March 16, 2018

JF1291: What Is The Best Apartment Investing Strategy? #FollowAlongFriday

Joe and Theo are discussing/debating different apartment investing strategies on this edition of Follow Along Friday. Really this debate can apply to all property investing. The strategies up for debate today are distressed vs. value add vs. turnkey. Hear what the guys have to say about these different strategies today! 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.

We’re doing Follow Along Friday today. I’ve got with me Theo Hicks, who is with me on Fridays. How are you doing, Theo?

Theo Hicks: I’m doing wonderful, Joe. How are you doing today?

Joe Fairless: I’m doing wonderful. A little bit under the weather, but just a tiny bit; hopefully nipping that in the bud with some lemon water and wheat grass and all sorts of other crazy stuff like that. We are gonna be talking about the three different business approaches/plans that you can implement on an apartment community, and really a single-family home — I guess really any type of real estate venture; I guess apartment communities are top of mind because that’s what I invest in.

It’s one, a distressed deal, and implementing  a business plan that brings a distressed deal from zero occupancy – or maybe it’s 80% occupancy, but you bring it down to 20% occupancy, because the residents weren’t screened properly… All the way up to stabilization. So that’s one.

The middle ground, value-add deal, where it’s fairly stabilized or it’s stabilized, meaning it’s 80%+ occupied, and there are still value-add components to it. That’s the business plan that my company does.

And then more turnkey, where you don’t really do anything to the property; you just buy it and then hold on to it for cashflow. So we’re gonna be talking about which one is better, and we’ve got a popular debate platform or format for this episode. A lot of people have said they’ve enjoyed this format. We can thank Grant, our team member for suggesting it… And you’re gonna take an approach that I normally would take, because it’s just to mix things up a little bit. So how are we gonna structure our conversation?

Theo Hicks: I think the first debate I was actually role-playing, but now it’s more along the lines of what I’m actually planning on doing and what I want to do, and then you’re kind of playing devil’s advocate for the other (in this case) two strategies. So I’m gonna be taking the side of the value-add investor, and then you — not necessarily taking the side, but just kind of playing devil’s advocate for the other two, since value-add doesn’t completely [unintelligible [00:04:47].14]

So just to start, one of the main reasons why I like the value-add business approach is because you kind of get the best of both worlds. Obviously, you don’t get the same magnitude of good from both… But for turnkey, the main pro is that you get a lower risk, because the property is already cash-flowing, everything’s completely done, there’s not a lot of variables that could go wrong… And because there’s little risk, you also get a more certain return, because again, since everything’s gonna be done, you’re gonna be getting this cash-flow throughout the life of the project.

Then the benefit of the distressed model is that there’s that big upside at sale, because you’re buying a property under market value, that’s under capacity for some reason or another, and by you forcing that income up or those expenses down, [unintelligible [00:05:35].23] more along the lines of forcing income up, the NOI increases and the value of the property increases, so you get that big chunk of capital sale.

For value-add, since there are opportunities to increase the income and decrease the expenses, you will have that forced appreciation where you’ll get that large chunk of cash at sale, but at the same time, since it’s stabilized enough at purchase, you’re still having some sort of cashflow along the way… And once you’re stabilized, then you’re gonna have a significantly higher cashflow than you would for the turnkey, or really the distressed, depending on how you approach the distressed. I’ll stop there for now.

Joe Fairless: Alright… So yeah, you gave pros for the value-add, but one thing you said is that it’s the best of both worlds, and what that makes me think of is that it’s a watered down version of both of those things. It’s a watered down version of a turnkey, and it’s a watered down version of a distressed. So you’re right in the middle. How many of us like watered down things? Not me… So if we’re gonna do something, let’s do it.

If I have a specific goal – let’s say my goal is capital preservation; I live in California (and I know some people whose scenario this fits), my single-family house I purchased 10 years ago, I’ve got a whole lot of equity in the single-family house that can do some damage if I were to use that equity and buy something in the Midwest.

