More Best Ever Lessons coming at you today from Joe’s interviews. Today’s lessons are coming from William Robison (https://www.kansascityinvestmentrealestate.com/), DJ Scruggs (https://realbluespruce.com/), and Jens Nielsen (https://opendoorscapital.com/). If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Free Document:
Rental Comparable Analysis: a template for completing Step 6 to 8 of the underwriting process: http://bit.ly/besteverrentalcomps
Referenced in this show:
https://joefairless.com/8-step-process-for-finding-the-owner-of-an-llc/
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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff.
We’ve got Follow Along Friday today, talking about some insights that I learned from the interviews that I did last week. This is just a handful of insights; these interviews have not gone live, they’ll go live in 3-4 months, so I wanna give you a sneak preview – and more than a preview, I wanna give you some things that will help you out, since it’ll be a little while before they air… And then you can listen to them in detail whenever they come out.
First off, Theo Hicks, hi.
Theo Hicks: Hey, Joe. How’s it going?
Joe Fairless: It’s going well. We’ve got Theo Hicks with us, and we’re gonna talk about these insights… So let’s go ahead and dive right into it. First one is if you are looking to come up with a deal with contractors where you get economies of scale, basically, you get a discount for having a high volume of work with them, you might think that you just go to them and say “Hey, I’m gonna bring you X amount of work. It’s gonna be more than what someone who doesn’t have a business will bring you, so let’s negotiate some sort of discount.” You might think that by bringing them a high volume of work, it’s a no-brainer that they would accept that… And the reality is that the trades are in high demand – plumbers, electricians etc. They’re in high demand, and a lot of times they can pick and choose who they work with, and can be more selective… Because those industries, generally speaking, people aren’t growing up and saying “I want to be a plumber, I want to be an electrician”, although those are very good professions to be in, and there’s a lot of business and a lot of money you can make as a result of having those types of companies.
So the interview I did with William Robison, who’s been in real estate for 15 years… I actually interview him in episode nine, the ninth interview I’ve ever done; episode nine, “One critical component of building a real estate business.” He works with a lot of contractors, and he gets volume pricing from contractors and suppliers, and he said “Well, I’ve got the volume pricing now because I’ve formed these relationships.” And I said “Well, how many phone calls did it take to different plumbers in order to get this type of agreement?” and he said “Dozens.” That’s important to take note of, because it’s not like you work with a plumber and you say “Hey, I want a volume discount because I’m gonna bring you X amount of business.” He or she might not be as interested, because they’ve already got business, and retail pricing is better than volume pricing. However, here are three selling points, talking points, three things you can mention to the potential partner about how to convince them that you should get volume pricing.
One is having more consistent work. So yes, you might have a lot of work, but is it consistent? Is it very reliable? I can provide you with more consistent work, too. How much are you spending on advertising right now? Because whatever you’re spending now, you don’t need to spend nearly as much, if at all, because now you’ll save that money by having more consistent work with me. And number three, my work tends to be within the hours that you want to work – 8 AM to 5 PM, Monday through Friday. You won’t get the type of calls from me — for the most part; there will be exceptions, but for the most part you won’t get the type of calls from me that are emergency jobs in the evening. My work can be done during the time you wanna work.
So those are the three selling points should you want to approach tradespeople for volume pricing. One, more consistent work, two, less advertising budget, and three, we’re working within the timeframe that you actually want to work.
Theo Hicks: And based on my interactions – with plumbers in particular, and probably electricians, too – I think that third point is probably gonna be the biggest selling point… Because I just had a leak in my personal house, and the plumber had to come out on an emergency call. He didn’t get here until late; he just kept complaining about how “Yeah, I can fix the problem, but it’s getting late, and it’s Friday, and I kind of wanna get back to my family.” I’m like “No problem, but you’re probably gonna have to come tomorrow, and it’s Saturday.” He’s like “Well, I don’t wanna come on Saturday, because it’s the weekend…”
So while you were explaining this, I was kind of thinking — these are obviously the three best ways to convince them, but it’s really just kind of listening to them… Because from my experience, working with plumbers, electricians, contractors – they’re very honest, and they’ll tell you exactly what they’re thinking. So if they say that they want more consistent work, they’re saying they’re spending too much money on advertising, they’re saying they wanna work between certain hours, just listen and they typically will tell you what they want, and you can use that to, in a sense, convince them to give you those bulk discounts.
Joe Fairless: Yeah, identify what their pain points are initially – consistent work, the hours, profitability, whatever it is. They might not get into profitability of their business, but identify that, just like you would if you were approaching a seller and you’re looking to buy their property. You wanna learn what the pain points are, if any, so you can structure the deal accordingly.
Another thing that William mentioned is he doesn’t usually provide multiple bids on jobs to his clients, and a lot of his clients know that… But on occasion, some new clients might say “Well, I wanna get multiple bids on this job”, and that’s fine to do… But he said one thing to keep in mind is if someone has a business where they do a high volume of work, then they likely have already gone through the vetting process with their vendors, and they’ve negotiated the rates down to a certain points, and they also are combining that information with the service that they received from those vendors… Because it’s not always about, as we all know, the lowest price; it’s also about “Will they get the job done, and will they do what they say they’re gonna do? Will it be done right?”
