringing their own furniture, we allow them to what we call nest, meaning they can hang wall art. They can even paint the office if they want, because when they tend to nest, they’re going to stay longer. So even though it’s a month a month rental with a 30 day out, the average person stays 80 to 24 months. There, you know, there are some people come in and say right up front, I want you not three months, right, I only need an office for six months. But, you know, in addition to the individuals who rent from us, we have a lot of small businesses who said, You know what, I just downsize 5000 square feet. And we need three offices, and we’re going to make this our home for a long time to come. And I’ve got half my employees who now want to work from home, and I’ve got half that want to work for an office, and we’re looking for a location or looking for two locations. I mean, we feel probably 10 to 15 phone calls a day, in addition to all the email leads that we get in and across the board. It’s it’s one or one or two of those things, I’m either starting up a new business, or I’m downsizing the space from an existing business. And it’s fascinating, it’s, it’s a real good glimpse into what I would call the new economy. And it’s very encouraging. From the standpoint of if I was an economist, I’d feel really good about the future of this country, just based on the people we talked to, and how important they are to start their own business to be their own boss. And the excitement that they have, you know, we’ve got some people who make candles in the office, we’ve got other people who do physical therapy, do you know, mental therapy? You know, it’s really it’s a wide swath of entrepreneurs and small businesses, and they’re all playing a huge role in the growth of this country. And it’s, it’s, it’s, it’s really encouraging.

J Darrin Gross 21:22

Now, I was gonna ask him, Do you ever get any leads from, you know, you mentioned the guy that’s downsizing, he’s got 20,000 square feet. Now, he only needs you know, a few Pew doors or whatever? Does that ever turn into an opportunity for you to approach the landlord where they’re leaving from as a, have you ever considered local works, we,

Barry Greenfield 21:44

it’s a good idea, you know, it’s fun. We haven’t done that. But you just maybe think that what we also have done is, we will get people who call us up and say, I want to take your entire space. So that’s happened a couple times, which obviously for the landlord is very exciting, because we’ve just, you know, basically rented out their entire, you know, 8000 10,000 square foot space. So in that sense, sometimes we act as a broker as well. And or six months into a month, a month term. Someone says, you know, what, we need to add six people, and I put them in touch with the landlord, and the landlord has a suite of 2500 square feet, that they now rent to them on a long term lease. So we act as a farm system to a certain extent as well, it doesn’t always happen. But I’d say, you know, on at least once a year and every property something like that comes up.

J Darrin Gross 22:32

Yeah, no, and then just kind of good. Reinforce the partnership there. The landlord’s getting other space filled. Now you’ve got more space to, to lease out there. So you mentioned you’re, you’re in five markets right now. Is that right?

Barry Greenfield 22:48

Yeah. So we’re in five states we’re in? We’re in Illinois, Maryland, Virginia, Massachusetts, in New Hampshire.

J Darrin Gross 22:55

Gotcha. And you mentioned currently 22 going to 30 locations? Are you? Are you taking the model? further? I mean, where’s your next growth? Or where do you expect the you’ll be here near.

Barry Greenfield 23:10

So our current plan is to try and get to between 15 and 20 locations in each market, and then expand from there. We’re also opportunistic. So you know, we’ve, on one hand, we’ll look at just about any opportunity. On the other hand, you know, we had a chance to take over a large building, downtown Portland, Oregon, and it was just too far away from our current core competencies in terms of personnel to handle something like that right now. But DC is a very strong market force all around the DC area. So we’re adding, we’re adding five new properties down there. So that’ll give us 11 in DC, and Chicago will be adding over the next six months, probably three or four more. And then, you know, basically, the way we look at it is, you know, any major metropolitan area, like with significant traffic issues, we think that we think a local works. Location can exist in just about any suburb, it doesn’t really, you know, anything that’s got at least, you know, eight to 10,000 people or more in terms of population, there’s an opportunity to fill a space there. There’s no question based on what we’ve seen over the last year.

J Darrin Gross 24:15

Now, I love the name. I think that’s that’s kind of a, you know, specific, it says what you guys do local work. I mean, that’s good. So, a very if we could like to shift gears here for a second day, I’m an insurance broker. And I work with my clients to assess risk and determine what to do with risk. And there’s three strategies that we typically look at, we first look to see if we can avoid the risk. If we can’t avoid it, then we look to see if there’s a way to minimize the risk. And if we can either avoid or minimize a risk then then we look to see if there’s a way to transfer the risk. And that’s what an insurance policy is. And as such, I like to ask My guest, if they can look at their own situation, can be clients investors, the market, you know, however you would like to frame the question and answer regarding the biggest risk. for clarification, I’m not necessarily looking for an insurance related answer. But if you’re willing, I’d like to ask you very Greenfield, what is the biggest

Barry Greenfield 25:27

for local works, the biggest risk we have going forward is not growing quickly enough, there’s a huge market out there that we’ve already proven, exists and can be profitable. And in order to scale at the pace, we need to scale add, probably require some form of investment, you know, we’re adding, we’re trying to add three or four locations every two months. But in reality, to get to where we want to be in terms of a real hyper growth company, we probably need to be adding five or six locations a month. And part of the problem is, we spend so much time making sure each location is successful. And that requires a lot of manpower and a lot of focus. So we’ve turned down opportunities that we probably should be taken. And if local works is going to grow to compete with these other large companies that are in the press all the time. We need to start taking not turning away that business and find a way to fund a larger team that can handle you know, growing to 250 to 500 locations. So it’s nicely a risk to the company failing, it’s just a risk to the company being even more successful.

J Darrin Gross 26:40

And interesting, the you know, what the risk is? And like, you know, your your situation there, though, it seems like it’s a fairly common one right now. It’s just finding people. I mean, I continually hear that across all industries right now. Is that the challenge of finding, finding people? Do you have any thoughts on that? I mean, obviously mentioned capital and stuff for, for bringing people on, but are you able to find the people you need.

Barry Greenfield 27:08

So we’ve been fortunate that, you know, we’ve got a small team that works really hard, but they do a great job. And because we run most of our operations remotely, even though we have part time people feed what we call feed on the ground in each major metropolitan area to pop in at least once a week to each location, we run, you know, customer support and marketing and sales remotely. So that makes it easier to find people. But the the for us, the bigger we spend a lot of money on marketing each space to fill it up as quickly as possible. And so we tend to use the cash flow from the business to reinvest it into each location. And that’s really the the only kind of Governor right now on our business is the the capital that comes in

J Darrin Gross 27:55

traffic pattern. Well, I wish you well with with your growth and and, you know, making an app in there because it’s I love the love the concept. And it seems like it’s a win win for everybody involved there. Sounds great.

Barry Greenfield 28:10

Thank you very much. We appreciate the opportunity. You know, we feel like we’re helping both property owners and the folks who are looking for office space, so it’s it makes it a fun business.

J Darrin Gross 28:19

No, absolutely. Barry, Where can the listeners go if they’d like to learn more connect with you?

Barry Greenfield 28:24

Sure. So my email is Barry at local works.us. Or they can call they can reach us Our phone number is 202-210-9556.

J Darrin Gross 28:43

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

Barry Greenfield 28:53

Thank you very much Darrin.

J Darrin Gross 28:54

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 got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks, CRE PN Radio.

Announcer 29:14

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Find Deal Solve Problems Get Paid with Chris Craddock – CRE PN #317

Chris Craddock 0:00

If you’ve only got a hammer, everything looks like a nail. And that then you get square pegs round holes, you’re not able to do that. That’s why when you can can say, okay, you have a problem here, I don’t only have one tool, I’ve got two different I’ve got a couple different tools, I got different ways to solve this, then you can get paid every time somebody has a problem because you can say, I can solve your problem this way, or I can solve your problem this way. Well, how would you like to get your problem solved and the people that sell problems are the people that make the most money?

Announcer 0:27

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 0:47

Welcome to Commercial Real Estate Pro Networks, CRE 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 to provide their experience and insight to help you grow your real estate portfolio.

Today, my guest is Chris Craddock. Chris is the nationally certified life coach in leadership and one of the top real estate professionals in the world, closing in 30 to 65 deals a month. Chris is the host of the uncommon real estate podcast, a real honor and an entrepreneur. And in just a minute, we’re going to speak with Chris about how to turn dead leads into explosive into an explosive revenue stream without increasing marketing cost, and completely eliminate the need for expensive marketing channels.

But first, a quick reminder, if you like our show, CRE PN Radio, there are a couple things you can do to help us out. 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, I want to welcome my guest, Chris, welcome to CRE PN Radio.

Chris Craddock 2:19

Hey, glad to be here. Thanks so much for for having me.

J Darrin Gross 2:23

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

Chris Craddock 2:32

Yeah, so I started out, you know, graduated from school in 2000. Got it, I was working for an organization called young life, which I just absolutely loved your life. It was amazing. But I made $20,000 a year. And so when my wife got pregnant, it was hard to live in the DC area on that. And so I just I went and checked out every book I could find on investing. And one of the things I found in life is that massive imperfect action will win the day. And so I just started knocking on doors of people that were in distress. And I did not know how to like have no idea how to flip houses or how to even put people under contract. But I just started knocking on doors. And when I got somebody that said they do it, I’d to go find somebody that can even help me with the contract. That’s how little I knew.

And so yeah, so I just found somebody ended up splitting the deal with them. And yeah, that was kind of the deal. Like long story short, I continued doing ministry stuff just made a lot more money. I mean, what 12 times is what I made in a year in about four months. And so I that kept me being able to do ministry stuff for a while and always lead large groups of people and and so I go back to school a couple times and ended up getting a doctorate and leadership because I love leading people, I think it’s it’s pretty amazing to be able to help other people accomplish their goals. And Heck, you make so much money if if you have other people accomplish their goals, you make a lot of money together.

And so one thing led to another I ended up getting back into real estate investing. And then I, I built a retail team. And then we learned how to mesh the two together. And then we ended up going from there to a place where we just like I’ve started I have 11 other businesses now that are all synergistic to the real estate community. But I’ll tell you, all of that happened, as we found ways to, to just grow the footprint, expand what we’re doing. And one of the big pieces there is just you know, monetizing those dead leads, making sure that you’re not paying for things that just lay dead in your CRM. So yeah, that’s kind of my story in 30 seconds, maybe it was a minute.

J Darrin Gross 4:38

That’s awesome. And I’m curious to know, the the kind of the affiliated businesses, because I mean, that’s one of the things I think I’ve always recognized is how many transactions somebody that’s in real estate is, you know, in line to, you know, entertain or has to to, you know, purchase You’re somewhere. Can you share a little bit about some of the other businesses? You’re in?

Chris Craddock 5:04

Yeah, sure, you know, I, you know, title business, I have a, my wife is a branch manager of a lending business. I have construction, I have a fix and flip business. I have a coaching business. I have a man I lose track a legal shield business. I have a rental portfolio. Yeah. So anyway, I mean, pretty much it just all around real estate is kind of where we’re, we’re, we’re in and I lose track of all of them. Because the great thing is I have business partners that run each one of those. So I don’t have to worry about it.

Actually, one of the things when I was part of Keller Williams for a long time, before we switched over to XP, and, you know, I was able to be personally mentored by Gary Keller, which was one of the great, great things in my life that I’ll tell you, because he’s just really a smart guy. But one of the things he said is you can have as many businesses as you want, as long as they’re all they all have a folder, and there’s a face on that folder. And that folder is not does not have your face on the folder. And so that’s kind of how we’ve been growing our businesses is finding great partners that can run with those different pieces and make it happen.

J Darrin Gross 6:21

So let’s talk a little bit about the the leads, generating leads, and then rather than just walking away from them, when they don’t produce how to, you know, resurrecting those leads, or keeping them live, what’s your view of a method? Or how do you? How do you look at that?

Chris Craddock 6:41

Yeah, so here’s what happens. most investors, if you’re spending any money on leads at all, most investors won’t, let’s say you have 20 people that raise their hand and say, I want to sell my property, right? Just Just logically. And I’ve had some people say, Oh, no, we dial in, we only get distressed sellers that that’s bogus. It’s just not true. Right? It is not true. You’re going to get if you get 20. People that sell say they’re going to sell their product, and everybody that said that, like I’ve gotten good friends with a lot of these folks. And then when we actually dive in, they’re like, Well, I mean, it’s, you know, then they backpedal when you actually look at the leads, because if they say we only get that many people that are going to sell their property, and let’s say they get, you know, two at forever 20 leads, maybe four of them are going to say, Hey, I’m willing to sell at 65 to 75 cents on the dollar, and of those four, then they’re gonna walk up one, right, so, so that’s kind of the what you’re seeing, but what happens for the other 16 that aren’t willing to sell it 65 to 75 cents on the dollar, right, they’re still going to sell and somebody’s going to get paid either an investor that pays too much, or a real estate agent, somebody is going to get paid, it’s just not you, right, and then the other, the other three that raise their hand, somebody is going to get paid. It’s not just about you, I call it reverse wholesaling here. Because the reality is, you’re not you don’t have to do dispo. You don’t have to do all of these other things that these wholesalers do. You don’t even have to buy the property, you just have to find a great partner. And it’s really important to find a great partner because so many people have been doing this for a long time. But they’re missing a little piece to it. Like I’ve done so much research. And I found that so many people have tried to connect with real estate agents, and list these deals. But they they’ve had such little success, because the idea seems like it works. But the handoff has been incorrect in the program that I teach in the program that that I went through more than any other program out there. If you don’t follow it to a tee, it falls apart. It doesn’t work and nobody nobody makes money.

J Darrin Gross 8:45

No, that’s that’s pretty keen insight there the handoff. It’s one thing to have somebody that can do good work. But if it’s not properly set up or the introductions done properly made, I can scale up, do you know that you’re not going to get to the finish line?

Chris Craddock 9:04

There’s two pieces to that I’d love to just throw out there. One is just because somebody is a great real estate agent doesn’t mean they know how to talk to investors, right? Because investors, they called an investor back because everybody’s got a brothers uncle who’s a real estate agent, right? Somebody’s a hairdresser is a real estate agent. There’s more real estate agents than there are active listing on the market. So there are so many real estate agents out there. Why are they going to choose your person they’re not, they’re not. So if you don’t, if you don’t choose somebody that understands the psychology of an investor, they called an investor, they’re talking to an investor for one of five reasons, then you’re not going to speak their language. And if you don’t speak their language, you’re not going to be building rapport, and they’re not going to want to talk to you a person and your person is not going to close them up. And nobody’s going to make money. They’re just going to go find a real estate agent that’s, you know, a termite guy and a real estate agent.

J Darrin Gross 9:58

Right? Right. That’s, that’s awesome. So your your, you know, the the dead leads? Do you have any kind of sense of how many, you know, or how much effort people put into generating leads and how little they do with the leads? I mean, we’re talking a little bit about the, you know, the 20 calls and the four that that you know might sell and the one that you get listed. Do you have any sense of the the numbers?

Chris Craddock 10:29

Yeah, so Well, here’s the difference. here’s, here’s the problem is that it’s there’s nothing here across the board, because in real estate, investing more than anything else, because there’s a low barrier to entry, which is great, like, anybody that’s hungry can make a lot of money in real estate investing, the problem is with a low barrier to entry, is that there are a lot of people that have no idea what they’re doing. And so their numbers are much more skewed than the people that have been doing it for a while and built these, like multi million dollar systems that are out there. But what what I can say across the board is even with the people that are have these multimillion dollar systems in place, because I’m friends with a lot of them, most of the big, big people in the country, like I’ve got a relationship with, so I’ve seen their inner workings. And the reality is, when you have a ton of people come in, you’re gonna say, are these people likely to fit in our buy box? And if so, then people follow up like crazy, right? And in the fortunes in the follow up, we know that. But the reality is, there’s so many leads that are not in there by box. And so they go into another bucket where they still get followed up with, they still get email drips, they still get in touch with, but they’re not getting that same amount of persistence. So all of those, I mean, frankly, almost every single one of those leads are going to end up selling their house with somebody, it’s probably going to be some some random real estate agent. And the reality is, like that is is money that’s going to somebody else, it’s not going to you. So I’ll give you an analogy. So the lumber there is this thing happening in the lumber industry, right? These million companies were just just barely breaking even on milling lumber, right. And I feel like that, I’ll tell you, I’m friends with a lot of people that are just in that place where they’re just barely breaking even. I mean, you see all the bells and whistles in the smoking mirror. But But the reality is most people are just eking by investing until they blow it out of the water. And so here’s the thing, all of a sudden, this guy like that was these people that were milling, would they realize that the byproduct is stuff they were throwing away, the sawdust could be repurposed. And so they started repurposing it, they started selling it for fuel, they started compressing it and creating particle board for cabinets, they started just finding all these other uses for it, selling the sawdust, and all of a sudden going from just barely eking by to becoming massively profitable, making almost as much money on this stuff they were throwing away as the stuff that they were actually doing as their main source of business. And when you realize that that’s what people are doing with their dead leads right now. They’re just throwing it away, like the sadhas. But it is actually massively profitable. What can happen if you can make an extra $10,000 a month, have I got one group that makes an extra an average of over $60,000? every single month, what would happen? If you add an average of extra $60,000 every month coming in to pay for all of your overhead everything that you’re doing? So that everything you make is profit? How does that change your life? And how does that change the business?

J Darrin Gross 13:42

Yeah, well Sign me up. I mean, that’s the I mean, that’s literally the challenge is trying to, you know, produce more and, and cover more expenses and, and more profit, right. So let’s talk a little bit about this. So that the, you know, we’ve talked about the, you know, you have the the leads and you know, the the notion that each one of these prospects they’re going to sell. So, how are you you know, positioning yourself Is it like, you know, we talked a little bit about the different types of businesses is it relationships to where your, your knowing where to to send somebody if you specialize in something or is it I mean, how because I kind of, I’m gonna get the concept of the, the the leads and stuff, but how are you converting those or staying in front of those people to where it’s something that that you can profit from?

Chris Craddock 14:38

So you connect with with a real estate agent, not just a real estate agent, specifically, you know, minded real estate agent that knows how to speak to investors. You made sure that real estate agent fits this four categories. And these four categories are really important for anybody you’re in business with. Happy, hungry, humble and smart, right? If they’re not happy Just a matter of time before they get annoyed with your relationship, and they’re out somewhere else, you know, look for the patterns in their life, not potential. It’s always patterns. Happy, hungry? Literally. If somebody says no Do you, are you able to read smokescreens and figure out how to get to a yes? Or does it no just mean like, Oh, they said, No, I’m gonna go find somebody else. So happy, hungry, humble, I’ll tell you what, there’s a massive difference between confidence and humility. A lot of times people think that competent people are not humble, that’s not true. Humility is people that are willing to find people that are amazing at what they do good at what they do a system that works and say, I don’t know everything. Let me sit at your feet and learn how to do this. This is what I do every day. I mean, heck, I spend over six figures every year on personal coaching and development. Because I think it’s so important for me to grow. I know my business grows to the extent that I grow, which is, in my opinion, what humility is, is being willing to learn from others instead of thinking you know, everything. And then smart is smart as it doesn’t mean just that you got a high IQ or high on the LSAT, although that’s that that would be helpful. But it also high EQ, do you know how to deal with people? Do you? Are you smart in how you you learn? Are you a quick learner, right? We call it the stupid tax, you’ve hit a stupid tax, where you make the same mistake over and over and over again? Or are you somebody that when you make a mistake, you learn from it, and then you you adjust? Right? That’s humility, and that’s being smart. So that’s part of really understanding this so that your partner has to understand that. And then the next piece is you need to understand the psychology of the lead, right, as somebody called an investor, they called an investor for a reason they didn’t want to talk to a real estate agent for for a handful of reasons. One, they didn’t want to pay the they didn’t want to pay commission. So they called an investor to maybe they need to sell fast, maybe they’re being relocated, maybe their house, you know, maybe they’re, they’re in some sort of financial distress, they need to sell fast three, maybe they think their house is too jacked up to sell on the MLS, and they didn’t want to want to talk to anybody on that front, for maybe they’re a hoarder, and they’re embarrassed about their situation. And they don’t want people to see their house and see what’s going on in there. Or, or five, they just want the convenience. Like when I when I sold my car I I decided to trade it in rather than sell it on Craigslist, I knew I made more money if I sold it on Craigslist, but I just don’t want people coming to my house and trying to beat me up over 2500 bucks. I’m like, you know what, 2500 bucks isn’t worth my time. Let me just Just do it. Right. So convenience. And if you understand that people are wanting to sell to an investor for one of those five reasons and not a regular real estate agent, then you can speak to that, then you get your scripts right for that, then you can understand how to speak their language.

J Darrin Gross 17:48

Gotcha. So a couple things that you mentioned there. Definitely psychology, which kind of seems like that’s kind of the lead thing, understanding understanding the prospect and as potentially the buyer. You mentioned scripts there. The how much of the sales process? Do you find is a quote scripted? Or is it more of just a understanding that the important points to where you can touch those, and again, in the psychology of the of the buyer, or you know, whoever it is the investor, that you’re in there? They’re kind of a vernacular?

Chris Craddock 18:29

Yeah, so this is this is one of the reasons why I pay so much money for coaching personally, is because I pay for speed, I think in order to get get to be world class at something you should imitate, and then innovate, right? And so you think about scripting, and a lot of times people push back on scripting, but even alphabet, even the English language is a script, right? I think about my, my daughter, she just turned five, sometimes she uses the wrong words. And we all know it, but she doesn’t know it. Right. And so that’s what happens when we’re sitting across the table from from a prospective seller, we use the wrong words, they know it, but oftentimes you don’t know it, and then you don’t. And this goes back to being a quick learner, right? You You don’t even know it until you don’t get the sale. And then they’ve told you that you use the wrong words, because they’re going to sell to somebody, they’re just not going to sell with you. So if you had that appointment to do 100 times in a row until you got it right. Cuz you get it right. Yes. The problem is you did it wrong, right. And everybody wants to blame the seller, but the seller, you got to take ownership. That’s the only way to grow. And I know these are hard words, right? hard words, make soft people soft words, make hard people right. So that’s that’s that whole idea. There is like take ownership and say if I had this to do 100 times over again, would I’ve walked out with the sale? And if the answer is yes, that means that you use the wrong wording, which means you probably use the wrong scripting and so think about like the alphabet, right? Think about the English language. You know, my daughter uses the wrong words as she gets older, she learns to use the right words. And then that’s that’s how you imitate. And then she, she has her own vernacular, like the things that she says that’s a little bit different from everybody else. And that’s where she innovates. Right. So I’ll say one last thing on one scripting, my wife is a professional writer. And she says that the people that are the best that are the best in the world, they break the rules of writing, she said, the people that are the worst writers break the rules of writing. The difference is the people that are the worst writers, they don’t know the rules of writing. And so they just break the rules. And so they don’t know what they’re doing. They don’t know why it’s wrong. The people that are the best writers, they understand the rules, and they know how to break them, you know, in an innovative way. So that’s why scripting is so important is you’ve got to learn the right rules, learn what you’re saying. And then you could add your own piece to it. But if you just that’s the problem with with with creative entrepreneurs, is they try to innovate too soon, and they haven’t learned why you say what you say, and then they innovate, and then they have failed.

J Darrin Gross 21:09

That’s, that’s really, that’s key insight. That’s great. So we’ve been talking primarily about the the prospects, and as I’m understanding, you know, where we are, I mean, are they this? Are they that are, you know, where can Where can they be helped, most kind of thing? You mentioned the, the, the prospect that it says no, but like you said, they’re going to sell eventually, and somebody’s going to get paid. Do you have any kind of rules on follow up, or, I mean, because, you know, the sales cycle, I mean, I, I’ve been in sales for almost 30 years. Now. The, the, you know, sales is a numbers game, that’s always held true. I mean, you got to talk to people to get to sale, not just one person, you call, it’s going to take god I’ve been waiting for your call. So just by the law of numbers, you’ve got to get in and, and identify a name and then kind of go through a process to determine whether or not they’re, they’re a prospect or not. But a lot of times they knowing that they’re, they’re not a prospect right now, then there’s kind of the the follow up process. And I know that there’s all sorts of different schools of thought on the number of, quote, touches, and that kind of thing, and, and the value of the information that you’re, you’re putting in front of somebody, you have any kind of you know, the thoughts on that, as far as, you know, the the follow up process.

Chris Craddock 22:47

Yeah, I mean, for me, personally, I think, I think you need to follow up until they tell you to, to get lost, or, you know, or they say, when can we meet. So that’s, that’s my take that you know, the fortunes in the follow up. So you just keep keep following up, keep following up in the reality though, is for an investor, you if you can’t see that somebody is going to sell, but not going to sell in your buy box, for every one person that shocks you and sells way low, you’ve got probably about, you know, 20 or 30 times where you could have gotten paid if you would have handed that off. So it’s a law of numbers, that that’s one of the other things I’ve seen, one of the groups that we worked with, it literally decided to work harder on follow up. And instead of handing stuff off, and for a couple months, when they were trying that it ended up, they got one extra deal, but it ended up costing them almost $40,000 a month and in what they were getting in the revenue from their dead leads. So it just made so much more sense to be passing off deals.

J Darrin Gross 23:58

Gotcha. So, essentially, the The, the, you know, the the focus on this is not necessarily that, that the, the opportunities are necessarily going to be a sale for you, but it’s identifying who they need to help you know, what it is they’re looking for, so that you can then direct them. And then in basically teeing this up for whoever your your partner is that you’ve got, I’m assuming a pre established relationship with an agreement like that you can refer me and get paid on sales. Is that my understanding the the different?

Chris Craddock 24:35

Yeah, because the key is to pick the right person right now. And you got to do it in a way as compliant, you pick the right person, and it’s not just some friend, it’s not a high producing agent. It is the right person. And I’ll tell you, I mean, I’ve seen so many high producing agents that have failed miserably trying to do this on their own just trying to figure out, because they’re not there, they literally have their own way of doing it. And they don’t understand that people called an investor for a reason, they don’t want to talk to a regular agent. And if you don’t understand that psychology, you’re just, you’re just in a lot of trouble. And so that’s the whole thing. So you got to find the right person that that is willing to learn, willing to say, I’m humble enough to be really good at what I do. But I’m willing to learn the scripts and memorize the scripts and dialogues.

J Darrin Gross 25:31

And so the people that you’re, you’re connecting these sellers to, or essentially investors themselves, is that kind of what you’re, you’re trying to represent a lot of the times who you’re, you’re connecting with? Well,

Chris Craddock 25:45

yeah, I mean, that’s the, that’s the whole thing is you’re looking for either either investors that are looking to buy for that, but but the great thing about that is a lot of these people want closer to retail. So the the agent is able to put it on the MLS in in their the model that they do able to put on the MLS and get them get the sellers that want close to retail, get them retail pricing, which is what what they’re gonna end up doing working with some random real estate agent or some investor that’s going to overpay or or make a promise and then walk during the study period when they realize they’ve overpaid. So you’re able to get them in so that they’re able to, to sell at retail prices.

J Darrin Gross 26:29

Gotcha. Gotcha. So again, it kind of goes back to, you know, being educated and being able to understand what the caller on the other line, or the other end of the phone is looking for, and how best to serve them. And if it’s, they want to sell low because like I said, they’re they’ve got one of the issues you mentioned, it might be a good referral, then to a to an investor, you’ve got a relationship with the right person. And then likewise, if it’s if it’s not they want to, or you know, it’s a better fit to go on the MLS and then, you know, get that set up as well.

Chris Craddock 27:08

Yeah. So 100 and that’s, that’s the whole thing. You just think about it. I mean, these people have a problem, right? And who makes the most money in the world is people that saw the other people’s problems, right? I like to think of myself as a doctor, right? Well, I actually am a doctor, but but my kids like to tell me I’m a doctor that that can’t do anything. Okay, but I like to think of myself like, like an MD you think about what an MD does, right? I had four shoulder surgeries because I played rugby and wrestled, like when I was younger, and I just beat myself up. But I’ve had four shoulder surgeries. And so when I went into the doctor, when my left shoulder was the one I’ve had three surgeries on was all jacked up last year, he started doing all these like tests until he did something called the crank test where he like, cranked it around. And literally, I wanted to scream like a little, like a elementary school girl. And, or an elementary school boy. And I have a couple of those. So they scream really loud, too.

Unknown Speaker 28:08

But But I want to scream like crazy. And he’s like, oh, Does that hurt? And I was like, Yes. The crazy thing is he did it again. Come on. So he found the pain point, he pressed on the pain point. And then he told me what the problem was and what the solution was. And I think that is what we should be doing as salespeople is finding out, the reason they’re selling is because there’s some sort of pain point, if we can find out what that pain point is, then we can press on that pain point. And then we can give them a solution. And if their solution is Listen, I don’t want to have surgery. Like I don’t like let’s let’s call surgery, the you know, selling at 65 cents on the dollar, where it’s like a guaranteed like, well, by now I don’t want to have surgery. What uh, you know, you’re well, then Your other option is rehab, you know, rehab is a little less, or whatever it is physical therapy, PT. So Your other option is to go in a couple times a week and get this thing done. It’s less draconian, but it’s something that that you can do that that’s what Rei revive is, is if somebody doesn’t want to do like, Hey, 65 cents on the dollar. Well, we got another option for you. But the problem that I see over and over again, is almost all investors, they have one tool in their toolbox, right? They they can buy at 65 cents on the dollar. Well, if you’ve only got a hammer, everything looks like a nail. And that then you get square pegs round holes, you’re not able to do that. That’s why when you can can say okay, you have a problem here. I don’t only have one tool, I’ve got two different I’ve got a couple different tools, I got different ways to solve this, then you can get paid every time somebody has a problem because you can say I can solve your problem this way. Or I can solve your problem this way. Well, how would you like to get your problem solved and the people that sell problems are the people that make the most money?

J Darrin Gross 29:50

No, I love it. That’s, you know, again, a reminder, like, you know, the analogy you said about the hammer and the Nail if you, you know, if you only have one solution, you know, you’re only you’re gonna have time to learn for those nails that fit. Otherwise, you can miss a lot of other opportunities where there is, again, there’s a problem. But your solution isn’t necessarily the right one, you’ve got to find other, right people that can help your your prospects and make them clients and get paid. I like

Hey, Chris, if we could like 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 three strategies we typically consider, we look to see if we can first avoid the risk, we can’t avoid it. And we look to see if we can minimize the risk. And then if we can’t avoid nor minimize, we look to 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 own situation. their clients, the market, investors, tenants, however, you would like to frame the the situation, you know, or to consider what the biggest risk is. In for clarification, I’m not necessarily looking for an insurance related answer.

So if you’re willing, I’d like to ask you, Chris Craddock, what is the biggest risk?

Chris Craddock 31:29

in doing like working in this program?

J Darrin Gross 31:32

Yeah, with however, you see with with your clients or with your, or, you know, somebody that is trying to, you know, generate more leads or, or, you know, however you’d like to, to frame the question is up for you to, to define?

Chris Craddock 31:52

Yeah, I think the biggest risk is not having a great partner, and therefore, Sending on deals that you shouldn’t have sent over, they get cannibalized where you could have gotten a deal on it. And the partner, is it somebody that’s a trustworthy person of integrity that will send that that deal back to you. If, if you’re off, you know, if you’ve sent it over to them. So that’s, that’s the deal. The second, you know, the second risk is very much like it, which is being so afraid to send over deals, because you’re afraid of being cannibalized that you make no money on that front, too. So that to me, those are the two, the two biggest risks that you’re gonna, you’re gonna see.

