August 22, 2022

JF2911: Best Ever Advice for Scaling Your CRE Business | Round Table


Each week for the Best Ever Round Table, the three Best Ever Show hosts — Ash Patel, Slocomb Reed, and Travis Watts — come together for a deep dive into a commercial real estate investing topic.

In this episode, Ash, Slocomb, and Travis share advice for scaling your commercial real estate business, as well as the lessons they’ve learned from their own experiences. They discuss the pivotal moment when they each realized it was time to expand and what they’ve each personally done to scale, plus the bottlenecks they’re facing in their businesses today and the key ways others have helped them along the way.

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TRANSCRIPT

Ash Patel: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I'm Ash Patel and I'm joined today by Travis Watts and Slocomb Reed. Travis and Slocomb are fellow co hosts for the Best Ever Podcast. This is our weekly roundtable, where we pick a topic and share our discussions with all of you. On today's episode, we're going to dive into the topic of scaling your real estate business. The first thing I have is advice and lessons learned for scaling your real estate business. Slocomb, if you would, a brief introduction, and talk about some of the lessons you've learned throughout the process of scaling your business.

Slocomb Reed: Absolutely. Thank you, Ash. Slocomb Reed here, apartment owner-operator in Cincinnati, Ohio. On the podcast, in one or two of these roundtable episodes recently, and in a couple other episodes, I've talked about the McDonald's analogy for scaling an active apartment portfolio, how when you have one McDonald's worth of apartments, you can run everything yourself like a general manager of a McDonald's. When you get to two, it's really tricky because you can't afford a general manager and you have to do everything at two different restaurants. But when you get to three and beyond, you have the ability to build out a team that runs the day to day operations for you.

Generally speaking, my advice is to get through the two McDonald's phase as quickly as possible... Because when you have your first 10 units, maybe your first 20 units, depending on your personal situation, you can handle everything yourself. You can take the calls, you can either find the handymen, schedule them, or go fix things yourself. But every apartment investor scaling a portfolio gets to a point where they can no longer handle all of the activity, but they also don't have enough of a portfolio to hire people to work exclusively for them, or to go where they are told to go, when they're told to go there.

So the biggest lesson learned for me is don't stay in that space, between being able to do everything yourself and being able to hire people to work for you and handle the operations. Don't stay in that space too long. It's really worthwhile to not buy the wrong deals, but get aggressive and find ways to get to the point where you can hire out the day to day operations of your real estate investing when it gets too big for you to handle everything by yourself.

Ash Patel: Yeah, great advice, Slocomb. And the reason I picked this topic is, just like everything else, I seem to learn things the hardest way possible, so I'm going to share some hard lessons with you as well. Travis, if you would, a brief introduction and talk about what you've seen... Because you're involved in the multifamily syndication business more so than probably anybody I know. So talk about what you've done to scale your own business, and what you've seen others do in terms of making mistakes and big wins that they've had.

Travis Watts: Sure. Happy to be here, Ash, Slocomb. Travis watts, full-time passive cash flow investor. I'm with you, Ash, first of all. I spent six years doing it the hardest way possible. I just wasn't very good at single family homes. I started with some house hacking and having a roommate, moved into fix and flips, moved into vacation rentals... And the reason, as I reflect back, that I think I kept pivoting that way is because, quite frankly, I sucked at everything. So I wasn't building teams, I wasn't easily able to scale. And most of the people who are limited partners, like I am, in syndications, just don't have the time or the ability to scale actively. That's just not what their time and energy goes into. So my biggest lesson was from a couple mentors that introduced me to these syndications around 2015, out of a local real estate meetup group... And that was my lightbulb moment in 2015, that I could still be in real estate, I could leverage other people's time, expertise, and all the rest, and it's much easier to have 100 limited partnership Interests, even with property managers on them. That was my biggest reason for exiting single family and moving into these syndications.

And to speak from an investor relations perspective, as I work with Joe Fairless and Ashcroft, I see that as a pain point for so many people. I hear it all the time, "I bought a few single family home rentals in my own market, but I just don't enjoy the process, or I just don't have the time to manage it." So I guess it's that, coupled with the velocity of capital, which we've talked about in previous episodes here on roundtable, and Passive Investor Tips as well, which simply just means continuously rolling over my cash flow profits from sales and things like that to further scale. My cash flow and passive income. So that's been my strategy.

To answer the second part of your question, mistakes I see people making... I think the biggest mistake is to enter into being a landlord without having any knowledge, which is exactly what I did. I didn't read the books, I didn't have the mentors, I just thought, "Oh, this is easy. I'll go buy a property, and I'll put it up for rent, and I'll figure it out. I'm gonna cashflow $500 a month for the rest of my life and pay off these things." But things happen. It's a people business, it's reality, and it was a lot harder than I thought and a lot more time-consuming.

