Steven and Adam teamed together to build a huge wholesaling business. They also transitioned over to commercial real estate to secure some passive income. If you want to know how to wholesale A LOT of deals and/or want to know more about commercial real estate investing, listen to what they have to say in this episode! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Best Ever Tweet:
Steven Libman & Adam Rae Real Estate Backgrounds:
- Two of Three of the Managing Partners of Integrity Capital Group
- Steven Libman Real Estate Background:
- Has spent over 10 years in real estate as a broker at first, then an investor
- Managing Partner at one of the largest private investment companies in NJ, doing over $50M in transactions, and over 150 deals a year.
- Based in NYC, NY
- Say hi to him at https://www.integritycapitalgroup.com/
- Best Ever Book: Never Split the Difference
- Adam Rae Real Estate Background:
- Has spent most of his career in real estate
- In 2017 his company, Integrity Invest LLC had grown to be the largest Wholesale Acquisitions Real Estate Investment Firm in Southern Colorado, coordinating the sourcing and deployment of over $9,000,000 into the market over 12 months
- Based in Colorado Springs, CO
- Say hi to him at http://www.integrityhg.com/
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Best Ever Listeners:
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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. With us today, Steven Libman and Adam Rae. How are you two doing?
Steven Libman: Doing well.
Adam Rae: Thank you so much for having us.
Joe Fairless: Yeah, my pleasure. A little bit about these two – they are two of the three managing partners of Integrity Capital Group. Steven spent over 10 years in real estate as a broker at first, then an investor, and he’s been a managing partner at one of the largest private investment companies in New Jersey, doing over 50 million in transactions and over 150 deals a year. Based in New York City.
Adam has spent most of his career in real estate. In 2017 his company, Integrity Invest LLC, had grown to be the largest wholesale acquisitions real estate investment firm in Southern Colorado. He is based in Colorado Springs, Colorado.
We’re gonna be primarily talking to Steven, but you’ll hear Adam as well, because I know it’s tough to follow voices with three people on a podcast… With that being said, Steven, do you wanna tell us more about your company’s background and focus?
Steven Libman: Sure. Integrity Capital Group was established just this year, actually, because we both (Adam and I) run very similar business. We have a wholesale/fix and flip business in New Jersey, and he does the same thing in Colorado. We actually met through a mastermind, and we’re both on track to do probably 15-20 million dollars in each state.
The name of our company is Integrity Holdings Group, the name of his is Integrity Invest, and the goal has always been to get from wholesaling into commercial real estate and multifamily. Just through meeting over the last year, and being of like mind – he is cut from the same cloth – we decided “Hey, why don’t we attack this together?” and in a very short order of time we’ve gotten thrust into a couple of pretty large multi-million-dollar commercial deals, and we just kind of hit the ground running.
So here we are, and our business model is to raise capital from private investors and deploy that into safe, securitized, and providing higher than expected returns on commercial real estate deals.
Joe Fairless: The primary reason why you two partnered up is so that you could go into commercial deals?
Steven Libman: Correct. Our businesses still operate kind of on their own now, and are — Integrity Capital Group was established specifically for commercial.
Joe Fairless: You both have, it sounds like, flourishing wholesale companies, 15-20 million in each state, if I heard you correctly… Why did you choose to partner with an individual who has similar experience, versus choosing to partner with someone who has commercial experience, since you wanted to get into commercial deals?
Steven Libman: Great question. That’s kind of one of the things that has always driven us, is to find like-minded people and find people of different skillsets. The experience level in commercial was both where we wanted to go, but it was more important to find people that were kind of similarly minded when it came to values and relationship, and where our family goals were, and things like that. So that was the most important piece of the puzzle for us when creating a team, and we all have different skillsets… So Adam’s genius zone is different than mine and different than mine, and different from Travis’, who’s not on the call today… But the three of us meshed really well, and that’s why we started the company. But to your point, the deals that we are involved in are co-sponsoring with guys that have a ton of experience. Collectively, they own about 2,000 units, and we’re building a self-storage facility down in Orlando with one of them, and acquiring 152 units in Arizona for another one… So we certainly get the value of partnering with people with that experience. For our core group and what our company was gonna be doing, we just decided that the three of us would make the best fit.
