December 9, 2018

JF1559: Being Over-Prepared For Investor Conversations with Nathan Tabor

Nathan has been on before a couple times, but he brings so much value we had him on again! If you’re waiting to raise money from investors, you’ll want to hear what Nathan has to share with you in this episode. 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. With us today, Nathan Tabor. How are you doing, Nathan?

Nathan Tabor: Good, Joe. Good to be back with you.

Joe Fairless: Nice to have you back on the show. If you recognize Nathan’s name, that’s because you’re a loyal Best Ever listener. Episode 1299, titled “Finding a niche, creating and executing a business plan, with Nathan Tabor”, and episode 1307, titled “Apartment due diligence: how to evaluate the mechanics of a deal.” I really enjoyed that episode, that was a Skillset Sunday. I learned a whole lot during both of our conversations, but I do remember — actually, no, I think 1299 was the one where you got into your business plan of buying deeply distressed value-add deals. I suggest, listeners, if you haven’t, then go check out 1299 and 1307.

Today we are going to be talking about how to prepare yourself for investor conversations, and specifically, what you need to have in place in order to do so. I hope you’re, first off, having a best ever weekend; today is Sunday, so that’s why we’ve got a special segment, Skillset Sunday… And finally, welcome, Nathan Tabor. How are you doing?

Nathan Tabor: Good, good. Just a little bit of rain going on, but besides that, we’re doing well.

Joe Fairless: Well, I’m glad to hear it. A little bit about Nathan – he has purchased, renovated and sold over 52 million dollars’ worth of real estate, and he enjoys helping others find their niche, understand the process and achieving their goals. Based in Winston Salem, North Carolina. With that being said, Nathan, will you give a refresher on your background? And then let’s roll right into the focus of today’s conversation, which is helping the Best Ever listeners know how to be prepared prior to approaching investors about raising capital.

Nathan Tabor: The background for me – I’ve been a serial entrepreneur since 1999. I’ve been involved in 25 businesses that I’ve started, grew and sold, or partnered off with someone. I did a little over 150 million in gross sales, and I’ve had some amazing successes, but I’ve had some really epic failures along the way… And I can look back and say the successes are a little harder to tag, and say why exactly — I can kind of put some things together; on the failures, I can tell you exactly when the problem started, what I didn’t do… Because it’s really easy to back-track on that.

I do business consulting these days, I do real estate consulting, I still invest, but I really try to help people not only become successful, but become successful by avoiding the mistakes that I’ve made.

Joe Fairless: Let’s talk about that. Let’s talk about — as it relates to money-raising, I know the focus of our conversation today is how to prepare ourself for an investor conversation where we are seeking funds… So what are some of the mistakes you made initially, and then what do you do now so that those are corrected in the future?

Nathan Tabor: Yeah. Like most Americans, I grew up without a lot of money; my parents didn’t have — we had what we needed, but we didn’t have country club memberships, we didn’t have access to big donors, I didn’t know people who had lots of money, so starting out in business, it was hard work, blood, sweat and tears type. But along the way, you start to meet people who do have money, or you can these days — with the internet and everything going on, it’s really easy to meet people who are looking to invest.

Early on, my mistake, my number one thing was going to someone — calling up Joe… “Hey, Joe, will you invest with me in real estate?” and I kept getting told no. Do they not like me? Do they not trust me? And finally, someone sat down with me and said — the guys had a net worth of about 250 million dollars, and he said “Let me tell you what  your problem is.” And I said, “Please do, because I’m tired of hitting this brick wall.” He said, “What’s your plan?” I said, “Well, I wanna invest in real estate.” He said, “No, really…?” It’s funny, right? But 99.9% of the people that I meet out there who are hardworking, motivated, they wanna do real estate – you know what they don’t have?

Joe Fairless: A plan.

Nathan Tabor: A plan. It’s like building a house, but not building it on a foundation. It’s the critical part, it’s the thing that if you don’t have and you do become successful, it was sheer luck.

