Time to get an update on Joe and Theo’s dealings. A LOT of listener questions answered on this episode. Very good insights on how to find off market deals! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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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. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.
Today we are doing a special episode, like we usually do, called Follow Along Friday. We have a whole bunch of questions to answer from Best Ever listeners. We will not get to all of them that have been submitted on this episode. However, we do plan on getting to all of them that have been submitted in this plus future episodes. So if you don’t hear your question answered, then sit tight and just keep on tuning into future episodes.
The manly voice you just heard is Theo Hicks. Theo, I hope you’re having a great day and you’re ready to rock.
Theo Hicks: [unintelligible [00:03:13].06]
Joe Fairless: Theo’s recovering from an illness. He went to Disney World and…
Theo Hicks: It got me good.
Joe Fairless: It got him good. Fortunately, he’s well enough to do this show with us.
Theo Hicks: I hope the sniffling and the coughing doesn’t bother anyone.
Joe Fairless: Yes. Well, we can try to edit some of that out.
Theo Hicks: I’ll make sure I don’t do it on [unintelligible [00:03:30].24] I’ll turn this away.
Joe Fairless: I appreciate it. Alright, how do we wanna approach today?
Theo Hicks: Before we get into the questions let’s give a quick update on the deals you’re working on, your business, or the best thing that’s happened to you, the worst thing that’s happened to you since we last spoke…
Joe Fairless: Yeah, I’d say the deal we’re closing on in Dallas, the 200+ unit apartment community that’s directly across the street from the one we already own is going well. One observation – and this is not related to that deal, but one observation I had was here in my local community a business went out of business. It was cupcake shop. I did not know it was going out of business, although I kind of could tell, because it didn’t have very many customers, but I didn’t know it was in that situation.
Then one day Colleen and I are walking Jack, our dog, and we notice that it’s out of business. It made me think of the idea that a lot of businesses have a “going out of business” sale, and then once that’s done, then they go out of business… But I’ve never heard of a business having a “we’re in trouble and we might go out of business if we don’t get help” sale. I was thinking — and this is a random thought, by the way, I recognize that, but maybe there’s application in real estate, certainly as entrepreneurs… If we’re in trouble, asking for help from the community and trying to get that help so that we don’t have to then go out of business.
In this case, they didn’t even have a “going out of business” sale, they just went out overnight. However, instead of having a “going out of business” sale maybe it’s a “Can you help us out? We’re in trouble” sale and then rally the community… Because a lot of the times businesses might not know that they have dedicated customers and people who follow their company or brand or product or service, and that could help rally the troops and perhaps together they can right the ship.
Theo Hicks: I think that’s a good point. I was kind of reflecting on myself, and I’m the kind of person who has a lot of difficulty asking for help [unintelligible [00:05:36].06] I don’t know why that is, I haven’t figured out.
Joe Fairless: Because you’re a man.
Theo Hicks: Exactly, because I’m a man… I guess men stereotypically don’t wanna ask for help, but we’re in a business where you can’t do it by yourself. You have to ask for help. If something were to go wrong, not only could someone help you – whether it’s financially, or just to support you if you’re having a hard time, or just ask them like “Hey, I’ve got this issue at my property and I have no idea how to fix it”, instead of just ignoring it or stumbling your way through it and maybe fixing it. It takes two seconds to send an e-mail or send a message on Bigger Pockets, or submit a Best Ever listener question. I think definitely just asking for help and getting over the — it’s not a fear, it’s just like you don’t want to…
Joe Fairless: You don’t wanna address it, yeah. Thank you for connecting the dots for me and making that a relevant observation for a real estate show. It totally is, now that you connected the dots for me, because when we have a deal – like you said – and it’s not doing well, or a particular business is not doing well, don’t wait until it’s too late, rather talk to people who you already know, tell them “Hey, I’m in trouble. Is there something that you know of that I should be doing?” and they might come up with solutions, or they might say “You just need to end this, close it out and move on”, who knows.
