JF2295: Sterling Rhino Capital With Chris Roberts

Chris Roberts  Real Estate Background:

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“People have to get out of their own way” – Chris Roberts

TRANSCRIPTION

Theo Hicks: Hello Best Ever listeners, and welcome to the best real estate investing advice ever show. I’m Theo Hicks, and today we’ll be speaking with Chris Roberts. Chris, how are you doing today?

Chris Roberts: Great, Theo. Thank you so much for having me. I appreciate the opportunity to chat with you.

Theo Hicks: Absolutely. Thank you for joining us. Looking forward to our conversation. A little bit about Chris, he is a full-time entrepreneur and investor since 2007, and has been investing in real estate for seven years, and now owns a property management business. He is also a GP and an LP in over 2000 units across the country. He is based in the state of Washington, and his website is sterlingrhinocapital.com. So Chris, do you mind telling us some more about your background and what you’re focused on today?

Chris Roberts: Yeah, absolutely. Thanks, Theo. So I started out my life at a pretty young age, being on my own and kind of just had to figure things out, so that sort of entrepreneurial bug was planted long ago. Worked lots of odd jobs and kind of worked my way into a professional sales career that gave me the opportunity to start investing and diversifying, whether be in stocks or real estate or even partnering in other businesses. And that just kind of caught fire in me and I really enjoyed that creative process, the challenge of taking businesses and building them or investing in something and watching it grow. And then as I grew in my professional career I had a lot of conversations about real estate kept coming up, coming up, and at that point, I decided I really need to learn a little bit more about this real estate thing. Bought a few single-family homes, duplexes, some land, a little construction stuff, and then started taking that leap into the larger multi-family space. And now that’s one of my primary focus is, the larger multi-family space. I still run a few businesses, but multi-family space is really what my focus is today.

Theo Hicks: You said that you own a property management business – so is that business the one that manages the properties that you own? Or is that something where you manage other people’s properties?

Chris Roberts: Currently, I don’t have a real estate license, and in the state of Washington – I’m not sure how it is nationwide with regard to running a management company, but you have to have a real estate license to do that here. And one of my partners had a real estate license, but we really didn’t want to manage other people’s properties, so we really developed it to run our own properties, a handful of duplexes, single-family, things of that sort. It also gave us great insight into how to manage the managers of the larger multi-family assets later. So the property management company we run is really just for our own personal assets, which we’re allowed to do, and we use Buildium software to run that, and it works pretty flawlessly, all digital and everything. So we really enjoy that.

Theo Hicks: So out of those 2,000 units, how many of those are you as a GP?

Chris Roberts:  250.

Theo Hicks: Okay. How many properties is that?

Chris Roberts: Two.

Theo Hicks:  Two properties? And what’s your role on those deals? What are your specific responsibilities as GP?

Chris Roberts: Sure. On the first deal, 104 units, and then I’m the investor relations manager. So when I was brought into the deal, my partner at that time really didn’t have a process for investor relations, so I took that by the horns and developed the software implementation, the communication, the email systems, the back and forth obviously, the funds collections, and things of that sort. So I basically developed that system, and I’m second in line in GP on that deal, and then on our latest deal I’m first in line, majority owner of the whole GP team, and I’m the CEO and founder of Sterling Rhino Capital.

I wear many hats, but primarily my role would be to find the opportunities and then do the 30,000-foot view thing, which is basically putting all the pieces together. I still deal with investors and I manage some of the software, but I have team members that pretty much handle everything else. We have an asset manager and someone who is now kind of dealing with a little more of the investor relations, communications things of that sort.

Theo Hicks: So for your deal, you’re more of a CEO, but for this other deal you’re just strictly the investor relations guy?

Chris Roberts:  Yup.

Theo Hicks: So you said that he didn’t have really any process for investor relations, more specifically for communications… So can you maybe walk us through what he was doing, or if he was doing anything at all…

Chris Roberts:  Yeah. Absolutely.

Theo Hicks: …to communicate with investors and then what you implemented for your communications process?

Chris Roberts: Sure. I guess it’s technically my first deal; I had a deal before that, but it took so long to negotiate that deal that I actually got another one and closed it in the meantime. And he brought me in because most of his opportunities where JV deals; even though they were larger – 2, 3, 4 million, 5 million dollar deals – they were larger in this base of JV deals, they didn’t require any real major syndication or investor relations process.