So he said he’s not against multiple bids, but something to keep in mind if you are working with someone who has volume discounts from other vendors is just maybe initially give them the benefit of the doubt of saying “Hey, maybe they did already do their due diligence to make sure that this is the best price, combined with the best service.” And if you don’t want to go with that assumption, then just perhaps ask the person, “Hey, did you already negotiate the rates down to a competitive level, and are you confident in the service that this vendor is gonna provide if you do have questions?”
Theo Hicks: Yeah, I think one of the better contractors I worked with already had everything pre-negotiated, and whenever you asked him to do something, he would send you a very detailed document that had the quantity of what you’re doing and then his predetermined price already, very clean… Whereas the other contractors are like “It’s $500.” It’s like, “Well, how are you getting $500? Where is that coming from? Is that coming from materials, services…? I don’t understand.” A little bit different than what you’re talking about here, but it is nice when you’re working with contractors to have already negotiated prices, and you can see exactly how much you’re spending on labor, how much you’re spending on the actual materials that they’re using.
Joe Fairless: Another interview I did, DJ Scruggs. I love DJ’s first and last name. I think that flows really well. He is the CEO of Blue Spruce Holdings. Based in Denver, Colorado. Entrepreneur, started in the customer service software for email industry, sold his company in 1999. He talked about some lessons learned there… And what I wanna mention here is when he works with other businesspeople and he feels like someone is trying to pull one over on him, then he says one thing he’s learned is that you don’t have to be a jerk, but you can always ask the question “Why?”
So if someone is trying to tell you something that you know is not right, or you don’t think is right, you don’t have to be a jerk about it; you can instead just keep asking the question “Why?”, and obviously you need to craft it a little bit better than just saying “Well, why is that? Why is that? Why is that?” You can continue to just be curious and ask questions about it, and then that will help get you to the answer of what you’re looking for, to identify if it is legitimate what they’re saying or not.
I thought that was just an interesting approach if something like that is taking place, to build on the relationship should you end up having a relationship with this person, versus kind of attacking them and tearing it down and not having any opportunity to have a relationship.
Theo Hicks: Yeah. It just says here, “How to figure out when someone is BS-ing you” – it reminds me of something related to what you’re talking about here… It reminds me of a show where there’s a character and they’re asking him why something isn’t happening [unintelligible [00:10:45].11] and he says a line, and they go “Well, it doesn’t make any sense. Why isn’t this happening?” and he literally says the exact same thing again, but slower. So the way they reply to the why – you can tell if they’re pulling one over on you, or if there’s something going on underneath what they’re actually saying. In this case, this person had no control and was just saying whatever he was told to say…
But yeah, if you can’t naturally read someone and tell if they’re lying to you or if they’re pulling one over on you, BS-ing you, asking why and asking them to explain why I should invest in this deal, why I should buy this deal, and see what they say, and if they don’t really have a specific answer, or they kind of say very high-level, generic things, then you can kind of dig deeper into that. If they don’t have any answers, again, you don’t have to be a jerk about it; you can just say “Okay, I don’t think I’m interested in investing in that deal…” Just because they might be new, they might not know what they’re doing, they might not have the information because the seller didn’t give it to them… But maybe in the future they do actually come up with a deal that you can buy, or invest in, or whatever. And if you’re a jerk, then they’re not gonna bring that deal to you ever again. It’s basically keeping as many doors open as possible.
Joe Fairless: Exactly, that’s a great way to put it. It’s just having an opportunity to build a relationship with that person, should your initial perception be off about them trying to pull one over on you.
Then DJ also mentions since he hasn’t been in the real estate industry as long as he’s been in other industries, he still needs to demonstrate competency in real estate… And he said ideally he would have a 20-year track record of performance in real estate, but since he does not, he demonstrates it in other ways, like being respectful and respectable, he talks about.
So by being respectful to others, but then being respectable – that’s where it comes into play where he is establishing a thought leadership and being an authority figure, which is one of the reasons why he was wanting to be interviewed on the podcast; and his company has multifamily holdings, so we talked about that… But it goes back to what you and I have talked about extensively, so we won’t get into it in detail here; the thought leadership platform – if you don’t’ have that type of track record, then interview people who do have that, and then as a result of interviewing them, you learn more, you build your relationships, and then you’re associated with those people who do have that track record, and then you can build from that, in addition to bringing on the right team members on your team, who have that skillset… Even though it might not be in partnership with you, but at least they have that skillset and that track record so that you can then build off of that.
