December 2, 2017

JF1187: Using An Algorithm To Help Diversify Your Passive Real Estate Portfolio with AdaPia D?Errico

AlphaFlow has a new way of doing things vs. your typical crowd funding platform. If you’ve been involved in crowdfunding before, you can relate with having to try to log in and invest in the newest or best loans before other investors beat you to it. AlphaFlow has an algorithm that automatically balances your portfolio for you. Not to worry though, their team of experts are the ones choosing all the loans personally, the algorithm just assists in building a balanced portfolio for every investor. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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AdaPia D’Ericco Real Estate Background:

– ‎COO of AlphaFlow

– Previously the Chief Marketing Officer at Patch of Land, one of the first debt-focused real estate crowdfunding platforms and co-founded two businesses with women partners

– She is a real estate investor and is currently doing a complete renovation of her home

-Currently writing a book on Real Wealth Real Health

– Based in Los Angeles, California

– Say hi to her at

– Best Ever Book: Richard Branson


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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 fluff. We’ve spoken to a whole lot of best ever guests, from Robert Kiyosaki (the author of Rich Dad, Poor Dad), Barbara Corcoran (Shark Tank), and a bunch of others.

With us today, AdaPia d’Errico. How are you doing, AdaPia?

AdaPia d’Errico: I’m very well, thank you, Joe. How are you?

Joe Fairless: I’m doing very well, and nice to have you back on the show. A little bit about AdaPia – she is now the COO of AlphaFlow, and she’s gonna tell us all about what she’s got going on. Previously, she was the CMO at Patch of Land, and she is also a real estate investor and she’s currently doing a complete renovation of her home, as an aside. She’s based in Los Angeles, California. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

AdaPia d’Errico: Yeah, absolutely, and thanks for having me back. It’s really exciting to be back on the show and to have watched the growth of the show over the past couple of years. For everybody, my very first episode was — I don’t even know what number it was, but it was the first episode when we were talking about real estate crowdfunding, because that’s really been my background for the past four years – in the alternative investment space, but specifically real estate, with Patch of Land.

That was a lot of fun, incredible growth in that industry, as everybody knows; the ability for people to access real estate online has just grown exponentially, it’s in the tens of billions of dollars today.

So what’s been going on there and where my career has kind of taken me is I spend a lot of time with Patch of Land, and I’ve now moved on to more of the investor side of the equation, working with AlphaFlow. What I mean by that is that crowdfunding companies like Patch of Land or others that have been on the show – they tend to be originators, where they’re originating the loans, and then they’re also raising investor capital through the crowdfunding mechanisms, whereas AlphaFlow is actually way more on the fintech side. We’re an investment management firm.

What has been happening in this space a lot is a lot of institutional investors, a lot of Wall-Street, a lot of really smart money that’s used to trading in stocks and bonds and private equity and such has really kind of woken up to the asset class of real estate and realized that what some of these companies like Patch of Land have built make it easier also for them to invest in real estate… So that’s also been fueling the boom.

AlphaFlow is a company that is a little bit of both. As an investment manager, we’re actually managing people’s money, the same way that you would go to a fund manager to manage mutual funds. What we actually do is we invest in short-term real estate loans, hard money loans, but we do it as fund managers instead of like a crowdfunding platform where you go pick an individual loan because — and this is even true of me… Like, if I’m investing in an equity deal, I’ll do a lot of due diligence, I’ll talk to really expert people and really dig into an equity project. Generally, on a hard money loan there’s not as much of that digging to do, especially if you’re buying from a trusted source, but it’s still really time-consuming, especially if you’re trying to do it through all of the couple dozen of online sites.

What AlphaFlow does is we basically do all that for you – we build you a portfolio of hard money loans, and we manage that portfolio for you. You basically make an investment and you’re done. You don’t have to do anything again, other than just collect your monthly interest payment. It’s what we like to call truly passive real estate investing. It’s almost like investing in a mutual fund, but we build one for you out of real estate loans.

Joe Fairless: Basically, instead of investing in a specific loan, like you would on a crowdfunding platform, you’re investing in a portfolio of different loans that are selected by AlphaFlow based on AlphaFlow’s algorithm.

