July 19, 2019

JF1781: Breaking Into The Industry, Creating Partnerships, Building A Team, & Raising Capital #FollowAlongFriday with Joe and Theo

Joe and Theo are back it for another #FollowAlongFriday. Theo did the interviews for the podcast last week, so we’ll be hearing his favorite lessons that he learned while doing those, with additional thoughts from Joe. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

Best Ever Tweet:

“He found all the inefficiencies from their P&L and told the boss about them”

Free Document:


Evicting a tenant can be painful, costing as much as $10,000 in court costs and legal fees, and take as long as four weeks to complete.

TransUnion SmartMove’s online tenant screening solution can help you quickly understand if you’re getting a reliable tenant, which can help you avoid potential problems such as non-payment and evictions.  For a limited time, listeners of this podcast are invited to try SmartMove tenant screening for 25% off.

Go to tenantscreening.com and enter code FAIRLESS for 25% off your next screening.


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, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff.

We’ve got Follow Along Friday, I’m with Mr. Theo Hicks… He’s gonna talk about two lessons he learned from the interviews that he did last week, and we’re gonna obviously apply this to you, in order to help you with your real estate endeavors. So let’s go ahead and get right into it, Theo.

Theo Hicks: Alright. As Joe mentioned, I did the interviews last week; lots of good conversations. Again, as Joe always says, I learned way more than this; these are just the two that kind of stuck out to me the most, I thought were interesting and I wanted to bring up on the episode today.

One interview was with Donato. His name is Donato and I asked him if there was any relation to Donatos pizza; he said no, but one of his answers in the Best Ever Lightning Round was if he were to lose everything and had to start over, he would start a pizza place, just because it’s his first name.

But Donato is a managing partner at [unintelligible [00:03:04].13] He’s managed projects over 3 billion dollars, and he builds skyscrapers for a living, which I thought was in and of itself interesting; I’d never met someone who builds billion-dollar projects. So I asked him “How did you get in this industry? How did you know you wanted to do this, and how does one get into a development team to build these skyscrapers?” And specifically, he was able to be on the team that built one of the tallest skyscrapers in New York… And what he said is that first he went to school for engineering, and then based on that education that he received, he was able to work for a smaller construction firm; he was able to intern for a smaller owner, who developed smaller projects in New York City, and because of that experience he gained from that, he was able to get picked up on larger projects of these skyscrapers.

He said that the smaller partner that he worked for – one of the people that invested in that company was his larger construction company, and they kind of saw him and saw how well he was doing, and asked him if he wanted to join their team… And he did a few projects at first; he actually worked on the Yankee Stadium, as well as Madison Square Garden, which eventually allowed him to get pulled into this super-intense team for building this huge skyscraper.

The reason I thought it was interesting is because we talked about “How do you break into the industry? What do you need to do to get into the industry?” everybody says “Education and experience”, and that’s literally exactly what he did. He got the education from the engineering school, as well as working at a smaller firm, and then he also got obviously the experience from that, and he was able to leverage both of those to literally work on one of the biggest projects in New York City history.

Joe Fairless: Yeah, and it sounds like he was a shining example within the group that he was working, of how to do your job the right way… And then he got handpicked to then go somewhere else and do well.

Theo Hicks: Yeah, exactly. It’s always amazing when you hear the “intern, to working on this massive skyscraper.” Then something else he talked about too was about partnering. Once he worked on all these skyscrapers, he wanted to transition into doing his own deals, for all the reasons people like doing their own deals – for more control, more upside… And he partnered up with a friend, so I asked him some advice on partnerships in general, but more particular “How do you know if your friend is the right person to partner up with?” Because I’m sure you guys can hang out at the bar or whatever, or workout together, but going to business together is kind of a completely different animal… And he just said that they literally just did deals together where they had their own entities for a full year first, just to test the waters, make sure that they could actually work together.

