Brian Alfaro of Headway Capital Investments provides valuable insights on how to succeed in the competitive world of commercial real estate investing from building trust with investors to navigating the complexities of raising capital.
Brian Alfaro | Real Estate Background
- Headway Capital Investments
- Portfolio:
- 3,335 units
- Based in: Houston, TX
- Say hi to him at:
- Best Ever Book: 7 Habits Of Highly Effective People by Stephen Covery
- Greatest Lesson: Watching somebody else succeed on a deal I backed out on just because I was scared. Don't get stuck in analysis paralysis. If you've done the math, and it works, go for it.
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Transcript
Narrator:
Quick disclaimer, the views and opinions expressed in this podcast 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. For more information, go to bestevershow.com.
Brian Alfaro:
Nobody has a hundred percent track record, but what you want to do is you want to make sure you're working with people that are trying to cover every base that they can so that if something goes wrong, you know they at least tried.
Narrator:
Welcome to the Best Ever Show, the world's longest running daily commercial real estate podcast. Our hosts interview commercial real estate experts every day to get you the best advice ever with none of the fluffy stuff.
Joe Cornwell:
Best ever listeners, welcome to the best real estate investing advice ever show. I'm your host Joe Cornwell. And today I'm joined by Brian Alfaro. He is a owner and operator of Headway Capital Investments. He is a syndicator. They've syndicated over 3000 units. They're based in Houston, Texas.
And this is his first time on the show. So Brian, welcome and thank you for joining us today.
Brian Alfaro:
Absolutely Joe. I really appreciate the invite. Big time fan, big time listener. So great opportunity here. I appreciate it.
Joe Cornwell:
Awesome. Well, we're happy to have you. And I know you mentioned briefly that you are the head of investor relations in your company. Is that correct?
Brian Alfaro:
That's correct.
Joe Cornwell:
Awesome. Since this is your first time on the show, tell me a little bit about your background and what you were doing before you got into real estate.
Brian Alfaro:
Yeah, great question. I appreciate you asking that. I'll give the audience some color here. So I started investing in real estate in 2018. Like a lot of people that are in the real estate space, I came from a different industry. I was in the restaurant industry for a long time. I worked at a large restaurant franchise for 15 years. I started a coffee concept as well with some partners. And so I was essentially in customer service and hospitality for a long time.
My late twenties, my wife and I were buying our first house. So I'm a big reader. I was reading a lot of books on how to buy your first house, things to know about real estate. And I started just picking up on a lot of real estate investment knowledge along the way, found big podcasts like yourself, some of the other shows out there and the big blog forums that are talking about real estate in particular and fell down the rabbit hole. And I realized that most successful people down their career that are millionaires, that accredited investor status that everyone's chasing at a young age, they all had real estate, a part of their portfolio. Sometimes it was the whole thing, but a lot of times it was just a piece of the pie.
Me being in my late twenties at the time, I decided now is a great time for me to go down this rabbit hole because as any type of investment, there were risks involved and if I was going to make some mistakes and step on some landmines, I'd rather do it in my late twenties when I can hit the reset button, but I didn't know what I didn't know.
So I started in single family housing, like a lot of people do. I was just buying rental properties from wholesalers and mishandled properties that were on the MLS had a small portfolio and very quickly realized that it wasn't the path that was best for me. I know people that love residential real estate, they still do it really well, still think it's a great asset class, but I was looking to getting to something of larger scale. I was looking to build my net worth at the time, especially being a younger age, and I was really looking to be in a more professional type environment. And residential real estate has a really low barrier to entry. So there were just different types of people that I personally aligned with.
So I started looking into commercial real estate late 2019. I think Joe's book was probably the first book I read. Figured out everything about JV deals and syndications and worked with a small startup boutique private equity firm here in Houston, after I got some mentorship on how to evaluate deals, how to raise capital for deals, how to find good deals, and we were off to the races.
And about two and a half, three years later, I joined the Headway team earlier this year as the director investor relations, which is what I was doing previously. And I'm really passionate about just talking to investors, getting to know their background and finding a way to add value to them from the education standpoint so they can make good, savvy, risk adjusted decisions, even if they don't invest with us. So it's all about providing that knowledge. So that's how I got to where I am today.
Joe Cornwell:
Awesome. There's a ton of stuff in there I want to break out. So the first thing you said, that stuck out was you were personally investing. You said in sounds like some single or small multifamilies, is that correct? So what year did you start that?