Ash Patel: Yeah, thank you for that. I want to talk about if there was one pivotal moment where you knew what you were doing wasn't working, and it was time to put systems in place and properly scale. For me, I started out with just one property. I didn't know where this was gonna go. So before I knew it, I had property number 2, 3, 4, 5. And at the time, the Excel spreadsheets worked just fine. My expense tracking was lackadaisical. But when it came to tax time, I was lost; I would lock myself in my office for an entire weekend and do the best that I could... And then later on find a bunch of expenses that I should have written off, but I didn't, because I wasn't properly tracking things. And it was at the moment where I realized how much money I was leaving on the table, and how I wasn't optimizing anything that I was doing, where I realized I need to embrace scaling, put systems in place.

Slocomb, was there a pivotal moment where you got inundated and realized what you were doing wasn't working?

Slocomb Reed: I have a couple of moments that I'll share. The first - I had just turned 30, I was barely into real estate investing. I had gotten my residential sales, real estate sales license, I had joined a team, I had left that team when it was no longer the right opportunity for me, and I remember sitting at my computer, handling some sales for my clients and thinking to myself that I just couldn't wait until I could hire someone to handle the backend paperwork for me. Not the negotiating and the contract, but all of the other components of getting to the closing table.

I realized pretty quickly that those things can be scaled through finding someone who's a freelance transaction coordinator and hiring part-time instead of full-time. The other one though, more specific to commercial real estate investing - the same month that my first child was born was the month that I took over my first really commercial apartment building, 24 units, and to a specific time... This is not the most fun story to share, but on my daughter's first birthday, which she doesn't remember thankfully, I remember I needed to be showing apartments at that property, because I still had too many vacancies - it was a pretty serious reposition - and I was using a snow shovel to shovel used cat litter out of the parking lot and get it into the dumpster, because I had showed up 30 minutes before my showing, because I wanted to make sure everything looks right, and I remember thinking to myself, "This can't happen on the second birthday, or the third birthday, or any birthday after that. I really should be spending this time with my daughter."

And scale is one of the things that has made that possible since then. I'm not missing birthdays, I'm not missing anything with my family, because I've gotten my portfolio to the place where -- well first of all, no one at that property is dumping cat litter in the parking lot anymore; that tenant's gone. But also, I have the people in place to handle that and keep the momentum going at those properties, making sure that they're performing without me needing to be there doing things like that.

Ash Patel: Yeah, it seems like we need those moments to really kick ourselves in the butt and realize that we've got to make some changes. Thanks for sharing that. Travis, any pivotal moments where you were inundated and realized that this just wasn't working?

Travis Watts: Yeah, so many. And I was laughing as you guys were chatting there, just thinking back at how amateur I really was. So I'm in the midst of flipping a home - I think it was my first flip - and I realized I don't even own an electric drill. I don't have really any tools. I've got a hammer and a screwdriver, and I'm trying to do rehab myself... And I remember - this was an awful moment, I remember having to call my mom, who lived somewhat locally, to come help me with the renovation. It wasn't her skill set, it wasn't my skill set, it was just the blind leading the blind. It was just one of those moments where that light bulb goes off and you're like, "What am I doing?" And I didn't have any special skill sets. I didn't have any connections. So there was certainly that.

Another instance was - I worked for an oil and gas company and there was an employee that had just relocated from Texas to a Denver area. And he's like, "Hey man, I'm just looking for a place to live" and I happened to have one available. I didn't know this person very well, but just because they were a co-worker, I was like "Hey man - you know me, I know you, it's all good. You can just rent my place." Didn't do any screening, didn't do any credit checks, just -- we're buds, right? So the first month - no rent pay; the second month, late. The third, no rent pay. The fourth, they're bustin' up my place. It was like no pets, and I did a drive by, they had two cats up in the window... I had just put brand new carpet in the house, those cats ended up peeing all over this carpet... It was an awful, awful mess. It almost got to the point of eviction, and they ended up moving out on their own terms. But again, it was like - what an amateur, man. I didn't do any kind of screening process or anything.

So it really came down to knowing you and your goals and your criteria and your skill set and all that kind of stuff. And that was the other thing, the third thing I'll point out, is I didn't have defined and clear criteria, I didn't have defined and clear goals. If you had asked me back then what I was doing - well, obviously, I didn't know what I was doing... But I would just give you money goals. "Oh, I want to make this much a month cash flow, or this much in equity, or whatever." I didn't have any lifestyle goals. I wasn't thinking beyond the current year two, and I think that was a huge mistake, and a mistake I see a lot of people make. If all you have is a money goal, it's easy to give up on that and fail on that, because it's really not that big of a deal... Versus "I want to send my kids to college" or "I want to retire by age 50", or other more impactful things in life, let's put it that way.