J Darrin Gross 32:40

Yeah. And it just occurred to me, as you were just kind of describing that the fear thing I know, I find so often that there’s this this fear of a not getting paid, you know, or handing something off kind of thing. And I think, you know, even when you talk about the right people, the integrity element is really kind of the core of that, if you understand somebody who’s got, you know, they’re they have integrity, and they know what they’re doing, or the likes of they’re going to hit a bank that seems to be that that’s really the least when I’m sitting there thinking about that is really the key to that whole thing. It’s just that, that having that, you know, that relationship, that other person now. Chris, Where can the listeners go if they’d like to learn more or connect with you?

Chris Craddock 33:29

Yeah, so two things. One, if you want to take if you want to see whether this is right for your business, Chris Craddock dot com Chris CRA ddock.com. You know, either me or somebody, my team can jump on a quick like five minute call with you and see whether whether your business is right for this because it’s not right for everybody. But I do think it’s right for people that are bringing in enough leads, you know, even a minimum amount of leads, there’s there’s a lot of money to be made on that. So that’s one, two, if I have a podcast that’s geared for the agent, real estate agent, who’s also an investor, I know the average podcast listener listens to seven podcasts. So please keep listening to this one, but I’d love to be one of your other seven. So that would be that would be great. And then there’s two other places one on Instagram at crad rock, it’s not my last name, but an old cheesy High School nickname CRA DD r o ck. At crowd rock. I had so many people be so generous with me when I was learning and when I was growing and even now to be willing to chat with me. So what I’ve decided at least until it’s it’s just beyond what I can bear, which sometimes it takes me a few days or a week to get back to people that I have said I will definitely answer everybody’s dm that sends me a DM on Instagram. So if you have any questions, I’ll definitely answer that. And then also if you’re the agent investor, we also have uncommon real estate The Facebook group where we can, you know, you can ask any questions or jump in on there. But that’s that’s mainly geared that the niche there is somebody who’s a real real estate agent and an investor.

J Darrin Gross 35:12

And again, the name of your podcast.

Chris Craddock 35:14

It’s also uncommon real estate.

J Darrin Gross 35:16

Okay, gotcha. Gotcha. That those that don’t make sure. Well, Chris, I can’t say thanks enough for taking the time to talk today. I’ve enjoyed it learned a lot. And hope we can do it again soon.

Chris Craddock 35:28

This has been awesome. Thanks for the invite.

J Darrin Gross 35:30

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, CRE PN Radio.

Announcer 35:49

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Tax Code Maximizes Commercial Real Estate Profits with Mark Myers – CRE PN #316

Mark Myers 0:00

It literally is like riding a bike and it might take as far as hours per month to essentially make sure that your paper trail is correct because you have to have the paper trail and log and record and make sure that these benefits are, you know, in your bylaws and of course you’re you’re you’re keeping track of them because essentially, if you’re ever audited, you have to so this is my this is the tax code is the application of tax code. This is my records, and they say, Okay, great. I’d say that at the most it’s probably a couple hours a month that needs to be utilized. But if you’re saving anywhere between 25 and $50,000 per year, and it’s completely liquid because you’re getting $100,000 or so to yourself without taxation, it’s well worth it.

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 the 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 Mark Meyers. Mark is a former Marine Corps Sergeant brings over 20 years of successful business operation ownership and high level consulting experience to the table for his clients and financial advisors that he works with his company peak profit solutions and its affiliate partners have helped 1000s of individuals increase profit and permanently reduce their annual tax bill to help them grow or better grow their business and accelerate their wealth. And in just a few minutes, we’re going to speak with Mark about how to reduce your active income tax bill without replacing your CPA or investment strategies. Also, we might talk a little bit about how to eliminate long term capital gains on the sale of appreciated assets.

But first, a quick reminder, if you like our show, CRE PN Radio, there’s a couple things you can do to help us 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. And while you’re there, please subscribe. With that I want to welcome my guest, Mark, welcome to CRE PN Radio.

Mark Myers 2:48

Hey, thank you so much, J. Darrin, I really appreciate the invite. And I’m excited about the conversation today.

J Darrin Gross 2:54

I’m looking forward to it as well. And before we get going, if you could take just a minute and share with the listeners a little bit about your background.

Mark Myers 3:02

Absolutely. I’d love to. You know, it’s an interesting background in that I didn’t start out and get my degree in finance and don’t have an MBA. I’m not an attorney. I’m not a CPA. So people ask me, how did you get into the tax efficiency space? Well, I went to a did my undergraduate Master’s work in exercise physiology and sports management. I moved to New York City in the early 2000s to start running a health club for a very high end health club company in New York. And they sent me to LA and I opened up a lots of clubs for them in New York City and LA and I realized because I was in a put in a position of owner operator, and I was when I ran those clubs for this company and open club over club because they were in a big expansion mode. I was compensated as an owner operator, I was I would drive EBITDA, it was all about EBITDA margins, it was about driving revenue managing dismisses managing the process. And I found that I was very efficient and and it well in running a business. And then I also realized this, as long as I work for someone else running their business, I’m not going to reach the goals that I want to reach. So I decided in about 2007 2008, which probably wasn’t the best timing in the world, to leave that industry and become a consultant to business owners, particularly for increasing profits, more advanced wealth preservation strategies, and then looking at taxes, you know, being more efficient with their taxation. So that’s really where I started. And of course, since that time, I’ve just been evolving my understanding of this space and I’ve been creating more relationships, I would say that the biggest thing that I can bring to the table for whether it’s an advisor of a high net worth individual or the high net worth individual themselves is like a broker. I’m like a Sherpa. Like a general contractor. For increased profits and tax efficiency and that I know, when I do an analysis, what the person could likely use that they’re not. And I have close to a dozen resources that each individual resource will is very good at that one skill set. And I helped that person go through their due diligence process, and maybe put together an architectural structure as to what they should add or what they should integrate in because they need additional tax defenses. So that’s kind of what I do. In a nutshell, I think that a lot of individuals rely way too heavily on their CPA, and even if their CPA is phenomenal, they just, it’s almost like, hey, if you only have a general medical practitioner, you have a family care practice practitioner, and you never want to see a specialist for anything, that would be a similar analogy. So we really bring in the additional resources, and we don’t replace the CPA, which is obviously really nice for some people to hear, because they’re not interested in changing their CPA and of course, the CPAs never want anybody competing for their business. So that’s really kind of how I’ve evolved in this, I work with a lot of advisors, in advising them with their clients, and I work with a lot of business owners and real estate owners directly that have just, you know, network with, on shows like this and in other places.

J Darrin Gross 6:25

So, it sounds like you, you kind of got baptized by fire a little bit from the standpoint of your experience, running fast opening up all these gems, and that was that kind of like where you I mean, you saw the the the challenges of small businesses face that really kind of opened your eyes to the issues.

Mark Myers 6:46

I did, you know, and I really felt like it was more of a language of love. For me, you know, I really, even though I had a basis in more of the sciences, you know, Exercise Science in sport management, where you, you know, learn in grad school to really run a program, whether it’s an athletic director, or you’re running, you know, a company, but it really was a language of love and understanding, p&l, understanding how to optimize profit. And of course, it’s not what you earn, it’s what you keep. So what I found is, Hey, if you’re EBITDA, your net profits are this number, and you’re consistently sending off 3537, if you’re in California, 45 50% of that net profit to a business partner that you didn’t ask for, and they don’t help you in your business. You know, there’s, it’s another business in itself, to understand the business of tax reduction. You know, so it’s a lot of business owners, I found that you don’t spend enough time keeping what they’ve worked so hard for. So that’s really where I found a niche.

J Darrin Gross 7:57

Yeah. Now, that’s it’s a huge issue. And, you know, just the, I find a lot of times the small business owners, they’re good at perhaps sales, you know, whatever it is, they do, but the back end, a little bit of leakage out there that, you know, they’re just not not aware of it and don’t know how to reduce it. So let’s talk a little bit about that. What are some of the biggest issues that you see that that small business owners face? Where Where can they focus to reduce some of their, their tax burden?

Mark Myers 8:34

Great question. I’ll start with the low hanging fruit. Darren, I believe that a lot of business owners are not optimizing the tax code to the to the fullest. And when I say low hanging fruit, there’s about 20 different tax code applications that have been in the 70,000 pages of tax code for decades. Yet, they’re not highly known. And of course, you have to be structured the right way to utilize them. So we usually start there. So any business owner that can control the way they pay themselves, ie they’re a sole proprietor, they’re a 1099. They are an S corp owner, an LLC and LLP or even a C Corp owner. We look at how are you moving the profit in your business to yourself, right, and most business owners are have passed or entities if they have entities at all, but if they have passed or entities after all, their business expenses are done, and they take in whatever deductions they can, and maybe they’ve got some qualified plans that they’re pushing money over to which I call that procrastination on the taxes. It’s a, you know, everything waterfalls down and hits their 1040. And they’re taxed at the federal level. And if they’re in a state that has state taxes or tax at the state level, so we’re always looking at, well, how can we create some more efficient pathways for you so the first path we look at as well, if you had a secondary company, and the secondary company was more of a marketing and management company, and they provided services for your main entity, so let’s just say you have an LLC and that that LLC does a property management or it does some type of, you know, obviously some business activity to earn profit, well, it could pay a marketing and management company, for services rendered in that space. So what we do is we just create this marketing and management company for the family, of the owners of the main entity and the entire purposes, to be invoiced over only the amount that can be extracted in a different category, other than profit, or salary, or dividend, or income. Because if it’s not categorized that way, and you can extract it from that company using tax code, and using tax law to your advantage is not taxable. So essentially, we look at Hey, there might be in these 20 different fringe benefits that are in the code, maybe there are 75,000, for this one individual that they could utilize. So we would only this, this marketing and management company would only invoice the main entity, $75,000 per year for marketing and management services, because we wouldn’t want to market it $1 more because we want that company to be net profit, net zero, and profit. Because that $75,000 is going to come out in the form of benefits that are not taxable. And a lot of those dollars don’t cost the business owner additional expenses. So it’s not like we’re saying, hey, save, spend $1, to save 35 cents or 40 cents, we’re saying no, we can create a deduction for you that has no expense, because of tax law. And we can also show you how to move that money out of the corporation to yourself as a benefit. So with that being said, if we can squeeze the all of and I see anywhere between 70 to $125,000 consists consistently with these codes, I always say hey, Well, the first thing we do is want to make sure that we can get 70 to $125,000 to you each and every year without paying taxes. So they kind of grasp that and they’re working off of their top bracket. So if they’re at the top brackets of the federal and state will work off the top. So if you can take $100,000 of dollars into your personal bank account and not have it be taxable. And you’re at the 37% federal bracket, that’s $37,000 of complete liquidity that didn’t have to go to the IRS that doesn’t have to be saved and paid the taxes later, it’s literally money that’s in your account that you can repurpose, however you’d like.

J Darrin Gross 12:42

No, no, he is that similar to me in the concept, I think a lot of times with clients of mine that that own the building in a separate entity, and then they charge rent to the operating company, the tenant. And you know, regardless of what the expenses of the landlord are, there’s an opportunity for them to extract some profits from the landlord company. You know, is it is that kind of the similar kind of a line of what you’re thinking there, we’re going to be talking about setting up a separate entity to to pay for services.

Mark Myers 13:20

There are similarities, obviously, what you’re speaking of Jay Darren is a little bit different in you know, a lot of times if you’re structuring that you need to have some type of agreement, some type of royalty structure or some type of, you know, to because the classification of the income needs to be act and there’s a lot of different ways to drive a rental, you know, a self rental or some type of rental agreement with your company versus the the building you own. But I guess going where the the question that you ask, it’s kind of similar in that, you know, we’re really looking at unique code options. Like for example, there is a code that basically says, if you are a director or an executive of the company, or some type of employee that’s eligible within the company, which is how we structure these companies. And this could be for the spouse and potentially even children in the family that are participating in the business. Well, if you work overtime, you can pay yourself an overtime stipend, just like a meal reimbursement stipend. So now the dollars that are received through the company as a meal reimbursement stipend, are not taxable to the recipient because of the way it’s categorized. It’s a benefit. So therefore, it’s not a taxable dollar amount, the expense for the company. There’s no receipt that is required because essentially looking at what did you have a meal during your overtime work and most every business owner executive works overtime. So if there’s in the tax code, there’s nothing that says you have to show receipt for this meal, then you can create a log, you can work overtime, which everyone does, you can have a meal, and you there’s a certain amount of dollars that you can associate with that overtime and push it through to the employee. So you create an expense deduction that has no expense for the company. And you’ve created a benefit for the person that works in the company that has no taxable expense. So those are the types of things we look for, there’s a lot of different things like that, that you just add up, you know, we don’t want you to do 20 different things and have to run them run circles to get a little bit of savings, but we look for the five or six biggest things that would you know, really create impact.

J Darrin Gross 15:43

I would think the overtime and and, you know, expenses with meals, etc. You like you said, I think every, every owner of a business works more than, you know, 40 hour a week and got eat. So that’s, that’s good. That’s good. So, you mentioned there’s, there’s 20, kind of a list of 22 that you’ve identified? Can you kind of frame some of that or share more with what you know, with the listeners as to kind of where you you focus? I mean, it sounds like you when you look at your your p&l, and you try and identify some major reoccurring expenses, and see if you can read recategorize is that kind of the starting point?

Mark Myers 16:30

Yeah, absolutely, absolutely. And I would say that the true deep analysis work in this space is done with one of the partner groups that I work with. So I just do a light front end kind of q&a to see if there’s an opportunity. And of course, I turn it over the p&l and the we just look at their tax returns and their p&l to see how their business is structured, what their expenses look like. And of course, how the money is moving from their business to the personals, we can understand their current, you know what they’re doing to currently mitigate taxes, and then we look for things they’re not doing. So obviously, this is that would be one or the other. There’s other things, you know, there’s, you know, some in some instances, we have clients that have out of pocket medical expenses that exceed their HSA, if they even have an HSA at all, it’s some of them are consistently high. And within the like, one of the solutions within a properly structured entity is that there is an unlimited deductions for out of pocket medical expenses. So if they have $20,000 of medical expenses, one year, that are out of pocket because of some issue issue that they’re having, or that hopefully doesn’t come back, you know, all the dollars stack that run through this can be structured as deductible. There’s though this it’s those things, we’re looking for all of these things that potentially they’re not deducting, that they could, or creating an expense that are deduction that literally has no expense like this meal reimbursement, you’d have to show a log that you worked overtime, you have to know how much you can, what’s the dollar amount of the stipend per overtime reimbursement, that’s allowable, right, because we have the saying, in especially in tax law, you know, pigs get fat and hogs get slaughtered. So the attorneys that I work with that, understand this have been employing this for years and years and years. They know the case precedent, they know the Treasury rulings, they know how many times you can do it, how much you can do it for and if you go over those lines, even though it says it in the tax code, you can do this, then you’re going to, you know, you’re going to run into some problems if there’s an audit, so they’re always keeping you in out of the gray and in in the black and white.

J Darrin Gross 18:43

And so, I’m curious, the the clients you work with? Do you find that any of their CPAs are kind of really looking for these types of opportunities, or more of them kind of tax? You know, accounting kind of thing or providing p&l, etc? Are they are they up to speed on this? Or is this more kind of like? Well, you can do that, but, you know, kind of a lack of knowledge or just kind of a really interested in doing?

Mark Myers 19:18

No, you know what I think that’s it’s very astute question in that, you know, out of every 10 CPAs that I speak to. And this is no knock on CPAs because they have their powerful skill set and they have to understand how to track record file and prepare taxes etc. And most of them have so much on their plate with managing their clients and all of that work, that they are not capable of being proactive in the tax mitigation side for their clients. So I’d say seven out of 10 CPAs are so ensconced in their day to day work, that they just don’t have the bandwidth to say, hey, let me look forward and see if there’s other areas that are more niche that we can integrate. And even if they did, sometimes it’s out of their scope, you know, because some of these things, you really need to have some legal training and licensing to do. So I’d say seven out of 10, it’s brand new to them, we bring it to them, and they’re like, Okay, this is great. If they’re not ultra conservative, they’re say, fantastic. If my business if my client wants to do it great. It only helps my client. And of course, if you’re helping me integrate this, and no, show me how to track file and record, that’s even better. But there’s three out of 10 CPAs, that may have heard of this already. And they don’t know exactly how to do it. Like I’ve heard of that before. But you know, how do you get through the control and consolidation rules, right? Because if you have another company, you know, isn’t it? It and there are rules against control and consult. I mean, there’s all these different questions they have. So there are, a lot of times, they’re the ones that are much more proactive and saying this is fantastic, because I’ve always wanted to understand how to integrate these things, but do it in a compliant way. And of course, they want to have the guidance, and they also want to have the leverage that we provide. So I think that’s the bit the win is when we do partner with the right CPAs. They realize that we’re a friend, a friendly partner, we’re not looking to extract their clients and do their accounting work and do their bookkeeping work and do their tax preparation and filing work, we’re looking to essentially just add an additional layer of defense. So but I’d say most of the people that were I speak to, I’m introduced to the business owner first and the CPA second. Because they’re always going to look to their CPA and say, Hey, what do you think about this, even if it’s, even if they might not know a lot about it, they’re always going to do that. So that’s really kind of the process.

J Darrin Gross 21:57

Yeah, I would think that if you have a CPA that gets it, that could be a real referral source for you for, you know, other clients in similar situations. 100% Yeah. So let me ask you, obviously, the there’s some setups, some cost, and some, you know, you know, if you’re doing these things, there’s cost to set up a new entity, maintenance, accounting, additional, you know, tax work from your accountant kind of thing. So, my guess my question is, what’s kind of a revenue size, where you see this starts to make sense for somebody?

Mark Myers 22:38

Well as for as the codes go, they can be applied at pretty much any revenue level. Now, I will have a caveat to this. And that, you know, the group that I work with there, actually, there’s one specific group that I work with that really does this well. And there’s a lot of groups out there that kind of understand how to integrate these solutions. But I look at it as if you have an all of which, which, you know, who knows how to squeeze the all of the most who could get the most oil out of that all of and, you know, I’ve vetted these, these groups, and a company that I work with really is good at this. And with that being said, they have a consulting fee, it’s a it’s a one time fee, that they charge to fully, you know, they do the annual analysis process at no cost, they do the recommendations at no cost. And then of course, once the client engages, they’ll roll out the red carpet, they’ll speak to the CPA, they’ll speak to their bookkeepers, they’ll help make sure everything is implemented correctly, and they’ll stand beside, you know, what they’ve helped implement. But they’re their consulting fees are generally started around 10 or $15,000. And that’s a one time fee. And of course, once it’s structured and set up, you know, your two and three and four and five, you don’t have that expensive anymore. So there’s it’s you think about real estate, you know, you’ve got your down payment, and then you’ve got your cash flow. So, with that being said, I’d say that once a business owner starts having a taxable income that’s consistently 200,000 or more. Well, now you’re looking at even if you’re in Florida or Nevada, you’re still looking at, you know, $40,000 in federal tax liability. And if you’re in a state that has state income tax, you’re adding to it so once you hit that $200,000 in taxable income, or you’re paying $40,000 or more in tax to the federal or state, well, the numbers start making sense because if we can usually find them 75 to $125,000 worth of you know dollars that can be not hit their 1040 and we subtract 250 in taxable income, and now they only have 150 in taxable income. What’s generally going to save them over 20,000 sums in Florida in California. Sometimes it saves them $50,000 or more because they’re in that high bracket. So it’s worth it for them to pay a consulting fee of 10 or $15,000. One time to put this in place. And even in the first year, they’re saving say 20 $5,000 in tax, so there’s a delta and then every year after that they’ve got the full amount to save. So,

J Darrin Gross 25:07

No, that makes complete sense as to to get some sort of a, you know, initial cost, right? I mean, I’ve heard sometimes, you know, different different strategies people have introduced or whatever. And in, you know, when you, if you run the the system out, and you find out all the maintenance involved in it kind of thing, it’s like what we have in here, guys you’re in? Or is this really more efficient, or just like, you know, it’s kind of the theory versus reality kind of thing. But this clearly, I mean, what you’re describing there, I mean, if a guy can save 40,000, and, you know, you got to upfront costs 15, or $20,000, or whatever, I mean, that pays for itself here, one and ongoing. That’s, that’s great.

Mark Myers 25:49

And it’s like riding a bike. Darren, it’s literally once you get the structure in place, and you got bookkeepers, doing what they need to do, or your CPA understanding how to, you know, track record and file if they’re doing that. It literally is like riding a bike. And it might take as far as hours per month to essentially make sure that your paper trail is correct, because you have to have the paper trail and log and record and make sure that these benefits are, you know, in your bylaws. And of course you’re you’re you’re keeping track of them. Because essentially, if you’re ever audited, you have to so this is my this is the tax code is the application of tax code. This is my records. And they say, Okay, great. I’d say that at the most is probably a couple hours a month that needs to be utilized. But if you’re saving anywhere between 25 and $50,000 per year, and it’s completely liquid, because you’re getting $100,000 or so to yourself without taxation. It’s well worth it.

J Darrin Gross 26:46

Yeah, yeah, that makes complete sense. So we’ve talked a little bit about how to reduce some of the the income tax issues. One of the other things that I wanted to ask you a little bit about is how your capital gains tax on on sale of assets is that under the same kind of a look, I mean, your starting point where you’re where you’re looking, or it’s just like, in addition to kind of looking how to reduce the income tax.

Mark Myers 27:20

There’s definitely different strategies for the capital gains tax, Darren, and and there’s, it’s really fun when you start getting into this arena, because I think most most real estate investors truly understand a 1031 exchange. And they’ve probably used it. It’s sometimes it’s a successful use. And sometimes it’s not. I mean, obviously, there’s some benefits. And there’s some drawbacks to the 1031. And, and I know that you know them, and your audience knows them quite well. So what we’re looking at is, let’s look at a couple of different main ways to reduce tax on the sale of an appreciated asset, the first thing you want to make sure you do, and this is what most owners of assets don’t do, because they don’t know until it’s too late or they never know. They don’t realize that the minute that they take constructive receipt of the proceeds, the IRS has their handout says well, you just sold that property and there was a gain on that property. And based on that gain, you owe us this long term cap gains rate at the federal and the state. And of course, the bigger the sale, the more the profit, the bigger the amount they have to pay. So if they knew that if they structured the sale appropriately prior to signing the contract and telling the seller where to send the money, then they could literally either defer the taxes or eliminate the taxes depending on the structure they choose. So that’s really the first step is saying, hey, if you have the wherewithal and understanding prior to the sale to say, hey, how can I structure the sale to make sure I can control the money, I can tell the buyer where to send the money, it doesn’t come to my bank account, but it goes into a an account that or an environment that I control, well, then the IRS can’t stick their hand out and say give me 23.8% or plus state if you’re in California give me 3533 34 35% they can’t do that because it never came to you. And now of course, you have the value of having all of that money or a big, considerable amount in this environment that can immediately be reinvested and for for real estate investors, it’s really exciting to know that, you know, they can reinvest in real estate and they don’t have to do take 45 days to find a light property. They can sit on it for a year or two until the markets right and find the right property or they can diversify. They want to take some of that money and put it into gold and silver or some type of stocks that they like or maybe private equity. I mean, it really is up to them. So that’s, I think,

J Darrin Gross 29:58

Are you utilizing a Deferred Sales Trust is that

Mark Myers 30:01

That’s one solution. I think that that one is a really highly recognized solution. It’s pretty costly. There’s there’s expenses involved, you got to do the math on that to make sure that you the numbers work out. But that’s a good one. I think that there’s another other solutions that are trust oriented, that either whether it’s a charitable remainder, right, so now you have to, you get a significant tax benefits there and you get, you know, significant reinvestment of the proceeds. So that’s more of a, creating more of an annuity, I think the charitable remainder is for when people are tired of real estate, they don’t want to reinvest in real estate, they just want income from their real estate for the rest of their lives. And they want to be able to mitigate that tax bill. So but there’s also trusts that are more generational in nature. And those trusts can essentially eliminate the tax not defer it. And those are really more unique. And I don’t recommend those unless the sale of the asset is, you know, the profit on the sale is at least 3 million. When you’re starting to get into those numbers, you want to look at the generational trusts, because they’re a little bit more complex. And a lot of times that are on the lower values. The least, you don’t want to go too complex with it. But the one thing and i’ll i’ll tee this up as potentially another con, if we want to talk about this, we have time but the solar business, renewable energy has become quite effective in mitigation of long term capital gains tax, even active income tax, and this can actually apply to people with high better high earning w two, because the federal government, as you know, made it quite nice offer to say if you invest in solar, or you place solar on your roof, we have a 30% tax credit. And of course, if you are you understand how to structure a business, you can get accelerated depreciation. So the way that we look at this is one of the groups that I work with is they help people launch solar businesses. And those solar businesses are active participation, businesses and real estate investors understand that right? Especially if they’re real estate professionals, they spend X amount of hours per year as a real estate professional, and they get benefits from that. So similar rules apply, but it crosses over. So you can actually put so own solar panels on the roofs of commercial buildings, and you can receive the tax credit for that. And you can also, you know, set up your business where you have accelerated appreciation so that the net result is do you want to send money to the IRS to pay your capital gains tax or your active income tax bill? Or do you want to start a solar company, we can essentially wash out the dollars and make them dollar for dollar equivalent. So instead of spending 300,000, to the IRS, you can put $300,000 into your solar business. Now you have to actively participate 100 hours or more per year, we can easily turnkey that for you. But what if that same, you know, whatever the number I said 200 or $300,000? Doesn’t matter can be a million? What if that same those same dollars, offset your taxes 100%. And now you’re going to get cash flow from that solar project for the next 25 to 30 years, and it’s highly secure cash flow. So now you’re essentially I always say, let the IRS give you a pension.

J Darrin Gross 33:19

Yeah, it’s the cost segregation. And you know, the magic of depreciation is pretty powerful. You know, when you, when you lay it out in your in, you have the opportunity to use depreciation as an expense against income, it’s, it’s really an eye opening experience, to see how those numbers work. That’s, that’s absolutely good. Hey, Mark, if we could like to shift gears here for a second by day, I’m an insurance broker. And I try and work with my clients to assess risk and determine what to do with risk. And there’s three strategies we typically look at, you know, try to apply. And the first one we look at is a can we avoid the risk? When that’s not an option, then we look to see if there’s a way to minimize the risk. And when we can’t avoid or minimize risks, and we look to 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 own situation. their clients, investors, tenants, the market, you know, however you want to frame the the question and the answer. But if they can identify what they considered it to be the biggest risk. And for clarification, I’m not necessarily looking for an insurance related answer, because risk is everywhere. But if you’re willing, I’d like to ask you, Mark Myers, what is the biggest risk?

Mark Myers 34:52

Thank you for that question. And it’s a good one. And I’m glad that you opened up the box to not make it have to be an insurance Specific because that’s a, as you know, very well. Risk is is huge and mitigation and transfer of risk is really important. But I would say in my context, in the in the way that I help business owners or the way that I help individuals that are, you know, transferring assets or selling appreciated assets, it’s the risk that you take for not slowing down. And looking at how to keep more of your profit is huge. Because if you think about every single year, you’re earning income as a business owner, if you’re overpaying your taxes, if you’re really if you’re paying retail, on your taxes, and you have no legal obligation to pay retail tax, you can pay wholesale tax, you know, Judge Learned Hand said it best he said, You know, there are two tax systems in America, one for the informed, one for the uninformed, both are legal. So I think the biggest risk is to not take the time to get help and understand the and the informed area of tax law, because every single day, every single week, every single year that you’re earning income, you could be paying 2030 40% more than you should to the IRS when you don’t have to. So I think that’s the biggest risk is overlooking profit that you you’re, you know, you don’t even realize is there money that you really should be keeping that you don’t realize it’s there, because you’re not taking the time to spin and focus on that risk. Right. So that’s really I think the most important risk that people that business owner should look at is where can they mitigate taxes? And where can they keep more of their profit in their in their pocket?

J Darrin Gross 36:49

No, that’s the definitely some words of wisdom there. If you don’t know, you don’t know. And, you know, just kind of pay and not take time to get to know your you’re gonna keep paying market, I meant to ask you before to also, are there any territory limitations on on where you can work with business owners?

Mark Myers 37:12

Absolutely not. We work with business owners in all 50 states, I just had a client in Tennessee and a client in Minnesota and a client in California. So this just wherever there is a tax hurdle that needs to be overcome, we can look at, you know, how to jump that hurdle and keep more of the money in your pocket. So

J Darrin Gross 37:34

Great. Mark, Where can the listeners go? If they’d like to learn more connect with you?

Mark Myers 37:39

Thank you so much. Yes, if they just go to my website, it’s https://peakprofitsolutions.com/. So peak profit solutions dot com and learn a little bit more about me, they can actually click on some things and take a look at some case studies. And of course, I have a brief q&a. They want to schedule some time with me, there’s no cost and I can generally identify within 15 to 20 minute conversation, if there are significant opportunities for them to save and then we can go from there.

J Darrin Gross 38:09

Awesome. Hey, Mark, I want to say thanks for taking the time to talk today. I’ve enjoyed our talk, learned a lot. And hope we can do it again soon.

Mark Myers 38:19

Thank you so much. Thanks for having me. It was a it was a pleasure.

J Darrin Gross 38:22

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. Thanks for listening to Commercial Real Estate Pro Networks, CRE PN Radio.

Announcer 38:42

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

Free Easy Property Management Platform with Dave Spooner – CRE PN #315

Dave Spooner 0:00

It’s a big hassle to call them up and say, Hey, you got to get this to me, etc, etc? Or do I just kind of wipe my hands of it and say, Okay, I got the rent five days late, it’s not the end of the world, I’ll move on. Most people choose the latter. And when they do, the tenants learned a few things. One, they don’t have to pay late fees, right, they’re going to skip them every time from now on to the landlord is going to call and remind them to make a payment and three, the landlord’s threats are empty, right. And those are all bad lessons to teach a tenant. With automated software you’re not involved at all right? The late fee just shows up is now on the rent, the tenant cannot pay the next month’s rent until they’ve paid the late fee and the principal rent do so even if they skip it this month, next month, they’re gonna have to pay it and they understand that Oh, these these threats have teeth now, right? If I get a late fee, I gotta pay a late fee. And that’s a huge game changer for landlords, suddenly, you’re collecting more late fees than he did before and then quickly thereafter, rent is coming in on time more effectively than it ever did before. So it’s, that’s a huge feature that it seems small seems subtle, but it’s a big game changer for landlords that are first experiencing it.

Announcer 1:06

J Darrin Gross 1:25

Welcome to Commercial Real Estate Pro Networks, CRE 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 Spooner. Dave Spooner is the co founder of Innago, a property management software designed to simplify life for small to mid sized landlords. He’s been involved in the real estate technology space since 2013. Working to enhance the way landlords and tenants communicate. And in just a minute, we’re going to speak with Dave about property management software and how it can make your life better.

But first, a quick reminder. 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, we encourage you to leave a comment, we love to hear from our listeners. Also, if you want 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, Dave, welcome to CRE PN Radio.

Dave Spooner 2:52

Yeah, I’m excited to be here. Thanks for having me.

J Darrin Gross 2:55

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.

Dave Spooner 3:04

Yeah, no problem at all. So as you mentioned in the intro, I’ve been involved in real estate technology since 2013. My first foray was helping a company build a listing platform specifically designed for student housing. And through that venture, I got a lot of exposure to small to midsize independent landlords that’s predominantly who makes up student housing, who owns portfolios and student housing. And we just kept hearing over and over again, how much these landlords felt that they needed tools that were better suited to them to their portfolios. The existing tools were too expensive or too cumbersome, too difficult to use. And we kept hearing it and finally me and another another guy that was working at that company said, Hey, we keep hearing this, let’s, let’s go, let’s go give them what they want. And we formed Innago in 2017. And we’ve been working hard on it ever since trying to deliver just that tools that are easy to use for landlords free to use for landlords and just make management of their portfolio easier than it has been in the past.