Theo Hicks: That’s a good observation.
Joe Fairless: Cool, alright. What about you? Remind everyone what you recently bought, and then if you have any updates.
Theo Hicks: I recently — I think next week will be a month since I officially bought three four-unit properties, so 12 units total, on a purchase price of 660k… And really no new updates this past week; nothing’s happened in the past week.
Joe Fairless: Nothing falling on cars…
Theo Hicks: We had no more ceilings falling on cars, no more leaks going in the basement… The only thing I’ve done is I went over there and mowed the lawns, and I kind of timed it to see how long it took based off our last conversation, to make sure I was spending my time properly.
I guess the only update, what we have on the agenda for this month is to resign leases with everyone, and the approach is going to be e-mailing or calling everyone, because we have everyone’s e-mail now. I’m not leaving notes on the door anymore, because I don’t think they necessarily like the notes on the door. I only do that if I have to, but I think having everyone’s e-mail addresses is the way I’m gonna use it for now, because everyone has been responsive that way.
We’re gonna set up a time to go in there and meet everyone, let them know who we are. We’re going to resign leases, and then based off the conversation I had with Linda or Secure One – I’m not sure if I mentioned this last week or not, but she said something very interesting… He said when you go in there, when you first take over a property, you ask them what’s one thing they want to have fixed that hasn’t been addressed by the previous owner. That’s the wording I’m gonna use, because I think the last time we talked about how we’re afraid of them going “Oh, redo my kitchen.” It’s like, “Well, that’s not what I meant.”
So we’re gonna do that to kind of get off on the right foot with the new residents. That way, since we address something, based off of what you said way back when I first bought the property – you actually do something, and then you can raise the rents up to market rents, versus just going in there and just raising them and not doing anything, and then kind of coming across maybe a little slimy, I don’t know… But besides that, nothing really going on on that front.
The worst thing that’s happened to me is I’m sick, but I’m getting better, so that’s the best ever thing that’s happened — being sick… It’s not really real estate related, but it kind of puts things in perspective, because when I get sick I’m just like a complete baby. Maybe it even goes back to the asking for help, asking Marcella to help me get through this stuff… I was in a complete fog for like three or four days, and everything that happened was negative and the worst thing that’s happened… It feels so good to be better.
Joe Fairless: Well, when you’re sick if you can do some written down affirmations when you first wake up, that might help. You know for the last 20 days I’ve been doing that, and it’s such a powerful way to wake up. We talked about where I heard that from – the Tim Ferriss podcast, interviewing —
Theo Hicks: Wasn’t that his morning routine? I guess it’s in episode — I have it saved on my phone, but yeah…
Joe Fairless: Yeah, it doesn’t matter. Anyway, that’s one thing – if you’re sick and you need a little jumpstart, maybe you can do that. But hopefully you don’t persist to be sick, so…
Theo Hicks: Yeah, I don’t plan on going to Disney World until New Years… I’ll probably sick again then.
Joe Fairless: Oh, wow… Two Disney Worlds in a 12-month period?
Theo Hicks: I love it there, man… [laughter]
Joe Fairless: Okay…
Theo Hicks: I love that place.
Joe Fairless: I would not have guessed that. Okay, we have a lot of questions from you, Best Ever listeners, and all of them that we’re gonna discuss today will be apartment syndication-related with one exception; that question came last week, and we wanted to make sure we address it. It was from Jacob, right?
Theo Hicks: Basically, he was just asking how do you go about selling a single-family home or a 2-4 unit home, and have it be valued using the cap rate and the income?
Joe Fairless: Do you have the actual question? Because I thought he was asking about a portfolio, like if you have multiple single-family homes, can you group it together as a portfolio… So what’s the exact question?
Theo Hicks: The exact question is “Is it realistic to expect to be able to sell a portfolio of single-family homes and 2-4 units as a commercial property based off its income, as you would an apartment building?”