Brian Alfaro:
I think I started looking in 2017 and it took me about six months to buy my first rental just because confidence analysis paralysis, all that stuff, right? The same thing happens in multifamily. It took me about six months. So I would say the first quarter of 18 is when I actually closed on my first property.
Joe Cornwell:
Okay, and where are you based?
Brian Alfaro:
Houston, Texas.
Joe Cornwell:
You're in Houston also, okay. I know your company was, so you're in Houston as well. Okay, so, how far did you get on that path of the small multis and single families before you transitioned into wanting to get into the larger deals?
Brian Alfaro:
It took me about a year and a half, to be honest. There's a lot of frustrations along the way. When you're doing everything on your own, time is your most valuable resource. And then also the thing you realize when you're in real estate, it's a very cash intensive business. And even though I had a good job, I had some money saved up. I didn't have millions of dollars to go and scale a portfolio or even a sizable amount that if a bunch of bad stuff happened at the same time. I could really do some damage to my personal financial situation.
So what I was realizing was I would make $250, $300, $400 per property. And I'll use the term profit very lightly. And then an AC would go out and you'd spend five or six grand. The first property I bought had a $12,000 plumbing issue 90 days after I closed on it, because I didn't know what I was doing and I didn't scope the lines. So I got years of cashflow just washed away.
Even though that property was cash flowing three or $4,000 a year, just by that one mistake that I made. So I started to see that kind of being a reoccurring theme on the portfolio I had where I would get cashflow, but it would be washed away every time I was renovating a unit after a tenant moved out or if there was a big mistake, which is what led me to think bigger.
Joe Cornwell:
Yeah. And that makes sense. I've heard that story a lot from a lot of investors that buy single family, even small multifamily. And it's like, if you're not at a large scale, same thing. You can have one problem or a couple of things happen that eat up all of your cashflow for years potentially. So yeah, it's a common theme that I've heard over the years.
Now at 2017, 2018, you started investing. Were you still working actively in the restaurant business? I know you said you had your own business or were you working in another job at that point?
Brian Alfaro:
Yeah, I was still working in the restaurant industry. It had a business that I was in charge of. And then I was also launching a startup at the same time. So I guess you can say I'm a little crazy. I was doing a lot at the time, but yes, the real estate was, I hate to call it a side hobby at the time, but it was a side hobby because it was something that I would do on nights and weekends. I would underwrite deals and talk to realtors and talk to wholesalers. And I just had the flexibility at the time.
Joe Cornwell:
So what was the role that you were at? And I know you said you had a coffee shop. Style. Do I understand that correctly? Okay. Tell me a little bit about that. Are you still actively involved in that? You still in that business? Did you move out of that?
Brian Alfaro:
No, I'm not actively involved anymore. I stepped away about a year ago actually to focus full-time being into the multifamily commercial real estate space a little over a year ago, but it's really challenging. I really respect people that are able to scale their portfolio and work a full-time W2 job. Is it possible? Absolutely. I'm sure you've had hundreds of guests on here that have great success stories, but there becomes a certain point where you have to ask yourself, especially when you have investors capital and you're being a fiduciary of other people's money, when do I take that leap? When do I make that move?
And there are risks, there are financial risks involved and other things you have to be considerate of, especially if you're making pretty decent money at your potential job or business that you own or operate. But for me, it just became a matter of, I really wanted to focus on this one thing because I knew that where you put your energy would where you get your results.
Joe Cornwell:
Yeah, absolutely. And obviously this is our first time meeting, but I worked as a police officer for 10 years total, but I had overlapped real estate with the W2 job for about five years before I left and went full time in real estate. And it is frightening taking that leap and it's difficult to do, but I think for me personally, it was more difficult to stay working 80 hours a week that I had done for five years than try to continue doing both simultaneously.
So, I think for a lot of entrepreneurs and real estate investors, there comes a time where you have to make that decision. Are you going to focus on your career with the W2 and stay in that field and then maybe invest passively or like you said, ultimately focus on the investment business and grow and scale that. So yeah, that's a great point that you made there.
Brian Alfaro:
One thing I like to say, Joe, just the way I like to phrase this is I always say, do you want to invest in real estate or do you want to be a real estate investor? And that sounds kind of weird, but the way I think about it is it's basically, do you want to be a GP or do you want to be an LP? Because saying I want to invest in real estate, well, you could just be a JV partner and be the cash guy, or you could be a passive investor, be a limited partner in a syndication and be a passive partner, right? That's investing in real estate.
