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Multifamily Agency Direct Lender with Alison Williams and Ana Ramos – CRE PN #358

Alison Williams 0:00

And one thing to point out, you know, our requirements are obviously going to be a little bit different than maybe a bank. And that’s because the lending that we do is all non recourse. So you know, you are not actually signing any personal guarantees. There’s no contingent liabilities on somebody’s balance sheet, which is extremely important, particularly if they decide to go and build another property, you know, because that is something that lenders look at in terms of credit and financial strength. So everything that we’re focused on is strictly based off of the property’s performance. And then we supplement that with the borrower’s experience. And obviously meeting you know, minimum net worth liquidity requirements.

Ana Ramos 0:37

And you know, what you just reminded me like one of the biggest things that I hear a lot of and I did close a portfolio recently, the borrower refuses to provide tax returns, most banks require tax returns. And on the agency side, we don’t require that for qualified qualifications. So we do ask for Financials, real estate schedule, bank statements, but we don’t require tax returns. And I think that’s a big plus for a lot of borrowers.

Announcer 1:03

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

J Darrin Gross 1:22

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 guests are Alison Williams and Anna Ramos. Allison is the Senior Vice President and Chief Production Officer at Walker Dunlop. And Anna is a managing director for the West Coast and mountain regions. And in just a minute, we’re going to speak with Allison and Anna, about commercial lending strategies for multifamily.

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 i tractive 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, we encourage you to subscribe. With that I want to welcome my guest, Alison Williams and Ana Ramos. Welcome to CRE PN Radio.

Alison Williams 2:43

Thank you for having us.

Ana Ramos 2:45

Thank you.

J Darrin Gross 2:46

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

Alison Williams 2:56

Absolutely. I’ll start so as Darrin mentioned, I’m Alison Williams and Senior Vice President and Chief Production Officer at Walker & Dunlop. I oversee the small balance lending department where we focus on smaller multifamily assets, usually loan sizes ranging from one to 15 million. I’ve got a team of seasoned professionals scattering coast to coast and Ana Ramos is one of our best and talented individuals out in the west coast and mountain region. And I’ll kick it over to Ana.

Thank you, Alison. Hi. And I am Ana Ramos. I’m a managing director here at Walker and Dunlop. And like we discussed I oversee the Western mountain region. I have currently a team of five and we’re here to definitely boost up the small loan production over the entire West.

J Darrin Gross 3:47

Got it? Yeah. Well, I’m excited. I’m excited to have our conversation and have a chance to talk with you guys today. The I guess the first question I’d have is Walker Dunlop. Are you guys a direct lender? Or do you go through mortgage brokers or not merge mergers but commercial real estate brokers?

Alison Williams 4:12

So I like to think of us as the best secret out there. So we actually are direct lenders. We were founded in 1937 and then went public in 2010. But we were actually one of the very first Fannie Mae approved just lenders that started back in 1988. So we are a direct lender for Freddie Mac and Fannie Mae and we also have our own proprietary lending programs. So if you know if there is a borrower out there that’s looking for direct financing or a broker that’s actually looking to access the direct lender than than we are that group. You know, historically, we’ve been top number one with Fannie Mae seven out of the last 10 years, and we are consistently a top five Freddie Mac lender and a top three husband are so dominantly playing in the multifamily lending space, just to kind of give you an idea of our scale and size in 2021, our company, you know, financed and sold over $68 billion in in commercial real estate assets, and the primary focus has always been multifamily.

J Darrin Gross 5:21

Got I was gonna ask you if it was limited or focused strictly on the multifamily or if you were across all asset classes, but

Alison Williams 5:31

We are we are across all asset classes. So we do anything that’s income, cash flowing or construction, that will be you know, cash flowing assets. So retail, hospitality, industrial office, self storage multifamily, but predominantly, our team when you look at, you know, the individuals in our origination, you know, they are truly focused on the multifamily space.

J Darrin Gross 5:54

Got it? In in in that I’m kind of curious, you know, the way the I was having a conversation with somebody the other day, and we got to the point of some of the pricing is getting hurt has been right, all until rates are starting to creep up, we’ll see what happens. But, but the price per door was getting so costly that look like the the construction, you know, option was looking more and more attractive. Are you finding that construction? Lending? Is? Is his or increased interest in that? Or is that that always been kind of steady out of your can? Yeah, yeah,

Alison Williams 6:33

I mean, I think construction lending, I’ve actually been probably it’s been more difficult actually. Because the in order to find vacant land, right, or repurpose land that’s extremely difficult and prime, you know, locations. So I think that becomes more challenging as cities and other areas get built out. And then obviously, with the rising cost of construction coupled with supply issues, we’re actually seeing more people hit pause on construction than ever before. And I think that they find that they can actually go buy an existing asset below replacement cost, and then do some type of value add and immediately add value to that property. And they don’t have to wait, you know, two to three years to actually have it built.

J Darrin Gross 7:18

Yeah, no, it’s always made more sense to me as if you can buy it for less than it cost to build. That’s, that’s a good option. I think Sam Zell, Sam Zell had that idea that was good. So Fannie and Freddie. In a small balance, you said under 15 million small balances at the range, kinda from one to 15 is where you guys define small balance.

Ana Ramos 7:48

Freddie Mac defines small and up to seven and a half, and Fannie Mae defines it up to 6 million.

Alison Williams 7:55

And then we have a proprietary program that goes up to 15. So what we find is that, you know, most of our clients that play and, and I use the to term loosely, small, smaller multifamily assets, typically are in you know, one to 20 million is kind of the asset valuation that they’re targeting. So it was really important that Walker and Dunlop for us to be able to serve, you know, basically all of those areas. So that’s why we we ended up rolling out a newly launched proprietary platform that could take us up to 15 million to make sure that we’re meeting the needs of the clients.

J Darrin Gross 8:26

Gotcha. No, I was surprised or not surprised. I guess, as you see, the values continue to increase. You know, what used to fit in the box doesn’t fit in the box anymore. And, you know, if there’s gotta be some sort of adjustment to the market, or to the platforms that are in play to make it still work, that’s good. Well, so let’s talk a little bit about, you know, the the the lender, the borrower lender relationship, and what you guys are looking for for or to lend on?

Ana Ramos 9:06

Yeah, I would say I’ll take it Alison, I would say on the Small Loan Borrower, typically the requirements that we look for minimum FICO score is 680. Or better than net worth, we’d like the net worth to equal the loan amount or greater and liquidity, we do ask for nine months of principal and interest payments of the existing loan that we’re about to refinance. And we also are looking for some type of multifamily experience, one year to two years is something that we really need to get comfortable depending whether it’s Fannie or Freddie to have at least that background and multifamily for the borrower to qualify, typically, we’d like for them to be local, but if they’re not local, we do ask for a third party management if they’re considered absentee, which is greater than 100 miles of the subject property.

Alison Williams 9:51

Yeah, and one thing to point out, you know, our requirements are obviously going to be a little bit different than maybe a bank and that’s because the lending that we do is all non recourse. So you You know, you’re not actually signing any personal guarantees. There’s no contingent liabilities on somebody’s balance sheet, which is extremely important, particularly if they decide to go and build another property, you know, because that is something that lenders look at in terms of credit and financial strength. So everything that we’re focused on is strictly based off of the property’s performance. And then we supplement that with the borrowers experience. And obviously meeting, you know, minimum net worth liquidity requirements.

Ana Ramos 10:28

And you know, what you just reminded me, Aly, one of the biggest things that I hear a lot of and I did close a portfolio recently, the borrower refuses to provide tax returns, most banks require tax returns. And on the agency side, we don’t require that for qualified qualifications. So we do ask for Financials, real estate schedule, bank statements, but we don’t require tax returns. And I think that’s a big plus for a lot of borrowers.

Alison Williams 10:55

Absolutely.

J Darrin Gross 10:56

Yeah. No, there’s a couple things that you said there that I hadn’t heard, I’d always heard, you know, non recourse was always like a preferred option, if you could get it based on you know, if things blew up, and there was some sort of a something unless you were committing fraud or something like that, that you weren’t necessarily on the hook. But for you to frame it in as much as that it improves your balance sheet to where if you’re going to develop another property or something. I mean, it sounds like that’s really probably the the real benefit of of having a non recourse loan there.

Alison Williams 11:29

Yeah, it’s definitely I mean, I think as people begin to scale and grow portfolios, they start to see, you know, the value and doing just non recourse loans, you know, not only from a liability standpoint, but also being able to give them access to more capital, and to be able to actually scale quickly. You know, like, as I mentioned, banks really are focusing on your contingent liabilities, what is your overall debt ratios look like? We don’t get into that we’re really just underlying valuing the property itself, and making sure that we’re comfortable with the cash flow that the property produces to meet our mortgage payments.

J Darrin Gross 12:05

And what kind of a cover ratio do you guys require with a debt debt service coverage ratio?

Ana Ramos 12:12

Typically are, you know, in larger markets, or minimum debt coverage ratio is 1.20? If not, across other markets were at 1.25.

Alison Williams 12:21

Now that’s up to an 80% loan to value so 20% down?

J Darrin Gross 12:25

Yeah. Okay. And what’s a typical term? Do you guys do interest only? Or is it pretty much?

Ana Ramos 12:33

All the time? Yeah, that’s I think that’s a big thing that differentiates agency with banks is out, banks are really comfortable doing interest on I mean, I’m sorry, fare agencies really comfortable doing interest only full term interest only that we have anything from a five 7 10 15. And we do have longer terms as well as you believe it or not, some clients do want to 30 30 year term, fully amortized. If they want to leave the property to their children never want to touch it. Again, we do have a fully amortizing loan, which is great. On the Fannie Mae side, we do sell that as well. But typically, I always very, is very popular with the non recourse. And cash out, I think that we see a lot of banks that some banks will definitely be aggressive in the pricing, they limit the cash out. For us. I mean, we don’t necessarily we don’t have an issue with cash out if the property is performing and the property is maintained, we don’t have an issue with cash out.

Alison Williams 13:27

Yeah, and that’s, you know, something that we see much a lot more common in the larger space than we do necessarily in a small, but I think it’s something that the borrower should be aware of, I mean, what typically happens in the larger space is somebody acquires a property, they improve it, and then three to five, maybe seven years later, they either sell it, or they actually then refinance it and pull new cash out, you know, immediately right there, and that’s treated as refinance proceeds, so it’s taxed differently. And so that is just immediate, you know, then they can pull proceeds out and then go buy their next asset. And that is really how you scale. So that’s what we typically see our clients do, you know, they’re, you know, but I wouldn’t say that some want to hold long term, obviously, for generational wealth and for estate planning purposes. But I think those that we see scale quickly and pretty large, they’re really improving the property’s creating value and then coming back in for another bite at the apple and that’s what you know, I think is just a really really strong business plan that has proven itself out year after year.

J Darrin Gross 14:30

You know, from experience speed wins and that thing faster you can get it improved and and get those higher rents and get that money back. That’s that’s really the way to do that. That’s good. So let me ask on the cash out refi same lending requirements or ratios and then we go to the 80 80%.

Ana Ramos 14:53

Typically on the cash our 75.

J Darrin Gross 14:56

Okay, and then same on the debt cover, or district

Ana Ramos 14:59

125 to 130 for the cash out. Okay.

J Darrin Gross 15:05

Okay, so that was the, her I guess the balancing act, I guess it changed a little bit there we go from go into go out. So talk about value add, are you able to provide any of the funds for the capital improvements? Or is that still required by the borrower to bring that

Ana Ramos 15:28

In terms of programs, we do have some smaller bridge programs that we that we can apply and see if the property qualifies them, there’s a structure and a plan in terms of what they’re putting in place today. So between our proprietary and some of our bridge capital, we do have some of that starting at least 3 million in loan size, and above that we can consider

Alison Williams 15:51

The agency’s job. So agencies are really looking for stabilized assets, you know, we have seen where 1031 buyers will come in, and they’ll purchase something, and then they actually want us to do a whole back for, you know, capital improvements, because it actually helps with their 1031 transaction. And so we’ll do that, and then we’ll fund those dollars, you know, as they’re spent. But the program itself isn’t structured to be like a true bridge program, as Anna was mentioning, those are more, you know, debt funds is some regional banks play in that space. And there’s also just some investment firms that play in that space.

J Darrin Gross 16:26

Got it. And when you do that kind of bridge thing, is it kind of like a construction loan anywhere you have a line and you draw it down? Based on the?

Alison Williams 16:35

Yeah, I mean, it’s it basically is an initial funding. So it’s usually, you know, maybe 75% of total cost. So you would do 75% of purchase price, and you would do 100%, hold back for any capital improvements. And then as those improvements are completed, then the borrower basically submits a drawl to take those funds back. And it’s all you know, tied to a set interest rate. But most of those deals are floating rate, typically, when you want to do you know, just as you mentioned, like a construction loan. Right? So construction, lending is always on a floating rate basis, as well. And that’s what we see in the bridge place. It’s also typically, you know, a one to three year term, it’s not a long term, five, seven or 10 year program, like we do with the agencies.

J Darrin Gross 17:18

And then there’s a bridge then do you convert that to permanent financing? Or are

Alison Williams 17:24

You do you refinance out?

J Darrin Gross 17:26

Okay, just refinance. Gotcha, gotcha. All right. So kind of talked about the different types of loans. What, what do you project when you are talking with a borrower as far as closing fees? What kind of closing costs should one expect? Ya know, typically,

Ana Ramos 17:48

I mean, depending on the structure of the transaction, but typically, closings fees will range anywhere between 3500 to 7000, just depending on the structure of the deal. Whether there’s a different borrower structure, more like a tiered structure, it’s a little bit more convoluted, versus straightforward, a single asset. So it’ll depend that anywhere between 35 to 7000. At closing, after the, we do collect an application fee that covers a third party reports, which is the engineering and the appraisal, and then that’s the actual closing fee that goes along with initially also we do have closing fees of UCC searches and Title and Escrow that the borrower does take care of.

J Darrin Gross 18:32

And for borrowers, considering, you know, are looking for financing for a multifamily property, what are some of the most important questions, you think that a borrower should be asking their borrower or their lender?

Ana Ramos 18:52

For me, personally, when I think the borrower and the typical questions that I get is, one, how much cash out do you do? How much do you service? What’s the servicing look like? What’s the timing cost? And obviously, the non recourse, so what are my proceeds that you’re able to do? I was a big one, and especially right now, in today’s environment, the costs and the timing, I think, given where interest rates are, timing is really important. One of the advantages that we have is that, you know, on the Freddie Mac side, we’re able to lock the interest rate at application. So once the borrower signs the application, the interest rate is set, which is really critical and important in today’s environment. On the Fannie Mae side, we can also accommodate an early rate lock, which takes about maybe three weeks, so it’s not as quick but it’s also quick in order to accommodate that. So borrowers are always looking how fast can you lock me? How fast can you close me? What’s it going to cost me primarily in the West Coast? What is it going to take to get it done, but I O is a big factor today. And now we’re able to accommodate.

Alison Williams 19:56

Yeah, Anna touched on to servicing so I think that’s something that people don’t Really think about but we do service all of our loans. That means we collect the mortgage payment, we hold the reserves, we’re the group that’s funding those reserves when you need them. So we’re we kind of view ourselves more as a partner and an advisor and the entire lifespan of the deal, rather than just doing the origination and then tapping out. And so you know, some banks do service their own deals, but some actually out service to another lender, or it might be sold post closing. And that’s just something that Walker and Dunlop does not do. Yeah,

J Darrin Gross 20:31

that’s great. The, that’s my dad was a banker, and I didn’t really understand what he did the borrower borrow money, but that relationship is definitely it’s critical to actually, you know, having the opportunity, I mean, when things do happen to have somebody to contact and be able to, you know, work through and that knows you or has a history, definitely important.

Alison Williams 20:57

I think the other thing, too, it just made me think of something is, you know, right now, obviously, there’s so much market uncertainty as well. And I think the other important piece is people are trying to decide which financial advisor they’re going to use to, you know, you know, finance their next deal, because they need to think about how often are they in the market? And what is their access to capital. And well, we are a dominant Freddie Mac and Fannie Mae lender, you know, last year, we closed with over 300 Different capital sources. So I think making sure you pick the right partner that actually understands the landscape, and also sees how the markets move very quickly, and you’ve got to react fast, and you’ve got to have a lot of windy relationships to make sure you get, you know, the best structure in terms for your client. So just making sure that you pick the right partner, particularly in some times that we’re in right now, where it’s a little bit uncertain.

J Darrin Gross 21:46

I was gonna ask you, you mentioned, her, again, had mentioned the questions that a borrower should ask, what what kind of timeline should one expect to you know it from application to? Presuming all of the information, you know, comes in as you need it, but is there is there a realistic timeframe that you can use,

Ana Ramos 22:13

it’s very realistic to say, 50 to 60 days, if we were going on the Fannie Mae side, and it’s an acquisition, and we control more of the process, just because of the model being a little more delegated to us. We can do something in 45 days, so just depending, but I would say average 60, but anything sooner that we can accommodate on a case by case and how quickly the bar does provide the information.

J Darrin Gross 22:38

So, Walker Dunlop, you guys are direct. How would you compare direct lender to a broker?

Ana Ramos 22:50

Well, that’s easy. The broker? I think we have? That’s a really good question. Because I do work with a lot of brokers myself, given my previous history, and where I came from, I do have a lot of relationships with brokers. But what I find here being at Walker is that, although we are definitely a direct lender, and our ratio is really high as direct business, we do have a lot of capital resources, a lot of capital available, because we do work with life companies, banks, with other institutions that were able to facilitate and help borrowers and direct them to the right structure and the right lending opportunity in order to get their loans done. So we are a direct lender, but we also have that capital resource. And like I said, I have experienced that I do have a lot of clients that are brokers, and we’re able to work with them as well, because we do work with brokers, and we’re able to structure deals and maintain that relationship as well.

Alison Williams 23:45

Yeah, I mean, I think the other biggest differences, obviously, when when we’re the direct lender, it’s our credit team. It’s our underwriting team that’s actually underwriting the deal and improving it. And when you’re a broker, you’re basically relying you’re the intermediary, so you’re relying on your communication with a group like us, that then is communicating with credit. So you know, you’re just one step removed. And like Anna said, we value our broker relationships are very important to us, you know, we we honor them, we pay referral fees, etc. Because we love that business. But you know, we predominantly are a direct lender, we have a lot of direct relationships, because they know that the individual they’re talking with, ultimately is a part of the group that’s making the ultimate decision.

J Darrin Gross 24:30

And as far as like a borrower that’s, you know, in the market for a property. We talked about, you know, from application to close, any recommendations for establishing a relationship with you guys for you know, Hawker Dunlop before they’re ready to make an application has a good, good rule of thumb as far as you know, getting in touch with you guys before that.

Ana Ramos 24:57

I would say yes. Today actually, we do see a lot of referral business a lot of from our quote app right now that we’re marketing and it’s on our website. So even if today what’s what’s great about the the regional model, what we have today at Walker and Dunlop is that, even if a borrower does not qualify today, we maintain contact with them, we continue to continue the marketing. And we’re also giving them guidance of if you don’t qualify today, or that or the deal doesn’t fit the box today, here’s what needs to happen in order to fit the model or to fit the box. And also for the borrower. What we do see a lot of is maybe lack of multifamily experience. So we encourage them to go and get a bank loan or credit union loan, get that first spend about a year or two, then come back to us. So we stay in contact with them in order to help them get ready for agency takeout.

Alison Williams 25:53

Yeah, but you can’t start that process too soon. I think a lot of times borrowers come to us when they’ve already signed a contract. And they’ve already said, you know, we’re gonna close in 45 days or you know, they’ve, they based it on a loan that they just thought it was going to be 25% down, because that’s how they financed their last, you know, home loan or second vacation property. And it’s just a very, very different dynamic and the non recourse lending. And so I always tell all of our clients come to us early, let’s have discussions, let us know what you’re bidding on, you know, what markets you’re in, depending on what market you’re in, it could change how competitive a lender might be. So, you know, we don’t get paid until the deal closes, we were, you know, for free consultant on the front end, reach out talk to us will guide you in terms of what we’re seeing in the market, what to expect how to underwrite the deal. And then as Anna mentioned, and I’ll share it with you here later, but we do have an online quota that actually allows borrowers to put in property specific information, including net operating income, and then it actually will tell the borrower what kind of loan they can get with very specific loan amounts and interest rates based on those assumptions. So that tool is there at all times, if they didn’t want to talk to somebody, but if they actually want to reach out and have communication with one of our bankers, you know, we can we can make that introduction as well.

J Darrin Gross 27:15

That’s nice to have the tool I find, though, that if you’re going if you’re really going to be serious, you got to have that conversation with the person that’s gonna give you the thumbs up or thumbs down kind of thing. So, but a nice to have the tool. I mean, I would think that, you know, to give you some sort of, of a budget process, or you know, some for an idea, do you ever engage or provide, like a pre approval letter that somebody can? I mean, depending on the market, I’ve seen, you know, that can be a something that tips the seller to consider you as opposed to the other guy who’s offering more that, that hasn’t been approved kind of thing.

Alison Williams 27:55

Yeah, I mean, well, we see. So obviously, the financing is contingent on the property’s performance, right. So if we’re going to put out a soft quote, you know, and actually provide that debt grid, it’s, it’s all based on the property that they’re actually acquiring. And we’ve already received financials, you know, a trailing 12 income and expense statement and a rent roll. And just with those two pieces of information, we can tell you exactly where we think the loan with shakeout, and we’re happy to provide that, you know, in a form that can be shared with a potential seller, but it’s not per se, like a pre approval that you would see in the single family world where you’re just approved for whatever loan amount based on your personal assets and income.

J Darrin Gross 28:33

Right now, I mean, commercial is obviously going to be tied to the property, but just I’ve just seen that, you know, give the edge to the to the one that is that has a relationship already with a banker, as opposed to the one that hasn’t. Yeah, so that’s good. So let’s talk about current market today is we are recording this on May 18 22. Rates, what do you what’s your crystal ball? Or what are your expectations with rates throughout the balance of 20 tail?

Alison Williams 29:10

So I’d say we’re gonna, I feel like we’re in a much better place today than we were 30 or 60 days ago, 30 to 60 days ago, we saw a lot more movement and the Treasury indexes, which is how we base our loan amounts, we base it over the five, seven or 10 year Treasury yield, and we started to see some normalcy in those. So we’re hovering the three tenure Treasury is hovering around 3%. It’s pretty much been, you know, plus or minus 10 basis points of that for the last 30 days. But prior to that, I mean, it jumped 100 basis points from December, you know, today, so we had a lot of uncertainty and a lot of, you know, just feelings of, you know, concern obviously in the beginning of the year, but I think we’re finally at the point where, you know, we can size appropriately we don’t feel like our loan receipts are going to change dramatically, we’re finding more borrowers are coming back in that were, you know, kind of putting their deals on pause and sitting on the sidelines, I think they, for them, it’s just managing expectations, if they can manage their expectation they want to be in the market. But when you see market movements as wide swings, as we were seeing in March, it was really hard to do. So I feel I feel much better today about where we are than I do 60 days ago, I think short term interest rates. So So for LIBOR prime obviously, is going to continue to increase. And that’s just based on where inflation is and what the Feds gonna have to do in order to combat that. But I think in terms of, you know, longer term interest rates, I think we’re in a pretty good spot, we’ll probably see a little bit of uptick, but I don’t know how great that will be. But we’re starting to see a little bit of settling in that area.

J Darrin Gross 30:52

Any sense of just the multifamily marketplace. You know, looking forward to the next 12 months.

Alison Williams 31:00

I mean, last year was huge. So just in small multifamily alone, the asset valuations went up 15% year over year, and then our debt originations went up 47%. So, in 2021, was $85 billion of financing for small multifamily assets in the US, which is just, you know, just insane. The entire multifamily market was 470 billion. So you can just see, you know, how big of a piece of the pie the small multifamily market is. And, you know, I think the forecast going forward, we haven’t really seen that much of a slowdown, as I mentioned, there was a couple people, you know, of our clients that were kind of on pause for 30 to 60 days, but it seems pretty normal again. So I think as long as we can continue to see rent increases, but that has to be justified by wage growth. And so in my mind, I go back to wage growth, what markets are we seeing wage growth, then where are we seeing corporate relocations? If we can kind of track those areas? I think we’re gonna see a lot of activity, just kind of following those pockets.

J Darrin Gross 32:09

Jobs, jobs, jobs,

Alison Williams 32:11

jobs. Absolutely. And wages.

J Darrin Gross 32:14

Exactly. Doesn’t pay enough? isn’t good enough?

Alison Williams 32:19

Yeah, absolutely. So,

J Darrin Gross 32:20

Got it. Hey, guys, if we could, I’d like to shift gears here for a second. By day, I’m an insurance broker and try and work with my clients to assess risk, and determine what to do with the risk. And there’s three strategies we typically consider, we first look to see if there’s a way we can avoid the risk. When that’s not an option, then we look to see if there’s a way we can minimize the risk. And when we cannot avoid nor minimize the risk, then we look to see if 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 be your clients, investors, tenants, the market interest rates, political, however you choose to frame the question. But if you can take a look at your situation, and identify what you consider to be the biggest risk. And again, for clarification, while I am an insurance broker, I’m not necessarily looking for an insurance related answer. And so if you’re willing, I’d like to ask you, Alison Williams, and Ana Ramos, what is the biggest risk?

Alison Williams 33:35

Anna, do you want to start?

Ana Ramos 33:36

Yeah, you know, it’s interesting, because I think there’s a lot of risk in what we do. And I think I’m pretty aggressive. I think we underwrite our loans pretty well, we’re at a 125 120 debt cover over breakeven. Yes, we are a non recourse loan, but we vet it out the client. So when I assess risk, I’m looking at risk. It’s more for the borrower, the risk of capturing the rate in today’s environment, I the way we underwrite the way we get our values, the way we package the file. I think the agency when you look at agency, historically, our losses are very minor. So if being as in on the origination side, I would love to be much more aggressive and see more. But we don’t we don’t see that a lot. So it’s really hard to speak on that, at least for me, because we don’t see a lot of that the losses are there. They’re unheard of. And it’s very, very small. Just because of the way everything is packaged and the way everything is the way we underwrite the transaction, the property the sponsor, the management and we service the loans and how often we service and how involved we are with the loans from beginning to end and also through the life of the loan. So for me, it would be more the borrower side that today I think it’s really critical, especially in today’s environment is to lock that interest rate because of the risk and the volatility.

Alison Williams 35:08

I’d echo Ana’s comments, but I’ll take a slightly different take. And I think what concerns me the most when I think about today is affordable housing. There’s just a massive demand for affordability right now. And every market with the amount of rent and growth that we’ve seen in every city. I’m currently in Tampa, we had 25%, and rent growth year over year. And we’re just starting to see, you know, just the lack of affordability. And with a lack of vacant land and where you can build and raising, you know, construction costs and rising interest rate, it’s going to become much more challenging to build affordable housing to fit the needs of, you know, the average American. So I think that, to me, is when I think about the future, and my daughter and that kind of stuff, I just think about like, wow, we’ve got to tackle this affordable housing crisis that we’re dealing with right now.

J Darrin Gross 36:01

Ya know, the affordable housing, it’s kind of a Rubik’s Cube kind of thing. And everything keeps going up. And and I don’t know that we’ve got that figured out just yet. But definitely, an ongoing problem doesn’t does not look like it’s going to be solved here soon. So good. Hey, Alison, and Ana, where can the listeners go? If they’d like to learn more connect with you?

Alison Williams 36:27

Perfect. Yeah, you can go to www.Walkerdunlop.com. And then you can toggle over to small balanced loans from there. And we actually have a very in depth website that has a blog post on how to financing guides. It has an entire regional map where our entire team you can get bios and their location. You can also have access or quote up where you can do live sizing of a deal and also see lender term sheets.

J Darrin Gross 36:55

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

Alison Williams 37:06

I appreciate it. Thank you so much. All right.

J Darrin Gross 37:09

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

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Multifamily Senior Living with Vinney Chopra – CRE PN #347

Vinney Chopra 0:00

And my senior livings are also going very well. Because what we do is we do all land development things, the ordinance changes and everything. And that gets us the land very cheap. We buy them. But by the time we have done through all the permitting, it’s increased in value by three times already, because we have gotten the permits now to build a senior assisted living. And then the good part is, by the time we are done building it, we start getting residents said, we have 29 residents already given deposits, to move into our apartment complex, brand new. It’s being built right now. So it’s a 2022 construction with everything brand new. And then we have very less deferred maintenance. And there is zero delinquency in this apartment complex because it’s a need driven and, you know, we have to look at the residence they have to show us three years of rent, because usually people stay three years in our facilities.

Announcer 1:11

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 1:30

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 Vinney Chopra. Vinney is a multifamily syndicator, Senior Living care facility developer, an author, a podcast host, a mentor, family man, he’s a lot of good things. And in just a minute we’re going to speak with any about the opportunities in multifamily and senior living.

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 while you’re there, we appreciate you leaving 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. Without on Welcome back returning guests popular Yes, my friend, Vinnie. Welcome back to CRE PN Radio.

Vinney Chopra 2:52

Thank you. Thank you, Darrin, it’s such a pleasure to be back there with you, brother, I maybe during COVID We didn’t get together did.

J Darrin Gross 3:00

We did once or twice. But it’s I mean, it’s I know we’ve talked at least once a year, but I know that it’s been a long time. And it’s time to catch up and see what you’re doing. I know you’ve been I know you’ve been busy, busy, busy. I’ve met some of your your students here locally. Yes. And I know that you’ve been busy selling and buying so it’s a good time to good time to catch up.

Vinney Chopra 3:31

You know, it really is I mean, you know, many times we feel what the market is doing a market is doing but she got to take action and you know, sell some assets at the peak and buy some in good markets and develop some and you know, I’d love to share what’s happening with me. Yeah.

J Darrin Gross 3:50

Yeah. Why don’t you start to you know, tell us what’s what’s been going on here last year. So

Vinney Chopra 3:58

When COVID hit 2020 We always have managed through the zoom and through remotely and everything, meeting with our investors and so on. So that’s when I got more even heavily into senior assisted living developments and I did five syndications one after the other and raised almost $27 million to get this ground up. structions projects and started them in Florida and Virginia. And they are being built in everything. So that’s something that I also bought a hotel with my another partner Hilton Garden Inn, which happened before COVID. Actually, oh my gosh, turn, we closed the deal on December 31 2019. What a perfect timing is it? And then in 2020 to 2020, about April, we said, oh, my gosh, our occupancy has gone down to 22%. And we were ready to pay a mortgage of 15,000. Each partner, you know, because it’s a pretty big deal. Anyway, but then the office staff of the hospitals, three hospitals, nurses and doctors chose our hotel to live in, what, what is the probability of that happening? Look at that. And then our peanuts became millions, because we went from a 6 million we purchased in an auction this hotel, and we are selling it in just three months back, this is 2022. For 11,000,008 50, we are selling, doubling the money doubling the money in that one year, which is very good. And my senior livings are also going very well. Because what we do is we do all land development things, the ordinance changes and everything. And that gets us the land very cheap, we buy them. But by the time we have done to all the permitting, it’s increased in value by three times already. Because we have gotten the permits now to build a senior assisted living, we could sell that land, but we build ourselves with our own GC CINAHL. And my partner has been doing it for over 10 years. So that’s exciting. And then we build it in nine to 12 months, the whole thing. 66,000 square feet to 77,000 square feet of one story with 88 units, add ADA to 93 units, but we are not using any elevators or anything. Because these are 80 years, 200 years, you know, after age group of our residents, seniors who are living in our communities, right? It’s Hampton manor.co is our brand Hampton Manor. And that’s what is exciting. So we are building in Florida, in Virginia, in Michigan, and in in St. Louis. Right, Missouri. And then the good part is, by the time we are done building it, we start getting residents in like the Punta Gorda deal. I’m opening up like April 1, let’s say right, it’s February. So April 1, oh, April Fool’s Day. But we have 29 residents already given deposits, to move into our apartment complex, brand new, it’s being built right now. So it’s a 2022 construction, with everything brand new. And then we have very less deferred maintenance. And there is zero delinquency in this apartment complex, because it’s a need driven. And, you know, we have to look at the residents, they have to show us three years of rent, because usually people stay three years in our facilities. You know, they go to memory care, dementia, you know, which is also part of our division, or they get very sick, then they go to hospice, and they go to rehab centers and all that. So, so this is a new market for me, but it’s very, very satisfying bear market because it’s apartment at its core, but it’s got the, the that feeling of helping and giving the dignity of living for our seniors, you know,

J Darrin Gross 9:02

That’s awesome. So you mentioned the three years of rent up front, is that do they give it to you up front? No. Show you they have that?

Vinney Chopra 9:12

Sure. Just the proof just to prove it. Yeah, yeah. But they only pay month by month by month, you know? Yeah, yeah. No, we don’t take any money upfront, and they don’t have to pay us any money to live in the community either. I know there are other 55 Plus and independent living, you know, places like in California where I live, where you have to pay 300,000 tries to get in to even get in exactly yeah. But in our case states not. Right.

J Darrin Gross 9:41

No, I know that model has changed quite a bit. And I’m guessing it’s kind of territorial where some places are still away and others are more of that but I would I would guess that the the model you’ve got there where it’s more of just like a rent is probably a more agreeable to If people unless the community is something that, that just got a reputation everybody wants in and that’s some sort of historical model kind of thing like that. So, okay, so you, you you’ve built, how many of the senior care facilities do you have is it’s a five, or how many?

Vinney Chopra 10:15

Oh, no, actually, my partner has built over 30. But together five. Okay, I’ve got nine more on the books. So I’ve got 14 coming up here.

J Darrin Gross 10:27

And are the five up and in running now?

Vinney Chopra 10:30

I’ve been in the construction phase.

J Darrin Gross 10:33

Okay. Gotcha, gotcha. So your April one is your opening of the

Vinney Chopra 10:37

first one in Punta, Florida. Right. Right.

J Darrin Gross 10:41

That’s exciting stuff. I mean, that’s, that’s been a couple of years in the works here with Yes, yes. And a little different timeframe with the construction timeline, as opposed to closing on an asset you

Vinney Chopra 10:53

Already built already built? Right? You know, I’ve been chasing C B, B minus B plus A minus all this time, right? You know, but the exciting part is that, you know, I’m not going after working class, I’m still buying multifamily buy. I just bought in Tennessee. I’m buying some more in Florida. But those are 70 million 80 million daily dollar deals. But these ones are brand new, constructed within 17 million. What? 17 million 18 million, I’m able to build these apartment complexes brand new for seniors.

J Darrin Gross 11:31

Yeah, no, that’s, that’s exciting. And I just like the multiple as you’re saying, like, from the time you guys buy the land to when you get the permits, you’ve tripled the value of the land. I mean, and that’s just that’s it land. That’s, that’s impressive. And, you know, it’s funny, because I’ve talked with other developers and stuff have come to recognize that, you know, the original value add. Strategy was developing, right? And when you start a piece of land, and you add value to it, and you totally know more valuable. Well, your hotel sounds like you really, that that one sounds like the one that you really got away with. I mean, not not got away with what really, from I mean, you bought it, I’m assuming it was a fully operational hotel and COVID Yes. And yes, and was occupancy down, like almost nothing, then

Vinney Chopra 12:22

20 22% I think 22% Still, the weekend traffic was there in that town, some big, big business traffic, you’re right. But then we also had a pip in they call it capital improvements in hotels as Pip. And then we were able to change the roof and put some little bit money into it, then we doubled our price, you know, so we are selling it. And we are buying some more actually, I was over there in Gatlinburg, where dolly wood is there. And that’s the number two spot in the whole USA. We had a lot of people come there, you know, for vacation and everything. After Disney World. That’s number two spot and people drive up there. So lots of hotels have 97% occupancy is what they’re looking at different different locations, you know, and then storage units, what when he is getting into storage.

J Darrin Gross 13:16

Storage too? Oh my gosh,

Vinney Chopra 13:19

You know, Vinney is always looking for different ways, right? So I do have my main heart is with multifamily, which I’ll be keep on buying a minus, or, you know, B plus assets, of course, but the compression of the cap rate has really got me thinking, you know, in the year and a half or so, because the C Class B class and a class, the compression of all these cap rates, it comes so close together, that, you know, people are asking a lot more money for their assets. Let’s call a spade a spade, you know, I mean, the deal I borrowed I’m included in that, by the way. The 2020. I bought a deal in Austin, Texas, turn 308 units, right, because my Melbourne property was I’m collecting 98% rents from the engineers. So my engineering mind says Vinnie, where are the other engineers going? Austin, Texas. So I go there, and I come into bested final on a deal with 15 other bidders. And the listing broker knows me what he says Vinnie, I know you. I said, Hi, Michael. How are you? He know, he says I sold you that Country Club property. Nine years back. You were the easiest guy to work with. I said, Michael, I’m so appreciative what you’re saying. When he’s back with more money. Literally, he told the sellers and we had meetings and all they awarded us the deal. My partner and I had Because 34,000,000,007 50 We paid for 308 units in near to the domain in Austin, unheard of totally got a loan from Freddie Mac at 2.69%. What $22 million loan at 2.69. And the broker friend of mine just called me few months back in December, he says, and he’s the president of a brokerage house, very big one. He says, Vinnie, your property’s worth 58 million today.

