Whitney first applied this lesson to his pre-real estate careers as a member of the military, a police officer, a federal agent, and a horse trainer.
When he hired Joe as his coach, Joe told Whitney that it is great to have a never give up mentality but that he needed to focus on putting that mentality into actionable steps. As a result, Whitney started his daily real estate podcast, “The Daily Syndication Show,” which he attributes in part to the growth of this business.
Whitney’s second lesson is how to use focus to scale a business. He was a federal agent by day and horse trainer/farmer by night. Once he decided to go all in with syndications, he sold him farm. With this renewed focus, he was able to launch his syndication business.
His other lesson for scaling a business is to find a partner. From his podcast, he discovered that those who had rapid results had a business partner. In fact, Whitney met his partner at his second Best Ever conference.
The mission of Whitney’s company is to help other families through the adoption process. He said that there are 160 million orphans in the world. And the cost to adopt just one child is between $40,000 to $60,000.
The three main drivers of real estate demand are population growth, GDP growth, and employment growth. Compared to previous periods of expansion, these three factors are lower during the current period of expansion. Additionally, these factors are nearly identical to the interest rates (i.e., the costs of real estate). As a result, the current expansionary period has been more stable and has exceeded the typical 10-year periods of expansion in the past.
The three metrics that run real estate cycles are vacancy, rent growth, and income. When vacancy is low, rents increase. When rent increases, income also increases.
Since these are the factors that run the real estate cycles, you should be analyzing them on a frequent basis. And the best place to stay up-to-date on these metrics is CoStar. Either purchase a CoStar subscription yourself or leverage a relationship with a broker who has their own subscription.
Why? Because of the Amazon and Walmart effect. Amazon’s online business and the resulting increase in Walmart’s online business has benefited the industrial asset class the most.
Jilliene’s father was in the import/export business and always talked about the perils of inventory. At 17 years old, when her father asked her what she wanted to do when she grew up, the said she was going to sell money so that she didn’t have to deal with the same inventory issues as her father.
Her first transaction was a duplex in a class D area. Her most recent deal was a $60 million transaction. If she didn’t take the leap and acquire the pretty scary duplex deal, she wouldn’t be where she is today.
She was afraid to raise money from family and friends. To overcome this fear and change her mindset, she started parking illegally all over LA. She ended up paying over $1,000 in parking fines but was able to change her mindset around fear and taking risks.
To minimize the “wrongness” Jilliene always includes a minimum 10% contingency budget, because you don’t know what is going to happen.
Use a cap rate at exit that is at least 1% greater than the cap rate a purchase.
Reduce the number of units renovated and re-leased per month. Four to six units per month, sometimes up to eight, is a more realistic assumption.
Increase the vacancy and bad debt during the renovations period. Expect more tenants to leave because of the chaos that comes from the construction process. Also, someone who can afford a $600 rent may not be the same demographic that can afford a $800 rent, so expect a lot of tenants to skip
When investing in agricultural land, it is ideal to have easy access to water.
Specialize in a crop that is in your wheelhouse. Stuart focuses on cherries and apples.
It is better to invest in land that already has the infrastructure rather than starting from scratch.
The more common way to invest in agricultural land is the tenant-lease model, which is when someone buys the land and a farmer leases the land. The less common but more profitable model is the direct investment, which is when someone buys the land and farms the land.
Adrian’s first business model is to raise money for hotels in foreign countries where the investors can actually vacation at the investment. His other model is to find and sell apartments to his investors in foreign countries. The investors benefit from both returns and a lifestyle experience.
Suburban offices have been looked down upon during the last few years. However, once millennials start having kids and moving out of the urban core, suburban office will have a resurgence.
Speakers: Dugan Kelly – KellyClarke Law, Merrill Kaliser – Kaliser
& Associates, Robin Sosnow – Managing Partner, Sosnow & Associates
There are online platforms, like CrowdEngine, that help questions to ask when buying an apartment syndicator advertise their 506(c) deals so that they don’t have to start from scratch.
With 506(b) offerings, you cannot drive traffic to your deal or website when posting on social media but you can talk about putting a deal under contract or closing on a deal. If you don’t follow this practice, you will lose your exemption and need to change to a 506(c) offering that allows for general solicitation.
The SEC isn’t looking for syndicators who are not in compliance. They get involved if an investor reaches out to them. An easy solution to this disruption is to buy them out, especially if they are a smaller investor. It will save both money and stress.
This is different when a few people invest and are actively involved in the deal, which is called a JV.