Now saying I want to be a real estate investor, essentially you're owning a business, like starting a real estate syndication firm, private equity firm, property management company, we're vertical at head, we have a property management wing as well with over 60 employees.
So like that's a business, we're running a business over here. This isn't a side hustle where we're just putting some money into some deals or some other people's deals. And I think it's important for all the listeners that when they're first starting to decide which bucket are they in, if they just want to invest passively and enjoy the benefits of real estate, and if it's not a syndication and a JV dealer and a partnership deals, there's tremendous opportunity to do that without having to do all the hard work that Joe, you and I know that it takes to really get these deals done.
And if you're in that bucket, awesome. Stay in that bucket. There's no need to necessarily hop over to the other bucket until maybe there's a certain point in your life where you feel that makes sense. But if you're the other way around and you want to get your hands dirty and you have the time to invest both the time and the energy and being on the active side can be very beneficial as well, but you really need to decide, do I want to invest in real estate or do I want to be a real estate investor, which is essentially it can feel like a job.
Joe Cornwell:
Yeah. Let's talk about that for a second. And it's interesting you make that point. So I talked to a ton of new investors of all ends of the spectrum. So I'm an agent also, and I'm based here in Cincinnati, Ohio, but I also buy my own apartment communities and I've started raising money and doing joint ventures.
So the reason why I say all that is because this leads me to having different types of conversations. So I'm going to give you an example based on what you just said. I had a client a few years ago, Google engineer making really, really good money, high level Google guy. And I don't know exactly, but let's assume several hundred thousand dollars a year in salary or more. And one of the conversations we had is he wanted to get into flipping houses in the Midwest. And I'm like, you're talking about taking on, even if you're just managing the process, probably 50 to a hundred hours minimum of at least overseeing the process remotely to make 20 to 50K if things go really well.
So using that as a framework, it's like sometimes as an investor, whether you're active or passive, you have to decide what is the value of your time. It's like, if you're making 500K a year or more, does it make sense to take all that time and risk to try to make a 20K or 50K profit that's not even going to be taxed advantageously. So obviously through that relationship, we were able to help them do something more productive with their time.
But the point being that I think everybody listening to this needs to decide, like you said, what makes sense in your life? And that's something you have to evaluate as a new investor, because if you are somebody who's making 15 bucks an hour, well, then maybe it makes sense to be active and do something that's going to multiply your income that is a more active role with even taking on some of that risk. So yeah, I think everyone has to evaluate that for themselves.
So back to your story here, let's go back to, you said you were working with another real estate firm prior to your current role. Do I understand that correctly?
Brian Alfaro:
Yeah, I was in the same seat and I had a couple of partners I worked with and we started a boutique firm and then made the jump to a larger firm earlier this year.
Joe Cornwell:
Okay. Tell me a little bit about that if you can, whatever you can share. I just want to understand your trajectory and your journey.
Brian Alfaro:
I was working with a couple of partners that had just started a small private equity group here in Houston, definitely a startup shop. The more and more you talk to people, you realize this is very common. A lot of people are very interested in getting a piece of the pie. They want to get into commercial real estate in particular.
Sometimes for the same reasons, they've gotten burned by residential real estate. So there's a lot of groups that are being started, especially from 2015, like 2021. I felt like every time I was going to a party or dinner, somebody was getting their real estate license or starting a syndication group and it was really attractive, right? So I was able to find a couple of partners that had just been that. And we had a lot of success and they're still around and doing really well. In my seat, that company was the director of investor relations, same position. That's really where I got the opportunity to learn how to talk to investors because when you're first getting into this position, it sounds easy like, hey, just go out there and talk to investors, but it's an art and a science to really speaking to somebody because everybody's different, everybody has different goals.
It's essentially, I like to tell people, it's a sales position. And I don't mean sales like in a bad way, people will say like, oh, I'm not a sales person, I don't like sales people, I'm not in sales. Well, we're all selling something whether you realize it or not, whether you're selling your boss.
I told this to somebody the other day and they're like, yeah, you're selling your wife. You're selling your kids. It's time for bed. You're always selling something, right? So I got into this position and I was always in hospitality and in operations and in customer service because of my restaurant background. So talking to people was very natural for me.
