July 8, 2019

JF1767: Important Lessons Learned Last Week #FollowAlongFriday with Theo And Danny


Theo did the interviews for the podcast last week, and has some lessons learned to share with us today. Danny Randazzo is joining Theo and sharing some valuable lessons he has recently learned as well. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Theo Hicks: Best Ever listeners, welcome to the best real estate investing advice ever show. As you can tell if you’re watching this or listening to this, this is not Joe; this is Theo. I’ll be hosting today, and we’ve got a new co-host for this week’s episode, as well as likely next week’s episode, and that is Danny Randazzo. Danny, how are you doing today?

Danny Randazzo: I am doing great, Theo, and just excited to be here with the Best Ever community and listeners, and we’ll go through our Follow Along Friday.

Theo Hicks: Let’s do it. I’ll be playing Joe today, and you’ll be playing Theo today. At the end we’ll evaluate our performances and see how we did.

Danny Randazzo: Excellent, Theo.

Theo Hicks: As Danny said, this is Follow Along Friday, so we are going to discuss the things that we learned in the interviews last week. I actually did the interviews last week, and I’ll be doing them for the next few weeks, so I guess you’ll be hearing a lot of my voice on the Follow Along Fridays… But before we get in, I just wanted to do a brief introduction on the co-host, Danny. He is the key principal and PassiveInvesting.com, so he’s actually an apartment syndicator.

He is an author, entrepreneur, host of a real estate mastermind, national speaker and volunteer with the first The First Tee, so he’s all over the place. I wanna tell a funny story, that I’ve told him before… He volunteered at First Tee, I was actually a part of The First Tee, and I remember one of my — I won’t say a fond memory, but probably a negative memory was I wrote my name in pencil on one of the picnic tables at The First Tee headquarters, or whatever, and they made me come and paint every single picnic table that they had in the lunchroom area, for writing my name on there. So… Lesson learned. If you’re gonna vandalize things, don’t put your name on it, because they know who it is. [laughs]

Danny Randazzo: Certainly.

Theo Hicks: So he has over a decade of professional experience working as a financial consultant. He advised multi-billion-dollar companies and helped them achieve results in areas that include [unintelligible [00:03:51].25] performance, increase profit margin and enhance technology utilization. Now he’s a full-time real estate entrepreneur and investor. His company, PassiveInvesting.com, purchases value-add apartment communities that are greater than 150 units, and Danny is focused on asset management, building relationships, investment analysis, planning, and all things finance.

Then a fun, little fact about Danny – he met his wife on a boat in Vietnam, when they were both traveling from San Francisco, so that’s an interesting factoid.

Hopefully we can get through these two lessons first, so we can talk a little bit about Danny’s background and some projects he’s working on right now… Let’s hop into the two lessons that I learned from interviews last week.

As I mentioned, I only interviewed one person. His name is Matt Spangenberg. He’s a 36-year-old real estate investor who literally started from nothing, and that will be one of the lessons that we discuss. He saved up money to buy his first property, and then he worked on the property himself, put in the sweat equity to increase the value, and then he actually got a HELOC loan on that property. He used that money to buy another property, and essentially has kept renting and repeating that same strategy of getting HELOC loans. Basically, he turned $25,000-$30,000 that he spent on his first property into a portfolio of 7,5 million dollars, without having to put a single dime of his own capital into the deals after that initial 25k-30k (I can’t remember exactly how much it was).

In the episode he went over a few of his specific deals; one of them was how he was able to create over $350,000 in equity on a deal, and the other one was how he was able to do 100% owner financing on a deal… Which brings us into the first lesson.

If you remember, it was probably a month ago me and Joe were talking about different strategies for finding deals, and I remember I interviewed someone who invests in Boston. And apparently, in Boston a lot of the multifamilies are owner-occupied. So you’d find a 12-unit building in Boston, and the family lives on the top floor. So technically, if you wanted to do door-knocking, you could door knock at the actual property. So you’d go to the top floor, you’d go to the owner’s unit, and you’d know and say “Hey, can I buy your property?” Whereas what Matt did is he literally tracked down where this seller lived… It was a six-unit in — I’m not sure what town it was in… But in a six-unit, in that same town where the guy lives, a regular single-family home, and Matt literally went to this guy’s house and knocking on his door, and asked if he wanted to sell his property. And I remember me and Joe were talking about how insulting it would be to us, and we’d be so annoyed. This strategy probably only works if the person lives at the house… But now we’ve got proof that this strategy indeed does work if you actually knock on their personal residence.

I thought that it was really funny that he said that…

Danny Randazzo: That is.