J Darrin Gross 4:06

No, I’m guessing when you when you hear the the, you know, the problem over and over again. If you can make a solution that fits that problem. That’s that’s a an audience that’s, that’s happy to hear from you.

Dave Spooner 4:22

That’s right. Yeah, even an idiot like me can can can can get the message if if you hear it hundreds and hundreds of times.

J Darrin Gross 4:29

Right, right. Well, so let’s talk a little bit about it. And I apologize. I think I might have missed spoken when I said it before, but he called it Innago is how you pronounce that correct?

Dave Spooner 4:41

Innago, yeah, that’s right. No problem. It happens all the time. Okay.

J Darrin Gross 4:46

So let’s talk about some of the the elements of the platform. I know I looked on it a little bit before getting on this call with you and Can you describe some of the capabilities and in the nuance or the, you know, what, what can help a landlord do?

Dave Spooner 5:08

Yeah, absolutely. To kind of orient the audience, it’s rental management software, right. So the tools that you’d expect to find in those rental management software exists in an algo. That’s things like managing your collection, accepting rents online, signing documents online, you can do that through our platform, storing information, like lease details, automating reminders, handling, maintenance, tickets, screen tenants, all that stuff is included in the inaugural platform, kind of differentiating factors for us or one that we’re free to use. That’s a big difference maker. To that we were really designed to work with landlords of various sizes of various portfolio types. It’s not just student housing, it’s commercial real estate, it’s multifamily. It’s it’s general residential, we even work with, there’s a lot of folks that use us for they manage salons, there’s a lot of people that own salons, and then they rent out chairs within their salons to hairdressers, and they use an algo. To manage those, we have tons of those folks. So if we wanted to build a platform that was more flexible, that was easier to use. It had more features that landlords really, really needed. So the traditional features you’d expect, but kind of packaged in a way that’s easier to use and flexible enough to work however your your business operates.

J Darrin Gross 6:21

Got it. Now I know one of the things I saw when I was looking on the website is it does have the capability to integrate with QuickBooks or Quicken or Yeah. So can you talk a little bit? I mean, obviously, there’s there’s multiple facets to it. And I know in the intro, I talked about communicating between landlords and tenants, and you’ve, you’ve mentioned a few of the things that are natural in the communication with landlords and tenants. leases, I mean, that sounds like that’s, that’s a What do you have a digital signature platform or the ability to do the digital signature on that?

Dave Spooner 6:59

Yeah, exactly. If but most folks are familiar with like DocuSign, for example, or Adobe has an echosign platform that allows you to sign very, very similar those two, you can do digital signatures through our platform, create multiple templates, not just a lease, but anything like a pet addendum or a renewal agreement or anything like that. You can generate templates, reuse templates, and signed documents through Innago

J Darrin Gross 7:23

Got it. And then repair requests. I mean, assume that’s the pretty standard that does a tenant have a a login, they create a login for themselves, and the landlord has log into where everybody is going into the from outside of the inside.

Dave Spooner 7:38

Yes, exactly. So tenants have their own separate login. And you know, one of the things that we realized when we were looking at the market is a lot of the platforms that existed before would put all their emphasis and focus on the landlord side of things. But you know, landlords often forget, and certainly the companies that develop those software platforms often forget that ultimately, the customer is the tenant, right? They’re the one paying the rent, they’re the one paying the bills, and you want to give them a really good clean experience. And you want to make it as easy as possible for them to pay that rent, right, don’t put any walls in front of them. So yeah, tenants have their own login, we’ve put a ton of effort into making it as streamlined as possible for those folks. They have an app they can download. And yeah, they can, you know, from the app or from their phone or wherever they’re logged in, take a picture of a broken dishwasher, take a video of the sound that it’s making, and submit that as a maintenance request to the landlord. The landlord can obviously react to that if the landlord has maintenance personnel that work for them, property managers that work for them, they can add those people as sub users in an algo and either have those requests routed directly to them, or they can kind of intercept it first that out the request and then distributed out to those maintenance personnel to handle those issues. So lots of tooling built around work orders and maintenance requests. I know that’s a big that’s always a hot topic with landlords how to how to deal with that kind of thing.

J Darrin Gross 8:56

Yeah, no, so let’s talk about the the money transfer here. So you have a lease rents due on the first Do you have the ability to to integrate the the tenant pain it or is it more matter of can tell me about the the payment, how we can do or collect or if you do, yeah, or collect or transfer money.

Dave Spooner 9:25

We do online payments are offered through an algo for rent for security deposits for pet fees, or anything else that you’re charging your tenant for. that’s related to the rent. They again, they log into their account, they can add a payment method like their bank account, they can add a credit or debit card and submit a payment directly through an algo and then we send the funds right into your bank account as a landlord and the landlords can have one bank account for all their properties. They can have specific bank accounts for specific properties and units. They can have a bank account to collect security deposits and then a different one for rent. They can do anything they need to to manage where Those funds are going and we deliver the funds generally after a single business day hold. So if somebody pays on a Monday, we hold it Tuesday, it’s in your account first thing Wednesday, so the money moves quickly, lots of payment methods available to tenants and lots of control over where that money goes to the landlord.

J Darrin Gross 10:18

So in and notices, rents due on the first isn’t here on whatever the late day is fifth, or the 10th, or whatever. Do you have the automated messaging built into this? Or is that something that the landlord Can, can augment to their own lease or other work?

Dave Spooner 10:40

We do? Yeah, it’s all built in and not not to go on too much of a tangent here. But you know, we internally talk about a Nago as tenant management software. That’s not a term that people really use in the industry. So we don’t advertise ourselves that way. But internally, we consider ourselves tenant management software, rather than property management software. And what we mean by that is, when you’re managing properties, you can control and you’re investing in properties, you can control a lot of factors, you can control, you know, you can draw up pro formas, you can do financial forecasting for years into the future, when you purchase something you typically know the the useful life of that appliance, or whatever it may be, you can forecast all these things and control all these things for inanimate objects. But the biggest X factor for landlords, for property managers for real estate investors is the tenants, right, that’s the variable they can’t control. So we’re software that’s designed to put some controls in place, right to allow landlords to automate those pieces of the puzzle for themselves. And a huge, huge, huge part of that is effective communication. We can’t emphasize enough how important that is. And it’s been a big piece of that is, of course, those automatic reminders, like you mentioned. So tenants are gonna get a reminder five days before rent is due the day it’s due. And then the day before late fees kick in. And you can of course, automate all sorts of different late fees in a Nago, you can control any of those timeframes. So if you want to let somebody know, 30 days before, because you collect semester rent at a at a, you know, off campus housing, if you want to let them know, one day before, for whatever reason, you can control those notifications. But yeah, we’re gonna automatically indicate to your tenant when rent is due when late fees are stacking up, and we’ll automate all those processes for you.

J Darrin Gross 12:21

Awesome. Let me ask you, I know, you know, a fair amount of tenants these days tend to be unbanked. they they they tend to pay with cashier’s check or money orders. Is that, does that work with us? Or our?

Dave Spooner 12:44

Yeah, it’s a great question. So you can record offline payments in a novel very easily. So for bookkeeping purposes to maintain a p&l to maintain an effective rent roll, you can track all that in and Nago, right, you can record a money order or check payment. We don’t currently have any tooling that’s built in to allow you to accept those payments electronically. There are some services out there that can do that. Pfizer, for example, has a service we’ve looked into it, I think it’s something we would definitely integrate at some point. Certainly a feature down the road that we’re very intrigued by, we just haven’t seen enough demand for it yet. But if people are paying by money order, you can still of course record those payments in and Argo to keep your your books up to date. Gotcha.

J Darrin Gross 13:29

And then what about the the platform as far as messaging the tenant, or even the the vendor that you need to help you with work? Is it strictly an email message? Or is there any option to send a text?

Dave Spooner 13:43

Yeah, currently, it’s all email based. So you there’s a whole messaging portal within a Nago, you can create email templates, though, that you can reuse. So if you have like common messages that you send to folks, and you can autofill certain pieces of it we call personalization tokens. So like, you want to send an email to all 100 of your tenants, you can still personalize them with a first name, your lease starts on putting their lease date, whatever it is, we are we do have some really exciting stuff coming in this direction, we are working on a built in chat feature, that’s going to be really cool. It’ll help even further streamline the communication between landlord and tenant and, you know, allow landlords to keep their personal contact info out of the hands of their tenants, which I know is important to a lot of folks that we’re working on those tools, they’re gonna be really cool. We’re super excited about them. We’re hoping that they’ll roll out before the end of the year. We don’t have any set timeline on it just yet, though.

J Darrin Gross 14:35

So as the product currently sets, what’s been the the most appealing feature that you’ve you’ve heard from the users?

Dave Spooner 14:46

I’d say there’s a there’s a few that come to mind. You know, the obvious one is rent collection that that’s that’s one that brings a lot of people through the door. But after using a Nago, I commonly hear how excited people are about The late fee features built into the tool. First of all hourly fees are very flexible. So I’ve never encountered a landlord who couldn’t manage their late fees, however convoluted they are within our system. They’re very flexible tools. But the thing that people love so much about it, especially if you’re coming from not managing people online and not offering them this type of tooling in the past, if this is your first time with that experience, it’s going to totally change the way that you interact with your tenants regarding rent. For example, for many landlords in the past, when rent was late, let’s say rents five days late now, the tenant has a $50 fee, right? So late rent five days late landlord calls up the tenant and they say, Hey, you know, you’re five days late, you need to send me a check for 500 bucks for rent plus $50 for the late fee, 550 total. And if I don’t get it, in the next two days, I’m going to drop an eviction notice or notice to quit or whatever their their local laws say they have to do next, then it freaks out, right? They say, Well, I got to get this money in right away, they quickly put a check together, drop it off, send it in the mail, whatever they need to do to get it to their landlord ASAP. Landlord says, awesome, I got the check, they open it up, it’s 500 bucks, right? They didn’t pay the late fee, tenant never pays the late fee. And the landlord then has a decision Do I go after them for this 50 bucks that ultimately is fairly meaningless to me. And it’s a big hassle to call them up and say, Hey, you got to get this to me, etc, etc? Or do I just kind of wipe my hands of it and say, Okay, I got the rent five days late, it’s not the end of the world, I’ll move on. Most people choose the latter. And when they do, the tenants learned a few things. One, they don’t have to pay late fees, right, they’re gonna skip them every time from now on to the landlord is going to call and remind them to make a payment, and three, the landlord’s threats are empty, right. And those are all bad lessons to teach a tenant with automated software you’re not involved at all right, the late fee just shows up, it’s now on the rent, the tenant cannot pay the next month’s rent until they’ve paid the late fee and the principle rent do so even if they skip it this month, next month, they’re going to have to pay it and they understand that Oh, these these threats have teeth now, right? If I get a late fee, I gotta pay a late fee. And that’s a huge game changer for landlords, suddenly, you’re collecting more late fees than he did before. And then quickly thereafter, rent is coming in on time more effectively than it ever did before. So it’s that’s a huge feature that it seems small, seems subtle, but it’s a big game changer for landlords that are first experiencing it.

J Darrin Gross 17:20

Now, I would concur that just even training your tenant, you know, right away that no, no there there’s, you know, their mindset changes to where it’s not like, Oh, I can pay the landlord last. Right?

Dave Spooner 17:32

I got to pay the landlord first. Exactly. It’s a mindset change. And so that’s a good way to say,

J Darrin Gross 17:37

Oh, that’s great. I know that a lot of the software or platforms, there’s a lot of iterations over time. Is there anything you’re working on that you’re you’re planning to introduce here in the near future that that you’re excited about?

Dave Spooner 17:53

Yes, very excited we are. We just launched the first version of our landlord mobile apps, we’ve had a tenant mobile app in place for quite a while, we we took a bit longer to develop the the landlord side is we really wanted to make it a tailored experience for mobile, not just kind of a smaller version of our website, but a wholly wholly different platform, you know, built for for a mobile device. So that is about to come out widely. Right now, it’s only in the hands of kind of select users existing on an algo. But in the next few weeks, we’ll have that launched live, I’d say certainly within the next four weeks, everybody can access it. And then I also mentioned the communication tools, the chat features that we’re building out to make communication even simpler for landlords. So those are two big ones on the horizon that I’m really excited about. We make regular updates, though. I mean, we release new patches and builds and features every week at an algo. So there’s small things that are coming in all the time, little quality of life improvements to make the system better, and sometimes even even full on features that come out. But those are the two big ones that I’m most expect excited about upcoming

J Darrin Gross 18:56

data. We’ve been talking about the owner operator as a primary user, do you also provide this for property managers?

Dave Spooner 19:09

Yeah, we work with tons of property managers. And like I mentioned, we have for the the ability to have multiple users access the platform, right, you can have your maintenance personnel, you can also have your property manager access it or conversely, a property manager that manages for, you know, 10 1520 100 different owners can add those owners to a Nago with their own set of access, where they can see just their properties or just the financials on their properties and kind of keep a thumb on the heartbeat of what’s going on with their with their property. So it’s an easy way to integrate those owners and to give them a positive experience as well. So yeah, lots of property. property managers use a Nago as well.

J Darrin Gross 19:49

And then we talked a little bit about QuickBooks or Quicken. Is there an accounting feature built into an algo?

Dave Spooner 19:58

Yeah, in one quick point, I’m glad we can Back to one quick but a quick point of clarification we integrate with QuickBooks Online. We do not integrate with Quicken and we don’t integrate with with QuickBooks desktop. So it is the online version that will integrate with Innago directly. It’s a great feature set. Anything that happens in Innago related to your finances will automatically show up in your QuickBooks account. So it makes it really easy from a management standpoint, you just manage collection, and even expenses if you’d like in Innago. And it’s automatically up to date on on QuickBooks, we do have accounting tools built into Innago. They’re not as substantive as QuickBooks though that is very much by design. Again, we talked about ourselves as tenant management software, right? We’re not your financial tool. I own eight units myself, and I use an algo. for them. Of course, I don’t use QuickBooks at all, I don’t use any sort of accounting software. At the end of the year, I take I export all my income data from an algo, I export all my expense data from Innago. I then export my p&l report which we generate for you in Innago, which is honestly redundant, because I just got the income and the expenses, but it combines them both in one place, I send those three reports to my CPA, he does our taxes, it takes me less than three minutes to get all those reports. He’s got everything that he needs, it looks great for him, it’s in a nice format. He generates our taxes, and we’re done. That’s it. So we do have some accounting tools. If you if you are a more substantial operation, it’s great to do the QuickBooks Online integration. It just depends on on kind of what you’re looking for and what what your your business looks like.

J Darrin Gross 21:31

Gotcha. And what about, I know vacation rentals, the Airbnb type stuff? Is there any issue with working with that that type of platform? Does that work as well?

Dave Spooner 21:44

No, there’s not an issue at all. And we work with lots of them. We’re not designed for it specifically, you know, we’re not like constantly thinking, how can we make Airbnb rentals easier. But again, it’s kind of a testament it goes back to you know, we were with barber shops, and they rent out chairs, you can, if you’re renting something, you can use an auto right? It’s it’s easy to manage it in that way, the tools are built flexibly enough to handle just about any scenario. So yeah, we work with tons of short term rentals, you just may find that you need to dig a little deeper into things to make them work for your your situation, but I can almost guarantee they will ultimately work for your situation.

J Darrin Gross 22:22

Is there a minimum number of units, this works best for

Dave Spooner 22:27

No, our range is pretty large, we work with a ton of one unit landlords and we our largest landlords have as many as 2000 units. So it’s a huge range that are using our platforms, the same platform for everybody. Our bread and butter is one to 100 units. That’s who we target with our marketing. that’s who we’re generally genuinely generally thinking about. But again, we’re really intending to build a platform that can grow alongside a portfolio. So even if you have many more than 100 it’s still is something worth taking a look at

J Darrin Gross 22:57

Got it. And the ideal opportunity set is new. Anyone from like one to 100 Yeah, I want to come back to the the price. You say it’s free. And I know my dad told me a long time ago that nothing’s free. How is it that how is it that this is is free? Or what is it that that you’re? You know, how are you being compensated?

Dave Spooner 23:23

Right, right, right. Yeah, there’s there’s no free lunch, right? We, we are not a charity. We are not a nonprofit, we do make money. We just don’t charge landlords for anything. And we truly don’t there’s no cash, there’s not going to be a surprise charge. You don’t hit a unit threshold and suddenly you get hit with fees. There’s no setup fees, nothing like that. We instead charged for three things in Innago. I think landlords will find all three are very reasonable all three are charged to tenants by default.

So when a tenant pays online, if they pay rent, they pay a deposit or pet fee or whatever it is. If they pay with a bank account, we charge them $2 for that transaction, just two bucks. If they pay with a credit or debit card, we charge them 2.75%. So a little higher, but as long as they have a credit card, they should have access to a bank account. Landlords can choose to take on either of those fees, there’s plenty of landlords say, Hey, I’ll cover the AC h v two bucks is nothing to me. Give that as a free option. But let the tenants pay the credit card transaction fee if they want to. Some real crazy landlords take on the credit card fee to it’s totally up to them. That’s one way we make money. The second way we make money is on screening reports. So you can screen tenants through an algo you can accept applications through an algo and when an application comes in, you decide as the landlord whether or not you want that application to include a credit criminal and eviction history and if you say yes, the applicant pays for those reports 30 to $35. Depending on the level of screening, landlords do have the option to add additional charges on top. If they do like betting or anything like that for their time we’ll send that excess money to the landlord. For 50 bucks you get $15 if you’re doing the full screen pack The third and final thing we make money on is renters insurance, landlords are able to require renters insurance from their tenants require proof of it, I highly recommend this to folks, it’s a nice while you’re in the insurance game, I’m sure you know all about it. It’s just another barrier for these landlords from potential liability. But in any case, they can require it. And if they do, the tenants can purchase a policy through us or just upload a copy of a policy they’ve purchased elsewhere. So you know, they can buy ours or their market rate is pretty standard price. And you’ll see we make a commission on that, or, again, they can just upload a policy found elsewhere. So the three things to recap our online payments, tenant screening, and renter’s insurance, all charged to tenants by default, but the landlord can choose to take on some of those transaction fees if they’d like to.

J Darrin Gross 25:48

Well, I would think the screening is a, you know, standard, with or without any kind of deal. In the banking fees seem to be pretty standard anymore. I mean, it’s one of the convenience fees that people are pretty agreeable to right on all sides. And renter’s insurance, I can tell you as a landlord, and as an insurance agent, I’ve got clients that had resisted, and I’m speaking as an insurance broker, they resisted requiring insurance of their tenants. And over time, they finally something changed, where they, they all of a sudden did require it. And I remember one of my clients coming to me and saying, Hey, you know, I haven’t had to call you for a long time. You know, and it was about these claims that they’ve been having, that were tenant, the tenant was responsible for, but they were able to turn them into the tenants insurance. And, you know, the tenants insurance took care of it. And I’ll remind, anybody the number one fire source in, in, you know, homes and apartments is cooking.

So until, you know, people don’t cook, you’re always going to be exposed, and usually, so the water from the fire department that creates the real big mess. But, you know, it’s, it’s a great, great tool. And also, I think that having it in your system there kind of raises your penetration as far as the, you know, people have in it, I mean, if you require in your lease, and then you also make it easy for them to get exactly. And the last thing I’ll say is that I think that you naturally by selection or or self selection, you you raise the caliber of your tenant, you know, as opposed to having somebody that’s, that’s not doing that. So that’s, that’s, that’s my take on those things. But that’s, that’s, that’s great. I mean, I think that’s those those seem to be pretty, pretty standard and and i would think that they make a hole for a better tenant, and then landlord tenant experience.

Dave Spooner 28:01

Yeah, I, I require renter’s insurance of all my tenants, we make them we make a provide it. I just think it’s such an important barrier these days. And it’s it, like you said, I think folks would be surprised how much damage it can cover if there is damage caused by the tenant. And it also covers in situations liability. Like if a dog you know, somebody, tenant attendants, dog bites somebody else. If they don’t have insurance, you can get called in Well, if they have that, that’s just another barrier from your insurance getting called in to cover that kind of stuff. So it’s it’s a it’s a great tool. It’s inexpensive for tenants, it’s really not that pricey, and it’s just another barrier protecting, you

J Darrin Gross 28:36

No, that’s great. Hey, Dave, if we could, I’d like to shift gears here for a second. And sexy name shifting gears kind of moving forward with the risk and the insurance question here. Yeah. So by day, I’m an insurance broker, and typically work with clients to assess risk, and determine what to do with risk. And there’s three strategies we typically consider. The first is can we avoid the risk? The second is, can we minimize the risk. And if we can’t do option one or two, we look to 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 own situation. It could be their clients, investors, tenants market, however you you would like to frame the question and identify what you consider to be the biggest risk. And for clarification, I’m not necessarily looking for an insurance related answer. But if you’re willing, I’d like to ask you, Dave Spooner, what is the BIGGEST RISK?

Dave Spooner 29:43

It’s a great question. It’s something we think and talk about a lot, you know, especially as a small company. We were founded four and a half years ago now a little over four and a half years ago now. And we’re at an inflection point, kind of an extended inflection point where we’ve grown really Really quickly and we’re continuing to grow. And it’s really accelerating more and more people are finding us, more and more landlords are giving us great reviews online, we’re the word is out that Innago is a premier product for small to midsize landlords. And we’re growing faster than we’ve ever gone before by exponential figures, right, which is great. It’s very exciting. But the risk that comes with that is in growing the team, right and building our team internally, in finding great employees, it’s easier to have quality control on your team when it’s just you and five other people 10 other people 15 other people, but as it grows beyond that, it becomes harder and harder. And that’s where we are right now where we’re growing pretty rapidly. And we’re expanding our team and trying to find good talent and making sure that that talent is acclimated effectively, so that they’re happy so that they enjoy working here, so that they feel fulfilled, but they’re also providing great value to the to the rest of the team and to our clients. That’s our that’s our biggest risk right now. It’s just continuing to find good team now team members. And to relate that back to real estate. I think that’s ultimately a place that landlords and real estate investors get to right, if you’re purchasing your first property, your first couple properties, it’s easy to control a lot of that stuff, it’s easy to do quality control, but as you grow bigger, you have to have a great team, right? You got to have a good broker, you got to have a good a good insurance guy, of course, right? You got to have a good lawyer on your team, maybe a tax guy, a CPA, maybe you hire internally, right? You hire your own property manager, it’s the same risk that other folks have. We’re experiencing it on a bigger scale right now. And that’s, that’s our biggest risk, something we think about a lot, something we talk about a lot. So we’re gonna make sure to mitigate as much as possible.

J Darrin Gross 31:37

No, that’s, that’s pretty insightful. And I think you know, anybody who’s having growing pains, you know, that’s always a challenge. Like you said, it’s easy to manage five, but, you know, when you get beyond, you know, 50 or 100 It’s a whole different equation. So that’s good. Hey, Dave, where can listeners go if they’d like to learn more or connect with you?

Dave Spooner 32:02

Yeah, you can check us out at innago.com it’s i n n ago. That’s N as in Nancy Comm. You can also find us on all the major social media platforms, we’re typically under a Innago software. But if you just search like Innago, Twitter and Innago Facebook is better. I also like to we’re very transparent. You can call us up here at Innago you can email us I like to give up my email, please. If anyone has questions, they can email me at Dave d A v at innago dot com. I am happy to to answer them or get you in touch with the smarter folks at the company that can answer them better than I can. But yeah, you can find us on online anywhere and and reach out to me directly if you’d like to.

J Darrin Gross 32:41

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

Dave Spooner 32:50

Yeah, it’s just great. Thanks so much for having me.

J Darrin Gross 32:53

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 Network’s. CRE PN Radio.

Announcer 33:12

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Smaller Markets Low Risk Retail Success with Yoel Mayerfeld – CRE PN #314

Yoel Mayerfeld 0:00

You’re buying in the metro market, you’re often buying a higher rent. When you’re buying in one of our markets, we’re buying a much lower rent because the real estate, it costs less, therefore we can have these retailers operate at much lower operating expense. What we’re giving up for that, I think, is rent growth in our markets that aren’t going to grow as quickly as some of those Metro growth areas. We’re not going to get the big huge rent increases that historically some of them at Metro markets have had experienced. But we’re very happy to give up that growth for the higher going in yield and the stability of that yield. And as our track record is shown, you know, we’ve been able to maintain very, very stable, current cash flow for ourselves and our investors for for many years.

Announcer 0:50

J Darrin Gross 1:10

Today, my guest is Yoel Mayerfeld. Yoel is the CO CEO with Chase Properties, where he oversees the company’s asset management and financing. Mr. Mayerfeld joined Chase Properties as the Director of Finance in 2005. And in just a minute, we’re going to speak with Yoel about a winning investment in retail. While others have been quick to move away from the asset class Chase has been thriving in retail.

But first a quick reminder, 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, we encourage our listeners to leave a comment we’d love to hear from you. Also, if you’d like to see I answer my 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, Yoel, Welcome to CRE PN Radio.

Yoel Mayerfeld 2:35

Thanks. Thanks for having me.

J Darrin Gross 2:38

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

Yoel Mayerfeld 2:46

Sure. So my background was in finance is where I started out after college, I was a derivatives trader, for many years, really focusing on risk. And towards the end of that first career, I was running an exotics derivatives book for a bank and was searching for my next career to be something much more tangible than exotic derivatives that I had to rely on sort of Monte Carlo models to solve difficult hedging strategy ideas.

So real estate was was really what, what was attractive to me, because I could I could understand how to evaluate the risk reward for real estate. So about 18 years ago, I left New York with my wife and we moved to Cleveland, and joined chase properties which historically had been a family capitalized, retail real estate developer and acquirer and had been there ever since.

J Darrin Gross 4:24

Got it? Got it. I gotta ask you real quick I derivatives. I know the word but I don’t know that I know what what that entails. I mean, when you’re when you’re trading for a fund, can you give a just a quick description as to what that what that entails?

Yoel Mayerfeld 4:39

Sure. So it’s really any any financial instrument that is you know, a derivative of something else. So in my case, it was equity derivatives. So it was derivatives of stocks. So an option like a call option or a put option or a swap are primary examples of derivatives. And then certainly their derivatives on commodities and fixed income. But what I spent time on was the equity markets. And for the first part of my career, mostly it was more vanilla structured calls, puts, swaps. And then the latter part, it became exotics, which are just much more complicated contracts between buyer and seller, that allow for different scenarios and different protection of risk or ways to speculate on volatility as an example,

J Darrin Gross 5:46

Got it. No, I’ve always kind of been fascinated how, you know, the the big money wins in a market that’s going up or down. And I’m assuming that, you know, a lot of a lot of the ability to win like that is to deal to do with kind of what you were you’re doing there is the ability to kind of structure those opportunities.

Yoel Mayerfeld 6:08

Absolutely. And I worked for banks during my career. So our other side of the trade was often hedge funds who are doing exactly what you’re talking about, where if they were volatility, our arbitrage hedge funds, they were buying that contract from me to do exactly what you’re saying, find ways to make money, regardless of the markets going up or down.

J Darrin Gross 6:39

Got it? Got it. I appreciate you sharing that. So you’ve been at Chase now since 2005. And you mentioned that the Chase was basically a a family run developer, I want to understand you

Yoel Mayerfeld 6:56

Correctly started nearly 40, just under 50 years ago, developing retail shopping centers, for Kmart really came up with the anchor way back when we started. And ultimately for other anchors, and then probably about 20 years ago, we really transitioned, when we saw that country didn’t really need any more retail, that there were enough opportunities in the existing retail to acquire good cash flowing shopping centers, we we probably then still developed in a smaller way, but move more into an acquisition mode of finding value or where maybe others didn’t see value based on our experience in smaller markets, which is where we’ve always thrived even from our development days. So our focus has always been in secondary and tertiary markets like to state the strong small markets so we we stay away from the real teeny tiny markets that maybe have less economic diversity. Two examples of towns you probably heard of are like South Bend Indiana is is a market we love or you know, I’m based here in Cleveland, Western Ohio if you’ve heard of that market for many of the markets, you probably haven’t heard of it you know, smaller markets in Kentucky that are super strong, super stable, great trade areas, we’re we’re able to find a retail hub and and the best center in that retail hub, in an in an isolated market where, you know, many counties come to our town, our retail center for their for their shopping.

J Darrin Gross 8:57

I like it easier to be a big fish in a small pond and then a little fish in a big pond kind of thing. So the the I guess the the question, I’d have territorial or the territory you guys operate in, is it primarily Midwestern or do you guys how far out do you get?

Yoel Mayerfeld 9:20

Yeah, it has been primarily Midwest, or as far west as Kansas. We’ve really been situated in. We look for centers in the Midwest, the southeast, and the Northeast, but it’s primarily been the Midwest and a little bit more of the southeast as of late. We love We love the Carolinas that’s been probably over the last 10 years we’ve entered into the Carolinas. But the Midwest has really been our bread and butter for most of our existence.

J Darrin Gross 9:54

Got it. So can you characterize the The difference, and I say the difference, because, you know, as of late, especially with COVID, and the Amazon effect on retail, there’s been a change that’s occurred in, in retail as far as more of your your Metro, primary secondary markets, and that, as opposed to what you’re experiencing in your tertiary and, and, and strong small markets. So I want to make sure I understand the question, right. Are you saying how are we experiencing the Amazon effect differently than maybe other retail readers? is it affecting you similarly to, you know, and I say this having interviewed other people about retail, and how it’s, it’s struggled in a lot of major metro areas. Recently, and I’d say the, the, the first you know, cause of that was probably primarily the the Amazon effect, but then that was accelerated, based on what COVID? You know, as is shown us, yeah, with the restriction of people moving about and their unwillingness to go out, or their inability to go out and shop. And so I’m just kind of curious from, from your standpoint, investing in the markets you’re in. Have you seen any effect caused by Amazon and or has COVID affected any of your, your tenants? maybe it’d be the first place to start is, you know, I guess the type of tenants you you have, are they primarily anchor tenants?

Yoel Mayerfeld 11:48

Yeah, so we typically buy centers that have that are anchored or shadow anchored, as we call it, which means it looks like it’s part of the shopping center, but we don’t own the real estate for a target or super Walmart. And then our tendency is typically the TJ Maxx is Ross dress for less Dick’s Sporting Goods hobby lobby’s, that’s, that’s the part of the real estate that will own so Junior anchors, but anchored by a bigger box, typically. So that’s how our shopping centers typically are laid out and look, in terms of Amazon, and COVID. Similar answers to both I would say, but more importantly, it would be Amazon, because that’s going to continue well beyond COVID. And yeah, we absolutely have fared differently from our, our friends in the metro market business. I would say it’s more lucky than smart. You know, when we started focusing on these smaller markets, it wasn’t because of an expectation of an Amazon. You know, funnily enough, I started my career at Bankers Trust when Jeff Bezos was there at Bankers Trust. And he went on to start Amazon and I went eventually to invest in in the opposite of Amazon in bricks and mortar. So you know, no, nothing, no expectation in what was coming with e commerce when we when we started focusing on on these smaller markets. But luckily, because we’re in these isolated markets, what are retail relationships our friends in the retail business tell us is that we are needed so much more. Our physical locations are needed so much more than in the metro markets, were there several of their stores. So let’s say Best Buy as an example. You know, often, our best buy in our shopping center is the only Best Buy for at least 50 miles. What they tell us is that their online customers will not be comfortable buying online, if they don’t have a store that they in their mind, know that they can return to or go and check it out or ask questions to. So they may be an online customer, but they’re much less likely to be an online customer if there isn’t a store for 50 miles. So what that allows is for the retailers to really consider our location as a meaningful hub for them to enhance their online presence. And then more recently, as these retailers have figured out that their stores need to be almost mini distribution centers. You know, it’s it’s been very targets been very public that I think 95% of their online orders are coming or being shipped from their store directly. And that’s happening on a major scale like a target and Walmart, but also on a minor scale where the buy online, pick up in store are so meaningful for these retailers, that having us in these locations that are far from the next location, make us much more important to those retailers. And we’ve seen that in that even if our sales performance, which is the number one factor in, in us, buying and keeping owning certain shopping centers, isn’t as high as maybe a certain Metro market, we know that its relevance is much higher. So that’s been a big help for us. And why I think we haven’t seen stores close in our portfolio. Now the Amazon effect on the negative side, which just affects us the same way, as

Metro markets is any of the retailers that hadn’t figured out their strategy to compete with Amazon, which the winning strategy has been their omni channel marketing their their ability to integrate bricks and mortar with online, the ones that didn’t, weren’t able to figure that out. And Amazon and really COVID also expedited their demise. And their bankruptcies certainly have affected us anytime we have a vacancy. That’s, that’s typically a challenge for us, we have to go and fill it. But our strategy in really owning the best center and a given strong market allows us to mitigate for that and refill that space pretty quickly. I mean, right now we’re at our highest occupancy we’ve been in years, when we, when we did lose tenants to bankruptcies, we’ve been able to fill their spaces very quickly. And that’s that’s been, I think, partly due to our strategy of having this monopolistic position in a given market or trade area.