Theo Hicks: And really a big thing too is just more people are aware of who you are. They know who you are. I can’t tell you how many people that I knew before I started working for you, that will call me or text and be like “Oh my god, I realized you know Joe Fairless, you’re on Joe’s podcast.” Obviously, that’s a really massive one, but it’s just interesting to see how many of them are getting into real estate and know who I am, and they always say how this can be very powerful for my brand, and very powerful for when I start doing deals again… So yeah, 100% – a thought leadership platform is super-important; not just for the expertise and what you talked about, but also just people knowing who you are. The more people that know you, hopefully saying good things about you, whatever investment strategy you’re implementing, you’re gonna be more successful, because people are gonna wanna work with people because they know who you are.
Joe Fairless: Yeah, absolutely. It all is connected together, and that is the right way to approach. And lastly, [unintelligible [00:14:23].27] Nielsen… I just wanna give a quick reminder that you can still find deals if you’re resourceful enough and you put in the work. [unintelligible [00:14:32].04] Nielsen closed on a 16-unit; it was him and his wife. They found it through direct mail. How did he direct the direct mail? He did not buy a list, he created his own list; went to Apartments.com, got the information from Apartments.com. He said they could see the unit size on the rental site. Then he went to the assessor’s office to see who the owner was, then he went to the State Business Registration to see who the owner of that was; if it was an entity, then he mailed out the direct mail pieces.
It was just basically saying “Mr. & Mrs. So-and-so, I like your property and I’d like to buy it. Here’s a picture of me and my wife”, and he mailed out 200-300 letters. He did that every 2-3 months for about one year, and then he got a 16-unit as a result of that.
Theo Hicks: One thing I did wanna mentioned based on this strategy – obviously, he hustled and found the deal, but if for example he pulled his list, and then on that list half of those properties are owned by LLCs, and he just mailed it to whatever address the LLC said, which is most likely a PO box at a UPS somewhere, or a post office somewhere, he might not have gotten this deal.
I thought there was a blog post, but there’s not, so I’m gonna post this as a blog post – how to find the owner of the LLC. You mentioned about going to the State Business Registration, but specifically what you do is whatever state that you’re in, you go to the Secretary of State, and then somewhere on that website you have the ability to search the entities, search the corporations. They’re gonna call it corporations or entities; you type in whatever the LLC name is, and then the LLC will come up. Then, depending on the Secretary of State site, it will have the information you need right there – owner’s name, owner’s address. If not, there should be some area on there to download the articles of the organization and then on the articles of the organization you’ll find the actual owner of the LLC’s name and their address.
So you wanna make sure you’re mailing to that address, not the PO box that’s listed on the assessor’s site, if it’s owned by an LLC.
Joe Fairless: Great information. Detailed, as always, and helpful nuances, because it’s one thing to know the concept, and it’s another to know the actual process. You said we’re gonna do a blog post on that…
Theo Hicks: Yeah, I’ll post this today, and then we’ll put it in the show notes and release it on Friday.
Joe Fairless: Wonderful. Alright, cool. So those are the insights I wanted to talk about, and that I thought would be helpful.
Theo Hicks: Alright, trivia question time. Last week’s question was “According to the most recent census data, what city grew its millennial population more than any other city?” The answer was Seattle. I think you said the answer right, and then you changed it to something else, like Dallas maybe. You said “Seattle”, and then “No, wait… Dallas.”
Joe Fairless: I don’t know if I said Seattle, we’ll have to listen to that again. I know I ended up with Dallas, so… Oh, well.
Theo Hicks: Yeah. This week’s question — and again, as a reminder, the first person to get this question correctly will receive a copy of our book. Submit your answer either to info@JoeFairless.com, or in the comments of the YouTube video below. “What large city has the most diverse economy?” This is based on industry diversity, occupational diversity and worker class diversity?
Joe Fairless: Well, I know it’s not Vegas…
Theo Hicks: It’s not Vegas, correct.
Joe Fairless: I hate to use Dallas-Fort Worth as all my answers… So if I had to put money on it, I’d say DFW, or I guess if they’d make me be more specific, I’d say Dallas. But since I don’t wanna use that as my answer for everyone, I’ll go with Atlanta.
Theo Hicks: Atlanta. Alright, so we’ll have that next week, as well as another trivia question for you to have the opportunity to win a free copy of our book.
Lastly, the apartment syndication resource of the week… We do Syndication School every Wednesday and Thursday on the podcast, as well as on YouTube. For most of these series we offer a free resource or document for you to download, that helps you learn how to do apartment syndications.
Last week we talked about series number 14, how to underwrite a value-add apartment deal, starting at episode 1653. One of those free documents was the simplified cashflow calculator, which you can download in the show notes of last week’s episode.
The other free document that we gave away for that episode was the rental comp analysis calculator. On one hand, you need to underwrite the deal, and you also want to do a rental comp analysis in order to determine what your rental premiums are going to be. This template helps you input the properties that you’re using as comps, the square footage and the rents of those comps, and then it will automatically calculate an average dollar per square foot, which you can then use to determine what the rent will be at your subject property based on the square footage. So that is gonna be available for download, again, in that series 14, which is episode 1653, or in the show notes of this Follow Along Friday.
Joe Fairless: I enjoyed our conversation, Theo. Best Ever listeners, I hope you got some value from this, and we’ll talk to you tomorrow.