Then once they realized that “Okay, we can work together”, they made an entity together and had a really strong operating agreement to make sure that things continued to go smoothly moving forward, so… I guess just a few tips on partnering as well.

Joe Fairless: Yeah, it’s such a relevant tip, because I get that question a lot, and I’m sure you come across it a lot, too… People ask “How do I know this is the right partner? How do I know that I should create a business with them?”, and the answer is you shouldn’t, initially, do any of that. You should simply do what Donato mentioned. Donato is his first name?

Theo Hicks: Yeah.

Joe Fairless: Okay. You simply do what Donato mentioned, and have separate entities when you’re starting out… And partner up some deals. Then after you partner up on them, then you get to see how they work, what they’re like if there are any challenges on the deal, what type of character do they have, how do they react to mistakes that are made on the team, or issues that take place, what do they prioritize – do they prioritize themselves, do they prioritize the business, do they prioritize the investors? Do they just not focus as much on the business, on the deal?

There’s all sorts of things that we’ve got to find out about potential partners. What’s their communications style? Can I get a hold of them? Do I wanna get a hold of them? Do I need to get a hold of them? Is that something that’s important to me? Are they always texting me whenever I’m trying to call them, and they don’t answer…? There’s all sorts of stuff, and it’s impossible to know what person is gonna be a good business partner when you haven’t done deals with them. Even if you’re, as you said, drinking buddies or something, you just don’t know what it’s gonna be like when there’s a snowstorm and all the pipes burst, and now you have to file an insurance claim, and you’ve got people who need to get into new apartments because of that, and you’ve got to coordinate with the management company, and it’s just all hands on deck. You just don’t know. Or a hurricane comes in the market that you’re in and increases the prices of contract labor, and then as a result your budget goes up, so now how do you handle that? What do you do?

Just simply date instead of going straight to proposing and getting married with potential partners, and be intentional about it, because this also applies to people who are creating podcasts, or thought leadership platforms like YouTube channels, or blogs, or whatever else. I see this mistake happen time and time again, where people make their podcast dependent on having a co-host, because they’re “business partners”. Well, one of you is likely gonna flake out. That’s just how it is. One of you is gonna have more drive than the other as it relates to the thought leadership platform… So if you’re creating something, don’t make it reliant on someone else. Just “I’m gonna create this, and then whenever you come on the show, or whenever I interview, or whenever you write a blog post, we’re gonna be even better together, and it’s gonna be a dynamic duo. But I’m gonna go ahead and take the lead on this”, and same with the business partnership stuff, especially starting out. Then, once you get a feel for them, and if you do like all the stuff that you experience with them, then you can get a deeper and deeper relationship with them and then do something formal.

Theo Hicks: That’s really solid advice. Just one thing to add before I move on to the next lesson… I think this advice obviously applies to all types of partnership, but this is how I felt, and I know a lot of people feel the same way, too – when we first find out about real estate, you’re really excited, and you’ll go and you’ll tell someone else; or maybe they tell you, and you’re both really excited about real estate. Then you say “Okay, how are we gonna start? Should we do it individually?” “Oh, no, we’ll just partner up.” I feel like that is where you run into a lot of problems, because you’re in what’s called the honeymoon phase, when you’re both super-jacked-up about real estate, and so you both aren’t acting how you would act in the long-term. Maybe you don’t act that way for years on end. So that’s why instead of partnering up instantly, kind of keep things separate so that once that honeymoon phases, you can see how that other person really is, and technically see how you really are as well.

At the end of the day, obviously you want someone who’s going to have as much drive as you, but also, if you’re honest with yourself, if you see that you’re not having as much drive as them, then that’s not really fair to them, and you’re not really setting yourself up for success in the long-term if they’re actually outworking you. So I guess it kind of goes both ways.

Joe Fairless: One other thing – more than four partners is way too many. More than three is pushing it… The ideal partnership is two people. And I see that mistake all the time.

