February 26, 2019

JF1638: How To Purchase 150 Properties In Just Two Years with Steven

Steven considers himself a “beginning” investor… Who has 150 properties purchased in his first two years of investing. Maybe not quite a beginner in a lot of eyes, but for himself and his goals, he’s just getting started. We’ll take a dive into how he has been able to scale to the level he is currently at in just two years. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:



Steven Pesavento Real Estate Background:


Sponsored by Stessa – Maximize tax deductions on your rental properties. Get your free tax guide from Stessa, the essential tool for rental property owners.


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 Pesavento. How are you doing, Steven?

Steven Pesavento: Hey, Joe. I’m doing well. How are you doing?

Joe Fairless: I am doing well, and nice to have you on the show. A little bit about Steven – he has been investing in real estate for two years and he’s bought and sold 150 properties. He’s based in Denver, Colorado. You can learn more about what he’s got going on at theinvestormindset.com, which will also be in the show notes. With that being said, Steven, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Steven Pesavento: Yeah, absolutely. I consider myself fairly new to investing. I’ve been investing for two years, but definitely have quite a bit of experience after that two years. I hadn’t ever done any real estate investing when I got started. I just kind of had that same feeling a lot of people have, where you’re like “I really wanna do this”, but I kept making up excuses on why I wasn’t taking the leap. Finally I did, and in the last two years we bought and sold 150 houses in two different markets.

I live in Denver, but we invest in Raleigh, North Carolina, and Minneapolis, Minnesota.

Joe Fairless: 150 properties in two years. How?

Steven Pesavento: We’re really focused on scale, so we built a team. We have people on the ground who are going out and signing up these contracts, getting these properties under contract directly with the sellers. And of course we’re doing direct response marketing, direct mail, PPC… All the things you might read about on Bigger Pockets, we’re just doing it at a little bit bigger scale than a lot of people, because my philosophy was “You have to do enough deals rapidly, to get enough information to learn quickly.” I’m just a big person on modeling others, and I found a few investors who I was able to pretty much learn the ins and outs of how their business is working and kind of take 7 to 10 years of real estate experience and condense it down into a few months.

So we just really started modeling, which is just another word for copying… So kind of ripping off everything that they were doing. We started applying that in our business, and we really took off. We’ve done quite a bit, and we’ve been able to help a lot of people, which has been really rewarding.

Joe Fairless: Who did you model after?

Steven Pesavento: There’s some investors – Andy McFarland, Bill Allen, Mike Simmons, Justin Williams, a couple people from around the country… They’re part of a mastermind group called Eight Figure Flipping, or Seven Figure Flipping…

Joe Fairless: Which one is it, eight or seven? That’s a big difference.

Steven Pesavento: Well, there’s two separate groups. There’s one higher-level group that we’re a part of…

Joe Fairless: Oh, okay. [laughs]

Steven Pesavento: We got connection to them through an event that was going on, and I wasn’t really a big fan of spending money on coaching or mentorship at first; I thought I could learn everything on my own. And to be honest, I was; I was trading some of my experience in other fields, building websites and doing things like that, for the ability to learn from some other investors… But when I came across these guys, I could just tell they were really authentic. A partner of mine ended up paying for it, and I ended up trading some of my time to get access to it, and then we just really took off after that and things just really grew. It’s been a great two years.

Joe Fairless: If you were to write the high-level overview of how you structure your company to allow this volume so quickly, what would be the bullet points?

Steven Pesavento: Good question. The biggest thing is you want to hire people who are better than you at certain areas of the business, so you can focus in on your core competency. For me, what I’m the best at is building systems, sales, and really putting a team together, so that’s what I focused on.

I’ve essentially hired out an acquisition manager to go on sales appointments, a  lead manager to answer the phones, a disposition manager to sell wholesales, a project manager to manage the flips that we have going… And the biggest bullet point is you just have to take action. You have to go out there and do it. You have to choose one marketing channel to go after… Because in my world, in order to get scale you’re probably gonna have to spend some money and you’re gonna have to do something that’s repeatable, and for us that was marketing. Direct mail was the first channel we went after, and we started out with about 10k or 15k mail pieces for that first month, but now we’re up to a point where on any given month we’re between 50k and 100k mail pieces per month. What that does for us is it gives us enough pieces of marketing going out every day, that we know that we’re gonna get a certain number of phone calls. And from those certain number of phone calls we’re gonna get a certain number of appointments, and we can pretty much expect how many contracts we’re gonna get.

