February 9, 2019

JF1621: Why Enjoying Your Real Estate Journey Is Important with Paul Nagaoka

Paul had everything most newer real estate investors want; a large business with a lot of units and employees. He began to want something else however, cashed out and took up modeling in Asia! Now he and his family are back in the States and building another real estate business, hear why this time is better than the first. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:



Paul Nagaoka Real Estate Background:


Get more real estate investing tips every week by subscribing for our newsletter at BestEverNewsLetter.com


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, Paul Nagaoka. How are you doing, Paul?

Paul Nagaoka: I’m doing awesome, Joe. How are you doing?

Joe Fairless: I’m doing awesome too, and looking forward to our conversation. A  little bit about Paul – he started studying no money down real estate at the age of 12, and he got started in real estate 14 years ago. He purchased 350 units and had a team of 35. Based in Kansas City, Missouri, and his website you can click through on the show notes page, we have that in there. With that being said, Paul, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Paul Nagaoka: Yeah. I’ll keep the story as short as possible. As I was a kid, when I was six, my friends wanted to be firefighters and that kind of thing, and I always wanted to take Alan Greenspan’s job as Chairman of the Fed. Then when I was eight I started investing in the stock market, and at 12 I started studying no money down real estate investing. My mom would go to these seminars and pay a bunch of money for education, hoping to give us a better scenario, and I ended up taking the content and learning it, and out of high school I started a business and took the money I made from that, rubbed my nickels together and started investing in real estate. For the last 14 years that’s what I’ve been doing full-time. I took 2,5 years off to travel the world, but outside of that I’ve just been doing real estate.

I purchased 350(ish) properties and units over that time, built out a team. I really believed in owning all the different verticals of real estate, so I had a construction crew of 15 I ran, I had in-house property management, a finance division to keep the K1’s and all the different account straight, and had a broker on staff to help me find deals. I just kind of put all that together, and I would go out and syndicate deals, and purchase them, and that’s the story.

Joe Fairless: I think I heard you mention the team as past tense, so do you not have that team anymore?

Paul Nagaoka: I don’t have that team anymore. Do you want me to jump into why that happened?

Joe Fairless: Yeah, please. Go ahead.

Paul Nagaoka: Okay. Well, after doing it for a while,  buying a bunch of property, and coming to the place in life where I really didn’t necessarily need to work anymore, I always wanted to travel the world, and do that with my wife, and we just decided we’re gonna do it or we have to give up on the dream. To be honest, doing all the different elements of real estate, from construction and property management and overseeing finance and haggling with municipalities over zoning issues, and doing deals and finding them, I wasn’t focused on the areas that I really loved the most, and I started getting burnt out in real estate.

I was only working maybe 20 hours a week at that point, but I was really not happy with what I was doing and I wanted to take a step back and really ask some big questions and see what is it that drives me; if I don’t have to work, why am I doing it, and what do I wanna do.

So we sold 275(ish) units in different properties, packed it up, and kind of let go of the whole team, and hired three different management companies to manage the easy properties to manage from a distance, and we took off.

Joe Fairless: And you’ve just been traveling the world ever since, remote, and you just got the three management companies?

Paul Nagaoka: Yeah, not quite… Kind of, but not quite. It was supposed to be a 3 to 6-month trip, and 2,5 years later we came back. So we were traveling and I was kind of trying to find what really drove me and what I was super-passionate about. I got involved with some really weird stuff… I actually got involved in modeling and acting and TV show hosting overseas, and  kind of crushed it at that. It was really fun.

Joe Fairless: Where at?

Paul Nagaoka: South-East Asia. I was in South-East Asia, in Singapore, and kind of filmed all over that region, did nine different TV shows, including like an HBO original, and hosted a reality TV show for Fox, and I was nominated the top fashion model of the continent of Asia in 2016… So I kind of really went for it and it was really fun,

Joe Fairless: There you go…!

Paul Nagaoka: Yeah, it was wild… To go from real estate, number crunching, when my peers are 75-year-old rich guys, and jumping into a totally different world –  it was a really fun, incredible experience, and we got to really check out a large portion of Asia and really sink our teeth into it.

