October 11, 2019

JF1865: Getting Rid Of Security Deposits & Overcoming The Fear Of Investing Out Of Market #FollowAlongFriday with Theo and Chris Salerno

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Theo is telling us two great lessons he learned last week while doing the interviews for the podcast last week. He is joined by Chris Salerno (https://qccapitalgroup.com/) today. The lessons they will be discussing are coming from Adam Weiner (https://www.sayrhino.com/) and Christopher Stafford (https://theagentunleashed.com/). 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. I’m Theo Hicks, and today is Friday, so we’ll be doing Follow Along Friday. As you can tell, I’m not Joe; I will be the main host today. The co-host today is going to be Chris Salerno. Chris, how are you doing today?

Chris Salerno: I’m doing amazing, Theo. Thank you for having me. How are you?

Theo Hicks: I’m doing great, I’m glad to have you on here. Before we dive into the lessons that we learned, because as you guys and girls know, each Follow Along Friday me and Joe will go over some of the lessons we learned from the interviews that we did, to give you a little sneak peek, just because these interviews probably aren’t gonna be coming out until early 2020… But before we get to those lessons,  Chris, do you wanna just quickly introduce yourself, give a little bit about your background and maybe what you’re focused on right now?

Chris Salerno: Yeah, I’d love to. Thank you again, Theo. My name is Chris Salerno, I live here in Charlotte, North Carolina. I’ve been here a little over 13 years. I am the founder and president of QC Capital, and we specialize in acquiring large multifamily assets, primarily B type of assets, over 100 units, with passive investors. We focus extremely heavily on the Carolina market… So that’s a little sum of what we do.

Theo Hicks: Perfect. Chris has been a guest on the podcast at least once before… So if you just go to JoeFairless.com and type in Chris Salerno in the search function, you should get his interviews. Actually, I interviewed you one time, so I think Joe probably interviewed you the other time.

Chris Salerno: Yeah… So I’m excited to be on again in the future.

Theo Hicks: Absolutely. Alright, so we’re gonna go over some lessons I learned from the interviews last week. Again, these are not the only lessons I learned, and these are not the only interviews that I learned lessons from; they’re just two lessons I wanted to talk about, and both of these are gonna be relevant to Chris, so… Even better.

The first interview was with Adam Weiner, who is the managing director a company called Rhino. This was interesting – I had never heard of this before. I was talking to Chris about it beforehand, and he actually just recently heard about this… Basically, what Rhino does is they replace the typical security deposit, the typical maybe half the first month’s rent, or the full first month rent, or some flat fee that a renter pays upfront, in addition to the first month’s rent, in order to secure a unit, to cover potential issues once they move out… So they replace this one-time lump sum fee with an insurance policy.

The way that he explained it to me is that – say I’m renting from Chris; rather than me paying Chris $500 for a security deposit, plus maybe paying $500 for first month’s rent, and then $500 for last month’s rent, depending on how Chris’ lease is set up, I’ll pay my $500/month and then I’ll pay something like $5 extra per month, and that covers my security deposit. And it works just like any other insurance policy. At the end of my lease, Chris will go in there and take pictures to see if there’s any damages, and then he can upload these pictures, upload the leases to this Rhino platform, and then they will handle the entire insurance process. So if you need to get money to cover any of these things, rather than come to me or the tenants, Chris will go to this company, and based on the insurance policy, that will cover those issues.

I’m not exactly sure what happens if the costs are extremely high, because I made mistakes, why wouldn’t the  tenant pay more than $5/month, but I thought that was interesting… So if you want to learn more about that, visit SayRhino.com. [unintelligible [00:05:35].08] to mention that, but this is a newer company, so he mentioned that when they started, they had less than seven people working there, and they had this insurance policy on less than 100,000 units… Which is still a ton of units…

Chris Salerno: Oh, yeah.

Theo Hicks: …but now they’ve got 40 people, so almost six times more people than what they had in the beginning, and they’ve got over 300,000 units.

Chris Salerno: Wow.

Theo Hicks: So I asked him — not necessarily what does he attribute to scaling, but if I want to scale a business with employees, what should I do? If I’m a real estate investor or syndicator, for example, and I want to hire employees and scale my business to go from maybe one deal to 20 deals, what are some things that I need to do? And it was actually very simple advice, nothing too crazy… But it was about hiring people. He said basically what you wanna do is you wanna figure out what your mission statement is if you’re a company, what the overall goal is for the company, and then make sure that right from the beginning — so you figure this out right from the beginning, before you hire anyone.