Now, I wanna be on the record saying – having four people in a partnership, that can work. Having three people can work. I’m just saying the more people you introduce to a partnership, the more complicated it gets, because there are more people. So it’s just purely a human dynamic, and it’s just something to keep in mind.

Theo Hicks: Exactly. Alright, so lesson number two… I guess that was 1.a) and 1.b), so here’s 2.a) and 2.b). I interviewed Chris Salerno, who actually I think works with you, Joe…

Joe Fairless: Yeah, he’s a client in my program.

Theo Hicks: He is a very successful real estate agent. By the age of 25 he had sold more than 40 million dollars. He was the number one salesperson on his team in North Carolina.

Joe Fairless: Charlotte, right?

Theo Hicks: In Charlotte. He was actually named Charlotte’s 30 Under 30, and then he transitioned from being an agent to raising capital for deal… And the two things that he talked about – one of them I thought was great; I thought it was really funny. I asked him how was he able to obviously [unintelligible [00:11:05].22] at such a young age, and he mentioned that before he was even a manager or any sort of a success, he started working with the company and he goes to the person in charge and asks for the P&L (profit and loss) statement for the company…

Joe Fairless: Whow…

Theo Hicks: And then literally reads through it and finds all the different inefficiencies. Then he goes back to the boss and presents what they need to do in order to fix this marketing line item, this advertising line item etc. Obviously, that in and of itself is awesome…

Joe Fairless: Dang…! That’s bold. Nice work, Chris. And props to the boss for being open-minded enough to 1) give the P&L to Chris at that time, and then 2) to listen to advice from someone who probably didn’t have experience doing that stuff.

Theo Hicks: Yeah. He mentioned that before this, he really enjoyed studying businesses that had failed… And he looked at his real estate company that he worked for, as well as value-add deals at failing businesses… When he looked at the P&L, he was like “Alright, this business is failing. How can I turn this around?” But besides just looking at the P&L, I guess the overall lesson – I know we’ve talked about it before, but a lot of people ask “How do I get some successful investor to let me work for them?”, and we always say that you need to proactively add value to their business. This is a perfect example of him doing something that’s not in his job description whatsoever; he didn’t have to do this, but he wanted to do it, and he knew that he’d be adding value to this company; he’d probably make his boss look really well if his boss then took that and presented that to his boss… And then ultimately, because of this, he was able to work his way up through that company, and was able to be the number one real estate agent in that company. I thought that was interesting.

And then the second one, talking about how he transitioned into raising capital – something interesting that he said, that I want to get your take on, Joe… He has his massive list of, let’s say, 1,000 investors. Then he finds a deal, he presents that deal to the investors, and maybe 20% of them are on board to invest, another 50% say “I have no interest whatsoever”, and maybe 30% say “Hey, this is your first deal; I wanna see how this deal does first, and then I might invest in the next deal.”

So what he did is instead of segmenting off that 20% only that’s investing in the deal, and then providing them with ongoing updates, he also included that percentage of people that said “I wanna see how this deal goes first, so that if it goes well, I can invest in the next deal.” I thought he was doing it for the fear of missing out; you keep seeing all these updates, and how great the deal is going… But for him, he just wanted to educate them on the process, and – I guess, in a sense, the fear of missing out – showed them that he knows what he’s doing, he is credible, the deal went smoothly, and hopefully that increases the chances of them investing on the next deal. I thought that was interesting, and I was curious what your thoughts were on that.

Joe Fairless: It’s a savvy move. I hadn’t thought of doing that, so therefore I have not done that… And I think that’s a really good idea. Props to him for that.

Theo Hicks: Again, this was specifically in the context of him doing his first deal, and the reason why they didn’t wanna invest was because he hadn’t done a deal before. I thought that was an interesting strategy to — I guess not necessarily help you with your first deal, but help you with your second deal, to get more money on the second deal.