So the biggest thing about being able to do volume is just hiring the right people and training them and really managing them, which is a totally different business than being kind of the one-man army that a lot of investors are, kind of being able to go out there like a Swiss Army knife and go out and do every single task.

For me, I don’t go on appointments. I don’t live in the market, and I’m not locking stuff up over the phone, so… I really have to rely on other people. I think that’s the biggest piece about building anything to scale – you really have to rely on your team and your partners to do what they need to do.

Joe Fairless: If you didn’t build out the team with the acquisitions, the lead and the disposition managers and the project manager, and instead you attended the mastermind that you referred to earlier, and you learned everything, but then you decided “Hey, you know what, I’m gonna just have one right-hand person and that person and I (and if you have another business partner, fine; the three of you or the two of you) am gonna do this thing.” Would you be able to make more money that way, since you don’t have all of the overhead from the team members that you have brought on?

Steven Pesavento: Yeah, whenever you take on the decision to cut overhead, it’s a trade-off. If you have two or three people who are just super-motivated, “I just wanna go out and bust your butt”, and put in a lot of hours, then absolutely. Two, three people could definitely go out and do that. For us, with the kind of volume that we’re doing, I don’t think the best use of our time is to be spent on a phone call. That’s something that’s perfect for a $10-$20/hour type of person to be setting those appointments. Then what you would do if you were trying to be a smaller-scale team, you’d have those people focused on setting appointments and then you go out and lock them up, and you go out and sell them, and you go and do all this stuff. Absolutely, 100%.

For me, the reason why we went this direction – I have people who are running the business, and that frees me up to do other things, outside of just being stuck in the business 60-80 hours a week.

Joe Fairless: Quality of life, plus you’re building something that you might be able to step away from and still have residual income from, right?

Steven Pesavento: Absolutely. Absolutely.

Joe Fairless: What’s been a big challenge as you’ve gone really quickly into this business, over the last couple of years?

Steven Pesavento: I think the biggest challenge is whenever you decide to move quick, you’re gonna make mistakes and you’re gonna have to learn from those mistakes really quickly. So when you’re doing marketing at scale and you make a mistake, that mistake costs you a lot of money.

Joe Fairless: For example…

Steven Pesavento: If for example you’re making a change within your system and you have 200 phone calls coming in a week, and you have something go wrong with your CRM, or you have something go wrong with your call system, it’s gonna really impact you and you’re gonna have to figure out really quickly how you’re gonna be able to come back from that. In other words, what I learned was you really need to have redundancy in this system. If our CRM goes down, we need to have a back-up available, so that our team is able to get in there and do the things they need to do to make sure that the machine continues to run.

So that was one big thing, it hurt us. A lot of people who were using Podio know that went down for a couple days last year and everyone was freaking out… But we learned from that quickly, and now we have some systems in place to make sure that we’re not stuck with that.

Joe Fairless: A deal that you have lost money on, if there is one — well, you’re wholesaling, so you’re probably not losing money on deals, right?

Steven Pesavento: We flipped about 40%…

Joe Fairless: Oh, really?

Steven Pesavento: We’ve done full rehabs on about 40%-45% of properties…

Joe Fairless: Well, that just opens up a whole new set of questions. You flipped 40%, so — I don’t know what that is… Like 60 properties or so?

Steven Pesavento: Yeah.

Joe Fairless: How do you do that remotely?

Steven Pesavento: My model for the first two years was partnerships. I had a partner on the ground, a 50/50 equity partner, and that person was responsible for managing the actual renovations and flips that were going on out there in North Carolina and Minnesota. So in that case, that person was the person who was actually making sure that we’re buying right, they’re going and seeing what’s going on, they make sure that we’re not losing, that we’re not making bad investment decisions… But it happens; when you’re doing stuff at scale, you are gonna lose some money. And because we were taking big swings, we did have a couple times where we lost some cash. It’s never a good feeling, but it is a great feeling when that’s off your books and you’re like, “Okay, well, I learned a lot from that.”