I am first and foremost focused on capital preservation, so in this scenario I would rather have a turnkey property – maybe a triple net lease property – and then make sure that my money is set up and safe. On the flipside, let’s say I am looking for some major cashflow in the long run (I don’t have any), so in order to get that major cashflow in the long run, I need to get a chunk of money upfront, and I need to earn that chunk of money through whatever I do. Well, that’s where I look at distressed properties, because that’s gonna give me the best value that can be added, and that’s gonna get me (if I do it right) the best return on my time, relative to the money that I make.

So I’m gonna be looking for distressed deals, and the challenge I’m gonna have – and as long as we know the challenge that we’re gonna have, then we can plan to address that proactively – is the on-the-ground team. That’s gonna be an important part for any three of these – distressed, value-add or turnkey – but it’s most important for distressed though… So I’m gonna spend just as much time focused on finding the deal — or, I’m gonna spend just as much time focused on finding the team as I am finding the deal. If I am out of state or out of town, this is gonna be an increased risk factor for me, but I’m gonna know going into it that’s the case…

So I’m gonna make sure that I structure my contracts accordingly with the general contractor, and make sure he/she has experience and referrals that I speak to. And I also have a team member on the ground who checks in on the project if I’m not able to check in on the project, just to make sure that the general contractor’s work that they are sending me is actually being done… Because I’ve heard horror stories, I’ve interviewed people who have pictures submitted to them by the general contractor, and they’re pictures of a nice, renovated bathroom, but lo and behold, it’s a bathroom from a different property, they find out. So I’m gonna make sure that I have a third-party verifying it if I’m not able to.

But assuming that I do, and I’m able to turn a property around from 20% occupied to now 90% occupied, that’s where most of the money is made… So why wouldn’t I wanna make most of the money?

Theo Hicks: In my personal opinion, the reason why I avoid distressed is because of the high number of variables that are involved and the number of things that can go wrong. Basically, if I buy a property and I go in with the proper team, that still doesn’t address the fact that I could break into the walls or we could go to the HVAC or we could go under the roof and find some insane problem that is going to cost us a ton of money… And I know just from my minor experience dealing with smaller properties — I couldn’t imagine how much that would add up on a big apartment building, if I’ve already seen what’s happened on the properties I have now.

And of course, that could be reduced through proper due diligence, which I would have to do for distressed, but I still think that there’s an additional layer of things that could go wrong for distressed properties, and I just personally don’t have the personality to be able to handle that or really like that… Whereas from my understanding, for value-add – yes, you’re still renovating things, but these larger items are already completed, or at least not in complete disarray.

Another thing too – and again, I’m not necessarily dealing with this, but I guess I’ll also append on if the reason it’s distressed is because of the tenant situation, are there actually other tenants that you could find if that’s just what the area actually is…? Which, I guess, you could tentatively do up-front… But just for me personally, the added layer of risk that comes from the number of variables and having to address these major issues – I’m just not comfortable with that.

Joe Fairless: I’m glad you’re not comfortable, because then that opens up opportunities for other people to do it, and take on that higher level of risk to receive the higher level of returns.

Theo Hicks: There’s one more thing, too… Again, from my understanding of the distressed model is that I would be — not afraid, obviously, but I’d be curious to see how much harder it is to attract investors to those kinds of deals, because of course, you’re promising them… Not promising, but offering them the potential for a large return at sale, but from their perspective there’s definitely a lot more risk, because they’re not really getting a return along the way, because there is no money coming in from the property at all. You’d have to find people that are comfortable not making money at first, and I would imagine that the type of person that would do that would have more experience as a past investor; maybe they’ve invested in a few turnkey or value-add apartments and are willing to take that extra level of risk on the distressed model.

So I’d be curious to see what your thoughts are on that, but I’d just imagine it would be harder to attract investors for a distressed deal.

Joe Fairless: I imagine it would be, too. Stepping outside of our role-play back and forth, I’ve never done a distressed deal, so I don’t know; I haven’t spoken to investors about distressed deals. I imagine with a distressed deal you will not only get investors who are more experienced in investing in deals, but also investors who have the higher risk threshold and larger amounts of capital to invest, because if you invest in a distressed deal, you’ve got to really be okay with losing your money. I guess that’s with any investment, but there is a lot more risk involved with the distressed deal.