So when he found this – it was a 10 million dollar deal – he just really didn’t have a system in place for that. And I brought it up and I said, “Well how are we going to manage all these investors?” And he said, “Well I’m not sure, I figured we would just figure it out as we go.” And I listened to a lot of your podcast and Joe’s conversations and seminars and things like that and thought “Man, this is a major undertaking with these investors in the syndication process and we need to start implementing systems that can help us automate all of this stuff and organize it.” So we brought on obviously AppFolio — well, they’re one of the property management systems, and there are many others, but we brought in AppFolio to manage the investors and then we brought in ActiveCampaign to manage communication and then we used Google Docs and a lot of automation to funnel in soft commit forms and things of that sort. So really, it was just a matter of breaking everything down and saying “Okay, first things first. What’s the most important thing?” And it’s knowing “Okay, who wants to put money in our deal? Okay, that’s really important.”  And then, okay at that point, who’s committed? Who’s not committed? And then how do we communicate with them when they filled something out?

Same thing as it relates to documents, the PPM agreements. We found that that was a very cumbersome process and I’m passively invested in 1,700 doors so I can tell you I filled out lots of them. We decided “Well, we’re going to shop every one of these signature companies and figure out which one is the most fluid, which one has the easiest automation, which one is the most simplistic to work with for our investors, where we’re not going back and forth with phone calls.”

And I’d say on the second deal we eliminated 60% of the conversations back and forth with just the right signature company for our documents. So things like that, those are processes I’m really good with; I love problem-solving and diving into things and just making them better, whereas sometimes there’s little detail work that maybe my partner might be good at, or let’s say negotiating a deal – the other partner is good at that. And that’s why it’s really important to identify your strengths and weaknesses and just really focus on those things. So I hope that answers the question.

Theo Hicks: Yeah. Just a quick follow up question. Basically, you said that you went in there and you said “Okay, what are the most important steps? And then what are the most cumbersome steps from the perspective of the passive investors?” and then you searched out software technologies that could address that to reduce that cumbersomeness, if that’s even a word, to streamline these important things. So maybe just to focus on one thing, let’s focus on the ActiveCampaign, I’m assuming it’s the ongoing communication… So how does that work?

Chris Roberts: Sure. Well, it’s a great question. So ActiveCampaign is a pretty dynamic program. There are a lot of really good syndicators that use it. I’m not sure currently if Dan Hanford and some of these other folks use it but I know many of them did. What’s great about ActiveCampaign is it’s like a MailChimp on steroids, if you will. It allows you to track literally everything. You can put all these automation in and these triggers that will identify and notify you of different actions that are taken within the system.

For example, someone goes to your website, like if they go to our website and they sign up for our investor calculator where they can figure out how they want to retire, what number they need to retire, they download that, we’re notified on what they downloaded, where they went, and there’s automation that is in place to send them things through that process. So if we ask them to fill out a form, we’re notified of when that form was filled out. And then it puts them in a funnel, so they’re accredited, they’re not non-accredited, are they interested in a deal, not interested in a deal…

So it’s very, very important to have systems like that because who has the manpower, especially if you’re running another business, to manage and micromanage all that stuff? So really the sky is the limit with their automation and systems you can put in play.

And what’s really great about — let’s use ActiveCampaign for example… I started setting all that up, and then I realized, “Boy, even just setting it up is fairly time-consuming.” So I hired an assistant through Upwork, and I have virtual assistants I’ve worked with as well. But I had an assistant who’s actually in San Diego, and speaks English, and is fluid… Because sometimes you’ll get a language barrier if you hire someone in the Philippines or whatever… Although the price is really good. I wanted someone that was here, because dealing with financials and things, I wanted to make sure everything was dialed and organized. So I hired her to help me implement all the automations. And then we also recently brought in a company, if I may I just like to mention their name, is that okay?

Theo Hicks: Yeah, totally.

Chris Roberts: Okay. GoodEgg is a company we brought on recently, and they’re really really good at working with ActiveCampaign and helping with all those automations. So we hired them to bring in all the automation, and they allow us to just download those and put them right into our ActiveCampaign system, which saved us a tremendous amount of time.

So a combination of hiring the right people to help facilitate maybe some of the weaknesses or the time constraint issues, and then to bring on a virtual assistant who could do some of the data entry work. And then as far as running the financials, as far as like let’s say running bank accounts and confirming things with investors, that’s stuff that I take very seriously, and there’s obviously security and you don’t want their data getting out there. So I personally run all of that information. But by outsourcing and building off the strengths and weaknesses of you and your team you can 10x it, for sure.