Ash Patel: Yeah, thank you for sharing that. You know, I had a single family tenant that also turned my house into a petting zoo/daycare, and it was horrendous. So we've had, I'm gonna say the luxury of having lived through those pain points and those pivotal moments where we implemented changes. What advice would you give to the young people scaling their business so that they don't have to go through and endure as much of that pain as we did? Travis, I'll start with you.

Travis Watts: I would say, first thing, again, back to lessons learned, is that there's people out there that are really, truly professionals. And you can partner with these people in so many different ways. It could be a joint venture, it could be through a syndication, it could be some kind of 50/50 arrangement, whatever... But the point is really self-reflect and figure out what it is you're good at, and try to partner with someone that has the opposite skill sets that you need.

So real estate, as we all know, is truly a networking and a people and a team business. So never forget that... Even in my case, I'm an individual limited partner, but I am relying on teams and other people's expertise to carry my portfolio along. So it's kind of that "Can't beat them, join them" for me. So that's some great advice, I guess, that I would give out.

Break: [00:14:59.20]

Ash Patel: Slocomb, how can you advise some of the younger people or some of the people just starting out and help them avoid all the pain that we went through?

Slocomb Reed: That's a great question, Ash. And Travis, as always is very insightful... I don't advise that people avoid all of the pain that we went through. A couple of basic advice that I give people getting into real estate investing, especially on their first couple of deals, is that I recommend that with each of their first few or several deals, they expand their comfort circle one rung at a time. There should be one component of a deal, of a business plan, of a property that they're not fully comfortable with. Everything else is fine and they know how it'll work. They have a solid understanding of the tenant base, but they've never taken over the rehab. They're great at rehab, but this tenant base is a little bit different from the one that they had previously. Or it's a 10-unit building and they're used to four-family, something like that.

I recommend that newer investors be learning and having some of these experiences. I do not recommend that they dive into the deep end of the pool immediately, and have all of the issues all at once. But frankly, part of the reason that the three of us are good at what we do now is because we had to go through those trials, tribulations to get to where we are. So I don't recommend that people don't do that. I recommend that with each deal they do, they add one tool to the tool belt, instead of getting a whole new belt and needing 15 new tools for a single deal.

Ash Patel: Yeah, I love that advice, and I love your incremental approach. I'm going to share with you a story that I should have listened to years ago... A friend of mine was a homebuilder. His name's John Z. And when I saw him run his business, he was never there. And I asked him one day, I said, "Hey, John, when you have a young couple building their dream house with you, do you not show up to a design meeting, pat them on the back and say, "Hey, Johnny Z, owner of the company. Thanks for building with us." He says "No, and I won't." And I'm like, "People are spending hundreds of thousands of dollars with you. You won't even meet your customers?" He said "Absolutely not."

And I'm trying to get inside his head... And he told me he was given advice by a very successful home builder, and that advice was "Set your business up to where if you leave for six months and come back, it's better than when you left it." And to me, that was such a foreign concept. I didn't understand that you have to work on your business, not in your business. It took me the better part of probably seven, eight years to figure that one out. But it was such great advice.

And one more piece of advice is act as if you're going to scale your business; act as if that one property is going to turn into 20. I wish that I had put systems in place while I still had ample time by only having two or three properties. I should have systemized things back in the day. Now it's so much harder to unclutter different spreadsheets and put them all into different systems... So if you think you're going to scale, act as if you're already there and put your systems in place. And I've seen people who have built their business from the ground up with those systems in place, and their rise to the top is exponentially quicker than a lot of other people that have those growing pains.

Thank you all again for that advice. What is your current bottleneck in your business? Slocomb.

Slocomb Reed: Ash, that's a great question. I would say right now the biggest bottleneck in my business is hiring. I know that I could grow faster in every direction that I want to grow if I were doing more to build a bigger, better team of people around me. I will say, I'm prone to blame myself; I know that there are macro factors. The craziness with the labor market, how difficult hiring has been for the last few years. We're recording in August of 2022. But really, it's the work required in finding the right people to add to my team. That's the biggest thing.

Ash Patel: Yeah. And that actually leads into my next question, and that's going to be talking about how other people or other parts of your team have helped you. Thanks for sharing that. Travis. What's your current bottleneck?