Joe Fairless: 15 million dollars on track this year – that’s great for anyone who’s listening, but especially it’s inspiring for people in that particular area. How much money do you make when you do 15 million dollars in wholesaling?
Steven Libman: So that’s just total transactional volume, and you skew statistics to make them sound really good, and that’s that one. But to put it in perspective, in 2016 we did 16 deals for $240,000 in revenue. This year we’ll do about 180 for 2,4 million dollars in revenue. So it’s been an extremely quick growth curve for us.
Adam, I forget what your numbers look like from two years ago till now…?
Adam Rae: Two years ago we did 21 deals for about $400,000 in revenue (just under, 380k). And this year we’re on track to do 88 deals with like 1.4-1.8, somewhere in there.
Joe Fairless: And just so I’m clear, revenue is the total amount of income, not necessarily the profit, correct?
Steven Libman: Correct. About a 35% profit margin.
Joe Fairless: Okay, so like for the 1.4 now we do 35% of that, and that’s about where you’re netting out from a profit standpoint.
Adam Rae: Yeah. My profit margin is about 33.76%, roughly…
Joe Fairless: About…? [laughter]
Adam Rae: Yeah, I’m a numbers guy.
Steven Libman: It depends if you’re in growth mode, too. So when we were doing extreme growth mode, that might have dipped down to 20%-25%, because we were pumping money into new markets, and new marketing channels, and things like that. So it fluctuates, but that’s the goal.
Joe Fairless: Interesting. I never heard that type of percentage expressed as a profit just for wholesalers; that’s great to know. When there’s a certain amount of revenue, then approximately — well, I don’t remember the percent that you gave, Adam, but approximately 35% of that is profit. That’s pretty cool.
Why go into commercial? Why not just continue to scale from 15 to 20 million to 100 million in wholesale?
Steven Libman: I think we’ll both have the same answer for this, and we’ve discussed it a lot, obviously, before we went into commercial. It’s because of passive income. Cashflow ebbs and flows significantly in a fix and flip business and in a wholesale business. And at the beginning of every month you hit the reset button… So you’re sending marketing pieces out, you’re spending more money on pay-per-click, you’re sending your acquisition people out on new appointments, and it’s just a heavy-lift at the beginning of every single month.
As entrepreneurs, I think we always wanted something that would create some passivity in our lives, and commercial offers that. We’re watching other guys that are building their businesses, and now that we have a business that’s kind of printing some cash that we can turn into passive income, that was always the goal for us.
Adam Rae: And then the second thing is Steven and I were headed down the path of partnering to build a monster single-family portfolio in different regional locations we were scouting, different cities around the country, trying to look at local partners, and I’ve got a small 23 rental portfolio in Colorado, so I have some experience with our passive income and growing that one house at the time, and we just looked at the amount of energy that it takes to source, find, fix and then deploying that capital, even in a small amount, into a single-family house across the country… And then also looking at analyzing the numbers of a large, large commercial project.
To be honest, we’ve both done a lot of residential deals and we looked at our time commitments and said “My goodness, I can add three zeroes to this deal and it’s about the same amount of work as flipping three houses and buying two rentals”, but the payoff on the back-end has a couple extra zeroes on it, and then we can actually scale if we combine both of our ability to build businesses together. And we are talking every day anyway, so…
Joe Fairless: It sounds like two things. One is the endless heavy-lifting cycle that is wholesaling, because you’re constantly ramping up the machine, and then the time commitment in terms of opportunity cost too, and being able to scale.
When you two made that decision to go into commercial, what were some of your first steps?
Steven Libman: I would love to say that it was methodical, and I would love that we sat and wrote our plans of what we were going to do, but the truth of the matter is that we were at a mastermind together in Baltimore not more than 60 days ago, and a sponsor that I had been communicating with reached out and said “Hey, if you guys wanna get involved in this deal and you can raise six million bucks, then let’s talk about that.”
I went, I found Adam, I said “What do you think? Do you think we should paint ourselves in a corner and commit to doing this?”, and…
Adam Rae: Yes.
Steven Libman: He said “Yeah, I think we should.” [laughter] So we did, and just last week we closed on 14 acres of land with 1,193 approved self-storage units on it, just outside of Orlando.