J Darrin Gross 15:33

Oh, my God,

Vinney Chopra 15:34

Oh my gosh, from 35 million from September of 2020. And this is now January of 2022. So he told me in December in about a year or so, the property went so high. So it’s just mind blowing. Mind blowing?

J Darrin Gross 15:53

You You are definitely the hits, man. I mean, you’ve got the hits. You’ve got, I mean, everything you’ve everything you’ve done. I mean, you know, I think it’s interesting, you know, the the post crash? I mean, you know, everything’s been going up. And there have been plenty of conversations I’ve had with people talking about, you know, are we in the late ending, or whatever. And, yeah, and I keep talking with people that talk about just the data supports the demand for housing, you know, and like you said, if you’re, you found your Melbourne property and the engineers and the demand, and you recommend where and where are the other engineers going? As long as you’re in that? You’re in the the demand? Yes, yes, he gets the key to it. And, you know, the other question, I’m curious, how do you how do you view the cap compression? I mean, you you mentioned the fact that you’re, it makes you question, you know, what is it should do, you know, should stay in should get out, I think but I’ve come to recognize a compressed cap means that there’s Demand. And demand means that there’s somebody behind you waiting, there’s somebody wants that property, there’s somebody wants to be in that market, as opposed to if you get out and it’s a higher cap rate, he may not have so much demand behind you trying to get what you’ve got. Tell me a little bit about your How do you view it,

Vinney Chopra 17:17

I would love to love to mention it, you know, what you’re seeing is so right bit compression of the cap rate, the value of the property has gone up, even the C Class C plus a b minus people are getting so high price, the demand is there, supplies limited, right? Supplies limited demand is there and people can get cheap money. See, that’s the other part in the whole equation, the mod gauge, you could get afford a bigger board gauge with bridge loans and other stuff. So the money is so cheap. But the thing is, it’s the syndicators are in trouble. Because if your cap rate is, let’s say 3.10, and your mod gauge is that 3.5, then where is the, you know, cash flow for the for the for the for the investors. So a lot of syndicators are raising money from what I see in the packets from the investors and then making it as a heat play, and give the same money back as cash flow. I don’t know if it’s a Ponzi scheme or what it is, you know.

J Darrin Gross 18:26

So you’re saying they’re raising more capital than they need to get the deal. But that gives them reserves so they could maintain the yield that they promised?

Vinney Chopra 18:35

Yeah, exactly. And then put value add, and then maybe in a year or two years, the property operations will start giving the kind of returns, you know, so I saw that coming in the last two years. It’s been tough for me to purchase anything, by the way. I only bought one deal last year in 2021. In the multifamily space, right. Then I tended towards senior living more, because I can build everything in 1314 15 million. And it’s a brand new building. And for senior side of the operation, the rents are much higher than the regular rent because we take care of the hotel, I mean restaurant, right? It’s a cook to order three meals and snacks. It’s got, you know, the movie theater, it’s got Spa Salon, it’s got caregiving, prescription medicine, all that stuff. But we charge 4300 Starting as compared to 1300 in a regular apartment. So my $17 million deal brand new is giving us 4 million revenue. So that’s where the differences so can get much high cap rate for building brand new apartments in assisted living. So that’s something engineering mind. I’ve been trying to put this all in equation together. Now my goal is $2 billion in this decade to construct 2 million. 2 billion Yeah, 2 billion. Yeah,

J Darrin Gross 20:10

you’re on a good pace. That’s for sure. So So tell me, you know, we you you started in multifamily actually go way back, you started single family then you went to multifamily syndication, Senior Living hotel. And now storage, what was the appeal of the storage,

Vinney Chopra 20:30

storage, I mean space, I’ve looked into it quite a bit, it’s very, very good. Multi, it’s a multi unit two, if you look at it without tenants tenants up there, but they just come they put their own lock on the storage unit, you know, it says shutter and four walls that solid is very little different maintenance. And it’s totally automated through cameras and everything. And through the software, they get the lock, log in, you know, to go into the gate. And then once they are inside the storage unit, they are able to go to their storage and do this stuff and everything. So the cost of operating the Self Storage Unit is so low. And not only that, more and more I’m doing the research, every zip code has many storage units, you could just say self storage and put the zip code, you will not even believe there are so many because within three miles, everybody, I think how many, four out of 610 families maybe need storage units. And we like abundance, we were to buy stuff and stuff and stuff. And you know, then, you know, move people move and things like storage has been especially very big market and very high good cap rates and everything good returns, you can increase noi i, you know, one of my students actually he’s doing so well. He left his IT job. For storage units, he learned the business in multifamily and raising money. And now he’s big time into storage units. So you know, and that’s where I’m also, you know, I’ll be buying everything. Again, my diversified Fund, which is right now $50 million fund, it’s got four prongs to it. What that means is I buy already built apartments, I do the Senior Living ground ups, I also buy already built senior living by us into fully operational, we buy those also by hotels and storage units. So anybody who gives me quarter million dollars, same money is buying all these things. So they love it because it mitigates the risk, because all these asset classes are there, and also different locations.

J Darrin Gross 22:58

So you’ve definitely kind of muted the risk there by doing that. So So let’s looking forward here many I know when we first talked or talked about almost two years ago, and COVID, we just started and kind of the crystal ball was, you know, ever nobody knew specifically but it was always a question of, you know, vacancy rates at proved not to be an issue with multifamily. With all the money that’s been printed and all of the the demand and just the you know, the capital out there the seeking return be do you see any kind of a softening? Concern? I mean, is there I am, you’re an engineer data man.

Vinney Chopra 23:52

The thing is, we are losing, you know, dollars losing power by putting so much pumping of the money in 2020. By the way, we put I think there was one statistic we put what 60% of the the, you know, meant produce so many trillions of dollars in just 2020 and 2021. To give out to all these people, right? Inflation is at 6.5%. Right now, government is trying to, I think there will be some upward pressure to the interest rate. It is going to be up we’ll be probably in April, I hear point two, five, maybe another one in October. So that is going to put downward pressure on to the valuation because as the interest rate rises, you can afford less of the product. Mortgage is going to go up. Some people were into breach lending, and a lot of people have gone that route in the last couple of years because they can get 80% rather than 70% which the other Fannie Freddie Mac’s were giving a lot of people have gone into bridge lending but then the bridge people will be also looking into How the whole equation is going to work, you know, with these people who are bought to 80%, if the occupancy goes down, we are very close to defaults, you know, as compared to as compared to 60%. You know, LTV, right, so I see a downward pressure coming, you know, but the thing is, you got to be very, very articulate and do assumptions very conservatively, because the rents may not increase that much either. Because if the inflation is high, people have less money, because they’re buying, you know, stuff and eating and gas and everything more money is going there. So they won’t be able to give the higher rents. So, the rent increase will be also very, it may be only 1% increase, or 2% increase, unless you are buying with a big, big gap in the rent differential, you know, already with the value add. So, I think in the crystal ball, nobody’s got a crystal ball. I don’t either, but I really see that the millennials have been taught but three Millennials big time. One is millennial. Yeah, tsunamis, 3d tsunamis, I should have said, one is millennial 74 million of us, you know, Z that may or may senior, you know, but they are the ones who like portability. And they don’t like to buy homes. So the renter, we will becoming a renter nation again, there are so many articles in globe Street in Fortune Magazine, in Forbes magazine, where there is a pent up demand for rents. Immigration tsunami is another one. Because you know, our birth rate is so low in USA, the immigration kind of helps a lot, you know, it’s going to be 441 million population in the next 3040 years. But where is that going to come from, is from immigration, birth, and then seniors, which is 10,000 Baby Boomers turning 65 Every day, until 2020 31 or 2033 10,000, every day getting into senior writers. So that’s 100 million will be seniors in America, never ever before that has happened. So there is a pent up demand for housing for senior living see. So those three tsunamis are going to continue boosting our pressure into rentals. And of course, you know, downsizing by the baby boomers, that’s going to affect also because more single family will be available of course. And then I don’t know about industrial also will be on a good spur up because we have warehouses and all opening up, you know, industrial strip shopping centers are downsizing. We know that very much. Office space is downsizing, but storage units and you know, our I just I have gone. Oh, can you hear me? Okay, from there? Okay, okay. Okay. I usually I do through my microphone. Yes. I had another meeting before this one. So

J Darrin Gross 28:22

Are you have you looked at any industrial? Is anything you’ve looked at?

Vinney Chopra 28:25

No, no, no, I will not be in that. Yeah, I wouldn’t be I think I like to stay the course in multifamily. I love the hotels because it’s multifamily. And you can, you know, look at people have to pay at the counter to stay in the room, you know, and so forth. Storage Unit is also multi family kind of thing, because each one resident owns that space storage unit. And that way, so I’ll stay in the conventional job workers, you know, our multifamily, but I’m loving the retirement communities now. So in other words, I don’t have to change jobs, jobs, jobs where Amazon is gonna open up. Now I can look for demographical numbers, where people want to retire in serene locations with lakes and golf courses and everything. So I’m looking for a piece of land in the neighborhoods where there are no jobs. i That’s why I’m in Florida, and I’ll be in Arizona, all the states because people really need to retire near to their grandchildren. That’s what we are finding. Even from the north cold country. They are moving to their, you know, children and grandchildren so that they could come and celebrate birthdays and, you know, meet with them at the assisted living. That’s the frame. I mean, I’m not into the 55 plus communities or golf courses or condominiums. I’m not in the rehab centers or nursing homes. That’s a business in itself, you know, very big medical equipments and all. I’m only in the safe environment, right in the middle, independent assisted living and memory care. We need no doctors, and only one nurse. And then one chef one, you know, helper, Chef, Deputy chef, we call it and then activities director and all that stuff.

J Darrin Gross 30:26

No. Well, I love the the mix and you know all the success you’ve had and just thank you to be able to take things full cycle I’ll be interested to next time we speak more about how your your senior living, you know, actually to have residents and see what you’ve learned there. Although I’m guessing you’re probably pretty, pretty attuned to that based on your partner having been there so long.

Vinney Chopra 30:54

We are we are and very vertically integrated. In our senior living side also, like ours in the multifamily. We have color in a soul, so many assets. So we have dwindled down in our manpower there in multifamily. We had 135 people full time working in my company, you know, but now, what we are doing is before even the Senior Living opens, during we hired the executive director and leasing agents. So my Punta Gorda, I have 29 deposits already, what 29 seniors who have given me deposit, as soon as I open the door in two months from today, they’ll be coming inside. And I’m going to breakeven, within four months or so I’ll breakeven because, yeah,

J Darrin Gross 31:48

That’s fabulous. Any new construction, the capital improvements, I mean, you’re, there’s no deferred maintenance or anything

Vinney Chopra 31:56

Zero deferred and all brand new appliances, all brand new flooring, brand new roof brand new parking lot. So that saves a lot of money. And then it’s a plus plus luxury living, which I built it from scratch 2022 model. So if I were to buy an asset to give me $4 million revenue, in multifamily, right 4 million to 5 million, let’s say, I may have to pay 40 to 50 million, for a plus plus, I may have to pay 100 million, by the way, you know, 100 million for that asset, which is built brand new, which will give me 5 million revenues. But in this one, I can build it for 17 million to 18 million, and have that revenue of 5 million. big it’s a big equation change.

J Darrin Gross 32:50

Yeah.

Vinney Chopra 32:54

And it saved for for my, my investors, you know, and now the investors are coming Ultra Rich into my fault. We have 430 investors right now. But then the ultra rich are putting 1 million, 1 million, 1 million, 1 million. So in other words, they don’t need cash flow at all. Generally, that’s the beauty of it. So they’re saying we don’t keep the ordinary income, cash flow, you know, which a lot of people pay monthly, and quarterly say I don’t need it, because I’m at 50% bracket, if they give me seven and a half percent, half is gone in the taxes. So just give me capital gain. In three years, when you have done, you know, stay semi stabilized your ground up construction, it’s dirt first year, second year, we build it, and third year we stabilize it, right. So they say just give us the lump sum, or even give us a 1031 option. So I love it, I that’s the key is to just get the money right here. After we have all the permits, and we have a construction loan. And then we gave it two and a half, three years 60% return, let’s say and they can take 60% on that million that 600,000 You know, or they could say Vinnie, put my 1.6 million into your next project 1031 Then they never have to pay tax and we can take it over and over and over again. So it’s a very beautiful model that I have, you know, device now, you know, I’ve been designed it so that people can make 2x Even 2.5x quickly within six years investing in brand new buildings see?

J Darrin Gross 34:42

Yeah, yeah. What is a million your minimum investment in that or is it No,

Vinney Chopra 34:47

no, no, no, no Ultra Rich, we are giving 2.5 250,500 or 1 million. So those are my three levels now. In the ground constructions

J Darrin Gross 34:59

Gottcha. And isn’t that your is that your way of doing those in more returning capital games? Or is it just on the the million plus people, they’re saying I would I don’t want anything just, I mean, okay,

Vinney Chopra 35:11

Even 500,000 people to they say, really, I don’t need to 20,000 you know, each quarter or whatever, right? They say if we can just give you the money, and you show us the progress of everything, you know, that what we have done so far and everything, then in 2.5 to three years, we’ll be able to cash them out, we call them, it’s cashing out, right? You get your full money back, plus the return because we’ll be getting a new loan. See, construction loan is paid out V five,

J Darrin Gross 35:42

Okay. That’s that’s the event that’s giving you that opportunity. Yeah, that’s construction loan, then you’ve got a completed, completed building with occupancy, too. So you’ve got now your occupancy. So you can show revenue. Noi, and you can you can do like just a conventional.

Vinney Chopra 36:00

Exactly, exactly. Yeah, it’s like, building 17 million, it’s worth 24 million. So this is 7 million increase, as I start putting, you know, my tenants in there, and residents, you know, yeah, yeah,

J Darrin Gross 36:14

Right. Now, and in the like said the monthly rents, I mean, the the cap rate, that’s pretty impressive compared to, like you said, how big of a property you’d have to buy in order to get that same kind of level of rents. So totally, totally, definitely impressive stuff. Hey, Vinnie, if we could, I like to ask everybody about risk? And you’ve answered this question multiple times? Yes, I’m kind of curious if if given just your recent experience, in kind of how you’ve changed from, you know, asset classes, or you’ve expanded, I don’t know, you haven’t changed, you’ve just, you’ve added additional asset classes. But I’m wondering if there’s not something that you can, you can look at across the spectrum of what you’ve, you know, what you’ve invested in and just identify what you consider to be the biggest risk, you know, of just the current marketplace? Or, or let me ask you this, what do you see, is the BIGGEST RISK that you face in this marketplace? And just kind of the near future, as you, you know, work with your your investors and trying to totally coach steward for their money?

Vinney Chopra 37:29

Totally, you know, I’m so glad you’re asking that. I’ve raised like, close to 200 million or so. But you’re right, investors want to save money? What if when you die, you know, or something happens to you, right? What what’s the risk involved in that, and then when I took the key man’s insurance, and then our daughter is in it, now, she’ll step up as President, my wife is also injured, our legal, you know, team and everybody, our accounting department itself, the other parties, you know, during the properties we buy, so there is insurance to be gotten at every point of the property, the loss of income insurance, those are the risks also, if some burning, you know, something fire comes, are like that. So, that is other risk. The other risk, which I got hacked, you know, I think I’d like to mention, is the cybersecurity risk. And that’s a big one nowadays, you know, with everything going through, through the computers and everything. So, you know, there are so many different directors, insurance risk is another one. You know, the big thing is contractors who work with us to do capex jobs and everything, we try to save money, but it’s not worth saving money, unless we want to make sure contractors are well bonded in also have, like, you know, millions of dollars of insurance, right, you know, when they come to work at our assets? I don’t know if that’s the question, you were really posing, the biggest risk I find is that you want to do legal way to raise money, and then take care of the investment of the investors. They know, fiduciary responsibilities the right. So as a CEO, I definitely have always felt each asset I bought, I bought 37 Now or something, you know, and I’m on the loan on all 37 Not too many GPS, you know, cold GPS or anything, I don’t believe in that. Maybe just three I have done it, you know, and then with my partner integration now, you know, like that, but other 27 or eight, I was the only person but, you know, the key thing is, you got to mitigate the risk for investors and mitigate the risk for the well being of your company. So you are in the right business. You are there, you know, Because insurance, it’s an investment, I always look at it as an investment. It’s not an expense, because I had lawsuits of $3 million $4 million lawsuits, which I, because of insurance, I walked away with giving zero money, zero money, and they settle the mediated and all that stuff. You know, so when you are in a business entrepreneur, like me and anybody, there are risks involved in people suing you and other stuff like that. So I always feel insurance is an investment, you know, yeah.

J Darrin Gross 40:41

No, I appreciate you sharing that. And I think that, you know, oftentimes the the focus is how to make money on the, you know, the buy and the sell and, and all that and, and the insurance gets looked at is, is more of a just an expense. I mean, one thing as opposed to the protection, you know, it messes up your noi if you have too much or you know, too much insurance expense. So, but the flip side, like you said, is it there’s, you know, the protection you get, and, and when you are facing a claim, that’s when you know, you’ve got some good insurance, so appreciate it, too. So true. So Vinnie, where can listeners go if they’d like to learn more connect with you?

Vinney Chopra 41:23

Oh, my gosh, you know, I’ve got a really great promotion going on right now. I’m so glad you know, I wrote that book, apartment syndication Made Easy, which really helped me a lot to raise money. And I’m giving this book free, by the way to everybody listening or watching as you could go to Vinnie chopra.com That’s my website www. Vinny just like the word v i n e, why not smile, don’t put smile in there but Vinnie chopra.com and slash free book slash free book and I also have Academy I’m also have a $50,000,000.05 or six C fund where I can talk about it and everything it say, you know, for accredited investors only. You know, if you’d like to invest with me, you could come there also, you know, invest with me yes, go to Vinnie Chopra slash invest. Or if you would like to, to learn from me, which I mastermind actually at four o’clock, I have a very good guest speaker, real estate attorney or no CPA coming to my mastermind. I’ve hundreds of students who are doing millions of dollars, I’m so happy, you know, who have taken my teachings. And now they’re doing 200 $300 million portfolios within two years, within two years and three years. It’s amazing. It’s amazing. And it’s not me. It’s them. It’s totally them. I tell them. I say I knew you when you join my academy. You were a mover and shaker. And you know, they’re doing very well.

J Darrin Gross 42:59

It’s great. They were very, I can’t say thanks enough for taking the time to get to connect and talk. It’s always great to hear from you and talk with you. Thank you. Looking forward to it again soon.

Vinney Chopra 43:13

Totally Darrin and if you’re in Florida, love to invite you, brother. You come to Punta Gorda, or Cape Coral on purchasing that one Palm Bay, Sebastian or Carla? I mean, Venice coming you name it. We are all over here.

J Darrin Gross 43:30

We will talk because I got some travels coming up some pesky.

Vinney Chopra 43:36

Thank you. Thanks. All right.

J Darrin Gross 43:38

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 43:55

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Hedge Fund Real Estate and Cryptocurrency with Blake Templeton – CRE PN #346

Blake Templeton 0:00

We find the treasure, do the value add, sell it. Now we’ve got massive capital gains consequences for our investors. So the difference in a hedge fund for a so not a REIT, not nothing tied to the stock market, but a hedge fund with real property in it is that we have 10 to 15 properties that go into a fund. And then our structure is quite unique. We realized that instead of selling, we could actually start with a lower LTV lower loan to value. And then, after a specific amount of years have all the investors principal back in their pocket. They stay invested with a vested interest and then we refinance the property every three to five years. And those distributions are tax free.

Announcer 0:55

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 1:15

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 Blake Templeton. Blake is a seasoned real estate and cryptocurrency hedge fund manager who is passionate about helping investors invest confidently into alternative asset classes like blockchain technology, cryptocurrency and specific sectors of real estate. And in just a minute, we’re going to speak with Blake about wealth building through alternative assets.

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. 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, Blake, welcome to CRE PN Radio.

Blake Templeton 2:37

Hey there, and I appreciate it. Look forward to chat.

J Darrin Gross 2:40

Yeah, before we get started, if you could take just a minute and share with listeners a little bit about your background.

Blake Templeton 2:48

Sure, absolutely. started back in oh six, without a dime to my name dropped out of college, no one to own my own business someway somehow, and then didn’t know you couldn’t defer student loans anymore. So had to humbly move back in with mommy and daddy. A parent’s got a letter in the mail to go to a real estate conference knew nothing about real estate flips, valuations or innovations. But I was numbers driven a clicked I could do formulas that was my gig. So ended up getting a mentor in single family. We did between single family and small multifamily did 300 Plus transactions from oh six to 2012 from wholesales to foreign innovations, and then 2012 into commercial real estate builds corporate housing development and apartment complexes did value add deals went into a position where this is where we sit now which is realization that to build accumulate massive wealth, it’s way easier to inside hedge funds. So we run hedge funds for self storage and mobile home park communities and then hedge fund for cryptocurrency.

J Darrin Gross 4:13

Interesting, the the hedge fund thing is something that I hear all the time about, but I don’t I don’t know that I fully understand exactly what differentiates a hedge fund from a from a another fund. Maybe a good place to start is just what is a hedge fund?

Blake Templeton 4:33

Yeah, a quick skinny is most people are used to doing like a syndication. So someone says, you know, I’m going to do a, you know, six or $7 million, say a $7 million apartment complex. And so we’ve got maybe 3 million of renovations we’re going to do and so they’re going to syndicates a pool of money from investors for a portion of that, which is the remainder Have what the mortgage company is not going to loan. So that loan to value ratio between investors and then the mortgage company. But the problem with the syndication what we found out we exit syndications quite well with strong greater return. But the problem with the syndication, so one single property in a one single, you know, LLC or you know, partnership structure or PPM structure private placement memorandum. But after we do the massive value add, we find the treasure, do the value add, sell it, now we’ve got massive capital gains consequences for our investors. So the difference in a hedge fund for a so not a REIT, not nothing tied to the stock market. But a hedge fund with real property in it is that we have 10 to 15 properties that go into a fund. And then our structure is quite unique, we realized that instead of selling, we could actually start with a lower LTV lower loan to value. And then out after a specific amount of years have all the investors principal back in their pocket, they stay invested with a vested interest, and then we refinance the property every three to five years. And those distributions are tax free. And so those distributions are paid out. And so instead of them having this massive capital gains hit, it’s as if we sell the properties, you know, every three to five years, and they actually get to keep the interest, keep the the asset, keep the net worth, but then have tax free distributions. So massive difference that allows them to have diversification amongst multiple different properties. So let’s say 10 properties, proportionally, their interest is in all 10 properties proportional to the opposite, you know, the value of the whole portfolio versus being in one single property. So as the main differences.

J Darrin Gross 7:16

Got it. And I guess, I like the concept and stuff, but I was kind of curious, what is the word hedge? differentiate itself from just a quote, fund. Is there, Is there a?

Same thing? Yep.

Same thing. Okay. Okay, because that’s, that was okay. But no, I like I like the strategy. I mean, I, I’ve always felt like if you’re, if you like the asset you’re in, you know, and it’s cash flowing positively. If you’re selling, you know, you’re just getting out, you know, you basically you’re flipping, you’ve got to find someplace to park that and hurry if you’re, you know, if you’re acting by yourself, it’s really hard to get everybody act together, if you’re, if you have multiple investors, uh, you have to, you know, coordinate there.

Blake Templeton 8:03

It’s a great point, it’s really like, you know, for the person who says, Well, I do 1031 exchanges. In the hedge fund model like this, when they invest, and every, every refinance as it’s as if they already found the property they want to invest into, they already reinvested the funds, and they didn’t have to do any paperwork. So it’s way more seamless. And we never sell inside the hedge fund. So it’s a where they get all their principal back, they get the reinvest that it’s creates massive asset accumulation, is say they invest 500, grand, you know, eight years later, somewhere in that ballpark, they get all their principal back, then reinvest that into another fun with, say, 10 properties. So now that same 500, now they’ve got investment in 20 different properties, and they’re eight years, they’ve got all their money back principal back, and they’ve made the 8% preferred return each each year. Now they invest that into another property. So this massive accumulation of wealth, you know, you want to stay on the cash flow side, and you want to stay on the exit side of the appreciation without paying taxes. That’s the goal. So, yeah, it’s a it’s a fantastic model. And it’s something that you can, you can do, it’s just realizing the difference in structure changing to millimeters changes everything.

J Darrin Gross 9:36

No, I like that. Hey, before we get too far down the real estate side of things I wanted to just ask maybe the or even kind of a better place to start is if we just frame the question, you know, alternative assets. What are alternative assets?

Blake Templeton 9:56

It’s a great question. So the standard position In in a asset or an investment would be maybe the main frame would be the stock market. And so how our whole system was set up would be when the 401 K’s started would be, you would create this entity that you would put money into. And then that 401 K goes into a, you know, mass bucket or a mutual fund goes into a mass bucket of different things and stock market alternative would be just something outside of that norm, we’d call that the public market. And then the investments that are alternative will be in the private market, the private markets were all wealth is made. So all all real tangible wealth, it’s accumulated that preserves, it’s easy to make money, but it’s hard to keep it all wealth truly made, is made in the private market, sustainable, it’s kept, it’s asymmetrical. So asymmetrical, would mean it’s the highest and best potential opportunities with the very lowest risk. And so self storage and mobile home park communities is in the cryptocurrency is where we would put our main focus on alternative investments.

J Darrin Gross 11:15

Got it? So now we’re we’re talking about the the investments and kind of go back to where we started with this with the fact that your hedge fund or, or your funds distinct in that one is a real estate fund and another is a crypto fund or is there an interplay between those two?

Blake Templeton 11:38

Yeah, great question. So they’re completely separate. One is B, specifically Self Storage complexes, and mobile home communities. So these are a large assets, you know, 10 to 10 to $40 million in asset. So massive assets versus like a mom and pop asset. And so then the crypto side is a portfolio of the proprietary system of how it’s actually strategically, a portion aligned with what cryptocurrencies. And when someone invests in they’re investing specifically into that portfolio of assets. And then as a portfolio manager, we manage that portfolio.

J Darrin Gross 12:31

Gotcha. In any. So, going back to kind of just the concept of the alternative assets. He mentioned kind of how they’re different from the stock market. The benefits, you mentioned that that’s where the wealth is really created, is that pretty much the bottom line benefit? Is that the opportunity to create significant more wealth, or are there other benefits that you recognize that the alternative assets provide, as opposed to the, you know, the the public market?

Blake Templeton 13:09

Yeah, so in the, in the private market, again, all investments are equal, right? So it’s the mindset of the strategic investments in the private market. And then the structure, all structures aren’t equal suck the syndication, you got into something but you sold and you’re still an alternative investment, but you got to pay capital gains on it. So the but the big portion are the focus of self storage, mobile home parks, is that they provide mat that provides strong way to returns, there is the recession resistant, their stable asset class, so even apartments takes a massive dip when when specific things of volatility happen in the market. But in self storage, and mobile home parks, these are two asset classes that are in abundance, everyone needs storage, and a down market, everyone downsizes and put stuff in storage. in a down market, the funnel of housing everyone downsizes and the bottom is the mobile home communities. And so they’re stable asset classes, they have low capex, low maintenance costs, and versus apartments, co you’re in a 15 year deal. You You better sell before then if that’s your model, because you’re gonna have to do a full renovation of all those units in that time period. Again, there’s low delinquencies and the structure again. So the main thing for us for self for alternative investments is that we can control more of the actual investment around the circumstances if you’re in The stock market, you know, good luck, you’re gonna have to ride the way and that’s why you’d have the mindset stay in for the long call, it’s always going to turn back around. But in cryptocurrency, for example, we have the ability to move, move funds out of Bitcoin, when it takes a downturn, and then put the funds back into Bitcoin and write it back up. So we kind of have an unfair advantage we get to see behind the scenes of what’s happening in cryptocurrency. And so we get to make chess moves, before something actually happens. So I’ll turn investments for us specifically, I can’t speak for anyone else, but just specifically, self storage, mobile home park communities. And cryptocurrency and the structure in which we manage the investments gives us much more ability to make a strong return.

J Darrin Gross 15:58

I want to ask you something you mentioned and with the cryptocurrency the ability to see kind of behind the scenes. What do you mean by that?

Blake Templeton 16:07

Yeah, that’s a great question. So everyone has a phone. And so we’re just gonna say the iPhone, when text messages came out, I was like, Man, why would anyone need text messages? You know, no one’s gonna do it, just pick up the phone, well, then, text messages became very convenient, or text messages as a software. So the iPhone has software’s on it. Then the the applications where you have an app, so if the App Store software, all the little apps on software, and even my grandma uses some apps, you know, on her phone, because it’s convenient. There’s all software, like Facebook, putting it on your phones application, one would have thought like just go to your desktop. Now you’re like, why would I ever go to my desktop? I’m just going to go to myself, my the application on my phone? Well, Bitcoin, for example, has different apps, different software. So Apple has a phone technology. And there’s a platform called an app store. Bitcoin is a technology. And it has a platform called blockchain. The iPhone has apps on the platform called the App Store. Bitcoin has apps on the blockchain. So these applications are businesses. And these businesses run lots of volume of money. And so there’s literally businesses living on the blockchain. And the more velocity the more money that’s it’s, it’s does that’s like, does business creates more value in Bitcoin. So when we’re looking behind the scenes, we can see all the things that are happening, we see the legitimacy of it, we see the practicals of it, we see the logistics of it, and we see the value of what it will do for an economy. On the front side, however, you might see drama, you might see certain news from the media, you might see turbulence and you know, emotional volatility, but we can see what’s happening behind the scenes. So even though the value might follow the false narrative of the drama, we would just pull our funds and park them safely in another cryptocurrency while that drama takes place, knowing that in the end, Bitcoin will naturally adopt a more truthful value. And then we obviously ride those funds and that’s with every cryptocurrency. So just quick skinning. There’s probably 16,000 cryptocurrencies. Most of them don’t have a blockchain, most of them don’t have a platform. Most of them don’t have other businesses living on it. So you could you and I right now, Darrin could create the Blake and Darrin cryptocurrency and they would just be as many people thought that you and I were going to be amazing and who would put put money into it? But there’s only a handful that have a blockchain that are really tangible utilized that utilize currencies, technologies, software’s so big picture, we can see behind the scenes because we’re looking at all the analytics we’re seeing the wisdom behind what’s happening, we’re not listening to all the noise.

J Darrin Gross 19:41

Gotcha. So let me ask you, just to the point that you brought up the the number of different cryptocurrencies I mean, it doesn’t take a lot to create cryptocurrency I mean, as far as a concept, I wouldn’t bring other but the technology behind it So is there a, I don’t know kind of mature ation? Where are we in the blockchain or not the blockchain with a cryptocurrency? As far as early adopters? Have we reached critical mass where we’re where are we at on the cycle?

Blake Templeton 20:18

Yeah, I think it’s really important to understand that and I appreciate you bringing up. We’re very, very early. And so I’ll tell you, as an investment firm boron capital as an investment firm, it wasn’t something that we when invested into until 2019 and 2019, it grew legs, specific cryptocurrencies, like Bitcoin grew legs, and they created a actual system of blockchain that actually had adopt adoptive businesses in it, and money flowing on it. So but until then, it was, it was still up in the air just as much as a new IPO in the stock market. You know, it’s like, I could do good, I could totally bottom out, like, it’s still over overvalued at the time, you know. So understanding that we’re very, very early. And what’s important to understand is the question why why would we even invest in cryptocurrency at all? What is it why, like, why go that direction, and you have to understand inflation, inflation is the largest risk to everyone. On the real estate side, you know, we just, you know, keep on plugging along and try to produce cash flow properties. But if you don’t understand inflation, the Federal Reserve has a chart of M one money supply. Essentially, that’s how much money they’re printing and what it looks like on a graph 2008 now looks like a blip on the radar, it literally now has gone catabolic, straight up like a jet going straight up in the air. And then inflation has has gone from what we might call two or three or 4% to 15%. So, the real inflation not CPI, where it can be in a manipulated, but the real inflation rate is 15%. So we have to ask ourselves, how might I produce or outpace how might I outpace the inflation rate. So if you understand inflation, guys is literally the US dollar becoming less valuable. So it becomes less valuable, meaning it takes more dollars to to buy the thing. Like for example, in renting cars and trucks, the price for renting cars and trucks, the price has gone up 87% Over the last year, fuel fuels going up 44.5% furniture and bedding gone up 8.6% Sporting Goods GM 7.5% My point is, if you understand the US dollar is going to continue to be the value that the inflation rate is going to continue to eat up your value, then you have to outpace it, you have to make more than 15% and so cryptocurrencies specifically, you know, a handful of cryptocurrencies that have a blockchain there have tangible business running on them. It’s, it’s a hedge to the US dollar, it’s a way to actually get outside of this system. It’s a way to literally quit, quit making your money in US dollars, and make your money is an actual different method. So bitcoins not just like digital gold, it’s digital gold. It’s a bank in cyberspace, it’s thermodynamic, there’s literally methods where you can make more money in cryptocurrency, then we can actually do in real estate and right now in our current season of volatility on both sides, so there they know that the reason is, because you’ve got to outpace the price of inflation, and that’s the most important thing right now.

J Darrin Gross 24:30

So I get inflation and I think that if we want to come back to just the you know, the US dollar I mean, I know that this a fiat currency and that we’re basically what you and I believe $1 is worth is what would the dollars worth and that’s where, you know is is there’s more dollars pumped into the system, the whatever the good, cost more dollars, because it’s still the same. It’s still the same asset but Just based on the the flood of money, it takes more of those dollars to to buy that, that asset. What’s to keep these blockchain cryptocurrencies from somebody, you know, having a split or something like that we’re also now you’ve created inflation, like, you know, and love the stocks, they’ll split. So they keep the price down. Is there anything built into the crypto that that prevents it?

Blake Templeton 25:28

Yeah, it’s a good question. Um, they have specific, specific growth has actual splits. And there’s the most important thing is, is cryptocurrencies that have a limited supply. So just like the stock market, a publicly traded company that’s drowning, matter of fact, right now, 21% of all, companies that are publicly traded, or called zombie companies to 21%, can’t even pay their debt service, they literally can’t pay the debt service. So what do they do? They they split their stock that’s worth less is worth less, is split that stock and they sell it again and sell it again. So what we don’t want is that if you invested into a cryptocurrency that does that, yeah, that’s completely the same world as the US dollar, the US dollars, doing the same thing. They’re quote, unquote, splitting it by just printing more of it, and making it worth less. So we invest in the cryptocurrencies that have a limited supply. So for instance, Bitcoin only has 21 billion coin. That’s it, it’s done. That’s it, that’s all you got. So when it when you have a limited supply, then then you’re not going to, you’re not going to be able to continue to make these splits. And when you can’t make these splits, then you have a rare a rare property that can that then the value of that item continues to go up, versus it continuing to be multiplied down. So I said 21 billion, it’s 21,000,020 1 million coins. And so what then happens is the FET, there’s 21 million coins, once fully mined, that becomes a stable base, those 21 million coins becomes a stable base, and it can’t continue to split. So it’s a great question. However, certain getting cryptocurrencies are not set up that way. And that deters one from realizing it to be a good investment, because you can’t outpace inflation, if they decide to continue making splits because it’s doing the exact same thing. So the number one thing for stewardship is you have to be able to accumulate wealth, you have to be able to accumulate wealth, you’ve got to be able to remove yourself from tax ramifications, as we talked about in self storage, mobile home parks, where you aren’t paying the capital gains, you’re refinancing versus selling. And then you’ve got to be able to have a stable way to actually increase your value of your assets like through cryptocurrency verse is the, you know, having your money in your cash flow in US dollars, and then your cash flows deteriorating, even though you’re making it. It’s deteriorating, because the US dollar is deteriorating as a whole.

J Darrin Gross 28:51

Right. So let me ask you this. So if there’s 21 million Bitcoin, and when they originally issued there was a price equivalent, however many dollars, right. So beyond that point, the value is based on a, a supply demand, because there’s only one you said, there’s 21 million and now it’s demand people are wanting this as currency, right? And I’m assuming that is directly tied to the value of the dollar, meaning as the dollar decreases in value than the inverse happens for the crypto because crypto has a limited supply, while the dollars have a an ever growing supply of dollars. Is that a lot of what drives it? Or is it or is it just the thirst for investors looking for some sort of an alternative that’s driving the demand? Or is it both?