And then your first person you hire needs to be someone who is smart, intelligent, driven, hungry and they are on board with this mission. And then once you hire that first person, when you are interviewing additional people, they’ll see you and they’ll see the person that’s working for you already, and how they are smart, intelligent, driven and hungry, and there’ll kind of be a snowball effect; they’ll attract good people as well, and then they’ll attract even more good people… So basically what he said is that first hire is so important, because if you hire the wrong person, you’re gonna attract more wrong people. If you hire the right person, you’re gonna attract more right people.

And one last thing before you chime in, Chris, I wanted to mention… He said that when you’re actually hiring these people to determine if they’re smart, intelligent, driven, hungry, you don’t want to go in there with a list of generic interview questions like “What was your last job? How long did you work there?” You wanna have a conversation with them, you wanna try to have a real conversation with them to see if you can find a connection with that person, and you can’t do that with generic questions. That’s all I had to say about that, Chris. What are your thoughts?

Chris Salerno: He couldn’t say that any better. I think he is spot on when it comes to hiring your first 1-5 employees, because that is the face of your company when you’re growing your company, is those first couple of employees. If you really mold them into your mission statement for your company and your future that you see where your company is going to head, and if they align with that and with you, they will attract a lot of  people that are just like them to grow your company… So I think that was amazing. That was great.

Theo Hicks: I’ve never hired anyone before, but I’d imagine that you’re in your real estate business, things are going smoothly, and then maybe over time you decide “Okay, I’m gonna hire someone”, or maybe you’re kind of forced to hire someone and you just quickly do it, or maybe you go to a conference and you meet someone, and they’ve convinced you to hire them… Or maybe you’re looking for an opening and you find the first person that you can find, because you wanna fill it quickly, and that’s not the best approach. The best approach is to be patient with hiring that first person, because again, it’s a snowball effect.

Chris Salerno: Yeah, very much so. Hiring that first person – be extremely patient, and just let it happen. Don’t try to force it. It’s like a relationship. If you try to force it, it may not work out. So just let it happen and gradually come together for that partnership.

Theo Hicks: Another tip that wasn’t necessarily talked about in this interview, but it’s something that I’ve come to realize from working with Joe, from doing a ton of interviews, is that you don’t really even need to rush into hiring someone full-time. You can either have them work for you part-time at first, up to six months, maybe even a year, to see how they do, or depending on what business you’re in – if you’re a syndicator, there’s so many hungry people that want to be in syndication, that you could very easily find someone that will work for you maybe five hours a week for free, and you can use that to test the waters to see if they’re worth bringing on full-time. If they’re not, well then you can end the relationship there, or find a different fit for them. If they are, then obviously you’ll realize that they are, if they work for you for a test period. So if it’s possible to hire people on a test basis first, and then kind of increase that to a full-time or increase that to a part-time position.

Chris Salerno: Yeah, I definitely agree with that. I think like you said earlier, you should not rush into things; make it nice and slow, and… You touched on the point – there is a lot of people out there who love underwriting, who love to do acquisitions, and they’ll work to just gain that knowledge upfront.

Theo Hicks: So that was the interview that I did with Adam Weiner. That will be coming out in January/February timeframe. The second interview I wanted to talk about was with Christopher Stafford. He’s a listing agent for the past 25 years in San Francisco/Bay Area, and he’s also a coach for agents. He was actually on the podcast before, 1435, where he talked about how to pick markets to remotely invest in. Since he’s a returning guest, we did a Situation Saturday about overcoming the fear of investing in real estate nationally and internationally.

Christopher lives in San Francisco, and as an agent he was selling deals no problem, but then he wanted to invest in single-family deals… And he realized that – well, if you wanna buy a single-family deal as a rental in San Francisco, you’re gonna have to pay a lot of money for that. So he was desperate to find properties… And rather than give up and just keep selling – we’ll explain how, but he decided to invest in what he calls “second-tier cities.” These are cities that are not sexy, but are still really good markets. He said they have strong employment numbers, company headquarters, amazing local economies, and then you’ll get greater returns buying less expensive properties with long-term appreciation. An example he gave was Oklahoma City for being a second-tier market.

For him, he uses kind of like a turnkey company called ICG, who finds the cities to invest in, finds the best type of property to invest in in that second-tier city, and then actually assembles a team in that city to help you find the deal, help you manage the deal. So if you wanna go that route, you can, but you don’t have to, because in this episode he talked about how to build your entire team if you’re investing out of state.

The first thing you wanna do is find a property management company. You can find them through referrals. Unless you’re completely new to the business, you should know someone in real estate that can give you a referral. If you don’t, bigger pockets, podcasts like this – you’ll be able to find a property management company and interview them. We didn’t go into interview questions, but we do have a blog post and also a guide to selecting a property management company on our website… So go to JoeFairless.com, search  “interviewing a property management company” and that will come up.