Joe Fairless: Wow.
Steven Libman: And we just closed on the two million dollars of the land last week, and we’re in the process of closing out the second round for the 12 million dollars worth of construction cost for that. How did we get started? It was a violent shove into it, and our eternal need to say yes to things kind of got us in there, and then that just really opened the door for us to go side by side with a sponsor who has a lot of experience with 100 million dollars of assets under management, and to just learn and watch and figure it out… We’ve been raising money for a long time with our single-family fix and flip business, so we thought it was achievable, and it was, and now we get to take the ride.
Joe Fairless: What was something that surprised you as you got started having those conversations with investors?
Steven Libman: I think first it’s how many people are really interested in creating some passive income for themselves. When you’re paying double market returns to your investors, they get excited about that. So I would say that it was not easier than we thought, but initially the conversations were a little bit different, where “Hey, we’re gonna deploy your capital now for 3-5 years, versus 3-6 months” and people were excited about that. So the people that we’ve already had relationships with were saying “Yeah, that’s kind of what I was hoping you guys would do.” So it turns out it was the right move.
Joe Fairless: New development… I heard that right, correct?
Adam Rae: Correct. Ground-up.
Joe Fairless: Ground-up development. You definitely got into this with a violent shove, as you described, Steven. Did you get any pushback on ground-up development?
Steven Libman: No. We actually have some experience in that. Travis, our third partner, is from the underground utility and site development world, so he has a lot of that background, so we’re confident that we can oversee that project with a solid fiduciary responsibility to our investors. Then also in New Jersey in 2018 we’ve taken down some, divided and either improved or approved over 100 lots for single-family development, so… It’s not that different, except storage doesn’t have any kitchens and baths. Well, maybe one or two baths, but it’s a little bit different of a process, so it goes much quicker than that larger single-family development stuff.
Joe Fairless: You’re working on another project, too. I think you said you’ve got that and something else, right?
Steven Libman: Yeah, so in just about 30 days we’re getting ready to close on 152 units in Yuma, Arizona. That’s a little bit different. It’s a cash-flowing asset already. We’ll make some changes to it cosmetically and operationally that will create some value… But yeah, we’re still in the middle of raising the final round for that as well. That’s a really exciting project as well.
Joe Fairless: And how much are you bringing into that deal?
Steven Libman: 2.6.
Joe Fairless: How long does it take you to raise 2.6 million?
Steven Libman: Hopefully less than 30 days.
Joe Fairless: It’s in process, it sounds like.
Steven Libman: Yeah, exactly. It’s in process, doing two projects side by side, with different risk tolerances. Ground-up means a different risk tolerance than the stabilized asset, so… Different investors, lots of conversations, but we’ll see. I wish we had a better dataset for that.
The goal moving forward is to continually meet with investors that like what our portfolio is turning out to be, and then as those deals pop up, we don’t have to play behind the 8-ball, because right now a little bit we are.
Joe Fairless: What have you noticed you’ve had to give more attention to as it relates to your wholesale business that you thought was on auto-pilot, but then not so much?
Steven Libman: For us, and I think for Adam too in the next couple of months, the goal is — for us, we’ve already identified and are starting the onboarding process for a COO, so that they can take the operations day-to-day off of our hands. But as much as we like to say everything’s on autopilot, you don’t need a COO if it’s on autopilot. Nothing’s really ever on autopilot. Marketing changes, your response rates change, your appointment quality changes, acquisitions people sometimes get sick or go on vacation so you’ve gotta step in and the business still has to run… But I think we’ve done a really good job, and I know that Adam has too in his wholesale business created a really good culture of accountability and team play where everybody knows that they are part of the [unintelligible [00:16:42].09] where we all hold each other up. If you have that type of accountability to everybody on the team, then everybody works really hard and that’s the culture that we’ve created, and that has been the biggest win for us in terms of making sure that things continue to run… Because if they don’t wanna run it for themselves, they wanna run it for their teammates, and nobody’s ever wanted to run it just for us; that’s been really helpful.
Adam Rae: One of the big surprising things on my end has been as I’ve started to shift my focus, I’ve realized I’m less important to my business than I actually thought.
Joe Fairless: That’s good.