Theo Hicks: Yeah.

Danny Randazzo: I think it’s interesting… Obviously, any strategy out there works as long as you’re taking action and going through those steps of either tracking down the owner, maybe emailing, calling, texting, or go and knock on their own residence door, and you can make a deal happen. I think that’s certainly a feasible avenue to go down. I’ve certainly been there and done that before.

I remember tracking down an owner online, finding where they live… I think we found out through Facebook that they were  a huge — either a Clemson or a South Carolina Gamecocks fan… So I called and built some rapport with that person by starting to talk about college football. Then, once I had that rapport down, I kind of said “Hey look, I understand you have a property over here. Would you be interested in selling?”

I think as long as you take action, you’re gonna find the deal and kind of make them happen.

Theo Hicks: Exactly. I’m on Bigger Pockets a lot; I think you’re on Bigger Pockets a lot, as well. I see you posting on there. And a common question is “Oh, I’m looking for my first off-market deal. How do I do it?” Or “I’m stuck between should I cold-call, or should I do direct mail?” As you mentioned, you need to just do something; just pick one and then do it. Do it for six months, see if it works. If not, then do the other one… Not necessarily wasting time, but over-analyzing, over-thinking which strategy is gonna be the best, because in reality it’s just about taking action.

Something you said specifically about when you found out about the person, did some background research on them and discovered that they were the Clemson or the South Carolina fan. That’s something else that’s huge as well, because — I’ll tie this back to Matt’s story in a second, but at the end of the day, if you’re doing a direct-mailing campaign, and obviously if you have a standard template that you send to everyone, it works; people do it. But I’m sure that the response rate and the conversion rate would be much higher if not only they were handwritten mailers, but there was something that was specific and personal to that person.

Obviously, that takes a lot of time, which is why it’s probably a better strategy for these larger deals, because you’re not sending out 10,000 mailers  a month… But at the end of the day, people might not necessarily sell it to the person that gives them the highest and best offer. If they know you, if they like you, if they trust you, it’s a lot more important. Because they care more about actually closing on that deal than getting some crazy high offer and then that person can’t end up closing, or completely disappears. The chances of that happening are a lot lower if there’s some sort of personal rapport going on between the two already.

Danny Randazzo: Absolutely. I think you hit the nail on the head with that. Know, like and trust you – those are the most important things, from either a seller’s perspective, or a broker if they’re representing their seller; they need to know you, like you and trust you that you’re gonna close the deal.

And even if we tie it into the greater syndication or working with investors, that rapport again – know you, like you and trust you – is gonna help people find investors for their deals that they have going on, especially when we’re talking about this example of finding an off-market deal, reaching out directly to the owner of that property, establishing that they know you, they like you and they trust you… Like you said, you may not be the highest and best offer in terms of price, but if they know you’re gonna do what’s right for them, what’s right for the property, ultimately it makes it a win.

Going back to my story of reaching out to the college football enthusiast (we’ll call him), he actually owned the property with three other siblings. So not only was he making the decision for himself, he was also considering the feelings, the impact and the financial output for the three other siblings that were also part owners in the property. So we were able to build that rapport; he trusted us enough to take it to his siblings and say “Look, we have a buyer for the property, and I know them. I trust them, and they’re gonna do what they say, so let’s get it under contract and we’ll sell the property to this guy and get it done.”

Theo Hicks: Yeah, I wasn’t going to say this, but I guess we’re gonna do figure lessons now, because you mentioned something about the fact that it was owned by three other siblings, so not only did he have to solve the pain points or present an offer that was attractive to that one specific person, but it had to be attractive to the others as well. That kind of comes back to — what’s really nice about these off-market deals and working directly with the owner is that you can identify these types of things. If you were buying this deal directly through a broker, you might not have discovered that the owner was actually owners, and they’re all siblings, and they might have had some issues on what price they were gonna sell it at; maybe one sibling didn’t wanna sell it, maybe the other one did, and there were some issues going on there.

But in Matt’s story, that same owner whose door he knocked on obviously was surprised that this guy would show up to his house and didn’t wanna sell… And he kept going through all these different reasons why he didn’t wanna sell. Each time he came up with a reason, Matt presented a solution. There were standard reasons, like “I don’t wanna pay capital gains tax”, so that’s why he presented owner financing. Or “I wanna continue to get cashflow”, so he did an interest-only for a certain number of years.