AdaPia d’Errico: Yeah, so we do upfront underwriting with portfolio managers, and we build out some pretty impressive analytics to help us make better decisions on the loan-buying side, and then we have an algorithm on the back-side which really does this rebalancing. It doesn’t select loans, because still in real estate – and this is a personal opinion right here – I would not want a computer picking my real estate loans… But I don’t mind an algorithm rebalancing my money so that I have as much diversification as possible, because really, a general principle of investing is diversification, but to get the kind of diversification that really makes sense in hard money lending, you need hundreds of loans to really achieve the kind of diversification that could mitigate risk.

We do that, and that’s really kind of like our special sauce – what we do is using an algorithm on the back-end we’re diversifying your portfolio so that with a $10,000 investment you actually get anywhere between 85 to 100 pieces of notes in your portfolio.

Joe Fairless: 85 to 100 in different loans that you have a part investment in on just a $10,000 investment?

AdaPia d’Errico: Yeah, so it’s kind of like an ETF or a mutual fund, where you put your money in and it really gets spread out so that — let’s say it’s a mutual fund; if any one stock goes down, you have all these other stocks that are moving around, so it kind of balances out.

So it’s similar in its mechanics on the back-end. On the front-end though, it’s portfolio managers, really experienced people. Our lead portfolio manager helps build out lending homes operations, so we have some really experienced people here on the team that are doing the loan selection, and then we have this algorithm on the back-end that does this rebalancing.

Joe Fairless: Okay, got it. So people are selecting the loans, and an algorithm is balancing it for each person’s investment?

AdaPia d’Errico: Exactly.

Joe Fairless: Got it, okay. The returns, historical, net to investor — let’s just use easy math, that $10,000 investment… What’s historically been returned?

AdaPia d’Errico: We’re returning around 9% right now, and that’s after our fee, which is 1%. So we’re different from a hedge fund that takes a 2% and 20%, like 2% upfront fee and then a 20% carry for the year… We take a 1% AUM fee for the portfolio management, which we feel really better aligns our interest with those of investors. So that’s really how the model works. So we’re turning around 9% to investors right now after fees.

Joe Fairless: So I imagine you’ve got a couple areas of need. One is product, and the other is customer, so product being more loans, and the customers obviously being investors who invest through AlphaFlow.

AdaPia d’Errico: Yeah, exactly. So we work with accredited investors. We are operating with a 506(c), and we work with lenders for the loan purchases, because we don’t write our own loans. What we do is we’re selecting partner lenders from across the country to help with that diversification, so that for example we’re not just buying loans in California; we want real diversification by working with expert lenders in different parts of the country who really know their markets, and buying loans from them.

Joe Fairless: And since it’s 506(c), you can take out an ad in the New York Times or on my podcast or wherever, and just talk to as many strangers as possible about it, right?

AdaPia d’Errico: Exactly. The benefit of 506(c) is that we can do general solicitation and advertising. The challenge of a 506(c) if you wanna call it that, we can only take money from accredited investors and they have to pass a verification accreditation. This is a rule from the SEC… Whereas more traditional private placements are 506(b), which doesn’t allow you to advertise, but it does allow you to take up to 35 non-accredited investors per investment, and those investors don’t have to prove anything with documents, like they do in 506(c).

Joe Fairless: Yeah, you’ve gotta have a third-party verify it, whether it’s their accountant, attorney, or a company that you hire to work with them on submitting the documentation. What’s your focus as COO?

AdaPia d’Errico: My focus is on really growing the investor side. I had some really good advice coming into this role as COO, because it’s like “What is a chief operating officer?” and one really good advice was “It’s whatever you and the CEO decide.” So in a way, the really big piece of what we need to do is continue to grow our assets under management. So my focus really is on spreading the word, building the brand and building our investor client base; that’s really what I’m focused on right now, and I’m really excited about the way AlphaFlow is going about this… Especially coming from the background that I come from, it’s just such a different, sophisticated, but also extremely professional approach to this side of real estate investing, and I think it’s fantastic that more companies are coming into this space, to give even more credibility to the underlying asset class. So to these borrowers that are still working with the lenders and they are rebuilding homes, they’re doing the flips, they’re doing the stabilization… You know that a lot of people now are value-add and then holding to rent; I’m sure you’ve seen lots of statistics and reports coming out on the falling home ownerships rates, so there’s still a lot of opportunity in the single-family bridge loan space, which is really what we invest in, and we’re still seeing a lot of that, which is why we’re still really bullish on this space.