But we got pregnant with our next kid, and just asked the question “Do we wanna live in Asia the rest of our lives?” and “Is this really what I wanna do?” The answer to that was no. We came back to the United States, and from there took  a really good, long think about what and how I wanna do business again. I got back into real estate, and now I’m back doing real estate, but I’m doing it smarter this time, Joe. As opposed to just trying to own all the different components of it, I built out a team where I have my other partners in the business; we all stay in our lane and they’re able to really handle a lot of the different pieces that I didn’t enjoy very much… And they’re super-passionate about it, and love those different parts of it, so they own those elements. I just get to do the parts that I think are fun, which are raise the money, find the deal, do the creative structure of the opportunity, and then I really pass off the operations and the legal side to other parts of my team… And it’s awesome. I’m actively having tons of fun doing real estate, and that’s a real litmus test for me now on doing this kind of thing.

Joe Fairless: When you mentioned you liked the raising money, finding the deal and doing the creative structure of the opportunity – will you elaborate on the third part, the creative structure of the opportunity, what you’re referring to?

Paul Nagaoka: Yeah, I have this weird, a little bit different approach. Multifamily has been a real sweet spot for me, but now multifamily – the types of opportunities for that aren’t available as they were… So maybe I can highlight that with two different deals that I’ve done.

Joe Fairless: Please.

Paul Nagaoka: A couple years ago I bought a 72-unit apartment complex, and honestly didn’t have enough money to do it; I couldn’t finance traditionally from the bank, so what I did is I sat down with the owner, built rapport and trust, and gave him a really good strategy on what I was going to do with the property and why he should seller-finance the deal to me. So I ended up talking this guy into seller-financing (I think it was) like 93% of the carryback; I think I put maybe $100,000 down on the project, and bought it from him. I told him I’d refinance him out of the deal.

From there, I brought on another partner and we put another 2.3 million dollars  into the project, kicked everybody out, took rents from $350 to $650 to $675. I did a really beautiful top-level renovation on the project, and then we refinanced three years later, pulled all of our cash out, and some… So now we have this great, non-recourse loan on the property, and I have this great little cashflowing asset. That’s an example and a structure/strategy I’ve been doing.

Joe Fairless: Yeah, very interesting. You said you put down 100k, and then you brought in a partner and then you two put in 2.3 million – was that cash from your partner, or was that a loan that was obtained?

Paul Nagaoka: It was part cash — so we got a bank loan that cashed out the owner that had the first lien, and then it was part my cash and part his cash, to come up with the difference for the equity needed for the construction loan.

Joe Fairless: Okay.

Paul Nagaoka: I needed some more money, so — we needed about (I think it was) $650,000, something like that.

Joe Fairless: So why didn’t you just use that structure to start with, instead of doing the creative structure with the seller financing?

Paul Nagaoka: Well, I didn’t have the 650k, and doing the traditional raise from the — I needed a little bit more strength on the guarantee. I had a bunch of property and I needed a bit of a stronger partner on that side. It probably would have been a way to be able to approach it that way, but… So my original strategy, Joe, was to buy it and then use a lot of the cashflow to renovate the buildings and have a little bit of a reserve, and do it onesie-twosie, per month, as were–

Joe Fairless: Yeah, it always looks good on paper.

Paul Nagaoka: Yeah, it sure did. And then about three months into it… It just wasn’t that fun.

Joe Fairless: It wasn’t cash-flowing.

Paul Nagaoka: It was cash-flowing, but it wasn’t as productive. You underestimate what it takes to transition a property, and keeping $350/month tenants in the same space as a $650-$700 tenant – they don’t mix well. It’s kind of like oil and water, they just don’t mix as well… So it was pretty difficult to do that. And really, the way to do it is just do it all at once and pull the band-aid off, all at the same time.

Joe Fairless: Yeah. Was that the main thing that was underestimated a little bit, the two resident profiles, one at $350 and one at $650? Or were there other things that if you were presented a similar opportunity again, that you would update in your assumptions?