But there were another couple of interesting things that I don’t have in my notes, but I remember him saying… One of them was that the guy had a personal connection to the house, and he didn’t wanna sell it because he didn’t want someone to go in there and change a  bunch of things, or go in there and knock the property down and build something else, or kind of just ignore it and let it get distressed… So  Matt kind of went through and explained to him exactly what he planned on doing to his property to make it really nice, to fix some things, to make sure that the tenants that currently live there are continuing to have an enjoyable experience… And he bases off of some of his old deals. It got the guy excited.

And then Matt mentioned what would really seal the deal, based on the offer that the presented to this guy (the seller financing offer), is he said that “You’ll be able to sit on a beach, with your feet up, and not have to worry about being  a landlord anymore”, and the guy told him that that was the one statement that ended up sealing the deal for him… Even though the seller was not able to get as high of a price that he actually wanted; I think he ended up settling for $100,000 less than what the owner actually wanted because of the way that the deal was structured… So I thought that was also interesting.

Whenever you’re doing off-market deals, you need to figure out a way to identify what the person actually wants. If they say no, there’s always something that they would do to sell the property, even if it’s some crazy high purchase price. Once you get them thinking yes, then you can figure out how to present an offer that gets close enough to what they want, that they end up selling.

Danny Randazzo: Yeah, I think one of the best ways to figure out that information from the seller — because they’re not gonna come out and say “Hey, Theo, I wanna sell this property so I can go sit on the beach and count my hundreds of thousands of dollars, since I’ve owned it for 30 years and I’ve got it paid off.” They’re just gonna say “Look, I might be interested in selling. What’s the price? Tell me what’s the price.” And I’ve always found it helpful when you’re thinking about “Is seller financing an option?” or “Would the seller even consider it?” Because as we think about things from a buyer’s perspective, seller financing seems appealing in a lot of opportunities, because you can come in with less equity. So instead of needing 20% or 30% to put down, maybe you only need 10 or 20, and the seller will carry back maybe 10% or 20%. So it brings your out-of-pocket as a buyer down.

But the way I’ve found to figure that out is you ask the seller “Well, I see you bought this property 30 years ago, and it looks like you’re gonna make a pretty good amount of equity or capital gains on it. What are you planning to do with the money?” And that kind of gets some talking. “What are you planning to do with the money? Are you gonna buy a fancy car, or something with this?” Most of the time everybody is a hardworking investor, and they’re not gonna go out and spend their money on a car or on a luxury vacation, but they’re gonna say “Oh, I have a plan to purchase a new building”, which probably means they’re not as interested in seller financing.

Or they may say “I have no plans for the money, and I’m kind of at that retirement age… I don’t wanna own any more properties. Being a landlord is tough. I’ve done it for 50 years, and I’m ready to be out of the business and just sit on a beach.” And then you say “Perfect. Well, would you be interested in seller financing? Because what you’re gonna do is you’re gonna hold the note back, it’s gonna be secured in a second position against the asset, so if for some reason I don’t pay you, you can foreclose on me and take the property back. But I’ve got full intention to pay my debt to you on a regular monthly basis, and you can collect your mailbox money, or I can certainly just ACH it directly to your bank account every month… And it’ll be a way for you to minimize capital gains and collect a monthly income stream over your retirement period.” A lot of sellers find that very appealing.

So I think it’s just getting that conversation going. Like you said, understanding what their needs are and what their wants are, and just open the door by saying “It seems like you’re gonna have some good capital gains or good equity by selling this property. What are you planning to do with it?”

Theo Hicks: That’s a solid question to ask. And then keeping in mind that obviously this is not something that happens in one sitting. He didn’t knock on the door and have this entire conversation go back and forth for like half an hour. He’s like “I don’t wanna pay capital gains.” Then he says “I want cashflow.” It’s like, “All of us do.” I think this was a 3 to 6-month process, actually finally getting a deal under contract.

Danny Randazzo: Yeah. Real quick, one last fun fact about the communication piece. Actually, at the Best Ever Conference back in February in Denver there was a speaker at the event and I absolutely loved it and remember this, and I tell all of the people that I meet, whether it’s someone I’m networking with, or at my mastermind… But the stat was the rate of closing with a person, to be able to build that know, like and trust you. So Theo, if you and I are gonna do a deal, I’m not gonna sell you and close you on the first interaction. Actually, by the fifth or sixth interaction of you and I either meeting face-to-face, or having a phone call, or having coffee, or doing a Zoom meeting, it was like a 65% closing rate.

Best Ever listeners, keep that in mind when you’re thinking about “Am I gonna get this seller to sell on the first interaction?”, no. But if you can make those interactions — for example, if the seller is like “Give me your price, give me your price” on the first time you meet them, just say “Let me run my numbers, talk to my business partner, and I’m gonna get back to you.” Now you’re on your second time.