Theo Hicks: So for the ongoing communications to your investors each month, each quarter, whatever – do you have a VA that does that?

Chris Roberts:  Yeah, we use some of the content from GoodEgg, and then we set up automation for most of that, but she’ll set up all the automations. So I’ll tell her I want to send out four newsletters and I want to post some stuff on Facebook. Then I’ll share some personal stuff with her that I’ve written around what I want to put out there, and then she’ll post a lot of that stuff for me or set it up on automation. So yeah, absolutely, using those tools is a lifesaver… Because when we can focus on finding deals and working the banking and all that stuff, it’s more important, in my opinion.

Theo Hicks:  So something that you mentioned before that I wanted to also talk about briefly – you said you’re working on a heavy value-add deal that the owners, I think you said they haven’t tracked financials or anything for 35 years, or whatever. I wanna hone in on a very specific aspect of that, because I get this question a lot, so I’d love that pick your brain on it, so it speak. So I want to raise money for an apartment deal and I find a mom and pop owner — how many units is the property you’re looking at?

Chris Roberts:  This one is 112.

Theo Hicks:  112. A hundred twelve unit property, and I reach out to them I say “Hey are you interested in selling?” And they say “Of course.” I say “Okay, can you please send me the T12 and the rent roll, so that I can run the numbers?” and they’re like “I don’t know what that means. Here’s a napkin that I have from 30 years ago.” How do I know what offers to submit on that deal?

Chris Roberts: Yeah, that’s a great question. And that’s basically, exactly what I was dealing with. And it’s across the country. So it’s one of those things where you have to first identify, does this thing make any sense, let’s say from the asking price? And you break it down like anything else, right? You put it into a spreadsheet; I happen to use an SDA which is from Michael Blank’s program – that’s fabulous.  I can plug in some quick numbers and identify if the deal makes sense.

So you look at the offering price, or whatever, because oftentimes they’re not going to have an offering either; they’re not going to have a fancy PowerPoint. Maybe they’re listing it themselves or a broker, but this deal didn’t even have a sales deck. All we had was a price. And I came in on this deal with someone else that had offered a little bit lower price than what they were asking for, and they got it under contract. And then I quickly realized there’s no way to steal a pencil at this. So how do you get the answer out of them, that’s the question. The answer is, first of all, you have to dummy it down for people, because as we’re talking about this, you can only imagine what it’s like to actually build a T12 from scratch, a rent roll from scratch, financials for a lender.

We’re going through Freddie Mac on this deal. We’re actually closing on this deal tomorrow, after nine months’ worth of negotiations, back and forth, numbers, four flights out… It’s been an absolute grind, 350 hours of my own personal time in this deal. And that’s all because I had to understand the seller.

The bottom line is I had to actually deal with the seller directly at one point, because we couldn’t make it happen. So finally, the seller, after going back and forth and going out of contract and in-contract, started dealing with me directly, and that’s how we started solving problems… Because I basically said to him, “Do you know what a T12 is? No. Do you know what a P&L is? No.” I’m like, “Okay, well here’s what I need you to do – I need you to go down and get a CPA to come down there. I want to buy your building; all I need you to do is get them to come down there for four or five hours and just go through some of your paperwork, and here’s the paperwork I want you to provide for them.” “Okay, great.”

So he did that, and he got me a generic P&L. Okay, great. “What’s a T12?” I sent him a sample of a T12 and I said “Here’s a spreadsheet, this is a sample of a T12. All I want you to do is take this information out of the P&L and I want you to update it regularly, and this is your T12. And then I want you to certify it just by signing it and acknowledging it that it’s your information and not my information.” Because lenders don’t want you to provide them a T12 or a rent roll, or P&L; they want it to come from the seller. So as long as they input the data, you can assist them and bring them along, and then they just sign it and acknowledge that that’s actually their data that’s gone in. So that’s what the first few steps, does that answer the question?

Theo Hicks: Yeah. So you said — going back to it, looking at the offering price to see if it makes sense… Are you kind of doing some rule of the thumb type of stuff with that?

Chris Roberts:  Yeah, there is probably — I know I’m exaggerating, but there are a hundred thousand processes in a multi-family deal, especially one that’s all manual, right? So you have to problem-solve. One of the things I absolutely love is problem-solving. I love the challenge. I don’t get afraid or fearful; I dive in. And this was an amazing deal and I looked at is a great opportunity to learn.