Paul Nagaoka: Yeah, what I liked about the seller finance structure is that it gave me control of the property immediately. I saw it was a good opportunity and I needed to jump on it immediately, so that it didn’t go to somebody else.

Joe Fairless: Okay.

Paul Nagaoka: So I was happy with that part, and then it gave me time to explore getting a different solution… But I would say updating that – and actually that is a model that we’ve replicated multiple times, on multiple different multifamily projects  – it always costs more than you think. Luckily, we bought it right, and I always really focus on that – make sure I’m buying the deal at a price that if I have an Oops factor of 15%, 20%, 30% on my construction side, that I’m prepared for that.

And probably the other piece on this project that was a bit of a challenge was the carry costs and the timing of it. We had a bit of a hiccup with the city, and that slowed us down for about three months. But honestly, all in all, the project went a lot smoother and really wasn’t terribly difficult. I mean, there were a lot of moving parts, Joe; I’m not saying it’s not difficult. Kicking everybody out, and doing a 2.3 million dollar renovation, and completely doing everything new, from top to bottom – yeah, it’s difficult… But it went relatively smoothly.

Joe Fairless: Yeah, well all is well when it ends well. What was the hiccup over the three months? Just curious.

Paul Nagaoka: Oh, it was with the MEPs – the electrical, they wanted upgraded service, and they wanted it ran from the other side of the street, so we had to get a process to be able to do that, and then it took a while to get the permits… I believe we had to bore underneath the street to be able to get it across, and we weren’t anticipating having to do that, and honestly we didn’t have to for zoning or code compliance, but they just wanted us to do that, and it’s really hard to argue with a city/municipality person that just has more time and has a chip on their shoulder, and doesn’t seem to like you, for whatever reason.

Joe Fairless: [laughs] Well, is there anything with that particular scenario, anything that you could do prior to the deal, or any question that you could ask, if you were presented a similar deal and you were like “Wait a second, I wanna make sure I avoid this three-month hiccup with the city on an issue I know has come up before.” Would you ask a question or reach out to a certain group for another deal?

Paul Nagaoka: Yeah, I did a bit of ready-fire-aim on that project, which – sometimes you’ve just gotta do that; if you see something that makes sense, you’ve just gotta jump on it. But yeah, the due diligence on the front end is always the most important part of the process, and now that I have a little bit more talented operators, and we’re more robust in terms of executive team with me now, we never get less than 90 days of due diligence on a project, and we ask a lot of those questions to the city. But honestly, if I was listening to this, or I could get out of a similar scenario if I was in it again, is just be prepared and know that you’re gonna face things that you don’t plan on, and no deal is gonna go through perfectly… And you need to account for that. You need to have carry costs set aside, you need to have extra cap-ex that’s not forecasted in your plan, and just have a little bit more money and make sure that the deal — be more patient in finding the right deal that has enough room that you can do that.

Joe Fairless: What would you recommend that extra carry cost or extra cap-ex to be on a project?

Paul Nagaoka: Okay, well let me give you another example. I bought a hotel 3-4 weeks ago now. I kind of did a similar scenario – sat down with the owners and negotiated a sweetheart 92% carryback… And on that transaction we budgeted —

Joe Fairless: How many units, or rooms?

Paul Nagaoka: It’s a boutique hotel, and it’s a really high-priced kind of thing. It’s got nine units, and some other additional space there. It’s right behind the Art Museum, in a core area of Kansas City… Kind of an interesting, expensive hotel.

Joe Fairless: Alright, cool.

Paul Nagaoka: So I just bought that, and we negotiated the seller carry, but on the project we had my budget for the renovation – there wasn’t a whole lot of renovation required for the project, but I literally added 30% to my budget, just to make sure that I was safe on any area. And then my carry cost – I think I can get the project done in six months, and I added a year’s worth of carry in there. I feel like, especially if you’re syndicating – and I’ve listened to your podcast, Joe, and I know this is more of an advanced level listeners that you have, and when you’re syndicating deals and when you’re raising funds with investors you always wanna make sure you under-promise and over-deliver. And if you can’t get a deal to really pencil well, with lots of extra safety in there, it’s just better to move on and look for something else, my perspective.