One thing that we didn’t talk about is financing that’s available or not available with value-add versus distressed, so now I’ll act more like myself, as a value-add investor, and not pretend that I’m a distressed or turnkey investor, because I’m not; I’m a value-add investor.

Financing – we get Fannie Mae/Freddie Mac loans, for the most part, on our deals, with value-add deals… Whereas a distressed deal, that’s gonna be a challenge. Some deals, they don’t even have financials. They are written on a napkin by the owner, whose family has owned it for 20, 30, 50 years, and in order to get financing, you’re either going to have to get a local bank or a private lender, or maybe a national bridge lender – it just depends on the deal, but the terms are gonna be less favorable than a value-add or a turnkey property, because there’s more risk.

But again, there’s more potential return with that type of distressed deal; however, a lot of people get caught up in looking at a distressed deal and thinking that immediately there’s more opportunity to make money. That’s not always the case. My suggestion to evaluating a distressed deal is to take a look at the projected returns and the amount of time that’s involved – not only time to turn it around, but also your time – and then compare that to a value-add deal that you can also purchase instead of this first deal, and then see what are the projected returns and what’s the time, both your time and the time involved in the project. Look at them side by side, because sometimes the distressed deal – most times – has higher projected returns, but compared to a value-add deal, those higher projected returns on the distressed deal aren’t justified based on the additional risk that is involved.

That’s ultimately why I don’t do distressed deals… Because we can get really good returns on a value-add stabilized property with lower risk, compared to a distressed deal where we could get higher returns, but there’s a greater risk, and in our business where we bring in investor capital, one distressed deal that doesn’t turn out correctly could ruin our reputation or severely hurt our reputation across our entire company’s name, and that is a risk that we are not ready to undertake… And because we focus on value-add deals, we can hit doubles, triples and sometimes a home run, and I’d much rather be on base more frequently than strike an out and everyone talking about that.

Theo Hicks: Yeah, I didn’t think about the financials or the reputation aspect of it, too. I know we didn’t really talk about turnkey much, but you kind of mentioned that if your goal is to just kind of have a steady stream of cash, if you have a big chunk of capital that you’re willing to invest – that’s why I think turnkey is great. From my perspective, I imagine 20-30  years from now, assuming I start to do and continue to do value-add deals, I would stop doing those and just kind of do the turnkey, just because it is lower risk… But I was also thinking about it, about what is another downside of turnkey, and since there’s really no opportunity to force appreciation, the value of the property when you buy it is kind of gonna be what the value is, unless the market fluctuates. If the market goes up or the market improves, the cap rates go down, then great, but if it goes the other direction, then you’re kind of screwed. You’ll have the equity that you’ve invested, from the investors, but — still, I think that’s also a risk. I think turnkey sounds like they’re more risky in a bad market, because the value is basically tied directly to the market itself.

Joe Fairless: Yeah, turnkey is not an investment to bring investors into, unless those investors are looking to beat inflation, and that’s it. It’s a personal investment for someone who wants to keep their money safe… But if you have to hit a return to your investors, good luck with turnkey; it’s not gonna work out for you very well.

With a personal investment, my first three homes that I have still today, they were turnkey; for sure they were turnkey. And I bought in Dallas-Fort Worth, so I’ve lucked out – I’ll just call it luck. I’m from Fort Worth; if I wasn’t from Fort Worth, I wouldn’t have bought there, so it’s luck. Those homes have doubled – at least doubled – in value from when I purchased them. The rents – they’ve gone up a couple hundred bucks for each of the properties, and they cash-flow pretty well until someone moves out or something happens and then it wipes away all the profits for the year.

The important part, if we buy a turnkey property for ourself, is that 1) it cash-flows, and 2) we don’t care what happens to the market, because we know we’re gonna hold on to it for the long run. Because my homes could be worth half of what I bought them for, and I’d be a little upset about it, and I’d have to really think twice about doing that again, but if I’m not looking to sell it, who cares? Who cares what they’re worth? As long as they’re cash-flowing, it doesn’t matter what they’re worth. The only reason why it would matter is if I were to do a line of credit on one of those homes and take out the equity – then that’s where it takes into account the value of it. But if we’re not tapping into the equity and they cash-flow, and it’s a long-term hold, it doesn’t matter what the properties are worth.