Blake Templeton 29:42

Yeah, you ask really good questions. Darrin. So let me just kind of back out for a second and put that on a silver platter. So it’s a it’s a very good question. Because the thought line is is is what’s driving its value. Is it just supply and demand or is it as the US dollar goes down? It’s directly correlated. So it goes up and out of out of oil and commodities and US bonds and silver, out of anything. Anything else in the stock market? Bitcoin is one of the least correlated to anything else. And it’s not correlated to the US dollar. So the US dollar, if we had some mass of it, they decided to print, you know, God forbid, 100 billion, or excuse me up, you know, 100 trillion tomorrow, where we’ve just printed about 10 trillion over the last, you know, 18 months, two years, it wouldn’t be directly tied to that, because it’s its own system. Now, if you’re proportionally using it to the dollar, then obviously, in dollars, the price would go up.

J Darrin Gross 30:58

Right, but, you have to in order to Buy a Bitcoin, you have to use dollars to buy the Bitcoin, right?

Blake Templeton 31:03

Correct. Correct.

J Darrin Gross 31:04

Okay. So some of there’s got to be there’s an exchange there between one for the other?

Blake Templeton 31:09

Sure. Sure. Yeah. from the, from the mindset of, you’re just trying to find a valuation of $1 to $1.

J Darrin Gross 31:18

Just kind of curious, what drives the the, you know, the valuation? Is it supply and demand? I mean, that’s the main the main

Blake Templeton 31:26

That’s really the question, so what actually drives the value, because you could compare it to anything. But if you compare what drives the real demand, not just so you’re seeing volatility at times, and that’s all that’s a false narrative, or it’s a big fish trying to get in the market. So they’re using persuasive techniques to, you know, push the market down. Or they’re having drama on the front side. So they’re having, you know, a lot of the small people who are in like your Robin Hood app, and so forth. They’re having them sell off. So it looks like it’s going down. But that’s a in a big way. It’s a way for them to get in. So what’s really driving it what’s going to drive it let’s look over the next decade, because we’re very, very early over the next decade. What will drive it it’ll, it’ll be the blockchain, the businesses on the blockchain and the amount of money, the velocity, how fast the money moves inside the actual blockchains of the cryptocurrency. So that’s the as, as the value grows here, the value of that coin grows.

J Darrin Gross 32:40

So let me ask you, is there I mean, the velocity because I, my sense of things, and again, I’m by far, the least knowledgeable about crypto, other than I know that some of the names, but if if people are investing in and they’re buying it, I’m assuming that most are buying it and hanging on to see it go up before they sell it? If they sell it, how, how much velocity of Bitcoin is there as a as a currency for goods and services?

Blake Templeton 33:15

Yeah, so here’s kind of where everything gets confusing for most people. If we remove the word currency from crypto, so 99% of crypto are not currency, there’s not a model for them to be utilized as currency. If we look at crypto as software, so just like we talked about Apple is software, Google software, Amazon, or the grocery store in cyberspace. Yeah, kind of their software, their software company that’s brokered relationships, it’s created a way to make money in a software. So you can go online and click buttons and then have stuff delivered to the software. Bitcoin is software. So we processes software, then you’re saying, Well, John has put his money in the software, and he’s waiting for to go up. Okay, so that’s on the front side. Behind the scenes. There’s businesses. So like, if I pulled out my if I pulled out my phone, and I showed you all the apps that I use, paid for memberships for iPhone is making apples making money on all those apps, that makes Apple more valuable because they have very low margin on the apps and they’re making 30% on everyone’s apps. So Bitcoin works the same. There’s business literal businesses that run the backend, and Bitcoin, specifically the blockchain will be used For more businesses that we would ever have time to talk about on this actual channel, but to give you a couple examples is Bitcoin will the blockchain for Bitcoin will be used in real estate transactions? So all deeds of trust all actual transactions in the actual

J Darrin Gross 35:25

Chain of title kind of thing I’ve heard it’s kind of that’s where the blockchain will actually

Blake Templeton 35:29

be on the blockchain. And

J Darrin Gross 35:33

but not to be confused with it won’t be the the Bitcoin it’d be it’s a just a blockchain just more of an open ledger. Right, where the you can see who has what if, and allows you to transfer fractional ownership, etc.

Blake Templeton 35:50

Yeah, correct. I mean, this is education from a digital content locker from digital rights to have holding escrow to, to record, you know, to a record keeping from voting, voting would be on the on the blockchain. So instead of it being where you mail out a ballot, it’s literally on the blockchain. And these are all businesses that will be set up on the blockchain. And so all the voting in the US could be done on the blockchain secure ledger, everyone can see everyone, you had to actually have a wallet to actually vote, you could have a KYC know your customer, which basically just simply means it’s a real human being to crowdfunding and equity and private markets. And there’s so much so the realizations is, is that’s what actually provides the value to it. And what we do at boron capital, to kind of like make it real simple, what we do is we hold a portfolio of specific cryptocurrencies, and we ride the narrative on them. And then we hold a portion of Bitcoin. So a goal is, as these are growing, and they’re going back and forth, we find out the best positions to be in. And in that portfolio for last two years, we’ve outpaced the price of Bitcoin, or the value of Bitcoin. And it gives people an ability, a, a, a backdoor entrance, or a way to get into what I’d call institutional size, you know, deals where you couldn’t be in something like this, unless you’re just going to do it yourself and knew all the ins and outs, and we’re doing all your analytical data yourself. Same thing for self storage, mobile, home parks, to grow assets, to be able to build massive wealth, you’ve got to get into something where there’s large deals, you got to get into, we can accumulate massive wealth for you and again, massive wealth on, you know, 10 to $40 million deals and get a small portion of a ton of them. And that’s how you can accumulate massive wealth. And that’s what we do at moron capital.

J Darrin Gross 38:10

Well, it’s fascinating, all of the the crypto currency and in blockchain, I do see the other blockchains kind of, you know, it becoming more and more integrated. Yeah. And just record keeping. I mean, I think it’s, it’s, it’s brilliant, especially for, you know, real estate, just transactions, like we’re talking chain of title and that certainly would have kept us from the 2008. fiasco.

Blake Templeton 38:37

It’s so true.

J Darrin Gross 38:41

Alright, so we talked about the the crypto and then as far as the the assets, or I mean, sorry, the the real estate, you guys your focus is the mobile home communities and then also self storage, correct. Correct. And your strategy there is you you buy, refinance, return the capital hold, and then refi periodically to create more return to your to your investors. Correct? Correct. Got it. Got it. How many of you got between what 10 or 15 assets right now on that port.

Blake Templeton 39:21

We’ve got a fun that just opened and we’ve got in this one boron fund. He currently owns an interest in three assets, manufacture housing community and to self storage communities totaling 1500 rental units. So from Alexandria, Virginia, which is right next to Washington DC, just down from just minutes from the Pentagon, and Amazon’s headquarters to 209 units in infection housing in Washington, DC Metro and then 600 units sell storage in Tomball, Texas. So in the growing suburbs of Houston. So we go into specific markets that have a sustainable foreseeable future who or where there’s a massive, calculate guru, people moving into where supply and demand is in our favor. And then obviously, in these two specific niches of real estate, what I’ve shared already is how they bring massive cash flow, low capex and so forth.

J Darrin Gross 40:36

Got it. And the ultimate plan is to not accept a property but more do the refinance. Are there any what ifs? Or would you potentially what what would cause you to exit a property? And I’m assuming then reinvest in another one?

Blake Templeton 40:54

Yeah, that’s a really good question. I mean, it would only have, it would only be where a large, massive Blackrock type firm wants to buy the entire portfolio, and then the amount of money that they would pay after it’s moved in 1031, or something, you could still make more money than what you’re going to make. So if we can do it tax free, you know, it makes it so even on the cash flow, even cash flow, you only do a, a advanced cost segregation. And so we’re able to shorten the time of the the depreciation, which allows the majority of the cash flow to even be tax free. So when we can provide that to our investors, it really makes it very hard to ever want to sell knowing that you have a golden egg that can continue to be able to produce long term. So big picture on on fund eight self storage and mobile home park communities. John, invest in, say, John invest 500,000, John’s making a preferred rate of return. And he ends up getting paid back his initial principal. And somewhere around your eight or so he’s, we, as we refinance, the first refinance, he receives back his principal and his 8% preferred return for as long as those years were. Now he has this preferred return. He’s got his principal all back in his pocket. And now he’s in the deal long term with no direct risk to the deal. And he’s able to read through rewards of the continual refinances and being able to stay positioned in accumulating wealth. Got it?

J Darrin Gross 42:49

Got it. People like it, we couldn’t like to shift gears here for a second. As we talked before, we started recording 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 look at, we first look to see if we can avoid the risk. If that’s not an option, we’ll see if we can minimize the risk. And when we cannot avoid or minimize a risk, then we look to see if 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 be their clients, investors the market, however you’d like to frame the question, but I like to ask my guests if they can identify what they consider to be the biggest risk. And again, for clarification, while I am an insurance broker, I’m not necessarily looking for an insurance related answer. And if you’re willing, I’d like to ask you, Blake Templeton, what is the BIGGEST RISK?

Blake Templeton 44:05

Yeah, the BIGGEST RISK hands down Most definitely. For every single investor across all industries, is the inflation. The inflation is the largest thing that’s eating away. Unbeknownst to you. It’s a largest tax known to or unknown to you. It’s the largest expense you had that you don’t calculate. So inflation now being 15% When it was supposedly 2%. A decade ago, you could probably do pretty well. It’s just kind of forgetting about it. But now 15% is the largest risk. Because if you’re not producing more than 15% Especially if on your cash flow. If you don’t have a good strategy and you’re still having to pay taxes on it. You’re not producing 15% on your money, then your company pletely losing in investments the whole time while you think you’re producing good results. So what we have to do as a good steward, we’ve got to realize that, you know, unconventional world events, beckoned us to be good stewards with unconventional strategies. And we have to back in and reverse engineer into what good strategies are in an unconventional time. And what we do at Warren capitals, we do that with self storage, and mobile home cart, and mobile home park communities and then cryptocurrency in two separate funds, limiting the downside and making sure we outpace inflation, and in the fund, self storage and mobile home park fund. Once all your money’s back in your pocket, then it’s an infinity return. So now your these funds get to go back and go back to work. So we beat that risk in that way. And then in cryptocurrency, our mission is to always outpace a Bitcoin. So that that allows us to, we take that cryptocurrency is like digital real estate. So if you think about it being digital real estate, then we’re able to go in and tray narratives or sell narratives back and forth and create a much much much higher return return, which allows us to always outpace, which allows us to outpace inflation. So that’s the largest risk that if we have a set it and forget it mindset, if we kind of have our head in the sand and don’t really know what I’ve got, I just know I have a lot of something that a lot of something can become nothing really quickly if you don’t have a good stewardship set in place.

J Darrin Gross 47:00

Hmm, very, very true inflation. big risk. Blake, where can listeners go if they’d like to learn more connect with you?

Blake Templeton 47:11

Yeah, if you have any, any interest at all into as an accredited investor and investing into self storage, mobile home park communities, or you have an interest into investing into cryptocurrency, or for those of you who are not even accredited, okay, I’m just trying to get started. I’m just trying to get my feet wet. I know I need to be in cryptocurrency. We also have a, a coaching program, inner circle that allows you to just get started even if you’re not accredited. So the best thing to do is pull out your cell phone. And I’m gonna have you send me a text message makes it so much simpler. And then we’ll build I’ll communicate with you directly support your cell phone, text, the number 877-771-0615 You’re going to text invest to invest to no space, just the word invest. And then number two, so 877-771-0615 And then in the message you’re gonna put invest to. I’ll know you came from Darrin, I’ll take great care of you.

J Darrin Gross 48:28

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

Blake Templeton 48:39

Hey, Darrin, my pleasure, my man. Look forward to it. All right.

J Darrin Gross 48:43

Announcer 49:02

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Commercial Real Estate Deal Software with Mike Sowers – CRE PN #345

Mike Sowers 0:00

But once I figured it out and started building a network and did some deals with some people, I realized that I never needed all that cash in the first place that I could raise capital from other people. And it realized that that skill itself is really the most coveted skill of all skills in real estate investing, because once you learn how to raise capital from other people and establish credibility, for the equity piece of it, you can do an unlimited number of deals.

Announcer 0:28

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 the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.

Today, my guest is Mike Sowers. Mike is the CEO of Commercial Investors Group, a private equity company that repositions commercial real estate assets across the United States using their proprietary software cre tools. And in just a minute, we’re going to speak with Mike about the opportunities for our listeners that you opportunities to invest in our franchise with his software, or also opportunities for accredited investors to invest passively in one of their deals.

But first, a quick reminder, if you like our show, CRE PN Radio, there’s 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 no one welcome my guest, Mike, welcome to CRE PN Radio. Hey,

Mike Sowers 2:21

Thanks for having me on.

J Darrin Gross 2:24

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

Mike Sowers 2:34

I went school for finance and entrepreneurial studies, I ran a franchise for college pro painters for a couple years while I was in college, and then I started my own real estate and construction business. And for 12 years after college, I remodeled a little over 1000 properties mixing in flips, wholesales and some rentals built up a portfolio of single family properties. And then one day I looked in the mirror and realized that I built a system that I was completely a slave to. I had like over 50 employees and I was I just felt like I couldn’t escape. And at the end of the day, I wanted to build something that was a little more scalable, where I didn’t have to do as many deals. And I never got into commercial because I thought it was a little bit outside of my reach. And I needed way more capital than I always had. So I was looking for condos, we live in Minnesota, I was gonna move to Florida with my wife and a business broker got ahold of me and convinced me to sell my business. So we ended up selling the construction division of our company in 2017. And that’s when I had an influx of cash and started buying commercial properties at that point. And then I ran out of money and was forced to start but I still had a ton of great deals coming in. So I was forced to learn how to raise capital from other people.

And once I did that, and that that was tough. But once I figured it out and started building a network and did some deals with some people, I realized that I never needed all that cash in the first place that I could raise capital from other people on it realize that that skill itself is really the most coveted skill of all skills in real estate investing. Because once you learn how to raise capital from other people and establish that credibility for the equity piece of it, you can do an unlimited number of deals. And then the sky is the limit in terms of scaling up. So once I did my first couple of commercial deals and made as much on one deal as I would on like 30 or 40 House flips with just a little bit more work than maybe one flip. I realized that I was in the wrong business from the get go. So I got rid of all my residential properties and duplexes and things like that. And I moved full time into commercial real estate. But it was I realized it was kind of a good old boys club. So I I actually put together a podcast, a Creative Commercial Real Estate Podcast to try and interview a bunch of other people to finally get them to open up. And it worked. And I learned a lot of secrets. And I still still do that show, because I’m always learning, I truly believe you don’t ever arrive at the knowledge. But over the last four years, we built that business up and put a lot of systems in place. And we built a proprietary software and our deal flow is so amazing, we wanted to start duplicating into other markets.

So we actually set a franchise up. So now we’re officially the only commercial real estate investing specific franchise anywhere in the world. And that’s pretty exciting. We’re opening up locations in most major metros and partnering with people to basically be our boots on the ground. The idea was, we wanted to buy properties and other markets. But we don’t I didn’t, my lifestyle, I didn’t want to become a slave to the new system and be flying all over to all these markets, having to analyze deals and setting up asset managers in those locations as employees. And then if they quit, I got to go live there for three months to try and replace them. And that just wasn’t my vision. So I decided to franchise where I get a local operator, it’s their business. And we just get a small royalty on the production that they do. But we help them take their business from where they’re at now, to really scale in that thing up. And we focus on all asset classes, office retail, industrial and multifamily. But within those asset classes, our niches really value add projects where we can create some kind of value or solve some kind of problem. And that’s really how we mitigate our long term risk is because we create this equity cushion with sweat equity. That way, if the value ever drops down, it’s not eating into capital, we contributed from our investment partners, but it’s just eating into equity we created from sweat equity.

J Darrin Gross 7:01

That’s awesome. I love the the whole history spectrum there from, you know, doing the work and then and then realizing that you’re kind of a slave to it. But I think throughout all of what you said there is basically the systems that sounds like you’re you’re very systematized kind of guy to to, you know, replicate, duplicate, you know, your your success. And as opposed to the the handcrafted solution for every every option, or every opportunity. That’s That’s great. So let’s let’s talk a little bit about the the the software the the system approach you have with with in the name of the software, did I get that right, was it?

Mike Sowers 7:50

Yeah, CRE Tools, which stands for commercial real estate tools, it’s pretty basic.

J Darrin Gross 7:55

Okay. Tell us a little bit about what it is and how it works and what the opportunity is. Sure.

Mike Sowers 8:04

So it’s one day I was sitting at my computer and I had 13 tabs open in my Chrome browser. And I was doing my work. So I’d be researching and properties in one software that I’d be paying a subscription for. And I’d be researching or getting skip tracing them to get their cell phone, email and a different software. And then I’d be launching an email campaign through like HubSpot or Active Campaign. But they don’t do text. So then I do texts or a different program. And then I do ringless voicemail through sly broadcast, and then I do you know, I’d hire a marketing company to do direct mail for me. And then I’d have to go analyze a deal using a spreadsheet and then I got to write up an offer. Okay, well, now I got to get out a Word document. And so I realized that like, there was such a duplication of effort to try and streamline this and the worst part beyond the double entry issues are the left hands not talking to the right hand. So I have no way to look at a 40,000 foot view of all the properties I’m targeting, what are the different lists within those properties? How am I managing a sequence of direct marketing? Who are the brokers involved with these properties? And how are they related to all the different deals we’re doing? And so it was just it was really chaotic, right? We were working out a tons of different things. And I was spending like 4300 bucks a month on all these software’s and I was like This is nuts. There’s got to be something out there that does it all. So I went on like a three month mission it was a big quarterly rock for me was to find a software that did it all and and and I found a couple that came dangerously close, but they really didn’t hit the mark and I even reached out to them and was gonna see if I can pay them to like cost them develop some features that were missing that I wanted. And the more I thought about I kind of woke up one day and I was like, I need to build it. Because if I build it then I have have full flexibility over it. And I remembered when I sold my construction company, one of the biggest things that the buyers were interested in was the fact that I had created a software platform that made it super easy for people to estimate jobs. And so I was like, Well, I bet if I invest the money, it’ll create value for our company. And at the time, I was writing my book that I published now on Amazon, and that’s where I give away my system that I’m using to go out and do this. And so I hired a development company, and I looked at a bunch of different platforms. And we settled on a platform, a coding platform, and we built on top of their existing platform. So we kind of started 90% of the way, and then we could fully customize this series of apps. So now it’s super simple, right? My franchisees and our corporate location here and the people who are responsible for that. It’s basically a marketing, a deal analysis and a workflow, streamlining software. So we can go in, I can take, it’s loaded with all the properties, all the commercial properties with all the key data points, the owner’s name, cell phone number, and email. And then I can design and launch multi sequence. Direct marketing campaigns to brokers and property owners, generate leads track those leads through our deals app. We have a CRM built in and our contacts app. And what’s really cool is it’s a true database. That’s what was the issue with this one that we almost went with. It wasn’t like a one to many, and many to many relationship between the apps like a true database was, and we looked at like Microsoft Access, and some other things like that, that are kind of true databases, but they’re super clunky and not user friendly. So I wanted to build something that was just kind of dummy proof so that my team could go in and do their work. So now, it’s been amazing. Like, I can go in and launch a campaign in less than five minutes. Each campaign I launched generates from 50 to 100, leads for off market properties. We work the deals, I go into my deal analyzer app, I analyze the deals, I have a renovation estimator app, I basically recreated what I had for my construction company to estimate the cost of all these things on a piece rate. And then all that tells me exactly how much I can pay. And then literally all I have to do is click a button, choose what I want to merge that data to do I want a full purchase agreement offer summary letter? Do I want it to go into a lease template? Is it a property management template, depending on the deal type, I can have it merge all that data into a final document, I can even send it out for a signature. And then at that point, there’s checklists and all these other cool things built in just to streamline our workflow and make sure everybody’s on the same page. So.

J Darrin Gross 12:58

But this definitely sounds very comprehensive. And having spent some money on some of the different software’s out there to try and, you know, make things work. I know the frustration. It’s like there’s like this one does this, but it doesn’t migrate to here and in trying to get it all to talk like that. I’m curious, so that the way that you’re you’re offering the software? Is it only through franchises or somebody can buy it? Or is it a monthly subscription? Or is it a one time price? Or how’s it set?

Mike Sowers 13:36

Yeah, that’s a good question. I had a bunch of struggles with whether the software itself should be its own for profit company, like more software as a service where any commercial real estate company can subscribe and I build an enterprise value out of that company and maybe exit out of that someday. What I realized is my passion is real estate. It’s not building a software company. And the support required around building a software company. I was like, hey, look, what’s the bigger and play if I start franchising the company and I give all the franchisees This proprietary tool, they’re gonna have a leg up against everybody else in their market, hands down. And that long term is going to be worth way more than the software company ever would be. And so why would I spend all this money to basically give my secret tool to all of our competitors so I chose to keep it in house. I’m sure I’m leaving money on the table on the software side, but at the end of the day, for me, it’s not all about creating more money. Really, what what drives me now is is partnering with other people and just having fun doing deals and watching them, you know, go from zero recurring revenue to 1020 30,000 a month and passive income and the way that that changes people’s lives so that they can kind of design their own life and live it the way that they want to, you know that that gets me excited. Those are the stories that really drive my life forward. That deeper meaning

J Darrin Gross 15:15

down and so but just to be clear, so that the franchisee somebody who would buy a franchise, there’s not something that they have to sell it’s for them to find investments and create the passive income through real estate or some sort of an income stream through through real estate investing, correct?

Mike Sowers 15:36

Yeah, so when you buy a franchise, you get a series of tools that all come in a toolbox, so you get access to the software, you get full support and training. So first, you go through the online course, then you go through our three day launch bootcamp, then you have a weekly goal setting review with an accountability coach, you have access to a deals couch whenever questions come up throughout the week, and then you have the deals committee meeting, where you can actually submit your deal and have all their people in the group scrutinize it. And so you have all the support for success. And then we even fly into your market and help y’all make sure your business is set up. So that’s the support piece. And then we really train you, it’s all about training on the system and the strategy to make sure that you know exactly what types of properties to target, how to analyze them, how to estimate repairs, everything, we fill in the missing pieces, like you can learn all that stuff on your own, but I’m just going to be able to get you there so much faster. When you come under our umbrella, you’re joining our company, it’s different than like a coaching program I used to I’ve been doing coaching since 2007. And the challenge with coaching is I can give you all the systems and all the support. But at the end of the day, it’s your own business. So you have to rebrand it, you have no credibility, when you’re starting out, you have to kind of recreate some of the systems, even to something as simple as setting up your entity and doing all that when you open a franchise, like I don’t have to change anything, like it’s my same exact letter with the letterhead and language I’m sending that out. And the challenge was, if I had coaching students in all of these markets, they would be competing against the franchisees. So we actually shut our coaching program down even though it was quite profitable.

J Darrin Gross 17:19

And how long have you been doing the the franchise model here?

Unknown Speaker 17:23

We just started this last last fall. Okay, and it didn’t really officially launched until December of last year. So just a few months now. So the thing is it just in the beginning stages, and we’re going to be building this thing out, we just opened our first two locations in Denver in Colorado Springs. And we have about seven more locations coming down the pipeline.

J Darrin Gross 17:50

And in the the markets, or the the franchise, is it based on the demand? Or is that based on the information you have? Or how is it that the the territories are determined? Yeah,

Mike Sowers 18:05

Great question. We sell them by county. And and really what we’re looking for is primary markets. So large MSA is with at least, you know, 750,000 people typically, and like 10,000 commercial properties is what would comprise a market that’s kind of the minimum for a market. There’s people making buku bucks out in rural America, but that’s not our gig. Our gig is really to concentrate in higher populated areas so that you know, we have access to a large buyer pool. And it’s one of the ways that we mitigate risk, because you might get a smoking deal and be cashflow like crazy. But if that dollar tree in small town, America goes out of business, there might be nobody that ever wants that warehouse again. And that’s a huge risk that we don’t want to take.

J Darrin Gross 18:55

And I’ve come to appreciate the lower cap rates equals somebody ready to buy your deal when you want to exit as opposed to, you know, higher cap rates and there’s nobody wants to buy your deal. So definitely something to understand there. That’s interesting. So the first two, how did you? I mean, did they approached you? Did you have relations with the people before? How did you arrive at the first two territories sales?

Mike Sowers 19:30

Yeah, it’s a good question. You know, our our marketing strategy has really been one about attraction rather than promotion. And so what we do is we just focus on putting phenomenal content out that blesses people’s lives and allows them to move forward. And what we find is that some of those people want to join our team, and they come to us and they seek us out on our website, whether they want to invest passively in our fun which we have an equity fun, or they want to come take our online course or they want to come, you know, explore opening a franchise in their territory. We just we’re doing podcasts like this, we’re doing a free book giveaway, I have like a free audio book giveaway. And then some of those people read the book and are like, hey, I want to do deals with this guy, right? That’s what it’s really all about. I mean, my goal is to just partner with people in other markets to do deals. And that’s really what spawned the whole franchise system. It’s so that I have somebody who’s bought in who’s committed who can’t quit. And they’re in the market. And they’re the boots on the ground. They’re the ones overseeing construction, leasing, and property management, but I give them all the systems and the coach and the support to succeed and find deals and get them under contract, we solve two really big problems for them, we do most of their direct marketing for them. And we have our equity fund available. So if their big fear is I can’t fund my deals. That’s one of the reasons why people are really excited about this, because they’re never obligated to partner with us on the equity side, like they’ll own the property, they can raise the cash from their own pool of ambassadors and and teach them how to do that. But in the beginning, it’s hard to get started, there’s, you know, people sugar coated, I think. And so, when you’re getting started, you can just be like, just take that whole fear off the table, because we’ll partner with them on qualified deal. So if it’s like, a nice value, add multi tenant warehouse deal and a good location, like I’m all in on that deal, right? As long as we can get it at the right cost basis, then we’ll do a deal like that. So they’re never obligated to partner with us. But but in the beginning, they have the option to do that as a franchisee.

J Darrin Gross 21:53

Got it? You mentioned capital raising, you know, when we first in the very beginning, it didn’t quite catch it does the the software include any capital raising features.

Mike Sowers 22:11

It has some light features in there like it allows you to put together the statements and cash flow forecasts and what’s called the sources and uses, which is where you list out all the sources and uses a capital, we were going to build it out as an investor portal. But then I realized there was another software that’s just so much more advanced, and it would be a really, really high dollar item. So I prioritize the development of some of the other things that there aren’t good replacements for on the market. And right now we’re using a third party for our investor portal, but eventually we will migrate to that, but I gotta, I gotta sell smart franchises to fund this.

J Darrin Gross 22:48

Well, but I think the the, you know, again, chicken, or the egg kind of thing, if you don’t have the pipeline full of opportunities, having the software to manage the investors is, you know, kind of, not necessarily, so kudos to you to keep the focus on creating the pipe and how to fill the pipe, which I’m certain that that’s, you know, that that’s definitely one of the the biggest challenges is to try and, and I’m assuming being a software, you know, automation that, that these communications and you’ve got the email the cell phone. So in the mailing address, you’re, you’re doing the multiple touches with a potential buyer or potential sellers to make certain you’re in front of the seller if when they want to sell in I’m assuming the primary focus is just off deal or an off market deals. Correct?

Mike Sowers 23:51

Yeah, off market or pre market, we do buy quite a few deals that are listed online, though, from other people who we have relationships with brokers, and they’re like, Hey, I’m listing this one Monday and we just either get our offer in first or sometimes the property will sit on the market for a long time. And we can come in and see it from a different lens, you know, maybe the rest of the market house or uncover some kind of way we can get the deal done creatively. Because it’s not just all about price. I mean, that’s what everybody thinks it is. But it’s about how it’s going to get financed to I mean, if I got to go put 30% down and raise that from my Fund, which pays 15 to 20%. That’s expensive money. Right? But if the seller is willing to let me put 5% down on a contract for deed, maybe I can just do that deal. You know, with my pocket change and pay a little bit more I could probably pay 10 or 15% more if I don’t have to raise capital from other people.

J Darrin Gross 24:54

Got it? And does your your software and the the menu of Have offers or or contracts that you want to submit? Does it kind of pre formed those those options for you?

Mike Sowers 25:10

Yeah, it does. So it allows us to analyze a traditionally bank finance deal versus like a contract for deed and a seller carry back scenarios, ways out your weighted average cost of capital, what’s your cash flow, you can change like the purchase price assumptions and see how that all flows through to, you know, what’s the equity multiple and yield on the investments for under the different scenarios. And then I click a button, and it merges all of the data points into an offer summary letter with three offers, the purchase price, the terms, the payments, all that stuff, I don’t even have to fill any that auto calculate any of that my software is puts it automatically in the letter, it’s like, saves me like two hours every time I’m doing an offer.

J Darrin Gross 25:53

I love it. That’s great.

Mike Sowers 25:55

I mean, we’re doing like, you know, five to 10 offers a week. So I mean, that’s like, you know, think of the labor involved in all that. I mean, that’s like a 20 to 30 hour week job just for an analyst that our software cut out the picture.

J Darrin Gross 26:12

Yeah, no, I, I love all of the computer generated, you know, things when they work. Yeah. As opposed to, like you said, In the beginning, it was this, you know, the multiple entry thing, I it’s just a source of frustration for me how all of this stuff, all of these different programs, they’re not able to, you know, see each other and the requirement to put in the same information that I put in here and put it in there and put it in there and put it in there. It’s just like a time suck. And it’s just very frustrating. So I never

Mike Sowers 26:45

realized this. But I think I was born to be like a software designer engineer in another life. Because time just passes. Like I geek out, I get into our software. And it’s like, the platform was built on the low code platform. But it allows back end coding to change the user interface and API’s with other software, so as full, full power, but it’s easy for me to like add fields and create formulas and stuff in there. So I just geek out on that stuff. I get in there. And I love like, what if I move this, oh, here’s a field we need, I can add that. And so it’s super cheap. Like we can continue just build these things out. And so the software is is getting better every day. And then all my, you know, team members and franchisees or whatever, given me feedback, like hey, you know, what about this feature, whatever. And so it’s just a matter of time. Like, I’m building out a due diligence app right now that’s going to streamline the entire due diligence process with like checklists and dropdowns. And status, who’s assigned what’s going on with this, attach the files over here, that kind of stuff, just to de risk the process? Because there’s human error when you don’t have a system?

J Darrin Gross 27:54

Oh, yeah, no, there’s plenty has been scientifically proven. You know, trust the data, don’t trust your gut kind of thing. So can you talk a little bit about the size of the deals that you’re you’re seeing through your, your offerings, and that is it? Many, you mentioned you you cross multiple asset classes? But is there a sweet spot on the deal size that you found that works best?

Mike Sowers 28:26

Yeah, there is. And I think it’s different for each, you know, location owner, like the newer franchisees will probably target one to $3 million deals, right, just so they don’t overextend themselves. That’s where we started. I mean, I think my first property was 700 grand. I’ll still do I’ll do that $700,000 deal again, today. I mean, that thing, cash flows me five grand a month, and I got no money into it. I’ll do a couple of those a year. Why not? So I’m not, you know, I guess like if the deals 700,000 Plus, I’ll do it. But that’s not to say like, you know, look, an office condo deal came across my desk the other day, and, you know, I can pick it up for 350 and turn around sell for 425 Maybe 10 hours of work, you know, what will I do that deal? Why not? I just I love doing deals. So but but my business plan and my exit strategy changes based on the deal size and the metrics of the deal. There’s some deals that the price per square foot is such a high multiple of the rent per square foot that they gotta be flips. So if I can buy it for, you know, 70 to 80% of the as stabilized future value after and then, you know, fix it up and fill it with great tenants and then sell it and make a good margin. I’ll do that. Like we just bought a portfolio of five properties clause, September 30. chunked them off individually renegotiated a couple leases, which really was the value add on that extended Some leases out with a credit tenant gave them some discounts, and some people out of the other ones, sold them off individually made like $1.7 million. That’s an exciting deal. But that deal would never cashflow that well as a long term rental. On the flip side, I got properties where we just bought one for like 3.3, put a half a million into it, and it’s worth almost $6 million. But I’m not going to flip it, because it generates 20 to $30,000 in cash flow month. And so that’s a great long term hold. So I’d say right now to answer your question, the bread and butter is probably the one to 10 million, but I just made a $54 million portfolio offer. So that’d be our biggest deal we’ve ever done. But I’m expecting them to get back to us and maybe award a small portion if any of the portfolio was kind of it was a request for pricing by a large group in town. So they’re just such a powerful marketing engine that it’s hard to get deals when one of these big brokerage firms gets involved, which is why you got to do the direct marketing and create relationships to get in on deals before everybody in the market sucked at it because by then you’re just sent you end up in an auction scenario.

J Darrin Gross 31:14

Right? Right. Now if you if you can create their relationship and have an in based on some trust and you can execute it that’s a big win. So in as far as the the the franchise he fee, is there an upfront cost for the franchise? Is that you mentioned kind of an ongoing relationship based on deal flow, or How’s that look from a from a franchisee standpoint? With a franchisor? You?

Mike Sowers 31:48

Yeah, well think about this, let’s say you wanted to buy one commercial property, you got a couple 100 grand, somebody gave you this idea, I’m gonna go buy a million dollar building, you hire me as a broker, you’re gonna pay me two to 3% 2030 grand. And I might help you show you some listed properties, maybe negotiate the deal and help you through some of the paperwork. But that’s about the extent of what you get for a franchisee they get so much more. And it’s a long term commitment, they get me for seven years, and then they can renew again, for free for another seven. It ranges from 25 grand for a small territory, up to 150 grand for like a mega territory. And we would only sell that much territory to somebody if they already had an existing business with multiple people in place to handle the capacity. Most of the franchise, stuff skin probably land in the 50 to 100 range for the amount of territory that somebody would want to buy to get started. And our Franchise Disclosure Document outlines all of that. So nothing I’m saying on here is an offer to open a franchise little disclaimer on that, that can only be done through the Franchise Disclosure Document. With that being said, you know, if anybody’s interested, you know, I’m always happy to have a conversation.

J Darrin Gross 33:06

Gotcha. And as far as the franchise Oh, is that is that fee then? Is that like the initial purchase price? Or is that something that turned out through the, the the deal time? Or how’s that?

Mike Sowers 33:17

How the franchise fees paid upfront? Gotcha. And then these are paid over time.

J Darrin Gross 33:23

Gotcha. Gotcha. And then, let’s talk a little bit about your investor opportunities for the deals that you’re doing. Are they are you primarily do you have a fund? Or how are you doing deal specific? Or how are you going raising money?

Mike Sowers 33:43

I have a fund it’s a 506 b securities offering filed with the SEC, it’s called the CAG value add fund. And it’s $100 million equity fund and accredited investors only. So net worth of a million excluding your primary residence or you’ve made 200,000 each of the last two years and expecting to do the same this year or if you’re married 300,000 The last two years and expecting to do the same. That’s what an accredited investor is. When I first started off, I started doing like crowdfunding and taking 25 grand from Grandma’s IRA and things like that. And I realized that, like that’s not my gig, that’s where everybody wants to start. But there’s so many people out there with a ton of money that are generating four or 500,000 a year in salary. And but they’re only spending 200 And every year they got a couple 100 grand to get put to work and they’re accredited investors. This is a phenomenal opportunity for them to get in on the action. It pays a fixed dividend so they get like a debt instrument preferred return of like six to 8% per year on their money first before we ever take a penny. And then absolutely

J Darrin Gross 34:56

it’s a debt instrument. So it didn’t stress close to the end

Mike Sowers 35:01

Operates like a debt instrument. So they get paid a fixed interest rate on their money first, and then we split the upside beyond that.

So it’s an equity position in the fund, but it, the payout they get a preferred return it’s called. So if the funds generate enough cash, they get paid up to a certain percentage on their money per year first, and then whatever’s left over gets split between the investors as a whole and art group for doing all the work.

J Darrin Gross 35:37

And, and when what’s the minimum investment?

Mike Sowers 35:40

100,000 100? And that’s the minimum liquid cash you have to have to open a franchise as well.

J Darrin Gross 35:50

Gotcha. And the value add, is there a specific market you play in as an investor? Or is this does this kind of then feed back through your franchise? franchisees?

Mike Sowers 36:05

Yeah, the fund will invest in any qualified deals in any market commercial investors group operates in, but it will only partner with commercial investors, group deal sponsors. So that would be our local outfit here in Minneapolis, which is our corporate location, or any other franchise location. So so if you got a deal on the table and you came to the fund, we wouldn’t, we wouldn’t partner with you, we’re only partnering with CAG franchisees or our corporate location here in Minneapolis.

J Darrin Gross 36:36

Got it, got it, and currently, how many properties you have in the fund.