J Darrin Gross 17:10

No, it sounds definitely, you know, you’re certainly in demand. If you’re able to fill the big box, I know, like, I grew up in the Midwest and in kind of suburbia of Kansas City. And one of the things that I and now I live in Portland, Oregon, but one of the things that I’ve I’ve always been, you know, he says comparison is how like, and then the Midwest. The the availability of space was, like, unlimited. And so that a lot of times he had this kind of a leapfrog effect where, you know, you’d have a new suburb, but then there’d be the one that grew beyond that one. And there’s almost like a proportional value placed on your your property based on how new it was, you know, even though you’re moving further and further and further from the corner, I think some of that’s kind of is right, or it’s, it’s recalibrating, and there’s kind of a recognition of wanting to be closer to the core, in some cases, but But what was was kind of eye opening for me was to see these great big, huge malls, just going dark, you know, and I was like, Well, how many malls? Can you support? I mean, if you keep building a new one further out, people are going to be drawn, you know, attracted to that, and you had these these big mega malls, but what in the market to your, you know, based in it sounds like, you know, if you’re the Center for 50 miles? I mean, what kind of a population Do you guys look for? when you’re when you’re making an investment? Is there a, is there a, you know, target population size for a surrounding area that you guys are minimum population size? For?

Yoel Mayerfeld 18:56

Absolutely, we won’t look at anything less than 50,000 people in the trade area, but typically, we’re closer to 100,000, at least. And that’s typically our sweet spot. Got it.

J Darrin Gross 19:09

On the in those markets, do you find that the cap rates and the return I mean, cash flow return? More or higher cabinet? I would assume a cap rate than what you would find in a in a metro.

Yoel Mayerfeld 19:27

Yeah, that’s always been part of our attraction and draw is we’ve you know, typically been at probably about a 200 basis point, spread and cap rate compared to our Metro market. Competition, so where Metro markets might have been at six caps we were at eight caps and that 20 basis point spread probably remains the same today. We’re buying in the eight, eight cap approx range for what we’ve always felt were more stable flows of income, then then those Metro markets, which due to their competition, just have a lot more potential risk. you’re, when you’re buying in Metro market, you’re often buying a higher rent, when you’re buying in one of our markets, we’re buying a much lower rent because the real estate, it costs less. So therefore, we can have these retailers operate at much lower operating expense. So what we’re giving up for that, I think, is rent growth in our markets that aren’t going to grow as quickly as some of those Metro growth areas, we’re not going to get the big huge rent increases that historically, some of them in Metro markets have had experienced, but we’re very happy to give up that growth for the higher going in yield and the stability of that yield. And as our track record is shown, you know, we’ve been able to maintain very, very stable current cash flow for ourselves and our investors for for many years.

J Darrin Gross 21:20

Katherine, I want to circle back quick, you’d mentioned something about the omni channel distribution plan for the successful retailers. And in the beginning, you’d mentioned that the the chase properties had built and done a lot with Kmart. Having been a former Kmart employee while I was in in high school, and also I worked at Sears I think, when I was in high school and college the it always I mean it just it really it’s amazing to me that the the company that had the Christmas wish book that had you know, basically you know, they were the retailer basically was not able to you know, figure out this omni channel thing and get get basically left in the dust and I believe I mean I thought I saw something where Sears has gone bankrupt. And I thought Sears had acquired Kmart at one point I it’s my history my retail history is very fuzzy but i think that’s that’s what it was. Yeah. So I was gonna ask you Do you still have any case Kmart even a brand is is it still any of your tenants are evolving,

Yoel Mayerfeld 22:38

don’t we so you know what one one thing I think we do a good job of is trying to get ahead of of when we see a trend going the wrong way. We’re typically long term holders of real estate but when we’re seeing either demographic changes in one of our markets or retailer issues in a given center that where we don’t feel it would be a creative to replace that retailer if they go out of business we look to sell so we sold out of our Kmart you know many years ago and see or anything that we had with with those as anchors, which we tried to get out of so fortunately, we didn’t sit and wait for their demise. Now in some cases, I have friends that that stuck with Kmart that they really wanted back from the retailer because they were usually in paying such low rents that if you were in a if you if you could wait it out if you could wait till they would not want to pay rent anymore and you could because the stores were all performing terribly. You could you know, do something with the space that would be considerably accretive compared to the Kmart right you were getting that those became wins for many people but we were able to sell before for Kmart was as bad as it was.

J Darrin Gross 24:16

You mentioned you guys are gonna love long term holds. Is is the Do you guys run a fund or do you is it primarily a private family fund or how the hell

Yoel Mayerfeld 24:31

Yeah, we we did we started bringing outside capital in through a fund that structure probably 11, 12 years ago. So we we currently are in our fourth Fund, which we’ve been typically the biggest investor in the fund. But we have several friends and family and friends of friends that have invested with us and been a part In this the same strategy and, and that’s how we buy our retail today.

J Darrin Gross 25:07

Got it? And hold time, what is a typical hold time for you mentioned you you get out of something, if you realize it’s going, you know, you the future doesn’t look bright. Is your whole time forever? If If not, or?

Yoel Mayerfeld 25:22

Yeah, that’s a great question. Because sometimes people ask me, what’s the difference in how you invest when you were investing for the single family, versus when you started taking outside investors. And that’s, that’s the biggest difference. It’s not that we invest differently, but we have to structure something differently, because most investors want to know that there is a defined exit a time where they’re going to get their initial capital back. Because, you know, they may be thinking, like, they might be dead, and they want to know, when their children will see their money back, things like that. So for our funds, we set up seven year holds with three, one year extension period, so it’s a seven to 10 year hold, which would have been different than our typical, by great real estate forever, only sell when we see trends moving against us, or for some reason, we feel we’re not the right operator of that center, maybe it’s too far from us, and are too far from the rest of our centers for us to lease it and manage it as well as, as someone else might be able to. But otherwise, we’re really long term forever holders. But what we do have is the ability then to, if we feel the real estate is great to buy that real estate, along with all of our investors, at the end of that phone life, so that we could theoretically continue to hold that asset forever. But it allows for investors, if they want that liquidity in the seven to 10 year period, to to be able to get have an exit.

J Darrin Gross 27:11

That’s always been kind of, right, I should say always, it was kind of an aha moment for me to understand that. You know, and I’m a very small time investor, small residential stuff, but I’ve always done it. And my just my wife and I have been the Capitol, and pretty much forever holding and just kind of understanding how the investors I mean, if you’re going to bring in other capital, you’ve got to have an exit strategy because they like the like I said, they want their money back. So just a different structure and and just understanding that. So I was looking here are you finding in the markets that you are operating in? Are there lots of opportunities? Or is this kind of a you know, a lot of Commercial Real Estate’s kind of a fairly close to the vest if you’re, if you’re a known entity, there’s you’re getting the calls of there’s properties available? Are you guys out, you know, scouring the market looking for new markets and new opportunities?

Yoel Mayerfeld 28:19

Yeah, we’re always scouring the markets. But you know, fortunately, one of the one of the benefits of being around for almost 50 years and really being focused on this space is we are known as one of the largest private buyers of small smaller market retail. So we typically get that first call and certainly when something when when an asset is being marketed, or even when they’re not when when a read when a public real estate firm is looking to sell real estate in the secondary or tertiary market we’re often getting that call, but we also have our eye on assets that we would love to own for the long term and we’re letting those owners know that we’re interested should they decide to sell so we’re constantly scouring the market we look at 1000s of deals a year broadly and then you know that gets filtered to hundreds that we spend time on and then we probably go and look at 20 assets a year or so and typically transact on two to five assets a year.

J Darrin Gross 29:37

And in the market you play in Are you typically like if there’s a if you ever look at any dark properties or not but is it typically it’s it’s repurposed for retail or have you gotten in anything where you’ve seen different opportunities IE self storage or something like that I’ve heard you know others converting some of the the dark retail into You know, maybe a self storage kind of thing.

Yoel Mayerfeld 30:02

Yeah, you know, repurpose is sort of a hot topic in, in retail, particularly with malls, and we could talk about malls separately. But for our open air shopping centers, when we see, they can see that’s been vacant for a while, it’s typically vacant for a reason. Now that was different 10 years ago, 20 years ago, where there were opportunities to do something on a value add basis, because of our retail relationships and our expertise in these markets. Today, it’s it’s rare, we’ll do it we’ll look at certainly when there’s one box or two boxes, that that we can we can do something with. But when we see one of these ghost town, retail centers, it’s typically not something we’re going to want to pursue in terms of repurposing to self storage, or use like that, or even, you know, on the more expensive side, multifamily or, or industrial, you need to be able to own that asset at such a low basis, to make it make sense whether because the Self Storage rents are going to be so low, or on the multifamily side, the amount of capital or industrial, the amount of capital you’re going to need to put in is, is so extreme that it’s it’s it, it’s a lot harder than I think people think, you know, to to make that work. So so you know, if you can basically get it for free, or almost free. I think there’s a lot of interesting opportunities to debt. And people do, you know, sometimes you can buy, you know, the debt for pennies on the dollar, and you can make something like that work. But outside of that, it’s pretty difficult to make the math work.

J Darrin Gross 32:08

Right. Right. You mentioned some other assets. Do I understand correctly that you guys are also in some multifamily and industrial properties?

Yoel Mayerfeld 32:18

Yeah, we’ve been probably over the past five years, diversifying into multifamily and industrial. You know, we are still extremely bullish on retail and the retail that we like, but we’re extremely disciplined on what retail will buy. So to broaden our ability to find investments for ourselves and our investors, we’ve brought in expertise from for multifamily and industrial to help us source, similar risk reward type properties, stronger smaller markets. we’ve, we’ve bought in outside of St. Louis, we’re getting ready to do a smaller market in Florida shortly. That’s on the multifamily side industrial we’ve bought in Ohio, a few assets we’ve bought in markets outside of Orlando. So we’re building that up for those asset classes, we have not started a fund business, we are not at the point where we want to do a blind fund for our investors, where we’re buying those on a deal by deal basis. We, you know, we invest in that we go to our investors, and show them the asset and see if they’d like to participate with us. And so far, that’s been a really great expansion for us.

J Darrin Gross 33:51

In for those assets, are you entering the same kind of mindset is a forever hold? Or is that a Kennedy have an exit strategy on those?

Yoel Mayerfeld 33:59

Yeah, they really are. Forever holds, ideally. I mean, we were faced with that question on this St. Louis asset recently, where we were able to expand the project and raise rents higher than we had expected. And the there was, you know, and with cap rates in continuing to compress. It was we were faced with one of these, you know, this has been a home run, let’s take money off the table. which typically isn’t really you know, we’re not seeing that drastic of a return change within a couple years. And, you know, we knew for ourselves and our investors. Having that great asset and being able to continue cash flow on that great asset was our number one priority. So we chose to refinance, we’re still able to take out a lot of our winnings, let’s say, from the refinance, but we’re gonna be able to continue to own an asset that we love, and we think will continue to perform for the long term. So, yeah, more often than not, we’re going to we’re going to continue even on those other asset classes to own for the long term and continue good stable cash flow returns for us and our investors.

J Darrin Gross 35:27

Tad it when you speak in industrial, is there a type of industrial that you guys are into? or?

Yoel Mayerfeld 35:37

Yeah, I mean, it’s, it comes back to the fundamentals of what we like in, in retail, which is solid credit tenants are the users or a geography that’s going to demand those solid credit tenants. So you know, the, the assets we’ve bought, have ranged from a vacant truck terminal, that we were able to put a very strong credit public company tenant in for a 10 year lease, to a cold storage facility that we were able to put a very strong credit tenant food distributor in, and we’re even expanding that. That building now because the demand is so strong for high credit tenants in those areas. So I would say, choosing assets, where we know we’re gonna have demand for the from the kind of tenants that we’re going to want to work with.

J Darrin Gross 36:41

Now, that makes sense, always have no credit where the tenant is preferred is to somebody is not you? Well, if we could, I’d like to shift gears for a second. As I mentioned to you, before we started recording by day, I’m an insurance broker. And I try and work with my clients to assess risk, and determine what to do with risk. And we typically do that and in one of three ways, we look to see if we can first avoid the risk. If that’s not an option, we look to see if we can minimize the risk. And when neither of those are options, we look to see if we can transfer the risk. And that’s what an insurance policy is. I like to ask my guests if they can look at their own situation. their clients, investors, the market tenants, however you want to frame it. But if you can look at your situation, and consider what what is the biggest risk? And for clarification, I’m not necessarily looking for an insurance related answer. But if you’re willing, I’d like to ask you, Yoel Mayerfeld, what is the BIGGEST RISK?

Yoel Mayerfeld 37:55

Sure. Well answer in a couple of ways. And risk, as I mentioned, from, you know, how I was trained in in my professional life is really what I’m always first focused on, you know, whenever we’re looking at an opportunity. I’m always spending a lot more time on what can go wrong than what can go right. Because capital preservation is our sort of number one goal. From a you know, I would I was looking at my calendar yesterday and saw that we had this podcast and Robbie, who set this up with you wrote in the notes that one question you like to ask is about risk. I should be I should be repair at night, and I happen to be talking to a friend of mine. It’s a CEO of a large real estate company public read, and I said, Oh, you know, I, I’m interested in what I’m going to say about what my largest, what I think the biggest risk in this industry is what do you think the biggest risk is? And he said, Well, for sure, the biggest risk is capital markets, freezing up, because whenever that happens, it really puts us in, in a bind. And to be able to, to borrow, which we saw, you know, certainly after the oh eight recession and during COVID. But for me, that isn’t at all, what I think has the biggest risk and I think part of that is our strategy, which one thing I didn’t get into is that we are low leverage borrowers, which I think differentiates us. So a even when capital markets are tight, for our lower loan to value needs. Usually there’s more room for us than for others. Our bankers always tell us they can sleep at night with us better than they can sleep at night with many of their other real estate borrowers. So I just thought that was interesting. I think that would be what a lot of Retail real estate or real estate investors in general would say it’s the biggest risk. But for us, we’re so focused on the real estate, and it performing with or without debt, we’re really not about the financial engineering part of real estate, which, at these low cap rates, I think every real estate investor has had to become somewhat more of a financial engineering, trade than a real estate is a real estate great trade, which is where we really try to stick with. So. So for us, that wouldn’t be it for us really on our answer on the retail side, which has been the bulk of our experience and our, in our investment. The biggest risk is the, you know, we can’t perform well, for attendance don’t perform well. So our biggest risk is, is is these retailers, not figuring it out. And and right now they’ve been, you know, our portfolio, the sales that tenants report to us are stronger than they’ve been even pre COVID. They’re figuring out their integration of bricks and mortar and online. So they’re doing that well. But the day that they don’t, the day that they they let you know, competition like Amazon, innovate quicker, you know, figure it out in a way that that puts them at a disadvantage. That’s a big risk to us, we need our our tenants to do well. So that’s on a more micro to the retail aspect for for more of a macro perspective, as real estate investors generally, which is what we are, I would say it’s the risk of the unknown. After living through COVID, you know, you mentioned insurance, you know, we have what we feel is, you know, really good insurance for our portfolio and thought of every scenario. You know, we weren’t covered for lack of rent during COVID, when your retailers couldn’t pay. So I think the unknown is the biggest risk. So the mitigant, I would say, has has been, our diverse diversification is sort of like the answer for all kinds of risk for investing. And adding multifamily and industrial was a huge help now, for COVID. Because our retailers couldn’t pay rent during COVID, because their stores were closed. Our industrial properties all paid rent, our multifamily properties all paid rent. So that diversification was huge for for during that three month period of COVID, that helped us sleep better at night.

Now, even the retail properties it was it was very temporary, and it was a stressful few months when those stores were closed, but we defer the rents for most of our retailers, because our lenders allowed us to defer our loan payments. So all worked out fine. But having that diversification was really a mitigate for, for us, globally. And then the diversification even in within our retail portfolio of mixed geographies, mixed tenants for different credits, so that when, you know, the Siena brands struggled and dress barn closed, it was such a tiny percentage of all of our tenancy that it was very easy to to move beyond that fill, fill some of those dress barns and most of our portfolio continue to thrive. So we were Okay, so the answer to mitigating some of these risks that I think about it continues to be diversification, which has really helped us.

J Darrin Gross 43:49

and I appreciate you going into that the clearly diversification makes sense. I think the thing you mentioned about the the way you structure your your deals where you’re not so heavily leveraged, I don’t think a lot of people really realize the risk that they run when they take on a you know, a greater leverage position. And, you know, hopefully it doesn’t mind people will clearly history shown if you get out there too far over your skis. The bank can call back here your note and and you don’t have the wherewithal to withstand that or the ability to to find new capital. You could be sunk. So I appreciate you sharing that. Sure. You well where can listeners go if they would like to learn more connect with you?

Yoel Mayerfeld 44:44

Sure. They can go to either our website ChaseProp.com they can email me directly which my emails ymayerfeld@chaseprop.com. Y M like Mary YE R like Roger F like Frank. E L like Larry D like David at chase prop dot com. I think one of my LinkedIn, Yoel Mayerfeld. And happy to answer any questions or talk to any of your listeners.

J Darrin Gross 45:12

Awesome. Yoel, I can’t say thanks enough for taking the time to talk today. I’ve enjoyed it and learned a lot. And hopefully we can do it again soon.

Yoel Mayerfeld 45:22

Yeah, thank you. This was great. I really had fun. I appreciate it.

J Darrin Gross 45:25

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 45:44

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Investor Thoughts Attract Success or Failure with Dr Hank – CRE PN #313

Dr Hank 0:00

And so the fact is that we all can create better health for ourselves more wealth the larger portfolio we can be the investor that we always want to be it’s just the number one thing we’re the one that shooting ourselves in the foot. Oh, can’t be. It’s too good to be true that Oh, I can’t do that I don’t have enough money. I have an investor for example, that does apartment buildings, it’s gone over 10,000 apartment buildings bought and sold. And in a typically again about 75 doors or more and, and you don’t need any money to start but see people start putting on these blinders and these beliefs and they start putting up roadblocks to their success.

Announcer 0:45

J Darrin Gross 1:05

Welcome to Commercial Real Estate Pro Networks, CRE PN Radio. Thanks for joining us. My name is cheater and 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 Dr. Hank, Dr. Hank is a mental scientist and a wealth maker who helps people become their greatest possibility. And in just a minute, we’re gonna speak with Dr. Hank about the power of your thoughts and how they affect your outcome. 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 I answer 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, Dr. Hank, welcome to CRE PN Radio.

Dr Hank 2:18

Well, thanks, Darrin, it’s a pleasure to be on your radio show and pleasure to be able to enlighten and uplift your audience today.

J Darrin Gross 2:27

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

Dr Hank 2:34

Sure, you bet that I’m first of all my PhD is in mental science. And that’s why we’re the doctor comes in. And I just kind of got that stage name, if you will. And everybody calls me Dr. Hank. But I’ve been in real estate for over 20 years, and I’ve been in commercial real estate investor, as well as residential. And so I typically coach real estate agents, investors and brokers on how to build their business and build their wealth.

J Darrin Gross 3:08

Awesome, awesome. So you You’re both an investor as well as coach that’s, you know, or work with, with investors.

Dr Hank 3:17

Yeah, we’re currently engaged in our division, if you will, of real estate and with the commercial and investment side, we’re doing a little under a billion dollars right now actively, two large projects, each about 300 million. And then the rest is some other about 400 million in all things from flipping homes to we like to do apartment buildings, typically 75 doors or more. And, and then I coach with the investors who help increase their portfolio and it all starts with our mind our thoughts and so we can talk a little about that and how that sell.

J Darrin Gross 4:07

Yeah, now i’d love to get right into it. I think, you know, the the mind is a dangerous place sometimes. And, you know, the, the the power of of your thoughts. Yeah. So I was gonna ask you, you know, if you could kind of describe, you know, what, how you see, you know, people that I guess maybe an easier way to frame would be like a before and after, or kind of the journey of recognizing the power of honing your thoughts and, and being disciplined about Yeah, which thinking or reframing your outcomes or, or, you know,

Dr Hank 4:50

Sure you bet Darrin. Well, basically, you know, we all probably have heard something like thoughts become things and most of us don’t even believe Because we’ve thought things we’ve asked for things and they haven’t come true, we haven’t seen it in our experience. And so we think that is true. But in fact, all of science has included in this is neuro scientists, quantum physicists, all the disciplines of science have in the last five years, understood and proven that thoughts do become things and they say it comes with three steps. And the first step is anything that we dream of anything we desire, that it all starts before we can see it, if you will, it all starts with our thought. And that thought then creates what the scientists say is even energy, what we normally would look at as our emotions, our emotions actually pay play a key part in creating what we want. And then the third step is part of the scientist is that thoughts become things which is matters. So it’s thoughts creates energy. And that energy creates matter, ma te te R. And what if the reason why most of us don’t get everything that we want, is because typically, we’re not thinking about what we want. And I’ll give you an example. I have an investor in mid America. And that investor wanted to increase their portfolio, and they do condos apartment multifamily, and, and they were stuck. And the reason why they were stuck is because they kept on thinking about how, number one, they couldn’t find any properties. And so we have, I continue to think there aren’t any properties, I’ll attract more, not enough properties. And so our experience actually typically is in our print. Because I have, for example, real estate agents, and I’ve all across America, and most of them will tell me, oh, there’s not enough inventory. But I have agents that I helped with their mindset, they have plenty of inventory, they have plenty of listings, when buyers. And so it really all starts with mindset and how to have be thinking about what you want. So hearing that do ou believe it Darrin?

J Darrin Gross 7:39

I totally do I know it to be true. And it’s a matter I think we’re sometimes you know, the noise of the day is a little more powerful than the staying on track with, you know, the the goal kind of thing.

Dr Hank 7:54

Yeah, we get lost you bet that. And here’s why that is that typically most of us aren’t very delivered and aren’t very intentional. And so we typically just kind of jump out of bed and start the day. And so then we look at the phone, and you know what’s going on there, and the social media etc. And what we do is we get caught up with what other people are doing, which by the way we can’t control, the only thing we can control is our thoughts and our feelings that creates our experience. And so because of that, that we end up getting caught up, if you will, in life, and that’s why most people’s lives are up and down, up and down, up and down. And, and so it’s not very much fun. In fact, most people are imagine all of us, and I’m sure we can all relate to this is we’re swimming upstream. And like we’re getting tired, and it’s been years, you know, we’re 30 or 40, or 60, or whatever, and we just, you know, want to give up this struggle, and there really doesn’t have to be a struggle. In fact, we can just let go and start going down that river. And because there’s always that, that tide, if you will, that’s going one way or another and most of us are going against it versus going with the flow of the stream of life.

J Darrin Gross 9:25

That’s pretty well said. I think, you know, again, getting sucked into somebody else’s agenda. As opposed to you know, letting go of that and and doing your thing is is pretty spot on there. So let’s talk about some of the keys to success or how how do you frame it with you if you’ve got somebody that’s that’s looking to, you know, change their outcomes?

Dr Hank 9:50

Yeah, yeah. So there are really only two things that all of us need to do if we want to have what we want and Those two things are the first one is our thought that we need to be recognizing the thoughts of either what we don’t want, or what we do want. And then the second thing is to what I call a allow, believe and expect. And most of us don’t have trust that we can literally ask something and our higher power our subconscious mind, if you will, can actually deliver the goods to us. And so let’s talk first of all about the first one. And that is our thought, that I have something called the joy shop. In fact, I’d be happy to offer it to you and to your audience today that love to give everybody this joy shop, and they can just contact me directly, and I’ll be happy, they just have to ask and ask and you shall see. And so they’ll ask for you, their joy shop and what the joy shop does, it’s the first thing in the morning, and you actually read the joy shop, it has good feeling thoughts, and it will raise your vibration, raise your point of attraction. And what will happen is, you’ll start to have and attract better feeling thoughts and in three specific areas. And the first one is to write down literally first thing every morning, write down what you desire. And a great way to start that is I want a long, happy, healthy, wealthy life. And if we all would just do that, and focus on there, that the Father, it’s been quoted, you know, throughout the ages, the father does that work. So we’ve been told we have to do the work. But really all we have to do is ask. And it all depends again on what we’re asking for. And if I asked for a long, happy, healthy, wealthy life, I will get it. However, what what the other staff remember, there’s two steps to this. So it’s number one, thinking about what we want. So using the joy shop as a way to get you to become the deliberate creator that all of us can become. And then the other step, though, is to allow it to believe it and to expect it. So this idea about really putting trust in and whatever word however, whatever your beliefs are, your higher power, your subconscious mind, God, universe, whatever it is. But there is in fact, something else that is happening in the law of attractions. Another way to look at that, where whatever I think about that I attract more in my life, it’s kind of like, you know, how did you ever buy a car where you never really saw that car that model and made that color, whatever on the road, and you buy it, and then God darn it, everybody’s got that. And what it is, is we all literally have blinders on, okay, and we all leave based on our beliefs, see what we think and what we believe. And so what I do is I help people to start expecting more good coming from you, because you are now thinking about the things that you want.

J Darrin Gross 13:30

Now, that’s, that’s powerful, just having some sort of an expectation, you know, some sort of a destination or a goal. Did you? I mean, there’s focus. I mean, that’s what you know, as opposed to allowing yourself to be like you said, if you’re, you’re not intentional about your actions,

Dr Hank 13:54

I have a great quote I have on that is, “whatever you focus your attention on, grows”.

J Darrin Gross 14:01

Right.

Dr Hank 14:01

So think about what have you been focusing your attention on? Have you been thinking about, oh, I hope I don’t get COVID Well, what that is, is sickness, illness, and you’re in essence, attracting versus saying, Wow, I want a happy, healthy, wealthy life. And so in most of us are thinking about things that we don’t want, we think that we can stop it out and crush it, you know, like cancer people that hey, we’ve got money to this we could do and it’s gotten bigger and bigger. Why? Because cancer is a disc he is and so that like, you know, somebody is gonna catch it or anything that what happens is when you have dis ease that then you start having a physical effect, and that’s called illness sickness. And so the fact is that we all can create better health for ourselves, more wealth, the large your portfolio, we can be the investor that we always want to be. It’s just the number one thing, we’re the one that shooting ourselves in the foot, oh, can’t be, it’s too good to be true that, Oh, I can’t do that I don’t have enough money. I have an investor, for example, that does apartment buildings, it’s done over 10,000 apartment buildings bought and sold. And in the typically again, about $75 or more and, and you don’t need any money to start. But see people start putting on these blinders and these beliefs and they start putting up roadblocks to their success, where when you start being using you start doing the joy shop, thinking about what you desire, what you appreciate, and then start pre paving your day the way that you want it. So instead of saying, Oh, I hope there isn’t traffic traffic will attract to you more traffic. Instead, bi travels are smooth and easy. My meetings go great. The people that I meet that I’m in contact with, we uplift each other, we help each other to our desires. When you’re filling your mind with all those beautiful, positive, wonderful thoughts of what you want. It’s only possible to get everything you do want.

J Darrin Gross 16:19

So let me ask you just as a kind of a not a devil’s kind of the other side of that. But so what point if, if you’re, if you’re so focused on this, is there or is there a danger of becoming disconnected from reality based on? You know, how you’ve been?

Dr Hank 16:41

Yeah, that’s a good one. And and, you know, you bring up a great point. In fact, I love the fight, because it’s funny, we think that we’re living in reality, okay. So I’ll give you an example where our senses don’t tell us the truth about reality. And here’s a real good example. In fact, I think I can even move my camera here and show you my view that I’m looking out to see that beautiful view. It’s beautiful forest out there. It’s on the 15th floor. It’s just magnificent. Now, I will tell you that the world without any question is flat. Okay, and what I just showed you, by golly, the world is flat. Well, the world isn’t flat. So when we think of reality, in fact, what we’re looking at right now, what’s happening in our lives right now is really old news, it was previous thought that we had usually thought about over 80% of our thoughts around what we don’t want. And so then, and then we get what we don’t want, we say, oh, how that happened. I didn’t want that, or I didn’t ask for that. And the fact is, we really did, we were focused on it. And fear is the second most powerful attractor magnet, if you will. And so lots of us have fear. I spoke with a investor down in Florida just yesterday, and this guy makes over $100,000 a month, that is looking to avoid taxes going to another country, that is money, people kind of know what countries to go to, or areas of us to go to, to get out of taxes need save about a half million dollars a year, and in taxes, just taxes alone by moving out of the United States. And so his entire discussion with me about what’s about his fears, he fears on losing his investments on things going wrong. And he said to me, oh, and this has happened to me before in my life. Well, of course it has your right now in the height of your success. And you’re thinking about your demands. And so when you think about your demise gifts, what you’re going to eventually get is your demise. And once he awoke to that and realize that he said, Okay, I’m gonna coach with you, I’m not gonna do this. I’m gonna do this joy shop every morning and good, get real intentional. And the great news is, this is all easy. This is really about you don’t even have to monitor your thoughts. Just monitor your feelings. How are you feeling? It’s your guidance system. If I’m feeling good, man, I’m thinking about this the way my higher power is. I am and it literally is our guidance system. But most of us, especially those men have been told, Oh, don’t be thinking about your emotions and be swayed by that and use your analytical mind. And that’s where we get into trouble. The only thing that we’re supposed to use with our smaller self, our analytical mind, is to think about two things. What do we want and why we want that the how, but we’ve been all over Pay, you got to figure out how to do go figure out how to do it and what we’re doing. So we’re swinging the swimming upstream, and we’re all getting tired. So if you want a little relief, do the joy shot yet would be happy to talk with you about really anything, whether it’s build your business or your health or your happiness or get rid of your fear, I can help you with all of it.