Theo Hicks: That’s a good point, I didn’t think about that. One more thing that I wanted to talk about in regards to the value-add, and I guess this kind of applies to distressed too, but… The creative aspect behind it, because if you’re gonna have two value-add investors that are looking at the exact same deal, they’ll have a completely different business plan based off of their level of creativity and experience and things like that… That’s why I think value-add could be very fun. You kind of get to do what distressed owners get to do by making improvements, without that higher level of risk.

I enjoy that aspect of it, kind of looking at a profit and loss statement and be like, “Alright, where’s an opportunity to add value?” There’s so many line items there, and there’s so many different moving parts in the apartment, there’s a bunch of different options. If you’re able to identify value-add opportunities better than someone else, then you can buy that deal at a higher price than they can, because you’re able to increase the value after buying it, and so it can make you as a person more competitive against other apartment syndicators or apartment investors who are trying to buy the same property.

Joe Fairless: Absolutely. There’s an art and a science to underwriting. It’s not just a cookie cutter experience, and it certainly is unique to the operator. I can tell you, I was in Dallas last Friday, for a day; I flew in Friday morning, flew out Saturday. And I was looking at a property – actually, the off-market deal I mentioned last week. I was looking at that property, and I was looking at some other properties too in DFW, and one of the deals I saw, that was across the street from a property I was looking at… I was talking to the broker about it, and he said that they are value-add investors, but they take a different approach than we do. I said “What do you mean by that?”

He said, “Well, you guys (he was talking about my company, Ashcroft Capital) renovate the interiors and increase the rent, make it a better community, do some exterior stuff, too.” What this group does – they actually don’t do upgrades to add their value. Instead, they beat up the expenses and they just run that thing on a shoestring budget, so that when they market it, they have all of the units that can be renovated and they position it as a selling point, because they haven’t touched any of the units, so another value-add investor can come in and buy it. They have at least one 200+ unit property, so I guess it’s working or has worked for them in the past, or we’re about to see if it works.

I don’t like that approach because as a buyer, if I were to be presented their property and the story is there’s 100% that I can renovate – okay, great, that’s what we wanna see; ideally, there’s about 5% that have already been renovated, that way the business model is proven and we can go in and renovate the remaining 95%… But 100% is really good, too. However, if their expenses are lower than what our expenses are, it’s likely they’re gonna want some sort of purchase price based on how they’re operating it, but the reality – we would never operate it with  the expenses as low as they have them, so we won’t be able to use their expenses because we underwrite to how we operate the property, and that’s how we determine the value of the property that we’re gonna buy, not what they are doing; it’s what we are doing.

So I doubt we’d be able to come to an agreement with them on price. Maybe… Maybe the value-add upside is so great that it would more than compensate for how low they run their property… But I bring this up because there’s many ways we can add value, and different groups approach the same challenge different ways. I agree with you that that’s what makes it a lot of fun, because you’re only limited by your own limited thinking. There’s a lot of different opportunities to add value.

Theo Hicks: That kind of reminds me of when properties are prices based off of the broker’s proforma. They’re like “Yeah, we’re gonna operate it. Our expenses are gonna be 35% of our income” or something like that, and it’s like “I’m underwriting and I’m getting 60%.” I was kind of thinking the exact same thing – it’d be tough to sell the property at that price point, because if no one else knows how to do what you’re doing, then they’re not gonna be able to reduce the expenses that much.

Joe Fairless: Yeah, I agree.

Theo Hicks: Awesome. As we discussed, that’s why I personally would choose the value-add business model, and for you, you already obviously choose it, so I’m just like “Value-add wins.”

Joe Fairless: [laughs] And value-add had an unfair advantage coming into our conversation, that’s for sure… But there are reasons for doing the other two. Also, if you’re good swinging a hammer and you like that stuff, then distressed opportunities would be more likely to be successful for you… Cool, let’s keep rolling.