Travis Watts: Number one, not having a crystal ball. I'm still looking for one; if anyone has one for sale, let me know, because there's a lot going on in the world with interest rates, and to all of your points, Slocomb, and recession, and government policy... So here's the thing - I tend to be a more macro-level investor, but sometimes I can go hyper-micro as well. And it's tough to get caught up in that, and trying to remember you can't time markets, and remember to kind of dollar cost average over the long haul... So that's just been really tough.

We all know things go in cycles, we all know real estate's been on this super-long bull trend, so it's kind of impossible to know what lies in the future. So the bottleneck itself is that hesitancy to keep investing and know that you're in this for the long haul, but then not to get too micro-focused and scared and be sitting on the sidelines.

Ash Patel: Yeah. And back to that next question... It took me years to hire an assistant. And I should have done that years before I actually did. And this person has actually moved up to be my operations manager. And it's just an absolute game-changer when you have other people on your team helping you. Slocomb, how have other people helped you scale?

Slocomb Reed: The biggest thing here - I have ADHD, which frankly means that I'm really good at a lot of things that other people are not, but I'm also really bad at a lot of things that most people are good at and some people excel at. So frankly, hiring out my weaknesses because my weaknesses are so much more acute than for the average person - it's been really beneficial, it's been really simpler to identify, especially using tools like the DISC profile. It's been easier to identify what people have the inherent traits, personality traits and characteristics, values that will work well with me.

When hiring, I do check for a person's values more than their experience, so long as they're more of a natural personality fit. I want to hire a bubbly, personable person for bubbly, personable work, and I want to hire a quiet, detailed, focus introvert for quiet, detailed focus introvert work. Outside of that, I make sure that I know that these people's values align with mine. And I will say, getting out of my own way - back to my first example, when I first turned 30 as a real estate agent, when I finally was able to hand off the paperwork and the logistics of a real estate transaction after I had done a good job representing my clients in the negotiation, my business started taking off because I was able to focus specifically on my zone of strengths and the things that felt light to me, and not the things that felt heavy. That are not necessarily complicated to do, but not the right fit for me.

Ash Patel: Yeah, thank you for that. And again, the advice is if your business is profitable and you're inundated, you have no excuse not to hire help. Travis, how has either a team or being part of a team helped you?

Travis Watts: I love both of your points on that one, too. I would say first and foremost for me just the syndication model and me being the limited partner in that Ying and Yang has helped me obviously scale. The most - get in different markets, learn, get a lot of exposure from a lot of different operators. I'd say number two has been mentors. I'm a huge fan of finding people that are doing successfully what it is you want to do, and just making them your mentor, whether paid or unpaid. Take some time to do that.

And other parts of my team that have been a huge help over the years is having a competent CPA who is also a real estate person, so that they really understand from their own personal side what's going on. So I look for people who do syndication investing and are also CPAs. And last but not least, asset protection attorneys and that kind of consulting, to make sure that you're fundamentally structured from the get-go. The last thing you want to do is get real good build these skill sets, build up your net worth, and then lose it all in a lawsuit or something like that. So you've got to kind of plant the seeds, build the foundation. My team is pretty small these days, and those people have really helped me scale that model.

Ash Patel: Great advice. Gentlemen, a great conversation today. Any final thoughts on scaling, Slocomb?

Slocomb Reed: The biggest thing for me that I touched on at the beginning as well is that I recommend listeners please bridge the gap from being able to do everything yourself to having other people on your team partner with you or working for you, who can do things for you - bridge that gap as quickly as possible. It's painful to rely on people who aren't dedicated to working for you and have them cancel, postpone, ghost you. Bridge that gap, scale through that gap quickly, so that you can build out a team of people to handle your operations.

Ash Patel: Slocomb, thank you. Travis, any final thoughts on scaling?

Travis Watts: Three takeaways I'll share. Number one would be educate first, and then experiment second. I had that kind of backwards when I started. Number two, double down on what's working; that was the best advice given to me by one of my mentors, that I took to heart. Number three is invest most heavily in what you know and understand best, but also keep learning and keep experimenting.

So I've said this before, but I do the 80/20, so 80% of my portfolio is in what I know and understand best, but 20% is experimental, other asset classes, other strategies, because there may come a time you need to pivot. And again, the last thing you want to do is get super-good at just one thing, and if that one thing stops working, you're kind of out of luck. You've gotta take 6 to 12 months to relearn something new.

Ash Patel: Great advice, Travis. Thank you. And again, my advice is act as if you're going to one day scale your business. But I love Slocomb's point - you need to endure a little bit of pain to now and motivate you to put those systems and that team into place.

Best Ever listeners, thank you so much for joining us. Please join us again next week. If you enjoyed this episode, please leave us a five star review, share this podcast with someone you think can benefit from it. Also, follow, subscribe and have a Best Ever day!

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