Joe Fairless: So  you said a vast majority, 99.9% don’t have a plan… How are you defining that? Because I remember when I was starting out with apartment investing… I purchased four single-family homes, and then when I was approaching investors for my first deal, there were a lot of things I did not know and I should have, like “Hey, by the way, we should have a proforma prior to this.” I mean, just stupid stuff. But I wouldn’t have said, “Do you wanna invest in real estate?” I believe – but perhaps this is a false assumption – that most people would be more specific, like for example “I wanna fix and flip a house”, or in my case it was “We’re going to buy an apartment building, and I have this plan”, but there are a lot of important nuances of the plan that I did not know to talk about, and I should have.

Nathan Tabor: When did you start in real estate?

Joe Fairless: 2009.

Nathan Tabor: I started in 2006. There were a lot of real estate investors then, but today roughly there’s 27 million active real estate investors… So the numbers have changed. We’ve gone from a good number doing it, to this huge number. And even going to someone and saying, “Oh, I want to flip houses”, it’s still not a plan, because do you wanna do $50,000 houses or do you wanna do half a million dollar houses?

Joe Fairless: Yup.

Nathan Tabor: Do you want to buy rundown, dilapidated, almost needs to be demolished houses, and spend four times what you paid for it on bringing it back up, or do you wanna buy just houses that need some paint and carpet? Do you wanna do it on the North Side or the South Side? Do you wanna do it in your town, or do you wanna go down to the coast? Do you wanna go to the mountains?

When we go to someone and ask them, “Hey, I want to get into flipping houses. Will you invest money?”, you just opened yourself up to like 50 questions.

Joe Fairless: [laughs]

Nathan Tabor: But if you go to someone and say “Hey, I want to flip houses in Boone, North Carolina. There’s a huge college town there. All the houses are roughly 50-60 years old, they need new roofs, they’re gonna need some new plumbing… We can buy it for around 100k, put 20k in it, and make about 30k. If you’ve written that down on a page or two pages, you’ve at least shown that person that you’ve taken it from your mind to actually putting it on paper… And they’re gonna amend it with you, they’re gonna work it with you, but they’re most likely not immediately going to say no because you just asked them one simple question.

Joe Fairless: Yeah. It’s a well thought out plan, too.

Nathan Tabor: It shows that you’re organized, it shows that you have diligence, it shows you have determination. If somebody has money, they wanna keep that money, right?

Joe Fairless: Yup.

Nathan Tabor: They’re not just gonna go, “Yeah, I really like how you dressed today and your hair looks great. Here’s $50,000.” They’re going to want to know what is their 50k– and I even go to the point, like, who’s the contractor you’re gonna work with? Who’s gonna oversee the project? If you have a full-time job working 40 hours a week and you want someone to invest money with you, who’s gonna stop by there two or three times a day to oversee the work? And this is really for first-time investors, or someone who’s flipping three houses a year and they wanna flip six, so they need more capital.

You get someone at like your level or others, where you’ve already built your reputation, plans start to change. This is really for the newcomer or the person who wants to take their good business to the next level, and double or triple their income. But they’re stuck, because they can’t find anybody to help them. But they’re asking, they’re just not asking the right way.

Joe Fairless: So what are some of the questions that we should proactively address?

Nathan Tabor: The first is what type of real estate do you want to do? Where do you want to do it? What are the comps in the area? What is it going to take for you to get a deal purchased, renovated, and what’s it gonna sell for? Those are the major components. Because as you know, there are so many investors out there. The hardest thing right now outside  of raising money is finding a deal to do, because there’s so much investing going on. And the problem there is the people who don’t have money by the time they find the deal, and they go to look at it, they don’t have the money, so they’ve gotta find the deal and then find the money — but if they could cure the problem of having the money lined up, then when the deal becomes available, they have the resources to do it.

I don’t know how you are, and doing your podcast, and the podcast that I do, but I just get random calls from people saying “Hey, I have 50k” or “I have 250k. What do you have that I can invest in?” That’s because we have a plan. I do class C apartments. I don’t do strip malls, I don’t do trailer parks, I don’t do class A… Because I don’t know that business. And most new people out there, they go into people around them so much — I know one person in particular, and I won’t name names… He’s been trying to do a deal for ten years, Joe, and he is going from doing raw land, to trailer parks, to single-family, to quadplexes, to duplexes… I mean, he is just all over the place. So if anybody sees him coming, you don’t know what kind of deal he’s gonna be trying to shop today. You know those types of people, right?