One of the things I didn't realize until I started doing it was one, how to connect with the person on the other side. The conversations aren't always, you get on these calls when you get on your first investor call and you think they're going to ask you questions about cash on cash, IRR, equity multiples, the capital stack. You get so obsessed with the numbers when you realize that a lot of these investors just want to get to know you as a person and your firm and where you've been and why they should trust you.
So I got to really sharpen my pencil, so to speak, at that firm and really learn how to talk to investors and then also understand commonly it's more common that it's a long sales cycle. Meaning if I meet you Joe and you're a high net worth investor and you like what I'm saying, you like our firm, you like our track record. It's very unlikely that you're just going to wire me $100,000 right there. Of course it happens, it's happened to all of us, but nine out of 10 people, I would say, they kind of keep their eye on you. They might be three months. It might be six months. It might be a year. It might be two years before they decide, okay, this company, this guy, he's not a blip on the radar, which happens, right? You get these people that get ideas. They start companies and then disappear. And now they actually trust you because the thing you told them six months ago, 12 months ago, 18 months ago, 24 months ago, you're actually doing what you said you were going to do.
They see you buying deals. They see you doing podcasts. They see you hosting events. They see other investors working with you and now they have a little bit more confidence that you're an actual legitimate business. So I spent time there doing that and was able to, like I said, find Headway, which is a larger firm that's been around since about 2017, same time, a little over 3000 units. And it was a natural plug and play for me because I already was able to sharpen my pencil and develop those skill sets.
Joe Cornwell:
Yeah. And that makes sense. What you're saying. I took a note here on something you mentioned and I want your feedback and what your thoughts are on this, but when you're mentioning selling people on something and obviously having an agent background, the way I try to look at sales on a positive light, and I know there's a lot of people with negative connotations on any sales position, certainly we all see what's happening in the headlines with real estate brokerage market and there's some negative things being said there.
But the point being that I think effective sales of any type are offering the end buyer, whoever the client is a solution. If they don't have a problem then you're not going to be able to effectively give them a solution. And those may be people that aren't a good fit for whatever you're quote unquote selling.
So as you mentioned in your role with investor relations, if you're on a call with somebody who's a potential investor and it's not a good fit for what you're again, quote unquote, selling, then how does that process work? Give me an example of somebody that you may speak with where you know, it's not going to be a good alignment with your company. I guess let's start with that. Yeah.
Brian Alfaro:
It doesn't happen very often because we try to be very tailored with our content, with our messaging, when you're filling out a form to schedule a call, it asks you very specific questions. So you kind of don't make it to the end of the funnel if you're not that person. Right. But it still happens. If that happens, somebody gets on a call, for example, and says, I'm looking for something where I can get my capital back in 12 to 18 months, for example.
Let's just say we're typically pitching a syndication deal on a passive investment, long-term opportunity, three to five years, three to seven years even. In those types of situations, what I always try to do is still figure out a couple of things. One, how can I add value to them? So if I know somebody that's doing something totally different than what I'm doing, maybe I know somebody who has a short-term fund. Maybe I know somebody who's flipping small multifamily or just houses or just some other type of investment vehicle. I'm like, look, you're not a good fit for us. It doesn't sound like we can solve the problem you're trying to solve and provide you that liquidity that you really desire, but here's what I can do. I have a guy in Cincinnati. I have a guy in Kansas city or whatever, and he has a specific product that I think might be a great fit for you.
So what I can do after we get off this call is I can do a warm introduction. I introduce you to him and then I highly suggest you guys get on the call because he could be potentially somebody that you work with in the future. And I just wanted to make that warm introduction for you. Right. So I try to add value in that way by connecting them with somebody that might be able to solve their needs.
And I always found that what goes around comes around is kind of how I think about it. Cause sometimes that person circles back around and what I usually always ask for too, and again, just being more tactical with your investor relations skills, like, look, it sounds like this is not a good fit for you, but before we get off this call, do you know anybody that you think might be a good fit as well? So I'm doing you a solid, I'm making a referral, I'm making a warm introduction, but I also want to ask you for the potential opportunity to make a referral as well.
Like, oh yeah, my friend Bob who works with me at work, he'd be more interested in something like this. Well, awesome. Well, I'd love to have the opportunity to talk to Bob. I'm going to send that warm email introduction. If you could return the favor and do a warm email introduction to me to Bob, I would really appreciate that. And I would say over half the time that happens when you ask, but if it's sales, right, in life, if you don't ask, you don't get. So if you just say, Oh, not a good fit. Well, appreciate the call. And you just hang up, well, you wasted their time, you wasted your time, and then you didn't find any potential opportunity to add value to them. And you didn't also ask for something in return that can make the call still worth it.