Actively involved could be someone investing a lot of money who has a say over the fees the sponsor charges (i.e., acquisition fee, asset management fee).
JVs are much more cost-efficient on smaller deals compared to syndication.
Mark focuses on uncovering any hidden fees. He will request a spreadsheet that lists out all of the fees.
Ansa is a return chaser and wants to invest with a syndicator that she believes has a good track record and that she has a good gut feeling about.
Lue actually doesn’t read the PPM. He is more focused on the person who is putting the deal together and that they are trustworthy.
Mark’s major red flag is when syndicators overpromise or underpromise on the returns. He eliminates anything that is below a 10% return and anything over a 25% return.
To avoid investing with a syndicator who has any red flags, Ansa talks with people who’ve invested in the past, talks to the principal to make sure they are focused on the operations over the sales and that they understand the financial aspect of the deals.
A lesson Lue learned on an unsuccessful passive investment was that the property management company makes or breaks the deal. Therefore, having a back-up property management company is a must. If the first one needs to be fired, the back up can quickly take over as opposed to an extended period of time where there isn’t a professional management company.
Speaker: Celeste Tanner
When considering a merger, the most important question to answer is “are we complementing each other or are we cannibalizing each other?” Companies who cannibalize each other have the same strengths and same weaknesses. Ideally, one company has strengths that are the weaknesses of the other, and vice versa.
Things that they must be aligned on include how to approach profits, investors, financial interests, trust in leadership, diversity of investments, and governance/accountability with board of directors and investors.
Have a thorn. A thorn is a negative experience that you can draw upon to propel yourself forward. Joe’s thorn was losing money on his first deal – among other things that went wrong with the deal and around the time of the deal.
The three components of a thorn are that it needs to cut deep, it fades over a certain period of time, and you need to document the thorn.
If you don’t have a thorn, manufacture one. If you need to manufacture a thorn, you need to know what the quantifiable objective is for the manufactured thorn. For example, if you don’t read one paragraph every day for a week, you have to hold dog poop in your hand and lick it. (that’s right – I said dog poop).
The number one thing you can do to raise more money is to hire a data scientist. We use data to find markets and underwrite deals, so why should you use data to find more investors.
Things to look at include investors who invest multiple times, largest investors, cities they prefer to invest in, lead sources, loan preference, and top repeat investors.
Having the right team members impacts your ability to scale a business. That means hiring people who are both talented and a good fit with your company.
You can hire people who are talented but are not a good fit. And someone who was a good fit when you first started your business doesn’t mean they will always be a good fit.
To determine if your team members are a good fit, the two questions you should be asking yourself on a quarterly basis are: (1) are the responsibilities that I hired this person to initially do the same responsibilities they are doing today, and if they aren’t, are they uniquely talented to fulfill those new responsibilities and (2) knowing what I know now, would I rehire this person?
Speakers: Tyler Burke – Investment Associate, Spartan Investment Group, Josh Davis – Owner, Davis JM Capital, Kevin Bupp – Owner and CEO, Sunrise Capital Investors, Matt Owens – Owner, OCG Properties
Kevin Bupp lost it all during the financial crisis of 2007-08. Among many investment lessons learned, one was that quickly scaling an SFR business is inefficient. He owned 120 SFRs spread across multiple counties in Florida. As a result, there were maintenance inefficiencies, management inefficiencies, and financial inefficiencies. That is why he now prefers more recession efficient asset classes like mobile home parks.
Matt Owens’ business also took a hit during the financial crisis of 2007-08. In hindsight, he realized that his success wasn’t based on a fantastic business model but a business model that only thrived during certain parts of the market cycle. His fix-and-flips were successful because the market was great for the fix-and-flips. When the market was no longer great for fix-and-flips, his company suffered.
Now, he always makes sure the numbers would make sense on his fix-and-flip deals during any part of the market cycle.
Josh’s hardship wasn’t real estate related. He was discharged from the military, fell into drug addiction, and landed himself in prison. Eventually, he learned to turn his negative addiction towards drugs into a new addiction of working harder than everyone else in real estate investing and is about to complete his first active deal.
Speakers: Dan Handford – Managing Partner, PassiveInvesting.com, Roni Elias – TownCenter Partners, Jeremy Roll – President, Roll Investment Group, David McAlvany – Precious Metal Portfolios
Roni makes money with a publicly-traded litigation company. Each fund has 1000 cases and he has a 90% win rate on 25,000 cases. The IRR on the funds are in the 60%+ range. For example, a personal injury fund could make a 16% IRR in less than 16 months and then 50% or higher over time.