Mike Sowers 36:44

So we just launched the fund, actually the first tranche just got subscribed to so we’re on the brink of closing some deals right here for the first tranche of the open ended fund. But we’ve done 32 single asset funds up until today in the past, and that’s really our deal history. But we realize we’re getting way more deals coming in, then we have the capacity to do a private placement memorandum for each and every deal which can take like a month or two. And that’s like the whole time that I have to close on the thing. So instead of finding the property, putting together the group of investors doing a PPM doing the web pitch for that deal, and then closing, which is the way we’ve been doing it, we’re doing in reverse now, we’re getting, we’re always pitching now, and then we get people to subscribe. And then when I have the deal on the table, they’ve already been pitched and already agreed to invest, and then they wire their money in right away. But they’ve already seen a PPM and things like that and already subscribed to the font. God, we don’t take their money when they subscribe, we take their money when I have a deal for them to invest in. And I’ll call that money down as we need it.

J Darrin Gross 37:53

Gotcha. Gotcha. Now, in the, the assets, again, asset classes are, you know, all across the spectrum, value add deals as the primary focus.

Mike Sowers 38:08

Yeah, primarily value add, what makes him like, if we’re going to buy a portfolio and a couple properties are stabilized, we’ll take those two. At the end of the day, we want to be able to give people of loss of capital, it’s the only way I’m going to get the kind of returns, you know, that that are high teens returns, you know, if your goal going by and the nice mega pretty apartment building that somebody else already renovated and raised rents on if I go pay top dollar for that, I might make a decent yield and it might feel risk free. But at the end of the day, if the market metrics change or something like that, I could wind up with the the net market value being less than we have into it. And that’s really, the biggest risk that you take is that you can’t pay back your investors their money or pay your mortgage payments off the cash flow generating.

J Darrin Gross 39:03

Yeah, that’s that’s definitely some words of wisdom there somebody that’s, you know, thought about it and has experienced in it. My mike, if we could, I’d like to shift gears here for a second. Because I mentioned you before we started by day, I’m an insurance broker. And I work with my clients to assess risk and determine what to do with a risk. And there’s essentially three strategies we typically consider. We look to see if first we can avoid the risk. And when that’s done an option we’ll see if there’s a way to minimize the risk. And when we cannot avoid or minimize the risk then we look to see if we can transfer the risk and that’s what an insurance policy is. And so I like to ask my guests, if they can look at their own situation could be their clients, investors tenants, however you would like to frame the question and identify what you consider to be be the biggest risk. And again, for clarification, while I am an insurance broker, I’m not necessarily looking for an insurance related answer. And so if you’re willing, I’d like to ask you, Mike Sowers, What is the BIGGEST RISK?

Mike Sowers 40:20

I think the BIGGEST RISK is that your ego gets too big, and you think you have it all figured out. Humility is, I think, the strongest asset that any company or individual can have in life, and it’s one of our core values at commercial investors group, our system is working really, really well, our software is super sweet. We feel like we have a really good grasp on the market metrics. And we feel like we have the ability to analyze deals, but at the end of the day, we are always humble, and making sure that we’re constantly staying in the zone of learning, and getting better, and trying to find new ways to do things that might work better and trying to stay on the cutting edge. That’s the mistake, I think at a corporate level a lot of companies make is they do really well. And they’re one way and they put the blinders on and they lose sight of what’s happening in the market. And the markets change quickly. And so that’s why during COVID, a lot of people went under, especially people in offices, and we’re heavily invested in office, and we did better in COVID than we’ve ever done in any prior year. And I think I would attribute that to the fact that we maintain humility, and are willing to learn and willing to admit, in areas that we have issues. In fact, every single week, I spend 90 minutes with my entire management team, putting the issues on the table and working through.

J Darrin Gross 42:04

That’s great. Mike, I want to say thanks for taking the time to talk today. But before we wrap this up, where can listeners go? If they’d like to learn more connect with you?

Mike Sowers 42:19

Yeah, you can follow us on YouTube, or listen to our podcast or on any podcast. It’s the Creative Commercial Real Estate Podcast. If you want to check out a free copy of our book or learn more about the font or anything, or contact me and schedule a call, you can do all that through our website, which is commercial investors group.com. And in my book, I have a full diagram, I actually thought a lot about risk. I have a full diagram where I thought of all the risks related to a real estate business, and actually put together a really cool one page diagrams called risks in real estate. And it shows you all the risks and how they happen. And then it shows you how you can use system and strategy to combat short term and long term risks within that.

J Darrin Gross 43:07

Awesome. Well, Mike, again, I want to say thanks for taking the time to talk. I’ve enjoyed it. Learn a lot, and I look forward to doing it again soon.

Mike Sowers 43:18

Yeah, I’m looking forward to interviewing you on our show. And thanks for having me on yours and and make sure you book that and thanks a lot.

J Darrin Gross 43:26

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

Announcer 43:44

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Commercial Real Estate Investors and Deal Matchmaker with Daniel Cocca – CRE PN #344

Daniel Cocca 0:00

It’s really that we grew this group. It’s a private capital network, everyone who’s part of it has been invited by one of the founders or has come in from an existing investor. And they go through a process where they get to meet one of the firm’s principles, they do really exactly what we’re doing here, just kind of telling each other’s other story. And we want to make sure those people continue to have access to the projects that we’re going to share on a going forward basis. Right. You know, there is a limited amount of equity, and projects that we think makes sense, particularly in this market today, right? And so for us, like we’re happy, you know, deploying, you know, 100 100 $50 million a year with the group of people that that we have, and that’s really what we’re trying to do just kind of build this network and keep keep doing right by the folks who have kind of helped us get to where we are.

Announcer 0:50

J Darrin Gross 1:09

Today, my guest is Daniel Cocca. Daniel is a New York corporate attorney by trade. And he co founded Alpha Investing a private capital network that connects investors with institutional real estate private equity investments. As a firm Alpha has invested in over 4 billion of real estate assets. And in just a minute, we’re going to speak with Daniel about some of their investments and how they go about investing at Alpha.

But first a quick reminder, if you’d 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. 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, Daniel, welcome to CRE PN Radio.

Daniel Cocca 2:36

Thanks for having me on the show. Darrin, excited to be here.

J Darrin Gross 2:39

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.

Daniel Cocca 2:49

Yeah, absolutely. So I came out of law school, arguably the worst time you could possibly come out of law school and in 2010. You know, the, the market had more or less crash, the you know, I was a corporate lawyer attorney are slated to be a corporate attorney and, you know, the credit markets were basically shut down the IPO markets were not existent, like not the best time. That being said, I find myself in a really interesting high yield debt practice. You know, working on a variety of these, like small little mid market transactions in that space is, you know, you’re probably looking at, you know, 200 to $750 million, you know, debt offerings, which seems like a lot, but in the grand scheme of that world, not not all that large. And then, you know, over time as the credit markets opened up, the IPO markets started to get more active, you know, worked on more of those types of capital markets transactions. So as a security lawyer, at my core, I never really had the lawyer mindset about me. It was a fun job and a great experience a lot of really interesting transactions and people and personalities. But I was much more interested in kind of building my own firm and I headed over to another shop called Goodwin Proctor, another law firm in New York City. And they had a pretty well established what they call the technology companies practice, but was really a venture practice. Right. And so I started representing a lot of very early stage companies. And that’s kind of the point where I met my co founders at alpha. And we started to kind of hash around this idea, because all of us were in this position where we were we were high earners, right. I think they call us Henry’s, you know, high earning not rich yet, right. And so we were trying to take our money that was pretty much parked in the stock market or investing portfolios and get it into real estate, but we wanted to do it with, you know, institutional, very experienced and seasoned owner operators. And unfortunately, we weren’t in a position to write seven figure checks into the system. transactions. And so we’re looking for a way to, you know, basically get the best of both worlds right high caliber operating partners and low minimums. And, you know, this all happened kind of on the heels of the jobs act in 2012, which led to, you know, real estate crowdfunding really starting to become popular. And when I was at the law firm, I saw a lot of those real estate, crowdfunding FinTech platforms, really start to get off the ground, a lot of them, you know, financed by venture capital, and good and bad to that, they definitely broke down down the door, they got people as a whole, very excited in real estate investing, there was finally access because, you know, we all know, historically, it was a country club, friends and family, right? If you weren’t writing seven figure checks, you had to find the smaller, more local operator that maybe a new or your friend knew or your colleague knew. And that’s how you invested and you know, your options are just very limited. And that’s why as a country, we are or have been multi, massively under allocated in real estate, just the access didn’t exist, right. And these platforms popped up. And all of a sudden, there were these big marketplaces where you could look at transactions from hundreds, if not 1000s, of different, you know, real estate sponsors, owners, operators, and potentially invest in them if you wanted to. And, you know, in theory, that’s a really good thing. The challenge, of course, is that, you know, a marketplace concept benefits, the sponsor side, and the people putting those deals together much more than it does the investors who are kind of forced into this weird world where they’re term takers, but force term takers, right? You know, a deal pops up, get three hours, if you don’t say yes, and commit your money in three hours, you’re out. Right? And, you know, listen, I’ve been doing this for a while I can’t underwrite a real estate transaction in three hours. I think most people probably can’t. And so it created this weird set of rules that didn’t really work for investors. And that’s where my partners and I decided, hey, let’s start Alpha investing and create something that’s really designed for us. We were working professionals at the time, we said, hey, we want to invest with top caliber groups. But we want to do it in a way that works for us. And that’s effectively what we’ve done, I can, I can obviously talk a bit more about the specifics of alpha. But that’s my story, you know, leading up to the last, I guess, seven years of my life now.

J Darrin Gross 7:19

Awesome, I love the kind of the background story. My guess. And yours is clearly kind of a timing thing. Like you said, when you entered law practice and just the economic cycle we were in and in, I think it’s, it’s, it’s really key, and you kind of hit on that, I know that a lot of what we talked about, and how real estate is invested in now is central to the Jobs Act. You know, it’s funny, I remember that, but I don’t always think of it that way. And I appreciate you bringing that up. Because that really did kind of, you know, open the floodgates as far as the opportunity for non accredited or even accredited, but just just be more of a public unknown opportunity kind of thing. So I appreciate you sharing that. So let’s talk about this. So you knew you wanted to get into real estate selling, he also knew you didn’t want to be dealing with small, less professionally managed opportunities. So how did you, you know, you frame your, your kind of go forward point, or, you know, when you guys started out? What was it that you guys were looking for? What were the types of opportunities or the properties of asset classes that you were you were looking for?

Daniel Cocca 8:48

Yeah, for better or worse, you know, as I guess, at the time, I left a mid level senior associate at the law firm, you know, I had very little time outside of work, right? You know, we always joke that we’d often more likely than not, we would leave the office on a different day than we arrived. Right? And so that was just kind of my life. And, you know, I wanted to invest, but the question is, when you have very limited free time, how do you go out and you know, go through the normal iterations of, Oh, I’m gonna buy a rental property, maybe I’m gonna buy something, I’m gonna fix it up, I’m gonna flip it. You just don’t have the time. There aren’t enough hours in the day. And you always have to remember like, hey, my core competency, what allows me to make money and be a high earner is not investing in real estate, right? It’s being a lawyer or being a doctor or being a professional, whatever, right, you know. And so that’s kind of what we were sitting at. And for us, it was really important to be able to be passive investors and to create an environment whereby I could look at a transaction, I could evaluate it, but outside of making an investment decision and funding my capital, I wasn’t obligated to do anything. Now all the information was available to me, I could pour through rent rolls and lease audits and run scenario and sensitivity until I was blue in the face, right. But I didn’t have to, if I didn’t want to, I could focus on whatever my core competency wasn’t. And that was really the impetus for trying to create alpha and what we did. And I think as we think about, you know, how do we invest in real estate, our strategy at a very high level, like most high level strategies is fairly simple, right? We’re need based residential, real estate investors, and we believe people need a place to live, people need a place to grow old. That’s true in a good economy. It’s true in a bad economy. It’s true, and whatever, we’re, whatever economy we’re in today, none of that should be controversial, right. And we focus on acquisitions of properties that have in place cash flow, so we’re not doing you know, development deals or new construction, you know, even though I think those those deals can make sense. We want to buy properties, typically in that small mid market space, where we can partner with an institutional operator, and buy from a mom and pop or at the very least an unsophisticated seller, hopefully find ourselves an off market deal or pre marketed deal. But always outside of whatever value add renovation business plan, we may put into effect, we want to be able to reduce the expense side of the financial statement, that’s where you create a lot of value as well. And I think a lot of times that gets overlooked, because people think about renovating, and increasing rents and increasing revenue. And that’s certainly important. But you know, these properties all trade, you know, based on their net operating income, and so whatever we can do to improve that number is a good thing. And so in that small mid market, which used to be 25, to $50 million assets is probably more like, you know, 70 to $100 million assets, today, that’s where we think we’re able to find those types of opportunities, the ones that we believe, create a bit more alpha, and you know, hence the name Alpha investing.

J Darrin Gross 12:05

I like your, kind of the way you broke it down there for the strategy, I mean, need based, haven’t heard that, per se, but that’s, I mean, it’s very clear, a roof over one’s head is a need shelter. And then also how you, you distinguished you know, your your value add, mindset is more to look in a way to cut expenses, as opposed to full, heavy lift, renovation, you know, capital improvement type type of thing, which God, I mean, what I’ve learned over time, is, that’s where you can really make some monies, if it’s just a matter of, you know, reducing some expenses, as opposed to becoming, you know, too friendly with a plumber or electrician or contractor kind of thing. That’s, that’s definitely a better way to go. So, with that being your strategy now, and clarify for me, are you guys taking possession of and acting as an asset manager? Or are you are you looking for others who have syndicated a deal and and participating as a, as a, an investor or in raising capital for that deal? How is it that you guys are set up with respect to a particular property?

Daniel Cocca 13:29

Yeah, so we go out, and we find what we consider to be best in class operators. And these are the folks that are boots on the ground in any given market. They’re the ones that have the right relationships to source these off market deals. And then they’re the ones who are typically executing the strategy that, you know, we kind of come together collaboratively, right. And you know, our team plays an asset management role. We’re going to go out, we’re going to obviously tour all the properties in the comps. We’re going to underwrite the deal collaboratively, we’re going to select debt with our partners, what have you, our investor network will bring the majority of the LP equity into any given transaction. And you know, what comes with that typically will be control or approval rights over major decisions, sales, refinances, budgets, what have you, right. And that that’s effectively the role that we play in these transactions. We have maybe four or five of these operating partners that you know, we work with in joint venture agreements, really on a recurring basis, sometimes more programmatic, but basically the idea is we want to be in long term partnerships. We’re not out there searching for individual deals or transactions to invest in we’re looking for groups that have foundations that set up well for long term partnerships because real estate at the end of the day, it’s a relationship based game. You know, it’s something we talk about a lot. We joke about, you know, in the in the public markets, you trade on insider information and you get caught You know, you’re getting fined, maybe you’re going to jail if it’s bad enough, in real estate, you just head to the bank. And that’s kind of how it works in this space relationships are very, very important information is very important. These are private capital markets, right? And so that’s that’s kind of the game that that we’re playing. And then, yeah, we work with this number of groups. And people often say to us, alpha, like, when are you going to start doing your own deals like you understand how these things work, you put the strategies together, you you help find and select the day you asset manager on the property management calls, like you’re doing all this work? And the answer is, the boots on the ground is incredibly important. And it’s also requires a ton of work that I don’t think people fully appreciate. You could fly into a city like Nashville and talk to some brokers, and they’ll show you four or five, six, you know, multifamily assets that might be for sale, and they’re probably going to be within a few miles of downtown. But all those deals, they’re they’re marketed, you’re going to pay top dollar for those assets. And they may end up being good investments. But usually the opportunity there is not the same as when, you know, you have someone who can tell you the difference between know the east side and the west side of any given Street, right. That’s where you really find these embedded opportunities. And for a group like us, we’re not trying to deploy capital into 100 transactions a year, we look for eight to 10 that we think present really well on a risk adjusted basis. And that’s why you being able to minimize expenses or reduce expenses or increase the role of the manager and these transactions is really important, right? That’s a risk mitigation. Measure, rather, you know, we’re still doing on a lot of these assets, particularly on the multi side, you know, we’re renovating, we’re increasing rents, we’re improving the way the property looks, what have you. But that’s all upside stuff. What what the the other side is really reducing your your downside. And, you know, when you buy, right, you take a lot of risk off the table. And that’s one of the challenges in the current value add workforce space is that going in yields are just so low cap rates are in many markets sub 4%. And so your margin for error is not the same when you’re buying a five and a half cap deal. Right? And so you need that downside protection in order for these transactions to make sense.

J Darrin Gross 17:20

No. And like you said, to the boots on the ground, the local knowledge, I mean, you can’t be more. I mean, there’s nothing more clear than actually knowing the neighborhood and knowing, you know, the opportunity or don’t buy on that side of the street. I mean, that’s, I can’t tell you how many times I’ve had the opportunity somebody presented, somebody started looking at it, and, and Something’s just not right. And then you find out, you know why. And it’s clearly something with local knowledge, he would, you know, wouldn’t struggle to make that decision. So definitely a good point.

Daniel Cocca 17:58

One thing I’ll say to that, I think is important that when you’re a sponsor, you’re an operator, right? You develop expertise in one very specific thing, right? If I buy apartment buildings in the Pacific Northwest, I do that when it makes sense to do it, then I also do it when it doesn’t make sense, right? Whereas a group like us, we’re out there finding these groups, but we’re only investing with them when it makes sense. We invested a ton in the Pacific Northwest and 1415 and 16, haven’t written a check into a deal. They’re probably three years, right. And if we were a normal sponsor, where that was our core business, we’d have had to fire the whole team. And you know what, none of us would be making any money anymore, right? But the ability to kind of jump around, not just from asset classes, but sponsor partners markets, even deal types, you know, focusing on cash flow versus appreciation in certain markets. That flexibility is what allows us again, to go out and achieve that idea of alpha.

J Darrin Gross 19:00

No, that makes a lot of sense. As such, your internal structure, are you are you a fund? Or do you have a fund where people invest? And then you deploy capital from the fund? Or is it a one one deal, one raise cooperation,

Daniel Cocca 19:18

investors can participate with us in two ways, we do have a fund that we basically do one every 12 months, give or take whenever the capital from the prior fund has been deployed. That’s a smaller portion of the total equity we deploy in any given year. But it’s a product that works for folks who say, hey, look, I want to write one check. And I want to get exposure to 678 real estate assets over the next year. I don’t really want to pick them out. I’m going to give you guys discretion to do it. That’s a model that that works well. And I think we’ll continue to do that in perpetuity. The vast majority of our capital probably 80% Give or take is deployed. what are called individual transactions, they really are set up almost like single transaction funds, right? So we aggregate the investors in our network who want to participate in any given deal, we create a new investment vehicle, where they’re all housed. And really, the sole purpose of that investment vehicle is to deploy capital directly into one of these transactions. And so, you know, our investors in the aggregate, in our writing multimillion dollar checks, you know, typically our equity checks are anywhere from five to $20 million dollars per transaction, right. But you as an individual, maybe you only wrote $100,000 check, but you get the benefit of tagging along with all these other investors, and you’re getting the same terms that you would get as if you were a much larger investor in these deals.

J Darrin Gross 20:52

You mentioned kind of the recycling meaning, you know, investors, they they exit one dealer, I guess, a deal sold, and then they, they typically, what’s the percentage of persistence as far as your your clientele as far as reinvesting in, in the next opportunity?

Daniel Cocca 21:11

Yeah, the significant majority of capital that comes into our network, after a sale of an asset is redeployed. So you know, you get a million dollars back, you’re gonna pay your long term capital gains. And then the rest of that is likely being reinvested, there are some folks in the network who, who are a bit older, and either in retirement or approaching retirement that, you know, are investing to generate cash flow to fund their lifestyle, but I think the vast majority of people that are network, you know, this is capital, that they’re kind of putting in an account or putting an investment, and they’re just gonna keep rolling it over and over and over and over again, until they get to the point that maybe they need to down the road, or more likely, it’s going to end up, you know, being inherited by their children or heirs, or what have you done down the road. And so the vast majority of capital that’s returned, comes back into the network. And it’s interesting, because it does create some challenges, right? When you have a deal cell. And you know, let’s say we put $5 million into a deal, and now $10 million comes out. And there’s a new opportunity that needs $15 million. Well, now, there’s going to be a massive overflow of capital, right? We have to figure out well, how do we, you know, a good problem to have don’t get me wrong, but we have to figure out, hey, how do we get all of these existing investors from, you know, the last 2345 years? How do we get their capital back into this new deal, and we have other investors coming in. And that’s a big part of the reason why we’ve done what many people think is crazy wishes cap our network, we we have a somewhat arbitrary cap of 1000 investors. And, you know, we very infrequently let new people into the network. And it’s not because we don’t like new people, it’s not because, you know, we have some weird idea that, hey, we don’t need more money, we don’t want you know, more investors, it’s really that we grew this group, it’s a private capital network, everyone who’s part of it has been invited by one of the founders, or has come in from an existing investor. And they go through a process where they get to meet one of the firm’s principles, they do really exactly what we’re doing here, just kind of telling each other’s other story. And we want to make sure those people continue to have access to the projects that we’re going to share on a going forward basis. Right? You know, there is a limited amount of equity, and projects that we think makes sense, particularly in this market today, right? And so for us, like, we’re happy, you know, deploying, you know, 100 100 $50 million a year with the group of people that that we have, and that’s really what we’re trying to do just kind of build this network and keep keep doing right, by the folks who have kind of helped us get to where we are.

J Darrin Gross 23:51

I love the fact that you, I mean, just the concept of capping an investment or have been the number of of investors. One of the things that’s always kind of rattling around in my head is more of just that. More is not always more when you have when you’re answering to more and more, you know, more and more people kind of thing, but actually kind of, you know, foster that relationship, and continue to grow together, and kind of create more of a community kind of a thing, as opposed to just constantly be out looking for new investors. And I’m assuming that that, that speaks volumes to the work you guys have been able to do and the returns you’ve been able to provide, and that people continue to reinvest with you and are pleased with the outcome and and, you know, the relationships you’ve created with them, as well as the relationships you’ve created and maintained with your investment are your syndicator the deal sponsors. So that’s, that’s great.

Daniel Cocca 24:54

Yeah, I think that’s exactly right. You know, when we bring people in, we always say, hey, let’s We’re gonna chat on the phone for an hour and get to know each other. And this may not be what you would typically do with an investing partner. But understand if you do invest with us, we’re going to be in at least a three, probably five, maybe seven plus year relationship, right? We hope we’re in a 30 year relationship, but at the very least, we’re going to be in a three to five year relationship. And so let’s make sure it makes sense. Today, let’s get on the same page on day one. And the weird thing or the funny thing, or maybe it’s more of an unfortunate thing is that that whole idea is very foreign to most of the people we speak with, you know, it’s usually this business is transaction based, like, hey, like, Sir, Ma’am, you want to invest in this deal? Awesome. I’ll sign you up you’re in. And that’s the end of the conversation. And especially when you’re dealing with investors who are not professional real estate evaluators or investors just don’t know how this space works. There are so many things that come up that people have questions about people don’t understand their expectations were off. And that’s always the issue, right? If you expect something and it doesn’t come true, or it’s different than what you’re told, that’s where you start to develop a bad taste in your mouth and right or wrong. You know, that’s just what we’re trying to avoid that right. And, you know, at the end of the day, having the smaller network allows us to have personal relationships with everyone in the network. Do I spend a ton of time on the phone? Yes, I do. Right. But it’s for the best, I think, in the long run. And yeah, it’s just part of our model.

J Darrin Gross 26:32

Yeah. I’m curious. See, in the beginning, your fundraising, how did you? How did you go about? I mean, clearly, it sounds like you’ve been successful now. And you’ve got a track record. And and people are referring others to you? How was it in the beginning?

Daniel Cocca 26:52

Well, it’s funny, because we often joke, once we started telling people, the network was capped, and we were only going to be able to take in a few people a month, like everyone’s come out of the woodwork, and all of a sudden, you know, once you join the network, and invest with us, like where were these people in 2014, when, you know, we were, we’re begging every, you know, friend and colleague and former professor to invest $10,000 with us, right. And that’s really how it happened. It started out with a group of about a dozen people who, you know, we’re closer friends, family, you know, immediate work colleagues mentors that we said, Trust us, we think this works. And then the challenge in our business is that you’ve got this constant chicken and egg problem, right, you have investors, but then you also need investments and deals to deploy that capital and to and when you only have, you know, a dozen investors who maybe are writing on average $50,000 checks, you’re looking at half a million dollar investments. And that’s not interesting to institutional private equity. And so what we had to do was leverage our personal relationships with these operators and say, Listen, cut us out a piece of your deal, give us an allocation so that we can go out, build a track record, use it to bring in more investors show people why this makes sense. And yes, we can only send you a half a million dollars today. And it’s probably going to take us two and a half to three months to pilot together. But we’re telling you down the road, we’re going to be writing you 510 15 $20 million checks on these deals, and we’re gonna have a great long term relationship. And fortunately, we didn’t prove ourselves to be liars. And we were able to ultimately get there. But I think it was really important that we set out understanding has to be a constant balance, there’s been periods of time and alpha, where we’re saying, We really need new capital, we need new investors, we have great deals, we need to get it out there. There are other times where we say, we have so many, so many investors, and we just don’t have enough equity for them. We need to pump the brakes, like we have to stop bringing new people and I think that’s kind of the world we’re in today. Not because we’re not finding interesting deal flow like we certainly are. And again, we’re looking for eight to 10 Interesting deals a year, I don’t think I could find 50 or 100 Interesting deals a year in this current market, at least in the asset classes that we invest in, but eight to 10 we can find. But you know, when you deal with small and mid market acquisitions, your equity checks, checks could be anywhere from like eight to 20 25 million, you know, in total. And so, you know, there is a ceiling on the amount of equity and capital that can be deployed in any given year. And you know, because of that we operate in the way that we do.

J Darrin Gross 29:41

Oh, it’s awesome. So today, we’re in February of 22. As we as we record this, how many deals have you seen go full cycle that you guys have been in?

Daniel Cocca 29:57

So I think we have invested I think it’s like 57 or 58 transactions. Now transaction could be a single property acquisition or it could be a portfolio, you know, property acquisition, right? We recently started doing a lot of single family rentals. And so we have a lot, you know, the, the numbers of properties are very high right now. But within the our more traditional multifamily or senior housing, assisted living memory care, but where we’ve done a lot of work, I think out of, let’s say, 60 properties, I think maybe 12 have gone full cycle. You know, we’ve been in a very, very good period over the last five or six years, to the point that, you know, we actually don’t share our weighted average returns, because they set an outrageous benchmark, right. And that’s not to like, low key kind of tout our success. See that there’s a lot of people have been successful. rising tide raises all ships, I think that’s the the phrase, you know, a 20 IRR deal on the sale in 2021, is probably some amount of execution failure. And that sounds crazy. And I hate saying it, because all we try to do is benchmark people that you should be happy with 1214 IRR deals, particularly if you’re getting them in perpetuity, it makes all the sense in the world. But you know, and your listeners know as well as I do, you know, you throw a bunch of 4050 100 IRR, deals, you know, all of a sudden, you know, a 15 IRR isn’t that appealing. And so we do spend a lot of time trying to make sure we’re framing the people in our network. And another reason why having a smaller private network is important because we actually get the opportunity to explain to our investors and get feedback about this is what we’re doing. And this is why we’re doing it. We’re not marketing to people in our network, right? We’re, you know, writing strategy, white papers explaining why we’re taking a certain course of action. And I think because we get the opportunity to get in front of these people, they know who we are, it makes it much easier for us to actually communicate why we’re doing the things that we are.

J Darrin Gross 32:17

Yeah, no, I think that that makes a lot of sense is that just having that community community that has kind of a sense of expectation and an understanding of the way you operate, and in some sort of realistic expectation is, is, you know, key to that. I think that, you know, a lot of times the social media and just, you know, the wave of real estate right now, it lends itself to you know, everybody’s just picking up gold. I mean, there’s, there’s, you know, nobody’s having a problem, nobody’s struggling, it’s all just like, homeruns. And, and, you know, it’s a lot of times it’s when you have the problems where you really learn the lessons and, and kind of course, correct and make certain you don’t do do that again. But that’s great. What your due diligence process, you talked a little bit about, kind of, you know, finding the the sponsors and a little bit about deals, how involved do you guys get with the due diligence process?

Daniel Cocca 33:17

On average, we spend around six months between the time we first meet an operating partner, and when we’ll start looking at potential investment opportunities with them. And one of the challenges is that this isn’t a process where we get on the phone, I send you a six page diligence request, and a week later, you send me back absolutely everything I need, right. When I was an associate at the law firm, that is exactly what happened. And it was very efficient. And we could churn through diligence on deals in you know, a week or two, right? That’s not the case. In our space, there’s usually a lot of back and forth getting information we need. And I think it’s also important, you know, this is not a space where every operator looks at or evaluates or tracks performance in the same way. Right? You know, you may have to go back and look through a bunch of, you know, case studies, models, financial statements to get the data that we need. And the goal is really always to make sure that, you know, the groups we’re working with have certain tangible and intangible qualities, right, we want to make sure that they’re able to execute. We don’t want to take the risk that something’s going to get messed up outside of, you know, the broader economy or the market, that your renovation pace is going to be off or you’re not going to be able to source materials or, you know, if you plan to refinance the debt on a property in year three, you don’t have the net worth to do it. Right. You know, those types of things are incredibly important. And you know, we’re never going to take any amount of risk as it relates to those you know, specific components, right? And then part of it too is just, you know, when, when you send me a document and I follow up with some questions, how do you respond? Are you quick to respond? Are your are your answers thoughtful? Have you thought through the intricacies and the details of these things in the same manner that that we are, you know, if I ask a question, you know, to you about, here’s your deal, and here’s your rent premiums. And we noticed this, one thing happened, that seems inconsistent with the rest of the data, when you say, oh, I need to go back and look at it, that’s usually a sign to me that you’re not quite as involved in the process as maybe we we want you to be right. And it’s always a bit of a balance, because, you know, that doesn’t mean that group or that person can’t be successful, they absolutely can, right. But the folks that we try to work with, and again, it’s four or five operating partners at any given time that we’re looking at investment opportunities from, so we don’t have to go out and find 1000s of very, very different standard that that we’re applying, but we’re looking for groups that you know, we think get it like and we say best in class, we don’t just mean you’ve acquired $2 billion worth of properties over the last five years, that’s a part of it, right? Experience does matter. But we want to actually believe, from our conversations that hey, like you get it, and the stuff that you don’t get you acknowledge it, you explain why you made these mistakes in the past, and now give you reasons or solutions that you’ve come up with the fix these things, right. That’s a much more important part of the process. And I think a lot of people think about, and that’s one of the challenges too, and full transparency, and just being an individual investor who’s writing a $50,000 check, right? You can’t get 40 or 50 hours on the phone with a real estate sponsor, when you want to write a $50,000 check, right? But our team does, because we’re writing substantially larger checks. And that’s where we really get through a lot of it. And, you know, if if I met 100 operating partners, you know, this year, let’s say, you know, probably, I don’t know, 70% of them would immediately be written off off the bat, either they don’t have the right experience, don’t have the right pedigree, you know, they’re too new, they’re in the wrong, you know, sector, they’re not doing markets, we think makes sense, etc. And then when you really get into the weeds with that remaining 30, by the end of the year, there’s maybe two or three that you say, okay, like, there’s some opportunity here, right. And then out of those groups, you know, everything has to kind of align right, like, we have to find a transaction that we think makes sense that we think on a risk adjusted basis, works for not just our investors, but ourselves. Because, you know, we’re invested in these deals as well, right? And it just, it takes a while. And so when you find these partnerships, they’re long term in nature, right? Like we didn’t, we didn’t invest six months, you know, building this partnership to invest in one deal with you, and then never again, right. And then on the other side of the coin, what’s what’s great about being in multiple transactions with the same groups is that, you know, I see all your performance data, right, I’m tracking your actual verse, you’re projected every single month on every single asset. And so when you bring me a new deal, and we underwrite this transaction, we can feel really comfortable that the numbers we’re using the assumptions we’re making, are as close to what should happen as as possible. Right? And these are projections, they’re not, you know, we don’t know, anything could happen, as we’ve learned over the last couple years. Right. But it does provide a great framework by which we can more confidently underwrite deals.

J Darrin Gross 38:46

Yeah, it’s an interesting balance you have there with having to, you know, continue, continuously search for a new deal sponsor, somebody that you can, you know, deploy capital with, and then also, that the investor side of the thing and on, you know, continue to nurture those relationships and possibly look for additional investors. That’s a little bit of a balancing act there. So that’s great. If we could Daniel, I’d like to shift gears here for a second. By day, I’m a real estate insurance broker, also do a little bit of real estate myself, but I work with my clients to assess risk and determine what to do with the risk. And there’s a couple of strategies we typically consider as an option. 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 a way we can minimize the risk. And when neither the avoided or minimized strategy will work. We look to see if 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. It could be their clients investors, the market interest rates COVID. However you would like to frame the question. But take a look at your situation and try and determine what is the biggest risk? And for clarification, while I am an insurance broker, I’m not necessarily looking for an insurance related answer. And so if you’re willing, I’d like to ask you, Daniel Cocca, what is the BIGGEST RISK?

Daniel Cocca 40:39

So as a, I call myself a former lawyer, I guess you’re always wire risks are near and dear to my heart, right? You’ll see 10 pages of risk factors in the documents that we send out. It’s something we think about a lot. The over simplified answers, your question is that we look at deals really, with a matrix with two columns. One column is execution. The other column is market driven appreciation, right? Execution is something that we can mostly control. There are some things like supply chain and whatnot that may fall outside of our control. But usually, we can figure out ways to get ahead of the curve on those things. And the partners that we work with, we have zero doubt about their ability to execute. These are not newcomers to the real estate world. These are your tried and true groups with with long track records of success, right. And so that leaves the other column, the market driven appreciation, and that’s the real unknown. And there are a lot of factors that go into that. But I think in this present moment today, you know, February 2, the thing that we’re all thinking about is interest rates, right? And, you know, it was a day or two ago, that Bank of America shocked the world and said there’s going to be seven rate hikes this year. And everyone said, like, what, like who like what’s going on over there, right? And it wasn’t, though that long ago, like, four or five, six months where, okay, rates are gonna hike up the middle 2022, maybe we’ll see one or two. And then it was like three, and then it was like maybe three or four. And so we’ll see what happens with with interest rates. Because, you know, as I’m sure your listeners know, the cost of borrowing is a very important component of pricing, whether you’re a buyer or a seller, right. And in the historical wisdom has been that interest rates and cap rates move together, right? Meaning, you know, interest rates go down. So to cap rates, because your cost of borrowing goes down, you can pay more for a property, right. But what we saw and 1718, give or take, especially during that period of time, where we had seven rate hikes in a quarters was that that really wasn’t the case, you know, rates were going up, but cap rates were still compressing. And I think what a lot of people concluded is that there’s a lot of dry powder in real estate right now. Some of that is from the crowdfunding world, a lot of that is from no just general real estate, private equity that has record amounts of money on the sidelines. And so the real question is what will happen? You know, once rates really start to pick up, will you see, cap rates start to go up? If that does happen, I actually think would be a good thing, particularly for folks in our position, because, you know, we underwrite pretty heavy cap rate expansion into our deals. If cap rates stay flat, or compress, that means a home run, right? Investors get a ton of proceeds at exit, right? But also means it’s very challenging to redeploy that capital, because pricing is so aggressive. And so there’s a happy medium where you’re getting really strong returns, but then you also have places to redeploy that capital, where where it makes sense, right? And what we’ll find out over this year is really what happens to pricing. You know, a lot of the deals that we invest into, are you know, floating rate variable rate debt, right. And people like that type of debt over agency, you know, government, Freddie, Fannie get because there are very seldom are very small prepayment penalties, which allow us to exit much faster when you’re in a rising price environment, right. But will people then transition to longer term fixed rate agency debt again, like that’s certainly certainly possible. And so, that’s a long way of saying not just interest rates, but the response to interest rates is, you know, the biggest risk to this space. The worst case scenario, and this isn’t a bad worst case scenario, but but it is a worst case is that rates continue to move upward and cap rates stay flat or continue to compress because what that means is that when you’re buying a three and a half cap today You’re buying a really a two and a half cap at the end of the year, right, you know, apples to apples. And so that just starts to get really uncomfortable. there supposed to be a positive spread between interest rates and cap rates. And so, you know, if you buy, you buy to two and a half, and you have four and a half or 5% debt, you know, even a cash flowing deal effectively looks like new construction, right? Because there’s no cash flow in the first year or two. And you’re basically making a bet on the residual value. And so long answer to your question, probably not a particularly unique answer, but in this moment in time, February 2 2022, you know, interest rates and pricing response to interest rate change, that’s the biggest risk that I see.

J Darrin Gross 45:47

So stay tuned. We will see where it goes. But I think they’re here right on that as, as much as a lot of people are, you know, kind of thinking the same thoughts and and wait and see just exactly how the market responds. And, and we will know when we know, I guess. Daniel, where can the listeners go if they would like to learn more connect with you.