So that's typically my approach when we have those types of situations.
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Joe Cornwell:
If you had an investor come to you and they wanted a 12 to 18 month period, what would your advice be to someone in that situation?
Brian Alfaro:
First of all, I will say now, one of the products that we launched here at Headway not too long ago is we actually have a short-term fund. So we actually have a fund that we now offer investors because this was actually a really common question. We were spending a lot of time finding investors and found that they were still looking for liquidity. So I would start talking to them about our short-term income fund, which can get your cash back in 90 days or less. And it has a $25,000 minimum.
So that would be that now, but I would say before we had that fun, what I would do is exactly what you just mentioned is I would try to think what type of other value can I create for them. And then also I would ask them other questions to see like, okay, you got to peel back the onion a little bit is what I like to tell people when I'm necessarily say coaching somebody on investor relations is you have to ask questions about why that liquidity is important to them. Because what some people don't realize is they might think they want liquidity, but maybe they have a million dollars in cash.
If you have a million dollars in cash, very unlikely that you don't need all of it to be liquid, right? So the question then becomes, at least when I'm thinking through the sales cycle, is how much cash do they have? What do they need that liquidity for? Why is that liquidity important to them? And then I still wanna find out, have they ever invested in a long-term syndication before? If not, why? What's held them back from investing? Because my goal would be, if somebody told me they had that much cash sitting on the sidelines, my goal is still in that opportunity is before we even had the income fund, my goal in that opportunity was to try to see is there an opportunity here where I can show them the value of investing in one of these long-term syndication deals.
I would love to have their million dollars, but if they just invest 50,000, if they invest $100,000, that's still a big win in my book. And in my pitch in that situation is diversification of your portfolio. I don't want you to stick all your million dollars in one short-term investment, or even if you divvy it up a little bit, because that provides you with some potential risk.
I think it still would be smart if you're a savvy investor to invest in long-term things from a risk adjusted standpoint. So I think these opportunities may still be a good fit for your portfolio. So I would want to ask, do you have anything in your portfolio that is long-term right now? Have you invested in any syndications? And if not, then I would want to pitch the value on why they should consider this as an option.
Joe Cornwell:
Yeah. And that makes complete sense. And my other thought would be personally as an investor, if I know I need X amount of dollars in six, nine, 12 months, whatever it is with the way the money markets and treasury bonds and things like that are at near record levels. It doesn't even necessarily make sense to tie your money up. If you know you're going to need it.
Brian Alfaro:
And a lot of it too, is just the psychology. The reality of the people that we talk to Joe is a lot of them, they aren't as concerned about cashflow as you'd think. Cashflow is really important in an investment. If you don't have cashflow, the whole thing doesn't work because you need the cashflow to keep the lights on is how I like to think about it.
But really most of the high net worth investors, the doctors, the attorneys, the lawyers, the C-suite executives, your ideal investor avatar, they make a ton of money. Like your Google guy you just mentioned. Let's say that guy makes $300 or $400,000 a year. If he invests in a deal for me and let's say he writes a $100,000 check and I give him, let's just say a 7% return, that's $7,000 a year. This guy makes $100,000 a year, $350,000, $400,000 a year. Does $7,000 a year change his life? No. He probably spends more than that on a monthly basis.
So really what he's looking for is he's looking for capital preservation, he's looking for diversification, he's looking for upside because that's really where he's gonna make a majority of his money, and he wants to partner with somebody who he feels he can trust. That's really what they're looking for. So sometimes you just gotta pull the conversation and figure out what they're really looking for because if somebody tells me they have a ton of cash and they make a lot of money at their job. To me, there's no reason, even though people are concerned about, I can get a five or 6% return from a short-term CD or long-term CD or treasury yields and all that stuff.
I'm like, yeah, you can, you absolutely can. But what you're not going to get out of those is you're not going to get the long-term appreciation. You're not going to get the upside. You're not going to get the depreciation and the tax benefits that come along with it. There's still other things you can pitch, even though people are, get kind of obsessed about that five or 6% return they can get in the market.
Joe Cornwell:
Yeah. I think that's a great point. So tell me a little bit about your role in your company. What is your day to day look like? I want to understand exactly what you do. And then I'm going to relate it back to some advice for the listener, but start with a picture of what you do.