Jeremy invests in ATMs. The investment funds have a 4 year payback period and 7 year term. The funds result in a fixed cash-on-cash return of 24.5% and an 18% IRR.
David invests in precious metal portfolios. He likes these investments because they are not tied to the financial markets. If the overall economy worsens, his investments thrive.
Speaker: Alex Racey, First Principles of Performance
These three principals are all tied together. If you are suffering in one, you suffer in all three and your performance suffers as a result.
Most people fall into one of the following three performance categories.
First is “kick the can.” This is someone who was a star athlete in high school or college. They shifted 100% of their focus from athletics to their job. They make a lot of money but their physical, mental, and emotional health is lacking. They tell themselves that they will eventually refocus on their fitness.
Second is “head in the sand.” This is someone who is overwhelmed by the number of fitness routines and diets and say, “screw it” and decide to ignore them all.
Third is “all good.” They work out and eat well but ignore ongoing pain and issues, like joint pain, back issues, etc. Alex says this is the category he falls into.
To optimize your performance, you must optimize your eating, sleeping, and moving. Alex says the best approach is to Google metabolic flexibility for eating, sleep hygiene for sleeping, and minimum effective dose for moving.
Speakers: Brandon Kramer – Senior Associate, Marcus & Millichap, Celeste Tanner, John Comunale, Nick Koncilja
There is a major difference in returns for 22 ft vs. 24 ft ceilings, having cross-docking capability, and laser leveled floors, for example.
Warehouses have been the best performing asset class for the last 5 years. And is forecasted to continue as such for the next 5 years.
Due to low construction costs, low operator exposure, and low turnover costs, cap rates on industrial assets are nearing multifamily cap rates.
Speaker: Damian Lupo – The eQRP Company
70% of your earnings go to the IRS over your lifetime. eQRP can drastically reduce this number.
Using a SD-IRA to invest with compared to an eQRP is slower, has a lower maximum deposit amount ($6,000 vs. $57,000), and results in a tax bill, whereas eQRP is faster and is tax-free.
Only invest with self-responsible people, have no more than 5% of your capital in any deal, and don’t invest in dangerous places (a security guard was murdered at one of his properties).
Speaker: Clint Coons – Anderson Advisors
When you are thinking about protecting your assets, the wrong question is how much will it cost? The better questions is if I get sued tomorrow, how many assets will I lose?
You should separate your investments into separate LLCs. If you group your properties together under one LLC, one lawsuit puts all the properties at risk.
If you are sued, your personal cash is at risk. Set up a separate LLC and deposit profits into a bank account under the LLC’s name.
Set up a separate LLC to make the offers. If you end up walking away from the deal, the seller can sue you personally for damages, especially if the value of property dropped during the time the property was off the market.
You can always assign the contract to yourself later.
Speaker: Gene Guarino – Residential Assisted Living Academy
In doing so, you can charge a higher lease amount than you would be able to charge by using the home as a regular rental.
The average cost for assisted living is $4,000 per month per person, and the resident will pay all cash. Much better terms than your typical rental.
Speakers: Jamie Smith, Jilliene Helman – CEO, RealtyMogul, Neal Bawa – CEO and Founder, Grocapitus, John Sebree
Only buy long-term value-add deals in quality markets with quality underwriting and management.
When you sell, you lose the future wealth potential and you are taxed on the income.
Three other reasons to buy now is that interest rates are extremely low, there is a huge demand for multifamily investing but not enough supply, and you will lose 2% each year due to inflation if you are liquid. Even if the returns are lower, it is better than having your money lose value while sitting in a bank account.
You should be playing defensive and investing in asset classes such as mobile homes and workforce housings, which continue to perform during recessions.
People are no longer underwriting deals based on fundamentals of property but on aggressive proformas. They are also more leveraged and securing loans with longer interest-only periods, and sponsors are trying to maximize their fees.
The government is continuing to spend our tax dollars to create inflation (i.e., quantitative easing) which is unsustainable.
Rent growth is slowing and expenses are increasing, which means NOI growth is slowing
An economic slowdown is inevitable and you want to have cash to take advantage of the opportunities.
People are now buying overpriced properties from veteran investors who are waiting for a recession.
There is a trillion-dollar debt deficit.
People from get-rich-fast courses are flooding the market.
The FED continues to cut interest rates even though the economy is supposed to be strong. What do they know that we don’t know?
Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.