Frank Xia 0:00
basically three ways right now for you to make money. Number one is you basically raise the rent. Number two is you improve your operation or you improve your operating sorry, now rental income. And number three is your interest rate the market, right? I want to make sure that I don’t come to the market. But I can control the knob, the the noun rental income and also the rent, right, I want to make sure that I’m able to have enough meat on the ball that even though there’s nothing happened on the on the side, I can also make a lot of money on the other two. This basically you’re down to a property that doesn’t have the highest rent over its neighborhood. This also means that the property has a lot of meat on the board and now rental income side that I can, for example, go back to the tenant, or I can improve here and there to make 20 bucks a mouse a door somewhere, right? I’m actually looking into these deals.
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J Darrin Gross 1:23
Welcome to Commercial Real Estate Pro Networks, CRE PN Radio. Thanks for joining us. My name is J Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.
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Today, my guest is Frank Xia. Frank is an ex engineering director in tech startup where he specialized in pricing and decision making. He is passionate about AI and investing in real estate and alternative assets. And in just a minute, we’re going to speak with Frank Xia about deal underwriting and raising capital for B and C Class multifamily deals in Dallas, Texas.
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 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, Frank Xia. Welcome to CRE PN Radio.
Frank Xia 3:12
Thanks for having me.
J Darrin Gross 3:15
Well, I’m looking forward to our conversation. But before we get started, if you can take just a minute and share a little bit about your background.
Frank Xia 3:25
Yeah, no problem. So over the past seven years, I’ve been working in tech industry. My main responsibility was data scientist, machine learning engineer, engineer and also a co founder. So I spent the last of my five years pricing alternative asset, such as real estate, sports card watches, etc. And over the recent two years, I get fascinated about investing in real estate. And they I double down on my investment and up to this year, I decided to become a full time investor. So this is how our journey has been translated. But I’m always a math person in mind. I like pricing stuff.
J Darrin Gross 4:10
No, that’s awesome. The generous in your, your background data science, with bank would lend lend very strongly to underwriting of real estate. You mentioned a couple other asset classes that I hadn’t really considered. I’m kind of curious. You mentioned sports. Did you say sports memorabilia, or?
Frank Xia 4:34
Yes, sports memorabilia?
J Darrin Gross 4:36
I’m kind of curious how that that to me is a fascinating one just from the standpoint of the rarity of particular thing, I’m assuming drives the price up quite a bit. What other alternative assets have you found that have piqued your interest and or you’ve invested in?
Frank Xia 4:56
So right now just sports memorabilia and watches Is because swimming sports memorabilia is more like a hobby of my partner who’s the CEO of the company. So we started to start a start this company. Me personally, I invest in watches a lot because I like wearing luxury watches. These are the two things we pay a lot of attention. But other people I know in the closer code they invest in wise they invest in arts. So whatever you see on the SSP or Christi auction is the is the buy box of our like our our circle, so we like collecting these physical goods.
J Darrin Gross 5:35
And on those types of items, is the plan to buy and hold or is it more of like recognize a underpriced opportunity, buy and resell?
Frank Xia 5:47
Yeah, so there there are basically two types of strategy over there. Number one is decorating. Number two is bed on the market. So if you’re doing speculating, you’re basically buying items at a cheaper price and sell at a higher price. So technically, this can be achieved by buying a item from a list firm from less experienced people and a similar to a seasoned collector, he basically arbitraging how different people perceive the price. The other one is you basically arbitrage between different platforms, for example, you buy it from China and you sell it on eBay or you buy it on eBay and sell in China. The third one is basically that’s that one is more like sportscar specific, because postcard is raw car and their credit card. And when you try to get a car and the grid is great, the grading itself add a lot of that value onto the car itself. So a good I would identify something wrong and purchase at a lower price send it to PSA or BGS have a graded like PSA 10 or PSA nine or BGS, nine a half, and the price increase maybe 20% directly. So as long as the cost paid off, it’s a good bet. So this is about speculating. Yeah, and buying a hole you’re basically betting like, okay, more people is going into this hobby, the trend is going up, people are willing to spend more money but this is more correlated with the market condition. And as you can see over the past few years, sportscar raise a lot during COVID. Because everybody has a lot of money. But right now it takes so different people profit differently in such a market. Well,
J Darrin Gross 7:35
it’s fascinating. Well, I appreciate you sharing a little bit about the memorabilia and and, you know, wine and watches and all that. That’s That’s fascinating. But let’s talk about the real estate. I’m curious what drew you to invest in real estate?