Brian Alfaro:
For me, a day to day, it's pretty crazy. People are like, Oh, you're just talking to investors. Like how crazy can it be? Well, there's a lot of moving pieces. I'm not just like an IR associate and there's like, you know, 10 guys on our team and somebody is a manager for me and tells me what to do. I'm pulling the strings behind the curtain. You know, I have a couple of people on our team. I have an assistant, people that are constantly reaching out to investors, trying to book calls for me, responding to messages and things like that as well.
So for me, the day-to-day is really trying to fill my time slots. So my team and myself, we spend time reaching out to current investors to update them on the situation for current deals, giving them investor updates on a monthly basis, doing phone calls, just to touch base and keep those relationships warm. And then it's really also about scheduling calls with new investors.
So, my assistant's job is to fill my calendar, but I also work at it as well. Cause it takes a team to really get the calendar full for me and then our CEO as well. So spending time talking to new investors, we try to keep those phone calls. 30 minutes or less. So if you're carving out three or four hours a day to just have phone calls, not including all the other stuff you need to do, you can do the math on how many calls you need to try to book on a daily basis.
And then it's really other types of stuff as well. So if you're an investor relations, it's not just picking up the phone, it's networking. So I try to go to not daily lunches, but once or twice a week, I try to meet with not necessarily just a potential LP or potential investor, but other types of sources for our business. So we're talking to family offices, we're talking to wealth managers, we're talking to different people that have connections to high net worth investors as well, and then vendors as well. So that's a part of my daily routine.
And then also content creation is really, really important because if you're not on the internet, you don't exist. So all of us at our firm, our CEO, myself, his wife who works at our firm, we're all creating content as well. So we're writing blogs, we're posting stuff on social media, we're responding to people on social media. And then we're doing things like this. We're going on podcasts. We have weekly webinars. We're hosting for our current investors and for new investors that fall in as well. So we're having to make sure that those presentations are done and done well.
And then there's really just a lot of backend work to make sure that the funnel people talk about in sales and marketing, you have your funnel, your top, your funnel, your middle, your funnel, your bottom, your funnel. You want to constantly be tweaking it based on what's going on in the market, what you're looking for, and then working with our marketing partners as well to make sure that all of our marketing and our advertising is working.
Joe Cornwell:
So we're in Q4 2023. What would you say is your most successful way to connect with new limited partners, passive investors?
Brian Alfaro:
That's a tough question. I've gotten this question before and I don't know if there's one thing that works. I think it all kind of works in harmony because I'm not a marketing major or anything. I mean, I have a business degree, but it wasn't in marketing, but we've probably all heard this, that it takes seven to eight touch points before somebody decides they want to purchase your product, kind of like consumer goods. And it's very similar in our industry where it's going to take multiple touch points before somebody comes on a webinar, downloads an ebook, schedules a phone call, decides they want to invest with you
So it's hard for me to say, I'll just do this one thing, the floodgates kind of open. I wish it were true, but it really is a variety of things. So for us, I would say most important for us, in-person events are really huge. It's really important that you're doing in-person events. If you have a portfolio, even if it's single family houses, investor property tour is like, hey, I've got this great rental house, or I've got this small multifamily property. I'm gonna invite out 10 guys that are interested in investing. Why don't you come check out the property to me? We have a unit that's just getting turned. I wanna show you what the property looks like, what we've done, like things they can see, investors like things they can touch.
So meeting, shaking hands, getting them to see that you're a genuine person, you're not some made up person on the internet, that you're a normal human being, you're humble, and you're just looking to work hard and put their money to work, that goes a really long way in building trust. It's not high scale. You've probably seen the big bus tours where there's like a hundred, 200 people. But when you're starting and you're small, just a handful of guys doing that on a monthly basis or a biweekly basis, that can really go a lot because you don't need 10,000 investors to raise $10 million. You really just need a small group of a hundred people that really, really are raving fans of you. And you can really scale really fast, especially if they write you multiple checks.
So I would say first one is in-person events, go to in-person events, go to events where you feel like these investors might be hanging out, not like the big GP real estate events. Those are great too, for networking and building your community. But at the same time, there's not a lot of passive investors there. So you want to go to local events, go to the wine bars, go to the country clubs, go to the golf things, go to wealth management conferences, go to self-directed IRA conferences where IRA investors are there. There's just so many different things you could do to go to in-person events and show face. That's really the top one.