Daniel Cocca 46:12

So you can check us out? Our website is alpha i, the letter i.com. alphai.com We have a lot of information on there to share with potential new members. If you’re interested in joining, you can please feel free to request access mentioned, you know, you heard me here today. In full transparency. We’re not admitting a ton of people to the network right now for the reasons we talked about today. But you know, we do have a pretty lengthy waitlist, where we’re happy to chat with people who seem like they could be a good fit. And we’re always happy to make, you know, connections and introductions, you know, we’re people too, and we’re always trying to be helpful. But that’s where you can find more about us.

J Darrin Gross 46:50

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

Daniel Cocca 47:00

Thanks, man. Appreciate it.

J Darrin Gross 47:02

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 47:22

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Commercial Real Estate Landlords Prefer Franchise Brand with Kim Daly – CRE PN #342

Kim Daly 0:00

In a franchise, you’re not on an island by yourself, you are in this collaboration, you’re partners with a franchisor, you have the collective intelligence of all of the neighboring franchisees who are not competitive. Well, we are competitive because we’re all humans, right? We all like to be Rookie of the Year and the number one franchisee, but reality is, when I do good, I can share that with you because you and you’ll do good and are, you know, we’re all shareholders in the same brand here, right? So it benefits everybody to share and be collective. But that’s just a more abundant feeling for people. Then coming to the idea of owning a business and having no frame of reference and then trying to figure out what they need to know in order to buy this business and then to take it over successfully.

Announcer 0:46

J Darrin Gross 1:05

Today, my guest is Kim Daly, she has spent the last 20 years helping people achieve financial freedom by enabling them to find the perfect franchise opportunity. She is recognized as one of America’s top franchise consultants. And she is an international best selling co author of franchising, freedom, and the founder of and the founder and the host of Kim daily TV. And in just a minute, we’re going to speak with Kim about franchises, and all the opportunities they possess.

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 on track of our guests are Be sure to check out our YouTube channel. You can find us on YouTube and commercial real estate pro network. And while you’re there, please subscribe. With that, I want to welcome my guest, Kim, welcome to CRE PN Radio.

Kim Daly 2:39

Thanks, Darrin. I’m happy to be here today.

J Darrin Gross 2:42

Well, I’m really 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.

Kim Daly 2:51

Yeah, so I’m a franchise consultant, I have been helping people realize their dreams of diversifying income streams, leaving corporate America behind and finding a life that they own and control through the proven systems of a franchise for nearly 20 years. I’ve been self employed since I was 25 years old. It’s all I’ve ever known. And I love and am very passionate about helping other people to sort of have that same freedom.

J Darrin Gross 3:21

Awesome, awesome. So let’s start with just a guess maybe like, Can you define what a franchise is?

Kim Daly 3:30

Sure, yeah. So many people think that they know what a franchise is because they eat at Chick fil A, or they you know, they drive what they what they the gym they go to, but when they think about like, well, what is a franchise as an investor? So it’s a totally valid question. So a franchise is the way for the average person without an MBA, no prior business experience to come to the idea of owning a business by buying down the learning curve. Because you’re partnering yourself with people who’ve already figured it out for the price of a franchise fee, they’re gonna hand you a proven business plan and all of the tools to training technology marketing support, so that you can get up there kind of buy up the ramp speed and get into the business and statistically you’re buying down. So you’re buying down the learning curve. And that also you’re buying success because you probably have heard the statistic that 90% of startup businesses fail before their fifth anniversary and that is not a statistic that’s owned in franchising. In fact, most of the businesses that I work with a few 100 that I work with out of the 1000s that are out there have statistics that are like 90% succeed 90% or greater, are successful.

J Darrin Gross 4:50

Now that’s clearly a Delta you’d rather be on the the winning side of 90 versus 90 There. That’s That’s good. So, a, like you said somebody with no prior experience can can my into an opportunity. I’m just kind of curious, the, you know, if I was to go and say, Okay, I got a great idea for whatever I mean, you could sandwich or I mean, I think that is probably one of the more common franchises or some sort of an eating type establishment. How how, you know, you mentioned the failure rate versus the success rate. But can you differentiate between the two is to what, you know, the the opportunity would look like for somebody that’s thinking about just, you know, they make a good sandwich, they’re gonna go it on their own versus, can I’m gonna, my buy a franchise and go that route?

Kim Daly 5:55

Okay, fantastic question. So I, so if you those listening to the show, if you hop over to my channel at Kim daily.tv, I have so many videos that address this very topic from so many different angles. So that’s on YouTube, if you go to YouTube, and you type in Kim Daly or Kim daly.tv, it’ll come right up. So the difference between entrepreneurship and investing in a franchise, it is absolutely different. So the entrepreneur is, you know, out there with an idea. But then in order to bring that idea to market has to stop and create a marketing plan, so they have to clearly define their customer avatar, then they have to figure out how to attract that customer, what what messaging, what is the coloring of my brand, like, what’s going to attract this person to me, they have to figure out where to spend that the where to place those advertising, that advertising and then also how much money to it’s going to take to get enough of those customers coming in or calling you to produce a positively cash flowing business. And it’s normally when you look at that statistic that 90% of small businesses fail. It’s not because people don’t have good ideas. It’s because they run out of money. Because there’s so much trial and error in trying to bring something to market. Entrepreneurs are dreamers. And I love that listen, if we never had entrepreneurs, we wouldn’t have any new franchises. Every franchise business starts out as an entrepreneurial venture. So we have to have entrepreneurs. But the idea is that let somebody else go and throw all that mud at the wall. And, you know, try to figure it all out, because that’s the hardest part, the easiest people to sell the value proposition of a franchise or former entrepreneurs 100% Because it’s all that trial and error and toil and sweat you’re in takes years, and you may never make any money. Now over here on the franchising side, you’re paying a franchise fee, which the daily coach calls the cost of entry, that franchise fee opens the gate to Disneyland, it opens the gate and buys you instant access to all the ready made tools. So the proven business plan, initial training, vendors technology, ongoing support, a clearly defined customer avatar and a clearly defined path to building a profitable business. All you have to do is execute on the plan. So I can take an owner, someone from corporate America, even if they want to keep their full time job, because franchising has the infrastructure built into it. You don’t have to always be full time, the entrepreneur is working full time and full time. Right? Yeah, full time in it full time on it. The franchisee can keep their full time job and work the business part time or as a side hustle with a manager working in it. And then they as the owner, CEO get to work on it. And so I can take that owner who may have the dream to build job replacement income, right, three, four or $500,000 a year, and maybe that’s three to five locations or particular franchise. And in less than three to five years, he or she could have all of those locations up and running. The entrepreneur over here is probably still trying to figure out how to get one location going while they’re working in it. Never taking a vacation. So you know franchising is going to afford the investor so much more from the beginning in terms of time and quality of life and hopefully less stress because you’re in business for yourself but not by yourself. There are all these other people out there who can support you answer your questions, you know, cheer you on when it’s getting hard. And it’s just that collaboration to that just makes it better. That makes it more fun.

J Darrin Gross 9:52

Yeah, no, I can totally see the at least the support when the things are not working. Have somebody that you can turn to the can help you Right the ship or do something different or to, you know, try this or whatever, as opposed to just, you know, like sort of basically running out of money, I could see that being a big, big, big, big reason why so many entrepreneurs fail. I’m curious, you know, if somebody who has has an idea and they want to, they want to go into a franchise, are there ways to determine which one is a better opportunity for you? I mean, you can you can you weigh the opportunity between two like franchises, or how does one go about that?

Kim Daly 10:38

Like, that was a planted question. But guys, it really wasn’t there. And this is exactly why the daily coach has a business. So most of the people who think about franchising, number one, they think about food, just like you did, right. But like most of the people who are executives in corporate America, or investors in real estate are saying, I have no interest in owning a subway. So they dismiss franchising, because they think that that’s what franchising is, and then they come over here to the daily coach, and they’re so refreshed to learn that as America’s top franchise consultant, I literally place more people into franchise businesses than almost any other consultant out there. Buy, you have to beg me to show you food. I never plays anybody into food. So I There are just easier, faster, better ways to make money. There are so many businesses out there that exists as franchises that you probably don’t even realize are franchises. So when people come to me whether they think they know what they want, or they’re saying, I think I want to own a business, but I don’t know what my options are. This is where our conversation began. So I offer a free service that helps people figure out what would be what is the right business for me, by looking at their background, their interests, their skills, their finances, like what you can afford, and ultimately dhahran their goals. So like, before we start talking about any specific brands, I want to zoom out from the moment we’re in. And I ask people like, what are you trying to achieve? Because the business is just the pass through vehicle, right, that drives your life from where you are today to where you want to end up. So I’m infinitely more interested in where they want to end up and what they want to achieve through this business, like personal or professional growth? Or is it just financial? And that comes into play with do you invest in other things like real estate? Or are you a W two employee? Or, you know, what is your whole portfolio look like? And how much of that you know, financial gain? Are you looking at this business producing? So it helps people get clarity around what they’re going to use the business for? And people start saying, oh, okay, so it’s less about the business in more about me. And I say yes, exactly. The business at the end of the day, does it really matter? I challenge people everyday Dare and I’ll say, look, if I show you a business, like I have this amazing business that paints, lines in parking, lots. Franchising paints lie. Ever think of all the parking lots you see, every day, somebody has to paint the lines. It’s a mom and pop dominated industry. It’s b2b, reoccurring revenue, simple business, you know, simple equipment, small team of people, crazy, crazy big margins, semi absentee ownership, so you don’t even have to leave your job or be in the thing full time. So, so people come to me, and they, they they come like thinking it’s all about passion for the widget. And I say no, a franchise is like I said, it’s the vehicle. And ultimately, when you invest in a franchise, what’s infinitely more important than the widget? Is the people behind the widget, because that widget as it is today has to keep growing and changing and adapting to the market. They the competition, the Times post COVID time. So if it’s always about the leadership in a franchise, I’m making a connection for people to the people behind the brand. But ultimately, that’s what I do on a day to day basis is offer this free service that matches people to the right franchises for them. And then I coached them through the process so that they know they’re asking the right questions, talking to the right people, if they need financing, we go through the legal documents. So I’m the resource for how to invest in a franchise and I do all of that for free because I get paid by the franchisors so I’m like a recruiter, if you will, if you back end it in the franchisor. I do all the dirty work for them. advertisers, they’re like, hey, you need to prequalify people to find the motivated, you know, excited people to, to get people’s mindset in the right place so that by the time they get to the franchisor, that franchisor knows they have somebody that maybe they can make a match with. And this whole process is sort of like courtship leading to a marriage. Right? So it’s all I the daily coach calls it a blind date, you started a blind date, we’re gonna get into this courtship and hopefully lead to your wedding day where I kiss you off to the franchisor. Yeah.

J Darrin Gross 15:33

Hey, I’m curious. You know, we talked about like, all the support and stuff and the 90% success rate of a franchise? Can you speak to a guess on the backside of that? So let’s say you buy a franchise, you’re, you know, you’re wildly successful. And now it’s time to be done, sell, go, go do whatever you want to do without having to worry about work, whatever. Can you talk about the valuation of a franchise versus a, an entrepreneur, one off? Similar type? You know,

Kim Daly 16:15

Another great question. Yep. And I think backing up a lot of people think that you don’t even own like, it’s not really my business and a 100% Is your business. It’s your business to be successful, it are your business to fail and right. Franchising is not foolproof, even with all the support all the support, mechanisms, and training and everything involved, franchisees franchisees still fail, because they have to wake up and execute the system, right? But yes, it’s your business to build and it’s your business to sell. So when you’re ready to sell, you should be able to apply some multiple to your EBITDA, and go off into the sunset, like Darrin said, but that multiple will depend on the industry or in the economy at the time of sale. But the greatest thing about a franchise resale is the buyer looking at your business? Typical, typically, franchise businesses sell for higher multiples than their mom and pop counterparts. So there’s a couple reasons for that. The first one being that the buyer looking at your business doesn’t just have to take your word that this is how your books, look, there’s all this validation out there from all the other franchisees, right, who can tell their story. So when I when I’m working with a franchise resale, I’ll have my candidate first pretend like they’re going to buy brand new. And I want you to go on and I want you to interview the top performing franchise owners in the system to see when somebody is building this at its maximum capacity today. How does it look? How does it sound? What are they focused on? How many hours does does it take them? What kind of money are they making? Because how do you have any perspective when you’re just looking at a resale? How do you know like, Where does this business fit into the bell curve. So by going out to the top performing people, maybe talking to a few average performing people and getting a sense of what the difference is like million dollar stores versus $600,000 stores. And then you look at the resale business when you’re looking at the books and let’s say the guy’s books are 300,000, you either know that this guy’s not maximizing his opportunity, or you got to try to figure out like, why typically, its owner created not location, or all the other things that people want to make it about. But that’s where your conversation can now begin. And so then you can go back to the franchisor, as you’re evaluating this resale and ask questions around that. How did you feel this franchisee was performing? Like why are his numbers so low? Is that why he’s selling? Right? Those are sort of fear based questions, but every resale is going to start right there. Right. But the great thing for you as the guy selling the business or gal is that your your buyer can do all of this due diligence without you. Right, and so by the time they come to look at your business, they’re so much more educated. They know what makes a good territory, because they’ve talked to top performing people, they know what the potential in the businesses, and so they’re going to be willing to pay more money for that when they figure out the opportunity that’s left on the table. And then also because in a franchise, you’re not on an island by yourself, you are in this collaboration, you’re partners with a franchisor you have the collective intelligence of all of the neighboring franchisees who are not competitive. Well, we are competitive because we’re all humans, right? We all like to be Rookie of the Year and the number one franchisee But reality is when I do good, I can share that with you because you and you’ll do good and our you know, we’re all shareholders in the same brand here right? So it benefits everybody to share and be collective. But that’s just it. A more abundant feeling for people, then coming to the idea of owning a business and having no frame of reference and then trying to figure out what they need to know in order to buy this business, and then to take it over successfully.

J Darrin Gross 20:13

Right? No, absolutely. I saw something here. I don’t remember what I was watching the other day, they were talking about just the the want kind of the hunger out there for reoccurring revenue streams, which I would think that the, the franchise model speaks to, I mean, you’ve got, you know, you have a system that created to make sales, reoccurring sales, and just kind of the thirst out there for for those types of businesses. I would think that the demand is, is rather strong right now.

Kim Daly 20:47

Recurring revenue is always a thing, right? I mean, doesn’t add as one who’s been in a non reoccurring revenue business for nearly 20 years here at branch choice. So I am like a franchisee of a company that helps people invest in franchises. So when I say that, that’s what that means. So I live the life of a franchisee every day for the last 20 years. So I walk my talk, I’m not just saying oh, you go do it. I’m actually doing it too. I pay royalties. I’m trained by corporate office, all of that. The My business is pay when someone buys a franchise, Kim Kim gets a commission or Kim gets a consultant face. So it’s always about finding the next person and getting the next person through the through the process. But if I had started a mosquito spraying franchise years ago, right, we’re residential cleaning company. Like that’s the best one because those girls come to my house. So listen to this story. When I moved here in 2012, I hired them aids, that’s a franchise. I don’t like the word but that’s their word. So they come to my house every so they sold me one time. In 2012. They come to my house every Monday morning, clean my house. And Bill my credit card $135 a week. Who want who doesn’t want that business? Yeah, there are challenging parts to recurring revenue. Good service organizations usually require a lot more employees, like my organization has no employees. I’m it right. But the downside to that is if I’m not here, I’m not making any money. Right? When the President or the owner of the maids franchise goes on vacation, the teams can still go out and clean. Right? So there’s, there’s pros and cons to everything. But the characteristics of the business are just appealing to different investors. Right. And it depends on what you’re using the business for. So that’s part of again, when people come to me, this is how I get them thinking less focus on what the business does more focused on the role that you play as an owner and the time commitment that will require a view? And are you the kind? Are you looking to be a leader and a manager to create jobs in your local community to say I feel good for you? Or do you look at people as a headache? Would you rather have a smaller team of people and be scaling your business using equipment, like a tree cutting franchise or mosquito spraying franchise, or maybe scaling your business using real estate? Right, like a gym or a massage, envy or subway? So there’s all different ways to look at how to scale a business. And there’s all different characteristics of characteristics of businesses that appeal to people, you know, we talk about like, where in the lifecycle Do you want to insert yourself? Do you want to be coming in at the pioneering at the front end of a new brand? So seven or eight years later, when the whole world wakes up? And everybody, you know, everybody woke up one morning and wanted an orange theory? I don’t know if you know that brand. But like, there was a moment where I felt like every single candidate was asking me, How do I get an orange theory? And I’m like, That ship sailed like seven or eight years ago, right? But the time the customers start asking, Hey, is there a location? I mean, they’re asking because they’re a they’re a customer of the company. Typically, in fast growing brands, those markets are completely sold out. So you can get in on the pioneering side and then get the carve up the market and have the best territories but you’ve got to be a little bit pioneering. You can’t be the most risk averse person because there isn’t going to be any validation from other franchise owners there isn’t going to be as much proof and as much data, right? Or do you like buying into something like Supercuts or Mako or the lawn doctor? These like pillars in franchising that are been around for 50 plus years, and they have hundreds of franchise owners that you can validate? What does your business look like at six months, one year, 10 years. So there’s an investment strategy for every type of buyer. And it’s my job to help get people thinking like this and to figure out these characteristics and then offer up the opportunities that match those kinds of characteristics.

J Darrin Gross 24:55

Gotcha. Let me ask you from like Atlanta, landlords perspective, you’ve got a vacancy. And can you make the case why a franchise would be a better opportunity as a tenant? As opposed to you know, a an entrepreneurs startup?

Kim Daly 25:21

Well, here’s what I’ll say. Like, are you asking me about like, is franchising better than a real estate investment?

J Darrin Gross 25:27

No, no, no, no, I’m talking about a landlord with a real retail landlord has a vacancy in a strip mall. Okay. And is there is there a perception from a landlord standpoint that a, I mean, I’m assuming in a recognized brand with the proven everything we’ve talked about would be more appealing than just a, you know, somebody that’s gonna wing it and hope that they’ve got the, you know, they can they can make fun of you.

Kim Daly 25:55

Yeah, because 90% of startup businesses fail that landlord seeking a much greater chance if they’re looking at renting their space to, you know, let’s just say super cutscenes. I just said that and Supercuts has a 98% success rate over 30 years of history. Supercuts is bringing people with a minimum net worth of a half a million dollars. He Supercuts is making sure that the people they award a franchise to have liquid cash of 200,000. Most of them have a full time job in addition to these qualifications so Supercuts, because if you look at Supercuts, Supercuts wants to be next to the front door of Walmart. Supercuts is a billion dollar company, they don’t even leave their real estate to their franchisees, like they don’t want this first time business owner trying to like negotiate terms with the person who like owns the property that a Walmart sits on, right? They’re gonna go billion dollar company to billion dollar company, so they’re going to negotiate that lease for their franchisees, but then other franchises leave it to their franchisees and so yes, the landlord is probably going to be a lot more aggressive with tenant improvement money or free free rent or just concessions to bring in that franchisee because statistically, the franchise is just more proven than the person who maybe this is their first time owning a business and they love the idea of baking pies. And so they’re going to open a little pie shop. The guy roll

J Darrin Gross 27:22

Yeah, no, the the guess just to have again, another level of support at the franchise to help you determine a proper location, you know, to to be successful as was a huge win for the franchise owner or the buyer of a franchise. That’s, that’s great.

Kim Daly 27:43

Yeah, if your business relies on a location, I mean, that’s going to make or break you. So I mean, there are franchises that by demographic data like unbelievable amounts of data and they can physically score like scientifically score a location and they can look at that location and how its scored compared to their number one tear, you know, location today and show this new franchise owner like look, we know this location is going to work because demographically psychographically it looks just like this guy that over here grossing $2 million dollars. So there it helps the incoming buyer get confident, but yeah, absolutely. It’s going in alone in trying to find figure out what makes a good location. I mean, these franchisors today have highly sophisticated tools and techniques. They know okay, we need a shopping plaza with 60,000 cars passing by a day or angered by a Whole Foods or you know, our customer goes to Starbucks. We want to be next to Starbucks and how do you even find those leases those spots may be rented before the for for lease sign even hits the window, but these franchisors work with the CBRE is the best commercial realtors in the country or have their own internal realtors that are go ahead of their there are companies that like I mentioned to Mako Mako sister company Meineke. Meineke has an internal real estate department that goes out in scours markets, looking for bends, you know, different Mom and Pop auto body shops or car shops that are going out of business. And they’ll hold that lease because they have so much money. They can hold that lease waiting for a franchise owner. So they’re like, oh, you know, you can I bring somebody in who lives in you know, Parkersburg, West Virginia. And then I thought we already have a location if he’s qualified, we can step right in and move right in and we can just retrofitted so like this is a that would greatly buy down the time to getting a business open, right? Because finding that location and constructing that store. It’s time consuming and very costly. And when you have people that are going ahead of you and doing these kinds of activities are in it with you, and can tell you from the beginning Look, don’t think this is going to happen. overnights help set expectations. This on average is an eight month process. So block saddle up and slow down. We got your back, you know so those kind of things can drive entrepreneurs crazy if they have no idea what to expect.

J Darrin Gross 30:19

That’s that’s interesting that the real estate arm of these franchises that you know whether they go out negotiate lease or like you said even just lock up the space for for a potential, you know future franchisee that’s meant such a huge huge, you know asset to have in your, on your team to have somebody that’s looking out for you and has all the demographics and all that stuff figured out already. So that you’re at least you’re starting off in a, you know, chance to be successful as opposed to hoping that traffic will come

Kim Daly 30:53

Hope, is not a strategy.

J Darrin Gross 30:57

Yeah, exactly. Hey, Kim, if we could, I’d like to shift gears here for a second. As I mentioned to you before, by day, I’m an insurance broker. And I work with my clients to assess risk and determine what to do with a risk. And there’s three strategies we typically look at her we consider when we’re trying to assess risk, we first look to see if there’s a way 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 either avoid or 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 I like to ask my guests, if they can look at their own situation. It could be their clients, investors, tenants, the market municipalities, however, you’d like to frame the question, but to take a look at your situation, and identify what you consider to be the biggest risk. And for clarification, while I am an insurance broker, I’m not necessarily looking for an insurance related answer. And if you’re willing, I’d like to ask you, Kim Daly, what is the BIGGEST RISK?

Kim Daly 32:14

So I help people take one of the BIGGEST RISK with most of their life savings for most of them that they will ever take, saying yes to their dreams to own a business. And I do this every single day. So I am very acquainted with the conversation about risk. I think the biggest risk is regret. I think that if you have the dream in your heart to do something that is out of the box that is unordinary that is extra ordinary, and you don’t take the risk, you will regret it more than if you do do it. Even if it doesn’t work out. The BIGGEST RISK has to be regret.

J Darrin Gross 33:01

No, true true. Very true. Kim, where can the listeners go if they would like to learn more or connect with you?

Kim Daly 33:12

Well, as I’ve already mentioned, Darrin absolutely got to check out KimDaly.tv. So before 2020 I used to travel the country hosting live events when I could no longer get people together face to face. I turned the camera on and started building my YouTube channel. And we’re just about at our one year mark. It has been the greatest single thing I’ve ever done professionally. I am having more fun. So absolutely. Please humor me. Go to KimDaly.TV. There are hundreds of videos on all things investing, franchising, mindset coaching, business coaching, check it out. And then from there, it’ll lead you back to my website, which is thedalycoach.com And that’s my last name D A L Y the daly coach dot com.

J Darrin Gross 33:59

Got it. Kim, I can’t say thanks enough for taking the time to talk. I’ve enjoyed it. Learned a lot, and I look forward to doing it again soon.

Kim Daly 34:08

Thank you so much. Darrin, I enjoy being your guest.

J Darrin Gross 34:11

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 34:30

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.

Retail Real Estate Post Pandemic with Houman Mahboubi – CRE PN # 341

Houman Mahboubi 0:00

Restaurants is another key component of the commercial real estate world that is very much striving and is very much in demand. People love to go out and eat and when you have good concepts and good restaurants, neighboring retailers want to be around that because they all feed off of each other, whether it’s destination retail, your traditional retail, but food and wellness are really the key points right now that are doing extremely, extremely well. And and fashion in general is really making a comeback. I’m very excited to see what’s happening. Growth expansion and the demand.

Announcer 0:42

J Darrin Gross 1:02

Today, my guest is Houman Mahboubi. He is a leading authority on commercial real estate sales, purchases, management and leasing with JLL in Los Angeles, California. And in just a minute, we’re going to speak with Houman about the impact of COVID on the Los Angeles commercial real estate, and what’s going on down there.

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 all hands of our guests are, be sure to check out our YouTube channel. And you can find this on YouTube at commercial real estate pro network. And while you’re there, please subscribe. With that, I want to welcome my guest Houman Welcome to CRE PN Radio.

Houman Mahboubi 2:20

Thank you very much for having me this morning. I’m very honored to be here and to participate in your show.

J Darrin Gross 2:26

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

Houman Mahboubi 2:37

Yes, so I’m in the commercial real estate business. I work for JLL Jones Lang LaSalle. I’ve been there for the past six years, and starting my seventh year this year, I’ve always been in the real estate business. That’s what my family has always done. So I grew up learning the business from them from a very young age, in turning from high school, working during my college years, really starting the mailroom and gradually going up getting into management, funnily enough, leaving the business for 10 years and going to the entertainment business, which was a very big awakening for me to realize what I don’t want to do. And then coming back to my roots, which was real estate, but this time coming back as a deal maker and putting people together and really being a bridge between two groups of people who want to make a deal. And that started back in 2004. Till now, before coming to JLL. After working fears in the industry, I started my own firm, boutique commercial firm, and then eventually grow grew to a level where we wanted to have a global platform and have much more resources. And we joined JLL, which is the one of the greatest companies in the world, and the biggest real estate company in the world. And it’s been a very successful journey. Being there and collaborating together and making great things happen. I lead the urban high street retail team here in the Los Angeles market. I have a great team of people that I work with and truly love what I do every day. You know, it’s very exciting for me to be able to do what I do.

J Darrin Gross 4:33

Awesome. Well, I appreciate you sharing and taking us back from your start there. I’m curious, you said your family’s in real estate. Are they in commercial real estate or what would

Houman Mahboubi 4:45

Commercial Real Estate. They’re commercial real estate mainly retail?

J Darrin Gross 4:50

Okay,

Houman Mahboubi 4:50

and that’s what I specialize in. So, I had the best teachers in the world, having you know, been in a family that specialize in the commercial real estate market.

J Darrin Gross 5:03

Yeah, no, that’s that’s awesome to have the firsthand multi generational commercial real estate experience. Was this something that that your your parents initiated? Or is it go back multiple generations?

Houman Mahboubi 5:18

No, my father and uncles when they immigrated here from Iran, they had some businesses here, but their main business was in Iran. They owned a chewing gum factory. But as things started to get a little tough before the revolution occurred in 1979, my father, my father’s brothers, two of them lived in America, going to school growing up, they decided they were going to stay here anyway. So in regards to, you know, having hedging our bags and having money in other places around the world, other than Iran, we decided to make a few investments here with my uncle’s, in the Los Angeles market, Beverly Hills market specifically. And that turned out to be one of the best decisions we made. Because the revolution occurred, and we didn’t get anything we had to run for our lives. So it was a true blessing that they were here. And we invested some monies in real estate, and it really grew from there. To what happened 2030 years later, 40 years later, I should say,

J Darrin Gross 6:30

I love the the immigrant story and and, you know, I love that you guys were able to come here and and he and literally said running for your lives. Come here and, you know, make it and thrive. In the real estate. They’re in Los Angeles, where your where your other family members that were already in the US for the down in Los Angeles.

Houman Mahboubi 6:56

Yes, they lived here in Bel Air and Beverly Hills. So that’s where we I basically grew up from a very young age share of around six. We were coming here every summer anyway for vacation because my grandmother, and my dad’s brothers lived here. So this was our vacation place anyway, every summer. But in the summer of 1978, unbeknownst to us, it became a permanent vacation. Right, we never went back due to the risk of what was happening and the revolution taking place.

J Darrin Gross 7:33

Well, that’s great. So you mentioned, you know, the the immigration stuff. And just, you know, one of the things that I kind of read and kind of be curious to get your, your sense of is, you know, a lot of real estate is her the success or the opportunity in real estate is predicated on growing population. And I know that, you know, in the in the headlines, the news of California losing population, and I think in the latest census, there’s even like a house representative that was lost. Are you seeing that in in the areas that you deal in? Is there anything that that speaks to you that that, you know, the LA basin is, is losing population?

Houman Mahboubi 8:24

That’s a great question. I can tell you that I’ve noticed in the past six months to a year, a lot of people have left, not just Los Angeles, but California as a whole and have moved to states like Texas and Florida, and the Midwest. For many reasons, you know, I’m not going to get political. That’s a very sensitive subject. But a lot of people have moved out now in terms of people investing in the Los Angeles market, there’s still a lot of demand for that. So people cannot live here, but one investor, which is very often that happens. But in terms of living, a lot of people have really moved out of Los Angeles and California as a whole

J Darrin Gross 9:13

Gotcha. And even with the the outward migration. With retail, specifically what you you focus on are you seeing are there a lot of vacancies or, or as

Houman Mahboubi 9:26

Things have gotten much better, much, much better now that COVID is more of an endemic rather than a pandemic, and become a part of life. It’s much different than what occurred two years ago, two years ago, no one knew what this was. No one knew the severity of this virus, and how dangerous it can be or cannot be. But as we progress with time and have seen what has happened, it’s not become part of everyone’s life. So instead of abstinence or, you know, not taking any action or activity in your daily life and Just being completely, you know, in a, let’s say, a tunnel of swords, people are now saying this is part of our life. And we have to live with it and transform as a result. And be caution, we will take caution everything that we do, but not let it in any way impede us from going on with our lives. And the continued growth that we have to make both individually and collectively. And as a result, you see that in the real estate arena, things have vastly improved on many fronts. And the economy with the exception of inflation has been doing fairly well.

J Darrin Gross 10:43

Right. No, I was kind of curious in you know, I’ve heard and I’ve talked to people all across the country I know that tell you to multifamily continues to be hot just based on housing demands. But no like the office and retail more a question of where are we going kind of thing is in like you you mentioned that now we’ve gone past quote pandemic to endemic it is what it is we’ve got to move on and and people are are accepting that you is far as in retail. Is there a particular segment of retail? I mean, is it strip mall? Big Box experience specialty? Is there any particular flavor? Or? Or? You

Houman Mahboubi 11:29

Well you know, it’s a great question you ask there, there are different answers to different areas or aspects of real estate, for example, the big box such as like grocery anchors or Home Depot’s of the world targets of the world. They’ve been doing very, very well. They were striving during the pandemic, actually. And they continue to be very much in demand for people who are looking to buy shopping centers or strip malls that have those anchor tenants because they know that they’re pandemic proof and really recession proof in many ways, because there’s our needs that one has. And whatever neighboring tenants that go hand in hand with that type of retail will also survive. For the most part, that’s not the kind of retail that I focus in. But that is something that’s very successful, and very much in demand. And as such, you’re not finding too much inventory in buying properties such as that, because there’s so much demand for it. But I would tell you that retail in general fashion, the ultra luxury market is definitely back. Or coming back to where it was pre COVID periods, specific markets like Beverly Hills and Rodeo Drive. That is really the epicenter of high street retail Los Angeles is at its highest point, there’s practically no vacancies on Rodeo Drive, but also affordable, affordable luxury, approachable luxury, mid range, luxury, these are things that are not ultra luxury, they’re also continuing to grow and strive and expand. One of the things that you’re going to be seeing more of his preventive medicine, that is functional things called Wellness, med spas. We’re in a world now that people are becoming much more conscious of their well being and wanting to have a healthy long life. And I understand that the best way to do that is to take preventive measures and not get to a place that you get sick and then you have to turn to conventional because once you go that route, your problems for the long run will probably continue. And preventive medicine is the way to go to have a healthy lifestyle to increase longevity based on how you think your consciousness which is first and foremost than how you live your life, what you put in your body, and also what you do outside of your body. How do you treat people? How do you live your life? What’s your stress level? How do you look at the world? You know? So it’s a number of things. It’s not one thing. But going back I don’t want to get off track. I get a little excited when it gets to metaphysics. But in terms of the commercial real estate world wellness is a huge, huge demand right now and a huge desire for not just consumers but merchants and people who really want to share that wisdom and insight and helping people have a healthy lifestyle. Because at the end of the day, no matter how much success you have, or health is everything you know,

J Darrin Gross 14:59

Amen to that. If you don’t have any, if you have all the money and no health, what’s the point?

Houman Mahboubi 15:04

Exactly. And restaurants is another key component of the commercial real estate world that is very much striving and is very much in demand. People love to go out and eat. And when you have good concepts and good restaurants, neighboring retailers want to be around that because they all feed off of each other, whether its destination retail, your traditional retail, but food and wellness are really the key points right now that are doing extremely, extremely well. And fashion in general is really making a comeback. I’m very excited to see what’s happening. The growth expansion and the demand and the demand for vacant, the vacancies are becoming less and less. In some areas, they’re getting back to the normal state, they were pre COVID. In other areas, they’re improving. And I think that this will be the year that things will really start to get back to pre pandemic states. And interest rates rising to really contain inflation, which is has been a problem or is becoming a problem will really balance things out and allow things to go smoothly for the most part.

J Darrin Gross 16:26

Yeah, I wanted to ask you, pre COVID versus now going forward, since we’ve kind of been working through the pandemic and all the the issues that that’s or the hurdles it’s created. Are you seeing any change of the use of space? For the retailers that you’re dealing with?

Houman Mahboubi 16:49

That’s a great question. So it’s funny, because you’re getting financial institution, real estate companies, various offices services, they’re now intrigued and having ground floor glad ground floor retail space. Rather than being an office buildings, they like the exposure, they want to have spaces that were typically used for retail, for service where people can walk in, they can see, you know, the window display, see what they’re offering. So that’s one of the things that has happened, that’s become more common. Another is you’re seeing more pop ups in terms of people saying, you know, something, pop ups usually, you know, was more defined as like a one month, three month or six month and then you’re gone. But the new way of pop up is, you know, businesses come in and say, You know what, I’m going to try this for one year, or maybe 18 months, and see how it goes. If it goes well, I’m gonna go into long term tenancy. So there have been shifts made. And again, wellness centers and rat one it’s not medical, but wellness, right, that wanted to be in buildings are now more interested in having ground floor retail space as well.

J Darrin Gross 18:07

No, that’s great. And in the the wellness arena, you mentioned kind of the the I mean, preventive issues. Are there any particular I mean, are they are they franchises or are they you know, sole practitioners that are opening these are Can you can you speak?

Houman Mahboubi 18:33

You know, they’re they’re basically, they’re not franchises yet, like foods, like foods and other QSR concepts or fashion is because it’s really in the infancy stage, if you want to call it a lot of people have not reached the franchise level, eventually it will like everything else does due to his popularity. But you know, when people can really work on meditative things, or physically speaking, have IVs and vitamins and go into specific equipment like dry saunas, or, you know, facial things, you know, different uses that involve, you know, knowing what foods you should eat, what foods you shouldn’t eat, having a balance of yourself as a whole. These are things that are being offered or you know, there’s something called I think stretch lab where you go in there and instead of having to go to the gym, you literally don’t have to go there you go in there and do stretching exercises for your body to relieve stress. There’s something called facial massage where you go in there. It’s not really a facial like your typical facial that you think about with needles and stuff when people go in there. They work on different things. areas of the face. So there’s so many things out there that are now available that involve the mind and body and the combination of the two coming together that are being offered. And of course, you have your traditional yoga and pilates and the combination of the two, somatic healing, there’s so many of these kinds of stuff out there, you’re going to see more and more of them being exposed and being introduced to the masses.

J Darrin Gross 20:32

You know, all of these are things that are more of like an experience, something you can’t necessarily do online to get the, the, you know, the experience, I mean, like, you can go online and click a, you know, an icon or a widget or a picture or whatever, and, and put in a quantity and put in your credit card and get something. But that’s not the experience of whether it be a retail shopping, or, like what you’re saying these, these medical or Med Spa experiences where you can go and actually, you know, experience that the, you know, have the experience,

Houman Mahboubi 21:11

Yeah, physically participate, which having services such as this available, will then help other retailers. You know, when you do that you go come and stop by and shop at this store, for example, I’m going to go look around and, you know, browse physically or, you know, go to different, you know, stores that offer different things, whether it’s shopping or services, or things that you would never typically do online. Now you’re doing good. By being out there. That’s why it is so important to have brick and mortar because you don’t want people to forget your brands, right? You want people to physically participate. Not only is it important for the companies, so people don’t forget them. But also, it’s very euphoric for a human being to be out there. And taking action and participating and gives makes them happy. You know?

J Darrin Gross 22:14

Yeah. So when you’re working with a landlord, to lease space, for a retail or medicine bar, or what have you, can you describe some of the of the things that the landlord looks for in a potential tenant?

Houman Mahboubi 22:36

Sure.