Frank Xia 7:55
Yeah, so I always saw so I think it’s everything boils down to the Kiyosaki Rich Dad Poor Dad book, right? He talks about how to earn passive income. And I know this concept when I was a kid. And I’m basically my strategy was basically starting to collect rent and become a landlord and earn passive income. And I started my journey is like, okay, single family, condos, etc. But then I realized, okay, the speed of a community of wells over there is very slow, for two reasons. Number one is that the I used to live in San Francisco and also obviously, like the rent to purchase rate isn’t really good. So I wasn’t able to make any positive cash flow over the edge, and then have to trend it into other markets, for example, Tampa, Florida, Phoenix, Arizona or Dallas, and then I become more full on buying these homes up until the point that I get bottlenecked by my mortgage broker, they say, Okay, you are not able to borrow more money because your debt to income ratio is that high. They are transitioning to multifamily, because I want to over overcome that bottleneck. So that’s how I ended up to right now. But I think real estate has been a very solid investment compared to other collectibles because other collectibles didn’t generate income versus real estate that generates income. So the pricing is a little bit different. And I think real estate is more robust because it always produce income. It will always have the price.
J Darrin Gross 9:37
No, I agree. wholeheartedly. I’m curious. You mentioned Rich Dad, Poor Dad and I thought I heard you’d mentioned as a child or as a kid, you had kind of understood this concept. Did your family into real estate or how what was your? Kind of
Frank Xia 9:54
they? They do real estate investment in China, but that’s A very different game, China is more about speculating on prices, right? Because you know, like over the past 10 years, the price just surge. So whoever purchased the real estate, doesn’t really matter what they purchase, they make grading return. So I started to know reached out for that, I think from a friend, he said that my parents, my parents didn’t really care about generating these kind of assets. So I have to kind of learn the hard way. So I spent a lot of time learning how to build up wealth myself.
J Darrin Gross 10:32
Got it? Got it. So all right. So you mentioned you started doing single family. He struggled in some of the markets, you found some markets with cash flow, and then the the mortgage your your debt to income ratio basically kept your ability to continue. So how have you gone about investing in multifamily?
Frank Xia 10:57
Yep. So it’s, it’s more of a luck. I was talking to a random friend, and he was bringing up this multifamily concept. And at the beginning, I was thinking he’s maybe just buying this duplex triplex or four Plex. And then he told me his buying like 100, unit 200 unit. I was like, how, how is it possible? And then he explained the concept of like, syndications to GP business model or other business model there. I was like, oh, okay, now I see how the game is playing out. So I chipped in a little bit money was him as the LP of a few deals a few years ago. And I just started to grill this person about all of the underwriting questions, because I’m very responsible for my money. So I learned over the past two years to understand, like, end to end how like, the underwriting sourcing goes, and then I feel like, okay, this is something I’m very comfortable. I’m able to do it myself. And I think, because I’m spending more and more money into this business. I’m doing what I’m doing my own underwriting, why don’t I become a investor and help other people to build up their wealth as well. So this is kind of the journey I started.
J Darrin Gross 12:17
Got it. So you, you started as an LP then. Okay. And in the did they hear you, right, two years is kind of the year and a half, two and a half years? Okay. Yeah. In the two and a half years, the lots changed. I mean, during COVID, the market was kind of everybody thought was going to stop and it just went nuts. Yeah. With all of the low interest rates and, and opportunities. So I’m curious how many how many deals have you invested in and if any, have gone full cycle? Yeah. Just because, you know, Ben? Yeah.
Frank Xia 12:56
So it was three deals, maybe 700. Doors in total. One went out fullcycle. One is doing okay, but you just cannot perform? Sell at good price. And the other one is mediocre housing. So I think one exit full circle two years 37% of return. On the cash on the capital side.
J Darrin Gross 13:23
77% In two years,
Frank Xia 13:24
that’d be 777. Sorry. 7737 Or three, seven. Okay. Yeah. Anyways, maybe like 20%.