Theo Hicks: Alright, so I’ve got some fun developments on my end. As I’ve mentioned, I’ve sent out a direct mailer through a real estate agent, no cost to me; everything is in air quotes, because obviously I would pay a commission after sale. I’ve got a really good response rate. I don’t know exactly what it is, but this coming Monday – in six days from now, or if you’re listening to this on Friday, on Monday – my property manager and my agent are gonna go look at four properties that the owners are interested in selling.

I sent in three different neighborhoods, and they’re all in the exact same neighborhood. I haven’t been getting much of a response from the other two neighborhoods, which I didn’t really expect, but I kind of just threw it on there, just in case I could sneak in a really good deal. It was interesting, because as each deal comes in, like “Oh, this is a great deal.” Then the next one comes and like “Oh, this one is even better.” Each one that comes in is just better and better.

We just got one, and it sounds too good to be true, but the owner must have gotten a direct mailing piece very recently from another investor, who was not able to buy that property until May. They don’t have an actual contract or anything; I think it might have been like a verbal agreement or like “Yeah, we’ll see if I still have it”, but they had no intention of selling the property until they’ve received this direct mailer. Then they got our direct mailer and said “Well, if you can buy it sooner than this person… I don’t really care who I sell it to. If I can sell sooner, I’ll sell it to you.”

It’s a four-unit that brings in $2,800/month in rent.

Joe Fairless: $2,800?

Theo Hicks: Yeah. They wanna sell it for $150,000.

Joe Fairless: Those are pretty good numbers. What type of area?

Theo Hicks: It’s right by those three fourplexes that I own. So it’s not on the same street.

Joe Fairless: So it’s in Cincinnati?

Theo Hicks: Yeah, all of these are in Cincinnati.

Joe Fairless: Oh, I thought you were doing direct mail to Florida, to Tampa people.

Theo Hicks: No, I don’t know anything about that market yet.

Joe Fairless: Oh, you’re doing a direct mailer to Cincinnati people… I’m with you, sorry. Okay.

Theo Hicks: So it’s in Pleasant Ridge, and I just know Cincinnati so well, and I have a team on the ground right now, that I figured it’d make more sense to buy a property there, than — you know, maybe if I learn the Tampa Bay market a little bit more, I could buy here… But just based off of my first meetup group and the conversation I had with people – they’re just talking about duplexes that are going for like $300,000-$400,000. That’s insane.

Joe Fairless: Right.

Theo Hicks: So we’re gonna look at all of those properties. Two of them are kind of like “Man, we’re just gonna look at them just because.” These other ones fall through. But there’s one that’s actually on the same street, like four houses down from the three fourplexes I own right now. It’s all 2-beds… I can’t remember exactly what they’re getting in rent, but they want as much as we paid for the other fourplexes.

So this will probably actually be a better deal because not only is it all 2-beds, whereas our other ones are half two, half one-bed… But it’s in better condition than the ones that we bought. That would be even better. I’m pretty sure it’s under-rented, though. I’m pretty sure all the two-bedroom rents are below what we’re getting for our two-bedrooms rents right now, as before we increased what we’re doing right now. So I’m really excited about that on Monday, and hopefully by the next Follow Along Friday we have a property under contract.

Joe Fairless: Wow. I love the play-by-play, every week hearing this. Congrats on that. Hopefully you can get that $2,800 in rent property locked up, too.

Theo Hicks: Yeah. And fortunately, my property manager owns properties in Pleasant Ridge, so he understands what he needs to look at. Obviously, I told him what to look at, but he knows to look at the boilers, look at the plumbing, look at the roofs… And they’re all brick houses, so you don’t have to worry about siding, or anything. But those are kind of the main three things… The windows a little bit; it kind of just depends on how crappy they are. I know that a lot of those properties have those really old windows, but those aren’t as important as having heat in Cincinnati in the winter… So they don’t have to be perfectly fine, as long as they’re not as bad as they were at this other property, at least if I know up-front that “Hey, I’m gonna spend 10k–” I guess 10k may be 3k, because that 10k was across three properties… But overall, I’m really excited about that 150k property, because I think if we get that one, then we’ll be able to buy two of these properties.

Joe Fairless: Yeah. Well, looking forward to updates, that’s for sure. Also, looking forward to hearing the on-the-ground people’s thoughts after they look at them.