J Darrin Gross 22:36

to be a tenant?

Houman Mahboubi 22:37

So the concept, obviously, is very important, you know, especially if they have other real estate, they want to make sure that the type of tenant they bring can help the other neighboring tenants that they’re planning to bring. But even if they don’t have neighboring real estate, the most important thing is for a tenant to be strong financially and can Can, can fulfill their lease obligation, by having a strong guarantee, that’s very important, because you don’t want to bring a tenant into a space, and then have them default and not be able to fulfill their obligation. So who the guarantor is and how strong their financials are, is one of the key components to a landlord, really protecting themselves. And also ensuring that the tenant is doing their due diligence in knowing that they basically have a good idea if the business is going to succeed or not, because they’re not going to put their financial careers on the line or obligation on the line. And not, and not have a successful business. So it’s very important when a landlord knows that the tenant is all in and the tenant knows that, in order for them to get a space, they have to be on that take every measure possible to make sure that they’re doing the right thing. Or at least give it their best, you know, they’re committed at that point, it doesn’t mean you’re always going to be successful. But it’s the intention behind it. That that one has to have to make sure they’re making the right decision. But that’s the number one thing that a landlord looks for, is how strong are they financially? And How capable are they to meet the lease obligation?

J Darrin Gross 24:27

Got it. I’m curious with with the the COVID experience, are you seeing any of them look for any kind of an online presence that the potential tenant has? Or is that part of the, their their concept plan that they have to have so that people can find him in case there’s a new wave of COVID or something to where they can continue?

Houman Mahboubi 24:50

So I think everyone these days, who has a physical presence also has an online presence. It now goes hand in hand. But you’re absolutely correct. It didn’t used to be like that at all right? It didn’t use like that it was an afterthought. But I think Amazon really changed that world. And that’s why you see now every retailer, in addition to having brick and mortar also has an online presence as well, it’s almost a must. Yeah, not really, because it will really secure your business. So things like pandemics to happen, you can still have your business up and running. And people can still be able to make purchases from you or use your services.

J Darrin Gross 25:36

Right, right now, it’s interesting, just how reliant we are now even just make an appointment and I used to be a kid, just go wait for a haircut. Now you got to make an appointment to pick an haircut or, you know, however that may be.

Houman Mahboubi 25:48

Thats right. Even if you want to go shopping, there’s lions outside of doors, because they only around a certain number of people in our store. Right? Right. People are being very cautious. And it’s getting better and better. But you still see lines outside to get in into retail stores. Which who would have ever thought about that? Ever thought about that? A few years back? It was inconceivable.

J Darrin Gross 26:10

Right? Right? What about, you know, one of the things that you’re blessed with in Southern California is just a sunshine and warm weather? Do you find that that is lend itself to more opportunities, given kind of the nature of what we’ve learned about the pandemic, and fresh air and all that I mean.

Houman Mahboubi 26:34

Most definitely, because people love to be outdoors. People love the experience. And when the weather is nice and sunny, like it is here, it inspires you to get out there more and you want to get out there more, you’re happier, you’re more motivated. So that does in fact help tremendously. cities that have the kind of weather that Los Angeles has really lends itself to a bigger opportunity in these businesses succeeding.

J Darrin Gross 27:05

And with that, I guess, I’m kind of curious on the space, if people been configuring the space any differently so that they can I guess open, make it more, you know, airy, more open, or

Houman Mahboubi 27:20

Yeah, especially when it comes to food. That is one of the things that’s has changed dramatically, or drastically where they have an indoor outdoor, the windows open up, there’s a lot more outdoor seating or patio seating. That’s a must now for a lot of these restaurants. So things have changed, not retail, not as much because there’s only so much outdoor, you really can’t outdoor for retail. But you know, you can have for people coming in and walking around. But in terms of your inventory, it’s you have to be careful about that. But more so in restaurants and physical activity to kind of stuff. You’re gonna see more of that layout changing, it is changing, it has changed.

J Darrin Gross 28:07

Got it? I’m curious, you know, you mentioned that the kind of the real estate, the markets strong, or mean, it’s improving? Is it primarily just a matter of that people are resigned to this as what we’re dealing with? Or can you point to any other things is, I mean, talking about the economy, you know, quote unquote, is good. And it sounds like a lot of the things you’re you’re or we’ve talked about are more like a luxury brand. Are they less sensitive to economic dips? Or? Or how do you? Can you speak to that at all?

Houman Mahboubi 28:45

Yes, so I’m, I’m I apologize. I’m trying to better understand the question.

J Darrin Gross 28:49

Well, I just, I guess it was a poor poorly worded question. But But I was thinking about just on on more of the how the the vacancies are decreasing. Is that do you feel like most of that is is driven based on just people are resigned to what is and? And these people are? are moving around again? Or is also yeah, there’s nothing else that feeds into that with like interest rates? Or? No, no,

Houman Mahboubi 29:18

I just think that everyone is really I tell you what the what the pandemic did, it made people really appreciate what they had, and how simple things were and how liberating everything was in the freedom that they had. So I think it has given them so much more gratitude and appreciation and not take things for granted. And as a result, you’re seeing more opportunity out there people wanting to be more active people wanting to take action if they were either way as hesitant, or were less risk averse. Now they’re saying you know something? Life is about living life is about you know, we control so little we think we control so much but the truth is we can so little. But what we can do is take action, you know, and then let the universe play things out and do what it has to do. And in doing that, a lot of people are now more active, you know, they are going out there leasing spaces, starting new businesses. And you know, the old saying, If you build it calm, if you don’t build a normal ever know what you are going to do anyway, you can have all the talent in the world. But if you don’t really put it out there, you’ll never be discovered in any way. But it’s our job as human beings. Regardless of what the result is, or what we’re putting in our minds, to really have more faith and sooner something, I believe in myself, I believe in my business, I’m going to do my part, and let the rest unfold naturally and organically. But I’m going to give it my all, I’m going to give everything I have.

J Darrin Gross 31:00

Well, it’s great. If we could, I’d like to shift gears here for a second. By day, I’m an insurance broker, and work with my clients to assess risk and determine what to do with the risk. And there’s a few strategies we typically consider when we’re we’re trying to assess the risk, first look to see if there’s a way we can avoid the risk. If that’s not an option, then we look to see if there’s a way we can minimize the risk. And when we can either avoid or minimize the risk, then we look to see if we can transfer the risk. And that’s what an insurance policy is. It’s a risk transfer vehicle. And as such, I like to ask my guests, if they can look at their own situation could be their clients, investors, tenants, the market, the economy, municipalities, however you choose to frame the situation, and identify what you consider to be the biggest risk. And for clarification, while I am an insurance broker, I’m not necessarily looking for an insurance related answer. And so if you’re willing, I’d like to ask you Houman Mahboubi, what is the biggest risk?

Houman Mahboubi 32:15

I think that biggest, biggest risk is to take on more than you think you can handle? You know, because you don’t want to put self inflicted pressure on yourself. There already is daily pressure on the work that you do. I call it good cholesterol versus bad cholesterol, right? So stick to the good cholesterol take on as much as you can handle. Understand, what is the worst case scenario? If your business does fail, you know, are you going to be homeless? Are you going to be fractured and level that you can’t function anymore. So as much as it’s important to be all in and take every effort or measure to be successful in your endeavor, just make sure that if for whatever reason, like the pandemic Thomas, we think we can troll so much. But on a, you know, molecular level, we’re all the same, and we’re all equal. And when it comes to things like that we’re all you know, one, believe it or not, just know that any endeavor you pursue makes, make sure that if it doesn’t go well, you’ll still be okay, you know that it’s not going to any way change your life for the worse. So don’t take on more than you can handle and try to be a hero or let your ego get in the way to say I’m here to do what I meant to do whatever my capacity is, and I will let the universe guide me in that unfolding and for me to do what I need to do. But that’s a very good question. Because the risk factor, you don’t want it to completely turn your life around where you can function anymore. And I think that goes for investments as well, you know, don’t be over leveraged, how much debt are you taking on? You know, what if the picture looks incredibly clear, and there’s no way there’s maybe one in a million chance that, you know, this thing’s gonna fail, but that one in a million, it’s one of the decks in the card, one of the cards in the deck that can account make it happen like someone winning a lottery. So don’t ever be overleveraged don’t ever be a pessimist be an optimist, but just know that if all else fails, are you going to be okay, tomorrow? Are things going to be fine? And if the answer is an implicit Yes, then you know you’re on the right track. If it isn’t, and you are going to cause damage to yourself and the loved ones, then most definitely, it’s not a smart risk to take on.

J Darrin Gross 34:45

Well, that’s great. Houman, where can listeners go if they’d like to learn more connect with you?

Houman Mahboubi 34:52

Houmanmahboubi.com.

J Darrin Gross 34:55

All right, we’ll put that in the show notes. Houman I can’t say thanks enough. for taking the time to talk today, I have thoroughly enjoyed it. I’ve learned a lot, and I look forward to doing it again soon.

Houman Mahboubi 35:07

And thank you very much. I can’t say how grateful and appreciative I am to have been a guest on your show, and to share my knowledge. And thank you very much for having me today.

J Darrin Gross 35:21

Now you’re quite welcome. And thank you. 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 35:43

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.

Think & Grow Rich – the $5 Million, 12 minute a day “SECRET” with John Mitchell – CRE PN #340

John Mitchell 0:00

Well, he’s a he’s a he’s arguably the top expert in the world on success. And so I, I figure out a way to get to him and I spend three days with him in and I show him what I created. And I show him my template, my 12 minute a day technique. And he looks at and goes, John, this is good. And he looks at it closer and goes, hmm, this is really good. But he says, you know, people aren’t going to spend 12 minutes a day on this. And I’m like, Darrin, how the heck can that be? It caused my income to go up by 25 times. Time Magazine did a cover story on the science behind it. And we’re applying the central concept of the top book of the world on success I have, how are people not going to spend 12 friggin minutes a day on this. And he sort of laughs and he goes, John, you’re new to the success and human achievement field. He says, The dirty little secret is that most people won’t do anything to impact their success and achievement in life. And he says, you only need to go find driven people because you need to find people where more success higher level of success is an absolute necessity, not merely a preference because if it’s just a preference, they just won’t do it.

Announcer 1:23

J Darrin Gross 1:43

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 John Michell. John is a serial entrepreneur, and has created the top application in the world for the top book in the world, on success, Think and Grow Rich. And in just a minute, we’re going to speak with John about how you can apply the science of success to leverage yourself.

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, John, welcome to CRE PN Radio.

John Mitchell 3:01

Darrin Thank you glad to be here.

J Darrin Gross 3:04

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

John Mitchell 3:14

Well, basically when I turned 50, I just wasn’t as successful as I thought I should be. And I’d Yeah, I started out as a CPA, became a entrepreneur when I was 30 actually in the real estate development business. And then over the next 20 years was in like six or seven businesses. And but when I turned 50, I just wasn’t as successful as I thought I should be. And I had two goals my life. One was to make enough money, so I didn’t have to work so I can have freedom. And the other was to find the woman of my dreams. And so at 50 I was falling short on both, and on the money, you know, I always did okay, you know, I made a couple 100 grand a year. But never close to netting seven figures a year. And you know, when I turned 50 Darrin, I just did the math. I’m like I can’t have the exceptional life unless I net seven figures a year. As materialistic as that sounds. That was what I realized and and really is all about getting freedom.

And then on the girl at 50 I’d never been married. Although I gotta say I did a lot of interviewing. My friends may call it baking, but I like to call it interviewing. And, and but at 50 I’m like, why am I going to change this 20 year history of low six figures a year. And so I contemplate that and probably three months after I turned 50 a pearl of wisdoms comes to me one night, find the top book in the world on success and apply that book literally word for word to my life. So like pretty good idea. So I’m, I immediately go to my computer start doing the research. And I find out that there’s one book that’s been read by 100 million people. And the next best selling book on success has been read by less than 10 million people. And that book is Think and Grow Rich. I assume you probably read it, right?

J Darrin Gross 5:16

Yeah, in fact, it’s funny, knowning, we were going to talk and I pulled out my my weathered copy there and realized it is a really good book. And I need to get back into it there. So,

John Mitchell 5:27

Right, well, so So you know, I’m like, well, here we go, this is exactly what I’m looking for. And so I like a heat seeking missile, I go to the bookstore the next day and buy the book and immerse myself in the book. And Darrin then I see the problem. In the book, he says, there’s a right at the store, and he says, there’s a secret for success. But I’m only going to give you half of the secret, you know, he’s saying that it’s on the reader to figure out the other half. Well, I’m like, I’m disappointed. And I need the full secret. And, and I and I mope around for probably three weeks. And then one day, I just get up and go, come on, just man up and figure out the full secret. And so over the next two months, I go back and reread the book, just immerse myself in the book. And what emerges is I figure out the full secret and a 12 minute a day technique to apply it. And quickly, my income starts dabbling in a new business, I was starting in the reverse mortgage business. And to the point where like, four years later, I was netting $5 million a year, which was, you know, 25 times more than I’d ever made before. And, of course, Darrin, I felt so blessed and and what was really cool is, I could see why was happening, I was just playing the game of being an entrepreneur at a much higher level than I ever had before. I mean, it worked. Because I was focused only on what moves the needle, I tripled my discipline. So I could do the key habits I couldn’t do before. And I had just new ideas coming into my head consistently every week. And, you know, I just became fascinated by the fact that you could take two key scientific principles and apply them to your life, and so materially impact your success. And so, you know, to wrap this up, I decided I wanted to share this with World night. So I sold my company, and probably a couple months after I sold the company, I met the former Chancellor and President at the University of Texas. And he says, Hey, you got to teach this at University of Texas, and why don’t we teach it together. And so that’s what I do. That’s my sideline, you know, really, the joy of my life today is, is taking this 12 minute a technique in teaching it to driven entrepreneurs. And I do this with my great partner, Kelly Hatfield, and our sole goal is to take him to netting seven figures a year.

J Darrin Gross 8:11

No, I love it. I love it. I love the fact we’re talking about this here at the beginning of the year to.

John Mitchell 8:16

Right.

J Darrin Gross 8:16

It seems appropriate. You know, people are often setting goals or, you know, trying to do more than than they did last year. And, and, you know, a lot a lot of energy in the first week, and then, you know, a little less than the second week, and then about the fourth week, it’s back down to where it was at the end of last year. So I’m curious, and I this is this is really, I mean, you’ve got at least an audience of one that is really, you know, dialed into what you’re saying. And I’m curious, you said, you know, three things kind of focus, discipline and ideas. And I get the focus part, and I get the discipline part. And the ideas thing, to me almost sounds like more distractions that would keep me from, you know, yeah, doing that. So I’d love to hear more about, you know, how, how it is that you, you know, because obviously, you were successful before this, right, but but really dialing

John Mitchell 9:18

Relatively.

J Darrin Gross 9:19

Well. But I mean, you know, across the spectrum of, you know, income earners and and in the US, you go back 10 years and a couple $100,000 You’re not slumming.

John Mitchell 9:32

Right

J Darrin Gross 9:33

at that point,

John Mitchell 9:34

Right.

J Darrin Gross 9:34

But But clearly, you recognize there was more in the tank and you had more, you could do much more as opposed to just be content with with a couple $100,000. So, I would love to hear you kind of you know, dial in and share with listeners kind of more as how you know what, what was it that that you really, you know, that propelled you?

John Mitchell 10:00

Well, let me let me give you a little more, I guess, foundation to Think and Grow Rich, because that’ll that’ll explain it a little better, I think, you know, Think and Grow Rich talks about applying the science of the human mind to leverage yourself, which is, you know, on on servers, pretty interesting. And it’s, it’s based on one central idea that 95% of your daily actions are unconscious. And, you know, I know in this world, we live in Darrin, that we hear facts and figures, and you don’t know necessarily what to believe. But, you know, learning that 95% of my daily actions are unconscious was probably the most profound thing I ever learned. Because once I got that, I saw that I have a higher level of success than I was currently having. I had to influence those unconscious daily actions. I mean, it’s pure math, right? And and you do that by proactively influencing the subconscious mind. And that’s that as we get into this, you’ll see where those ideas were coming from. When you when you proactively influence the subconscious mind, ideas come into your head that that are coming in now. That does that make sense?

J Darrin Gross 11:21

No, totally, totally. So you read the book, you uncover the I mean, that that’s pretty powerful, right there that 95% of your, your day is spent unconscious. I mean, it’s

John Mitchell 11:37

Right.

J Darrin Gross 11:37

Pretty, pretty scary to think of it that it’s that high. I was hoping for under 90, but, you know, upon reflection 95 is probably right. All right.

John Mitchell 11:47

What but you, but you know what, I’m glad that you you caught that, like you did, because when I work with clients, I make them Google it. You know, it’s interesting, if you Google, what percentage of my daily actions are unconscious, in big dark letters, it’ll say 95%. And, and, you know, as somebody gets sad, then all the rest of my stuff. They’re like, Oh, wow, okay, here we go. But if they don’t get that, it’s all, you know, just clutter. And so I like that you’ve really got that?

J Darrin Gross 12:22

Well, in it, I think even in this age, with the internet, and all of the social media platforms, whether you are a observer or you’re creating content, I mean, there’s just, I mean, it’s just amazing, we’re able to get anything done. Sometimes when I realized that just all of the messaging that comes at us, you know, tenfold, all day, every day, and everybody’s got some sort of an agenda with that trying to distract you from from what you’re trying to get done. And so, you know, I’m, I get it.

John Mitchell 12:59

Well, and let me let me dig into that just a little deeper. And you’ll, you’ll appreciate how, how this really works, you know, we all have a fundamental problem we have to overcome. And that problem is that we’re fundamentally wired for survival, not for success, but we’re, we’re wired for survival. And again, 95% of your daily actions are unconscious. And so what that really means is, when you open your eyes each morning, you’re on autopilot most of the day, and you’re innately wired to be fear, based, reactive, and negative. Well, that’s exactly the opposite of how you need to be if you want to be productive, creative and happy. And so the only way to override that, that innate programming is to overlay a better programming, that’s, that’s programming you for, for success and efficiency and focus. And, and that’s what this 12 minute they technique does.

J Darrin Gross 14:05

So, you said the, you know, the fact we’re kind of wired for survival. I mean, I get that from, you know, just a prehistoric, kind of a, just a reference point of like, if you’re, you know, fearful you might be eaten or, or, you know, whatever, you’ve got to somehow you know, survive the day. How, how is it that I mean, is that is that basically that’s where the unconscious lies is just that, that that fear base to them, we’re just that’s where we’re stuck.

John Mitchell 14:41

Right. I mean, you sort of hit on it, Darrin, you know, innately, you’re going to be geared to being reactive and fear based, unless you do something that over override sad and that’s why when people are going about their day oftentimes hear, they’re basically feared based and they’re reactive, they’re not focused on what moves the needle there that you know, when they’re not operator writing from confidence. And that’s all because they’re innately wired for survival, which, which worked great, you know, millennias a go, but not so good in today’s world. And, and so that’s the power of, of what I’m going to share with your audience today.

J Darrin Gross 15:28

So with that, that fear base, though, if there are others out there that know that you’re geared for fear, and they amplify the fear, so that you hear reception, I mean, you’re receptive to the fear, is that kind of also, like, you know, force you’re fighting against or that’s against you, on a daily man, because I was just thinking about, you know, most of the most of the messaging is not happy joy and free, it’s about to scare the crap out of you kind of thing, or keep you in a, in a fear based place?

John Mitchell 16:02

You know, dare? That’s a good question. And really, it’s, it’s, it’s, you know, when you learn how to use this technique to focus, you become focused only on what moves the needle, and all these distractions, all these fear, things just fall by the wayside, you’re not, you’re not even entertaining them, they can’t even get in your your head. And, you know, let me explain a little of the basic science of this, which I think you’ll find interesting. You know, here’s how the human mind works. The conscious mind sets your intention, and is influenced by logic. But the subconscious mind controls your everyday actions. And it’s only influenced by repetition. And, and these is widened, sort of give you an example is, is the idea of losing weight. Let’s say you want to lose weight, well, the conscious mind sets the intention to lose weight. But the reality is people aren’t, aren’t losing weight, because of lack of intention is from lack of influencing their daily actions, which is their exercising and eating. And so once you sort of understand that, and again, the part of the brain that is that is controlling your daily actions is only influenced by repetition. He didn’t care about logic at all, in fact, that that part of your brain is a more primitive part of yourself, that that, that repetition, that’s why the repetition influences it. And so that’s why this 12 minute a technique, it gives that subconscious brain, the repetition, it needs to influence their daily actions. Does that make sense?

J Darrin Gross 17:51

Yeah, no, I get it, I get it. Because I just said, as you were saying, I’m kind of thinking about some of the things that, that I default to that are like, Why am I doing this? Right? You know, what,

John Mitchell 18:04

but go? Well, one thing I was gonna say, you know, this is only for driven people. If you’re not driving this in for you, and, and maybe the best way to explain that is, a few years ago, probably three or four years ago, I decided, if I’m going to share this with the world, I’m going to go find the top expert in the world on success. Darren Hardy. You know who Darren Hardy is?

J Darrin Gross 18:33

I’ve heard of him. I don’t know that I’m 100% familiar with his, is a

John Mitchell 18:38

J Darrin Gross 20:08

No, absolutely, as opposed to the masses that you would think would be your target audience or that anybody in the audience, but just to really focus and recognize who it is that that’s looking for that message.

John Mitchell 20:23

Right?

J Darrin Gross 20:23

Or looking for help.

John Mitchell 20:25

Right.

J Darrin Gross 20:26

And it is, it is interesting, because I think that while you know, the masses are suffering from somebody’s lack of, let’s say that they’re lacking in one something, you know, it’s more in the form of a pill, or if I can buy something that, you know, an app or, or a gizmo or whatever, from Amazon that I can, you know, run my life better, as opposed to the work. And in this case, you’re saying 12 minutes a day. I would love to hear if you can share, you know, something of what, what occurs in those 12 minutes,

John Mitchell 21:09

Okay, perfect. Well, here’s how it works. This, this really gets into the meat of this. So the, when you read, Think and Grow Rich, the half of the secret that he gives you is that everything starts with a thought. And so when I read that, I’m like, Okay, I buy that, but But where do I go with that. And from that, from, you know, really immersing myself in in the book, what I realized was the real, full secret of Think and Grow Rich, is what you envision in detail on a daily basis is what shows up in your life. Let me say that, again, what you envision in detail on a daily basis is why it shows up in your life.

Well, what that really means is, when you take your life and you step back, and you create immense clarity, you’re you’re defining, here’s exactly the person I want to be, here’s exactly what I want to accomplish. And here’s precisely how I’m going to achieve my clearly defined goals when you create all that clarity, which is the hard part. And then you feed that clarity to yourself 12 minutes a day, after about 21 days, the subconscious mind starts accepting the the programming, and it still starts showing up in your thoughts and actions automatically, without thinking that’s really the magic. Before 21 days, it rejects it, but it and more or less the 21 day point, it accepts it. And then it starts impacting your daily actions and those enhanced improved daily actions creates the life you dream of and you want I mean, it’s powerfully simple.

J Darrin Gross 22:58

Okay, couple things I get there. I mean, it’s like, you know, the, the messaging to yourself. And you know, it’s like, if you are playing golf, and you say don’t hit it in the water, don’t hit the water don’t in the water.

John Mitchell 23:10

Right, right,

J Darrin Gross 23:10

Basically said hit it in the water hitting the water hitting the water, and yeah, and boom, you’re in the water. Right. So I get that the the clarity piece, and also, I guess that it’s the right message. Right to it, as opposed to just a message. And I’m curious, the clarity piece to me seems to be the first most important thing, because if you don’t have that clarity, in your messaging yourself, something that’s not spot on, and then you’re wondering why you didn’t get there. Right. So how do you make certain because I mean, it seems to me with that, because I get the they also kind of the the repetition of the messaging in, you know, getting to your subconscious. And, and also, is this kind of like NLP or I mean, there’s

John Mitchell 24:08

Yes, there’s NLP involved in it. Yes, absolutely.

J Darrin Gross 24:12

That, that just the power of the subconscious and how you can rewire your brain essentially to, to, you know, not default to your your prior actions. But I mean, it sounds to me that the repetition, 21 days, I know it’s like exercise to if you feel do something for 21 days, you create a habit, right? So like, that all makes sense to me. So how do you work with people or, you know, clarity and goals and all that because I think also the other piece of this I was going to ask us is you mentioned two things when we first started, you wanted to be financially independent in our family, financially free And he also wanted to find, you know, the woman of your dreams, right? I think sometimes, and I know, in my own experience, when I really set a goal, it almost feels like that the two are mutually exclusive meaning, right, so focus on the one, I can’t, I don’t have time for the other. So I’d love to hear right a little bit on on those two things on the clarity and, and how you share that with the rest of your life.

John Mitchell 25:26

Right. Well basically, as as I have a template that basically breaks your life down into the five major categories, yourself, your health, your romantic relationship, your spirituality, and your career. And so, on the front of the template, you’re feeding sort of the ideal you in each of those areas of your life. And on the back, you’re, you’re you’re feeding the improvements in each area. And and you’re essentially living your life quarter by quarter. So each, each quarter, you’ll have a new goal for your career, a new goal for your romantic relationship, a new goal for your health, and, and you’re defining what that goal is the why behind the goal, and the three or four key behaviors associated with the goal, and the timeframe and measurement. And, and, and on the bottom of our templates, you you sort of measure your performance on that, but so you and so, you know, you’re you’re impacting all phases of your life, I mean, of course, this, this had such a dramatic impact on my income. That’s that’s what most people at least come to me for. But I see that the the biggest impact for me, I mean, the money was great, but but finding a great partner to share my life with and then being hopefully a great partner is way more important than the money and same with, you know, having the discipline for for my health and so that that sort of how it works.

J Darrin Gross 27:08

I like the fact that you’ve identified the five areas, because I know, in the past when I’ve had a goal, production goal or some sort of a financial goal, and I worked really hard to, you know, get to it. And at the end, I feel like Ah, now I can breathe, you know, and, and, and what happens is that I basically let go of what got me there and slide, you know, backslide not realizing I’ve got to continue, you know, or I didn’t learn what I should learn in that to make it right, simpler or to propel it. I just, I had a, you know, dollar amount. And I got there and I was done, like, you know, and exhausted. And I also tell me a little bit about the importance of the quarter the 90 day timeframe, because I think that’s something that that I’ve heard and I I haven’t necessarily in the times past that I’ve been really goal focused, I was kind of more like an annual number I might have, I might break it down into months. But I’m curious if you can share, you know, what, what’s the what’s the thinking? What’s the importance of the 90 day time frame?

John Mitchell 28:26

Well, I just think 90 days is is way more manageable? You know, I mean, if you focus on making every quarter great, your year is going to be great. Right? And I think that’s the the logic of it.

J Darrin Gross 28:41

I get it, I get it.

John Mitchell 28:43

And you know, one one thing that I might we might take this a little deeper because one of the things that that I have seen is it so often people ask me today they go so really, if all it took was 12 minutes a day and your income goes up by 25 times to mid seven figures a year. Well, let me explain this a little deeper and, and I’ll be vulnerable about sort of what I experienced. So when I was in my 30s and 40s I’m making, you know, low six figures a year. If you asked me to write myself as an entrepreneur, I probably would write it myself and eight, but when I got into my early 50s and was on the other side of betting seven figures a year. I’m like, Whoa, I wasn’t an eight I was a three or four but I didn’t know what I didn’t know and I it reminds me of that great Bill Parcells quote, you are what your record says you are. Well, my record was telling me I was a net six figures a year guy. And and I confused being competent as an entrepreneur with really working hard. You know, I worked harder to All my friends, and therefore I thought that I was an eight. But when I saw what really affected competence as an entrepreneur, I’m like, Whoa, I am a three or four. And, and, you know, as I started to dig into that, and I saw that competence as an entrepreneur comes down to your daily habits, and your your daily mindset. And I saw, I start looking at my life in my 30s and 40s. And I, I see that, that disconnect between working so hard and not getting the big results, and I had this innate feeling that I was playing it, maybe 20% of my potential, couldn’t put my finger on finger on why that was because I was working so hard, but I had that sense. And, and now in working with clients, so many of them say that and, and, you know, I had that feeling that why am I not further along with my life. And that’s sort of where finding a wife came in.

And one of the things I didn’t sort of share in my story before, was when I turned 50, my mom was dying of pancreatic cancer. And I was living in Dallas at the time, and I remember going to the hospital after work every day to see her, and then going into the parking lot and just crying my eyes out. Because I knew she didn’t have long for this world. And it made me really dig into my life. And, and I, I saw that my mom and dad gave me such an advantage in life. They sent me to like Jesuit High School in Dallas, and they, they did everything they could for me. But all I was doing with my life was was creating an average life. And I gotta tell you, I hated the average life because I, I knew I was so much I could do so much better. And you know that, that. That I think that that feeling I had about my life, which was accentuated by what, what I was seeing with my mom, and she was passing, that gave me the incentive to really dig in and figure out how to play the game of life at a higher level. And one of the things I’m sort of proud of that that happened is, once I crossed over to netting seven figures a year, like I said, I felt so blessed that I thought how can I pay this back and I, I created a foundation to help single moms, because, you know, I saw single moms have a unique place in this world. And, and, you know, I felt so blessed. That’s how initially I started giving back and today it’s it’s it’s with that but also with helping fellow entrepreneurs play this game of being an entrepreneur at a higher level.

J Darrin Gross 33:06

No, that’s great. I really appreciate you sharing that. You know, there is that realization as you age that there is an exit, right? That none of us really get to plan, but trying to really focus one’s life and make it meaningful, as opposed to just living in it. I’m sure your your thoughts are just, it is kind of a weird thing when you get to that point, as opposed to just going through the motions.

John Mitchell 33:36

Right. Well, and, you know, back to sort of what I was saying, though, about being competent as an entrepreneur, you know, I don’t think I think most people don’t really step back and evaluate it. And I saw like, as I work with clients, I call what I do mentoring plus methodology, because upping their game as an entrepreneur comes down to impacting their daily habits and impacting their mindset, and the the mentoring affects the habits, the methodology affects the the mindset and what I really mean by that give me an example of three habits that that I install on every client and there’s usually more than that, but the three that I always see is the first one is so many entrepreneurs are working in their business, that they’re not working on their business and one of the things I learned to do is how to just step back from my life and really think that just think and do it two times a week and this is not regular thinking is deep thinking and you know the top people in the world do this Elon Musk, Bill Gates and and so I started this channel practice.

And, and, you know, quick story of one of the things that came out of this. So I, as I mentioned, I was in the reverse mortgage business and, and so I start this practice of deep thinking twice a week. And it comes to me, I had to be in the title business because every reverse mortgage requires a title company. So I’m like, Yeah, that makes all the sense in the world. Well, that one idea ended up probably putting $6 million in my pocket from from having that, that, that habit of just thinking two times a week. And another another habit is, so often entrepreneurs think they’re growing, but they’re not really growing. And, and boy, I suffer from this, because in my 30s, and 40s, I’m like, you know, I’m too, I’m too busy to grow. I’m, well, big, big mistake. And, and in my 50s, early 50s, I figured out a system for personal growth. And so, in working with clients, I just give them this system where they’ve got the wisdom of experts coming into their head every week. And, and so often, my team, when I implemented this in my life, that go boy, it’s a new idea week where, where you get these ideas, and but a, they weren’t my ideas, they were really the the ideas of experts. But that was transformative from a habit standpoint. And then the third habit is always marketing, you know, the marketing. And the entrepreneur themselves are the two biggest factors in any business. And, and I see that so often. Entrepreneurs don’t properly measure their marketing, and therefore they can’t innovate. The marketing. And so that’s the those three habits, along with a few others are the mentoring habits that I I install and somebody and and that’s sort of how it works on the on the habits side. That makes sense?

J Darrin Gross 37:20

Oh, absolutely. No, I get it. And I appreciate sharing that the working, you know, just the the first one taking time to think. Right, you know, on on your business as opposed to in your business. Right. That right there, I think is one that, you know, just taking that just taking the time and, and knowing how to think I think exactly, you know, well,

John Mitchell 37:46

and I’m going to teach your here as we wrap this up in a minute, I’m going to teach you exactly how to do this, because because that’s sort of the entry point for for proactively influencing the subconscious mind. But But I’m glad you picked up on that.

J Darrin Gross 38:02

Yeah, because I think that’s that is the, you know, too, too often, it is so easy to be focused on the problem that’s immediate, that has a solution in an easiest solution, perhaps. But still, it’s it’s kind of the focus, as opposed to the more of the global kind of step guide. I get I get it, I get it again.

John Mitchell 38:23

Well, and here’s here’s the other side of that. So you know, we got to fix the habits. The other thing we have to fix is that daily mindset? Well, that’s really the two parts to that, first, you got to focus only on what moves the needle. I mean, you know, you can’t be distracted you got you got to first have the clarity of what moves the needle and then focus on it. And then the second thing is you have to operate from a position of confidence, which is not how most entrepreneurs operate there, again, sort of operating from the standpoint of fear and uncertainty. And the way we fix that is, is in what they’re feeding themselves 12 minutes a day, they’re going to feed themselves. Here’s what my business looks like, three years from now, here’s and this took me seven things. What the four or five milestones are to get there. There’s the sync business plan, their strategy for success, the two or three things that move the needle, the linchpin issue to go to the next level. And finally, an articulation of their simple mission statement and their top three values. Well, you can imagine if you’re feeding all that to yourself every day, what’s going to come forth is confidence. And you’re going to have this immense sense of control over your life. And that may be the most valuable thing is a sense of control that you have because that’s what we all ultimately won. But when you have control, you have confidence and you It’s 1000 times better way to operate than the way most most people operate today. Does that? Does that make sense?

J Darrin Gross 40:09

Oh, no, you got me. I mean, you know, confidence over fear Yeah. World of Difference.

John Mitchell 40:16

And, you know, I tell you, I have people that go, Well, this, this won’t work on me. I’m like, wait a minute, this is pure science that works on every one. But that doesn’t mean it’s for everyone. And what I mean by that is, this is, this is hard, I’m not going to kid you, creating the clarity is hard. Of course, I’m helping along with my partner, Kelly, we help our clients do that. But it’s still hard. And, and as we sort of work with clients, our goal is to always double the income they’ve made the prior year. And if we don’t think we can do that, we won’t even take them as a client. And, and, and, you know, but we, in working with people, we’ve got to see that they really are driven, and then they, they really will put in the work to create the clarity, because the 12 minutes a day is the easy part. And, and, you know, we even give people a money back guarantee, which which makes makes us make sure we’re selecting the right people. But that’s really why it works, I believe.

J Darrin Gross 41:33

It’s great. And I appreciate you kind of diving, diving down into that a little bit. And, and, you know, sharing some of the, the fundamentals. Here, John, 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 their risk. And there’s three strategies we typically look at, 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 a way we can minimize the risk. And when that’s not an option, then we look to see if we can transfer the risk. And that’s what an insurance policy is a risk transfer vehicle. And as such, I like to ask my guests, if they can look at their own situation, could be their clients, investors, tenant tenants, the news the world or you know, however, however, you would like to frame the question, and identify what you consider to be the biggest risk. And again, for clarification, while I am an insurance broker, I’m not necessarily looking for an insurance related answer. Right. So if you’re willing, I’d like to ask you, John Mitchell, what is the BIGGEST RISK?

John Mitchell 42:53

You know, I think the biggest risk is, is not taking control of your life and letting life go wherever is gonna go rather than you directing your life. And, and I see that when I turned 50. And of course, is that pressure and what was going on with my mom, I realized, man, I got to step up and make this thing when I’m want it to be, I can’t say yeah, I was too often in my 30s and 40s, I would push off well, you know, I’m, I’m gonna be really successful, just down the road a little bit. And, and when down the road, a little bit never came. I’m like, Whoa, I gotta I gotta step up here. And so I think that, that the risk is, is that you end up taking this precious life and not making the most out of it.

J Darrin Gross 43:47

Yeah, no, I like it. I take control.

John Mitchell 43:51

Right. You know, why don’t why don’t we share with with your your clients, what we were talking about with this, this idea of setting aside time to think because because that something really practical, I think that would be valuable that they could get from this. Is that you get with that? Yeah. Okay. Yeah. So, so again, here’s the idea, you’re going to set aside time to just think two times a week. And so the first thing is you decide when you’re going to do it, like I do it on on Wednesdays, Wednesday mornings and Sunday mornings, then you figure out where you’re going to do it. Okay, if your favorite place in your house or in nature, and then here’s how it actually works. And a sinking session will be about 30 minutes and you have your thinking tablet, which is basically a nice leather binder with blank sheets of paper in it. And, and there’s three parts to it once you once you start the thinking and again, the thing he says just take about 30 minutes. First part is just just taking whatever’s coming just from Whatever comes into your head in the first 10 minutes, just scribble out whatever that is. Then the second part, after you’ve sort of gotten all what’s, what’s easily coming out, figure out a question to ask yourself, because when you ask yourself a question, it changes the dynamics of what’s going on in your brain. And so you figure out the question, and you always started with, how might I this? Or how might I that, and my friend, Keith Cunningham taught me this. And, and, and it’s powerful that that you ask yourself that question, and watch what comes up. And then at the end of your thinking session, you draw a line, or the last thing you wrote, you write your two or three takeaways, and then your two or three action steps, and then you take those action steps, and put them on next week’s to do so you’re connecting your thinking to your, to your actions. And, and the reason this works is because when you get your week, going every, every week, you have a lot coming at you, you know, you’re talking to people, you’re learning things, but in the moment, you don’t necessarily understand the significance of it. But you gave your subconscious mind a couple of days to just process it and give it a venue for outputting. Some of this input, boy, it is such a game changer. And does that make sense?