J Darrin Gross 13:33
Okay, well, three, seven and two years still? Pretty good. Yeah. Oh, yeah. Yeah, yeah. And. Okay, and then you mentioned that one is okay. And once kind of mediocre? Are. I’m hoping that that all of them are still viable, or have you had any other? I guess, here’s what I see. And you tell me what your situation is, is basically it’s a matter of the interest rate and refinance coming due and and whether or not there’s buyers. You know, that or whether or not the the deals going to be able to hit its projected exit.
Frank Xia 14:14
Yeah. So the so yeah, they also they are using interest, flowing falling interest, but they actually bought a line of cap. So the downside, the risk isn’t really about interest rates. Currently, it’s more about enforce the tax in the tax increase. And we just have to fight every year about this tax situation, which didn’t end up with any cash flow.
J Darrin Gross 14:41
So tax situation meaning property taxes, yes. Probably. Texas.
Frank Xia 14:47
Yeah, because this is just a new new one and also insurance growth. So it’s mainly these two components. They’re basically eat up all of the cash flow. When I say when I say now good, meaning that we’re not distributing. We’re not distributing caches. It’s not about the properties being distressed or not just no cash return on that.
J Darrin Gross 15:06
Got it? And so what well, no, quarterly or monthly cash, the the assets still performing, it’s just a matter of some the expenses have grown beyond with projections were right, namely, the insurance and the property taxes. Right? Got it. Got it. All right. So you’ve you invested in three as a limited partner. And you mentioned that, based on your understanding, and, you know, interest in this, that you’re, you’re ready to go on and be a general partner, if I understood correctly, that appears to be a deal sponsor.
Frank Xia 15:48
So I choose my position very strategically, because I live in Orange County, I don’t live in Dallas, I don’t see myself operating the deals, I don’t see myself being able to compete with other GPS to fight for brokers relationship. I don’t play golf. So I, it’s harder for me to do that relationship with local dealers. So I choose not to become a lead GP, I choose to more become a money raiser and also underwriters. So my strategy is basically to collaborate with the GP that I know, I’d built up trust for a while. And then I helped them to bring in some money, and also underwrite the deals. So this is kind of my value add in this situation.
J Darrin Gross 16:43
Got it. And so in that, you’re not the the operator, how do you go about selecting? Or what’s your criteria for underwriting a general partner operator that you’re going to invest in? And invest in?
Frank Xia 17:01
So right, so you raise a very good question. So there’s basically two parts of underwriting right. You basically underwrite the people, you’re also reading the people, you also underwrite the deals. So for me? I think I still haven’t talked to enough operator, I probably talk to 20. So far. Right? Right, right. It’s deep conversation. 20. I mean, I probably met 15. But I probably only had deep conversation with 20 of the people, I only currently have two people or two groups that I trust. So however the people is basically I try and try to understand, okay, what is their philosophy? Right? Number two is how much is their skin in the game? Meaning that, like, what percentage of acquisition fee they took? How much their own money? Are they planning to calculate? The screen again? What’s the carry? Or the structure of the deal? Are they using a waterfall? Are they using pure 220? Those kinds of skin again, number three, is that how big is their property? Sorry, how big is their portfolio? Versus how big is your team? So a red flag will be somebody that grow exponentially without going too much of their team, which stretched them very thin? And number four, is, are they have spread housebreaking? Are they like, Are they are they all over the place? is are they like sometimes in Georgia, sometimes in Dallas, sometimes Florida, or they just focus on Dallas? How much? Number five is how much they what do they do on a daily basis? How hands are they? How much delegation? Do they delegate to the property management? versus how much do they like oversee everything. So basically, I’m looking for a boutique shop, like a boutique company that owns a lot of things. Because if you own a lot of things, then you have to also make sure they have the system to manage like 10 party properties. I’m currently I’m looking for a boutique versus like big boutique, meaning maybe they saw like they only manage five properties or three to five property, let’s say maybe 1000 doors. They’re capable of doing five property by themselves. They are able to find optimize their contractors, their prices, the vendors by themselves. They’re not fully integrated yet. But I know these people is going to spend money very wisely. They’re going to eagerly to make the property work because they have a huge skin in the game. Right? They’re not taking a lot of money out up front, which means that they all return is very correlated to the performance of the properties. So this kind of GPs are the ones I liked the best. So far. I’m in
J Darrin Gross 20:01
that I’m just curious as you go and, and interview or qualify a different potential GPS, is there a, an average number of years or experience that these tend to have that are meeting your criteria.