Joe Fairless: Okay, so yes, it is. I interviewed an expert on this on the show, his name is Mark Allen. He’s a broker for Sperry Van Ness in Fort Worth, Texas. What episode is that?
Theo Hicks: 920.
Joe Fairless: Episode 920, Mark Allen. He talks about the benefits of doing that being 1) you sell off of the NOI and then you’ve got the beauty of cap rates multiplying your value; 2) you lower your broker fees, because you’re selling them in bulk, and just your overall transaction fees are lower. So if you want more information on that topic in particular, then just listen to that interview, search “Mark Allen Joe Fairless” and that interview will come up, or just 920 – you can go check it out.
Theo Hicks: Perfect. We can move on to multifamily syndication questions…?
Joe Fairless: Multifamily apartment syndication questions… Okay, these are from David B. David, you asked a bunch of questions, and that’s good, but we just won’t get to all of them on the show. First question is “How do you choose your market and how should I choose mine?” And he says “I know most people say invest close to home and choose a place with job growth where one employer doesn’t have the majority of jobs. I’ve spoken to many syndicators who invest in places like Texas, Cali, Indiana, Arizona and Nevada, but I haven’t met many who invest in Florida (he’s living in Florida). What makes them choose those places?” I don’t know what makes people choose what they choose, so I can’t answer that, but I can answer your first question, and that is “How did you choose your market and how should I choose mine?”
How I choose and how we choose our markets is based on what you said earlier in your question, and that is job diversity and how no one employer makes up more than 25% of jobs in a market. Dallas-Fort Worth it’s 14% is the leading industry according to the census.gov. Flip that – Nevada is 28% for hospitality…
Theo Hicks: Yeah, because of the casinos, and stuff…
Joe Fairless: Casino and stuff, exactly. So that is the primary thing I look at – job diversity. Because when one employer, one industry goes away, the rest of the economy will pick up the slack. In addition, I look at the supply and demand. I wanna make sure that the absorption rate – that’s factoring in the amount of new builds plus current inventory, and looking at how many potential renters there are juxtaposed to that. I wanna make sure that’s healthy.
Let’s say the third primary thing I look for is just the overall growth in the population and the population trend. I wanna make sure people can afford to pay the rent, so they have jobs and there’s job diversity, people are coming there and will continue to come there (there’s not a mass exodus), and then there’s healthy supply and demand. Those are the three primary things we look for, but there’s about seven or eight other things. When you look for a market, what do you look for? I know there’s overlap, but anything in particular that I didn’t mention?
Theo Hicks: I guess this is more for the smaller properties, but honestly right now what I looked at was its closeness to [unintelligible [00:14:20].21] people aren’t gonna understand what that means unless they’re from Cincinnati, but they’re two really nice areas in Cincinnati, that are building a ton of apartments and the rents are insanely high. My assumption is that the locations on the outskirts are going to be the new Oakley, 5-10 years from now.
So I kind of go in there and look at the rents and the property values and see how those are trending with time, and if they meet my assumptions, I’ll invest there. That’s how I picked Pleasant Ridge.
Joe Fairless: You nailed Pleasant Ridge, by the way. I didn’t mention this, but Colleen and I went to the new Mexican Restaurant in Pleasant Ridge…
Theo Hicks: Yeah, I can’t remember what it was called…
Joe Fairless: Casa Fuego, I think.
Theo Hicks: Is it good?
Joe Fairless: Amazing. Amazing House Margaritas, and your area is gonna get the spillover from the uppity-up areas that are directly next to it.
Theo Hicks: Yeah. Maybe one other thing just to mention is my friend subscribes to the [unintelligible [00:15:11].09] here; I’m not sure if every state has that, but I know Dallas has one, I know they have one up in Dayton and Columbus… But I’ll read that and just kind of see where they’re building new development at. It’ll come out like a year before they even — the entire is project is tracked, from when they are first talking to the city council, when the plans are being created, when they start and when it’s done.
