In many investors’ eyes, being able to purchase and sell 150 properties in the time span of a couple of years would require the expertise of a skilled investor. However, Steven Pesavento has accomplished just that, and he is a self-described beginner in the real estate investing world. Despite the label that he has assigned himself, Steven has a considerable amount of experience under his belt and met with Joe Fairless to share that experience with others.
Hiring the Right Team
Steven Pesavento states that he has been able to scale his investment activities as well as his learning curve through the use of a large team. While he resides in Denver, he actively invests in Raleigh and Minneapolis, and he has boots on the ground in both of those locations. Specifically, these are professionals who are actively involved in putting properties under contract. Operations are also scaled on the marketing side through activities like pay-per-click campaigns, direct mail, and direct response marketing.
In addition to scaling his operations, Steven was fortunate enough to learn what he describes as a decade of investment experience in only a few months. He modeled his entire operation after a group of skilled multifamily and commercial investors, including Justin Williams, Mike Simmons, Bill Allen, and Andy McFarland.
This savvy investor has recognized the value of hiring a team of talented individuals. While he has learned a lot from others, he understands that he is not an expert in many areas of the purchase and sales processes. He focuses on sales and building systems, and he hires individuals who are more skilled in project management, marketing, and acquisitions to deal with those aspects of the operation. While many investors are a one-man operation, Pesavento has been able to grow rapidly because of his team-building approach.
Steven recognizes that his approach involves many overhead expenses that are not present with a one-man operation. However, he sees the value in his method. By hiring someone to set appointments for $20 per hour, for example, he has been able to free up his time to spend on his core competencies. He admits he and his partners could have worked hard to do the same work. However, he now enjoys a better quality of life and has a streamlined operation as a result of his approach. Eventually, his operation may be able to mostly run itself, and this can produce residual income for him in the future.
Learning through Experience
As Steven has ramped up his business, he has faced numerous challenges. One of the most significant challenges has been the need to learn from mistakes quickly and on the fly. For example, if your CRM goes down while your team is fielding 200 calls per week, you must have a backup plan in place in order for the system to keep moving.
Pesavento’s operation thus far has consisted of approximately 40% flipped properties. He has a 50-50 equity partner in both Raleigh and Minneapolis. The partner in each area is tasked with identifying investment opportunities to purchase, ensuring the profitability of each deal, and being hands-on with the renovations.
Because of the volume that they are operating with, Pesavento and his partners have lost money on a handful of deals. One of those deals was a home in Raleigh that they purchased for $280,000. They anticipated putting in $40,000 in repairs, but the total expenses were double that. In addition, they anticipated counting the square footage of the basement in the value, and that did not pan out. Ultimately, they lost $14,000 on the deal. On the other hand, Pesavento and his partner gained valuable market knowledge and experience through that transaction.
Adapting to Regional Differences
Steven works with the same lenders for most of his transactions. Because of this, he views them as a type of partner in the deal. For most scenarios, he has been able to pay the points and interest at the end of the transaction rather than in the middle of the project. The points and interest rate paid vary by location. Commonly, he is paying up to 3% in points and up to 12% in interest on North Carolina transactions, for example.
The cost of financing is only one of several differences between the deals Pesavento works on in Minnesota and North Carolina. For example, underground storage tanks are common in North Carolina. If the tank leaks, it is difficult to get financing. However, it is expensive to remove leaking underground storage tanks. Because of this, savvy real estate buyers in North Carolina must know to inquire about the tanks. This is particularly true when they work with sellers who sell their houses off-market. In some cases, Pesavento’s team has used metal detectors to identify the presence of these tanks. While the effort is exhaustive, it can save a tremendous amount of money. Pesavento states that it costs as much as $20,000 to remove a tank and remediate the soil.
Steven has not run into such extensive challenges in Minnesota. In fact, the most significant challenge he has run into is finding deals that make financial sense. Altogether, he believes that Minnesota is a great market to invest in.
In hindsight, Pesavento has learned that going after your dream is essential for success. Whether you invest in multifamily opportunities or you purchase other types of real estate, you learn by doing. While you can and should prepare yourself through mastermind opportunities and mentoring, you will learn a tremendous amount by going through the process repeatedly.
Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.