So I think always making a reason to have multiple interactions… And if you can get to that five interactions, you’re gonna have a much higher success rate than just trying to talk to them once or twice.

Theo Hicks: Exactly. We’re not trying to buy or sell Girls Scout Cookies or candy bars; these things are expensive, people have held on to these things for a long time, there’s a lot of personal investment going on here… So yeah, it takes time. Any sales book, any sales technique strategy should focus on that, and say “Hey, you should not try to pressure that close.” I guess some of them do say that, but for real estate that doesn’t work, and you’ve proven that with that 65% number.

So that’s number three, from the interview with Matt. It’s a quick one, but as I mentioned, he started from nothing. I know technically everyone started from having absolutely nothing, but a lot of other things that I see – people asking on Bigger Pockets – I guess that’s how I gauge what new investors are thinking. [unintelligible [00:18:44].12] but they say “Hey, I don’t have a lot of money. What should I do? How should I get started?” Or “Hey, I want to raise money, because I don’t have money myself” or “How do I get 0% down financing, how do I get seller financing?” Essentially, “How do I get started if I have no money whatsoever?” and I always wanna say “You need money.”

Obviously, there’s ways to avoid having to put money down, if you find a way to get a lot of experience by working for someone somehow… But most likely, most people that started had some sort of money in the game, or their own money. So the answer is just get a job for a  few years and work. That’s exactly what Matt did. I think he said he bought his first property when he was 20. At 18 he decided that he wanted to buy real estate, and so instead of saying “I can’t do this at 18 because I don’t have any money”, I can’t remember exactly what he said that he did, but he just worked a full-time job. I don’t think he went to college, I think he just left college, or just forgo college altogether, and worked a really crappy full-time job for 2 years to save up that $20,000+ to buy a property.

So the best ever advice was just if you wanna get into real estate and you’re not lucky enough to have college funds saved up, or your parents have money, or you come into the idea of real estate investing once you actually have a 401K or whatever, you just need to work your butt off and save up the money to get that down payment. It helps if you’re young and you wanna do a house-hack, because you don’t have to save up as much money. I was able to get into real estate with 6k, I think, and buy a $170,000 property with $6,000. So you can save up 6k in a year – or two, depending on what job you have – but at the end of the day, the majority of people are gonna get into real estate by having their own capital and buying a property with their own money, because it’s very difficult to raise capital without having  done a deal yourself. I mean, obviously, there are exceptions, but it’s very difficult.

We were kind of going over seller financing, but when you were going through the spiel of “If I don’t pay you back, I’ll foreclose on you”, something that might come up is like “Well, what evidence do I have that you’re able to pay back these types of loans? How do I know that you can do this?”, then your answer should be “Well, I’ve done this many deals before” or “I’ve done this many seller financing deals before”, “I have this much in debt that I have to pay back and never foreclosed on before.” So if you’ve never done a deal before and you’re trying to pursue seller financing and they ask you about your background and you have no answer, then obviously you can rely on team members, but at the end of the day, the point is that if you wanna get into real estate and you don’t have money, then take a year or two and make that money.

Danny Randazzo: Yeah. A couple of quick points here. One quick tip if you are considering trying to do seller financing, print your annual credit report for free, and it’s like 30-some pages. It shows that you make your monthly payments. I have done this before, where I send in a 70 or 80-page document about my own personal financial ability and say “Look, here’s 80 pages of proof that I will pay you back with your seller financing.”

Not that they’re gonna get through even the first page, but there’s 80 pages, this huge thing of proof that says “I pay my debts”, and that’s always helpful from a seller financing standpoint. And Theo, you’re absolutely right – the best way to get into real estate, to have people trust you, is by having your own ownership and your own money invested in deals, because that’s a huge deterrent, which — we’re not saying it’s not possible, but it just slows your ability down to build a portfolio when and if you’re trying to raise money without having any money to contribute yourself.

So to that point, I always refer to it as having an equity nest egg. And like you’re saying, go and work for it, get another job, maybe wholesale some properties to make a percentage of money, get commissions from a sales job… Do whatever it takes to build up this equity nest egg, and then you can start to buy your own properties.

The first interview that I did with Joe, episode 961, I talk about how I was doing house-hacking, and how I was working a consulting job and saving up money to build that equity nest egg, which ultimately allowed me to go out and buy my first investment property, which was a one-million-dollar office building. If you wanna get that full story, check out episode 961, and I’ll kind of break down that equity nest egg and how important it is to jump-start your success.