And then after that, you just want to make sure you have some sort of online presence, right? So you want to have a website, you want to be on LinkedIn, you want to make sure your profile looks great and that you're creating some sort of content so people can see that you're relevant. You don't have to be the content king, but if you have stuff out there to people to be able to see that you're doing something and that you're active, that goes a long way too.
So I would say those are my top two things. Be active on the internet, reach out to people, cold email, cold message, put content out there and then also just try to make sure you're doing stuff in person.
Joe Cornwell:
Yeah. So I made a note here. Follow the money. Makes sense. You're talking about going places where people that have excess income or net worth to invest are going to likely be. And it makes a lot of common sense.
So let's follow up with advice for somebody who maybe is on a smaller scale. Right? We have a wide variety of listeners here. A lot of them want to scale into large multifamily or commercial real estate. So obviously you have a big infrastructure. You guys have a team, you have a track record, but let's say somebody is smaller scale, they've done a few deals and they're looking to start raising money, doing partnerships or even syndications. What would your advice be on the investor relation and capital raising side for someone in that position?
Brian Alfaro:
I would like to say that your first most important thing that I wanna highlight is there's this weird saying in the industry that if you have a good deal, the money will come. I don't believe that. I just don't think it works that way because of course you can raise money that way, but I think it's very risky. So I would say the number one thing is if you decide you wanna scale, if you wanna go from single family to small multifamily and you don' either big JV deals or syndication deals.
We were raising five, $10 million from investors and everybody takes the size of the pie is you really need to start building relationships before you need the capital. The worst time to raise money is when you need it. The best time to raise money is when you don't need it. So people lose focus and they spend so much time obsessing over finding a good deal, which is a part of the pie, of course, but what they forget to do is they like, okay, I found this amazing deal. The numbers all make sense. I can put it under contract.
But the big question is, can you close? That's all the broker cares about. It's all the seller cares about. If you don't have confidence, you can't raise the money. You only got there 50% of the way. So you really need to be spending time, especially if you're by yourself. It's challenging trying to look for deals and raise money, which is why I always say you can find a partner or somebody to work with that you know, you like, you trust, and you guys are on the same page on what the strategy is. That's a great way to get to scale. Take that next step.
But if not, you need to constantly be raising money. Every time you talk to somebody, whether you're at lunch, you're at church, you're at work, you never quite know where you're going to find an investor. You need to constantly be building those relationships and keeping people warm and literally asking them like, Hey Joe, I'm working really hard at this. And I feel like I'm going to find a really good opportunity for both you and me here in the next six months. It's going to be this type of deal is 10 to 15 units. It's going to be in this side of town and this market. And I'm looking for something that's going to produce at least a 20% average annualized return.
If I brought that to you in the next six months, would that be something that would get you excited where you would be willing to partner with me and bring at least 100 to $250,000 to the table to take a good healthy slice of the pie that's gonna provide cashflow, equity upsides, and tax benefits for you? Because that sounds like something that you'd be interested in. And you just build that list of people that say yes, and you just keep them warm. It's gonna be weekly phone calls or monthly phone calls.
Just check it in, putting out email content, putting out a newsletter, saying, hey guys, I don't have any deals this month, but here's what I did to try to find a deal. I underwrote 20 deals, I walked 10 of them, I submitted offers on five of them, I got rejected on all of them because I wasn't willing to pay more than X dollars on them because I wanna make sure I protect your capital. So if you start doing that slowly but surely, and the hard part is it takes time, this could take 12 to 18 months to get your first deal done, maybe longer, especially in today's market.
You're going to start building momentum, but that would be my big thing. Circling back full circle is the relationships are so important right now. You need to be painting a picture for the people that might be interested in investing so that when the time comes, they're actually ready.
Joe Cornwell:
That's wonderfully said. Let's transition here to the best ever lightning round. Are you ready?
Brian Alfaro:
Yeah, I'm ready.
Joe Cornwell:
Awesome. What is your best ever book recommendation?
I'm a big reader. I'm going to go a little bit off here. My favorite book, best ever book is the seven habits of highly effective people by Stephen Covey. I read that book once a year. It was a game changer for me. I read it when I was in my early twenties and I have to reread it. It's like a reset for me when I start getting off track.
Joe Cornwell:
Best ever way you like to give back.