Joe Fairless: How did you find this boutique hotel?

Paul Nagaoka: Well, actually one of my partners brought a different one that we also have under contract right now, and set to close in February, and then somebody told me about a sister property to it, that was down the street, in a similar location… And since that deal was so good, I just had really good timing on that one. It wasn’t an off-market deal, but it had just got listed. There were probably seven or eight other parties that were interested in the project.

I always found it best to negotiate a deal with a seller directly. I think a lot gets lost in communication when you’re going through a realtor, and so I look at them as my first gatekeeper. I usually never have a realtor — or I have somebody, but I’m really doing the deal; I always try to be the liaison communicating with them, and then I connect with the broker… And I asked him, “Look, I really wanna put a deal together here. I think there’s something really valuable. I’m serious, here’s my experience, here’s what I’ve done in the past… Would you be open to facilitating a 30-minute sit-down with your seller, and I will  get him an offer by the end of that conversation? Are you open to doing that?”

From there, they were able to let me sit down with the seller directly, and I was able to build trust, and talk through my track record and use all that. They ended up taking my offer over other offers that he had, because he knew who I was, and he saw my face, and he believed that I’d be able to close.

Joe Fairless: Where was the meeting?

Paul Nagaoka: In the hotel.

Joe Fairless: At the hotel. In a private room, or just in a lounge area?

Paul Nagaoka: It was in the sunroom, next to the fireplace.

Joe Fairless: Oh, how quaint.

Paul Nagaoka: Yeah, right…? [laughs]

Joe Fairless: And there were strangers coming past you all during the meeting, right? It’s a small place…

Paul Nagaoka: Well, it was an open area, but luckily we didn’t have too much of that.

Joe Fairless: Okay, alright. So you sit down with the owner… Is it just you and the owner?

Paul Nagaoka: It was me, the owner and their broker.

Joe Fairless: And their broker, got it. So it’s the three of you, correct?

Paul Nagaoka: And his wife, yeah.

Joe Fairless: The owner’s wife?

Paul Nagaoka: Yeah.

Joe Fairless: Right. The broker didn’t bring his wife, obviously… [laughter]

Paul Nagaoka: Wouldn’t that be great? That would be the most interesting deal I’ve ever done.

Joe Fairless: That would be. So you sit down, then what? How do you approach that conversation?

Paul Nagaoka: Well, I do my homework on the property before I get in there  – and I think that’s really important. You’ve gotta go in there with a plan. You’ve gotta know what you’re trying to get, what your objectives are out of the meeting, you’ve gotta have your proforma done, and really run the numbers in a way that you know the range that you can make an offer on.

Usually how it goes, at least for me, we start off with some small talk, and I try to find some element of common ground, that you can really relate to the person, and see that “Hey, this guy’s a lot like me.” Then from there I shared a little bit of my story, and what I’ve done, and given them examples of different projects around town that he knows of, that I participated in… And from there, it’s a really delicate balance. I try to put people at ease the best I possibly can.

There’s this really fantastic book written by an FBI hostage negotiator called “Never split the difference.” Anybody who’s listening to this that wants to know how to do face-to-face negotiations better I think should listen to that book. I use a lot of those types of principles where you go in, you build rapport, and then try to create a scenario where they really trust that you’re looking out for their best interest… And genuinely, if your heart really is, you’re trying to find a really good win/win scenario, you can do that authentically, and then just try to craft something that makes sense.

I think it’s really key to be listening more than you’re talking. The more you can get the other person to talk, the better. And you’ve gotta listen for those keys – what are they trying to get out of this situation? What’s a win for them? I found out they were wealthy, they didn’t need the money right away, so a full price offer with a carry was more attractive than doing something that’s all cash, that’s a little bit under their price. So you just hear for those kinds of things, and then you have your moving pieces and you make your offer.