A couple years ago they mentioned how they were gonna start building all these new restaurants in Downtown Pleasant Ridge. In the back of my mind I remember reading that like a year ago, and we could have used that to get ahead of the game, too. It’s like “Oh, they’re building something in two years over here, so in two years from now people are gonna probably be willing to invest there, or maybe they’re gonna be selling, or something will happen there… So maybe if I get there ahead of time, I can maybe catch that appreciation curve.” Not basing my decision solely on that, but that’s the added advantage of getting in somewhere early.
Joe Fairless: That’s smart.
Theo Hicks: So just kind of reading up on the area, too.
Joe Fairless: I like that. That’s similar to what Barbara Corcoran said whenever I interviewed her on this show, how she was looking for the up-and-coming areas. She wasn’t reading a newspaper, but she was looking to see where the artists were moving to.
Theo Hicks: Yes, good point.
Joe Fairless: Just following the artists, and one of her best investments, it turns out that’s how she found it. Okay, and as far as investing in Florida, why I have chosen to stay out of Florida is because we have a really good thing going in Dallas-Fort Worth, so why rock the boat? Why try and mess things up just for the sake of checking some other markets out? We diversify within submarkets of Dallas-Fort Worth, but I think there’s a really good thing that’s gonna continue to happen in DFW for at least the next five years.
I don’t know what’s gonna happen… Anything can happen, but the fundamentals are there for DFW. As far as Forth Worth, Nevada, Arizona, or Phoenix in particular – I know I’m grouping some states and some cities, so I’m about to make a generalization, and obviously not everything is applied to what I’m about to say for each of those three areas, Arizona, Florida and Nevada… Generally speaking, when the market corrects itself, those areas historically have been hit the hardest. We’ve gotta really pay attention to the fundamentals of how you buy, and that ties back to a question that you ask later about what we look for in a property, and that is stabilized, cash-flowing properties; that means they’re at least 90% occupied and they have value-add components to them… Ideally built in 1980 to 2000, somewhere around there. That mitigates risk because we’re not buying a distressed property that is older. We’re buying a relatively newer property that is performing. We’re buying a business that’s making money, and we’re simply enhancing the cashflow through those value-add streams.
So you can take that approach and apply it to those other states, but that’s just generally why I’m focused on DFW.
Alright, next question is “How do you find off-market deals and actually get the owners or someone of power to respond? I’ve sent out direct mail and called some owners with no luck so far.”
Well, we have interviewed, fortunately, apartment investors who tell stories about how they found off-market deals. I have the episodes, I’m gonna mention them real quick; there’s six of them. We’ll also include the six episodes in the show notes, and we’ve got [unintelligible [00:18:56].25] Theo is reaching for his computer right there — we’ve got a team member who’s gonna do that. So our team member will include it in the show notes when the episode goes live, so you’ll see it; if you’re watching right now via Facebook live, then he’ll include it in the link below.
The episodes, really quickly, are 180, and it’s titled “A Brilliant Way To Find Off Market Commercial Real Estate Deals You’ve Never Heard Of Before.” I wish I could just tell you what it is, but I totally forgot what that one way is, so you’ll have to listen to that episode. Episode 345, “Your Guide to Direct Mail, Cold-Calling And Multifamily Purchasing” with investor John Cohen. He’s an apartment syndicator in Long Island; I met with him a couple times, great guy. He’s been on the show multiple times. Episode 340, “How To Find Multifamily Deals Without Brokers” with Juan Maldonado. I do remember that conversation; he’s based in Texas, I wanna say San Antonio, Austin area, and he talks about how he drives for dollars, for apartment communities. He talks about that in the interview. Episode 849, “How To Leverage Brokers To Hustle For Deals” with Stash; he is a broker in Cincinnati and he talks about how to work with brokers to get deals. Now, obviously that won’t be a deal without a broker, because he is a broker, and he talks about how to work with brokers. However, you can get off-market deals through brokers – you just have to pay their fee – but that will remove the competitive bid situation from the equation… So you can still get a better deal. We’ve purchased deals that way. Episode 868, “How To Snag Deals From Brokers And What Questions To Ask” with Andrew Cushman, and episode 934, “How To Find Deals In a Hot Market” with Joe Fairless. I do remember how to do that one, and that is where I discuss how we purchased two apartment communities – one on market, one off market, and combined the operations, and we were able to pay a market price for one because we were getting a below market price for the other, and overall it was a very good deal. We’re doing something similar right now. We own the property across the street that we’re closing on next month, and the property across the street was off-market, the property we’re buying now is on market. We’re gonna combine not the property, so from the public standpoint it will still be different properties, and from a bank account and everything they’re separate. However, we were able to, from an operations standpoint, have efficiencies because of that.