Theo Hicks: I also mentioned that we’re in the process of raising the rents on our three fourplexes. We’ve got one-bedroom units that are currently renting for between $580 and $600, and we’re gonna raise the rents to $685.

Joe Fairless: Wow.

Theo Hicks: And then for the two-bedrooms, they’re renting around — oh, I’m sorry. So for one of the one-bedrooms – it’s renting at $650, so that’s why we are raising it that high. Then for the two-beds, they’re currently all rented between $750 and $775; I believe we’re raising those to $815… But I think we just sent out the letters to all the one-bedrooms, and right away we heard word back that one person is gonna sign the lease at $685, so proof of concept is there.

Joe Fairless: Yeah.

Theo Hicks: Those are really exciting. It’s gonna pump up the rents at this property by a lot.

Joe Fairless: When do you plan on doing a refinance to get the equity out that you’ve created?

Theo Hicks: I have to talk with my broker, because I don’t know if they’re going to value the property based off of the rents…

Joe Fairless: Right, it’s a fourplex…

Theo Hicks: [unintelligible [00:28:50].14] but something that we’ll probably start thinking about towards the end of this year, once we’ve owned it for a year… To kind of just see what we get for an appraisal. I mean, an appraisal isn’t that expensive. The good thing is that it’ll be across three properties. So all three properties should be operating at the same income, and kind of similar — the expenses are close enough… And it’d be nice if we were able to pull out some equity or find some sort of local bank… We’ll look at the income and do a line of credit on it, or something like that, because we’ve increased the equity a lot without having to put in much money, because they were so under-rented.

Joe Fairless: Yeah. Or get one loan from a commercial lender across the portfolio.

Theo Hicks: That’s something we could totally do, it’s just rates on our loans right now are so low… They can go up like 2%.

Joe Fairless: Right.

Theo Hicks: And last thing, I’m meeting with someone I met down here in Tampa, we’re getting dinner on Thursday to discuss potentially partnering up on both of our first apartment syndications.

Joe Fairless: Wow.

Theo Hicks: That’s something I’m also very, very excited about.

Joe Fairless: That’s great.

Theo Hicks: So a lot going on in the real estate world, and it’s really exciting, because it was kind of dormant for a while… Now things are gonna pick up again. It’s fun.

Joe Fairless: Well, and it makes for an entertaining podcast, so you keep doing what you’re doing, that way we’re engaged, how about that?

Theo Hicks: Perfect. There you go.

Joe Fairless: [laughs] You lose money, you make money… You know what, if you lose money it’ll be even more entertaining, so maybe do a lose-money deal, that way we can hear from you…

Theo Hicks: You guys are gonna see me cry on here.

Joe Fairless: Yeah, exactly.

Theo Hicks: We’re gonna get some reality TV going. [laughter]

Joe Fairless: Well, for my stuff, I already mentioned I went to Dallas-Fort Worth last week and visited some properties, one of them being the off-market deal that we are getting under contract in the next week, week and a half. We are also putting together the investment package for that for our investors. I’ll be sending that out in about a week-and-a-half or so.

We’re dragging our feet a little bit intentionally on sending it to our investors, because 1) it’s not under contract yet, but 2) we have an opportunity at two other deals in a very close proximity to the off-market deal that we’re buying… And we’ll know about if we get awarded one or both of those additional deals in the next week and a half or so. And if we do, then we’ll package it together into one offering. If we don’t, then that’s fine, too; we’ll just have this one deal that we send out.

So there’s still a little bit of cart before the horse type thing going on with the deal we have been awarded and the two that we’re looking at and seriously considering. So that’s where we’re at, just a peek behind the curtain on that.

From a personal standpoint, I think I’ve mentioned before that I volunteer for hospice, and my patient last week passed away. That was something that was — I guess it wasn’t a surprise, but it kind of was, because last time I went I actually brought Colleen, and he was very animated. We were wheeling him around in the hospice center, and he was talking about all the artwork – he loved art… So I thought it would be appropriate to just mention a couple things I’d learned from my time with him. One, to honor him, but two, this podcast is all about everyone who listens, and helping us do better in our journey together.