J Darrin Gross 46:36

Oh, yeah, no, I get it. The thinking how can I love that? That question there, you know, to, to ask, How can I as opposed to just all the right, the problem is going to help them.

Unknown Speaker 46:49

And I’ll give you an example. In the real estate business, I have a client up in Portland. And he’s, he’s in the storage facility, business, sharp guy, and he’s, he’s making a couple million a year and he wants to go to 4 million and, and he’s sort of, you know, half my clients are already making a million a year and half of more. And, and so we sit down and I, I asked him, so why’d Why don’t you figure out what moves the needle do a thinking session on what moves the needle? Well, he comes back to him. And he says, Well, I think getting properties I’ve already acquired getting them finished and getting them fully leased is what moves the needle. And I’m like, yeah, I don’t I don’t think so. I’m like, let’s do a thinking session together. So we start that process, and I go wide will tell me what your what your unique talent is. He says, Well, you know, I can see opportunities other people can’t see and in storage facilities. And I’m like, Huh, okay, and so we we cogitate on that for a minute. And I go, you know, I think what moves the needle is, is getting more properties into your evaluation pipeline and focusing on on that, rather than getting the ones you’ve already bought, finished. And that one idea which was already in his head, has caused him to go to $4 million a year. Net. Now and and so that’s the power of this, this thinking, and, and you know, to help your audience, do this, I’ve got a, I got a gift I want to give you. And we can put it in the show notes. But that website is thinkitbeit.com. And I’m going to give you a five minute video that explains this in more detail as well as a guide for for the US. And and basically, if you’ll go to thinkitbeit.com-CR. That’ll welcome you from from this podcast. And I think you’ll see it it’s a it’s a game changer.

J Darrin Gross 49:08

Awesome. That’s great. I appreciate you sharing both the example there and then also the material on the website. That’s great.

John Mitchell 49:17

Right? You know, one, I got two quick stories once or I don’t know. Are we good on time? Yeah, hey, we’re fine. You know, I’ll tell you what the the first story and then the final story. When I was this talks about competence and this like we were telling, talking before we got on the air, you know, I love what you’re doing because you’re you’re you’re you’re increasing the competence of people from more wisdom. And I saw the power of this back back when I was in my 30s Live probably right when I was 40. I was like I said as in seven different businesses. And I, I, I own what was then the most romantic restaurant in Dallas, which I was fortunate to buy it. I didn’t create it. But somebody else got into trouble with the IRS, I bought it. And, and so, and this is like in 1990. And so Jerry Jones starts coming into the restaurant. And, and, you know, so I and I’m a lifelong Dallas Cowboy fan. And I remember going when I was, you know, just a kid, eight or nine to the first games in the early 60s. And so I get to knowing, and he’s coming in there fairly regularly. And, and so I’m trying to find my way the restaurant wasn’t really my full time gig, but it was the most fun thing I was doing. And, and so it hits me, I’m like, you know, I see an opportunity to buy 12% of the Cowboys. And the reason the opportunity exists is because Jerry Jones bought 80% of the Cowboys, they bought it from Bum Bright who owned First National Bank of Dallas, which ended up failing. And, and the other 20% of the Cowboys was owned by Bum’s friends who many had pledged their, their ownership at the bank. And to make a long story short 12% of the Cowboys ended up in the hands of the FDIC. So I’m like, Hmm, it might be a good idea to try and buy that 12% and go and put it into a shell public company, you know, you can buy shell public companies. And the idea was that nobody had ever put a sports franchise in a in a public company. And so I’m like, huh, this is interesting. So I go to the FDIC. And I said, Well, I want to buy the 12% of the Cowboys. And they go, you and everybody else. And of course, I didn’t have the money, I made the 12% which was going to cost $10 million. And I had a relationship with a big law firm out in LA Milbanks, Tweed, and I pitch their partners on on, you know, stroking the check out of their pension plan. And, and so they liked the idea and that the deal would be I’d get 2% And they’d get 10%. and off we go, and so

I start working with the FDIC. And and I say well, okay, and they may be put up a letter of credit. And I said, Well, we’ll give me the partnership agreement. Well, they don’t have the partnership agreement. And I’m like, Well, you’re not gonna be able to sell this if you don’t. And they but they’re they drag their feet. And finally, I’m like, Well, I’m going to call Jerry. So I call him and I go, Jerry, I’m going to buy that 12% The Cowboys that the FDIC owns, I’d like to swing by this afternoon, pick out that partnership agreement. And he goes, John, I’m not going to give it to you. And I said, Well, you know, they have to I see can make you give it to me. And he goes, Well, I’m betting they’re incompetent. And and as it turns out, I’m like, Well, I yeah, I, I probably play it the same way. And sort of the deal fell falls apart. And I’m like, well, that’s a bummer. But here’s what’s interesting. And I I realized this many years later, I never needed the partnership agreement. Because the interest in the Cowboys had already been vetted by the banks, attorneys when they created it when when they first loan on it. And, and this is a power of being a more sophisticated entrepreneur, you see what matters and what doesn’t, and it really doesn’t didn’t matter because I my pitch to the attorneys would be Hey, there’s any problems with it, your attorneys, you’ll sue him. So, but you know, that’s and that’s a long winded way of, of, you know, giving you a little kudos for what you’re doing because you’re making people you know, a little more sophisticated in in how they’re doing things

J Darrin Gross 54:43

That’s awesome. The, just to even have the thought of that and getting so close to two do any but then also recognizing the short sightedness in your your thinking I mean, because that’s you put the hurdle up there as opposed to the Remove the hurdle kind of thing. Right? And I know I get plenty of those stories where I’ve created the hurdle. I’m the hurdle, you know, as opposed to, to not so.

John Mitchell 55:12

Well, you know, my, my 2% would be worth around $300 million today. So that was a big face to got away.

J Darrin Gross 55:21

No, that’s, that’s awesome.

John Mitchell 55:23

You know, Can I can I share one final story? Oh, yeah. And you know, this, I think everybody’s gonna relate to this. So, you know, I got married, I found that woman of my dreams through this, this methodology is well and, and about three weeks ago. My stepdaughter has a baby, and we go over there, Ginger, and I do and we’re there like, the day after she has the baby. And we walk in there, and they hand me the baby. And, and, and for some reason, Hannah, you know, steps away, and so does Ginger. So I’m holding this precious, little baby boy, that’s a day old. And I’m looking at him. And I’m like, Wow, this, this baby, this person is going to live to be 100 years old. And good things are going to happen, and bad things are gonna happen. But what really is going to matter in this child’s life is them ultimately having the courage to take control of their life. And, and to affect how they look at the world. That’s what’s gonna, the, that’s what’s going to matter. And, and, you know, it just makes you appreciate how precious precious each of our lives is, and, and how important it is to have the courage if your life isn’t exactly what you want it step up. And, and, and change it. And, and I what gives me so much pleasure today is giving people a way, a tangible way that’s based on the topic and the world on success to change your life.

J Darrin Gross 57:09

I love it. So true to it’s it’s a horrible thing to waste a life. Right? Right. Make your change and step up and make it more. So. That’s great. Hey, John, to wrap up here, where can listeners go if they’d like to learn more connect with you.

John Mitchell 57:29

So just go to thinkitbeit.com And that’s our website. And and for the special gift, go to thinkitbeit.com/cr And I’m going to have a special welcome page for your guests.

J Darrin Gross 57:51

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

John Mitchell 58:00

Okay, thankyou for the great questions and the opportunity.

J Darrin Gross 58:03

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 58:24

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Investing in Car Washes with Steffany Boldrini – CRE PN #339

Steffany Boldrini 0:00

So as I learned as I was underwriting these car washes was that well, the number one thing in terms of value add is adding credit card machines. If that car wash those knots only accept coins at that point, and I think a lot of people that have owned car washes for many years they they have not implemented any technology at all. So there’s a lot of opportunity out there with those car washes. And so we I found out that you know, with credit car usage, the timer goes up. And then so people really take their time on washing their cars on when they use coins, the timer goes down. So they really think that they only have those four minutes or five minutes. And so it’s a way to add value. There are other ways to add value like adding a dog wash of all things. And you can rent part of it to a snow cone vendor as well as part of your property which currently they go hand in hand together car washes and snow cones.

Announcer 1:07

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 are an investor, broker, lender, property manager, attorney or accountant we are here to learn from the experts.

J Darrin Gross 1:27

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 to provide their experience and insight to help you grow your real estate portfolio.

Today, my guest is Steffany Boldrini. Steffany is originally from Brazil, and moved to Silicon Valley 20 years ago. After a successful career in tech sales, she decided to focus on commercial real estate investing, where she has achieved over a 36% cash on cash returns. She is also the host of the Commercial Real Estate Investing from A to Z Podcast. And in just a minute, we’re going to speak with Stephanie about how to manage your assets remotely.

But first, a quick reminder, if you like our show, CRE PN Radio, 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. And we’d love to hear from our listeners. Also, if you want to see how attractive 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, Stephanie, welcome to CRE PN Radio.

Steffany Boldrini 2:57

Thank you so much for having me there. It’s a pleasure.

J Darrin Gross 3:01

Well, I’m delighted to have you and looking forward to our conversation. Before we get started, if you could share with listeners a little bit about your background.

Steffany Boldrini 3:11

Yes. So I’ve been in Silicon Valley for about 20 years now and decided to start doing some investments and quickly learned that real estate is a phenomenal form of investments for many reasons. And I decided to learn with a good friend of mine that was a very successful real estate investor. And that’s when I got started about three years ago.

J Darrin Gross 3:38

Awesome. Awesome. And had you done any other types of investing before real estate or? Or just jump right in?

Steffany Boldrini 3:47

Yes, in the stock market and as an angel investor in the tech startups, which it’s very difficult to to make it find the you know, successful exit for the per day in startups as an angel investor.

J Darrin Gross 4:02

Right, right now the big wins and big losses is kind of what I’ve come to understand and that the opportunity is wide open. But I’m curious in the in the the startups do, you know, kind of percentage wise number of, of successes to failure or the failure rate over successes?

Steffany Boldrini 4:23

I know the failure is more than 90%. I don’t know what where in the 90s it falls but it’s it’s pretty high. It’s probably more than restaurants.

J Darrin Gross 4:34

Yeah, that’s that’s incredible. So what what was the attraction for you to get into real estate?

Steffany Boldrini 4:43

Great question. Well, at least comparing to Angel investing, it was very little risk. And you can leverage your money. So with 100k you can buy 500k worth of property or you know with 100k The stock market you buy 100k worth of stocks. So it’s the beauty of leverage and rent increases over time. And also the ability to add value which if you increase the income, even if 10k a year that significantly increases the value of your property based on cap rates. So it’s so it’s a really interesting form of investment that I highly recommend people learning about.

J Darrin Gross 5:27

I’m, I’m in the choir with you, I love I love both of both of those. The leverage and the the ability to improve and you know, the, the incremental improvement to the oversized, you know, valuation increases, just, you know, it’s huge. Yeah. So, so currently, what what are the asset classes that you’re you’re currently invested in?

Steffany Boldrini 5:55

At this moment? carwashes self storage and short term rentals.

J Darrin Gross 6:01

Alright, so carwashes Tell me a little bit about underwriting carwash. Are you is it just the building? Or is it actually the business with the the property

Steffany Boldrini 6:18

For better or for worse the business with the property and I had no idea about any thing related to car washes, I didn’t even know what a bay was. But I was educated on the retail space and analyzing a property pretty well. And so this says How hard can it be to manage a carwash? So it’s been quite a journey the returns are great, but it’s it’s a lot of work. And I’m still pondering if I should expand that part of the business or not. And so there’s just a lot of moving parts a lot of literally parts that you have to buy and skews and employees that you have to manage and everything in between.

J Darrin Gross 7:05

And I was going to ask you if if these were self serve or if you had actual employees doing the washing

Steffany Boldrini 7:14

Self serve but you still need the employees there daily to fix things and pick up the garbage that people leave behind and something breaks everything are people tried to break into the property and all kinds of things.

J Darrin Gross 7:31

Yeah, no, it’s sad sometimes just the I don’t know the way people treat things I know just the the trash or the and I don’t think you get away from that from any other property and I’ve got apartment properties where the neighbors or whoever loves to use my dumpster and and constantly in charge for the overtourism a little bit of the fun with real estate investing but it’s small pain for for the upside there.

Steffany Boldrini 8:01

Yeah.

J Darrin Gross 8:02

So So tell me underwriting an apartment or not an apartment but a carwash. I don’t know that I’ve talked to anybody yet. That’s investing in carwashes. I’m curious. I mean, I’m assuming like the the income and the expenses are fairly straightforward. Yeah. How do you tell me a little bit about the location of a carwash? I’m assuming weather pattern might might play into it. I don’t know what what what do you look for when you underwrite for a carwash?

Steffany Boldrini 8:37

So as I learned as I was underwriting, these car washes was that well, the number one thing in terms of value add is adding credit card machines, if that car wash those not only accept coins at that point, and I think a lot of people that have owned car washes for many years, they they have not implemented any technology at all. So there’s a lot of opportunity out there with those car washes. And so we I found out that you know, with credit car usage, the timer goes up, man. So people really take their time on washing their cars on when they use coins, the timer goes down. So they really think that they only have those four minutes or five minutes. And so it’s a way to add value. There are other ways to add value like adding a dog wash of all things. And you can rent part of it to a snow cone vendor as well as part of your property which apparently they go hand in hand together car washes and snow cones. And as far as weather Yes, it definitely has. It makes a difference where it’s most people will wash their cars right after right because they don’t want the salt ruining your car. And so there are all kinds of things that I’ve learned along the way. And those are some of them.

J Darrin Gross 10:08

Right? So is there any kind of like a population size? Or is it more about traffic? Or what’s the, I mean, I’m just trying to think because I like a lot of times I think of like, proximity to the property, you want to have certain benchmarks as far as like population or income or, or, you know, maybe drive or cars going by kind of thing, what, what are some of the parameters you look at, when you’re when you’re underwriting for a carwash?

Steffany Boldrini 10:38

So these were existing car washes. And so I did not do any population analysis there. I found out that the owner really didn’t even bother to update their Google business. And so I put the correct address there. And now I understand how many people click, you know, everybody’s searching for these things now on their phones nowadays. So but yeah, definitely location, I’d say the one that is closest to the more affluent area is the one that does the better and gets the least amount of break ins. And the ones that and the other one that has not such a great location is not very visible, it does not perform as well. So definitely location and visibility is important. And so those are some things that to keep in mind, one thing that I would have done differently, moving forward for a new brand new asset class would be to go to a conference right away, and really get to know a lot of people in the industry, all the vendors and understand who is the best and have people to call if I run into any issues. So that’s one thing I did not do that I would have done differently before purchasing them. And then now, you know, I have a part of Facebook groups that are focused on these businesses, and you can always get help thank God for the internet online. But it’s nothing beats face to face. Until now.

J Darrin Gross 12:09

Yeah, definitely agreed on that. So where are your your car washes? Are they local to where you are? Or where are your carwash is located?

Steffany Boldrini 12:21

They are far, far two flights away for me sadly. They’re in north of Texas.

J Darrin Gross 12:28

Okay. Did you say Marfa, Texas or North? North? Northwest? Okay. So I think a lot of people more often. Gotcha. And so the the associate or they’re both in the same, the same community or? Yes. Okay. Gotcha. So, to that, let’s talk a little bit about how you manage your properties remotely. In this case, the Who are some of the people on your team that you have that that you need?

Steffany Boldrini 13:04

Yeah, and under great question. And, you know, my mentor always said to invest within two hour driving distance from where you live, and I agree with him 100%. But you know, where I live, things are extremely expensive. And so I decided to, you know, explore other areas to invest in and again, with internet, I think we can, we can manage things successfully, remotely. So some of the things that I did right away was to install cameras inside and outside of the property, an alarm system that notifies me when an employee’s there, when they lock the property. I installed a coin counter because my don’t know how much coins are coming in. My now I do. So you you have the ability to see if they’re collecting the proper amount or not. And, you know, I have help in terms of virtual assistants, that I have on my team who pick up calls from customers and refund them or answer questions. And so those are some of the things that have helped a lot with regards to monitoring monthly. And another thing that people should always do is, obviously go there and meet everybody that you’ve worked with up until the time you buy the property and ask for referrals. So I’ve asked for referrals for contractors, property managers, employees, and have had success with that sometimes it doesn’t always work. But asking for referrals is super critical because you don’t know who is good or not when you’re entering a new market. And so that’s another tip there.

J Darrin Gross 14:58

No, it’s good. I’m just thinking of the structure. And again, in my mind, I have a picture of a carwash kind of a self service thing kind of doors, or I guess, there could be doors, maybe not doors, but basically a bay where you pull your vehicle in, and then there’s a one and a hose above thing, and you can walk all in a drain below it. Like you mentioned, the there’s always the cash or the change maker, you’d stick your bills in, and the change would come down, and you’d stick those in there. And, and but beyond that, I’m trying to, you know, what, what are the the physical? Are there any other physical asset are concerned? I mean, obviously, any kind of water and soap and, and that, but I’m just trying to think you mentioned lock up, do they lock the bays up at night? Or do they lock the doors or a perimeter? Gate to the property? Or how is it that they lock up the property?

Steffany Boldrini 16:02

No, it’s just the control room where all the pumps and everything else is? Gotcha. The bays

J Darrin Gross 16:08

are open. Gotcha. And are there hours then on the on the property? Is that? Is it?

Steffany Boldrini 16:15

It’s open? 24 hours?

J Darrin Gross 16:17

Okay. And no, I’m curious. Is there any, I would think water be one of your biggest expenses is that?

Steffany Boldrini 16:29

Yeah, that’s pretty expensive. But their returns are great. It’s an average of about 5050 50%. Exactly.

J Darrin Gross 16:42

Gotcha. Gotcha. And what about financing for a carwash? Is it? I mean, they just basically off the NOI is basically the way that they value it? Or how, how does the bank look at your financing? Or is it more of a debt coverage ratio thing, same as another commercial property?

Steffany Boldrini 17:04

It was debt and the down payments, as well. But I did not have any experience. So rightfully so, you know, the first couple of banks declined me. And the one the third also declined me. And I said, let’s, let’s talk. So I had a conversation with the President of the bank, who was, you know, it’s a local bank over there, and explained, you know, all of my other experience with everything else, and that the numbers made sense, and it was literally a conversation probably was five or 10 minutes long. And they agreed, we both mutually agreed on some things that we will give in. And so that’s how I managed to get that first loan. And now I have a few loans with that bank, and a great relationship with them.

J Darrin Gross 17:56

I love kind of the the local commercial banks or just commercial lenders. I, I find them so easy to work with if if, if you have a solid plan and can communicate that and you have it in writing. I was remember the the first commercial loan I got it was basically just two guys sitting around a table. And I was going to the members and they said okay, well, Tuesday the loan committee meets and we’ll call you. Yeah, and sure enough, they called and they said, Okay, what do you want the money, like? Cool. As opposed to, you know, any kind of a Fannie or Freddie kind of a loan. I mean, it’s like, you know, all of the information you have to provide and, and then the waiting and the waiting, the waiting. So I’m a big fan of the small commercial banks.

Steffany Boldrini 18:44

Yeah. And they were all referred by the realtor that I was working with. Yeah, so I always recommend people to work with local banks to the market that they’re purchasing is.

J Darrin Gross 18:55

That’s great. And so how did you find this on the internet? Or how did you find the I mean, when you’re looking for a carwash to buy, was it just did you go LoopNet? Or did you did you zero in on the market? Or how did you how did you find north Texas carwash,

Steffany Boldrini 19:15

I was originally looking for a self storage property and the owner was selling a portfolio of properties. And that’s the only reason why I got into carwashes the numbers made sense. And yet people can find them on looking at Craxi and there are also some brokers that specialize in car washes. And other value add is you know, these car washes take a while to sell they take some of them take a year or longer so you can negotiate the price down. And again, I also have a great return just by matter of negotiation negotiating the price down because they take so long to sell and think today and all that classes, a lot of people are retiring, and they are selling properties. So try to find these people that haven’t really implemented any technology in their properties. And if you go with the carwash route, you can definitely negotiate on pricing.

J Darrin Gross 20:17

So let’s talk a little bit about the the value add strategy. You mentioned putting the credit card or being able to take credit cards. Is that is that just on the I’m trying to think where you put the money instead of putting in coins? That’s where you slide the card through? And that that’s basically it. Exactly. So in you mentioned that the time went up. I’m curious, can you quantify the revenue increase from before and after?

Steffany Boldrini 20:49

I wiser. We believe it was because we had a few expenses last year to add these machines. And some of it we’re taking from the income. I have not been able to calculate that yet. I want to calculate it this year, but I would say at least 10% increase at the very least, and very likely more.

J Darrin Gross 21:10

Alright. And then beyond that, though, cash positive?

Steffany Boldrini 21:15

Oh, yeah. Oh, yeah. It’s at this point is probably 40 to 50% return.

J Darrin Gross 21:22

Wow. And and what what is the cap rate that the carwash has traded for?

Steffany Boldrini 21:29

depends on the location? And what kind of carwash if they’re older or newer, but anywhere from six to eight or 9%? Cap?

J Darrin Gross 21:41

That’s pretty healthy. Compared to the continuing

Steffany Boldrini 21:48

compressions, yes.

J Darrin Gross 21:49

So say, three and a half. I mean, that’s low there. But well, that’s that’s encouraging. And did you find anywhere that you could less or lower your expenses?

Steffany Boldrini 22:05

lower expenses, not right now, because I am remote. So I had to really increase the employee time, employee hours. So at this point, we have not decreased expenses. But we are obviously always looking into that.

J Darrin Gross 22:21

Sure. Because I was just trying to think of what what could you decrease? I mean, unless you had a water leak, or something like that. And you, you found it. But I guess that’s, that’s a

Steffany Boldrini 22:36

that’s some chemicals are expensive. So you could you could probably look into cheaper chemicals, for the car washes. Some people, some of them are really, really, really pricey, and they don’t make any difference at all. This one was not the pricey one, but I’ve seen very pricey chemicals out there.

J Darrin Gross 22:56

Okay. And is are there salespeople who call on you for that? Or do you basically go out to the marketplace and get those supplies? Or how’s that?

Steffany Boldrini 23:07

It’s a little bit of both purchase from a particular website, or there was a local vendor, actually, that approached me. And so been doing business with them because they deliver free shipping. And so they’ve been very, very good partners.

J Darrin Gross 23:25

Gotcha. And so your your carwash, and did you also buy the Self Storage as well? Yes. Okay. And how many units are on self storage? Is it? How is it based on the number of bays? Or how do you when you speak about a self storage unit? Is it like number of storage spaces? Or number of doors? Number of doors, okay? Yes. And so, tell me how that how that looks?

Steffany Boldrini 23:57

Oh, I love self storage is probably 1% of the amount of work of the carwashes. Okay, the returns are not as phenomenal but it’s still really, really incredible asset class that I love. It has proven over and over again that you know, it’s recession resistant, and it goes well, when the economy goes well, too. So it’s it’s it’s a very strong asset class. And, you know, it’s it’s also a business to just like I think multifamily, because you really are on a day to day dealing with people and things like retail and office, right. When you get a or industrial that you get a very long term lease. So it’s active, but it’s, it’s, it’s a really good and safe I think, asset class. Yeah, I

J Darrin Gross 24:49

really heard good things about self storage. I mean, I think as long as the or a couple of people I’ve talked to have indicated that a lot of the municipalities are not wanting to build Hold anymore, we just kind of, uh, you know, puts a containment on the supply, which, you know, is helpful. I don’t know, that’s always true. Cuz I know around here in Portland, I see him popping up all over the place. But I suppose depending on where you are and stuff, you know, that could be a, you know, keep out the competition kind of thing.

Steffany Boldrini 25:21

Definitely in San Francisco, there is like three little slivers of three, three buildings that we can build in it’s, yeah. And depends on the city. Exactly.

J Darrin Gross 25:35

And as far as the Self Storage, the business have you implemented any value added strategies for that or

Steffany Boldrini 25:45

so for for, again, owners that have owned for a while, a really good value add is to obviously increase rents if the rents are below market compared to your local competition. And also you can decrease costs. So we’ve implemented rent increases, and also made sure that most people are paying with a credit card. And if they’re not, they we charge an additional $5 every month for not paying credit with a credit card, just because it takes time to follow up and do everything. So yeah, there are many ways to add value there. But it’s some of it also, takes some investment, like, you know, adding a automatics lock on all the doors, if they don’t pay by the due date, you automatically gets locked. So there are a few things that you can do to add value automatic gate code for each tenant, that is a different code for every tenant. But all of these are investments as well.

J Darrin Gross 26:49

I love that the if the bills due on the first and you haven’t paid the door locks and you can’t get into your unit does it? Does it keep you from getting into the to the complex? Is that?

Steffany Boldrini 26:59

I don’t have that right. I have not implemented that myself. But yes, it was lock you out, so you cannot get it. Okay, now that

J Darrin Gross 27:08

I have I’ve seen you know, these programmable locks and stuff and I hadn’t really thought through as far as in that application on self storage and everything. Yeah, that’s, that’s perfect.

Steffany Boldrini 27:21

Yeah. And some of them you people can open with their phones their phone with an app. So it’s it’s really here to say a lot of self storage facilities are going without employees, which is another value add that people don’t really talk about cutting employee costs. And so you know, with these younger crowd, they really don’t like talking to people on the phone. They prefer to just click some buttons.

J Darrin Gross 27:48

Yeah, I’m painfully aware of that. So as far as the the operating expenses on on a self storage, do you have electricity? Not any is there any I guess minimal water? I would think maybe a bathroom somewhere down a minute because you’re not there’s no cooking or, or

Steffany Boldrini 28:14

Yeah, no toilets. Tenants

J Darrin Gross 28:18

are not supposed to live there. And then I mean, just the fact that you got it tied to a credit card to where they have to pay or be locked out. That seems that’s that’s great. What what what does what are the employee duties and in something like that it basically kind of same kind of clean up trash kind of stuff.

Steffany Boldrini 28:46

So lock unlock give keys to a new tenants and everything in between. But that’s much less maintenance than then the car washes.

J Darrin Gross 28:59

What kind of cap rate are you seeing for the Self Storage?

Steffany Boldrini 29:03

Oh, they are going down there the very low nowadays also depending on location, anywhere from four and a half to six and a half I would say

J Darrin Gross 29:13

Okay, so. Yep. Competition. Well, that’s a good thing. If you have one and you want to sell you’ve got an opportunity. I mean, at least the flip side that is there’s demand and you can sell a 10 or 12 cap and nobody wants to insure ensures you know, congratulations you so that’s that’s good. So are you looking anywhere else as far as other markets or was this a it yes backup. You indicated it was portfolio opportunity. But how did you find this this opportunity to begin with

Steffany Boldrini 29:55

online on Crexi.

J Darrin Gross 29:58

Okay. Okay. Are you looking elsewhere for additional similar type properties? Or?

Steffany Boldrini 30:06

Yeah, definitely looking wherever it makes sense. Even in California, where the numbers make sense, there’s potential value adds or ability to build and expand the facility or decrease costs, it can be any of the above.

J Darrin Gross 30:24

All right? And are you investing these solo? Are you raising any money doing any syndication? How are you? Are you doing these,

Steffany Boldrini 30:33

now eventually do a syndication. But at this point, I just wanted to show some numbers to you know, future syndicators and show that look, I’m not just a newbie coming in. And here’s Here are the numbers and what we were able to accomplish with these properties.

J Darrin Gross 30:53

And I’m a big fan of that is to know what you’re doing before you go out and tell everybody you do. It’s, it’s somewhat challenging, I think, and maybe just a personality thing, I know, there are some people that just can grab the idea and all sudden be run out there, you know, trumpeting the you know, the plan, or like, we’re going to be the best kind of thing, and like, never done this before. As opposed to somebody that has experience and knows, you know, where the bodies are hidden and, and, you know, can avoid any kind of the ordinate and avoid, but has, has a tracker record of overcoming the challenges? I think that’s, that’s probably true in anything, and I’m certain anybody that’s done this for any length of time has found those surprises they hadn’t planned on. So

Steffany Boldrini 31:43

absolutely, there will always be another recession. And I always wondered how these multifamily people buying at three and a half 4% cap, how they are approaching, you know, a 10% vacancy rate when something happens, because, you know, inevitably will happen. Sooner or later. Yeah. Yeah, everything has been great till now. But you have to be prepared when something happens.

J Darrin Gross 32:13

Agreed, agreed. And I think that, you know, the, the, the cycle, there’s always a cycle to it. I mean, that’s, that’s unavoidable. But I think that one of the challenges, I think, that we have is just the condition of being human is that our memory is short. And as far as the the pain now, and while we can look at a graph, and recognize that it happens every so many years, you know, these things happen. The weird thing is, like, right now, with all of the artificial, you know, money that’s been put, you know, put into the system. It kind of it Well, it definitely delays the inevitable. But I also wonder if there’s not like, even like a, like, the ying and yang of it, that if you put that much money more into it, the drop is much bigger, you know, I’m saying that can have like, even a much more larger effect, although, clearly, it seems that, you know, since Oh, eight and stuff fed never been able to, you know, continue to keep things going. But, you know, now we’re dealing with inflation. Inflation, you know, and, and so, I guess we’re gonna, we will know, when we know, when we’re there, so we’re probably not even when we’re there, but after the fact. So, but anyway, Stephanie, if we could, I’d like to shift gears here for a second. By day, I’m an insurance broker. And I work with my clients to assess risk and determine what to do with the risk. And there are three strategies that we typically look at as options when we’re trying to assess the risk. The first is we look to see if we can avoid the risk. And if we cannot avoid it, then we look to see if there’s a way to minimize the risk. And when we cannot avoid nor minimize the risk, then we look to see if we can transfer the risk. And that’s what an insurance policy is is a risk transfer vehicle. And I like to ask my guests if they can look at their own situation. Could be a market could be political could be interest rates, it could be you know, the money has been put in the system however you want to frame the question and the answer. But if you can look at your situation and identify what you consider to be the biggest risk and for clarification, while I am an insurance broker, I’m not necessarily looking for an insurance related answer. And if you’re willing, I’d like to ask you, Stephanie Boldrini what is the biggest risk

Steffany Boldrini 35:10

for myself personally that I am in right now would probably be cryptocurrency. I avoided it for a decade that I know it, unfortunately. And finally decided to put some money there. I think that is my biggest risk today. I put a little bit of money there. But you know, I had a very shortly epiphany right now talking to you that, you know, when the government printing so much money, there’s also $200 billion, that crypto crypto mining that was created out of thin air right. So is the government really interested in in making them illegal? I don’t know. Maybe not. Because that is keeping the economy going. Right? There’s $200 billion more out there, that people are spending or trading and it’s that the government did not even have to print themselves. So will they really make it illegal? Which is what I thought for the last decades? Maybe not?

J Darrin Gross 36:23

Yeah, I don’t know that whole crypto thing i i. I’m kind of a slow ski on on for as the recognizing, although I do find the blockchain technology to be viable. Just in multiple applications, and I think that’s here to stay. Yeah, I have a hard time believing that crypto is a is a, you know, a means of payment will be or or just a currency will go away. As much as I kind of wonder who’s going to be the winner. And you know, will all of them be around or you know which ones will be the standards? I guess kind of more the issue there. But I guess again, we’ll know when we get there. Good luck. Thank you. Stephanie. Where can listeners go if they’d like to learn more or connect with you?

Steffany Boldrini 37:16

I’m on all social medias, social medias with my name, and also my website. MonteCarlo rei.com.

J Darrin Gross 37:25

Awesome. Well, Stephanie, 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.

Steffany Boldrini 37:35

Thank you so much there and I really appreciate it. You got it.

J Darrin Gross 37:39

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 37:56

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Real Estate Investment 1031 Exchange with David Moore – CRE PN #338

David Moore 0:00

You wouldn’t believe how often even after 100 years of existence, we get a call on a deal, the day is closing, or maybe unfortunately the day after it’s closed, but using a third party exchange company, you’re literally free to sell whatever you don’t want and buy what you do want it’s exchange company’s job to step in the middle of the transaction and turn it into an exchange. So So one you’re going to give us some we got to give you some back to what’s been received have to be of like, kinda like kind definition. And, you know, I joked about this 30 years ago, I had a lot more hair on my head, but in those days, people say well, I remember what it meant a house for house land for land, it’s never meant that okay, like kind in 1031 context is nature rather than form so any real property held for investment is going to be like kind with any real property acquired with the intent to hold for investment.

Announcer 0:51

J Darrin Gross 1:11

Welcome to Commercial Real Estate Pro Networks, CRE PN Radio. Thanks for joining us. My name is J. Darrin gross. This is the podcast focus 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 David Moore. David is the CEO and co founder of Equity Advantage. In 1991. He and his brother Tom started Equity Advantage after a successful real estate investment career. David is a nationally recognized expert on 1031 Exchanges, and a former board member of the Federation of Exchange Accommodators. And in just a minute, we’re going to speak with David about how to execute a 1031 Exchange. 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 a 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, David, welcome to CRE PN Radio.

David Moore 2:38

Thank you, Darrin, good to be here. Thanks for the opportunity to join your show.

J Darrin Gross 2:43

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

David Moore 2:53

Sure. I typically jokingly say that my brother and I were the the original Property Brothers. We just weren’t smart enough to start a TV show. So in 1990, I was minding my own business in California, Santa Cruz, where we grew up and and one of my father’s actually patients he was a dentist but one of his patients happened to be a very successful real estate investor. And he had started a company called Starker Services that was the largest exchange company in the business during the 80s. And when we had the World Series earthquake, his house went down mountain sideways in a board meeting and decided they were all he didn’t need to do that anymore. So he sold sold the most of the business and was just working on the investment stuff and and he asked my brother and I, well, what are you guys doing next week and, and our response was something that opened the door for him to drag us north to Oregon and at that point in time we knew in 1990 we’d missed sort of the turn, typically state capitals like the rest of state’s economy. And we knew the turn it happened in Portland roughly 88. And so we went and started working in Salem and Olympia and bought some property and actually down in Eugene area two. And our sort of model was it was a modified flip and and what we’d be doing is we buy a property, improve it, get it stabilized, get tenants in there, rent it for a period of time, do a cash out, refinance, keep the property for long enough where we would then be able to do another exchange in the short term. And the refi money was typically going to be an amount that would be in excess of what you’d realize after paying taxes if you just flip the property. So I think what happens is people get into the whole flipping thing, and we all know it’s a huge business these days, but anything that you’re holding for resale is going to be taxed at normal income tax rates and does not qualify for 1031. So using the structure We did, it allowed you to buy the property, do the improvements, take advantage of what you do with with a flipper type property. But by keeping the property and seasoning it as an investment, that the refi money get out and allow you to leverage and do what you wanted to without having to pay the tax and take some money and you’re not paying yourself, you’re not paying normal income tax on it. And then after holding that property for, let’s say, a year, two years time, whatever it was a comfortable period, or whatever allowed us to stabilize the thing, we then do an exchange out of that in the next asset or assets.

And so what what happened is, the opportunities were good, we thought we’d be here for a couple of years. And we ended up putting the exchange coming together 91, because nobody was here to do it at that point in time. And the idea was, initially, it’s just going to give us opportunity to find more property and you know, work with more of a professionals in the community up here. And, and really take advantage of more opportunities, but it’s sort of stole our lives, I guess I should say. And I say that tongue in cheek, because it’s been a great ride, but but something where we thought we’d be here for a couple of years, it’s now been 30 years. So it’s funny how life changes. And one of the obvious big changes for me was a year after I moved up here, I ended up finding a girl and getting married. And so that was another anchor for me to the northwest. So it’s funny to think you’re going to live your life in a certain place, and things happen and boom, you’re somewhere else. So it’s been a lot of fun. We’ve had a great ride, it’s been, we’ve definitely taken our lumps that last big crash in 07 08 that was not much fun. But over time, it’s been a great business. And we actually put a company a sister company IRA Advantage together in the mid 2000s. And now was very good going into the recessionary period, because that side of the business really sort of blew up during that period of time with people losing jobs or needing to find a that all of branch the future, whether it was doing what we call rollover business startups to get them into something new using their retirement account, or they just wanted to diversify out of Wall Street into hard assets. And all our accounts through that side of the business, allow people to take their retirement funds and go buy real estate or make loans by notes, a whole variety of other things, too. So it’s one of those things where you think you’re going one direction and 20 years. 30 years later, you’re in a different place, but it’s definitely been a lot of fun. And we’ve met a lot of wonderful people. So

J Darrin Gross 7:40

No, it definitely sounds like a an action packed career there. I’m curious you mentioned Starker was your your kind of entry into real estate in that? Am I correct? Was Starker not the name of the case that you heard of the exchange?