Joe Fairless: Are there any tax benefits to them for doing it your way, versus getting paid all upfront, traditionally?

Paul Nagaoka: Well, that’s a good question for a CPA…

Joe Fairless: So that’s not something in your repertoire, where you bring that up then…

Paul Nagaoka: No, not really. When you look at it, I think one of the benefits – I think it’d probably give a little bit more timing in terms of doing some sort of exchange; anything on that side, I think that would be a benefit. But yeah, that’s not really a piece that I try to communicate. I really try to stay higher level on whatever the pieces that really move them. If that was something, I would probably be not qualified to really go there with them.

Joe Fairless: Okay. So I’m the owner of the boutique hotel, and you ask me what am I looking for, and I’ll say the price that it’s advertised for. Then you say “Okay, I can do that. Here’s how I can structure it.” And I say “Well, I’d rather get the price and then be out of the deal, so I’ll just wait to get a full-price offer.” What’s your response?

Paul Nagaoka: Well, in that scenario it depends what I can do, because I can’t buy something. A good example on that – I have this 21,000 square foot empty retail space that I’m making an offer on today, actually. The same scenario came up, where we were discussing owner financing, and we were able to get to a point where we could just purchase the thing without having to do that component, because we got the price where we needed to, so we just kind of threw it out the window and went with the more traditional model.

So I think it comes down to really knowing your numbers. On the boutique hotel, a similar type of project hit the market a week or two after I had this under contract, for 40% more than the original listing price of this property. So I knew it was a great deal, and whether I had to buy it without seller carry or with seller carry, that was something I was willing to do. But if it was a different scenario and I couldn’t do any other option, then I don’t have that option. So if he says, “Hey, look, I want full price…”, I would probably not quite give up at that point. I would come back around and say “Look, I’m really trying to create some sort of win/win scenario here that we can both it in and feel really good about. Are there any other moving pieces to this, that would be areas that maybe could help justify, help get me to a point where I can really make a full-price offer and do this with you?” And then I’d give them a couple suggestions, leaving some different elements on the property that he might not typically do, or negotiating “I’ll give you full price, but you have to do the roof, and you have to do this and this”, or some other ways that could help line us up.

Joe Fairless: That’s very valuable, I appreciate you talking through this with us. Taking a step back – and you knew this was coming, because you said you were a listener of this show – what’s your best real estate investing advice ever?

Paul Nagaoka: Now, is this to somebody new, getting started, or to someone that’s been in the game for a bit?

Joe Fairless: Been in the game for a bit.

Paul Nagaoka: Probably the biggest piece of advice that I would say – this is for me – is really figure out what part of the process you enjoy the most and you’re the best at, and then build a team around you that can support you in the other ways that you’re not as talented at.

My process – I was doing the operational elements, and I’m not as talented at that, honestly, Joe; that’s not an area that I’m that strong in. I can do it, but I don’t enjoy it, and I’m not that great at it. So build a team around you that can support you in areas that you have a weakness. And then I would say — life’s short. If this is something that you’re really passionate about, find a way that you can really enjoy every element of your working life. And really ask that question, “What about this drives me? Why am I doing this?”, answer those questions, and then really focus on those components for the rest of the time that you’re working on real estate.

It’s a long time, we spend a lot of time working, so if you’re not alive in what you do, you need to figure out a way to be able to make those pieces come together. And it may not be exiting the industry, it may just be refocusing, like I did, on the different parts that really make you come alive.

Joe Fairless: Powerful advice. We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Paul Nagaoka: I’m in!

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

Break: [00:22:08].25] to [00:23:04].17]

Joe Fairless: Best ever book you’ve read recently?

Paul Nagaoka: A best ever book I read is the negotiation book, Never Split the Difference.

Joe Fairless: Got it. Is that Chris Voss’ book, Never Split the Difference? His is the — I forget, but I interviewed him in episode 1244, so you mentioned…

Paul Nagaoka: [laughs] You’re amazing. You knew that it was episode 1244…

Joe Fairless: Well, no, I did a Google search in between when you said it and now.