J Darrin Gross 20:24

It’s awesome. Hey, I got a quick question for you just in the the in the process. So you mentioned somebody, you know, they they have a certain thing that’s framed as a fear or anxiety or something like that. Yeah, start working differently, whether it be the joy shop, or whatever, but just having some positive, intentional thoughts. Yeah. Do you have any sense of of time normally that that one should expect to, you know, retrain the brain to to know you’re not susceptible to going back to your, your previous negative thoughts,

Dr Hank 21:02

Right. So it really can be instantly. Because if I, if any of us can, and we can, we all have the power to feel good right now on this red hot bump. And if we’re feeling good, that means that we are thinking about what we want, and you’ve mentioned there in the few times, I’m positive. And I actually never have brought up that word positive, I have brought up the word wanted, or unwanted. And so if we just reframe the thinking are thinking about, I want to think about what I want. And when I do I feel good. That right in this red hot moment, I can feel good. So I have a lady I have an investor, who a real estate investor, and that she when I first met her, she was very, very unhappy with her life. And she was unhappy because she has MS. And she can’t walk very well. And so I said, Well, tell me about the other things that were like. And so within just a couple of months of kind of enhancing your question of how soon can it be, can be instantly where we feel good, but how long does it take to actually change our thinking process that within a few short bonds, that after years of her living and thinking the same way we get these thought patterns, typically what we don’t want. And within the last couple of months, she has been able to start thinking more about what she likes about what she loves, about what is playing out. So the more you can talk about what’s playing out in your life. So for example, with her, Hey, she has a husband, she has a family, she has children, she has grandchildren, my God, how great is that? I helped her to more than double her portfolio within a few short months, helped her with answers and solutions for her to attract the perfect source to get more properties, the perfect source to be able to get renters for those properties. It really just is all incredible. And now she’s all bubbly all the time because everything is working. Even though as far as her walking in her Ms. It has improved, but not to the initial point where she wanted to just walk regular issue, if you would, she isn’t at that point, however, she is happy. And so we each have the power to be happy. And when you’re happy, you’ll be able to walk better or create more have a bigger portfolio, whatever it is, because it’s all about how you feel and as you feel you’ll attract more things that you desire, and that you like to include more business and better health.

J Darrin Gross 24:01

No, the mind is a very powerful tool and probably more underutilized. You know, by by the innovate by the owner, operator of most things, you know,

Dr Hank 24:15

I think that’s actually overuse. And by that I mean our little committee in our head, you know, the chattering little boys and wake up in the middle of the night and we just can’t shut that off. Well what that is, that’s our lower mind and lower self, our analytical mind. And really the only devil there is the only thing work and guess any of us is that little chatter boys and I have a way for all of us to be able to turn off that chattering boys and turn off the voice of your higher power.

J Darrin Gross 24:50

That’s great. That’s awesome. Well hey, Dr. Hank, if we could, I’d like to shift gears here for a second. By day I’m an insurance broker and I try and work with my clients to assess risk and determine what to do with risk. Yeah, and there’s a couple strategies we typically consider, we first look to see if there’s a way we can avoid the risk. The second option that we look to see if we can minimize the risk. Yeah. And when we can either avoid or minimize, we look to see if we can transfer the risk. And that’s what an insurance policy is. Also, I like to ask my guests if they can take a look at their own situation. clients, investors, tenants, the market, however, however you want to frame your response. But take a look and identify what what you consider to be the BIGGEST RISK? Yeah, again, for clarification, I’m not necessarily looking for an insurance related answer. Yeah, yeah. If you’re

Dr Hank 25:50

Don’t worry, you’re not gonna get one.

J Darrin Gross 25:52

Yeah. Well, that’s, that’s we’re now looking for one second. That’s good.

Dr Hank 25:57

Yeah, we’re in alignment my friend. Yeah, that actually, so so what you explain, for example, as risks, that those are very practical steps, and, you know, very good steps on to avoid risk insurance, it’s an excellent way. And I have insurance. And again, it is the name of the game. You know, there’s health insurances ways to insure your money, and, you know, all kinds of wonderful, wonderful thing. So I’m all for insurance. However, an answer to your question, the biggest risks that any of us can take, is to get disconnected with our higher power. When we fully disconnected, you actually never can fully disconnect. But when you disconnect enough, away from your higher power, that that’s where you commit suicide. So the greatest risk is being disconnected because then you you don’t have to worry about insurance, you’re not here anymore. But more importantly, I’m what we want, is when you’re connected, that you will be guided to, for example, this show, Derek, you’re amazing Joe, and how to help people whether it’s, you know, in this particular show on mindset, now powerful and important it is, you know, or on insurance that you know, if you don’t have so you will be led to people circumstances, events, and thoughts, your own thoughts, that will lead you to the perfect light, the light that you’re looking forward to have. So the biggest risk is to rely on just your analytical mind. And the and the opposite of that I want you to do that is to get connected. And you do that through breathing your breath. Deep breaths is a great way to get connected through meditation to get connected, to quiet your mind to do things such as the joy shop, that will get you connected, and you will literally be given all the answers to where there won’t be any risk in your life at all. I love it. That’s great.

J Darrin Gross 28:09

Hey, Dr. Hank, where can listeners go if they’d like to learn more connect with you?

Dr Hank 28:13

Sure. I’d love to connect with each one of you. And so my, I’ll give you my cell phone you can call me text me It’s 214-753-7204 my email really easy one it’s DrHank for Dr. Hank right DrHank@DrHank.biz BI z. And so I’d love to hear from you. Send me an email, a text, call me that my passion is and I’m in a stage of my life where I can pay it forward if you will, give it back. My passion is to help others become their greatest possibility. So I can help you in any way to become your greatest possibility. I’d love to hear from you.

J Darrin Gross 29:06

Awesome. Well, Dr. Hank, I can’t say thanks enough for taking the time to talk today.

Dr Hank 29:11

Thank you, Darrin a real pleasure to be on your show. Keep on doing what you’re doing, man just helping up lift everybody and I really appreciate you being having me on your show and appreciate all of you listening watching. I wish all of you the best. Thanks for tuning in to Darrin’s show.

J Darrin Gross 29:33

All right. For our listeners, if you liked this episode, be sure 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 Network’s. CRE PN Radio.

Announcer 29:53

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Commercial Real Estate Capital Gains Tax Deferred with Brett Swarts – CRE PN #312

Brett Swarts 0:00

There is a story that kind of changed it for me as the gentleman who sold a $20 million asset 2006. And he sold at the height of the market, and he looked around for a 1031 couldn’t find it, use the deferred sales trust for the first time. And he parked the money where stocks, bonds, mutual funds, conservative stuff, right? He’s not a big stock market person, but he was better than paying the tax. And he sat on the sidelines and five years later, that property that he had bought was foreclosed on. And the bank calls him back said, Hey, you know that property? So he says, Yeah, well, we just foreclosed on it. And we’re just curious, would you want to buy it back? He’s like, well, maybe what’s the price? So about 40% less than what you sold it for? He said, Sure. So he was able to reallocate the investments in the Deferred Sales Trust, and he’s able to buy that property back at 60 cents on the dollar. Okay, all tax deferred.

Announcer 0:49

J Darrin Gross 1:09

Welcome to Commercial Real Estate Pro Networks. CRE 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 Brett Swartz. Brad is considered one of the most well rounded capital gains tax deferral experts and informative speakers on the west coast. His audiences are challenged to create and develop a tax deferred transformational exit wealth plan using the Deferred Sales Trust, DST so they can create and preserve more wealth. Brett is the founder of the Capital Gains Tax Solutions, and the host of the Capital Gains Tax Solutions Podcast. Each year he equips hundreds of high net worth business professionals with the DST tool to help their high net worth clients solve capital gains tax deferral limitations. And in just a minute, we’re gonna speak with Brett about Deferred Sales Trust.

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 is 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, Brett, welcome to CRE PN Radio.

Brett Swarts 3:00

Darrin, thank you for having me. I’m excited to be here.

J Darrin Gross 3:03

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.

Brett Swarts 3:12

Absolutely thanks Darrin. Some originally from Northern California chemists in Mission San Jose Fremont area, and the Sacramento region. And I grew up in the real estate world, my dad building custom homes, my mom owning owning rentals. So I’ve always had a love for investment real estate, I continued that love into college where I took an internship at a company called Marcus and Millichap. And it was there that I cut my teeth and learned all about how to underwrite a property, how to sell a property, how to negotiate how to how to how to get financing on properties, and mostly multifamily was my specialty. But it wasn’t always easy. You know, I growing up, my wife, my mom, dad had a lot of wealth, then they got divorced. And I went from, you know, having, let’s say a lot of money to no money almost overnight, because let’s just say my dad didn’t pay as much child support as he could have right over the years. And so I struggled financially right with my mindset knowing that at some point, I don’t want to have to depend on a job or what person I want to be able to own cash flow producing real estate, and have that be able to build that amount of wealth. And so brokerage is a way to learn from the best for my clients, hear their stories, solve their problems earn enough so that we can get on what’s called the other side of the phone. And so that’s where I started out cold calling, you know, and learning the business. But it was oh six this was an interesting time when the marketplace was very high, very hot. And it went from a very hot high market people making a lot of money to the 2008 crash where I was making a little bit of money and then overnight next nothing and like a lot of commercial real estate brokers or owners during that time period. We had to figure out some Something else right and my something else happened to be what at the time my wife and I were barely married and and then baby on the way. And the answer was moving in with my brother who is small condo to cut expenses and getting a side job at a place called Cheesecake Factory. So by day I had made cold calls helping clients kind of kind of combat the banks and try to try to, you know, get creative ways to rent the rent their units out and renegotiate their taxes with the city and buy nicer cheesecake. And I did that for a two year period. And during that challenging time. I don’t know if you’ve ever been so scared and not sure what you’re going to do. Or that’s where I was at, like I didn’t know I was gonna do. I felt like a failure. You know, all the fears of my parents divorce and the financial things kind of came coming up. But I just kept persevering. My wife believed what we were doing to build wealth and the plan. And I love commercial real estate. It’s the one thing I knew. And I had amazing mentors who believed in me. So I kept pushing, kept pushing. And during this time a gentleman came in, he spoke about the thing called a deferred sales trust, which we’re going to talk about. And it was one of those moments that everything kind of changes. But it didn’t change right away, I started to talk about this, I started to try to educate people. And for those who don’t know what this is, we’ll talk about in a minute. But we thought we knew everything there. And like we thought we were the Navy SEALs of investment, real estate brokers, you know, the 1031, exchange, the tax deferral, we’re going to help people do all these things. But we didn’t know it. All right. And that’s what I found out at that day. But what went on to happen was we actually to apply this strategy, talk about it, my business started to grow. Fast forward, I retired for the Cheesecake Factory wife, and I have five kids. And she’s been able to stay home full time, which is one of our values for our kids and for her and for our marriage. And I’m here in Sacramento, and now I teach and train people how to do this.

J Darrin Gross 6:43

Wow. Well, that’s congratulations on your five kids and your family and, you know, getting or the commitment to see it through and to work hard and make it work. That’s impressive. So let’s start with with just the, you know, you mentioned the concept of a 1031 exchange, I think most people are familiar with the words may be familiar with a little bit of the dates that might be in play, but not always all the nuts and bolts. And I’m wondering, maybe that’s not a place to start, because if I understand, right, that’s kind of the, the the trigger for working with a Deferred Sales Trust,

Brett Swarts 7:27

you got it’s a great place to context because a deferred sales trust is kind of like a 1031 exchange. It’s kind of like an IRA. It’s kind of like a 401k. It’s kind of like a lot of things. And we like to call it the Netflix way of doing things versus the old blockbuster transactional way of doing things. So let’s define a 1031 exchange and why it’s like blockbuster, well, do you remember going to blockbuster on a random Friday night there maybe 10 years ago, and they’re still around, and you see that movie behind that cardboard, and you’re walking up to get that movie. But for some reason, someone’s two steps ahead of you. And you’re like, man, I missed it. Now it’s sold out, and you’re bummed out. But you get that second movie and you take it home. But within three days you forget to return it, then you got a penalty. And then you forgot to rewind and you got a penalty. And then you had to drive your car back and forth and sit in traffic. Well, that is the old way of doing things. That’s the 1031 exchange. And what we found out while I was going through all those struggles financially working at Cheesecake Factory, my clients are going against the banks, right. And the number one cause was they had overpaid for property and they had too much debt not and let the quiddity and they let the tax tail wag the investment dog. Right. And they knew they were doing it but they felt trapped because of the 30 to 50% in capital gains tax and depreciation recapture right and the Oh 4050607 market before everything kind of turned. So they knew they’re making poor decisions, but they felt they had no other way to get out except for just doing the 1031. And just buying and hoping and praying that the values would hold up. Well, that was the kind of ground zero of why we found out the 1031 is blockbuster because our parents taught us to sell high and buy low, not sell high and buy higher 180 days later, with little to no inventory, little to no value add opportunity and in more debt. Right. And unfortunately, the 1031 exchange does not work in every situation, right? There’s different tools for different different periods of life, financially or personally. And we’re at the 1031 exchange. A lot of our clients, their baby boomers, right? They’re in their 60s that are older and they’re looking at this and they’re going I’ve made my wealth, why do I need to take on all this debt, new rent laws, new, you know, new new rent control, new new toilets, trash liability, I don’t need all this stress in my life. I want to retire from this. But I also want to be able to pay off debt and get diversification. So interesting study, according to the American Bankers Association has about 17 to $20 trillion. It’s gonna pass from one generation to the next and the next 20 years. And this is known as the largest wealth transfer in the history of the planet. In fact, there’s about 77 million baby boomers turning 65 every day. I’m sorry. 77 million baby boomers in the US alone about 10,000 turning 65 every day. And they’re faced with toilet trash liability, large primary homes, investment properties, stock. Other assets that are highly appreciated cryptocurrency, and they’re looking at huge tax, and they don’t know how to get out. And again, the 1031 exchange is like blockbuster because it only works for investment property. We just closed a property in Palo Alto for a primary home seller who has wanted to downsize from his house, he had five kids, they’re all gone. And he’s like, I just want to retire, right? I want to downsize kids are all gone, I’m in this big house doesn’t qualify for a 1031. But he used that. So the 1031 only works for brushin property, doesn’t work for primary doesn’t work for stock doesn’t work for other things. But the biggest thing is time, because it forces you to make quick decisions. Whereas the Netflix version, the Deferred Sales Trust, you can now sell high and defer the tax on the sidelines for as long as you want. And there is a story that kind of changed it for me as the gentleman who sold a $20 million asset 2006. And he sold at the height of the market, and he looked around for a 1031 couldn’t find it, use the deferred sales trust for the first time. And he parked the money where stocks, bonds, mutual funds, conservative stuff, right? He’s not a big stock market person, but he was better than paying the tax. And he sat on the sidelines. And five years later, that property that he had bought was foreclosed on. And the bank calls him back said, Hey, you know that property? So he says, Yeah, well, we just foreclosed on it. And we’re just curious, would you want to buy it back? He’s like, well, maybe what’s the price? So about 40% less than what you sold it for? He said, Sure. So he was able to reallocate the investments in the deferred sales trust, and he’s able to buy that property back at 60 cents on the dollar. Okay, all tax deferred. And so when I heard that story, and understood the power of that, it changed everything. So that would be the first thing. It’s a way to get time back, to diversify, to get liquidity, and to wait for a deal hit you over the head versus overpaying for a property that, you know, probably doesn’t make much sense right now.

J Darrin Gross 12:08

That’s pretty powerful. because like you said that the 1031 exchange and the dates, and especially if you’re in a hot market, it’s one thing to be the seller, but if you’re trying to buy something, and you know, everybody’s chasing the market up, you know, you’re faced with that, that situation where, you know, hopefully you don’t overpay and that you’ve got enough time that if you know if need be you can weather the storm or get out. So you said something that that made sense to me. Because I think the other thing is that the part of the 1031 exchange that he replaced the equity and the debt. So if you if you leveraged into a property originally say 20% equity and 80% debt in an appreciated now you’re maybe in a 5050 if you’re lucky kind of thing, you still have to replace that that debt that you acquired, which basically requires that you go to a larger, more expensive property in order to successfully do a 1031 exchange. And like you said, just the stress and, you know, if you’re if you’re older and you’re wanting to get out of that some something that’s a little bit less stressful, a little bit less risky is is probably a good idea. 100%. So, so the the you introduce the topic, you know, the the the deferred sales trust. So let’s talk about those proceeds from the sale of the property. How is it that this, the mechanics of this that you you know, you have the property you sold it, you were seeking to do a 1031 exchange, but now you’ve decided, maybe I want to attend 31? exchange, I’m going to do deferred sales trust.

Brett Swarts 13:57

Yeah, first of all, understand it’s not it’s not a 1031. It’s not a Delaware Statutory Trust, don’t get these two confused, because dsts often get confused. The key thing that the foundational understanding of how this works is IRC 453, which is known as an installment sale, or seller carry back. So as the client, if you’re selling the deal, Darren, you’re going to lend the funds to the trust in exchange for a promissory note, you’re typically going to take 100% financing, you know, back, you’re going to be you’re going to take all you can give any down payment from the trust, you’re going to give all the finances of the trust. And when you do it like that you don’t you haven’t you haven’t received any cash payment, therefore, you’re in a tax deferral state, then we find the third party buyer, and that buyer actually buys it from the trust and infuses the cash into the trust. And that trust buys and sells for the same price. Therefore there’s no tax at the trust level. And since you sold it and you receive no downpayment, you’re in a deferral state. It’s not unlike an IRA or even a 1031. If you think about it, right. Think about how a 1031 works. You sell a property and say for 10 million, you have zero basis. And all the funds go to the Qualified Intermediary instead of going to you. Well, you haven’t received any of the funds yet. They’re the Qualified Intermediary, or even like an IRA works that way the IRA works is that the government says, Look, if you put money into this IRA, as long as you don’t touch it, don’t take distributions. It’s an a tax deferral state, it’s building and growing. So same thing with a trust, we form a trust. The difference is, you don’t own the trust, you lend to the trust. And then the trust will slowly pay you over time and installments, and you’ll pay the tax. So we just closed the deal on Alabama’s $2.6 million business sale. And he owed about 600,000 of tax, again, didn’t qualify for a 1031. But he’s a business, it did qualify for the deferred sales trust. So he moved it into the deferred sales trust, you know, sold it to the ultimate cash buyer, which was his partners that bought them out. And then he was able he is building 70 units in Tennessee right now all tax deferred ground up development. So it’s a really nice way to go on to that next thing. The key is as long as it’s in an investment, and as long as it’s out there, it’s in a tax deferral state until when, until the income starts producing on the trust and you start receiving payments when when you receive payments. Well, some of them receive it right away. Some clients, we just did a deal on $1.4 million primary home sale for a retired teacher. And she was on a fixed income, she lived in the house for 25 years. And she’s able to sell her house that she bought for about 200,000 for about 1.4 and defer all the capital gains tax. And now she’s gonna live off the interest payments of the trust over the next 1020 3040 years, pass it to her children who can continue it on as well. And so it becomes a nice vehicle to not only defer tax, but to live off the cash flow.

J Darrin Gross 16:41

Got it? So I understand the the transfer of the asset into the trust, who has a right and actually the trust, so you’re selling Okay, you’re selling it to the trust? Yeah, the trust then makes the sale to the buyer cash buyer. Yeah. The the proceeds then, of the sale go into the trust from the buyer to the because the the trust now the seller, right. You mentioned the the individual that either the one that bought back the property at a 40% discount, or the other one that’s building some apartments. In I’m assuming that the money within that trust in order to to do the investment, does it come out of the trust? Or can you grow the trust by doing that, that acquisition or that that build within the trust, where it’s just the the assets of the trust continue to grow?

Brett Swarts 17:40

Yeah, so it’s the latter. So you can you can do both you can you can take a distribution and pay the tax, and go do it by yourself. Or you can partner with the trustee, the trustees and make a return typically about 8% over 10 years. And the investment allocation can be a number of things, stocks, bonds, mutual funds, hard money lending, or real estate passive or active. And so we we do that in a in a in a way that allows them to do both by partnering with the trust to go do that all tax deferred, by the way, right. So that’s where most of our clients like to do just keep it growing, keep keep it earning, keep living off the interest.

J Darrin Gross 18:16

So in the so you fund that you continue to grow it, you take your distributions, you’ve talked about like different timelines, is there any limitation on the length of time that the trust I mean, as a trust me, I’ve always thought that the purpose of an estate trust was that the trust doesn’t die, which doesn’t trigger the tax being due therefore, it continued the the assets continue to be held, as opposed to having to be liquidated is that

Brett Swarts 18:46

No timing restriction. So typically, their 10 year terms, and every 10 years, you can renew for 10 years, renew, renew, renew, pass it to your kids, via your living trusts, what you own is the promissory note, right? That’s what you owe, and that’s what’s inside of your living trust. Okay, and then the kids can step in and start receiving payments from from the from the trust as well.

J Darrin Gross 19:06

Okay, and is it typical that the, the 10 year term is designed to draw down the the amount of the asset or amount amount of the sale or whatever to zero to where you’re basically just paying 1/10 of the tax annually?

Brett Swarts 19:23

Yeah, so we can structure the the payments back in principle an interest or just interest only payments. Many of our clients like the interest only portion of it the golden goose intact, and then and let that let the golden goose lay the golden eggs, right and just live off the interest. And so, but it can be structured, yeah. 1/10 of it over 10 years, or just interest payments and just renew it. It’s up. It’s, it’s up to you. And it’s adjustable to you might adjust it along the way you might say, you know, I started out thinking I needed this, but maybe that can we adjust it? Yeah, it’s amendable you can amend the promissory note. And upon amendment we can have it accelerate payments. decelerate payments, it’s flexible.

J Darrin Gross 20:02

Got it? So, when you fund the trust, who is in charge of making the investments? Or I mean, is this like, self directed IRA or is there there’s, there’s there need to be a an intermediary that that’s handling this or,

Brett Swarts 20:21

Yeah, let’s talk about how and where the funds are invested in how it’s determined. So before the funds go anywhere, as if you’re the client, the note holder, the taxpayer, you’re filling out a risk tolerance questionnaire. Okay, and if you’re married, so if your spouse has two page questionnaire, no wrong answers just tell us about your level of risk your income needs. And based upon that, you get a score based upon that score and interest rate is assigned based upon that interest rate. Investments are presented to you, right, so you have all the approval, the funds never go anywhere without your full approval, and no investments are ever made without your approval. Now, it also takes a second approval, which is this is part of my role, I’m the trustee of a third party, unrelated trustee, very important, not related to the taxpayer. Right. And by having that separation, it takes dual approval for any investments, and dual approval for any of the funds to move. And that keeps the protection and the integrity of the tax deferral. If there wasn’t that second approval, it would be taxable, right? Cuz you just be selling it to yourself, or you’d have what’s called unilateral control. And when you have unilateral control, it’s just taxable. So it’s a business entity that is set up to do business with you. And, and so it’s, it’s, we’re all working as a team. Now, we want what you want, right? And so the goal is, what kind of risk would you like, Where are you gonna put the investments? Where would you invest it at anyway? Anyways, and let’s try to mirror that. But it’s all based upon the risk tolerance. It’s all mathematical. Does that make sense?

J Darrin Gross 21:51

Yeah, I think so. I mean, you the third party? I mean, you’ve got to be the one that’s there’s got to be somebody in there that that’s approved. And I’m assuming that’s per the design of the statute or whatever the keeps it all. Yes. Keeps the integrity of it. Exactly. So, okay. And then with within that vehicle, are you limited to the types of assets? I mean, 1031, typically, is associated with real estate. But can you go buy stocks, bonds, Bitcoin?

Brett Swarts 22:23

The latter, right? So the investments can be secured against a number of assets, right. And so the the return on for the trust to pay back the interest can be secured against a number of assets, including liquid diversified investment grade securities, insurance products, mutual funds, right? hard money lending, passive real estate, active real estate, as long as you know, businesses, as long as it’s business purpose or economic substance, right. These are the key key terms here, right, that it’s for the greater good. And then this is why we believe the IRS really likes what we do. You know, and it’s a good thing for it’s everyone wins, because it’s stimulating people to sell assets at high prices, and infuse the money into the economy, which does what it creates more jobs and more tax revenue, which creates more taxes, it also gets a new property tax. Right. So for the property we just did in Southern California. She bought it for 200,000. Well, guess what? Her property taxes are pretty low, right? Well, she’s selling for 1.4 to a new buyer, guess what new property taxes? Guess what, that’s that listing agent gets a commission, they pay taxes, right? escrow, they pay taxes. All of that money goes into stocks, bonds, mutual funds, or real estate, which does what creates more jobs are doing an aetherium case. Right now. It’s a Bitcoin case. And they cryptocurrency case, they they have they bought aetherium for about $100,000. And it’s it’s increased in value to like 6 million in 2017. And then an increase in value to like 12 and a half million here recently, right? And they’re gonna sell it, and they’re gonna defer the tax. And it’s not just the numbers, it’s the transformation for them, they’re able to retire from working 5060 hour weeks, you know, have young kids they want to travel the world, he’s from another country, right? A lot of different things there that enabled them to do a lot of things. Because the deferred sales trust is doing what it’s going to defer about four or 5 million attacks, it’s going to extend the amount of time and the amount of money they can live off of by a really, really, really wide margin.

J Darrin Gross 24:30

Yeah, no, I that to me, you know, I am assuming the conversation my mother here the other day about, you know, the concept of a 401k as opposed to an investment, you know, and it’s like the I always thought that the plan was to have enough assets to live off the interest, your you know, that the investment would continue to grow, which I think is possible in real estate, at least to you know, create a sizable amount of equity and and live Botha returns that but, but I think most people are. That’s kind of maybe a thought. But it’s not really reality, when you get into like a 401k, where you basically have to liquidate your asset in order to, you know, abide by the tax laws, and just to live kind of thing. But in this situation, what I like what you’re, what you’re talking about is the ability to, you know, sell at a high price, keep the the asset, or the value of the asset working for you. pay the tax that’s owed, as you as you spend, or receive the proceeds, but not like in a big lump sum. So you can do a little bit of tax planning, if you need to be or need to. But let me ask you so So you mentioned we are we talked briefly about it, but the, you know, upon death errors, transfer that the trust mean, a trust, I’m assuming that that that can have can continue. And it’s, it’s not me, there’s not a need to liquidate it to satisfy any kind of tax law. Is that correct?

Brett Swarts 26:14

Yeah, that’s a good point. Right. So Biden’s proposing some big changes, right. One of them is the elimination of the stepped up basis, okay, I don’t know the odds of that going through, maybe you’re low, but it could, but imagine that you own all this piece of real estate or assets, you’re in the ownership side of things, and you thought you’re gonna get the step that basis for that’s no longer happening. And now, the tax is triggered upon death, this is part of the proposal, the kids would have to liquidate, to pay that tax, okay. On our side, never you’re not an owner, your lender. So you’ve lent the funds to the trust and the trust bought and sold for the same price. So it has no gain, right. And so upon the sale upon the clothes, or upon you passing the promissory note, pass it to your kids, and your kids can just step into your shoes and keep this thing going. So we solve that challenge there on on the stepped up basis, and they can keep it going for as long as they want. And as they receive cash payments, they’ll pay tax, but they could also pass it on to their kids, they just keep keep it going.

J Darrin Gross 27:15

Right now, I was thinking about that just to in preparation for this, that this may be a real, you know, if the the tax wins change as they, they there’s a lot of talk and a lot of effort invested in the talk. But I don’t know that there’s actually the will to totally change the tax laws. But even in that, in that era, of of a change, the fear can drive the market to do certain things. And I was thinking like, just to, you know, if you think you’re going to reap a benefit by in enacting a law, which you’re failing to recognize least what I’ve seen, I think what what most investors will look for, is the alternative that, you know, continues to allow them to have the benefit that they originally saw it for the investment that they got in like so, real estate, if you got in real estate, we’re expecting to be able to pass on your, your, your assets to your heirs, at a stepped up basis. This seems like this would be a an ultimate defense mechanism to avoid the potential of a law change that would potentially liquidate the you know, the assets that you’ve worked so hard to, to grow

Brett Swarts 28:37

100%, we think we’re really positioned perfectly for what’s called the three perfect storms, right? The demographic, baby boomer largest wealth transfer history, the planet happening, the economic highly appreciated assets, that could be subject to a big correction. And the third one being the political, you know, 20% to 40%, and capital gains tax rate elimination or reduction of the 1031 exchange, elimination of the stepped up basis, where we really we every one of those boxes, we check off and we’re a great alternative. The other one is the estate tax, right. So there’s some people listening perhaps they have a huge huge estate, and looking for ways to move funds outside of their taxable estate. The deferred sales trust can also do that, too, we have a proprietary version of it, where no matter what the size, we can move funds outside of the taxable estate. And that’s a nice way to save on 40% of that so you can learn more about that. The other one is income tax deferral. So maybe you can delay the payments of the trust, which could also lower your overall income tax in that given year. Now, when you receive payments later than you’ll pay tax, right? But that’s a nice, nice piece of this. Another one’s a brand new depreciation schedule. By partnering with the trust, you can get a brand new depreciation schedule and then as you roll payments out so they can wash out and they give a new year. So a lot lots of ways to to make this an investment right and a really a good solution for that transformation when you add them all together.

J Darrin Gross 29:57

Right. So I think I think if I understand something And I hadn’t really recognized in the past conversations I’ve had about the deferred sales trust is the the vehicle is this note. Basically, that’s the, the that’s really the way that you’re getting the the income, I mean, the the assets in there, but that, whether it be like the interest only payments, which I would assume that if people have a large enough nest egg, that would be kind of the, you know, the preferred way is to try and find something where they can receive interest only is that in my tracking on that,

Brett Swarts 30:31

Yeah, so if you’re passive, that’s exactly right. It’s just, if I’m, like, 100% passive, it’s just in real estate, or it’s in passive real estate, it’s in stocks, bonds, mutual funds, hard money lending, and it’s just producing interest, you’re living off the interest. However, the this the really place where this thing really flies is when you partner with the trust and you become active. Okay, so back to the scenario of my client in Alabama, right? He’s actively building those apartment complexes, right? So in partnership with the trust, and with the trust, it can be like a silent partner with you, and you can build or buy real estate. And then you get ownership in that LLC, that bought that real estate in partnership with the trust, and then that’s where you get some new depreciation. Okay. So it’s a really nice, elegant way to, to build wealth on the ownership side again, right? With the trust, that you lend money to. And so that’s, that’s the without that, then this is like this, not as not as exciting. But with that, it’s, it’s it’s absolutely a game changer.

J Darrin Gross 31:35

Yeah, that’s, that’s a, that’s huge. So in that example, where you’re you’re partnering with the trust to go out and build some property or build a property, and you see it to its conclusion and its cycles, you know, from from construction to operation to sale. The the proceeds from that sale, can you then sell to the same trust? Yes. Okay. And then essentially, keep growing that trust?

Brett Swarts 32:05

Rinse wash and repeat, right? So love that that’s buy low, sell high. That’s that’s where it makes sense. Build where it makes sense. Sell, roll it back in Wait, be patient dollar cost average back in No, you know, we’re safe harbor, right? Park your funds, pay off your debt. So we’re telling a lot of our clients sell high, pay off your debt, defer your tax, dollar cost average, diversify your investments, right, and then just wait for a deal to hit you over the head. And it might be a development deal, or might be a real estate deal that someone gets foreclosed on in a year or two or something, right. But, but don’t do the blockbuster, right, I saw the blood in the streets in Oh, eight in the crash, right? It was really sad to see people lose half or lose all of their wealth. Because they just wanted to just, they only knew they didn’t know it wasn’t their fault. Their CPA didn’t know about it. The 1031 exchange companies don’t want you to know about it. Most commercial real estate brokers companies don’t want you to know about this. They’re in the business of keeping you in the 1031. Race. And it’s a race for how big their Commission’s and how many deals they can do I get it. I’m a commercial real estate broker. And I started at Marcus and Millichap. And that was the that’s the mantra, right, and they’re a great company, they do a really amazing stuff. Nothing wrong with the 1031. But guess who’s really on hook for that deal. If you overpay, it’s you? Right? So in this scenario, we don’t want you to feel trapped, we don’t want you to feel like you have to do anything. We want you to have freedom.