Theo Hicks: Exactly. You need to have some chunk of cash to go to work with. I guess not need, but it’s helpful, and Danny is a proof of that, I’m a proof of that, and most investors are a proof that. Obviously, that’s not what you wanna hear if you don’t have any money right now and you wanna get started tomorrow, but you’ve gotta build that solid foundation first, and taking that time… What’s even better – and you’ve kind of mentioned this, too – you kind of kill two birds with one stone… To find a job that’s real estate related to make that money; you’re getting both the experience and the money end goal. So either wholesale properties, find a syndicator, or whatever type of real estate investor you wanna be  – find that person to work for, and you might have to do it for free for a while… That’s what I did, I worked for Joe for free for six months, and now it’s turned into a full-time job, and now I’m talking on a podcast, with all these viewers… [laughs] So it’s possible.

Danny Randazzo: Be open to new opportunities.

Theo Hicks: Exactly. Alright… Well, I wanted to get into some more details on what you’ve got going on, but maybe we can talk about that next week. I’ve just gotta wrap this up because I’ve got other interviews to do today… So we’re gonna move into the next section, which is the trivia question. Last week ended the month of whacky real estate laws, and the question was “What Western state has a law that has restrictions on keeping upholstered chairs, couches and mattresses (essentially, indoor furniture) on your porch or front lawn?” Any furniture that is not manufactured for outdoor use… And the answer was Colorado. I think it was actually Boulder, Colorado that has that restriction, and the reason why is because apparently it’s a pretty rowdy town, and they were having issues with people burning furniture on their front lawn… So in order to avoid that, they just made it illegal to have furniture on your front lawn. I thought that was funny and interesting.

Danny Randazzo: Those darn college kids probably out there in Boulder having too much fun…

Theo Hicks: Exactly. The first person that got that question correct gets a free copy of our first book. This week’s question – I’m not sure what this theme is yet, but I’m gonna try to make this whatever the theme of this question is the entire month… And Danny, you get to guess the answer, and we’ll see if you’re right next week.

Danny Randazzo: Alright, very good.

Theo Hicks: Alright, so name the country where it is almost impossible to buy a pre-owned resale home, because most of the houses depreciate in value, and more than half of them are demolished after 30 years.

Also in this country – because of the fact that obviously they’re constantly building new homes – there are four times more architects and two times more construction workers per capita than the U.S. This is a country, name that country.

Danny Randazzo: Four times more architects per capita… So it’s just a ratio of the scale. The country is going to be Bahrain.

Theo Hicks: Okay. So that’s Danny’s guess. Everyone else, you can guess either in the YouTube comments below if you’re watching the video; if you’re listening to the episode, then you can email the answer to info@joefairless.com. Again, the first person to name the correct country will get a free copy of our first book.

To wrap things up, we are no longer doing the review of the week… Last week we started by discussing a free apartment syndication document that you can download for free on our website. This week’s free document is going to be the annual income calculator. All the way back in series number four I went over the ultimate syndication success formula, and one of the steps in that formula was to determine what you wanted your annual income goal to be. The reason why is because once you determine how much money you wanna make, you can kind of reverse-engineer exactly how much money you need to have in verbal commitments from your investors in order to raise enough capital to close on a large enough deal that will get you the desired return goal.

So instead of having to do that calculation yourself, we went ahead and put together a nice, clean Excel template, where you just type in your annual goal, your return structure you plan on having with your investors, and it’ll spit out exactly how much money you’ll want to have in verbal commitments from passive investors, and then how large of a deal you need to look at, and all the different criteria you need in order to hit that annual income goal.

So if you want to download that free document, as well as listen to those episodes, you can either download it in the show notes of episodes 1513 and 1514, or we’re gonna include a link to the actual calculator in the show notes of this Follow Along Friday episode. Or you can go to SyndicationSchool.com and find it there, as well as other episodes and all the other free documents that we’ve done so far.

That wraps it up. Danny, I wanna say you did a good job playing Theo. The only difference is that you talk way slower than I do. I talk so fast, and you talk so slow and so clear, so I appreciate that. I appreciate you coming in; I’m looking forward to having a conversation with you next week.

Danny, before we clock out, where can people find you, learn more about you and contact you?

Danny Randazzo: Just go to PassiveInvesting.com, reach out to me there. My email is Danny@PassiveInvesting.com. If you’ve got questions or things that I can help with, I’m happy to be of service and help the Best Ever community… Because you’re the best!

Theo Hicks: Absolutely. Alright, Best Ever listeners, thanks for tuning in. Enjoy your weekend, and we will talk to you soon.

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