Theo has a new co host for today’s episode, Jason Yarusi. They will share with us a few things they learned last week that we as investors can also learn from. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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“Take time to get to know the person first and the deal second” – Jason Yarusi
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Theo Hicks: Hi, Best Ever listeners. Welcome to the best active real estate investing advice ever show. I’m your host today, Theo Hicks. Well, it’s Friday, so that means it’s Follow Along Friday, where we talk about the lessons that we learned from the previous week’s interviews.
This week it’s gonna be a little bit different. As you can see, this is not Joe talking. We have a new co-host for this episode, a new Theo, and that is Jason Yarusi. Jason, how are you doing today?
Jason Yarusi: I’m doing great, thanks for having me Theo.
Theo Hicks: I appreciate you being here. We’re gonna stick to the standard Follow Along Friday template, but before we begin, I wanted Jason just to quickly introduce himself, let you guys know who he is, what he does, where you can find him, and then we’re gonna jump into the lessons that I learned from interviews last week.
Jason Yarusi: Awesome. Thanks for having me, Theo. I’m really excited to be here. I’m Jason Yarusi of Yarusi Holdings, based here in New Jersey. We invest in multifamily assets in the Midwest and the South-East with general partners on about 450 units right now. I come from a heavy construction background where we’d lift and move buildings, a lot of it for flood reasons. I have a beautiful wife and three small children, and I run a ton; so if you wanna find me at YarusiHoldings.com, or check me out on Instagram at @jasonyarusi and you can see a bunch of the crazy runs I do every week.
Theo Hicks: What’s the longest run you’ve done the past seven days?
Jason Yarusi: The past seven days would be 17 miles; past two months would have been I did a 51-mile race.
Theo Hicks: Is it just you running in the morning on your own, or are those actual races?
Jason Yarusi: The 51-mile was an actual race; the long run – I usually do a long run every Sunday, and it’s just me running.
Theo Hicks: That’s funny. My wife is training for a 10k right now. Now, keep in mind, she’s had a baby four months ago.
Jason Yarusi: Oh wow, good for her. Congrats.
Theo Hicks: 10k is five miles, and you probably just run five miles for your warm-up, probably.
Jason Yarusi: Yeah, you have 6,2 miles, so that’s where it’s at. She’s getting ready for it. But yeah, I’m gonna do a 100-miler, I’m planning on it late September. That’s gonna be a beast. It’s mental first, and then just running second.
Theo Hicks: Good advice, because it seems like you’re pretty into fitness… Before we get into real the real estate stuff, what advice do you have for someone who’s been struggling to start a new workout regimen, or [unintelligible [00:04:15].04] what’s the first thing that you’d do?
Jason Yarusi: Okay, so one thing is nobody wants to get out there and do it; you’ve just gotta get out there and do it. But the other thing is you’re not gonna go from sitting on the couch to running a marathon, or sitting on the couch to bench-pressing weekly 300 pounds. It’s getting out there and just creating constant small habits, and those build over time.
People come out of the gates — it’s like new year’s resolution. You come out there, you get to the gym, you work out for three days, you’re so sore you can’t move for a week, and you’re out again. It’s just getting out there, doing small, consistent habits, just like you do in your real estate business, to improve over the long-term… Because this is just like real estate, it’s a long play; you wanna be healthy and happy for 50 years, not just workout, crush yourself and not be able to do something for two weeks.
Theo Hicks: I appreciate that. You learn something new every day on Follow Along Friday, not just real estate related… But obviously I’m sure running 100 miles is a lot more difficult than anything you do for the real estate business, that’s for sure.
Jason Yarusi: I’ll report back. I’ll come back in October/November and let you know what happened here.
Theo Hicks: I was listening to a podcast for a guy who did the 100-mile run; it’s kind of tough, but he did it. I think he actually does one of those every single year.
Jason Yarusi: Wow.
Theo Hicks: I can’t remember what his name is; I think he’s like an ex-Navy SEAL though.
Jason Yarusi: Yeah, there’s some incredible people out there just crushing some massive goals that you wouldn’t think are achievable. You see people doing races that are like 260 miles, and you’re like “Wow…!”