So I started thinking, if I was the seller, would I be overwhelmed? Yeah. If these people ask for all the stuff and there’s no way I’m going to sell my building without it, would I be overwhelmed? So I have to be a friend to him, and I had to say “Look I’m going to go through this with you.” And at one point I would say — and Theo, this is really funny… When I flew in and I sat down with him, you would not believe these pictures; I’ve got to share them with you maybe after the episode… It was unbelievable how much paperwork he had stacked [unintelligible [00:16:33].12] files. And I said to him “Here’s what I need from you.” And he goes “Well, I’m not going to do your job.” And I said “My job? You’re trying to sell the building. I’m trying to help you. We need to do this thing together. If you don’t pull this data out for me and let me help you, there’s no way we’re going to get to the finish line.”

So I told him, “The first thing we need to do right away is understand that we’re working together and we’re helping each other to get to the finish line. This isn’t about you, this isn’t about me, this is about closing the deal.” And then he finally put his guard down and then we started going to work, right?

So it’s funny, as much as brokers keep you away from sellers, I think sometimes if you can just get to the personality of somebody and understand their way of thinking, see it from their perspective, you can start to problem-solve. And you’d be amazed, Theo… The original guy who runs this deal said “There is no way we can get a dollar under 4,899, or 4,866, or something like that.” I ended up getting this deal at 3,875 million, so I negotiated another million dollars off the sale price. It took me eight months, but we got it done. And it was all because I ended up working with the seller, we had a lot of communication, sometimes daily, back and forth.

The broker at one point even said “I literally feel like I’m not earning my money, is there anything I could do?” I said, “No, just stay out of the way, because the seller is really comfortable with me, and we’ve just got this vibe going, and it was one document after another and now we’re thousands of documents later, and we’re about to close.”

Theo Hicks: Perfect Chris. Alright, what is your best real estate investing advice ever?

Chris Roberts: I would say, for the most part, people have to they have to get out of their own way. We have a lot of roadblocks, and what I hear from people most of all is all the things that are in their way, what’s going on, the challenges… And I think for all of us, we have to focus on where we want to be, what we want to do, and how are we going to get there, and not focus on all the naysayers and the stuff that creates roadblocks in our lives and fear. We just have to push through and understand our value proposition and how we can add value to the world and go after it.

Theo Hicks: Alright, Chris, are you ready for the Best Ever lightning round?

Chris Roberts: Yes, sir.

Theo Hicks: Alright, first a quick word from our sponsor.

Break: [00: [18:27] – [00:19:16]

Theo Hicks: Okay Chris, what is the Best Ever book you’ve recently read?

Chris Roberts: May I give two?

Theo Hicks:  Sure.

Chris Roberts: Okay. Chris Anderson, TED talks, and Ray Dalio, Principles. And I read lots of books, but I’m going to tell you why I like these two books. The reason I like those is because those books talk about speech, they talk about stories from some of the most profound individuals in the world, and how they told their stories, and how you can articulate your stories. And then Ray Dalio’s book talks about principles in business, and success, and strategy, and implementation, and it’s a really long audiobook. But the reason those are important, and I’ve read hundreds of real estate books, is real estate is people, it’s not just property. And if you can understand people and psychology and communicate well, you can bring investors in, you can bring partners in, and you can close deals, and [unintelligible [00:20:05].08] deal is a perfect example of that. So I really focus on the people and that’s why I really really like those two books. Recently I’ve listened to them.

Theo Hicks: If your business were the collapse today, what would you do next?

Chris Roberts: Well, currently I’m fortunate enough to own and be partners in several businesses and diversify across all kinds of real estate platforms, but I would probably just take a look at where my strengths were and try to focus on something that compliments my personal strengths, and that for me is communication, and sales, and dealing with people. So I would probably just dive into some other element of real estate if it collapsed… But again, I’m so diversified, so I’m really not concerned about that.

Theo Hicks: Well, since you’re so diversified, tell us about one of the best deals that you’ve done.

Chris Roberts: I have single-family duplexes and multi-family… Honestly, I think the deal I’m working on right now that I’m closing is going to be the best deal we’ve ever done. But I did buy a property once for $50,000 that I had to buy through the Japanese Consulate; that was worth about 130k and today it’s worth 280k. And all I had to do basically was pay the back taxes on the property. So that at the time was probably the best deal, bu currently, I think we’re about to close on the future best deal.