Joe Fairless: Growing the investor side is your focus… How long have you been working on AlphaFlow?

AdaPia d’Errico: I’ve been working here since May.

Joe Fairless: Okay, you’re just getting your feet wet; it’s been a few months, and that’s really it, so you might not have an answer to this, and if not, just let me know – what’s been the most effective tactic for growing the investor side that you’ve implemented so far?

AdaPia d’Errico: The most effective tactic — well, in the beginning it was really outreach to my network, letting everybody know where I landed, why I was excited about this, reaching out to people who are familiar with the real estate crowdfunding space, so starting from — if we wanna look at it as concentric circles, starting from the circle closest around me, and building up some awareness from there… So that’s been really effective, because we’ve been able to bring a lot of attention and a lot of people who come over and they say “Wow, you mean I don’t have to pick my loans anymore from other platforms? I don’t have to wait for the e-mail to come out and rush to the site and see if I can get a good loan? You do all of that for me?” “Yeah, we do all that for you”, so it’s been really fun to sort of explain that.

And now, what we’re doing is we’re really embarking on more of a brand-building mission, which is why we’re speaking too, because this is still a young industry, and we’re a new company, so we have to build trust, and that takes some time, and it takes a lot of work. And here’s something for those — some people might be familiar with registered investment advisors and what it means to be a registered investment advisor… So AlphaFlow is a registered investment advisor, so we’re regulated. So here’s a challenge, which may be something that some people are familiar with – when you’re regulated, there’s a lot of things you can’t do on the marketing side. There’s all these rules and laws about especially misrepresentation and fiduciary duty, and we’re the only company in this space really that did get registered as an IRA, which means that we have a fiduciary duty to our investors, to our clients, and it means that we’re regulated… So there’s some things that we cannot do, that other non-regulated companies can, so it makes it a little more difficult.

For example, we can’t send out a testimonial. So if somebody loves us, they might go on Twitter and they might tweet about it and say “Oh, I love AlphaFlow.” We can’t give them any social love back, which as you know, there’s unspoken rules about social love, and we can’t do that. So we have to write to them privately and say “Hey, thank you so much. We love that you love us”, I just can’t express that publicly. I can’t even like it, I can’t forward it, I can’t retweet it, I can’t share it… So it’s a little bit hard to build social proof, which as you know, is so important to building trust.

For example, that’s been a really big challenge, so any fund managers that are thinking about going into the regulated space, that is a very real challenge, especially if you’re like me and you’re very social and you’re very active on social media. So that’s been a little bit of a challenge. We’re trying to find ways where I can raise awareness without breaking any laws, really.

Joe Fairless: Yeah, that’s tricky, especially given your position and what you’re responsible for doing.

AdaPia d’Errico: Yeah.

Joe Fairless: The number one tactic, as you mentioned, is just letting your network know about it… What do you plan on doing? And the reason why I’m asking is for every Best Ever listener who has the same target audience of accredited investors, they wanna know what someone who has expertise in marketing and a successful track record – what are you thinking? How do you reach them? So what do you plan on doing, other than telling everyone in your network about it?

AdaPia d’Errico: Yeah, absolutely. Luckily, I can still advertise; the flipside to that is that it costs money to advertise. So it’s a balancing act between getting really hyper-focused on very strong messaging to go out with advertising, so that’s one thing, because you can advertise. Doing a lot of outreach to influencers – influencers like you… There’s a lot of people who have sort of taken up the baton of becoming spokespeople for an industry. A lot of financial bloggers as well, who play a very important role. Real estate bloggers, financial bloggers who play a really big role in helping to cut through some of the information for their readers, because they’re really trying to promote strategies for wealth building, which I think is really important to focus on in general… Like, how does real estate fit into your portfolio? And not just real estate for the sake of real estate.

If somebody comes to us and says, “Here’s my nest egg. I wanna invest 30% of it with you”, we would really say “That’s probably not a good idea.” We would not do that. This is not prudent.

And that’s one of the benefits of the [unintelligible [00:16:28].24] we can take a holistic view, let’s say, of a client’s portfolio, and let them know “This may not be the best thing for you.”