David Moore 7:59

You’re definitely correct Darrin and then TJ Starker was an Oregon company. Right. I mean, Crown Zellerbach and Starker had the case and tech advice courts and prevailed and and that was sort of the, you know, obviously 1031’s 100 years old. So a lot of people say well, Starkers one started now, not at all but Starker was sort of the framework that allowed that decision allowed this whole industry really to get started. And if you look at historically, and exchange might have been, you’ve got a property, I’ve got a property and we’re going to each you want what I have, I want what you have, and we just swap, that’s a true swap. That’s an exchange and you don’t need an exchange company to do that transaction. But what Starker ended up opening up is you got a third party assignment company that can step into a transaction and make things happen. So the final the final guidelines or the last major revision was in 1991. And it was right about the same time that we put the company together which had just sort of happened to be luck at that time but yes, you’re right it’s the roots of 1031 are on the West Coast definitely.

J Darrin Gross 9:08

And was your your

David Moore 9:10

No yeah yeah, no relation to it, but he knew a good name. And it was funny because he always joked that you know, people would call up and thank you so much for what you’ve done for that about it and and you know, they really had nothing to do with the court case but they knew a good name and and you know, the company is still in existence it’s just not what it what it used to be but it was he was he’s a very smart guy his name just if you’re curious as Ron Stache and he’s he’s really just amazing guy he’s he taught my brother I all the basics mentored us and investments and and it was great because we’d have these these 10 12 hour download information downloads to and from we drive back and forth from Santa Cruz and his little Chrysler minivan and and and we Write offers during the day on properties. And you know, at night we’d sort of talk about what we looked at. And you know, sort of figure it all out. But yeah, he’s a wonderful guy. And he’s really interesting because he really put a lot of sort of psychology into transactions and really knew how to make things work. But he looked at things differently.

An example I always give of sort of his mindset is that there was a there’s a, an apartment building in the Bay Area, that was one of the classic courtyard type apartments. So you’ve got your a pool in the middle of it, and it’s just all open around it. And so he always told the story of, of a building that could not be occupied, and they just couldn’t get the thing leased up at all. And so somebody came up with the idea, well, let’s just make it clothing optional. So, so now you’ve got a whole different audience of people in there was nowhere to go. And now and suddenly the buildings full and and I just think that’s sort of you always like the highest best use. And the other thing, he always says, like, look, never buy anything until you can answer three basic questions. What am I going to make? How am I going to make it? When am I going to make it? You can’t answer any of those don’t buy the thing. So and I always joke that he would always give us a hard my brother and I have a hard time because you know, investments outlived their usefulness. I mean, soon as you get to a certain equity in a property, your return on investment drops to level you can’t afford to keep so we buy a property and we answered the questions, we put the plan in place, by the thing, fix it up, get it rented out, the equity is there. And you know, really at that point, you’ve got two choices, and that equity gets too high, the ROI drops, you either have to cash out refi, get that leverage where you need it to be or you do with the exchange. And the decision between those two is have you done everything you can you can or you need to to maximize value of the asset. And that’s where obviously, the 1031 stuff comes in is is just a tool to keep your money yours and and so that’s where that got integrated into it. But Tom and I would be happier with an investment and you say, Well, you know what you pay for that what you put into it? How long ago was that? What’s your rent? What’s going on with it? Oh, you can’t afford to keep it and it’s like, okay, Ron, you just wrecked another investment. Now we got to shame us into going and doing the next deal. So anyway, but he’s just a great guy. And really, we’re blessed to have him at a very important time in our life. And yeah, he’s a neat guy, still around, I still talk to him, we do a lot of business together, even today.

J Darrin Gross 12:36

That’s awesome. Because I think that, you know, so often that people do get comfortable, you know, you do something, you get all the work done. And you know, you’re in I know, even myself just a little bit of investing that I’ve done. My first view of investments was, you know, you buy it, and over time, the tenants would pay it down, and there wouldn’t be any money owed against it, and then I’d be able to keep the rent, that was a limit of my investment, thought, you know that that was where the money was not in the appreciation, and then the role in you know, actual cash flow, but it was just like debt reduction.

David Moore 13:12

Well, and what I mean, what you’re talking about is a prime example of I mean, if we look at the market today, what are people trying to do? They’re trying to get hard assets, and intangible assets. And we all hear the ads for gold and silver, palladium, whatever it might be. But I would say the ultimate tangible assets, real estate, and and, you know, one of things Ron always taught us and never bank on appreciation, if you buy gold, you’re banking on appreciation, right? And that influx, and that appreciation might be only inflationary driven, which is the big problem today. But if we look at a piece of property, it doesn’t have to go up to make you money, right. I mean, as you just said, somebody else paying the debt service on it, you’re gonna end up owning the thing. Whether cash flows or not, whether it goes up or not, you’re making money on it. And in addition to that, that, you know, that debt pay down, you’re going to have interest deductions, depreciation, other things going on, too, that you can always take advantage of. And then the best thing about that real estate investment is at the end of the day, you’re either I mean, as we said, If you flip a property and sell for resale doesn’t fit, you’re gonna pay normal income tax, but at the end of the day, after you realize those objectives, you’re either gonna sell and pay the tax or you do an exchange and kick that tax liability down the road. So it’s just a wonderful opportunity for people and it’s something if they really look at what’s happening in today’s world, you know, hard assets, everything’s going up. I mean, we’ve got tax laws that really if we look at the tax liability on sale of a primary residence today, and you think about that section 121, the universal exclusion that was put in place in 1997. I don’t know what you lived in 1997. What it cost y’all to buy that thing. But if you look at what 250 or 500 in exclusion mat in 19 $97 versus 20 $22, it’s an entirely different world. So, you know, one of the issues that that, you know, comes up in this last year, I mean, if I look at my 30 years in this business, unfortunately, every four to six years, we’ve got somebody gets elected, and they want to get rid of 1031, which, as I said, is 100 years old. So, you know, the the problem is one of my big worries is always the government getting in the way and changing the rules on stuff. But, you know, you’ve got to sort of use these things while they’re there. And, and 1030 ones been there for a long time we did with Biden’s build back better plan. 1031 was once again in the crosshairs. And at this point in time, it’s been actually cleared of everything, and it’s going to be preserved, and we don’t have any caps. But the reason I bring that proposal up is there was in the initial drafts, they wanted to cap people’s annual deferral to half million dollars per person per year. And and that would have been very problematic. I know, there are some regions in the country where half million dollars means a lot, but anywhere on the West Coast, or most of blue states, it’s not going to do much. And and if you look at those numbers, and and I think that they were looking to the half million exclusion based upon section 121, saying, Well, hey, on a home sale, you’re entitled to half a million, so we’re just going to give you the half million on 1031. And I would argue that the 250, or 597, probably would be a million million five today. And that would be a much more logical number for 1031 if they were going to do something like that, but anything that stifles market velocity is not ultimately a good thing for even the government with their tax realized taxes. So that’s their conversation.

J Darrin Gross 16:57

No, no, but But it all kind of ties together here. And I think just to kind of orient this conversation to make sure everybody’s on the same page here, the 1031 exchange, he if you could just summarize quickly, briefly, what it is, and then the benefit of it.

David Moore 17:16

Sure, so So the great I look at 1031 is sort of an IRA or 401k, for real estate, alright, and what I mean by that is, you know, traditional IRA or 401k, you’re looking at pre tax money growing tax deferred, your Roth is just tax money growing tax free, if we look at 1031, you when you buy a property, your basis, and that property is what you paid for it plus the capital improvements, you do to it during time units, every dollar you put into something, you’re either capitalizing or expensing the expense that you write it off capitalized increases in basis. And then furthermore, if it’s an income property, if let’s say it’s a rental property, you’re going to have a depreciation that you, by law are supposed to take. So it’s interesting, because, you know, as the world gets more complicated, I think good tax people are one of the most important people for any investor. Alright, if you’ve got investments, you better have good tax people, because there’s so many things there that you’re not going to be aware of. And honestly, even your tax, people may or may not be aware of some of this stuff. But you’d better have good tax people. And we’re going to want to talk those people to during the transaction, if we’re doing something that’s a little aggressive. But you got to understand what the liability is going to be before you ever dispose of anything. And the great thing about 1031 is that you’re able to when you buy something, you improve it, you hold it for a period of time, you now have this increased value there. And the question at that point is, when you realize your objective, do you want to just sell and pay the tax, which is always an option? Or would you like to keep the money yours and keep it rolling forward. And 1031 is just a tool, it’s going to allow you to do that. And I like simplest, always breaking exchange into four basic components. As far as you’re concerned, Aaron, you’re just gonna list a property and sell as you normally would, but before it closes, if you have actual or constructive receipt of the funds are going to have a tax liability. So the exchange has to be set up predisposition. So typically, people ask, well, when do I want to hear about transaction, let’s say, ultimately, before you buy the thing, because how do you own something, it’s going to me it’s going to drive how you relinquish it a future. And then that’s another conversation but but at least when you get the property a sale pending at that point, you want to be thinking about it. And and it’s important, for example, if we have a transaction where let’s say you and I own a big building, are we going to own it directly, tenancy in common? Are we going to own it via a limited liability company? Now each of those things might have an upper down to it. But the reality is that, let’s say 510 years forward from now, what are the odds of both of us You’re gonna want that asset. And and one of the biggest issues, the biggest headache with anything in the 1031 world is time, you’ve only got 45 days from settlement to IDX, what you want to buy in a total of 180 days, those times both started settlement of the relinquished property. Now it’s possible to do a reverse exchange where we buy first and sell later, you’re still looking at that 180 day timeline, we can do an improvement exchange where we build stuff too. But but if we were to own, let’s say, this building, and we now go to sell it, we own it as a limited liability company. Partnership Interests are specifically prohibited from 1031 treatment, so we’d have to drop into what you know, we tick it out. And that that’s slang for Nintendo everyone industries, we’re going to do a drop and swap. So ideally, maybe your pre sale, we’re going to decide, okay, hey, Darren wants to go left, I want to go right and and we know upon a sale, we want other things. So at that point, if we own it as an LLC, we want to have deed from the LLC, each of us tenancy in common, and we’ve held it for a year predisposition. And now we’re free to go do what we want to do on the acquisition side, if we if we did not do that. And really, back to my comment on tax people, don’t use your tax person, April 14, use them before you know you’re in talk to him before you do anything before you ever go to sell something, talk to him. But you wouldn’t believe how often even after 100 years of existence, we get a call on a deal, the day it’s closing, or maybe unfortunately, the day after it’s closed. So you got to plan ahead. Now, as I said earlier, I like simple. So I’m going to break the exchange in four pieces. One, it’s got to be an exchange, as far as you’re concerned, you’re going to sell something and buy something, the only thing different is you’re going to include a cooperation provision stating your intent to do an exchange. Lot of the state forms have boilerplate in them that allows this to happen. But phase one of the exchange you give us something phase two, we give you something back now when I was talking about a true swap earlier, that’s that’s an exchange in the most basic sense, and you don’t need us but using a third party exchange company, you’re literally free to sell whatever you don’t want and buy what you do want it’s exchange company’s job step in the middle of the transaction and turn it into an exchange. So So one, you’re going to give us some we got to give you some back to what’s gonna receive have to be of like kind the light kind definition. And, you know, I joked about this 30 years ago, I had a lot more hair on my head. But in those days, people say, Well, I remember what it meant a house for house land for land, it’s never meant that, okay, like kind in 1031 context is nature rather than form. So any real property held for investment is going to be like time with any real property acquired with the intent to hold for investment. Now in 2017, we used to do lots of personal property transactions. And and most of those honestly, were high end cars. And and one of my favorite transactions was a we exchanged a 1957. Fiat rappy, I think it was, it was like a three and a half million dollar fee, believe it or not, so we exchanged a Fiat for, I think, two Ferraris and Maseratis, so when do you think that would ever happen, right? But that was a situation where it was a great investment nap. And I we had somebody work with a McLaren f1, which I don’t know if you’re a car guy, but McLaren’s were the McLaren f1 Adrian Newey design. I mean, it’s the most amazing road car ever built from my perspective. And we had a guy make $4 million on one of those in two years. So in 2017, we lost personal property transit, we used to do lots of aircraft and planes, planes, helicopters, even fishing boats, stuff like that, our work, but it was sort of victim to the one percenter stuff the personal property transactions went away and honestly we lost personal property ended up with the opportunities on the OSI is sort of its replacement I’m so so I’m not a real fan of the OSI because I think that’s the reason we lost personal property. But I understand why things were going on the OSI is there to stimulate development in areas that need development and I think it’s great tool for people that are selling other things other than real estate to get it into real estate but I just sort of sidetracked into that whole conversation but you know what, it’s got to be an exchange to what’s gonna receive your light kind and so you know, that that personal property stuff’s all gone now. And and so, so real property you can exchange from dirt into office buildings into strip mall, places, places Beach, retire into all those things are going to be of lifetime. So I want to mention to back to my comment on now. Tene 97 on on section 121, universe exclusion, before that, it was 1034 on that, if you were 55 or older, you had a one time lifetime exclusion on gain on the sale of primary residence. And, and that was 125,000. And that was it, it was a one time deal. And and but but the great thing about was if you sold a home, you had two years to buy new home of equal or greater value, if you did that, you’d be totally tax deferred. Now, you think about the world today, section 121 says an individual’s got a quarter million dollars excluded gain on the sale of a primary residence they’ve lived in for two out of the preceding five years, married couple gets a half million. So in 1997, like I said, those numbers meant a lot. And in today’s world, they don’t. So the reason I bring this up is it’s possible to convert a primary residence into an investment property. And it is possible to convert an investment property into a primary residence. And there’s reasons to do both of those things. And, you know, we have lots of people that do that. And will they on the retirement side of the business, even we’ll have people go out and acquire a property in Florida, maybe they want to retire into and we can do that also with retirement money if somebody wants to do that. Now, you know, that’s another conversation we’ll have another day. But But I just it’s important for people to know this stuff. And I think one of the most fun aspects of what I do over the last 30 years is that so often people think there’s no black and white answers you can or you can’t do these things. And rarely is that the case with tax law is more often the case of how we’re going to get it done. So it’s really a lot of fun when when we’re sitting there looking at a process or looking at somebody’s objective and finding a solution that say, Well, gee, I didn’t know I could do that I thought it was going to be stuck with this or that or whatever it might be. But if we could sort of, you know, I call them little nuggets of knowledge, right, we give people the opportunity. So that like kind thing is one of the big misunderstandings in 1031. Because people think I gotta go house for house land for land, it’s never been that way. So. So the third of my my sort of four cornerstones is what we call the napkin test. And that just says that for total deferral and I want to stress 1030 ones, not all or nothing but to be totally deferred, you need to go across or up in value and equity between the relinquished and the replacement property. And the value of net equity numbers or net closing costs. Finally, we’ve got to have continuity investing. And that means the person re the gave us something has to be given something back. So that example I gave of the two of us owning a building. If we own that building as a limited liability company, the entity can go forward into whatever we want, that’s fine. But if we sold as an LLC, and you want to go, you know, left, and I wanted to go right, we could not do that, because a partnership interest is specifically prohibited. Now, as I said, the biggest problem with any exchange is time that 45 180 The second biggest issue is fasting, because think about I mean, I’m sitting here in Portland, you know, we’re both in Oregon, Oregon’s not a community property state. So if we look at even spouses imagine this, the number of clients I have that will start off, and most people’s first investment is their home, right? And then they you know, get married or have a kid or get a dog or whatever, and the house is not big enough. So they end up either selling the house or they move out of the house keep the thing as an investment property, they’ll buy the next property. So you know, when we’re looking at at people’s ability, because so that’s a conversion from residence into investment. And that’s totally fine. As I said, we can go forward and switch the thing back the other way. But if we look at somebody, they start with one investment property, then they get another investment property, then they get another then their lawyer says gee, you know, now you’ve got three, four or 510 different investment properties, you’ve got a fair amount of liability there. So Let’s shove them into a limited liability company.

Great, fine, that works. That gives you some protection. Now let’s fast forward a couple of years. So you’ve you’ve gone through your investment plan, it’s now time to relinquish that property that’s owned by the limited liability company, you want to go forward into a new property if the property is four units or less, what’s it financed as fast as a residential loan? And if we try to finance the LLC versus the spouse’s, the money is going to be more expensive guy. A lot of people say we can’t finance an LLC, that’s totally wrong. It’s just going to be more expensive money typically. So suddenly, I get the call because our clients who have an exchange setup as a limited liability company are now upset because the cost of money for the acquisition is more and since they live in Oregon, I cannot give them the new property personally. They have to take ownership via the limited liability company. Now if we go to Washington or California Now we can have a husband wife, give us a property and LLC and take ownership of the new property personally, and that’s going to be fine. But you know, that’s just that shows you how easy or how easily that that whole continuity investing issue could be a problem. So I just gave you two scenarios where it’s problematic.

J Darrin Gross 30:19

You know, I didn’t realize the states vary on their vesting rules. That is I want to understand well,

David Moore 30:26

it’s just whether states community property, state or non community property. So that’s going to dictate what happens with the vesting to your point, that’s going to dictate how we can move forward in the exchange.

J Darrin Gross 30:38

Gotcha, gotcha. I’m fascinated me just saw all the things you were talking about there? The I was curious. Yeah, pre 97, when personal property was still in play, what percentage of your your 1031 business was personal property as opposed to real property?

David Moore 30:59

At the top, maybe it was about 20%. I mean, it was a, the car side of it was probably the one that was growing the most just because I mean, and you can see the results of that right now. I mean, if you think about the cost of a car today, and what’s happening, and I think that was just a precursor, because I think anytime we’ve got bumps in the road, in the economic world, people are looking for hard assets, right. And so I mean, sure you go buy a painting, you hang it on the wall, but I mean, an investment car you get to play with the whole time you get to use it and and the things going crazy in value. And you can see, I mean, if you look at any of those auction houses, you know what, what they’re doing, and whether it’s the you know, the Japanese cars, or you know, hot right now, because the other stuffs gone up so much. But you know, everything sort of coming in play, and you can look at any segment of that collector car world and see what’s happening very easily right now. And it’s just, it’s a different place. So that’s what really impacted things there. Obviously, if we’re talking about aircraft, and the other thing is like, for example, hills book, Hillsborough helicopters here in town, you know that they are the largest, or they used to be the largest Bell Helicopter dealer in the country. And so you think typically, if we’re talking about aircraft, the gain is not. And everybody out here understand that the game has nothing to do with profit, right gains simply tax calculation. So it’s your basis subtracted from the sales price. So does a does an asset have to go up in value to trigger tax consequences? And the answer’s no. Depreciation is going to trigger tremendous gains in certain circumstances. And and and if we look at a an economic collapse, we might have a situation where you think you might lose a property foreclosure or a short sale, and you’re thinking, well, not only did I not make any profit on this thing, but I lost everything in it. Well, if you lose a primary residence foreclosure, or short sale, you’ve got some tax relief that’s there on income properties, you do not. So you’ve got to understand that if we have a short sale or foreclosure the sales price is is not quote unquote, the sales price and the government’s eyes, the debt on the property, or whatever is greater sales price is the debt, the debt could be the considered sales price. So if you’ve got a debt over basis situation, you’ve got what’s called phantom gain, and use lost, NASA lost all your equity in it, and you get hit with attacks on top of that. So that’s one of those things where people get, you know, confused, because they don’t well, I didn’t make anything I lost everything. No. Gain has nothing to do with profit. So it’s merely a tax calculation. And the reason I bring that in because personal property stuff, you asked about what percentage of the business was personal property, we used to a lot of heavy equipment to say, okay, heavy equipment does go up or down in value. You know, typically it’s going down in value, but depreciation on that stuff’s gonna trigger again, even on a dramatic decrease in value. You know, when we’re looking at the content I was making on Hillsborough aviation. If you look at a lot of those helicopters in the heyday, the helicopters that the wait to buy one, and you can see that even with watches today, a new watch is cheaper than a US watch, because the new watch you can’t get right so and we had that same scenario going on with aircraft. So it’s really interesting looking at these different things and you might not have an increase in value. It’s just a decrease, but it’s a depreciation driven gain rather than appreciation driven. And by the way, the government’s position on this on depreciation is you should have therefore you did so you You could be a person that said, Well, I don’t want to take depreciation on it, therefore, I’m not going to be liable on on recapture on disposition, government doesn’t care, you could have not gotten to the benefit of depreciation and still pay for the tax on something you didn’t get the benefit of.

J Darrin Gross 35:15

Yeah, I get that. I mean, the totally the I mean, the whole idea, at least the beyond the the reduction of the principle, which was my original idea on investment, once I recognize a depreciation as a holy moly, that that’s really where I’m at. That, to me was the secret of real estate.

David Moore 35:33

Oh, definitely. And to further exemplify that, once again, back to my comment on on who is actually, you know, doing your tax work, if you could just go buy a simple rental house, who makes the allocation, dirt to improvements, and what happens to your return on investment, if you jack up the value of the improvements or decrease the value of the improvements, right? So the more the improvements are worth, and that that’s, that’s the most basic form of cost sag is just dirt to improvements, right. But if you jack up the value of the improvements, you got more depreciation, your return is going to be better. If you look at a commercial building, you’re going to be looking at a situation where you’ve got cost said Cost Segregation studies done. And you know, we were both at that event, one month ago with all rich and that was great event. And but because sag is is one of those big issues there. That’s that’s sort of going to manufacture return, let’s say, Okay,

J Darrin Gross 36:33

it’s, again, the kind of as the investment lessons go, the longer I invest, the more I find that the need for 1031 Exchange exist, and in the understanding and then actually utilizing one. I’m curious, in your experience. You mentioned like when you guys first got started, how you would improve the property, refinance, and then recognize a you couldn’t afford to keep the property rolled into another property. Is there an average hold time that you find that that your customers will hold a property before they’ll take advantage of an exchange? Or maybe if they don’t hold it very long? If it’s newer that they would elect to just go ahead and pay the tax?

David Moore 37:24

Well, I mean, typically, you’re probably ideally looking at three to five years. I mean, unless we have some abnormal event going on out there, that’s going to change things. And the the thing that’s sort of, you know, you look at our market today, and you do the show regularly, but you think about cycles on economic cycles, and how often? How many years typically between some type of bump in the road? Right? And and if you look at our current situation, we’ve we’ve been pretty much going up, up up up since what? Oh, 809 I mean, II think about people’s typical hold. Now there are institutional investors that that have held assets that normally would hold maybe five to seven years. If you look at Delaware statutory trust, for example, or institutional tenancy in common. So DST is Delaware statutory trust, it’s typically a fractional passive ownership and in a pool of assets. tics are typically a value add situation, they’re not stabilized assets. DSTS typically are but you’re normally looking maybe five to seven year hold in the institutional world, most of our clients probably their their more hands on doing seven is probably three to five years. But I would say there’s lots of institutional assets out there that have instead of the five to seven, they might normally have are sitting here looking at assets, they normally have a five to seven year old on and it’s now been a dozen years. And they’re still sitting here so and if you drive around like office buildings, you’ve got a bunch of shadow inventory, they might publish a number say well gee, we’ve got 80% occupancy but drive by him at night. You see how many are lit up you know what percentage of buildings lead and and so it’s very interesting at this point in time to see where we are people’s attitude about it and I don’t when we have changes in the economy, typically it’s Wall Street people are concerned about Wall Street, our Ira business Ira 401k Business increases because people are looking at hard assets once again. And what’s interesting to me in the last six months bad side of business is definitely increasing. So I’m seeing concern from that side. Meanwhile, the real estate world sort of like well, it’s just gonna keep going. I don’t know there’s lots of people out there, they’re a lot smarter than I am but I don’t know how long we can keep going the way we are. So

J Darrin Gross 39:53

I find it interesting how, you know the cycles when you map them out on a chart or whatever they you can see See him on a regular basis kind of thing. But but, you know, like you said in the situation we’re in now, where how much of it is natural versus how much of it has been altered based on, you know, the printing of money. And just the change in the situation based on how COVID has changed, you know, things so much based on people’s desire to live where, wherever, as opposed to just where their job is, or live in a house versus in a, you know, more of a concentrated, you know, unit structure or, or, or retail, or like the office, like you mentioned, you know, how many, how many spaces are actually occupied versus not? I mean, there’s just a lot in play that I don’t think that, you know, have you looked at the cycle from the end of the last cycle? So say 2008, I think most people would have thought we would have been through another major dip by now. Yeah. And so, you know, it but based on all the demand and in the the hot or, you know, the the asset classes that are the most automating the multifamily and, and industrial seem to be, you know, there’s there’s just not enough supply. You know, will it be a, a across the board crash? Or will it be a segment crash? You know, and what’s not to say that what we went through with the front end of COVID? Wasn’t that that dip that, you know, the the market was looking for, or, you know, the cycle was looking for?

David Moore 41:49

Definitely? Well, I think, I mean, historically have Wall Street crash or real estate crash, right? And then that, oh, 708 thing, Wall Street crash, and took real estate with it. And from my perspective, it was just a question of available funds, right? I mean, if you don’t have the ability to move an asset, you’re not gonna move it. And and one of the sort of objections that Wall Street has with respect to self directing a retirement account putting in real estate is that they’ll say well, gee, real estate’s not a liquid asset. So what happens when you hit in today’s world? 72? And you’ve got to take required minimum distribution RMD. And you have, if you don’t have any money there, how do you take the RMD? Well, we’ve got an easy solution, just taking in kind distributions, you just take a piece of an asset or pieces, shares, membership interests, NL C can be done to and there’s benefits to that also. But but you know, in general, you’re right, you don’t want to stock yourself, right. If you don’t want a piece of real estate, you got put on market. And and we had, you know, some huge Unfortunate examples in our region during that crash, where you had very large institutional investment companies that just went away. And and that’s what sort of led us into that whole phantom gain issue that I mentioned earlier, where you had an institutional investor, and it was a passive investment for the taxpayer. And then the thing goes belly up, and now they’re got nowhere to go. But But if we look at so the question is, you know, right now, if we have a meltdown and hurt in Wall Street, let’s say, does it destroy our ability to move assets and in the real estate world, and if the money is available, then we’re going to be just fine with whatever happens there. If money’s not available, then you got obvious tremendous erosion of values. And and unfortunately, today, I would say that a lot of people’s gains are not there. They’re not gains, but they’re not based upon a true increase in value. It’s inflationary, driven, right. I mean, you’ll look at me I joked with my wife about Christmas time this year, I went and went to one of the the real nice butcher shops here locally and walked back into the house was several several $100 worth of beef, right? I mean, I’m thinking, Okay, that should be $30 worth not 200 worth but so you know, it’s a different thing. And, you know, so unfortunately, the the exclusions, let’s say on the prior on the sale of primary residence, they just don’t cover things like they did. And obviously, the laws need to change but nobody’s really interested in doing those things. So that’s what leads us to my comment earlier about people assume there’s black and white answers to things. You know, if you take a home that you’ve got a gain of a million dollars on and you’re married, well, you get a half million of it covered the other half you’re gonna have exposure on does that mean? You’re you’re going to actually have to be stuck paying that and the answer’s no move out of the house, treat it as an investment property for a period of time. You People want to say, well, there’s a set period of time while the code says two years, you got to hold the two years to qualify for 1031. That’s not true. Temporary one doesn’t contain any hard hold requirement. Now, if you and I are brothers, and we swap properties, we’ve got two year old in that scenario. But if it’s an arm’s length transaction, it really has to do with intent. And what’s going on, you mentioned COVID, earlier. So imagine if you bought a property just pre COVID, you closed on it, March of 2020, let’s say now all sudden, wham COVID hits and your tenants, you know, in Oregon, you know, our governor’s Well, gee, the tenants don’t have to pay, right. So now you’re sitting there having to pay the debt service, you can’t afford to pay it. You bought it, you thought it was going to be fine. Could you sell that property a month, two months after you bought it? And in that scenario, I’d say yes. Yeah. Because your your intent was to hold it, circumstances dictated different course of action. So that’s what you know, makes me uneasy these days is when we look at things that we don’t have control of, and the government getting involved with things where they’re just changing the rules with, you know, on us overnight.

J Darrin Gross 46:06

Yeah, definitely some interesting political stuff. And hopefully, we’re through with the shutdowns. And we can, at least, you know, go forward without any more of the overreach there. But I will tell him, David, if we could, I’d like to shift gears here for a second. By day, I’m an insurance broker. And I work with my clients to assess risk and determine what to do with the risk. And there’s three strategies we typically consider, we first look to see if there’s a way we can avoid the risk. If that’s not an option, we’ll see if the way if there’s a way we can minimize the risk. And when that’s not an option, then we look see if there’s a way to 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. And it could be their clients, the market interest rates, political, however you choose to frame the question, but and ask you, what is the biggest risk? And, again, for clarification, while I am an insurance broker, I’m not necessarily looking for an insurance related answer. But if you’re willing, I’d like to ask you, David Moore, what is the BIGGEST RISK?

David Moore 47:25

The BIGGEST RISK for an investor on assets, so the biggest risk in an exchange or what what in what?

J Darrin Gross 47:33

I let you I’ll let you frame framing how you how you see what is the biggest risk could be there are.

David Moore 47:39

So I My biggest concern right now is just government changing the rules on my clients, you know, in the middle of a transaction or after somebody purchased something, and I just see so many situations today where you have to look at somebody’s intent and what they’re trying to accomplish versus what the laws are actually there allowing them to do versus what those laws were actually intend to do. Now, if I look at just complexity, and I’ll just say as far as insurance products, I’m not a huge fan of limited liability companies for holding property. And and if you look at what was proposed, and Biden’s build back better, it You rarely ever see an asset held by a corporation these days, because if you and I own an asset and a C Corp or S corp, we just want to go different directions, just taking the asset out of the corporation is going to trigger taxes that that nullify any benefit of an exchange, you’re stuck in that entity, they want to go mark and mark it on distributions from limited liability companies to so where we talked about community versus non community property states, even with spouses with LLCs, I’ve got clients that will have a single LLC for all their properties, I’ve got clients that will have an LLC for each property, I’ve got clients that don’t use any old C’s, I would say, good stout insurance policy, I’m a bigger fan of than the old C’s because of the complexity of moving assets with the LLC. Now, as I said, if we’re in a community property state LLC is a lot easier to work with, and it is where we live. So, you know, that’s one of my concerns. But my biggest concern right now is just the government changing the rules on stuff. And an example of that would be here, we’ve got the City of Portland and once more housing, and you can argue whether you think VRBO is housing are not, you know, obviously people have sort of shifted instead of long term rentals and renting to people directly. They’re going to use that mechanism so they don’t have to deal with some of the rent control laws. So you know, the Multnomah County changes rule says Okay, so we’ve got a number of clients with the retirement with retirement accounts, self directed IRAs 401k plans that buy rental houses and they were using VRBO for that thing and it worked very well. So they’ve got these assets. That’s property that’s available and all sudden the city can Any state somebody makes a law change. So no, boom, now you can’t own these things you can’t VRBO unless it’s owner occupied property. So now every client I’ve got that had properties used that way with a retirement account, by law, they can’t occupy your, you know, use that property anyway, so that no longer fits. So everybody that had those things now has to sell them and go do something else. So it’s, it’s tough when when we’ve got bureaucrats out there changing laws on things they don’t understand at all. And they change the rules. And then so rent thing, you know, that vacation from Brent, sorry to sound callous on it, but nobody’s giving the landlord that property owner, a vacation from paying the debt service. And everybody assumes that landlord is wealthy person. And I will be the first to tell you, I’ve got so many clients, they are land rich cash for everything they’ve got in that stuff, they’ve worked their tails off throughout their lives to accumulate some pool of real estate. And, and they’re not wealthy people, you know, they need that that’s what they live off of. And they’re good people. And the other thing I’m seeing a fundamental shift in is, with the rent control laws and the changes and what property owners are able to do, you’re seeing a lot of those people put up the the white flag and they’re exchanging out of these assets they can no longer afford to deal with and into these passive investments, the DSTS, the ticks, that type of stuff. Now, what the government people don’t understand, I would say is that the mom and pop that owned the property, they cared about the tenants, they knew the tenants, they really it was a different situation for them, they cared and by the way, you know that $4,300 Move out charge if you don’t do it correctly, that hurts the mom and pop, well, what do you think of REIT a real estate investment trust, I’m seeing a fundamental shift in the ownership of our local property going from local people to institutional ownership from somewhere else. They don’t care, it’s a different deal. So it’s just there’s lots of things happening out there. And and I think it’s all calculated. And so my concerns are just rules changing on people with with really no thought from the government of the true repercussions of those changes. And I see firsthand how it impacts my clients, and it’s not good. So that’s what really bothers me. Most, you know, as far as the insurance, the liability stuff, the LLCs, like I said, a good insurance policy is going to take care of that. You know, the other thing that is always out there to is with, for my businesses, we’re moving money all the time. So, you know, we’re concerned with all the wire fraud stuff, I mean, that’s a huge thing. So having the policies, the insurance policies in place that are going to protect us, because, you know, the business owners got a lot of responsibility, let’s say out there in liability if it’s not taken care of correctly. So that’s something unfortunately, it’s just out there and seems to be growing and growing. And I really don’t understand how they can’t put a stop to that with a flip of a switch. Anything that’s wired has to be received by somebody. I mean, you just locked down that money for 48 hours or something, don’t allow it out. I would think that would change that whole thing a lot. But you know, nobody seems to be looking at solutions like that.

J Darrin Gross 53:27

Yeah, nobody asked you or me. I get it, I get it. I like both of those. I think the the, you know, the government changed the rules is definitely a concern, I think across the board for everybody. And I think that most people that I deal with, they just want to know what the rules are. So they can go forward. Not always being like, a sense of limbo, like, yeah, you know, what, what are we gonna do? What are we gonna do? And then that cyber stuff to the fraud thing? It’s just scary, because it’s just so far reaching and, and it’s, it’s everywhere. So good stuff.

David Moore 54:02

Yeah, it just seems to get worse. And I mean, just change the laws with respect to wire transfers and holding and I mean, you know, I always think about when we’re doing when we do different transactions, we’re doing improvement change or reverse sometimes we’re doing different bank accounts or we do some somewhere else what you have to give the bank to open a bank account today, right? You think okay, that in and of itself should be stopping some that cyber fraud just because to get the account itself, what you have to you practically have to give them your firstborn. And okay, well, you’ve got this account, somebody had to put that information forward. And, you know, whoever put that account together, that money’s going in or out of that account, lock it up.

J Darrin Gross 54:48

So no, I hear you. I hear you. Well, David, I can’t say thanks enough for taking the time to do this. today. Before we shut this down. Where can listeners go to connect or learn more?

David Moore 55:03

Well, I think the probably they say YouTube’s sort of the ultimate search engine these days. So I if you want to learn more about what we do 1030 ones all different aspects of the process. And actually, we we’ve worked hard to have information on our YouTube channel. So just type in Equity Advantage 1031 on YouTube, or IRA Advantage, Self Directed Retirement Acounts on YouTube and our pages will come up. And there’s videos on everything from life, life policy, sales or investments, charitable remainder, trust cost, seg DSTS, tax all kinds of different aspects. It’s not just us talking about why should use Equity Advantage for an exchange, our channels are all up there for informational purposes. A lot of the information doesn’t even have anything to do with 1031. We just want our clients to be informed and understand what’s possible out there, because so often, they’re told you can’t do this, or you can do this and both of those answers can be totally wrong. So you know, as I said earlier, I like just break it down to those four basic elements. If it’s an exchange, it’s got to be an exchange, like kinds got to be satisfied across or up and value in equity, and investing and in retirement accounts. It’s really even more basic, I mean, you’re just looking at what the person wants to invest in, and who are they transacting between for the benefit of and those two things are going to dictate whether you can or can’t do something. So I like as I said earlier, simple. So we try to get the information out in a format that’s going to allow people to understand instead of getting into the weeds with the legalese of it, but I like to say there’s no absolutely no such thing as a dumb question. Right. So you got a question. Reach out to 1031Exchange.com is our URL and just reach out anytime with questions you may have. Even if you’re working with someone else, we’ll do what we can to help y’all so.

J Darrin Gross 56:58

Awesome. David, I can’t say thanks enough. It’s been a real pleasure speaking with you today. I’ve learned a lot and I look forward to doing it again soon.

David Moore 57:08

I enjoy it. Thank you very much for the opportunity, Darrin and Happy New Year to you and everybody out there and and look forward to working with you going forward.

J Darrin Gross 57:18

Announcer 57:37

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.

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