I’ll give you one additional tip. This is something that I suspect you have not heard of before for how to find off market deals locally, and that is go to the courthouse when they’re going through the eviction proceedings, and identify which landlords are going there frequently, because they likely have better things to do and want to be doing with their life than going to eviction court to be kicking out their tenants, and perhaps they will be motivated sellers. So if you’re living locally, and in this case, David, you mentioned investing in Florida, or why people don’t… Well, if you want to invest in Florida where you’re at, and try and get some off market deals, then do that research, go to the courthouse and start speaking to those owners, and you’re gonna find some motivated sellers, or people are at least gonna have a conversation with you, because they don’t wanna be there.
Theo Hicks: That’s a really good one. I’m sure you’ll get a really good deal if you catch some at the right time, when they’re doing a bunch of evictions. That’s a really good idea. It’s a good one.
Joe Fairless: And then we’ve got time for one more question, and then we’ll move on. We’ll get to your additional questions, David, as well as anyone else who submitted questions, which we have a couple of people – we’ll get to those on a future episode
Last question – “When your goal is to come to the table with zero dollars, how do you structure the deal?”, and he’s talking about apartment syndication… “How do you structure the deal so that investors pay for lawyer fees associated with creating the company, PPM, subscription package etc.? Well, those items you mentioned are all part of the closing costs, therefore they are paid out by your entity at closing, and you and the investors are part of that entity. So that’s a typical apartment syndication – the entity pays for the costs associated to closing and those items you mentioned: PPM subscription agreement, company agreement, lawyer fees… That is part of doing business, so that’s what the entity pays for, so it’s just a typical syndication model.
Obviously, if you invest in your deals alongside investors, then you’re contributing to that because you have part ownership in the deal. If you’re not, then you’re still contributing technically, because you have ownership in the deal and the payment is paid out, and then after that all profits are distributed based on your percent ownership. So your ownership will be watered down just like everyone else’s when you pay those fees, but it’s an expense just like anything else, like paying a plumber to come fix a toilet… So that’s how it’s structured.
Alright, what else have we got?
Theo Hicks: We’ve got a couple of exclusive interviews coming up next week you wanted to mention…
Joe Fairless: Yeah, it is two football players.
Theo Hicks: I think one’s a football player and one’s a basketball player… I think one of the guys is a basketball player, Tony Delk.
Joe Fairless: Is he?
Theo Hicks: One of the two…
Joe Fairless: Oh, I know Fletcher is a former football player, and I should know Tony Delk… I recognize his name… Basketball, yeah!
Theo Hicks: UK.
Joe Fairless: UK. So if we’ve got any Wildcat listeners… One of my good friends is a Wildcat passionate basketball fan, so I’ll probably get some hate mail after not recognizing Tony Delk immediately. [laughter] The UK fan base is rabid, I know that… So it’s actually basketball. Yes, interviewing Tony Delk and Terrell Fletcher next week. Those interviews will be coming out soon, in the next couple of weeks, so I’m looking forward to that… Talking to them about entrepreneurship and what they’re doing post professional life, because as real estate investors we are all entrepreneurs, and that’s something that we can learn from – how to reinvent yourself or how to, when you’re in a full-time job (in this case they were sports professionals) how to transition into business while maintaining your full-time job. It’s all relevant, and they’ve clearly excelled at the highest level within their professions.