Theo Hicks: A hundred first.
Jason Yarusi: Yeah, exactly, a hundred first.
Theo Hicks: Alright, so last week I did one interview. I interviewed a passive investor who goes by the moniker X-ray Vision. He’s anonymous, and we kept it that way. He actually is a radiologist, hence the X-Ray Vision moniker. He’s a passive real estate investor and a blogger. His entire story is around him making a comeback after losing seven figures – almost basically a million dollars in a divorce. Then from there he discovered passive real estate investing and was able to climb out of that hole and achieve financial independence in his 40’s.
He was actually a -$800,000 net worth when he turned 40 years old. By the end of that decade — actually, I think he’s still in his forties right now, so I think he said by 48 he was able to achieve financial independence. A very powerful interview that will probably come out sometime in October, and I wanted to go over a few things that I learned from him.
One thing was obviously he’s a passive investor, he’s invested in a ton of deals with a ton of different sponsors… So I asked him what’s the best way to qualify a syndicator. Obviously, this is something that’s helpful for passive investors who are looking to find syndicators, but also it’s more important for people who wanna be a syndicator, because you can see from the perspective of the passive investor what they’re actually looking for out of you.
So a few things that he said – this isn’t anything too profound, but it’s simple and to the point, and still interesting… So obviously, you wanna do your due diligence on that individual and that company, but it’s less about looking at their experience level and how many deals they’ve done and more about how you actually feel about them as a person, and how you feel about their actual niche.
Obviously, in order to determine how you feel about them, you’re gonna want to make sure you set up an interview with them on the phone… Remembering that it’s actually a two-way street, so you interviewing them and they’re technically also interviewing you.
At the same time you wanna do all of your typical research online and determine “Okay, so if they’re investing in mobile homes, am I comfortable with that niche? Are they investing in multifamily – am I comfortable with that niche?” Retail, office, whatever – is it something that you’re actually comfortable with? Because at the end of the day, he was saying how no matter what niche you invest in, no matter who you invest with, that first deal is gonna be a leap of faith, and you’re gonna have lots of doubts just because it’s your first time giving someone else $50,000 to $100,000. So don’t let that stop you from doing it… Just make sure that you’re comfortable with the actual individual and you’re comfortable with the actual niche that they’re investing in.
And then one more thing that he said before I toss it over to Jason is obviously after your [unintelligible [00:08:04].11] you’re gonna wanna get a list of people who are investing in their deals currently, and actually in a sense interview those people as well, and talk friendly with them and just kind of determine how the deals actually performed compared to how they were projected, and then compared to how the syndicator said their deals performed during that initial conversation.
I know I’ve mentioned a lot there Jason, so you can just pick it apart… Any thoughts on that?
Jason Yarusi: Yeah, so there’s actually so much good stuff said there, and even more in the last part… Following up with people who have invested in their deals prior, just because a lot of people can put together a deal that looks great on paper, but actually when you get into the deal it’s really about the things that are gonna come up, because when you have an apartment building where there’s 100-200 people living in it, how did they react when they have to make a decision on there and how are they following back with those investors? Are the investors in tune to what’s happening on the deal?
Another point you’ve mentioned that’s key is that if that person hasn’t done this deal before or hasn’t done a multifamily deal, what’s their track record in life and in business before that? What else have they been doing, what else have they been making of themselves? Honestly, you may be a passive investor in this deal, but ultimately you’re partnering with this person from three, to five, to seven years. So if you don’t really agree with their views or agree with their take on investments, just having a good deal may not be enough for you to invest with them… Because you’re gonna be partnered with this person for that amount of time, and their reaction now is not gonna change; they’re still gonna have a reaction that may not suit you over time… So take your time to really dive into the person first, and then the deal second, because it’s gonna be the person that you’re gonna build with over the years.
Theo Hicks: Yeah. I didn’t ask this question to X-ray, but I did have a conversation with a passive investor and a syndicator – I think it was two weeks ago – and I was asking him “What would someone need to do if they’ve never done a deal before to essentially convince him to invest in the deal?” And you actually hit on that when you said that you wanna see someone that has experience in business. So have they started a business before in the past? It doesn’t have to be anywhere closely related to real estate; I wish I could remember what business he had started, but it had nothing to do with real estate… But because the act of starting a business, the act of starting something from nothing and dealing with all of the obvious hurdles that come along the way, you can take the skills that you’ve learned and then apply that to raising capital and doing a deal.