Joe Fairless: I do, yes.

Nathan Tabor: Do you take them seriously?

Joe Fairless: Well, no, it’s fine, I’m happy to answer it, but I’m just making sure I’m answering it the way I feel. And do I take them seriously? They might have an opportunity, but I don’t think they will follow through with it, if someone’s all over the place on what they’re focusing on… Because usually if they’re all over the place with what they’re focusing on, then they are an inch deep and a mile wide with their approach, so once they get to a certain point, they’ll probably get stuck and then find another shiny object and move on.

The opportunity might be good, so I would listen to them about what they have, but depending on how they were positioning it, I wouldn’t bet on them to be the person who would execute on it. So if they were wholesaling something to me, sure, I’d listen and I’d take them seriously, but if they’re wanting to partner with me on something and I saw that they had shiny object syndrome, I would not partner with them.

Nathan Tabor: Right. But if they come to you and they’re 24 inches deep and maybe six feet wide, they really don’t know everything, but they’ve done enough to show that they’re really invested in this, they’re trying, they’ve gone that extra step, it really changes your perception of a person.

Joe Fairless: Sure.

Nathan Tabor: And the second part of this is how you show up. I said earlier how to date an investor. I’ll have people come and talk to me and they just rolled out of bed. They’ve got bed hair, they are wearing a little bit above pajamas… And I’m thinking, “Do you seriously want me to take you–” Not the dress, not that you have to wear a three-piece suit to a meeting, I don’t mean that… But make yourself presentable. To me that’s common sense, but probably 30%-40% of the people I meet with today, when they walk in the door… It’s not a lifestyle — I mean, it’s just that they’re running late, they did not plan, they didn’t organize their day very well… And it’s like, why would I get involved with someone like that if they can’t even get to a meeting on time, and they’re not dressed appropriately?

Joe Fairless: Right.

Nathan Tabor: You can call that shallow if you want, you can call it whatever, but it’s what happens in people’s minds.

Joe Fairless: True. I don’t call that shallow. [laughs] I call that picking up on clues that they’re giving you, intentionally or unintentionally.

Nathan Tabor: Right. So this type of topic to me is really geared to the person who wanna get out of that full-time job, they wanna get into financial freedom, they wanna get into real estate investing, but they’ve been doing it for six months or six years and they just can’t get over that first hump. Most likely, the reason is you don’t have a business plan, you don’t have an investor packet, you haven’t defined your niche, and until you do those two or three things, you’re gonna stay stuck, unless you just happen to meet somebody who really likes you and is investing because they like you, versus having a good return on their money, which is a slim to none proposition.

Joe Fairless: Well, let’s talk about the specific plan… You went through the specific questions that should be proactively addressed in the plan. What does the plan look like, in terms of actual — is it a tangible plan, that is on paper and you can flip  through? Describe what that looks like, please, and how big it should be.

Nathan Tabor: It could be, I would say, no more than three pages… But in that, on your cover page, a photo or a couple of photos of the type of house. If you haven’t identified an exact property, “This is the type of property I want to do”, and there’s a couple pictures of it. Your name and your address, your contact information, you look at the comps, “Here’s one in this area, this is what this was bought for six months earlier, this is what it sold for…” If you can’t pull that information yourself, work with a real estate broker to get that information.

Then do some property highlights, what’s the area that it’s in, what’s the school systems, what’s the demographics, what’s the income for the area, talk a little bit about the location… Are there any shopping centers around? What type of area is it that someone can get employed? Why would someone want to buy in that area?

If it’s a specific project, you can talk about the renovations needed. If it’s not, you can talk about “These properties on average are 40-50 years old, or 20-30. This is most likely what’s gonna need to be done to this type of property. Here’s what an HVAC costs, here’s what a breaker box costs, here’s what a new roof costs, here’s what windows cost…” To get that information you’ve gotta go meet with a contractor, and get some broad numbers.

Then at the bottom, in closing, talk about the potential profit on the deal. In this area, you’re looking at — “the average houses over the last two years have sold for $100,000, and they’ve probably had 20k-30k in renovations, and they’ve sold for 160k-170k. I’m looking to do that. Would you invest $130,000 with me if I find this type of property?”