Frank Xia 20:21
So the two that I trust, number one, he’s in a business for 10 years. And he just choose to operate Buddhistic. Like, like, like not growing up. The other one he just started three years ago. So I want to make sure at least they have two or one for exit. And I want to also see how they manage right now how they communicate to the investor, what type of report do they say, what do they do on their bare daily basis? And also, I will also pay attention to how do they how did they underwrite the deals? Few years ago, versus how they do perform? are basically say, Hey, can you send me your underwriting files for that deals you closed three years ago? And how they perform, I’ll ask him to benchmark did that person actually perform? Or he’s committed to do right? That perform that person say, Okay, you’re going to build up this top part, you’re going to build up 50, reserved parking, you’re gonna build like 50, popular carport, sorry, you’re gonna build up 50 carport, or you’re going to transfer this laundry machine to Amazon lockers? Did you actually do it? Are you going to peel back? Did you actually build up to the utility to the Senate? Did you actually raise the rent? 10%? So actually, I check if they did, what they promised they’re gonna do. This is the implication of okay, are they going to do what they think they’re going to do in the next day? So I think this tells me,
J Darrin Gross 21:59
ya know, it’s one thing to have a plan, it’s the execution that, you know, determines results. Right. So, so, that makes sense to me. I’m curious, you know, the, the, well, I’m just trying to think the the two parties that you mentioned, the the one that has three years, and one that has 10 years, in the last 10 years, the market has, let’s see, well, 2008 was the so we’re beyond the crash by right now. We’re recording December of 2023. So that would put us, you know, approximately 15 years past the crash. So and we haven’t had a quote, crash, but we’ve had certainly some interest rate. You know, interest rates went down, now they’ve risen, which essentially creates a cycle within the structure of commercial debt. How, how do you see when you when you review the past performance of these parties that you’re you’re interested in investing in? And how, how are they seeing or how are they responding differently? Are we reacting or responding to the market conditions to to create a positive outcome for their, their investors? Yep.
Frank Xia 23:29
So this is a good question. So short answer is we don’t know what’s gonna happen. I think anybody who predict, okay, the interest is gonna go down. It’s kind of betting they don’t let it nobody can clearly say, what’s really going to happen, then my philosophy of investing is number one, don’t lose money. Number two. Don’t forget about rule number one. I mean, don’t don’t lose money. Number three, don’t forget Rule number two, and number one. So I’m basically trying to figure out are we like me, and these two GPS, we both like all of us will agree that we want to currently buy a deal, that will yield as a reasonable return, even though the interest rate didn’t change. And that’s a very conservative assumption, versus a lot of other GPS, like I probably have the right 20 deals over the past a few months. And most of the deals, they’re going to present that to me say, Hey, we’re going to give you 14% Our because our exit cap rate is going to be 1.5% lower, because we do expect the interest rate gonna go lower. And this is a super red flag to me, because that seems the only reason to make money on this deal. Right? So you’re basically only betting on interest rate, not other stuff. And this is basically a bad sign because I could just bet it prostrate elsewhere, why would I bet an interest rate on real estate? So I’m basically trying to figure out, okay, how does a New Deal make money basically, there are three ways to make the deal. So these are basically three ways right now for you to make money. Number one is, you basically raise the rent number two, as you improve your operation, or you improve your operating sorry, now, rental income. And number three is your interest rate the market, right, I want to make sure that I don’t come to the market. But I can control the knob, the now rental income and also the rent, right, I want to make sure that I’m able to have enough meat on the ball, that even though there’s nothing happened on the on the red side, I can also make a lot of money on the other two, this basically you’re down to a property that doesn’t have the highest rent over this neighborhood. This also means that the property has a lot of meat on the ball on the now rental income side, that I can, for example, Bill back to the tenant, or I can improve here in a year to make 20 bucks a mouse a door somewhere, right? I’m actually looking into these deals.