Obviously, I didn’t ask X-ray, but for people who haven’t done a deal before, and obviously, every single person who’s done a deal before has been someone who hasn’t done a deal before… And one of the best ways to get over that objection from a passive investor – “Well, I wanna wait until you do one deal first to see how it goes, because while I invest with you, it’s ideal that you have some sort of track record in some other industry that you can rely upon.” It can even be something like you got promoted every year for ten years at a company, and you’re a director, or whatever.
It’s all about how you position it to the investor. At the end of the day they have to trust you with their money, and if you graduated college and didn’t work for five years and then all of a sudden you’re wanting to raise capital, well you’re gonna have a little trouble doing that… Whereas if you didn’t do anything real estate related at all, or maybe you did a few deals on the side, but you worked for a big Fortune 500 company and climbed the ladder there, or if you started your own small business that was successful a.k.a. generated a profit, then you can leverage that to essentially convince people to trust you and invest with you.
Jason Yarusi: Yeah, absolutely. When you think about it — you’re spot on, we all start without having done a deal before, and it just comes down to what we’ve built up in the rest of the parts of our life. I was just having a talk with someone the other day – they’re successful in opening restaurants, but they want to now start raising capital to help others achieve financial freedom through investing in apartment buildings. He’s like “I don’t think people will take me seriously.” I’m like “Well, why not?” He’s like “Well, I haven’t done this before.” “Well, yeah, everybody’s gonna start at that point. But you’ve opened three successful businesses. Do you have employees there?” “Yes, I do.” “Well, are the employees now being paid, doing their job successfully because of what you’ve put together? Are they now feeding their families from what you’ve put together? Think about that track record and use that to your advantage. You’ve done that successfully, you’ve built your team, you’ve built your processes through that; allow that to transfer over to this business.”
Theo Hicks: Yeah, building a team is also a big one too, because obviously in syndications 100% of the success is dependent on the syndicator themselves… But they have to select the right team, because the team is gonna be managing the deal from a day-to-day operations perspective, [unintelligible [00:12:28].24] a business before and you’ve got actual employees, that’s huge. Obviously, if it was successful and it was profitable, that’s also…
One more note on this one, and then we’ll probably move to the second point I wanted to talk about, which is he mentioned a big red flag that he would see. So he talked about what he does not wanna see, and the one red flag that he mentioned was unrealistically high or inflated returns. It’s kind of implying that the person who is a passive investor has experience analyzing deals. He mentioned that he analyzed a ton of deals from a ton of different sponsors. So that’s one thing that you should do as a passive investors – analyze a lot of deals – because then you can recognize “Okay, I’ve looked at 100 deals. 99 of those deals had between 8% and 10% return, but this guy is telling me he can get 15% cash-on-cash return with a very similar deal – I know something is most likely going on here.”
Or if you’re even better at crunching the numbers and able to analyze the actual — not the actual cashflow calculator, because they’re not gonna send you that, but just looking at their proforma, and seeing “Wait a minute, this expense seems like it’s really low”, or “I think they’re missing this expense” or “Wow, they’re gonna raise rents by this much money by only investing $1,000/unit?” Something that just looks unrealistic, but really the only way to know what’s realistic and what’s not realistic is to analyze a bunch of investment summaries and go on a bunch of those new investment conference calls or webinars.
Jason Yarusi: Yeah. This is a great point for people that wanna be active and wanna be the syndicator themselves and raising money and buying deals… Because ultimately, you say “Well, I can’t find a good deal” – well, you should be analyzing as many bad deals as possible, because as soon as a good deal comes across your table, you’re gonna know it so quickly because you’ve already gone through all the bad deals that are out there on sites and are just being pushed around from person to person.