Joe Fairless: I love it. One thing I didn’t hear in that document is a team section. Should there be information about the team that’s gonna execute?

Nathan Tabor: Yeah, sure, when you start building that out – who’s gonna be your contractor, who’s gonna be your project manager… And that project manager can be yourself, but you need to explain, “I’m gonna go there every morning before work, and when I get off from work I’m gonna go by there, maybe at lunch”, if you have that time… But yes, build in there who’s your HVAC person, who’s your electrical person, who’s your flooring person. The more of that detail that you can build in there, the more confidence it’s gonna give to an investor that you know what you’re doing.

Joe Fairless: This is so simple, but it’s not done a lot of times. If I were to attend a local REIA… I don’t attend the one in Cincinnati, because it’s not an effective use of my time, but if I were to attend, and I were to attend to, say, ten people who were looking for money, and I set up a  meeting with, say, five of them afterwards, it’s likely – although I can’t guarantee this, but it’s highly likely that in those five meetings maybe one out of five would have this type of document… And it’s pretty pathetic that people don’t put a little bit of time into creating this type of document that you’re describing… Because it’s not that much more effort, but here’s the thing, if you do put something like this together, it’s my belief that it will set up the project when you do find one for  a higher likelihood of success, because you’ve had some foresight into what you’re gonna be doing, so you’ve been thinking about it more… And when you put something like this on paper, then you are forced to think through the different components of what is needed to be successful.

This is a much-needed conversation for, as you said, those who are starting out and seeking their first couple investors, because shockingly, this will set you apart from others who are also seeking funding, and this will give you a leg up. It shouldn’t, because it should just be a given that you’ve got this, but it’s not… For whatever reason, in society, we just don’t do this, so we’re all better off for hearing this conversation, especially if we’re getting started.

Nathan Tabor: Yeah, and I don’t know what it is… If it’s a fear, if I put down my —

Joe Fairless: Laziness. It’s laziness. That’s what it is.

Nathan Tabor: Laziness. Or procrastination.

Joe Fairless: It’s part entitlement, it’s procrastination… I don’t think it’s a fear, that’s my opinion. I think it’s just being really lazy.

Joe Fairless: And when I do this in my own business, it changes all aspects of it. When I don’t do it, then it’s like “What’s going on?” and I’m like “Oh… I can verbally tell someone what I want to do, but if I’ll actually take 30 minutes and write it down, it changes people’s perceptions.” Eight out of ten small businesses fail within the first five years, and SBA says that roughly 90%-95% of small business owners don’t even have a business plan… So they have no mission statement, they have no vision statement, but then they wonder why they fail.

I don’t know about you, but the last time I took a vacation, I didn’t just get in my car without my wallet and start driving. I planned out the vacation.

Joe Fairless: Yeah. And this is something that I don’t just talk about, “Hey, we should do this”, I personally still do this with all of my prospective investors. When someone reaches out through Invest With Joe or Invest With Ashcroft, and they fill out the information, and they confirm they’re an accredited investor, looking to invest a certain amount, then we follow up with them with a link to a PDF that has information about Ashcroft Capital, and it’s exactly what you just walked through; it has some case studies in there, and some other things, but it addresses these questions, so that prior to our conversation, not only do they have the information that they need, but it makes for such a smoother conversation.

My suggestion would be when you do put this together for your first couple investors, e-mail it to him/her ahead of time, that way they can review it and your conversation can be a more evolved conversation than feeling-each-other-out conversation.

Nathan Tabor: I agree 100% on that.

Joe Fairless: How can the Best Ever listeners learn more about what you’ve got going on?

Nathan Tabor: I have an online apartment real estate investing course at I know you’ve got some resources… This is just common sense, and it’s something that if people don’t start doing it, they’re not gonna get to where they want to go until they start doing it.

Joe Fairless: And that’s Got that in the show notes. Nathan, thank you so much for talking to us about how to prepare ourselves for our first couple investor conversations, what to have, questions to proactively address… And now we’ll be set up for even more success as we do those conversations.

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

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