Adam Rae: Not in the sense that I haven’t given a lot to it and made a lot of things work, but at the end of the day if I take an extra 24-48 hours to get back on a problem, by the time I get back to if I’ve noticed over the last couple of months somebody on my team has taken that opportunity to step up, usually, and has solved that problem prior to me being able to get to it. Actually, that’s been the most surprising thing, and exciting to see some of those team members step up into situations that you didn’t know that they could handle… But now my attention being pulled in another direction has given me the opportunity to see them do that, and my trust in that is growing, for sure.
Joe Fairless: What’s the short to medium-term vision in terms of asset class? Because you’ve got a couple different asset classes in commercial right now.
Steven Libman: We like multifamily and we like self-storage… The reason being is that during the last great recession, storage was the only asset class to continually gain throughout the recession, and multifamily because we like to have impact on people’s places that they live. People always need a place to live, and if we can impact that in a positive way, I would say that it’s arguably one of the other stable asset classes. If you buy those things right, and you manage them properly, then you can do a really good job and win. Not that we know how to run a self-storage facility, but CubeSmart is gonna sign on, and they are the ones that are gonna be running that facility for us. Then we have great asset managers and property managers to help us run those other multifamily assets.
Joe Fairless: What’s been a surprising challenge as it relates to getting into commercial and having those investor conversations that you didn’t think you’d come across, or maybe questions that they asked that you didn’t think you’d come across?
Steven Libman: First, I think it’s a slower process. I think that what makes the two deals that we’re in right now significantly more challenging is timeframes. People need time to discuss a property with you, they need to figure out where their investment moneys are coming from. If they’re rolling it over from a 401K or an IRA, that’s not a one-week process.
We have self-directed IRA companies that work with us often and they can do it in between two and three weeks, which is really fast… But I’d say that that’s been in my mind the biggest challenge – just making sure that you’re consistently having these conversations, because if it’s not this deal for an investor, it will be the next one… And making sure that you’re continually keeping them involved and updating them with where we’re at with the current project, and when they get excited for that, to make sure that they’re ready for the next one.
Joe Fairless: How do you grow your list of investors?
Steven Libman: I’m sure you can answer that better than we can at this point… [laughs]
Joe Fairless: Well, I’m not being interviewed though… [laughter]
Steven Libman: That’s been a strategy point for us over the last couple of weeks, figuring out exactly how to build those relationships… But I think like anything else in your business that you find has been really successful, it’s based on relationship, and making sure that you’re out there meeting people, getting connected, and just letting people know what you’re doing.
There’s a book called Getting the Money, and she talks about how she’s not Wonderwoman, but her and Wonderwoman have never been seen in the same room together, and her point was don’t forget to tell people who you are and what you do… And I find that most of our investors work with us more for who we are than what we do. It’s great that we can provide good returns to them, and certainly, it’s better than what they have seen in the past… But it’s mostly about who we are and why we do what we do.
I think as you continue to build that base of good investors, they have friends, they have family, they have other people that they want to introduce you to, because you’ve done a good job for them, and they trust you, and you just continue to build that relationship.
Joe Fairless: And the self-storage investment near Orlando – if you can think about the one investor who invested the most amount, how did you meet him or her?
Steven Libman: By asking the question of the people that we know “Who else should we know that you think should be in this deal?”
Joe Fairless: Wow. And they introduced you to this person who wrote the biggest check.
Steven Libman: Yeah. It was one point of separation, and we said “Hey, this is what we’re doing.” They were involved in the deal themselves on a lighter scale, and we said “Who else do you know that we should be talking to?” and about an hour later we had the largest commitment that we had. So it’s our warm network.
Joe Fairless: Wow, that’s incredible.
Steven Libman: That’s the key – making sure that people know what you’re doing, and then asking those questions, “Who else should we be talking to about this?”
Adam Rae: But it’s also positioning yourself. We’ve done due diligence on this, we have a partner who his job is to blow up deals for us… Because we’ll get excited about something and we’ll send it across Travis’ desk, and he spends 36 hours in the numbers and says “Hey guys, here’s three yellow flags. We need to resolve these before we go any further.”