Theo Hicks: I’m looking forward to those interviews. We should also mention the conference next year…
Joe Fairless: Yeah, the conference, 9th-10th February. You can go to BestEverConference.com. We’ve got the early bird special ticket; it’s the best value you will get ever with the conference. The early bird tickets are limited, and for sure they will end by Halloween. If you want to go to the conference… And the reason why — I promise you it’s the most high quality of attendees that you’ll come across at the conference… That’s what we heard last year. There’s no sales, no nothing from speakers, it’s just all about — well, “no nothing”… There is quality content, and it’s all about helping you accomplish the goals that you set out to accomplish when you attend.
We actually have a questionnaire that you’ll fill out after you sign up for the conference, and we’ll make sure that we personalize the content to accomplish what you’re looking to accomplish at the conference.
Theo Hicks: Yeah, it was a good time last year. My favorite part was you got the speakers that you mentioned, that are just a million dollars in real estate and have been doing it for decades… And you actually get to talk to them, because it’s a multi-day event; they’ll speak, and then they’ll kind of be in the crowd during breaks, and you can actually talk to them and get to know them and ask them more detailed questions based off of your personal experience and kind of what you wanna get out of it. From my perspective, that’s the most value I got – the conversations with the speakers during the dinners; you don’t get to do that if you don’t show up to some sort of real estate conference in person, in general.
Joe Fairless: Yeah, absolutely. The relationships… I mean, Tim Ferriss talks about going an inch wide and a mile deep with networking, and I whole-heartedly embrace that, even though I have a podcast where I interview a person a day… But from building relationships – just don’t hand out all these business cards; just go inch-wide, get to know people, and go a mile deep with certain people. You do that with the right people and it’s a game changer.
Additionally, I wanna mention it’s a lot of fun to join the Best Ever Community Facebook group. If you haven’t already, just search “Best Ever…”
Theo Hicks: I think it’s just “Best Ever Community” on Facebook.
Joe Fairless: “Best Ever Community” on Facebook. We’ve got all sorts of fun stuff we’re doing, from what’s the one piece of advice you would not give a real estate investor starting out, to “How many deals have you done?” just to see the high quality of how many deals people in the group have done; conversation around what challenges you’re currently coming across and the community helping you out, and all sorts of other things. We might have some exclusive videos or offers through that Facebook group. You’ll enjoy it. If you’re a Facebook person, then go to Best Ever Community on Facebook, ask to be accepted into it, we’ll accept you and we’ll jump right in. Cool.
Theo Hicks: We’ll end with the review of the week. Again, we really appreciate these reviews and the feedback of what you guys like and what we can do more of… This week the review of the week goes to Chris, where he says:
“Joe puts in a ton of effort to give his listeners the absolute best content. The variety of guests on his show are very impressive and provide tremendous value. I listen to this every day, and it has launched my career in real estate. Thanks, Joe.”
Joe Fairless: Oh, sweet. I love hearing that. One thing that we are improving upon, and hopefully you noticed it this week versus previous Follow Along Fridays is that Theo sends me the agenda two days before we record; that way I can see what the agenda is and can prepare, versus… All previous Follow Along Fridays he’d show up and he’d be like “Alright, here’s what we’re talking about.” “Okay”, and I had to do it on the spot. Now I’m more prepared and can provide more quality content on Follow Along Friday. We’re gonna do that moving forward, and you’ll see an increase in just being more succinct… I know that was a comment a while ago — which, I think I’m pretty succinct, though… But giving more substantive stuff to you. Hopefully you recognized that and appreciated it.
Well, I enjoyed it. Thanks again for listening, Best Ever listeners. I hope you have a best ever weekend, and we’ll talk to you tomorrow.
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