J Darrin Gross 33:33

So let me ask you, you know, the, the investment. Some of the rules of investing are kind of I guess, the tax issues. Yeah. I know that like with with people with if they’re using their 401k there are some rules that they can’t, you know, engage in. One is lending to a family member, whether it be parent or child or kind of thing. Another is I unrelated debt income? I think there’s a UTI or something like that. That’s what that is. There’s a tax in the situation where you’re talking about, you know, partnering with the trust, and, you know, building something larger. Are there any tax concerns there from a from a strategy?

Brett Swarts 34:28

No, we don’t have those regulations. Are those rules, like the 401k or the IRAs?

J Darrin Gross 34:35

Okay, that’s great. That’s great. So let me ask you this. So the the ideal client, you’ve mentioned, obviously, the the people that, you know, either had 10 million or the school teacher that went from, you know, 200,000 to 1.4 million. I mean, you know, sizable chunk. What about the person that’s owned just a single family rental For a number of years, it’s appreciated. They get out but it’s not, you know, change your life money, it’s just something you don’t want to let go of the of the, you know, you don’t wanna pay the tax on it, because you’ve, you’ve held it long enough that you’ve depreciated it, and you’ve, you know, recapture all that fun stuff.

Brett Swarts 35:17

Got it. So our minimum deal is $1 million net proceeds and $1 million gain. Why? Because we found that unless the pain is big enough, which means the game needs to be big enough, which means the tax will be big enough to justify our fees, that it doesn’t make sense. So we want it to be a homerun for everybody involved. And we found that unless it’s $1 million gain, and at least $1 million net proceeds for any single transaction doesn’t make any sense. Okay. So if you just have that $300,000 house you bought for 50. And you’re like, man, I want to pay the 50 or 60,000. Sorry, it’s too small for us. It’s just not a great deal for anybody, because the fees will eat up the savings, what are the fees about 1.5% to set it up? And a 1.5% or so depending to 1.85% depending on the size of the deal. So you want to make sure that your that is big enough. Okay. Now, if you had two deals if you go well, Brad, I got to deal with 500 500. Yeah, we can make an exception for that. But otherwise, the answer’s no. It’s got to be those those two numbers that make sense.

J Darrin Gross 36:24

Yeah, exactly. That’s, that’s exactly what I was getting at. I was gonna ask you, I can’t remember anything. If it comes back to me, I’ll ask him here. But

So, so basically, the I mean, the some of it is if you’ve got a sizable chunk, and you’re looking for an alternative to paying the tax, this is a way to do that without having to get into another deal at the top of the market. And hope that it all works out. I mean, that’s that’s kind of what I’m what I’m hearing,

Brett Swarts 37:04

Eliminate the need for the 1031 exchange forever. Right? rarely ever have to feel like you’re trapped overpay. So the 1031 is easy to for tax, the deferred sales trust is used to give you back time, right to lower your stress to let you be location, financially, you know, business freedom, right? Freedom on allamah, a number of levels, not just capital gains tax freedom, so yep, that’s that’s exactly right. Dan, I think you got a good grasp on it.

J Darrin Gross 37:33

And let me ask you this, because when I was thinking about so as far as the the management of the asset of the trust, is that unique to your company? Or How’s that? Is that something I’m good my broker and say, hey, I want to do deferred sales trust, set me up?

Brett Swarts 37:50

Great question. So we partner with financial advisors across the nation. So we have 1000s of strategic alliances, encouraging commercial real estate brokers, luxury realtors, financial advisors. And so it’s very important that the order of this makes sense. So if you have a financial advisor, if your financial advisor, reach out to us sign our NDA get connected, right, get it all approved, and then and then bring it you can bring it to your clients. Right? That is, that’s just fine. So that would be the order you want to do that. Darrin, so, you know, have the financial advisor contact us and get connected with us.

J Darrin Gross 38:26

All right. Hey, Brett, 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 risk. And there’s three strategies we typically look to, we first look to see if we can avoid the risk. If we can’t do that, then we look to see if there’s a way we can minimize the risk. And when avoidance and the ability to minimize the risk are not an option, then we look to see if we can transfer the risk. And that’s what an insurance policy is. And I like to ask my guests if the if they can look at their own situation could be their clients, the market investors, tenants, you know, however, we want to frame them the question, but if they can identify what they consider to be the biggest risk, and for clarification, I’m not looking for an insurance related answer per se. Risk is everywhere. You look. But if you’re willing, I’d like to ask you, Brett Swartz, what is the BIGGEST RISK?

Brett Swarts 39:34

Sure, so I’m gonna apply it to the Deferred Sales Trust cuz we didn’t actually touch on this, but I think this is really important. So it has to do with asset protection, right? So the more you own and the more you own in your own name and or that’s not an LLC or that doesn’t have proper insurance, the more you could be liable and have higher risk of somebody suing you and taking that asset okay. So by essence, owner’s ownership, and Rockefeller said it well he said own nothing control Everything right? And and the idea was asset protection. So how do you lower risk? Well, on the deferred sales trust, guess what, you become the lender. You don’t own the trust. So what you don’t own, they can’t take from you. Right by default. Now, could a creditor, you know, if they get a judgment against you? And could they potentially get the income off of the trust? Yeah, that’s that’s common. Right. But could they force the the the ownership, that’s not the person that they got the judgment against? to do anything there? No, because they don’t own it. So we do love that about the deferred sales trust, who does take and mitigate some of the risk? So I think part of the answer is the risk of just lots of ownership. Instructors are better not insured in a proper way that could be subject to judgments. If there’s a way to mitigate that, I think that’s that’s really good. And I think that’s probably the biggest risk I can think for this conversation here. That makes sense Darrin?

J Darrin Gross 41:02

No, absolutely. I you know, that whole eliminate your your risk by have no assets or you know, control at all, that’s, that’s always a great. A great way to view things

Brett Swarts 41:13

It’s no longer about cash flow, Darrin cash flow is important. See, Robert Kiyosaki talks about cash flow, right. It’s now about tax flow.

J Darrin Gross 41:22

Right? Right,

Brett Swarts 41:23

Especially for the ultra wealthy, who baby boomers who have made it right. And now it’s preservation. It’s not necessarily creation, at least not in this marketplace, or more like we’ll pick a more conservative preserve preservation. That’s our that’s our philosophy. And let’s focus on tax flow. Because guess what taxes are going up? Right, taxes are going up. So what do you do? Well, let’s let’s let’s get to the deferred sales trust, let’s delay the income, let’s delay the capital gains, tax rates, defer it, let’s move it outside of the taxable estate, let’s move it outside of the potential risk of judgments of ownership. And then let’s sit in a safe harbor diversified liquid ready to go if and when the market shifts, and then you get aggressive again, and then you take on more debt, right? So it’s about smart debt versus dumb debt, right? Dumb debt doubles down and overpays for our property because they got to, they got to run around the hair on fire buying a 1031 Smart debt buys when the marketplace is crashed when everyone’s running for the sidelines and doesn’t want to doesn’t want to buy anything. Right? And then the deals are down you go into debt, now you leverage up so that’s, that’s kind of the thought that makes sense Darrin?

J Darrin Gross 42:36

No, always make sense. It’s always one of those things that’s easier to see in the rearview mirror rather than looking forward. But, you know, that’s still I mean, it is a matter of just preservation. If you know you’re getting out at a good number. And you’re not ready to do something. I don’t want to feel pressured. I think that’s it makes a lot of sense. To be a little more disciplined about it. So great. Hey, Brett, where can listeners go if they’d like to learn more or connect with you?

Unknown Speaker 43:01

Thanks, Darrin. They can go to Capital Gains Tax Solutions dot com. They can search that on YouTube as well and they can search on iTunes. We have a podcast YouTube channel that’s growing rapidly. We have guests like Darren all the time to talk about all the things we’re talking about here and more. So that’s capital gains, tax solutions, calm I also have a free ebook for you sell your real estate or business smarter, or cryptocurrency smarter. You can download that in the last thing I’ll leave for listeners if you’re a business professional luxury realtor, business broker, financial advisor, commercial real estate broker, syndicator insurance professional, you can go to expert tax secrets calm that’s expert tax secrets.com. And you can learn how to use the deferred sales trust to grow your business. Awesome.

J Darrin Gross 43:43

Well, Brett, I can’t say thanks enough for taking the time to talk today. I’ve enjoyed our talk and learned a lot, and I look forward to doing it again soon.

Brett Swarts 43:53

Thanks, Darrin. My pleasure.

J Darrin Gross 43:55

Announcer 44:12

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Real Estate Investor Evergreen Marketing with Trevor Mauch – CRE PN #311

Trevor Mauch 0:00

I know it sounds like work. But the thing I always like to say is, is hamster wheel has worked forever. At evergreen is a lot of work in the first two years, first year, the first two years and then as it builds momentum you stack we call we call stacking bricks. As you stack those bricks, those those sturdy pieces of content they’re going to, they’re going to be up forever, that people are going to be searching those types of phrases for years. Everything starts to build up for you. And you get momentum and about 18 months, two years after you do it, then you look back and go well, I’m getting leads from all the work I did two years ago from the work I did six years ago.

Announcer 0:36

J Darrin Gross 0:56

Welcome to Commercial Real estate Pro Network’s, 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 Trevor Mauch. Trevor is the host of the Carrot Cast Podcast and the CEO of Carrot, one of the nation’s fastest growing companies, according to Inc Magazine, where they have helped the nation’s top real estate investors and agents plant over 3 million online leads in just five years, closing 1000s of deals with their software and training. Trevor lives in Roseburg, Oregon with his wife and three kids, and is passionate about using business to fuel your passion and amplify your impact that are the impact you want to make in the world. Part of the impact he’s passionate about making is helping entrepreneurs unleash that entrepreneurial dream of finally unlocking that freedom, flexibility, finances, and impact that you’ve dreamed, but have you yet to be able to fully make happen. And in just a minute, we’re going to speak with Trevor about online marketing and how to attract an audience and remain relevant.

But first, a quick reminder, if you like our show, CR e pn radio, there are a couple things you can do to help us out. You can like share and subscribe. And as always, we encourage you to leave a comment we love to hear from our listeners. Also, if you want to see how I answer 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, Trevor, welcome to CRE PN Radio.

Trevor Mauch 2:56

Darrin, man, I appreciate you having me on big time and one thing I forgot to mention so we talked a little bit ago. I didn’t realize you’re a fly fisherman is still steelhead fishermen so I see the video there does shoots river fish and steelhead out there. Dude, we’ve got we’ve got a shared shared passion there, man. I love it.

J Darrin Gross 3:13

That’s that’s a blast. That’s one of the great things the Northwest has is fishing. So I figure if you’re gonna live here, you might as well figure that. That’s right. I love it. But hey, Trevor, I appreciate you doing this. I’m looking forward to our talk today. But before we get started, if you could take just a minute and share with the listeners a little bit about your background.

Trevor Mauch 3:36

Yeah, they’re in some kind of the short of it. Yeah, like you’d mentioned, I live in a small town here in Oregon called Roseburg. And it’s not like the general metropolis of tech companies or real estate investors or anything like that. But that’s kind of part of our purpose and part of our passion and mission. Like we were chatting right before we hit record. And we’ve got this building here. It’s 8000 square feet. It’s a entrepreneur co workspace where a bunch of other amazing entrepreneurs most of us online based companies work out of here and we’re working on like one by one acquiring buildings downtown Roseburg, Oregon to, to renovate get amazing businesses in those buildings. And we’ve just started it with the building next door as well. So that’s kind of like the home where we live, but my company carrot. We’re a team of just shy of 50 employees right now. And that’s a whole different story. And that’s a that comes from a guy who never wanted employees. How is that employees would be you know, a burden versus something that can unleash you. We help about almost almost 1000 real estate investors today. Mostly house flippers wholesalers, a lot of commercial investors as well. I personally use carrot for generating leads for tenants for my rental properties and for my Airbnb ease. But most of our clients generate motivated seller leads motivated house sellers primarily by the tune of hundreds and hundreds and hundreds of 1000s of motivated house sellers every year. Mainly from people going to Google like people do a Google search sell my house fast insert in any city, and then you’re probably going to find a number of carrot sites towards the top of Google and every city in the country, scooping up seller leads. So that’s kind of the high level what we do where we live. And, man, I’m excited to be on here with you.

J Darrin Gross 5:15

Awesome. So, you know, it’s funny, you know, years ago and and, you know, pre pandemic, there were certain cities that were recognized as kind of the the hub of, you know, online or just, you know, more of your kind of centralized cities and stuff like that pandemic, truly proved that you can be anywhere and get work done. And, and a lot of people have made the decision to go anywhere. Yep. So I mean, I would think that in a weird way, Roseburg might have a special appeal to people that are looking for the anywhere that’s got some sort of a hub. And he’s seen any is is there been any inward migration? You know, as of late?

Trevor Mauch 6:00

Man? That’s a really good question. Because I’ve been high. I’ve been high in rural areas for for years. And that’s why that’s why we chose to stay in Roseburg and start this company, right. But even carrot we’re a remote first company. So while we have just shy of 50 full time employees on on the states, we only have about eight to 10 here because some of those types of jobs are a little bit harder. But we do have some employees moving from Metro metropolitan areas to Roseburg, Pete, my head of sales and customer success, he moved out here with his his wife just recently from Baltimore, and they’ve been in Baltimore like their whole lives, and they wanted a slower pace, you know, and I think that’s what a lot of people are looking for right now is, is oftentimes these urban areas that draw them to the urban areas, originally, because of jobs and job opportunities. Sometimes those very things, the buisiness of it, the craziness of what has happened during the pandemic, and all in all of 2020 in urban areas, I think people are looking at they’re going, you know what, I can work from anywhere I want to work now. And let me go do that. So this space here is entrepreneur co workspace, but we don’t have a lot of kind of open space. It’s all dedicated offices, except for one space. And I really see Darren, if you’re in a rural area that is attractive for people to come to because of a slower pace where there are good amenities there. There’s, you know, here, there’s 35 wineries in town, there’s nine breweries, there’s amazing outdoors things, you’re not going to find the most vibrant nightlife, everything shuts down at 10 o’clock, you know, but there’s not a lot of that going on. But if you want an amazing place to raise a family, and that is the inflow we’re seeing, as people that moved out after high school after college, they were away for 789 10 years, they got married, and they’re coming back here to start young families or with their young family for better quality life now that they can work from anywhere. So we’re doubling down on the concept of downtown in rural, we’re doubling down on the concept of CO workspaces, especially in rural, I think those are going to be amazing opportunities for commercial investors next 10 years.

J Darrin Gross 8:02

I love it. So your firm carrot? You mentioned some of the the services or that you you work with a real estate investors and professionals. Can you describe a little bit about what Karen is and how it works?

Trevor Mauch 8:21

Yep, for sure, Dan. So that the original concept was this was in kind of 2000 through 2010, that’s when the internet was kind of getting its feet, the whole the whole call to arms for all all small business. And whether you’re an insurance broker, or you know, the local restaurant, or a plumber or real estate investor, the whole call to arms is like you got to get online, you know, so that’s when you saw GoDaddy pop up and Wix, and Weebly and Squarespace and all of those local mom and pop web developers in town, they all popped up during that decade 2000 through 2010. And when I started entrepreneurship in business, it was right around 2008. And I saw the opportunity for using the internet to really grow a business, not just get online. And, and I started to learn how to make a website actually attract your best clients, you know. And what we found Aaron was, was the most motivated people aren’t the ones that got a direct mail piece that dropped on their on their doorstep, you’re going to activate demand for sure, the most motivated people are seeking out a solution actively. And increasingly, so since 2008, where were people doing it the internet. And then when iPhones came up, you know, everyone pulls out their cell phone to do a Google search for anything that they want. And so that’s the opportunity we saw is we’re like, man, everyone’s online. But their websites aren’t actually working for them. They’re not actually attracting a lot of leads, and then converting those leads at a high rate, because websites were made to look pretty and into setup easily. They weren’t made to perform back then. And so we stepped into that in 2014. And we’re like, what if we were actually just to build websites that converted and actually rank really, really well in Google. So when you sent 100 qualified people to that You would get out, you know, 1520 3040 leads that you could actually work with instead of a few. And that’s what we double down on is it was all about performance, how do we make your websites perform, so you can stop losing leads and deals from an underperforming website. That’s what got us to grow. What kind of is getting us where we’re where we’re going now, is we really hyper focused on what I call evergreen marketing, Darran. And there’s outbound marketing, which works amazingly well, your direct mail, cold calling, you’re knocking on doors, all that works great for any business. The problem with those types of marketing is it kind of keeps you on the hamster wheel. You know, in us as entrepreneurs, we want that freedom, like you’d mentioned earlier on, and you can’t really have the freedom if you’re always on this hamster wheel, where you’ve got to make cold calls today to keep business coming in, you’ve got to knock on doors, you, you’ve got to send out that direct mail all the time. The only way for you as an entrepreneur to get off the hamster wheel is for you to hire people to do it, which is a great option, or fee to choose marketing that actually works for years, not just weeks or days. And so we help people get off the hamster wheel and do what we call evergreen marketing through a Google.

J Darrin Gross 11:08

Now, that’s awesome. I mean, you’re you’re, you know, spot on from I mean, is a guy that was kind of the slow ski, to come to the market and understand just what or I knew, and I know that I need to be online, but the whole, just the everything you described about just the the labor the intensive labor of being online and creating a presence and, and you know, continually updating and, you know, being some social media guy. Yep. I mean, it’s, it’s like all another job, you know, I mean, it really takes your eye off the ball of what you do, you know, if you’re constantly trying to create content stuff. So, let’s talk a little bit about when you say evergreen content, I mean, my if you when you say that, to me, I’m, I’m envisioning something that’s, that’s timeless, meaning that it’s going to be relevant today. And it’s gonna be relevant, you know, three years from today, presumably? Is that kind of what we’re talking about there?

Trevor Mauch 12:08

Yeah. 100%. And so kind of the way that we approach evergreen marketing is this is, is number one, you will work with a ton of real estate agents and a lot of real estate investors, right. The majority of our clients are investors, but the real estate agency years ago, they were taught and educated that social media is the thing, you know, say real estate agents are posting three, four or five times a day on social media, sometimes a lot more. And here’s the thing, they’re like, every single time I talk about hamsterwheel, marketing, like direct mail, cold calling, knocking on doors, you know, social media marketing, it’s nothing that doesn’t work, it works amazingly well. What oftentimes we don’t connect with is the fact that our market actually dictates our lifestyle. If we’re doing marketing that requires us to stay on the hamster wheel, and we can’t get off. Or we’ll we’ll see a downturn, then that that business owns us, like our marketing owns us, instead of us owning the business. And so when I start to look about evergreen content, the first thing I look at is what are you already putting on social media, if you are active on social media? What types of videos are people putting on social media? And how do we just repurpose that to get it over on a website in the right way that Google’s gonna like it, and I can kind of walk through a couple basic steps everyone can do, that’s really simple. But if you post a video or a picture, or a post on Facebook, or Instagram, it’s amazing until 72 hours later, when it’s way down the list, and almost no one sees it. And so you have to post again and always say at the top of people’s feeds, and I can carry out, you know, what if you want to go on vacation, and you don’t want to, you don’t want to do that. And so what we’ll work with people on to say, okay, you know, who’s your primary client? What’s your primary prospect? And what are the situations that they would go through? What are the phrases that they would type in like for you? On the insurance side of things? You and I, are you? You live in Oregon still, Darren?

J Darrin Gross 13:56

Yeah, I’m up here in Lake Oswego right now.

Trevor Mauch 14:00

My old stomping grounds I lived, I lived up right up. Oh, my gosh, it’s been so many years now. It was right by is McVeigh of McVeigh by the river. The 70s nursery, like right behind that is where is where we live for three for three years.

J Darrin Gross 14:15

Yeah, we would have been neighbors almost.

Trevor Mauch 14:17

So it’s funny. So in this example, here, I’m just pulling up Google on my end, you know, let’s say someone was looking for business insurance, or there’s a certain type of insurance in Portland. And I was going to type up, you know, insurance broker, Lake Oswego. And so what I’m doing is I typed it up and Google is give me some suggested searches, right? And it popped up, you know, insurance broker, Lake Oswego health insurance broker popped up there. And then at the bottom of Google, and that’s one thing I always do is what what is the broad topic of what my prospects think I am and what are they looking for? And then I search it and I scroll down to the bottom of Google, and then it’s gonna give me a bunch of suggestions. And this one happens to be a bunch of company names. You know, it’s like business insurance. Sisters, Oregon business insurance Hood River, full heart, Roger biz net, so he must be a big insurance guy, I don’t know. But the cool thing is when you start to put out content, and you do it consistently on your website instead of just social media, and that content is robust, it’s not just 100 words, it’s 7800 900 words. And that’s what Google was gonna look at, you start to build up this authority hub on your website. So Google sees as our amazing robust content, this guy Darren is an authority on insurance in Lake Oswego. And then your whole website’s going to lift. And now you’re going to be in front of that evergreen flow of your most motivated prospects who are closer to the by decision than someone else.

J Darrin Gross 15:44

So let’s talk about that. I get the kind of the the local kind of thing is what do you have that would drive a lot of that presence? Or on the search?

Trevor Mauch 15:53

Yes, so the local part, it makes it easier to rank really well if you’re localizing it. So when we’re working with an investor or an agent, their services are usually hyper local agents, specifically, or hyper local. But we do have a lot of investors who do business in 345 states or they buy they buy houses nationally. And so what happens is, let’s say, let me ask you a couple questions here there. Are there certain cities, in your example, there are certain cities that you do business in, that you’re like, Oh, these are my five favorite cities? Do you have cities like that? Or is it very general and broad,

J Darrin Gross 16:30

more of like the Northwest, I mean, I, I work with clients nationwide. But I would say that obviously, just having a physical presence here, and just, you know, local, there’s, there’s a a significant portion of my business, that is Oregon and Washington, the Portland metro area, so perfect.

Trevor Mauch 16:48

And so that’s a cool thing is it depends on how your your primary prospects search. And so if they’re going online to search local restaurants, of course, they’re probably looking for a restaurant right there where they are, or possibly, maybe they’re looking for a place that they’re going to be in the future on vacation. But with insurance, they oftentimes type their local area, right, this type of insurance in my local area. And what we what we pioneered shoot seven years ago in the real estate investor space, was we would look at companies like loopnet. And then Zillow came to follow and we noticed, man, most of the most of the searches that I do on investment properties for sale, insert any city in the country, you’re gonna see loop net ranked number one, number two, and number three in Google, right? And we started looking at that and say, Well, why is that the case? And then you’d click those links. And it’s almost never their homepage, like their homepage is never the thing that’s ranked there. It’s always a page hyper specific to that location for the thing I was looking for. And we said, What if we can’t take this same concept to the real estate investor space? And how do we how do we amplify that so an investor would launch what we call a location page, or a city specific page, where you can launch a location page for that discipline. And if you’re in business in 17, cities, you should have paid for every single one of those cities for the different types of services you offer. And so for you, if you offer three different types of insurance, it might be a great opportunity to put landlord insurance broker in, in Lake Oswego landlord insurance broker and Beaverton landlord insurance broker in Salem land, you get the idea, right, and create a separate page for each one of those. And so I know it sounds like work. But the thing I always like to say is, is hamster wheel has worked forever. evergreen is a lot of work in the first two years of first year, the first two years and then as it builds momentum, and you stack we call we call stacking bricks. As you stack those bricks, those those sturdy pieces of content, they’re going to, they’re going to be up forever, that people are going to be searching those types of phrases for years, everything starts to build up for you. And you get momentum and about 18 months, two years after you do and then you look back and go, Well, I’m getting leads from all the work I did two years ago from the work I did six years ago. From for me, Darren, we built care at the exact same way. We didn’t do any paid marketing for the first three years. And we said, What if we just went went went and looked at like, what are the phrases were national company? So we said, What if we just looked at the phrases that our ideal prospects are searching in Google. And then we just started to create content around those phrases that was robust, you know, 800 words or more was interesting. It was valuable. And then we started to create one or two those a week. And that was our that was our primary marketing strategy. And it could be phrases like how to invest in real estate, how to wholesale houses, it could be motivated house seller leads, it could be websites for real estate, investors, things like that. And so that might be a good strategy for you as well do the we call it do the localized ones first for your primary business function, you know, investment or investment, property insurance, landlord insurance, whatever it is in these locations, and then we go after the niche searches. What might they searched? It’s more broad that isn’t location based. It could be what type of insurance Should I get if I own a rental property? Right. And that that could be amazing content that you could create and build that authority hub on on your website.

J Darrin Gross 20:12

I love the kind of the timeline, the two things I picked up from what you just said there was the timeline of expectation there anywhere from 18 months to two years. And then also the, the, just the volume of content, the frequency, you know, something from one to two articles a week, and the length of the the art of and then I think the key thing is, this is the key to all of it, if it’s not interesting and valuable, it doesn’t matter which hinders, there’s clearly a lot of people that that tried to game the system, unfortunately, Google got smart enough to recognize the game. And a lot of cases, but just, you know, just if it is valuable, and it’s evergreen, I mean, that that’s, that that works nice. what’s frustrating, and also rewarding in this whole thing is recognizing people that I know that have gotten, I don’t know, say a head start. But they’ve done the work, like you said, they put the brakes in place. And now I see leads coming in and going wow, okay, that really works.

Trevor Mauch 21:19

It’s crazy. And here’s here’s the cool thing is that the reason I even started to dive into this, this type of marketing Darren was before before carrot, I did a lot of damage to marketing. And like I said, it worked, I made some good money by this sort of in 2011 12. In my previous company was online business as well. But our income was kind of boom and bust, you know, where we would have $130,000, one month, one month, and then we then me and my business partner would split $6,000 the next month. And then we lost money three months after that. And then we made another 70. And it’s like, man, at the end of the year, your income statement looks pretty good. But you’re stressed the entire year, because you didn’t know where your income was gonna come from in three months. And, and when that happens, you can’t really plan ahead, you can’t plan ahead well and have confidence to hire an employee Sure, like I don’t know, it’s, it’s so inconsistent. You can’t plan ahead well, and say, You know what, I’m gonna take a month off of work, and I’m legit not going to work at all, or I’m gonna not work as hard or I don’t have to do any marketing this month, because I know it’s coming in or whatever it is. And I kind of had that that dream. I’m like, Man, what are the things in my business that I don’t like. And in 2012, I sat down and wrote wrote down the list and 2012 was this big transition year for me, I figured out how to get a business off, you know, off the off the ground. And what I discovered down is about two to three years into a business, maybe three to four, it’s very common for for us to lose that edge, lose that excitement, lose that fire for that business, we have started, you know, because when we start this business, whether it’s being a commercial real estate investor, or you know, any type of business, you’re usually running away from something, right, you’re wanting running away from a job you didn’t like you’re running away from an income ceiling, you didn’t like you’re running away from some people saying you couldn’t do something and you want to prove them wrong. And then as soon as you make that thing work, and you start to hit that that income level that you’re hoping for, or there’s progression, that fire that you’re running away from is gone. Now that motivation is gone. And we forget to now run towards something. And so now happened to me, in those early years as an entrepreneur, and I started to wake up during the, you know, some days, I’m like, why am I doing this, I’m not excited about what I’m doing right now. I feel like most of what I’m doing is just my energy being sucked out of me, but I’m making good money. So it was hard for me to, to justify it because the outside world was validating me saying, Man, you’ve got what I want. And I had it and I’m like, I’m miserable, though. I just don’t like it. And so during that time, I started to switch my mindset from trying to be productive, and trying to like do productivity hacks to well shoot, how do I just have more energy during my work? How do I can I base my work on energy instead of instead of making a list of what makes me money doesn’t make me money, and crossing out all the things and stuff that doesn’t make me money and saying, I’m not going to do that, and doing more of the things that make me money. I said, Well, what if I just flip the script and I just do a, an energy on it, I call it and just make a list of all the things that drain my energy, and all the things that give me energy, especially the things I’m not doing, but but give me energy. And I go, what if I just changed my work towards energy instead of money, and maybe the income will follow. If I do work that gives me more energy than not. And that’s what led him to evergreen marketing was a sort of look at all the things that are draining my energy was me staying on this hamster wheel to try to get customers to come in. And I was executing on this stuff. And I looked at my p&l in my leads. And I said, Well, there’s this little line item of leads over here. And they were like our most profitable clients. But it was a minority of our income. And I said Man, I barely put any work into that and that was work I did two years ago and it’s still paying off. What if I just did all of that. It’s gonna take a while to transition. It’s gonna take a lot of like transition now for that drip of the instant gratification of You know, paid marketing or things like that. But what if I just made that shift? And what if my whole business was built off of that, and then I could do paid marketing or hamsterwheel, just to if I wanted to, or if I wanted to grow and amplify it. And that’s the shift I made, I’m like, no longer Am I going to build a business that’s inconsistent and predictable, I’m not going to build a business that isn’t fun for me, I’m not going to build a business that that is not based on my unique abilities, I’m going to really dive into and embrace it.

J Darrin Gross 25:27

I love the the energy, thought and because that is just like, you know, I got to do this again, kind of thing. And, and, you know, it’s a grind in, and I’ve worked with various marketing people over the years and stuff and in certain things, you know, produce, like you say, I mean, I’ve done I’ve worked with people making outbound calls and, and outbound marketing, I mean, in the reason why people do it is it works, it works. But if you don’t do it, it’s done. I mean, there’s not like a line of people trying to get in, it’s a matter of Have you got to pay to continue, you know, making the, the outbound calls in order to have the opportunities to to make sales and then and so, you know, how did you when you were sifting through that make that decision of what was giving you energy versus what wasn’t? Because I think sometimes, you know, the, in a sales environment, especially, you know, making sales, you know, or, you know, making money because you’re making sales. Yep. That’s energizing, but, you know, distinguishing between the activity versus the I mean, to realize, really, what was the root of that, you know, sounds like you kind of went through, you know, the different sales you’d made and realized what customers came from what efforts is then kind of what, what you did, or is that I mean?

Trevor Mauch 26:46

Yeah, a little bit, I really took stock and everything, like everything in my life at that point, because, and I think a lot of people on this podcast can probably relate you guys, you guys might be in a spot and you’re in your job right now, or your business right now. We’re like, man, I hit the goals that I thought I wanted to hit years ago, I’ve got the income coming in. But the clouds didn’t part the angels didn’t sing, you know, it’s like there’s, there’s fulfillment is missing. And, and, and it hit me, I had a friend, or I have a friend, who was really successful still is, and he was kind of like the guy at that time that I looked at and said, Man, he’s a man of faith. Like, he’s a father. He’s coaching his kids football teams. He’s got these two businesses, he’s able to go to business number one on two days a week and just do what he wants to do business. Number two, he just does what he wants to do. And I’m like, I’m doing all this stuff, like all this stuff, even stuff I don’t want to do and it feels like it seems like when I talk to him, he’s more energized than not. And I said, Greg, what’s, what’s your secret? And he said, Man, he said, the biggest thing is, you’ve got to figure out what your unique ability is. And he learned that from a guy named Dan Sullivan, with a company called Strategic Coach. And so Greg had talked to me about unique ability. And I ended up actually joining Strategic Coach for a year in 2012, which, which changed the course for me because that one little thing of unique ability unlocked for me, and this, this is where it was this or the energy thing came from Darren was, I was in workshop number three, I think he go quarterly to this, this Strategic Coach thing, I flew into Chicago, every single quarter, and they lay out a plan in front of you, and they make you think about your business and your life. And the whole thing is to win back your time and grow and grow a great business. And the whole the whole unique ability thing wasn’t clicking for me, like I knew that I wanted to find it, but I couldn’t figure out what mine was. because on one hand, get a bunch of very smart people saying your unique ability or your you know, whatever you want to call it your superpower, whatever is things that people will tell you you’re really good at and you get paid really well to do. Right people say you’re really good at you get paid really well to do they’re like do more of that. And that’s what I did for those three years. That’s what got me a pretty good business and made some good money. And it’s also what got me so I completely wore myself out and lost my fire. Because half the things that were making me really good money and people said I was good at completely drained my energy and I did not want to do them. And I’ll give you some examples. I love strategy, right love strategy, but I hate actually the execution of the thing. So like I want to come in and blow up the whiteboard and I’m gonna sit here and then I just want it to be done you know the things to be done. But if I have to sit down and write the emails or do this like ah just sucks the life out of me.