So you find a property management company. They’re the ones who are gonna give you a ton of information on the market. Information on the types of properties to invest in, and the neighborhoods within that larger market to invest in. Once you find the property management company, you want to find a real estate agent to help you find these deals. If you’re investing in commercial properties, then a broker. You wanna get this person from your property management company.

So you’re already qualified your property management company, and then since you already qualified them and you trust them, if they give you a referral, that has a little bit more weight than you just finding them out of the blue yourself… So get that referral from the property management company for a realtor or for the commercial broker, and they’re the one that’s gonna have their finger on the pulse of what’s going on on a day-to-day, week-to-week basis in the market, and they’re the ones that are gonna help you find deals.

The property management company helps you know the market, know what to invest in, and actually manage the deals. The commercial broker is gonna find you the properties… And that’s really what you need to start your business when investing out of state – you need a property management company and a realtor to be your boots on the ground. From there, the contractors, the lenders – you can find them through the realtor or the property management company.

So when you’re interviewing that property management company initially, a few things that Chris said you should look out for is how long they’ve been in the business, what type of information are they providing you with, so when you’re talking to them, how much do they know about the market, how much do they know about the properties based off of how they’re communicating that to you? Good communication skills, and then ultimately, your gut feeling for them.

Meet them in person, so maybe fly out to this actual market, drive out to the market, meet them in person and ask yourself what is your initial feeling with this person, and then once you’ve left, how do you feel about these individuals? Did you get a good sense of them as a person, are they trustworthy, and is this someone that you can see yourself working with? Because since you’re investing out of state, you’re not gonna see them all the time, you’re not gonna see the properties all the time, if ever again… So you have to put a lot of trust in your team if you’re investing out of state.

So again, just to quickly summarize – find the property management first; through them find  a realtor, and then through both of them find the rest of your team.

Chris Salerno: Yeah, definitely. I think you couldn’t have said it any better. I think it’s extremely important to build those relationships with the property management company and with the broker… Because the broker is gonna feed you deals, no matter if they’re on market or off market. The property management company is going to be that day-to-day aspect of  your whole business model of that property, so I think it’s very important to build those relationships, just like you said, with them, when you are thinking investing out of state.

You will eventually have to fly out there and meet them face-to-face, even better feeling for them and also get a better feeling for the property and the surrounding areas for your investor… But yeah, you couldn’t have said it any better.

Theo Hicks: Perfect. Alright, so those are the two lessons. Again, those episodes will be coming out in early 2020, but we wanted to give you kind of a sneak peek of the biggest lessons from those episodes, so you can start applying those to your business now, and not having to wait until 2020.

Alright, to wrap things up, the trivia questions. This month we’re doing kind of like a loyalty theme, so these are questions that you really only know the answers to if you’ve read the blogs, if you’re a loyal Best Ever listener, if you’ve read our books. Maybe this week’s question you might be able to figure out the answer if you’re just an amazing apartment syndicator who’s done a bunch of deals… But again, the question is something we’ve talked about before on the podcast and the blog.

First, let’s quickly go over last week’s question. Last week’s question was “What are Joe’s three immutable laws of real estate investing?” In order to win, you had to get all three of those correct. Number one was buy for cashflow, not appreciation; number two was secure long-term debt, and number three was to have adequate cash reserves.

For more details on those three laws, you can google “three immutable laws of real estate investing” and it’s one of the first results on Google. Again, the first person that got that correct will receive a free copy of our first book. This week’s question is “If you need to raise one million dollars for your apartment syndication deal, what is the maximum amount of money a single investor can invest without having to go through the extra due diligence by the lender?”

Typically, this is expressed as a percentage, but we just gave an example, so you take that percentage, multiply it by one million dollars, and that would be the maximum amount of money a single investor can invest without having to go through the extra due diligence by the lender. Again, the first person that gets that correct will get a free copy of our first book, and we’ll give you the answer to that one next week.

Chris, I appreciate you stopping by. If the Best Ever listeners want to get in touch with you and learn more about what you’ve got going on, where can they reach you?

Chris Salerno: Yeah, very much so. You can reach me at Chris@QCCapitalGroup.com, or follow me on social media, just Chris Salerno. Extremely heavily on Instagram, @chris_salerno_, and we do have a networking page at Mindful Multifamily Network. That’s where you can find me.

Theo Hicks: Perfect. And you also mentioned beforehand that you’re going to Jake and Gino’s event next week, so…

Chris Salerno: I will be, yeah. I will be at Jake and Gino’s event down in Orlando. I know I have a ton of lunches and coffees that are already being lined up, so reach out to me, definitely. I’d love to connect in person. I’m a big networker when it comes to these conferences, so I definitely would love to have you on my schedule.

Theo Hicks: Perfect. Well, thanks again, Chris. Best Ever listeners, thanks for stopping by. Have a Best Ever day, and we’ll talk to you tomorrow.

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