Brian Alfaro:
Ooh, I would say definitely volunteering my time, whether that is at church. And then also honestly, I'm a workaholic just to be quite honest. And I have to make sure that I stay disciplined to give time and attention to my family and my wife. So being really disciplined about carving out time for family, being really disciplined about carving out time for volunteering in church and things like that, and then being really disciplined about time with my wife.
Joe Cornwell:
Yeah. I'm very guilty of that as well. I understand that one. Biggest mistake you've made investing or in your current role and the lesson you learned from it.
Brian Alfaro:
Oh, that's a good one. I can kind of go both ways. I'll just give you quick answers from the real estate side. I would say is not doing my first deal because I was too scared. I got an analysis paralysis. We all get there. My first deal was a single family house. I found it from a wholesaler. I put my earnest money down, which was hard, non-refundable, $5,000. And then I chickened out. There's no other way to describe it. The numbers all made sense, but I got really nervous and I backed out. I watched somebody else buy that house. They flipped it and made 60K. That was my big motivation.
You need to get over your analysis paralysis. If the numbers work and you've been studying real estate for six months, a year, we talked to guys all the time. They're like, yeah, I've been thinking about investing in real estate. I've been studying for two years. Well, you got to take action at some point, right? So that's my real estate one.
And then on the IR side, I would say if you're trying to grow your investor relations side, just be careful about your marketing and your vendors. There's a lot of vendors out there for every type of industry, podcasting, marketing, investor relations, just make sure you pick the right vendors that align with you because this business is very cash heavy. It's very expensive. You can spend 10, 20, $30,000 a month on marketing to try to get your brand in front of people, but if you don't pick the right vendors, I can kind of set you back.
Joe Cornwell:
Best ever advice. I'm going to put a spin on this question. Best ever advice for limited partners or passive investors out there who may be listening to this.
Brian Alfaro:
Ooh, that's a good one. And especially where we're at in the market cycle, there's a lot of LPs that are not happy right now. I would say that the best ever advice for LPs is to do really good due diligence. That's probably a really broad answer, but you really got to do your homework on the structure of the deal. I think a lot of people are learning the hard way right now. Is it fixed rate debt or is it floating rate debt? If it's floating rate debt, doesn't have an interest rate cap. How long is the interest rate cap? What's the ceiling on the interest rate cap? How much cashflow is this property producing year one is really important when we pitch investors, we often show the average cash on cash. So you might look at it and go, Oh, 8% cash on cash.
That's amazing. Yeah, it is. But what if year one is negative? Or what if year one is one or 2%? Well, how are you going to get by if interest rates go up and you have no cash flow? So I would say do really good due diligence on your deal. Ask really smart questions, and then find an operator that is willing to answer those questions and be transparent. Because look, here's the reality. If you do 100 commercial real estate deals, if you think all a hundred of them are going to go well, you're in the wrong industry.
There's nobody has a hundred percent track record, but what you want to do is you want to make sure you're working with people that are trying to cover every base that they can so that if something goes wrong, you know, they at least tried.
Joe Cornwell:
It's good advice. And where can people reach out to you and learn more about you and your company?
Brian Alfaro:
You can reach out to me directly. My email is brian at headwaycapital.us. You can also go to our website, headwayinvestment.com. I'm also active on LinkedIn. Just look me up. First name Brian with an I, last name Alfaro, A-L-F-A-R-O. Shoot me a message, shoot me a connection request and I am happy to talk to anybody. GP, LP, anybody who wants to talk real estate, like I said before we got on this call, my wife says I can talk to a wall about real estate. So I'm always happy to chat.
Joe Cornwell:
Wonderful, Brian, thank you so much for joining us and we'll be sure to link to those in our show notes as well for anyone who wants to get in touch with you.
Listeners, if you got value from today's conversation, please leave us a five-star review on the application of your choice. Make sure you're following us on social media, and I hope all the listeners have a best-ever day. Brian, thank you again.
Brian Alfaro:
Thanks, Joe.
Narrator:
Hi, best ever listeners, Joe Fairless here again. And one last thing before you go, would you like to receive a short weekly email with proven tips from experienced investors, free tools and resources, and a roundup of the week's most relevant news and best-ever content? Well, if so, join the community of nearly 15,000 commercial real estate passive and active investors who receive the Best Ever newsletter. Just go to bestevercre.com forward slash access and you'll get the very next one. I hope you enjoyed this episode and as always, thank you for listening and have a Best Ever day.