Aside from that, it’s really reaching influencers, and for those who don’t have limitations like we do on being regulated, I would say use social proof as much as possible. Really build that community around yourself. I can’t tell you – and you know – the relationship building, that quality over quantity will always win out. The reason that I could go out to my network first and foremost is because I’ve built one; it’s your number one… And I may be repeating myself from the episode that we did before, but for those who know the 1,000 true fan model – it really is relevant today as it ever has been for anyone in any industry. Do what you can for your truest, closest fans, and think about them first, and then they will become the army that goes and speaks about you to people that they know, and then you hit an outer circle, and then it just keeps going, like throwing a  rock into a pond and it ripples out, you have this ripple effect. They’re the rock. And you have to give your first inner circle something to talk about, which applies very much to customer service.

There’s no better marketing tactic than a happy, satisfied client. So if you’re always focused on that, you can’t go wrong. Now, if you’re pushed to grow at scale, that’s a little different. That’s when you really have to think about advertising, and you have to think about brand building and the customer journey; you have to think about more technical marketing tactics and strategies. So for those who don’t have big budgets or who are not pushed to scale let’s say by VC capital, then focus on giving your customers the best experience possible, and knowing that especially in real estate trust is so important. We still answer questions about people who — we know there are bad apples, and I say it’s very true, but there are more good apples than bad.

I just think it’s really important for a lot of people to know that yes, there could be some bad apples, absolutely; there are bad apples in every industry. I’ve been a victim of fraud. That doesn’t mean that I stop and I give up, and I don’t paint everybody with the same brush. There’s so many people doing great work in real estate, and just keep pushing that out there, I would say. Just keep being really good to your customers, and it’ll come back.

Joe Fairless: Yeah, I know from my advertising agency days that word of mouth referrals are the number one influencer of purchase intent, and as long as you’re saying “Have happy, satisfied clients”, then you’re gonna do well in the long run; as you mentioned, the tricky part is if you have to grow quickly to scale, then you’re gonna have to do some other stuff, and I’m glad you talked about the influencer marketing and that outreach.

So let’s do the lightning round… We’re got some fun questions for you. Are you ready for the Best Ever Lightning Round?

AdaPia d’Errico: You bet!

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:19:43].09] to [00:20:46].12]

Joe Fairless: Alright, best ever book you’ve read?

AdaPia d’Errico: Oh my gosh, Richard Branson’s first autobiography.

Joe Fairless: Okay, that would be a fun read, I imagine… I’m gonna have to check that out. What’s a mistake you’ve made in business?

AdaPia d’Errico: Trusting the wrong people at the expense of my instinct. I knew it was the wrong thing to do, but I rationalized it away. So not trusting my instincts.

Joe Fairless: Is it as clear-cut moving forward that “Hey, I’m just gonna always trust my instincts” or is there a particular question that you ask yourself, now that you’ve gone through that experience?

AdaPia d’Errico: I will pay more attention to it, and then rather than rationalize it away, I’ll go back and either bounce it off of people, because that was the second part of the mistake – trying to make the decision all by myself – so I’ll go speak to somebody, mentors or trusted advisors, and then I’ll write out pros and cons; I’ll spend a little more time with it, but I will at least — if I have that pain, that twinge, I’ll say “Okay, something’s going on here. Let me explore it”, as opposed to just ignoring it.

Joe Fairless: What’s the best ever way you like to give back?

AdaPia d’Errico: Mentoring, coaching… I love it. I really learned how much I love coaching and mentoring others, in their business or even in their personal life, to help them empower them to be their best, truly. I think that’s my calling, and I love it.

Joe Fairless: How can the Best Ever listeners get in touch with you or learn more about AlphaFlow?

AdaPia d’Errico: AlphaFlow is, pretty easy to find. I’m on that website, I’m all over social, I’m AdaPia d’Errico. I have my own website, but if you google my name, I pretty much come up. All my handles are AdaPia, and I’m pretty active on social, so they can definitely find me there. LinkedIn is a great place to find me, as well.

Joe Fairless: Outstanding. Well, AdaPia, thank you for being on the show again. Thanks for talking about your new venture as a COO with AlphaFlow, the business model of AlphaFlow, the way that it is structured, both from an investor standpoint but also from an infrastructure standpoint, and your focus on building the network and growing the investor side, and how you’re doing that by relationship building, quality over quantity, and doing strategic outreach to particular influencers within the financial and the real estate.

Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

AdaPia d’Errico: You too, thank you!

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