Theo Hicks: Exactly. So this X-ray guy, and then other passive investors I’ve interviewed – they’re on all the email lists, so whenever a syndicator gets a new deal that gets sent to them, they’ll go on the conference call. It only takes a few hours a week. If you look at one deal a week, it’s maybe a few hours in a conference call, and then maybe another hour reviewing the deal… So spending five hours, maybe an hour a night, and over time you’ll learn what’s good and what’s bad. Not even that, you’ll be identifying what’s good and what’s bad. And then, as Jason mentioned, once that good deal comes, you’ll be able to see that.
The second point I wanted to mention – and this is short – we were talking about his blog focuses on financial freedom and helping people achieve financial freedom through passive investing… I was asking him, “Do you know a different definition of financial freedom and different ways to go about doing it?” For him, he gave me two different categories of financial freedom. One was called lean fire; Jason is lean… But I guess this is kind of the opposite of that, because the lean fire is you just doing your basic needs; so figure out exactly how much money you need to make to cover your house, your food, your family and whatnot. That’s lean fire, and where that number is, that’s your goal.
Then on the opposite end of the spectrum is fat fire, which is your basic needs plus let’s say you wanna splurge on vacations, you wanna buy a really fancy house, and buy a new car every year… So depending on what your definition of financial freedom is, you need to set a number based on that. So first you figure out your burn rate – your lean fire rate; the basic amount of money you’re gonna make per month in order to survive. And then whatever else you wanna make on top of that, you add that to your basic needs number, and those two together is your total number that you want to make per year. And then obviously you work backwards to figure out exactly how much money you need to invest passive at x% return to make that money.
Something else that was interesting that he mentioned was something called the Trinity Study. This can go either way, so let’s say you know exactly how much you want to spend each year in expenses; then your nest egg that you’re gonna need to retire is gonna be that number times 25. And the other way around is if you have a nest egg of whatever, and you wanna figure out how much money you can spend each year, you divide that by 25. And the whole idea behind that, I’m pretty sure — [unintelligible [00:16:30].15] live for 25 more years, or it’s that the return you get on that nest egg is gonna be 4%, and then that’s what you’re gonna be living off of, is that 4%.
Jason Yarusi: Huh. That’s a pretty cool way to think about it, but what’s just key here is he’s breaking it down to real actual numbers. We all talk about we want financial freedom, but what that means for me versus what that means for Theo and what it means to everybody listening to this is gonna be completely different. But if you think about that – your basic needs, if you wanna add on top of that and start breaking it down and looking at your investments, well now it becomes real and it can become concrete, because you can put steps to it, put actual steps to it.
Theo Hicks: Yeah, and I like the whole concept of reverse-engineering it, so saying “Okay, I’m gonna make 50k a year. Okay, well how much money will I need to invest from a passive investor’s perspective? How much money do I need to passively invest in deals in order to reach that number? Okay, well how many deals do I need to do per year, to passive invest in? Alright, so how many deals do I need to look at in order to passively invest in that many deals? Okay, how many syndicators do I need to talk to?” Kind of just breaking it down to “What do I need to do every single day in order to make my goal?”
We kind of talk about the same thing on Syndication School about apartment syndications. Let’s say your goal is to make 100k/year. Well, you don’t wanna just stop there and be like “Well, based on the structure of my syndicated deals, what size deal do I need to do, or total size deals do I need to per year in order to make that $100,000 goal?” I’ll just do a basic number – “I need to do a million dollars’ worth of deals per year. Well, how much money do I need to raise in order to do a million dollars’ worth of deals? Okay, so I need to raise $350,000. Okay, well how many passive investors do I need? If I need ten passive investors, how many passive investor conversations do I need to have per week or per day in order to get those ten passive investors?” So taking it from a very high level and breaking it down into what you have to do every single day, as Jason mentioned, makes it real.
Jason Yarusi: Yeah, absolutely.
Theo Hicks: It makes it more tangible and gives you probably less anxiety about achieving it. Because if I just say “I wanna make $100,000 this year in syndication.” Well, what do I need to do? Do I need to do 10 million dollars, 100 million dollars, a billion dollars worth of deals to make $100,000? I don’t know.” So if you break it down, you know exactly what you need to do in order to get there.