When we’re having conversations with people, we’ve found something that is intriguing, enticing and exciting, and we’re not even gonna take it out to somebody unless we feel like this is something we’re gonna put our own money into, that we’re excited about, and that truly has a great opportunity… So positioning ourselves as the prize, and just asking for who else possibly would be interested in something like this, and people are excited to share it.
So just capitalizing on that relationship and warm network, because you have built the trust and you have that relationship with someone and they’re excited to bring somebody else in that they know, because they trust you.
Joe Fairless: Based on your experience, what is your best real estate investing advice ever?
Steven Libman: For me it’s build the team. We started our business in 2011, the wholesaling side, and for five years I built a great job… But you heard the numbers – in 2016 they weren’t great, and now they are. The fear that I had and that was holding me back was I didn’t wanna be responsible for other people’s income. When mentors of mine told me that the value of our business is going to be predicated upon the talent of the people we bring in, it really changed my mindset to say “Wow, if I build a really good team, then I don’t really have anything to worry about.” That changed everything for us.
We started hiring people, and not all of them have worked out, but being able to confidently go in and say that building a rockstar team is gonna build a great company – that’s been the best advice I’ve gotten.
Joe Fairless: Adam, do you have any thoughts?
Adam Rae: Yeah, I would say for me it’s check your ego at the door, and just try and find somebody who’s doing what it is that you wanna do, and model. Just don’t try and recreate the wheel; it’s not complicated, but it’s not easy. So just keep your head down and try what someone else is doing, and stay long enough to really figure it out, and that takes checking your ego.
Joe Fairless: We’re gonna do a lightning round. Are you two ready for the Best Ever Lightning Round?
Steven Libman: Let’s do it.
Adam Rae: Let’s do it.
Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.
Break: [00:24:54].17] to [00:25:41].19]
Joe Fairless: Best ever book you’ve recently read?
Steven Libman: Never Split the Difference.
Joe Fairless: Best ever deal you’ve done?
Steven Libman: It’s gotta be so far this over a thousand-unit self-storage development deal.
Joe Fairless: What about a deal that has gone full cycle, best ever deal you’ve done?
Steven Libman: Probably the 24-lot subdivision, from entitlement to completion.
Joe Fairless: What’s a mistake you’ve made on a transaction?
Steven Libman: So many. Probably making sure that we haven’t touched and felt every piece of it… That’s more in the single-family world, where we had less of a stringent timeframe with the due diligence, and we’ve uncovered some stuff in the deal that we should have known before the deal… Luckily, we still made money on it, but that’s a learning curve for sure.
Joe Fairless: Best ever way you like to give back?
Steven Libman: We work with Samaritan’s Purse, and we donate a portion of the proceeds from every property that we’re involved in to their Clean Water project, digging wells in third-world countries.
Joe Fairless: Best way the Best Ever listeners can get in touch with you two and learn more about what you’ve got going on?
Steven Libman: IntegrityCapitalGroup.com. My name is Steven, that’s Adam, and our e-mail addresses are just our first name, @IntegrityCapitalGroup.com.
Joe Fairless: Thank you so much for being on the show, talking about how you two have built wholesaling businesses that are thriving, and now going into commercial deals – two primary reasons why… One is the heavy-lift at the beginning of every month; basically, just ramping up every month, because you’re starting fresh, and two is the opportunity cost, and I believe as Adam said, you could spend the same amount of time, but then you add three zeroes to the deal and it’s a significantly bigger payday for your time…
And the projects that you two talked about, and holy cow, that question that secured the largest investor in your recent deal… That question is “Who else should we know who should be in this deal?” and you’re asking that to a current investor. Now, you already have that rapport build up, and Adam, as you said, it’s not a magical question; when you ask that, people get into a trance and then say “Talk to my uncle Billy. He is a billionaire. He’ll give you money.” [laughter]
Adam Rae: Sometimes… [laughs]
Joe Fairless: Maybe, sometimes… I haven’t met uncle Billy yet, that is a billionaire, but I’m sure he’s out there… But it is a question that once you have positioned yourself properly, then that question can help you get to another level. Thanks so much for being on the show. I hope you two have a best ever day, and we’ll talk to you soon.
Adam Rae: Thanks, Joe. You too.
Steven Libman: Thank you.