I love love love doing these things. This gives me energy. But what I don’t like is writing content which is kind of funny because that’s what my business is built off of with carrot like even when I started carrot I’m like I’m content forward. And and I found myself wearing myself down writing late at night to get to a deadline to get an article out and go man, I love the Evergreen marketing thing but I don’t like I don’t get energy from the writing. I get energy from the strategy of coming up with the articles and the topics but don’t want to sit down and write. And so for me the energy audit actually became a process that I do quarterly and you guys can find it I’m it’s a free worksheet. I don’t think you have to download Don’t think you have to opt in for it. Just go to carrot comm forward slash energy, carry comm forward slash energy, no opt in Nothing, I just want people to use it and get it. But I took a piece of paper drew a line down the middle. And on the left side, I’m like, okay, the definition of your unique ability from Strategic Coach is you’ll know that you found it when you when you get more energy, when you’re done doing the thing than when you started. You have more energy when you’re done doing the activity than when you started. And it’s something you could be amazing at potentially world class out if you work that hard enough. And so I said, Okay, let me find what those things are. So drew a line down the middle of the paper on the left side, it was drew energy drain on the right side of his energy give. I said, let me just write a list of all the things on an average week that I do currently that drain my energy. It’s like writing emails and doing this or writing blog posts and having these types of meetings and put stuff in your life to write like, this type of chore at home. I don’t want to mow my lawn. I don’t like that. And so all these things on their own. And the right side is what gives you energy, especially the things you’re not doing right now. Okay, I liked working out I wasn’t working out it gives me energy. I wasn’t doing it though, because I didn’t think I had time. Okay, I love strategy, but not like execution of the strategy. I love having conversations like this with smart entrepreneurs. I love dreaming and vision. I don’t like actually executing the vision, right? And there’s the I’m looking at it going, Oh, there’s a lot of things that make me money on the left side. And the things on the right. And like I don’t know how to make money, just having conversation with smart people. I don’t know how to make money, just strategy not executing it. Like how the heck does that happen? And so one by one there and I did this, I said, Okay, I don’t have to know how to do it. But what if I could just start switching energy draining activities for energy giving activities every quarter? And let me do let me kind of take a synopsis at the bottom of that sheet. And let me write down. What percentage of my average week right now is these things that drain my energy versus these things that gives me energy. And at that time during 2012 it was about 70% energy draining 30% energy giving No wonder I wasn’t liking my work anymore. No wonder. I’m like, Oh, damn the answers right there. It’s energy. It’s not productivity, it’s not. So if I can get more of these crappy things done, it’s I’ve seen stop doing those things. And so every quarter, I do that list, and I still do it today, circle one or two of the items that drain my energy the most write down how many hours per week I do on those things, let’s say seven hours on writing blog posts for week, three hours in this other thing, checking email, or whatever it is. And I go cool. Over on the right side, what thing gives me energy that I’m not doing enough or not at all that I want to replace with that seven plus three to 10 hours a week, I’m buying back. And I’m gonna replace it with this other thing over here, even if it doesn’t make any money. Because on the article side of it, let’s say it was seven hours a week, I’m like, I’m not going to do it anymore. I love the strategy side, I’m going to I’m going to lead this strategy, my articles, I need to find someone who’s amazing to write them now. And so that continues that money making activity continues. I replaced it with starting my podcast, because it gives me energy, like I have no clue how to make money from it, I just want to do it because it gives me energy. That’s it.

J Darrin Gross 33:04

I just loved the whole energy essence of it, as opposed to the focus on like, the money side thing or something because energy is something you can feel and you’re like, dude, I remember years ago, I remember I bought a ski boat. And it was just like, there was this passion that was just like it was, you know, every every day, I was like trying to get my work done as fast as I could, because I knew as soon as I’d done like, it’s a Hey, guys, I’m at the lake, let’s go. And there was just, but it was it was it was like kind of the lead of of, you know, whenever I was talking to people, you know, I was like invite them on the boat or there was just like, there was some energy, you know, like he said energy. And just but just to have that that energy. And it’s and it was such a giving thing, even though there was a cost to it that the give was way more beyond the cost and that

Trevor Mauch 33:53

it’s gonna make every other part of your life better. Right. And that’s one of the best that I was making in 2012. there and I said I don’t know if it’s gonna work but what you’ll what what if all of these things over you’re working out doing starting a podcast only doing strategy or mainly doing strategy doesn’t mean I’m only doing that. But I didn’t I didn’t have a team at that time. So I’m looking at this photo shoot. So how am I going to do this stuff? I don’t have a team Well, I once again, I every quarter that was that was the first stuff on my plan that quarter it was it was creative process for this thing, and then find a person to do that thing because I’m not going to do it anymore. Credit press for this thing. We’re just saying no to it. So I hired an assistant. She took over my email, and she took over a lot of those things in her and I still do the energy audit quarterly. Trevor what what did you get back on that energy drain list that that is there. Now that wasn’t before? Oh, what’s this? How much time a week is it taken? Man about this. I don’t even know how I let it slip back in or what it did. And then it’s like I how many hours there what two things? What do you want to add back in? I need to get working out again. Okay, cool. Then she would help me on that and one by one there and it didn’t happen overnight. I started to make that shift and that’s when I really embraced building it. Team because I never wanted to build a team before. It was all it was all about how do I keep the most money in my pocket? Because every employee is reducing what’s new in my pocket? And it’s a burden. Today, almost 50 employees? Is it a challenge? Yeah, it’s a challenge. But I wouldn’t trade it for the world. Because I’ve got my time back, I’ve got my freedom. And we’re making more impact than we ever could have made before.

J Darrin Gross 35:22

I love the the Periodic Review kind of thing where you’ve got, you know, you’re doing it because I think that it’s too easy to get into the routine of the day of the week of the month of the year. And the next thing you know, there’s years gone by, and you’re still at the same point. And to have that kind of periodic review, and just be very conscious about what you’re doing, and where you want to go. Which is, is awesome. I appreciate you sharing that.

Trevor Mauch 35:48

Yeah. And one final thought on that. Darren, just kind of piggybacking off of what you just said, there is for the people listening to this, you might be looking at this going well, you know, Trevor, of course, you can have energy in the software company named for vegetable and like, we have everything in this office is orange, we have carrot dolls, we send out 1000s of them every year, like we do things intentionally that are fun, guys, it has nothing to do with the type of business I have. Because I know plenty of software company owners who have completely boring businesses and their energy is getting drained in it, it was just a conscious decision to say, What is it about business that I want to amplify that gives me energy that I have fun doing. It doesn’t make any business sense that we make a line of dolls that are care, like super carrot and farmer care and all that. It’s just fun to do. And we like it, and it gives us energy. And it happens to be a good business decision, too, because people like it need posts on social media. So if you’re in real estate, if you’re a commercial real estate investor, if you’re an insurance broker, awesome, the energy audit is actually going to be a way to help you enjoy your business better. Because we oftentimes despise our businesses, not because the type of business that it is, but because of what it’s taking from us, because it’s taking our energy from us, because it’s not letting us live those passions. And so, you know, one thing I learned years ago, I thought I had to build a business around my passion. You like boating, like fishing, I love mountain biking, I love fishing, I thought man, I’m gonna have to like start a business in that. And what I realized is no, we have to, we have to start a very intentional business that gives us energy that gives us what we want the business supports us other than rather than us supporting it, and it takes work to get there. It’s not overnight. But then how do we make the business fuel our passion? It doesn’t have to be it. You know, if you love boating, and love fishing, it’s like awesome. How do you bake that into your business? You know, is there a more active way that you can even have annual or monthly or quarterly boating and fishing trips with your clients? And you just do it because it’s fun. And you sell already and post on social media? You know, is there a way that that you can bake in some some other way of purpose or passion into that? And I think this podcast is probably part of it for you too.

J Darrin Gross 37:52

Yeah, no, I think that you’re spot on is you know, it’s part of your life. It’s not like this extra thing. It’s it’s all baked into together there. And indefinitely. When you have a passion and you’re able to live it and share with others. It just shows that and it attracts, it attracts people to come and work with you. So hey, Trevor, if we could like to shift gears here for a second. I mentioned earlier that by day, I’m an insurance broker. And there’s a couple things we do with with clients when we’re assessing risk and trying to turn to determine what to do with it. And there’s three different strategies we typically look to, we first look to see if there’s a way we can avoid the risk. That’s not an option, we’ll look to see if there’s a way we can minimize the risk. And we can’t avoid nor minimize a risk. And we look to 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 own situation. It can be their clients, investors, market tenants, however you want to define it, or identify. But if you can take a look at your situation. And and, you know, tell us what you consider to be the biggest risk. And for clarification, and just want to make sure you understand I’m not necessarily looking for an insurance related answer. Yep. So if you’re willing, I’d like to ask you, Trevor mock. What is the BIGGEST RISK?

Trevor Mauch 39:22

Man, this is a good question. So four years ago, we started when we do our annual planning, one of the first things that we do, like we’ll set numbers and goals and stuff like that. But then right after that, we do an exercise where it’s like, it’s kind of kind of a SWOT, I guess you could call it but it’s like what could kill us? What What can kill this business? Because oftentimes, we ignore those things that truly could take us out and they take us by surprise. And so the things that the top of that for us are, if since we’re so heavily focused on Google, and not all the leads for our clients come through Google searches, it could be from pay ads and things like that. But we’re very heavily focused on Google, if there was a major change in Google and we got are caught with our pants down, and our websites all sudden, for some reason weren’t exactly what Google is looking for. That would be decently catastrophic. And so we take that go, Okay, how do we make sure that that’s front and center in our product? Whenever we’re looking at anything product related? How do we make sure we’re always relevant in Google, we’re staying ahead of the curve or websites or fast things like that. The second one day, and I’ll just give you two here is being Frank right now in this business. I’ve been building a leadership team, we had an outside company come in, and did a really good audit for three year vision moving forward. So we all kind of knew what were the weaknesses, what were our blind spots, and I had kind of known it. But what what came up is that I am too key on the strategy side in a way to many parts of the business where people from all around the company see me as innocent as necessary on the strategy. And I’m like, Oh, my gosh, I totally didn’t lead well there in those certain spots. Because if I’m that key, if something happens to me, they all feel this thing’s gonna fall apart. And so we got around a table, it’s like, how do we make this not true here? What what’s in my brain? Where do we need to upgrade leaders? You know, keyman insurance, that is an actual thing that we did about a year ago, when we did that, and it’s given me peace of mind for me and my co founder for sure.

J Darrin Gross 41:35

No, again, I appreciate you sharing that and, you know, not only are you talking the talk, but you’re walking the walk and kind of figuring it out and and trying to make it all work for a long time. I appreciate that. For sure. Trevor, where can listeners go if they would like to learn more connect with you?

Trevor Mauch 41:57

Man, there’s a couple spots so I’m really active on Instagram. I don’t post a lot over there. But I answer every every single dm I’ll post maybe a couple times a week, kind of document behind the scenes that my business here I’m also a real estate investor. He also I own commercial real estate, I own some some multifamily and some Airbnb zz as well. It’s kind of my side hobby. But carrot calm as a primary if you want to kind of learn about what we’re doing, we put a ton of content up there for free. So if anyone in your teams wants to learn how to get leads, for sellers, buyers, tenants, things like that, go to Kerry calm lots, lots of free info. I’ve got the podcast called the carrot cast, just look it up carrot cast and Apple podcasts or Spotify or go to carrot cast calm. And about half the episodes are interviews with investors that are out there crushing it some some big multifamily commercial investors as well. And then half of them are literally me and my truck with my cell phone when I’m driving home takes 15 minutes to get there. I call them Trevor truck talks and it’s just what’s on my mind as an entrepreneur not related to real estate at all. And I love doing them yes, we care cast

J Darrin Gross 43:03

awesome well, Trevor, I can’t say thanks enough for taking the time to talk today. I’ve thoroughly enjoyed it learned a lot and I hope we can do it again soon

Trevor Mauch 43:13

there and I absolutely love the opportunity love what you’re doing and hopefully it since we’re not too far away, man, we can meet up for lunch or something Sunday. Let’s do it.

J Darrin Gross 43:21

I welcome it and look forward to it. Awesome. Thank you Darren like an avid. Alright, and for 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 Network’s. CRE PN Radio.

Announcer 43:44

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Commercial Real Estate Entitlement Deals with Adam Gilbert – CRE PN #310

Adam Gilbert 0:00

Entitlements can mean a number of things. But specifically, it’s getting approvals from a city or a county or some municipality to do some form of real estate deal or development. And so that can be taking raw land and saying, hey, I want to build eight homes on it, that can be doing, you know, buying a building and then changing the zoning to allow for a different use that increases the value of the building. That can be you know, one product I’m getting a drive thru approved on a vacant piece of land that’s already in a shopping center surrounded by other businesses. So you know, if the land is worth, you know, we’ll make it easy 500,000 and then I can get these plans approved to the city to do a drive thru. Well, now I can maybe sell that piece of land for a million dollars, even though I’ve only invested some time at about $100,000 and architectural fees. So you really have the capacity if you can figure it out. To do these 5x and 10x type deals with minimal, you know, capital, but it is a bit on the riskier side.

Announcer 1:07

J Darrin Gross 1:26

Welcome to Commercial Real Estate Pro Network’s, CRE 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 Adam Gilbert. Adam is the president of the firm commercial, where he leads a team of agents specializing in commercial real estate sales, leasing, land acquisition, development, government relations and value add entitlement deals. And in just a minute, we’re gonna speak with Adam about value add entitlement deals. 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 encourage you to leave a comment. We’d love to hear from our listeners. Also, if you want to see how handsome our guests are, and 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, Adam, welcome to CRE PN Radio.

Adam Gilbert 2:46

Thank you. I’m happy to be here and excited to have a chat today.

J Darrin Gross 2:50

Well, I’m looking forward to it. That makes two of us I guess now, the before we get started here if you could take just a minute and share with the listeners a little bit about your background.

Adam Gilbert 3:02

Yeah, definitely. So most of the deals that I do are in Palm Springs, California area, big hospitality area, Midwest endeavor hospitality, hotels and vacations. So I was born and raised here and went to school, I actually became an attorney. And I moved back to Palm Springs to practice law and found this little thing called real estate and real estate investing, which kept driving me away from the law office and out onto the streets looking at buildings and doing deals. So about I guess it’s about six years ago now I left practicing law full time, I started a real estate brokerage. I started a vacation rental management company doing Airbnb, which I sold and now I both run the brokerage helping people find commercial deals and do a lot of investments myself.

J Darrin Gross 3:51

Awesome. Awesome. So you were on the as far as the attorney work, were you doing courtroom stuff or corporate document or what what kind of?

Adam Gilbert 4:01

Yeah, mostly, I mostly did civil litigation. So I would get the file and then go to the courtroom and you know, do my argument or be negotiating on the phone. So paperwork and stuff was never my forte, but getting down in the details and doing transactional stuff. I’m much more of a talker and get things done that way.

J Darrin Gross 4:21

Gotcha. Gotcha. Well, the attorney thing, it’s kind of the you got to have them but it’s always kind of how the sausage is made kind of thing. And I always say I’m a recovering attorney. So there you go. So real estate, sounds like you were doing some investing in some air b&b. And he had the brokerage and and tell me a little bit about how you got started in real estate.

Adam Gilbert 4:48

Yeah, definitely. So I have, you know, ADHD to the nth degree in terms of starting businesses and getting involved in different endeavors, which I think was why Real Estate Investment is so great for me because I can do a few different projects at any given time and move on. But I was practicing law, I sat down for my broker’s license, and I did a deal is like 2012, the market was, you know, just coming out of the pits of 2008. And my uncle wanted to, he wanted to do a flip property. And so he’s like, hey, Adam, like, write it up, you know, you just got your broker’s license. And so I did, it took like, 10 hours, we found the property, I wrote it up, and I get this commission check. That’s like, 25% of my yearly pay as an attorney. And I’m just like, Whoa, there’s like something to this like, thing if I could figure it out. And so that’s kind of where the spark was born. And, you know, I can’t rely on my family to buy all the properties that to keep a career guy. So I had to, you know, hang a shingle create a company. And you know, I’ve been doing this now for about 10 years. And so I’ve been able to kind of mark my way on the brokerage side. And then as I learned from other people getting paid to do brokerage, what type of deals they were looking at, and where they can make money. I got a great education marketing paid, and it gave me the opportunity to start doing deals myself.

J Darrin Gross 6:19

Awesome. And, and so you started off though, kind of like in real estate doing the the brokerage side of things? Yeah. And then started investing yourself.

Adam Gilbert 6:28

Yeah, I mean, I started off, you know, at the beginning, you start off kind of where everyone does, you know, you’ll take any, any, any client that will work with you. So it started off in single family, residential, you know, kind of entry level homes, condos, things like that. And then, quickly, you know, I was able to kind of move into larger scale luxury vacation homes, and then moved into commercial where there’s just very few people, especially in our market, you know, if there’s 5000, residential realtors, there’s like 20, commercial realtors who are doing things, so I’m like, okay, like, if I’m going to do something, I should go into that space. And, you know, just kind of really fell in love with the deal making aspect and kind of all of the, you know, seller carry notes, and, you know, all these different ways to really make commercial deals work. And then I really found value out of title mints, which I know we want to we want to talk about, and that’s where I’ve really carved my niche as one of the very few people who are, you know, kind of doing these types of deals.

J Darrin Gross 7:29

Gotcha. So, let’s talk about the value add entitlement deals. Can you give us some sort of a definition or give us an example of what a value add entitlement is?

Adam Gilbert 7:45

Yeah, so you know, entitlements can mean a number of things. But specifically, it’s getting approvals from a city or a county or some municipality to do some form of real estate deal or development. And so that can be taking raw land and saying, hey, I want to build eight homes on it, that can be doing, you know, buying a building and then changing the zoning to allow for a different use, that increases the value of the building. That can be you know, one product, I’m getting a drive thru approved on a vacant piece of land that’s already in a shopping center surrounded by other businesses. So you know, if the land is worth, you know, we’ll make it easy 500,000. And then I can get these plans approved to the city to do a drive thru. Well, now I can maybe sell that piece of land for a million dollars, even though I’ve only invested some time at about $100,000 and architectural fees. So you really have the capacity, if you can figure it out, to do these 5x and 10x type deals with minimal, you know, capital, but it is a bit on the riskier side.

J Darrin Gross 8:55

Got it. So the the raw land and its use, and the drive thru as a as a, an option. Do you find that most of the the value add entitlement work you do is with raw land? Or is it common to have an existing built out structure? And the the use just be changed from you know, a to b?

Adam Gilbert 9:22

Yeah, I would say when, when talking about entitlement. I think most people default to raw land on that’s how most people think about it. I’ve really got I’ve now in the process of doing my third zone change. And so that’s kind of a little niche, even with the entitlements that I’ve kind of carved out to be able to try to achieve. And you know, every person, whatever town you’re in, you’ve got that piece of land or that building and you’re just like, why hasn’t anyone done anything with that? Or what why is it sitting vacant, right? And so for me that sparks some creativity is like okay, well probably doesn’t work how it is. But if we can change the use and allow something else there, maybe there could be some value that’s created. And so, you know, if you can buy it when it’s not approved for that, and then sell it what it is, there’s the opportunity to create the value add of the entitlement, you know?

J Darrin Gross 10:19

Yeah. So if there is that property that you identify, and and it’s just been sitting there, and the question comes up, why has nobody done something? Where that property? Is you and your own creative mindset that kind of thinks of what the alternatives are? Or do you go to the city and find out what, you know, what the limitations are? And is like, based on what neighboring properties are zoned, or their use? Or how do you how do you approach assuming you can’t go to the middle of a suburban block and in change it to a, you know, some sort of a, you know, way outside of the zoning news, but more of like a corner lot, or something’s on like a busy street or something like that is more of a target for something like this?

Adam Gilbert 11:10

Definitely. And so the answer is all of the above, it really hot, you have to one know what the community needs to you have to make sure that the use you’re changing it to is not going to be a nuisance to the area, it should actually be an improvement, you should be able to get your you know, if you’re trying to change to do his own change that people I mean, people complain about all sorts of things, but is a negative impact on the community to make money, you’re not going to be successful, because they’re going to go to their city council, and they’re going to go to all the levels, and they’re going to complain, and your projects going to get shut down. And then three, you know, yeah, you got to go to the city, you got to make sure it complies with different parts of the of the specific or general plan, you have to make sure that there’s no environmental impacts. I mean, I’m in California, and it’s, you know, we have a very high barrier, you know, in terms of making sure that we don’t have environmental impacts. So you got to be very careful. But you really have to check all of those boxes, and make sure that it’s a project that fits the community and the area.

J Darrin Gross 12:15

So in each one of these scenarios, where you you know, you have a piece of property that’s zoned in a historical way that’s kind of limited its use, nobody’s using it or doesn’t recognize the opportunities, because it’s not available right now. Is there like one, you know, governing body that you have to approach? Or is it a series of bodies that you have to get the checkoff approval and, and go through a sequence? Or is it every property is different? Can you talk a little bit about that?

Adam Gilbert 12:50

Yeah, so each city is going to have their own process. And you’d be surprised if you go to the planning desk of your city, they’re going to be very knowledgeable about this process and what it takes in that very city. Typically, what you would do is, you know, there’s applications to do different things. And if you find out what you’re going to need from your architect and engineer to do this, but most cities have, you know, like an architectural Review Board, which is the first step. And then secondly, a planning commission, which is volunteer people who, you know, review planning projects. And then finally, for like a zone change, you’re going to have to go in front of your city council and Mayor. And, and get those approvals. Now, sometimes, like in my particular jurisdiction, we have tribal lands, here, Native American tribal lands. And so we actually have to get our projects signed off and approved by the statewide tribal authority before we can do them. And sometimes they’ll, you know, ask for certain things. I have one project right now, that’s very close to the airport. And so I had to go through the airport land use commission. So every project is different, every city is unique. But those are the typical steps that you’ll have to go through for most entitlement deals. And sometimes, you know, Planning Commission is the end all you don’t have to go to city council. So it really just depends on the project and the municipality.

J Darrin Gross 14:16

Got it. Now, and you mentioned, you know, the public you know, always has, I guess the opportunity to voice their opinion for usage. Jeannette, do you find that if you are working within the system and and approach to kind of moving through the system into a, and you’re getting greenlights from everybody that public usually goes along, or do you find it that it is or is there something you found that’s like, you know, good luck with that the public?

Adam Gilbert 14:52

Yeah, the public is always the public. So I mean, I mean, you can find the best projects in the world and you’ll find people who will complain about it. You know, and that’s across the board. You know what I tried to do on all my projects, especially, you know, in Palm Springs, it’s very community driven. And we have a large neighborhood, active neighborhood organization groups. And so I, before I did my project, my most recent project, I went to the neighborhood during their, their annual meeting, and I said, Hey, this is the project that I’m proposing, I want to get your guys’s feedback, what are some issues that you’re having? Are you having negative impacts that I can address through my project? And they’re like, Yeah, actually, we have all these trucks coming from ups that blow through our neighborhood early in the morning, every day. And I’m like, Okay, well, maybe I can propose some speed bumps, or some speed humps, or you know, something along those line lines in my project that will alleviate that. And so you know, as a developer, you have the opportunity to solve problems, you can create a lot of problems, too. And so, you know, you have to be aware that, you know, you have an impact in the community, and you’re coming into someone’s existing home or business or, you know, commercial area, and having an impact. So, you know, you can try to kind of sneak through, and a lot of people do that. But it really depends on the community that you’re in. And that’s going to be in the developers discretion as to how they want to pursue it.

J Darrin Gross 16:20

Yeah, I had a little bit of experience with that. And you get a angry mob, and it’s tough to tough to beat on me. Oh, yeah. Yeah. So you identify a property, you kind of you get your creative thinking hat on you, you approach the different bodies that kind of regulate the decision making you get some direction. What What have you found kind of a timeframe. I mean, this is, this is not like, you go down on a, you know, a Thursday and Monday, you’ve got a permit and you’re ready to, to pray or you can sell the property, you kind of say, What, is there any kind of a rule of thumb, do you just kind of like in your head, kind of assume that it’s going to take X amount of time to get something done?

Adam Gilbert 17:13

Definitely. And you know, the old real estate agit adage, it always takes twice as long and costs cost twice as much as you originally expect. It’s kind of the same here. So I mean, if you’re not doing his own change, and you really just want to like get some you say, Hey, this is a great piece of residential land, residential, Real Estate’s going through the roof right now, let’s get some new homes approved. And again, this is California, I’ve heard that there’s other states that are way easier on this. So this is probably the hardest, except for maybe like Hawaii, which I know has their own process. It’s usually about six to nine months, if you’re on top of it to get products like that approved, if you’re trying to do something a little extra, like a zone change, anticipate about 12 to 18 months. But the way that I structure my deals to give me the most flexibility and hold by cash and not get too tied down to a deal is that I structure my purchase to have very long escrows to allow me to do these entitlements, or do an option that gives you a long enough amount of time to be able to exercise that option once you get those entitlements approved.

J Darrin Gross 18:22

Got it? No, I was going to ask you about that as far as the time goes, and how you structure the deal, because I’m assuming that when you identify a property, and you need to gain control of it, so that somebody else doesn’t figure it out, or you know, figure out that you’re doing all this work and jump ahead of you and tie up the property. So step one to be gained control of the property is that

Adam Gilbert 18:48

is that kind of the definitely and making sure that you, you have options to extend as much as you can? You know, because the last thing that you want to do is to all these entitlements to a project, your time runs out, and you can’t sell it or you can’t do anything with it, and you can’t close on it. And now all these entitlements go to the property holder and the owner, right? So timing is always, you know, people talk about location, location, location. My business is timing, timing, timing, and making sure you have enough time. And one of my first deal we actually had, I’d say the fair market value was probably around 3 million, but we sold it at 2.6. Because we needed to close it within 30 days. And so that was a timing issue because we didn’t want to do all this work, spend all this money and get no return. So flexibility is key.

J Darrin Gross 19:44

And is that pretty common with land deals as far as just kind of the understanding of the way the deal works is that you’ve got somebody and the seller I’m assuming there’s some sort of compensation money he goes hard and or whatever, as far as When you write up a deal that there’s a fee that you’re putting down, and then the option fees, and do those options then apply to the purchase if you execute, or can you talk a little bit, then

Adam Gilbert 20:13

Yeah, 100%. So typically, I’ll have a 60 to 90 day initial due diligence period, at which point, depending on the size of the deal, you know, 20, or $30,000, will go hard. From there, I’ll have maybe another six months after that, to kind of do some more due diligence, at which point, I would have to put in another 20 or 30,000, to get another three months. So that there gets you your year, essentially. And but all of those become non refundable, but applicable to the purchase price. So that if you do close that, you know, the those count towards it. But you know, most of the time, with land, it’s just sitting there anyway, so the owner has really not many expenses. And if you give them their price, they’re willing to give you terms if you’re, you know, if you’re trying to come in and lowball them, they’re gonna want you to close really quick. Same thing with a building, you know, when I did the zone change on on that the building that was referring to the 15,000 square foot warehouse, he had it on the market, it was overpriced. And so it wasn’t doing anything, but I gave him his price, but I got my terms, and I got my time to be able to do it, so that I was able to create that additional value.

J Darrin Gross 21:24

Now, this whole kind of entitlement deal thing just makes me think about how many times and I’ve seen something, you know, and that God that, like you see a property, there’s a structure, and there’s a big lot that’s vacant, you know, I’m thinking like God, if you cut that off and sell that, and do this and do that, and and i’m assuming there’s some entitlements, most the time that haven’t been figured out, that’s why there’s no movement, or there’s, I don’t know, maybe there’s just not enough demand or whatever. But it seems to me like a lot of fun, but also probably kind of test your patience just on the on the time it takes to make a deal as opposed to like your first deal with 10 hours of work and a big paycheck kind of thing in it.

Adam Gilbert 22:09

Yeah, it’s, it’s, I describe it as Hurry up and slow down, right. So you’ll have like something and you know, you’ll have this hearing coming up, and you’re working 10 to 20 hours, you know, on that week, getting everything ready. And then you don’t do anything for three months, right as it’s like going through the process. And so it’s a lot like that. And these deals allow me to do them on the side of my, you know, regular business, which is the the brokerage that pays the bills and keeps it going and funds, essentially some of these investment deals. And so, but yeah, exactly to your point, you know, people, there’s always things that can be done, but people either don’t have the imagination, the time, the money or the patience to do it. So if you see that raw piece of land with a defunct building on it, but you’re like, man, I could put a drive thru on that corner and then build a strip center around it, you don’t have to actually build it, if you just get it approved, you know, and you get that like drive thru pad approved, you sell that to a developer who does Carl’s juniors, or Wiener schnitzels, or Starbucks or whatever it is. And if you think about it, and you know, it’s like, Okay, well I paid a million for this land. Well, now I just sold that pad to Starbucks for a million dollars. And though everything else that I’m going to do on it is now gravy. And so that’s how I think about it and not every deal works that way. But you can really create a lot of value if you can think outside the box and then do the work that you know the guy who’s developing Starbucks he’s doesn’t want to learn every city council and what they want and to go through all the meetings he wants to develop Starbucks so if you could become an expert in your jurisdiction of what you’re doing there’s going to be a lot of opportunity for you to create those relationships over time

J Darrin Gross 23:57

No, that’s that’s a good good insight there do you with a knowledge and local knowledge does it help you then kind of look out in the in the community to see where like a path of progress is or identify you know, if there’s a one a new expressway or the one to create a certain zone or whatever it’s give you kind of insight as to you know, if you hunt down that area you find something that’s good this could work or or is it more in your real estate? Business a your you’re familiar with the area and then as you hear these ideas from the I guess the knows a planning commission or whatever, they want to change some zoning stuff that or I guess I don’t know, it makes sense but he is or his or one that leaves the other or like, Is it the the the planning commission that leads or is it just your basic knowledge of the real estate that leads or is it kind of a combination of the both, you know,

Adam Gilbert 24:56

it really is a combination of the of the both, you know, you have to think Long Term about things and not where things are today. But where will they be three to five years from now. And so if you find out that, you know, we’re having an arena built in our in our jurisdiction for a minor league ice hockey team, right, so Okay, well, they’re building an arena. Well, now that’s underserved for fast food in that area, right. And so when, if you pay attention to things that are coming in, you know, once they build they’re in, it’s too late, you know, but if you can keep your eye to the local newspaper, you’d be amazed how many people don’t follow the local city council meetings, you know, I’m not saying that you have to, you know, sit there and watch them because they’re exceedingly long and, you know, boring unless your particular project is on there. But getting a quick update about what the decisions are, or even just looking at the agenda, Oh, wow. Like, you know, this developer is trying to get a chick fil a approved, they’re like, Okay, then I’m going to take a look what’s going on around there are there any lots that I can identify that, you know, I can now try to tie up and, you know, so doing a lot of that work, and just thinking ahead, and being proactive, instead of reactionary, is gonna lead to, you know, in my experience, a lot of success.