J Darrin Gross 26:17
Yeah, I think you’re spot on. As far as you know, I had somebody else tell me that. If you couldn’t make money in real estate in the last 10 years, then you shouldn’t be in business, you shouldn’t be doing it right now, based on, you know, the, the market was just so ripe in so much demand. And you know, capital was so cheap, that all you had to do is buy one and so on, and you were making money. And but like you said it was kind of a, you know, the market, it didn’t it didn’t take any effort on your part basically, is what it did. Whereas now, the things that you’re mentioning the ability to increase revenue or decrease your expenses, is really, that’s it? I mean, it’s up to the operator to be able to figure out a way to do that. Yeah. Because the, the interest rates are clearly out of your control. And even if you execute your plan perfectly, if you’re if you’re, if your strategy is, you know, the hope that interest rates will fall and and the buyer will be able to spend more than then, you know, in a higher interest rate market, that that’s probably not the best strategy. So we’ve talked about the criteria that you look at for qualifying a, a general partner to work with, what about the actual property, tell me a little bit about some of the strategies and or criteria that you look for when selecting a, a property to, to invest in? Yep,
Frank Xia 28:01
so I’m a very number person. I believe in fundamentals. So my goal is to minimize my risk before closing, and then I can rest assured, because most of the work for me is done. During the writing time, I have almost zero control after the ogre clause, right, I can only influence the operator, but I have technically no control of how the deal is gonna perform. So. And the writing deal is the most important thing that I can protect my money, or I can either win or lose. And it’s going to be three years, five years to prove myself if I’m doing good or not, right. So I treat this very seriously. Number so how to actually underwrite the deal? So So I basically figure out okay, what type of property do I know? And I can mathematically underwrite it, and this basically yields to Class B, class C, plus, usually, because Class A return is slightly more lower than their my expectation. So I kind of haven’t really looked at Class A plus Class A require more money and operators. I know they have no experience of underwriting or many classes, because it’s just bigger operations. So I currently don’t know how to underwrite to assay. That’s just all of my knowledge. I’m very good at I will say right now for Class B, class C, because I just being underwriting these deals over the past few few months, my half year probably. So I’m currently focused on Class B Class C. In the future, I’m probably going to expand into other asset classes for example, self storage, for example, mobile park, or sorry, mobile homes, parking, self Park. A lot, etc. But right now I think Class B Class C are my bread and butter. So how do you underwrite Class B? Class C is basically, it’s very formal and the writing process, you basically grab their awareness, grab costar group or grab their rent roll t 12. Right, and plugging into a giant spreadsheet, that is pretty available online. And then you also change your assumptions. So I say, there’s like grabbing the number, which is kind of the same, and also pulling out options. And that gives you a real number of return. Right? So I think the most important thing is to figure out what assumptions do you use for these projections? This basically crude, okay, exit cap rate, this is the biggest number, your rent proves, right? What you’re gonna do for, for for non rental income? What are you gonna do for your expenses? And how much capex do I currently don’t know too much about FX because I’m not operation present. So that’s best reading the GP helps a lot, right? I usually trust the GP for their FX site. I personally put a lot of emphasis on the other assumptions, for example, rent growth, I’m currently not giving more than two and a half percent annually for the rent growth. Now, that’s not taking into consideration of renovation. Okay, renovation basically does its own bump. But if status quo and assume maybe two and a half percent over there, for the exit cap rate, I’ve usually assumed whatever the acquisition cap rate plus of the business point, this is my like, back to envelope underwriting for the cap rate, I can go deeper into underwriting of cap rate by using multiple data points, maybe I pulled the costar report, see what’s the market and plus 50 basis point on top of that, if the deal was so that, so basically, I want to make sure Okay, after all of these assumptions work, I can still achieve maybe 14% are for GP, sorry, for LP for my LP, I think that’s a very good signals to pull the trigger. And unfortunately, due to that, very restrictive in the writing process. The GPS I’ve been working on lost a lot of bearings to other GPS over the past few months. And I think that’s okay, because I don’t want to just wait to do for the sake of giving more price, because they’re always going to be somebody who’s willing to pay more to win the deal. But they’re just paying too much. And I don’t want to end up who’s doing that. I’ll just wait.