One thing I learned is how important it is to be present in the moment. I am addicted to checking e-mail on my phone, I’ll admit it. I have an addiction to checking e-mail and responding very quickly to e-mails on my phone. As a result, I am on my phone or it’s close by me 24/7, it really is. And what I’ve realized with him and just in general is the importance of putting that aside and being present in the moment with whoever you’re with, and in particular making eye contact with people.

When I started putting more of an emphasis on making eye contact – not just people who I’m engaged with, but people who I come across every day, at the airport, or at the restaurant, or wherever. By really looking into their eyes, you can see where they’re coming from more so than if you don’t, and you can connect with people more.

I can tell you personally, if I’m having a rough day – I work from home, it’s the shortest commute ever from my bedroom to my office… When I’m working from home and Colleen is here with me, if I have a rough day and I don’t make eye contact as much with Colleen, I notice a different level of connection than when I do, and that’s just with people, too. If I make eye contact with them more and I’m present in the moment, then — you just get more out of life. It really is important.

So that’s one lesson I learned. The other one is that it’s certainly a lot easier — well, before I say this, we all have different ways of giving and contributing… And what I’ve found – because I’ve contributed both my money and my time towards things, and I continue to do that – is that it’s a lot easier to contribute money than it is time. It’s a lot easier for me to say “My thoughts and prayers are with you” than actually being with them. I think it’s important that we have a mixture of giving back both time and money throughout our time on earth. Different stages of life that we’re in will dictate which one is more than the other.

Sometimes we just don’t have the time and sometimes we don’t have the money, but I think it’s important to always have some percentage of both of those categories in our life when we’re giving back, because it is a more fulfilling experience, and it grounded me more after my time with this gentleman… And I’ll continue to do it. I’ll continue to work with other hospice patients. Selfishly, I get a lot out of it, because I get to experience life with them, towards their end, but also I learn a lot from it. It’s something that when we do things like that, it’s a win/win scenario. So those are the couple things I learned from that.

Theo Hicks: Yeah, and that second part about how — obviously, to give back in general, but then that percentage… Something I’ve heard that resonated with me was something Scott Adams said about like the perfect life ark; everyone starts off life and they’re harmless and selfish, like when they’re a baby, because they have to be, because they can’t do anything, they have nothing to give. And then as time goes on, you’re still dependent on your parents, then you go to college, you’re still dependent, and then you kind of graduate and you kind of do your own thing, and then eventually you have your family, so you kind of give back that way… But eventually, your goal is to get to the point where the ark kind of goes from increasing selfishness down to more giving, to the point that towards the end of your life you basically give away everything that you have to somebody.

I really like that, because if you think about it — obviously, I agree that it is very important to give back time and money, a combination of both, but especially more in our day and age… I can’t remember what that guy’s company name was, but if I remember it, I’ll post it in the comments section. He was kind of talking about how if you actually donate money for Africa, for example, it actually has a more positive effect than you spending all that money to actually go over to Africa and volunteer a couple of day.

As you progress through life, you make more and more money, so what Scott Adams was saying was that if you actually are selfishly making a bunch of money at first, and then your mindset changes to wanting to give that money away, you’ve gotta have to be selfish to actually make that money in the first place, in order to be altruistic to give it away… I guess that’s what my point is.

That’s kind of how you progress through life – the average person, obviously. Because some people will inherit a bunch of money or they’ll win the lottery or whatever. But for the average person, from his perspective, he thinks the best way to give back is to basically spend the first half of your life accumulating wisdom and money, and then spend the last half of your life working on giving that money away, giving your wisdom away, and then at the end of it all is when you have the most selfless act of all, which is giving all of your money away, whether it be to your children, or some charity. For him, I’m pretty sure it’s gonna be a charity, because I don’t think he has any kids… But I just wanted to share that.

The second part [unintelligible [00:37:30].09] we’ve talked about the eye contact with Colleen, and I totally agree, because whenever I have an argument with my wife, I can always tell, I just don’t wanna look at her. [laughter] But then when I do, we connect again and then that tension goes away and we’re back to normal. I just thought that was kind of funny when you said that.