J Darrin Gross 26:12

I love it, the just kind of really thinking outside of the box. And I think also, there’s got to be a discipline of time, and just kind of, I don’t think that most people have that sense of time. Yet, or the willingness to wait for something like that, for the payoff, it seems more like I mean, you know, if you’re, if you’re talking, you know, flipping, they’re looking for a payout, you know, right away, or even just as a real estate broker or list sell, you know, get paid kind of thing. But more of kind of that, that long term, in, you know, what we’ve talked about, so far, as you’re not even doing the work, you’re just getting it all, you know, greenlighted so that the work can be done and making the sale. And then there’s the whole nother level of, of getting the permits and doing the work and all that. So I mean, if you had an idea for a party, you know, you tie up a property, you go through your year long process to get it to the point where it can be approved, then whoever buys that property has another permitting process. So you could be an in construction process, you could be literally two to three years from your idea to the actual product that’s, you know, the public is able to see and use and go visit is that pretty terrible,

Adam Gilbert 27:31

Very easily. And that’s why if you can do that first step of getting that pad approved, it makes the, you know, the tension for whoever wants to develop that pad in the future. So much easier. So it’s not a three year process. for them. It’s now a one year process, like Oh, the pad is approved, we’ve got it, now I just need to build my, you know, Etch A Sketch model of it looks the same, and I pop it here in each different place. And you can even get to the point, you know, I can’t even screw in a light bulb, but you can be that you can develop it yourself, you know, be a contractor or team up with a contractor and build it out and lease it out. There’s lots of developers who go the Full Monty, but I really tried to specialize on the, on the first part of the equation. That’s that’s what I like to do.

J Darrin Gross 28:19

Yeah, that’s interesting, as you mentioned, that being the first part, or being you know, near the first part kind of thing is really where the opportunity lies. I know, years ago in college, I remember I was working for a landscaping crew and we were out in these new developments. And I remember that, at every exit ramp off the freeway, the first thing that would go in was like a quick trip or some sort of a, you know, convenience store with Yeah, that was that was the landmark that said there was you know, progress was coming. And, you know, I guess if you would have you know, bought on the other side of the street or you know, put another gas station in or I guess this is you know, it fills in there but just kind of one of those cues, I guess for you know, progress and, and how to recognize them and be you know, something to learn and recognize them and find so

Adam Gilbert 29:13

That’s definitely any and each city or each jurisdiction is going to have their own cues. You know, I know as soon as a chick fil a comes into certain place, you know, like everything blows up around it or in and out is what we have it’s like you get an in and out like boom, your property values all around it up because didn’t know is going to drive the traffic. So if you follow it say hey, look, you know, they’re proposing this or this is coming. You know, you can you can predict the future.

J Darrin Gross 29:43

Yeah, well, it is, you know, it’s a different lens to look through. I think that you know, most people are, you know, when I think of investing in more of a ready, built property, not something that’s ground up for construction or With it, it’s more of kind of a the the surrounding area, kind of the demographics, the ability for people to pay, you know, what, what’s there that’s going to attract somebody to the property and make it make it valuable? And then if you have the opportunity increase rents, or, I mean, typically, when I think of, or when I talk with people about value add, it’s more about how can you reposition the property, from a physical standpoint, or even operational management standpoint, you know, if the sellers kind of tired, and it hasn’t really been keeping up with, you know, the market, or if the property is tired, and it needs to refresh, those are typically the things that I hear from people that are doing, quote, value add, you know, investment strategies, but what I love about yours is it’s, it’s, it’s basically just how, you know, how far can you think outside the box. Now, it does sound like there’s a fair amount of capital you have to have available to, you know, tie up the property. And then exit exercise a number of extensions, if needed, in order to get it. And, like, I’m assuming, you know, either know, somebody like you or be willing to walk through all the steps to get it to the finish line, so that you then can, you know, have that potential sale or so many in that, there’s also the need to have some further conversation with potential investors, buyers, developers that would want to develop a property like that. So it sounds like it’s I mean, there’s, there’s a lot of hats you’re wearing there. And but it’s kind of cool, I like the kind of the way your, your, you know, what you what you go through to get the property to the next stage.

Adam Gilbert 31:47

Definitely, and I know, you always discuss the factor of risk, you know, on your show, and in any given deal. And just to point out like, this is an ancillary part of my business, because the amount of capital that you have to put in, as you mentioned, with the non refundable deposits, with the architect, with the engineers with the city fees, if you are unsuccessful, and getting your entitlement or your zone change, that all goes away, and you have no tangible asset left, because all you had was an escrow or an option. And so this type of work is on the riskier side.

J Darrin Gross 32:25

Right, right. So let me ask you, the question that I do ask people is, what is the BIGGEST RISK? Is that what you? Would you? You would, you know, your BIGGEST RISK would be just that?

Adam Gilbert 32:40

Yeah, I mean, yeah, this is probably on the riskier side of the type of investment deals that I do. So I mean, I have a shopping center that I’m doing a value add facade enhancement on, you know, that’s a tangible asset, these entitlement deals, I would say they’re on the risk there, they are probably the biggest risk in terms of deals that I do. Because again, if I’m unsuccessful in getting the entitlements, I’ve now just pissed away all my money for something that I was able to create no value on. But the if I am successful, then the returns are high enough, you know, 5x 10x, to justify that risk. And, you know, what I equated to is off playing poker, you know, I try to do as much due diligence as I can. And if I’m holding two kings, if I’m holding a great hand, I can still lose, you know, but I’m taking a calculated risk. And knowing that I’m willing to make a bet, because I’ve, I think that this is where this particular property and this project needs to go.

J Darrin Gross 33:45

No, that’s cool. That’s cool. I like that. In your line of work, when you mentioned, like, there’s 5000, residential, real estate agents in the area, and like 20, you know, commercial, or some sort of ratio like that. Yeah. Do you find that there’s even fewer that work in the entitlement place? I mean, I’m assuming not all of those commercial brokers work in the entitlement

Adam Gilbert 34:15

era. Yeah, very few. I’m always surprised how few commercial brokers actually even own commercial real estate. I’m like, come on, man. Like, this is your business like you should be you should be picking up all the best deals, right. But yeah, they’re, I would say even fewer, you know, there are like consulting companies that do this, you know, large usually for larger developers or big corporations. And you know, they’ve got engineers, architects on staff are typically very expensive to be able to, and that’s why projects cost so much, but if you’re building like a Walmart, like me, you know, like hire a big company with like all of the staff and the relationships to do that. What I do is, again, I say I’m not looking for homeruns I’m looking for singles and doubles. I’m looking for small projects that are probably too small for the big guys. But fit right into my little niche of where I mean if I can create $500,000, or you know, to a million dollars on a project and value and that’s usually where I’m going for, I can do a couple of those every year I’m set. You know, that’s, that’s, that’s great. I do one of those in a year that you know, you’re having a great year, but that’s kind of the small niche area that I look into. And there are opportunities there because they’re too small for the big guys. And most people don’t have the knowledge to be able to take it to the next level and do what I do.

J Darrin Gross 35:35

So, well, Adam, where can listeners go if they’d like to learn more connect with you?

Adam Gilbert 35:41

I’m on all the social media platforms Instagram, Twitter, Facebook, I’m either at Adam Gilbert 13 or Adam Gilbert ESQ as an Esquire and feel free to follow me, chat with me. Go to my website, Adam Gilbert, Esquire, ESQ dot com or the firm commercial.com.

J Darrin Gross 36:04

Adam, I can’t say thanks enough for taking the time to talk today. I’ve enjoyed it. Learned a lot, and I hope we can do it again soon.

Adam Gilbert 36:12

Awesome. I’d be happy to be back any time.

J Darrin Gross 36:15

Announcer 36:34

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House Flipping Investor Deals with Viktor Jiracek – CRE PN #309

Viktor Jiracek 0:00

What’s really cool about flipping is like you’re in, you’re out, you get a big check and then you can move on. So typically, on average, my flips about 30k net profit, give or take some deals are better. Some deals are worse. But that’s typically the average. And what’s really cool about is like you now get this big check to walk away with, with the rental side of things like I would have this big check. With the rentals like I would be on the hook for ongoing maintenance tenants, like I still have to like the property was in the back of my mind forever to take care of with the flipping like you’re in and out, and you don’t have to worry about anymore.

Announcer 0:34

J Darrin Gross 0:53

Today my guest is Viktor Jiracek. is a real estate fix and flipper based in Gainesville, Florida. He completed 40 excuse me 20 flips last year and is on pace to do an additional 30 flips for this year 2021. Ironically, his best flip was a $64,000 net profit deal that almost that he almost backed out up. And in just a minute, we’re going to speak with about what makes a successful flip, and how to get started to do your own flips.

But first, a quick reminder, if you like our show, CRE PN Radio, there are a couple things you can do to help us out. 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 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, Viktor. Welcome to CRE PN Radio.

Viktor Jiracek 2:24

Thanks for having me. I’m excited.

J Darrin Gross 2:26

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

Viktor Jiracek 2:35

Yeah, for sure. So I’m a fixin flipper. So just to give a clear definition I buy property fix it up sell it so I should take ownership of it. Primarily fix and flip I live in Gainesville do most of my deals locally for Alachua County went full time about two and a half years ago I used to work kind of corporate as healthcare full time realize it wasn’t for me for a number of reasons that went into flipping real estate really enjoyed it as to where I plan to stay forever. So that’s a quick introduction on me, but I really fell in love with the flipping process. That’s why I’ve really been focusing on recently.

J Darrin Gross 3:09

Awesome. So you’re down there in Gator Ville or Gator land. Is that right? Go Gators? Yeah, University of Florida. Yeah, exactly. So well let’s talk a little bit about that. So you You said you you were in medical industry and decided that wasn’t for you? How did how did you decide the real estate was more attractive vehicle for you?

Viktor Jiracek 3:33

Yeah, so I don’t know if you can relate to this but I always had like in the back of my mind like a real estate real estate real estate. So it’s almost always like hey, I want to do this thing and then the next thing is once I get some money that I can go into real estate so it’s always like this thing that followed me around for years and years and just you know finally decided to take a leap I it didn’t make sense to me to like okay, let me do this thing so I can do this other thing I figured out like what if I just do a straight shot to what I actually want to do and the rest is history

J Darrin Gross 4:03

So flipping houses, I mean there’s there’s multiple opportunities in real estate, different asset classes and different ways to make money what is it that appealed to you about flipping houses?

Viktor Jiracek 4:18

I really liked so there’s a couple things so the first thing I really like about flipping houses is like you get to see the transformation so you’d buy a house and it’s kind of crummy beat up outdated you paint a you fix it up you make it all nice then suddenly it’s it’s nice modern cool thing everyone wants to live there. Before people saw it before pictures they run away like I don’t even want to be near this place. And then suddenly afterwards like everyone’s running towards like I man I want to buy it. So it’s really cool to see that transformation just to see like it really improve as a property improve the neighborhood to a lot of times we do a flip and then we’re suddenly the house nicest house in the neighborhood from worst to best. So it’s cool to see that. That’s the first thing I really enjoy about the second thing I’d say what’s really cool about flipping a Like you’re in, you’re out, you get a big check, and then you can move on. So typically, on average, my flips about 30k. net profit, give or take some deals are better, some deals are worse. But that’s typically the average. And what’s really cool about is like you now get this big check to walk away with, with the rental side of things like I would have this big check. With the rentals, like I would be on the hook for ongoing maintenance tenants, like I still have to like the property was in the back of my mind forever, to take care of with the flipping like you’re in and out, and you don’t have to worry about anymore. So I really liked that that quick nature of it, where you can move on to the big paydays is really exciting to that, I’ve seen that, especially with a lot of beginners, you know, getting a plus 300 bucks a month from you know, good rental, that’s exciting. But what’s really life changing, as you know, plus $30,000 in your bank account, you start to think differently, start to act differently in a good way, you start to have more options open if there’s a sort of emergency like you can handle it. So that’s what I’ve seen. That’s what I really enjoyed about the flipping.

J Darrin Gross 6:01

Gotcha. And it as far as the the, the actual the the work, the the changes the property from the the worst to the best on the block there. Do you do the work yourself? Do you have subcontractors? How do you go about doing that.

Viktor Jiracek 6:18

So when when I started, I actually did the work myself, like the painting and the flooring, there was a couple things wrong with that. The first was like I didn’t have that much time. So once you start to do more and more volume, like your time becomes an issue. Second thing I’m not very good at those things is when I found out, it’s much better to get professionals in there. So where I’m at now have a project manager and then she hires the people like hires the painter pays the painter hires the flooring person, you know, pays the flooring person. So it makes a lot easier that way. We don’t have to worry about that sort of thing. So especially as you do more and more like if I wanted to do 30 this year, I’d be killing myself working 24 seven trying to fix all these places up. So that’s why I recommend, there’s a lot of different ways to do the renovations. There’s like the Do It Yourself model. There’s the GC model. And it really just depends on the person and their their preference. But it was realized that there was going to be a trade off like time and money. So if you do it yourself, it’s going to cost you time save you money. If you hire it out fully from GC, it’s going to save you time costing money. So it was always that balance to play with as you’re getting into the renovations.

J Darrin Gross 7:21

And speaking of the time aspect, what do you What’s an average time for you from acquire to sale?

Viktor Jiracek 7:32

Yeah, so from closing table, the closing table, I think we’re on average about four months, one month to 45 days is like the actual renovation. Then we spend your we listed it’s a luckily a hot market now. So typically within a week, it’s under contract. And there’s the inspection and appraisal, you know, all that stuff to work through in the closing that typically takes 30 days, 45 days, so typically a four months on average. And then some of them take less someone take more, but that’s what we’ve been seeing recently,

J Darrin Gross 8:01

Got it. And, are most of yours more of a cosmetic flip, or are you getting into roof lines and bumping out walls and changing the floor plan or doing anything behind the wall kind of stuff.

Viktor Jiracek 8:17

I try to keep them as simple as possible. Like we’ve done the full gut jobs. And then we’ve done the cosmetic lipstick on a pig. Sometimes people call it. So we’ve done both. we’ve really done both there. I really liked the quick simple ones were like you’re and you’re out, you can move on. Just because like once you start opening up walls, changing the layout, you know, doing all that stuff, you start to open a can of worms where you open a wall, it’s like, oh, we didn’t realize we have to do this. And now to fix this. And now like you keep adding to your budget for the renovation. So I just really liked the quick in and out paint flooring as much as possible. But you know, I’ll do anything where the numbers make sense.

J Darrin Gross 8:55

So how do you find your deals? What’s the, the source or how do you source your deals?

Viktor Jiracek 9:02

Yeah, I know for sure. So about half my deals I source on my own through like cold calling through, just like Facebook groups, a lot of referrals. And about about half are wholesalers and for your audience. Maybe they know what a wholesaler is. But just to give a good definition. So wholesalers, basically someone who goes out and finds deals, they put it under contract and they can sell you that contract. So I’ve had a lot of luck with them trying to build relationships with them and they send you on they send deals and there’s a whole wholesaler movement taking place where it used to be that here in Gainesville when I started there’s like maybe one, maybe two wholesalers and now I have like 1520 wholesalers on my list. So suddenly it’s like a brand new movement. And that’s great for me. For the most part where they bring me deals I don’t have to do anything. It’s like oh, here’s a deal on a silver platter and it makes my life a lot easier.

J Darrin Gross 9:55

No and that that makes a lot of sense. The you know more bird dogs out there. Finding the opportunities. That’s great. So, funding you mentioned in the beginning, or when we were first talking about, you know that that hurdle of, you know, the way to get a big pile of money together, how do you? How do you do that first one kind of kind of thing? Can you? Can you share a little bit about how you go about funding? Your flips?

Viktor Jiracek 10:26

Yeah, no, for sure. So there’s a couple ways to do it. I’ll talk about the one my first flip where that was, like I was, I had a low 500 credit score. And then I had maybe a couple 1000 in the bank, and I was still able to get the flip down. So basically, what happened. So I found this great deal was a lady as a nurse who was living at a state, and she was tired of the property and got hit by Hurricane Irma. And she was just tired of dealing with it. And her, her mom passed away. So is inherited properties, there’s a couple layers of motivation there, and she just choose one to be done with it. She’s like, Hey, I’m out, I don’t want to, you know, I just want to sell it. So I got the property under contract. What I did Max, it was a great deal. So we’re gonna buy it at 105, we’re going to put in about 25 ish, and then sell for 170 to 200. So that was a plan. So there was there’s room there, there’s a good potential profit there. So it was a it was a good deal. So we got a good deal got under contract, what I did next I reached out to my network, I found what’s called what I call like a money partner. So I found the deal, I would help with the renovations, I would help sell the property, I’d be like the boots on the ground sweat equity, like I would be the one who putting it all together. And they would be more like a money partner. So they would put in all the funds to buy it to fix it up to sell it. And then we would split the profit after that. That’s how I got my first one done. And you’d be surprised like how many people in your network have the funds for these types of deals. It was like plenty of different ways to structure but it gets you started got me started. So I was able to turn that deal into into multiple deals, start doing deals on my own, which is what I’m doing now. So makes it really exciting. But that’s how I got my first deal just using that money partner model and we split the profits. And it just it’s a hell of a start. It’s a great start. Because my first year I did like two then I did eight the last year 20 then this year 30. So like it just gets you going. And that’s exponential from there, which is really exciting.

J Darrin Gross 12:18

Yeah, and that money partner, do you find? The first one is pretty challenging together? How did you go about conveying to your your money partner that you were, you know, able to pull this off.

Viktor Jiracek 12:37

So how I did that, I just basically share the numbers like, Hey, this is what we’re buying. And out, here are some pictures of what it looks like, how much work it needs, and this how much we can sell it for. And then once you share that number, like hey, we can make on that one we made. I think 28k. net, we wanted more. But we always want more, but 28 is what we ended up with. So we split that. So just sharing that like, hey, if you put money into this deal, we can potentially share this, this profit, so you kind of sharing the benefit with them. And then also at the same time, it’s you can mention, a lot of people especially have money just sitting in the bank, and it’s earning, you know, point a 1% interest. So might as well put it to work. There’s a lot of people who want to get started real estate, and they just don’t know how to get started. And when you give them a sort of opportunity, you know, they’ve been sitting on their money for a while, hey, I’ve been watching HGTV I want to get into real estate. So we’re just lines up. And it makes a lot of sense. Not to say typically, your first deal is going to be the hardest, it does get easier over time. So just just to answer your point. So yes, it is going to be a little bit harder the first time but it does get easier once you build a track record and know what you’re doing and all that good stuff.

J Darrin Gross 13:47

And as far as the cost of money for something like that. I know, as an insurance agent, I’ve worked with a lot of flippers over the years and and I think there’s definitely the difference between the person that’s got some sort of a clock in their head that understands they need to get this project done. Versus the person that doesn’t have that clock and it lingers and lingers and lingers. kind of thing. You mentioned your your average time is about four months. Your first one can you tell how long that one took?

Viktor Jiracek 14:22

Yeah, so the renovation took about eight weeks. So about two months. It was listed for about two weeks, then got then got under contract. And then I think to close that one was about 30 days. So that was two plus half. So like in that same timeframe, roughly so three to five months, roughly.

J Darrin Gross 14:39

That’s great. So you were able to keep that that kind of timeline gone. That’s great. And luckily Yes, in when you when you’ve run your budget, you know you’ve got your acquisition costs and your renovation cost. In view, you’ve got your four months Thailand, is there a I mean a carrying cost kind of market rate. What kind of range? Are you seeing for that kind of stuff? You mentioned? Like, you know, if you leave your money in the bank and get around 1%, what what kind of range? Are our money partners? What, what kind of rate? Do they charge for that?

Viktor Jiracek 15:13

It’s going to depend on the money partner. So for some people,

J Darrin Gross 15:17

I guess if you’re splitting the deal to that,

Viktor Jiracek 15:19

yeah, that’s, that’s where they get their benefit. So it’s one of those things, it just depends. For that first money partner, it was, I think it was 70 3070 them 30. me. And again, I was just happy to get that first deal done, which is awesome. So that was the first one. Other ones I’ve done 5050 some of them, it’s been like 5050. And they want like a 6%, like, payment and kind type of thing. where like, they charge 6%. But you don’t necessarily get a bill for 6%. You just at the end, they will get that. So I’ve seen all different ways. It just it’s really person to person. So there’s no correct answer, like whatever both parties are, are open to, again, I’d highly recommend like, hey, just get your first deal done, you’re going to build so much momentum out of that. And you just you’ll be surprised where you’re at. And, you know, a year, three years, five years,

J Darrin Gross 16:12

right? No, I and I totally agree. I mean that the experiences kind of like your down payment, to really kind of, you know, start your business and get really going. So that’s, that’s great. So I think before we started recording, you and I talked a little bit and you’d mentioned kind of a philosophy of do a flip, buy a rental, do a flip, buy a rental kind of thing. Can you talk a little bit about how you see that? And how you encourage people or what what’s your philosophy on on, you know, flip rental flip rental kind of thing?

Viktor Jiracek 16:48

Yeah, no, for sure. So it’s one of those things, I see a lot of beginners make the mistake, like, okay, want to get into real estate. So the first deal is a rental. And the problem with that, at least as how I see it is like you’ll put some money aside, you’ll put that as a downpayment into rental, and they’ll start cash flowing, that’s awesome. Nothing wrong with that. But it’ll take you for you to do your next deal, it’s gonna take quite a long time, you have to save for years and years, save the cash flow, save your income, until you can finally do another nother deal. And that’s gonna be the same story like it’s going to take a couple years to do that next deal. So that’s why I recommend flip rental flip rental, because then like you do a flip, let’s say you’ll make 2030 40,000 awesome. Put that as a downpayment into a rental, and then do another flip. You know, put that as a down payment into another rental. But that way that speeds up that process like now you’re acquiring or like generating capital that you can then put into rentals. So it’s just really exciting that way, where you just basically buy as fast as you can flip houses, you can buy rentals. So then it becomes like, how many properties Do you want to buy? How many flips Do you want to do, then you’re not stuck waiting for long periods of time. So that’s the philosophy behind that. And it doesn’t have to be that specific ratio, it can be like two flips one rental or, you know, three flips, one rental, and I’ve seen people make permutations of that to where it’s like a flip a number or like a flip in a multifamily. But they kind of play around with that formula, but then you can accelerate your real estate, you know, so I’ve taken 10 years to build a decent portfolio. I’ll take you, you know, three.

J Darrin Gross 18:21

What’s an ideal opportunity look like for you?

Viktor Jiracek 18:26

Yeah, so we typically buy so we buy houses, condos, townhomes, mobile homes, so we’re pretty open. If someone’s living in there, well, you know, someone can live in there, we’ll flip it up. And luckily flipping is as simple as buy low, sell high. So even like a mobile home, sometimes you buy it in the like for 50 and put in 10 and sell for 100. And that’s still a deal. We’re just buying low and selling high. Typically how we look at deals is like what’s called 70% rule. So for your listeners here 70% rule 70% ARV minus repairs is your max offer. And your RV being after repaired value is like when you listed retail. Once it’s all fixed up, what can sell for is what the ARV means. So 70%. So just a quick example. Let’s say you can sell a place for 100,000 you to put in about 10,000 into it in terms of repairs. So that means your max offer is 60,000. So that’s the max you can play for pay for a place. So if someone says, Hey, I want to sell you this property for 50,000 Yes, that’s a deal I’m in. If they say hey, I want to sell you this place for 80,000 as an example, it’s like oh, I don’t know those numbers are too tight. That’s not a deal. So it makes it really, really clear. Like what’s the deal? What’s not a deal? Because there’s a million other factors that can go into you know, what’s the deal and what’s not versus just the numbers. So like, what about the neighborhood? What about the school? This is a two bedroom, one bath on a three bedroom two bath, which is what everyone wants? Or, oh, the square footage is a little bit smaller. Oh, you know, like anything Kadima. There’s million variables, but I like just this still up to the numbers, that it becomes super clear like okay, this is a deal. This isn’t a deal. That just makes it much easier to analyze these properties. JOHN.

J Darrin Gross 20:05

So based on the number of properties you’ve done, we’ve talked about some of your your home rounds or your better one. So there was one Nagesh made 64,000. Can you talk about one that didn’t go? Well? Is there any, any that you were happy to get out of? Or have you made money on all of them.

Viktor Jiracek 20:25

So luckily, we’ve made money on all of them, sometimes not as much as we want were set out to make 30,000, we made 10,000 In the end, so that that happens, too. It’s tough to bat 1000 at you know, 30 cage. So one of the less less fortunate deals. And again, I see all these as like a learning experience. So it’s like, okay, cool, I made a mistake, I won’t make that mistake again, after going through that painful process, and then you just grow and improve. So your highs get higher, and the lows get less, less low. So you kind of spiral upwards positively. So there’s a deal we bought here in Gainesville, I was just a normal concrete block house. Standard. The guy was initially what we thought is he said he had some tenants and they were bad tenants. So I need to get them out. So like, okay, ended up he was late on his taxes. And if we didn’t pay his tax bill, like, while in the negotiation process, then he was he was out, like, I mean, he, they were gonna auction it off and, and sell it. So we would pay the tax bill. Great, went through all the closing, he’s kind of a hassle to deal with, to say the least, but eventually closed. And then this is the mistake we made, we didn’t give what’s typically called like a post closing occupancy agreement. He said, like, Oh, I have some stuff in that place. Some tools, give me 30 days, and I’ll get them out. So typically, what we’ve done in that case, like there’s a post coast closing occupancy agreement, like if you’re not out, within this timeframe, there’s some sort of penalty, when you close, there’s like a hold back, you don’t give them all the money, because you want there to be some sort of penalty if they don’t, they don’t comply. For that’s the only property we’ve never done an on. And that’s the one we needed, unfortunately, so he didn’t move out in 30 days, it took us I think, like two or three months to finally get him out. He was on some sort of drugs or something. And then he was even resentful and bitter, like, Hey, I know you guys are gonna make a ton of money on this property I should have, I could have been able to fix it myself and could have made the money myself. And I mean, we saved him from losing the house. So not to say he had to be grateful, but to be negative towards us, was a slap in the face. So eventually got him out, got his stuff out and to keep following up. At one point, he went to jail for about a month and has a lot of stuff there. So we’re kind of waiting for that. And that entire process of venture went through. So we ended up renovating it, fixing up selling that one pretty smoothly. And then we you know, we were done with the deal. I think on that one, we made maybe 12,000 net profit. So not a homerun but still made money. And just a good learning lesson post closing occupancy agreement. If they stay in the property, if they’re moving out, you’re not a big deal, but they’re gonna stick around.

J Darrin Gross 23:06

Yeah, know that, especially with all the landlord tenant laws. I don’t know how they’re in Florida. But I know out here that’s that’s definitely a touchy situation. So , let me ask you. So I know that you’ve been doing this now on your own for a couple years. Yeah. And now you’re also working with new investors that are looking to get into flips? Can you talk a little bit about how you work with your students? Or how you mentor? People?

Viktor Jiracek 23:37

Yeah, no, for sure. So how I do it. So I flipped myself full time. But I also mentor people nationwide on how to flip. So students all over like Michigan and Texas, New York, like any state, I have students there. It’s a pretty, like, pretty involved process. Like they get direct access to me anytime you have a question they ever want to send me a deal to analyze, we can, you know, review the deal together? You know, so it’s pretty involved. It’s not necessarily just like a course, you know, here, good luck. It’s pretty involved with the entire process and trying to help them out throughout that entire thing. Yeah, so it’s exciting stuff. And I just help people. I’ve helped a lot of people get deals, one of my students actually beat my record. So on one flip, I made about 64k. I thought that was really good. And then on her first one, I think she made like 85,000 plus. And it’s, it’s exciting. It’s also humbling, where it’s like, well, wait a second, maybe I’m not as good at this is I thought, but she’s gone on to do other deals. And that’s, that’s great. But that’s pretty much it. I just mentor people throughout the entire flipping process, like how do you get the money? How do you get the deals? How do you run your numbers? How do you hire contractors, like any good thing you could think of a to z. So when I help folks Out With Dad,

J Darrin Gross 24:49

Hey, , if we could like to shift gears here for a second, yep. By day, I’m an insurance broker. And I work with my clients to assess risk and determine what to do with the risk. There’s there’s three strategies we typically turn to, we look to see if first we can avoid the risk. If that’s not an option, then we look to see if we can minimize the risk. And when we can no on cannot avoid or minimize the risk. And we look to see if we can transfer the risk. And that’s what an insurance policy is. I like to ask my guests, if they can look at their own situation, could be their clients, investors, tenants, the market, you know, however they want to identify, risk, but take a look at their own situation and identify what they consider to be the biggest risk. And for clarity, I’m not looking for an insurance related answer per se. But if you’re willing, I’d like to ask you, Jiracek, what is the BIGGEST RISK?

Viktor Jiracek 25:54

Yeah, no, I think that’s that’s great question, happy to answer it. I’d say it’s all about the numbers. So I always teach and preach. It’s like profit margin, like margin of error, like how much you know, profit, do you have potential in the deal, because if anything goes wrong, like a takes longer than you want, or doesn’t sell for as much as you want, you have to go over repairs, like that’s all going to eat into your profit margin. So the more profit buffer or profit margin you have, the better. So again, it’s all about the numbers. And there’s been a lot of deals where like we set out to make 30 40,000. That’s, that’s great. And then one issue came up, and then another issue came up and another issue came up. And then we walked away with 10,000. But luckily, we had that initial, you know, profit buffer to work with, or else we would have been in the red. So with that same example, like if we initially wanted to make, we said, like, Hey, I just want to make 15,000. Like, if I can make 15,000 on this, I’d be happy. And then the issue comes up in that issue, another issue another issue, and then suddenly, you’re in the red. So that happens a ton. So that’s why I recommend in terms of risk, like just protect yourself, like if you buy any, any property for the right price, like every single thing can go wrong, and you can still be profitable. But again, it’s you make money when you buy is, is the segue from that. But it’s really like profit margin buffer, just in case anything goes wrong, and it will go wrong. That’s the other thing. It always takes longer than you want. And it always costs more than you want. So

J Darrin Gross 27:22

The truth! Yeah, now I’ve had many projects where the budget was x and, or where we built a place. And on day one, the builder was calling me telling me like, I didn’t know there’s so much dirt on this, you know, he’s gonna burn through my whole contingency on day one. Like so. Yeah, you’re absolutely right. So that’s great. So , where can listeners go if they’d like to learn more or connect with you?

Viktor Jiracek 27:52

Yeah, so for sure. I’m very active on Facebook. And I have a free Facebook group called six figure house flippers. So folks want to get you know, get hold of me there. join the group again, it’s free. I go live on there and do deal breakdowns that I’m working on. Like give free tips you know, there’s there’s a ton of great stuff and it’s all free in there. So if you look me up on Facebook , your check, I’m a unique name Luckily, so you’ll he’ll find me pretty quick. And then I also have that free Facebook group. And yeah, this community if you want help on mentorship, great, you know, I’m happy to help we can have that discussion. If you just want the free work resources. There’s nothing wrong with that. But that’s that’s accessible to everyone. https://www.sellyourgainesvillehometoday.com/

J Darrin Gross 28:28

Awesome. , I can’t say thanks enough for taking the time to talk today. I’ve enjoyed our talk, learned a lot, and I look forward to doing it again soon.

Viktor Jiracek 28:39

Awesome. I appreciate it. Thanks for having me.

J Darrin Gross 28:41

Announcer 28:59

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