Paul Nagaoka: Okay. Alright, Joe, I’ve got a Lightning Round question for you…

Joe Fairless: Alright.

Paul Nagaoka: What was your episode 1132?

Joe Fairless: Oh, my god. I don’t know.

Paul Nagaoka: [laughs] I’m just kidding.

Joe Fairless: I don’t even have a good answer for that. Okay, best ever deal you’ve done?

Paul Nagaoka: The first apartment complex that we talked about.

Joe Fairless: 72 units.

Paul Nagaoka: Yeah. That was a great deal.

Joe Fairless: What’s a mistake you’ve made on a transaction that we haven’t talked about?

Paul Nagaoka: I bought a mobile home park, and just got really hosed by the city and got my construction halted for a year, and I didn’t raise all my money upfront.

Joe Fairless: What happened to it?

Paul Nagaoka: I was under-capitalized, and the city really [unintelligible [00:24:13].09] I ended up selling out to my partners.

Joe Fairless: Did the city just not like mobile home parks, was that what it boiled down to?

Paul Nagaoka: Yeah, there was some new development that was happening, so there was a lot of Menards, and a lot of really whole new, typical, 100 million dollar Menards with a bunch of different anchors that was really close by, and they’re putting a facelift on the whole city – the whole city being 17,000 people, but… They just didn’t like that I wanted to do a mobile home park. And they told me they loved it, and wanted me to do it, and it was awesome, on the front-end, in all the meetings we had before we actually purchased the property. We bought the property, and then a lot of the people that worked at the city (that I talked to) left, and we had new leadership, and they just absolutely hated my project.

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

Paul Nagaoka: For me, Joe, my faith is a  big part of my life, the biggest component of my life, and a lot of ways that I like to give back really tie back into that. I’d say probably real estate related, I’m in process right now — so my mom… Okay, I know this is not very lightning, but I’m gonna give this real quick; my mom was a single mom, and we grew up really right financially, and she spent all of her seed money to invest in real estate on real estate education – expensive seminars, and coaching, and that kind of thing, and it didn’t really go anywhere. So I started a website where I just give the nuts and bolts components of investing in real estate, and I help people on their journey. And if I can help people like my mom, that were wanting to do this, and make a difference for themselves, and needed education, needed to improve their knowledge base to be able to invest in real estate well, it’s awesome.

So my website is all free, and I don’t sell anything, books or tapes or anything at all; it’s just free content that I put together, and I give what I know from the last 14 years of doing real estate.

Joe Fairless: On that note, how can the Best Ever listeners learn more about what you’re doing?

Paul Nagaoka: I guess there’s probably two different pieces to that. One is if you’re an accredited investor and wanna explore doing a deal together, reaching out to me through my website, SyndicateKansasCity.com, would be probably the best way to get a hold of me and our team.

Or if you’re a real estate investor, or you’re new, or in process and you just wanna learn about real estate investing, I have a resource, HowToInvestInRealEstate.net, that gives just a bunch of free content; I don’t sell anything, and I’m not going to. It will just help out learning different pieces of it, and help bless you on your journey of being successful in real estate.

Joe Fairless: I really enjoyed our conversation and learning how you approach conversations with owners, and how you get to the table with the owners, through positioning it to the brokers in a certain way, and then how you brought to life that through a couple examples – the boutique hotel that you’ve got under contract, and the 72 units that you’ve owned for a couple years now, and how you structured it.

And then lastly, and the foundation of this all – at least from this conversation – is figuring out what part of the process we enjoy the most, and then focusing on that. That truly ties to more enjoyable time on Earth, as well as, coincidentally, growth in business, because we’re doing what we love, and we just keep doing it.

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

Paul Nagaoka: Awesome. Thanks, Joe.


    Get More CRE Investing Tips Right to Your Inbox

    Get exclusive commercial real estate investing tips from industry experts, tailored for you CRE news, the latest videos, and more - right to your inbox weekly.