J Darrin Gross 33:05
So I want to make sure I understood the on the exit cap rate, you’re projecting, you’re taking the entry cap rate and adding half a half a point?
Frank Xia 33:15
Half a point pretty much. Okay, so
J Darrin Gross 33:17
if what are you seeing right now as a market cap rate in the Dallas BC class code, or not? Classico? Yeah, the the class of properties as well as an offering Capri?
Frank Xia 33:32
Yeah, so I think it depends on regions, but most of the region either, right, I think Class B is about 5.55 and a half 6%. And Class C is like 6.7%. That’s usually how I see it. But I mean, but the asking price is usually 1%, lower. So there’s a huge gap between us can bid, right? So we’re selling, they are giving you a 4.5% of cap rate, I was like, Okay, this is not gonna work for us. But 4.5% is probably the only rate, they’re not gonna lose money on their side. So there’s a gap between what people are willing to let go versus what people are willing to pay. And I think that’s also a reason of, there’s so little transactions on the market. Sure,
J Darrin Gross 34:14
when you do your underwriting, and you’re looking at the actual rent, rent roll and, and calculating the cap rate, presumably it’s off whatever they’re, they’re actually doing. If it’s substantially under market, do you give yourself any kind of a leeway kind of a room as to how much you can go higher than that based on you know, if if the current rent is x, and you know, that the, you know, the market rate is, you know, x times, you know, 1.25 or whatever, meaning that and showroom.
Frank Xia 34:56
Got it, so I’m trying to understand why the current rate is much lower. There’s usually two reasons right? Number one is the, the current owner is not doing the job, for whatever reason. It’s either they are a mom and pop shop or they live in a different state, they just don’t pay attention. There’s another reason is that okay? Maybe there’s something wrong with with the property, people are just not willing to pay that high. Right? So I’m trying to debug what’s the reason? If the data tells me it’s more about the operation, they’re probably can bump it up more aggressively. But if the reason that that oh, just because this this location is weird, right, there’s like three other locations that have better visibility, or for whatever reason, people just don’t like this kind of unit layout or etc, I will be very conservative. So I’m trying to figure out why it is as little
J Darrin Gross 35:57
as far as the BMC class properties to your underwriting, is there a number of doors that you focus on?
Frank Xia 36:07
Good question. So I’m most of the deals, like that’s being brought to me as usually 150 to 250. Doors. So this basically justify a full on side property management team.
J Darrin Gross 36:20
No, makes sense. And what are the projected hold times in your, in your models that you’re, you’re looking at for acquisition?
Frank Xia 36:32
Right now, I’m currently giving myself three to seven years of exit. So when I’m using that, I’ll probably use a longer term fix that maybe seven to 10 years. So my strategy right now is I want to experience another cycle, and sell that at a better price. Maybe I will refinance in the middle. But my goal is basically give myself I learned from the past, right, I basically gave myself a longer period of time before that, unless it’s like a super deal by deal is different, right, unless this deal is purely about just fix. Sorry, flip, fix or flip. Otherwise, if it’s just substandard deals, I’ll give myself very long term to realize over there.
J Darrin Gross 37:19
No, make sense. For debt, what are you seeing the the interest rates that are being offered? And what kind of downpayment percentage and, and the length of term on the on the debt? What are you seeing right now?
Frank Xia 37:35
Yeah, that’s that’s actually not my expertise. But most of the deals I saw is around 6%. So the percent down 30%. agency law
J Darrin Gross 37:46
agency, okay. And was that seven to 10? years, then on the Yeah, the term? Okay. Yeah.
Frank Xia 37:54
We had a deal that you can assume a debt. And also, I think that was like, very good. But for whatever reason, we pass it, but most of the most of the deals are six, seven to 10 years.
J Darrin Gross 38:08
On it. So as a capital raiser, what is the the temperature of the investors that you’re approaching? What’s their? What’s their response? Are they eager to invest? Are they cautious? What are you hearing?