Joe Fairless: Yeah, I hear you. So one key is having a 50/50 equity partner, that way you’re both in it for the upside, or otherwise. What’s a specific deal that you lost money on? Tell us how much you bought it for, and what went wrong please.

Steven Pesavento: Yeah, absolute. For sure, I don’t mind sharing that at all. I think you learn the most from your mistakes. There was a property on Hunting Ridge Road in Raleigh that we bought. We bought it for 280k, we had the opportunity to sell it probably 290k, 295k, so we could have walked with some money right upfront… But this was early on, when we were entering the Raleigh market, and my partner had a lot of experience flipping, but didn’t have experience locally. He had just moved to that market.

So we ended up putting in about $80,000 in repairs. That was about double what we expected. There were a few things that came up with our contractors; even though it was a really good friend of his, the contractor ended up extending the timeline by about eight weeks longer than we expected… So that added up to some costs. And we had to redo some of the roofline, we ended up not being able to account the basement as square footage, like we expected, and we just had every little tiny thing that you think could go wrong, went wrong. By the time we put it on the market we had the ARV pegged at 450k… We ended up selling that for 412k.

So we went from expecting a profit of about $80,000 to a negative profit of about $14,000. Of course, our investors made 30k-40k on that, but we walked away with negative equity on that property. But we did learn a lot about the market and about how picky the buyers are in that area, and how it’s a little bit different than some of the hotter markets like Denver or Southern California, which is where we had some experience.

Joe Fairless: Why couldn’t you count the basement as square footage, as you expected?

Steven Pesavento: Well, in that area in particular basements are not very common, in North Carolina… And in that area we could count it as square footage, but it didn’t have the same value. So it still was counted, but it was worth way less than we thought it was because of that.

Joe Fairless: And you mentioned you had investors in the deal… How do you structure your deals with investors?

Steven Pesavento: We typically are borrowing money – private money lender, hard money lender type situation; typically, we’re paying points and interests, and typically they’re paying 100% of the whole purchase plus renovation, because we typically buy these deals with enough equity for that to work. So in the end, after points and interest and everything was said and done, they ended up making more money than we did, and we were happy. We were happy to pay them, they stick with us on every single deal that we do, and that’s been important for us in our growth, to have kind of a partner like that. Even though they’re a lender, we still consider them our partner.

Joe Fairless: What’s a competitive rate, for the Best Ever listeners, if they’re working with a group that is lending them money?

Steven Pesavento: I think it depends on the area. What I noticed is in Southern California you might be able to find money for 1 and 10, 1 and 12, 2 and 12. In North Carolina locally it’s a little bit more expensive – 2 points and 12%, 3 points and 12%… I’ve seen as high as 4 or 5 points and 12% in that area, which just blew me away… When we’re typically paying one point and 12% interest, but that’s 100% funded, and we’re usually paying our points and interest on the back, rather than monthly. Not everyone gets that, but when you have a good relationship, sometimes people — if they’re not living off the points and interest, they’re happy to take them at the end of the project.

Joe Fairless: So you’re buying deals, fixing and flipping them or wholesaling them, and North Carolina, Minnesota and also Colorado?

Steven Pesavento: Yeah, but I don’t do any business in Colorado currently.

Joe Fairless: Okay… So just North Carolina and Minnesota.

Steven Pesavento: Yup, just North Carolina and Minnesota.

Joe Fairless: So those are the two areas that you and your team are doing deals… Any unique challenges to — and I guess we’ll be specific with it, since they’re both states, so they’re rather large… I think you said Raleigh was the one deal you just talked about, right?

Steven Pesavento: Yup.

Joe Fairless: Okay, and what cities are you in in North Carolina, besides Raleigh, and then what cities are you in in Minnesota?

Steven Pesavento: We’re in what they call the Triangle Area, which is about an hour, hour-and-a-half around Raleigh, and we’re in Minneapolis Twin Cities area, so the metropolitan–

Joe Fairless: The Research Triangle, all the smart university students and young professionals over there, in North Carolina, and in Saint Paul, you said, in Minneapolis, for Minnesota?