Jason Yarusi: Yeah, and 100% attainable. If you say “Well, I just wanna go buy a million dollar apartment building because I think that can get me $100,000”, but you don’t know if you can actually put the work to be able to find that many people you can help and raise money from… Well, now you get that, and the stress is now “You HAVE TO raise this money.” This is about going out there and finding people that align with your investment criteria and align with your multifamily investment goals and helping them across, and now you’re ready to find out apartment buildings; you’re basically building yourself backwards into it.
Theo Hicks: Exactly. So those were the two long lessons I learned from a single interview last week.
Jason Yarusi: Yeah. I keep thinking the anonymous guy is like — you know, there’s an old Chevy Chase movie where he keeps being invisible and he’s running around in a suit; that’s this anonymous guy. I wonder what he goes under when he invests in these deals.
Theo Hicks: I know what his name is… [unintelligible [00:19:25].03] his blog is anonymous, but I’m pretty sure when he invests in the deals he just goes under his real name.
Jason Yarusi: I’m gonna keep thinking it’s the other way. Just give me some good thoughts here.
Theo Hicks: There you go. Alright, so moving on to the last two items… We have the trivia question; this is the month of the global trivia questions. I guess this is gonna be the last week of the global trivia questions. Last week I asked Joe what country has the highest percentage of renters, so renter-occupied units, highest-percentage. I think he said France. I mentioned it was in Europe. The answer is actually Switzerland. In Switzerland 56.6% of the population rents.
I’m pretty sure it might be one of the only countries that has over a 50% renting rate. [unintelligible [00:20:13].17] one more, but I thought that was interesting.
So we’re gonna go at the opposite rent of the spectrum, and this week’s question is “What country has the highest homeownership rate?” This number is 96.4% of the population owns their own home. I’ll give you a hint, too; this is a European country, and it’s actually an Easter-European country, so I’ll give you something even more specific.
Jason Yarusi: Croatia.
Theo Hicks: That’s a good guess. So if you want to win a free copy of the first Best Ever book, either submit your question via email to info@JoeFairless.com, or in the comment section of the YouTube video. As I mentioned, the winner will get a free copy of our book.
And then lastly, we’re discussing the free documents that we have on Syndication School. As a reminder, Syndication School goes live every Wednesday and Thursday, where I talk about the how-to’s of apartment syndications. Right now we are on series number 20, so we’ve got almost 100 episodes of that aired now.
Right now we’re talking about how to asset-manage deals, so make sure you check out those episodes that came out yesterday and the day before… But also check out all the previous series as well if you wanna learn how to do deals.
The free document I wanna talk about this week is from series number seven, which is where we talk about the power of the apartment syndication brand. So me and Jason were talking about today one way to get credibility in the eyes of potential passive investors is to have business experience. Another way to do that if you don’t have business experience is to focus on building a brand, a thought leadership platform – something like this, where we’re talking to expert real estate investors. Through them you gain knowledge, but also you’re perceived by other people as an expert because you’re out there actually talking to experts.
We have a lot of free documents from that episode, so I’ll talk about the rest of those in the next few episodes, but the first one we gave away was a branding resources document; essentially, it’s a list of all of the websites and different tips for constructing your brand: creating business cards, creating a website… So kind of the foundation of the brand. And then we go into more details on how to actually create a website, how to actually create your podcast or your channel or whatever. All that is available at SyndicationSchool.com. The branding resources are from episode 1534, or we’ll have it in the show notes of this episode.
Jason, I appreciate it that we got you on the show.
Jason Yarusi: Awesome. Thanks, Theo.
Theo Hicks: Just one last time, where can people reach you and learn more about you?
Jason Yarusi: Sure, you can find me at YarusiHoldings.com. Follow me on Instagram at @jasonyarusi, and the podcast is The Real Estate Investing Foundation Podcast with Jason and Pili. You cand find all the notes on the website, and all the other channels you’re finding… Joe and Theo for the Best Ever Show.
Theo Hicks: There you go. Alright, Jason, I appreciate it. Best Ever listeners, thanks for tuning in. Have a best ever day and a best ever weekend, and we’ll talk to you soon.