Frank Xia 38:30
So I think it depends on how they Well, first of all, most of I think almost all of my investors right now are accredited. And these accredited investor make their fortune differently, right? There are basically two types of ways they make their fortune number one is they in tech industry, they had a big check their engineers. Another way is to like their financial workers, they are just super high pay, and they are very good at investing. So if it’s more tech, they are less educated, and they are looking for a way to park their money with reasonable return. And they are willing to do that because right now the only thing they can invest right now is is that is the Treasury. CD, right? So right now they’re getting paid 5% 6%. And if I can offer them a 10% 14% annualized return, this is a much better return for them. Other side of my, my, in my in my circle, they are super good at investing because they work in the finance industry. They work in a hedge fund. They are very picky about how they invest and they’re investing in real estate just merely for the sake of diversification. So these people are very conservative right now because they, they they park most of their money in their bank and they’re just waiting because they have their own thesis. They want to deploy their money at the right time. So they’re busy pretty saturated, like one group, that tech group they are, they are just looking for better opportunities versus the finance group, they are strategically waiting. So I think this part is easier to raise versus this is more hard.
J Darrin Gross 40:16
Yeah. No, I think that’s kind of what I’m hearing is. I hear there’s lots of opportunities here, there’s lots of opportunities that are due to come to market based on just the cycle of financing that’s in place. Right. And I think it all kind of comes back to the interest rate that the Fed is making available. The last I heard is the commitment is to not raise rates anymore. And, and the foreshadowing is that they plan to cut rates. But, you know, who knows? What the, what the if, you know, the numbers present something that doesn’t make or hold that to be true? You know, that could be, it’d be more worrisome. But yeah, you know, out of out of my control more, you know, pay attention to what’s what’s in front of us. That’s real. Yeah. And, like, you’ve said that the rent is real, you know, if there’s expense, expenses that can be cut, or were transferred to the residence. You know, these are ways you can prove your numbers here. I like that. Yeah, yeah, exactly. So, Hey, Frank, if we could, I’d like to shift gears here for a second. By day, I’m an insurance broker. And as such, I work my clients to assess risk and determine what to do with the risk. And there are three strategies that we typically consider, we first look to see if there’s a way we can avoid the risk. When that’s not an option, we look to see if there’s way we can minimize the risk. And if we cannot avoid nor minimize the risk, then we look to see if there’s a way we can transfer the risk. And that’s what an insurance policy is. And as such, I like to ask my guests, if they can look at their own situation. Could it be interest rates, investors, the market, whatever it is that you you see, in your situation that you consider to be the biggest risk? And again, for clarification, while I am an insurance broker, I am not necessarily looking for an insurance related answer. And so if you’re willing, I’d like to ask you, Frank Xia, what is the BIGGEST RISK?
Frank Xia 42:37
I think the biggest risk for me is, I think, interest rate right now, and how I choose to, I don’t think I can transfer that. But I think I can minimize it number before for a few for a few strategy. Number one is I just invest less deals, because the less you invest, the less risk you expose, right. But if you don’t invest anything, then you have no income. That’s not an option. So you have to participate in debate, but you can participate very strategically. So that’s number one. Number two is you can use a fixed rate mortgage to alleviate your risk, right. Instead of few years back, everybody is using floating interest rate with two years of recap. So we learned the lesson, we’re going to be more conservative using a fixed rate mortgage. So that’s number two. Number three is that we are looking for a cheaper price. We’re giving us more buffer so that we can tolerate this kind of waste. So these are the three things we’re going to be doing. But the biggest risk to us right now our interest rate.
J Darrin Gross 43:54
Now, let’s well said make your money on the buy and if you don’t buy right. Make makes it difficult to exit. Right. So yeah. Frank Xia, where can listeners go if they’d like to learn more or connect with you?
Frank Xia 44:09
Yeah, so right now I’m mostly active on LinkedIn. So my LinkedIn handle is Frank the Tank, CFA, and I post daily about career I post daily about wealth creation, and I talk about startups and entrepreneurship.
J Darrin Gross 44:28
Give that to me one more time, Frank the what?
Frank Xia 44:30
Frank the Tank CFA.
J Darrin Gross 44:35
CFA, gotcha. Got we’ll list that in the show notes. And listeners can find you. Yep. Right. Frank Xia, I cannot say thanks enough for taking the time to talk today. I’ve enjoyed it. And I learned a lot and I look forward to doing it again soon.
Frank Xia 44:53
Yep. Thank you very much for having me today. Darrin.
J Darrin Gross 44:56
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