Theo Hicks: What is the best ever way you like to give back?

Chris Roberts: Giving back is very important to me. I stood in food lines when I was a kid, I struggled, I was homeless for a period of time at a very young age, so giving back and feeding people is really important to me. So I partnered with Feeding America. I wrote a book, and all of my profits, 100%, have gone to Feeding America, and they will indefinitely. And to date, we fed almost 118,000 people, with the goal of feeding a million. And every dollar that we donate, Tony Robbins matches through my partnership with Feeding America; it’s an enterprise partnership, and I’m actually on their national website, and stuff. So feeding people is really close to my heart, among other things; that I’ve done charities with the City of Hope and Wonder Warriors… But yeah, that’s very, very important to me, and we’ve got a pretty audacious goal.

Theo Hicks: I know that not everyone is watching us on YouTube, but I have to ask – what is the purpose of the little frog guy you’ve got back there?

Chris Roberts: You know, it’s really funny… I don’t know why, but I like little frogs. When I was a little kid, there were little frogs in Southern California in our little creek in the back, or whatever — it wasn’t a creek, it was like a storm drain or something… But I always played with little frogs, and I would talk about it when I was a kid, and my mom would joke about it as I got older.

So people will buy me these stuffed animals, and I probably have 30 of them around, just wherever… So I thought it’d be really funny to put one of my little frogs up in the office. I figured people would ask, but you’re the first person to ask, and it is really funny. I just like them, they’re cute and they’re a fun conversation.

Theo Hicks: That’s what I was gonna ask you, if anyone had asked, because I know usually when people will have their offices everything is intentionally put there for a specific reason. I saw that little guy right in the back corner, and I had to ask about that frog at the end. Alright, Chris what is the Best Ever place to reach you?

Chris Roberts: You can reach me at sterlingrhinocapital.com, or you can email me directly at chris@sterlingrhinocapital.com. We’re on Instagram, @sterlingrhinocapitalone, and many other places, like Facebook and LinkedIn and so on and so forth. But you can reach right out through me directly or check us out on the website.

Theo Hicks: Perfect, Chris. Well thank you for joining us; I’m sure if we could talk a lot longer. You dropped the buying a property from the Japanese Consulate at the end I was like “I wish I could ask more”, but unfortunately we are running out of time… But thanks for joining us.

Just to kind of quickly go over some of the main takeaways, for me it was three. The first was you talked about how you were able to solve the investor relations communication challenge for one of the deals you were a GP on, and really this strategy can be applied to any part of your business. That’s basically to identify what the most important tasks or concepts are, and in addition to those, what are the most cumbersome for your customer, your client, the investor, whatever, and then investigate various technologies or automations that can address those. So basically, make the most important steps, the most important tasks, the most cumbersome task as smooth as possible. For you, you gave the example of AppFolio, Active Campaign and then Google Docs to automate the communications for your investor relations process – that’s number one – and then also having the right people and hiring VA’s as well to help execute on those technologies.

The other one was underwriting deals where there aren’t any financials, which 99.9% of the time they’re going to be off-market deals, because there were on-market [unintelligible [00:24:15].00] So you said to first look at the offering price and use some rule of thumbs to make sure if the deal makes any sense whatsoever, and then try your best to bypass the broker and work directly with the seller, that way you can get to know their personality and let them know that this is a process where you’re working together and helping each other out. And you gave an example of them saying “Why would I do all this work, why am I doing your work for you?” and you said “Well, no. If you want to sell your deal, I’m going to need this information. And if you want to sell your deals, let’s help each other out.”

Basically, you had to walk them through what all of these things were and group them up with the right person, the CPA, to put together the P&L and then sending them the templates, so can update it regularly to have [unintelligible [00:24:57].03] T12. You built a rent roll and T12 from scratch, and ultimately had a pile of thousands of documents, back and forth negotiation for nine months, and then finally got to do that deal. So there’s no shortcut when underwriting deals and financials, I guess is the point.

The third thing would be your Best Ever advice, which is to get out of your own way, don’t focus on the negatives, the obstacles, your fears, and just focus more so on how to push through, how to break through those things.

So, Chris, again I really enjoyed our conversation, I learned a lot. I’m sure Best Ever listeners learned a lot as well. Best Ever listeners, as always, thank you for listening. Have a Best Ever day and we’ll talk to you tomorrow.

Chris Roberts: Thanks, Theo. You guys have a great day.

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