Steven Pesavento: Yup. And some of the unique challenged to those areas is just the buyers are different; in other words, the people who are gonna move into those houses have different expectations on what they’re looking for. In an area like Raleigh…

Joe Fairless: You already said they’re very high-maintenance, but in Minnesota they’re very nice people and they’re low maintenance, right?

Steven Pesavento: [laughs] Minnesota people are very nice to your face…

Joe Fairless: I’m kidding, by the way, North Carolina listeners…

Steven Pesavento: [laughs] One of the challenges in North Carolina that you don’t really know about is there’s these things called underground oil storage tanks, that are maybe not as popular in some parts of the country, but they’re a huge cost to have those removed… So if you don’t know about them before you buy, it can be a pretty big unexpected cost if they leak, and it can be pretty difficult to sell a property because it’s hard to get a mortgage on them, depending on the kind of contamination… So that’s one challenge we’ve found.

Joe Fairless: Is that just typically disclosed when you purchase a property, or is that part of the house inspection process? Where is that getting covered?

Steven Pesavento: It’s really one of those things where you have to know what to look for. The sellers, when you’re selling a house and you’re buying it off-market, they’re not always disclosing everything about the property. You’re usually buying it as is, and they’re not sharing all the information about “Oh, well, I think there’s an oil storage tank…” But if you know what to look for, you’re able to find it. Usually, there’s a little pipe sticking out of the ground. Sometimes people cut those off, and you have to really search around with a metal detector… But for the most part, we haven’t run into too many issues; we’ve just had a couple where it cost us about 15k-20k to remediate the soil on a property that we were purchasing to tear it out and split the land so we could build two houses on it. We ended up not being able to do that because of that issue.

Joe Fairless: That’s pricey.

Steven Pesavento: Yeah, it cost us 20k to fix it, and it was supposed to be a $150,000 profit, so it was a big problem when we found out.

Joe Fairless: Well, but when you’ve got $150,000 profit… I mean, come on now. [laughs] It’s a problem, but you’re still doing alright on that deal.

Steven Pesavento: Yeah, but the issue was because of the remediation issue we couldn’t actually build the new houses, because there was a well that was too close.

Joe Fairless: So what did you end up doing?

Steven Pesavento: We ended up remediating it and selling it. We ended up making about 25k on that instead, which was good, but we weren’t able to do the development piece that we were hoping to.

Joe Fairless: Any unique challenges with Minnesota people, or the market?

Steven Pesavento: I think Minnesota is a great market; one of the challenges is just finding deals that pencil. There’s a pretty big homeowner base there, and we really haven’t had too many problems in Minnesota, I’ll be honest.

Joe Fairless: Well, I don’t want you to make one up, so we’ll move on… Based on your experience as a real estate investor, what is your best real estate investing advice ever?

Steven Pesavento: My best real estate investing advice is just to get after it. Decide exactly what you wanna do, get up, take action and just go for it… Because you only learn by doing, and you really just need to get out there and take some action.

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

Steven Pesavento: Alright, let’s do it, Joe.

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

Break: [00:19:17].28] to [00:20:18].23]

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

Steven Pesavento: Best ever book… One of my favorite books by far is definitely Never Split the Difference. I’m sure it’s been brought up a ton of times. I love that book.

Joe Fairless: What’s a mistake you’ve made on a transaction that we have not discussed already?

Steven Pesavento: A mistake I’ve made on a transaction that we haven’t discussed is not running title early enough in the process after getting it under contract, and finding out about issues with title at the last minute. It cost us some money.

Joe Fairless: Best ever way you like to give back?

Steven Pesavento: I like to do direct contribution. I like working with people directly, face-to-face, helping people learn about how to get out of the situations that they’re in, and see that “Hey, there’s a better way.”

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

Steven Pesavento: You can find me on social media, on the internet, Steven Pesavento, or you can check out theinvestormindset.com to learn a little bit more about what we’re doing.

Joe Fairless: Steven, very impressive what you’ve built in a relatively short period of time… But regardless of the period of time, impressive. I really enjoyed learning more about your business, how you work in different markets while being remote, and some transactions that did not go according to plan, why that was the case, as well as some transactions that did… So thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Steven Pesavento: 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.