Joe Fairless: Yeah. And one thing I noticed about Chris is he puts himself in a position to build long-term relationships and then he delivers on adding value to those people who he puts himself in their company. I’ve just seen him time and time again — because again, he’s in my private consulting program, so I’ve seen him time and time again place himself in relationship with others who are playing at a different level, and then he adds value to their life, and then it makes people want to root for him, want him to be successful, and – oh, by the way, they are also achieving more success because he’s being more successful, because he continually gives value back to them.

He does a really good job — not a really good job, he does an outstanding job of building long-term relationships and adding value to people who are within his circle… And he’s got tremendous drive; he’s just very tenacious. Those are qualities that it takes to be successful in any business, and especially apartment syndication.

Theo Hicks: Yeah. When that interview comes out in the next few months – we went over a few examples of what you’ve just mentioned, about him adding value to relationships, and being very successful because of it.

So those are the two lessons. Moving on to the trivia question. Joe, you haven’t been here the past two months, but it’s international trivia question month, so if we’re playing Jeopardy —

Joe Fairless: [laughs] We have a theme every month now?

Theo Hicks: Yup. Right now we’re at International, for 300… So last week’s question was “What global city has the highest monthly rent?” This was based on the two-bedroom rents. I can’t remember what Danny said, and I don’t wanna throw him under the boss, but I thought he might have mentioned a country, not a city; I could be wrong. You’ve gotta fact-check me on that one next week. I thought he said Singapore.

Joe Fairless: You realize 99.5% of our audience are U.S.-based, right?

Theo Hicks: Yeah, yeah.

Joe Fairless: Okay, alright.

Theo Hicks: We’re doing these fun trivia questions…

Joe Fairless: I know, I know.

Theo Hicks: The answer was actually Hong Kong. I believe second place was San Francisco… So Hong Kong and San Francisco are the only two cities in the world that have an average monthly rent for two bedrooms over 3k.

Joe Fairless: Dang.

Theo Hicks: I think San Francisco was like in the $3,100 range, and then Hong Kong is actually $3,685 in U.S. dollars.

Joe Fairless: There was a rumor — I have a client who lives in California, and I haven’t looked into this, but he owns more than ten million dollars’ worth of real estate in California, so I assume he’s well plugged into this… And what he told me is there’s something on a ballot in California to make California rent-controlled option for local municipalities, to then vote and say “Yeah, we want this to be rent-controlled”, similar to what New York did,

Theo Hicks: Interesting.

Joe Fairless: That would put  a stop to San Francisco being at the top of this list with Hong Kong.

Theo Hicks: So this week’s question is “What country has the highest percentage of renters?” Now, before you answer, Joe, last week I was more specific with the question, just because there’s a lot of countries… So this is a European country. So that kind of narrows it down slightly.

Joe Fairless: Yeah… France.

Theo Hicks: France. Alright, so the winner of this question gets a free copy of our first book. You can submit your answer to this question either at info@joefairless.com, or in the YouTube comments below, and we will go over the answer next week.

Lastly, to wrap it up, we are going to discuss the free apartment syndication resource of the week… So make sure you check out Syndication School, which is a free podcast series we do each week, where we go over some specific aspects of the apartment syndication investment strategy… And we are always giving away free documents that accompany each of those episodes, and we’re gonna go over those on Follow Along Friday, so everyone can take advantage of those.

For episodes 1527 and 1528  we went over how to perform an in-depth analysis on your target investment market. So you pick a market, and this is when you understand that market on a street-by-street, neighborhood-by-neighborhood level… And one of the ways to do that is you literally find a list of 200+ properties and track all the different rent factors, when it was built – things like that, about that property. And in order to do so, you need a spreadsheet. We’ve provided you with that spreadsheet; it’s called the property comparison tracker, and you can find that either in the show notes of 1527 and 1528, or in the show notes of this episode that you’re listening to today.

Joe Fairless: Thank you for that, Theo. Best Ever listeners, we enjoyed our conversation, and I hope you got a lot of value from it. We’ll talk to you tomorrow.

    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.