Joe Fairless: One thing to note on the money thing – there was an interview with Tim Ferriss where this guy, he’s a super genius and they made a show, I think on CBS, about him and his company, because they solve big world problems that others thought were unsolvable… I forget the guy’s name, MIT guy I think.

Theo Hicks: Yeah, that’s the guy I’m talking about, too.

Joe Fairless: Yeah. We always forget his name. We’ve mentioned him two or three times. We should figure that out. We’ll post his name in the show notes, and the link to the Tim Ferriss episode with him. But anyway, he talked about Bill Gates versus Mother Theresa, who made a bigger impact, and he argues that Bill Gates did, because he spent the majority of his life accumulating wealth, and then he gave it away – maybe along the way, but he’s giving away a lot more money… He says that that amount of money he’s giving away greatly exceeds what Mother Theresa did, who wasn’t focused on money and was just connecting with those that were giving back.

We’ve talked about this before, but I now have just another thing to mention about it – I don’t know if I agree with that, because it depends on how the impact is being evaluated. Certainly, more money can go towards buying more stuff, more support, more food, more supplies, whatever is required; more building wells to have people drink water, that sort of thing… But what it doesn’t take into account is the emotional impact Mother Theresa had on the people she touched and connected with directly, and the ripple effect that then had with other people. Because just like when you’re passing someone and you smile at them, if that’s the only smile they see for the day and they then have a different mood and then they go home and then they have a different approach because they’re just in a better mood, there’s an immeasurable ripple effect that no one can really calculate.

So I would just say I generally and my logical brain agrees with the assessment that Bill Gates did have more impact; when I think about it from more of an emotional, immeasurable standpoint, I think you can make the case also that Mother Theresa had just as much. But alright, let’s move on.

Theo Hicks: The guy’s name is Will Macaskill.

Joe Fairless: Thank you for that. Will Macaskill.

Theo Hicks: I’m gonna have to remember that forever. Yeah, he’s been on Tim Ferriss, and then the charity that he recommends is

Joe Fairless: Cool.

Theo Hicks: Alright, so make sure you guys check out the Best Ever Show Community. You can get that by going to The next post we’re going to create from that community is going to be addressing all of the problems or challenges that people said they were facing in regards to scaling on their existing business, or when just getting started in real estate in general. Responses for things like tracking passive investors, finding deals in an expensive market, avoiding the shiny object syndrome, which we can all fall for… So we’re gonna take those answers and we’ll kind of formulate some responses that are gonna push you guys into the right direction to overcome those challenges.

Then lastly, make sure you guys subscribe to the podcast on iTunes; if you’re listening on Facebook Live right now, make sure you like the Facebook page. We also post videos on YouTube – the Best Ever Show on YouTube; if you search that, you’ll find it. Subscribe to that. And for the iTunes in particular, make sure you leave a review, for the opportunity to be the review of the week.

This week we’ve got Tom Berkhard, who said “The greatest of all time.” His comment was:

“Holy crap! This really is the greatest real estate podcast of all time. Joe is inspiring, modest and a remarkable interviewer, with an inherent ability to ask the questions of his guests that I want to ask for clarity. Not only do I learn something from each episode, I come away motivated and pumped up to keep progressing in this real estate investing journey.

Theo is equally as inspiring as a co-host on Follow Along Fridays. I appreciate and learn from hearing about his journey, the ups and downs, and his desire to keep learning and doing the work needed. Keep up the great work! P.S. I can’t wait to be a guest on the podcast.”

Joe Fairless: Oh, there’s the angle… Okay. [laughter] No… Tom, thank you so much for that review. Theo, what do you have to say to Tom, because he mentioned you just as much as me?

Theo Hicks: I really appreciate it. I’m glad my ups and my downs are very inspiring to people… And I totally understand, because it’s very good to hear about mistakes, because real estate is not all rainbows and sunshine.

Joe Fairless: That’s right. Well, thank you so much everyone for spending time with us. We know your time is valuable, so our approach is to think about all of the things we say as it relates to you and helping you along your journey as a real estate investor and your entrepreneurial endeavors. Have a best ever day, and we’ll talk to you tomorrow!

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