December 6, 2019

JF1921: Business Lesson Learned From Playing Chess #FollowAlongFriday with Theo and Joe

Joe has been practicing chess and taking chess lessons over the past year, and of course he finds the relevant business lessons and wants to share with all of us. After that, Theo will ask his trivia question and share some free resources. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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“Don’t ask how can I get a deal, ask what conditions can I create, should I create, have I created, to allow a deal to show up”

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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 today… I’m back. Theo, it’s great to be back. It’s been about two months since I’ve recorded a podcast. It was needed to take a break from podcast recording, but fortunately we’ve all put in the hard work, so that we had a lot of episodes that could run while I was away, and then we had some friends of the show join you to be on the show also… But I’m glad to be back. Are you doing well?

Theo Hicks: I’m doing great. I’m glad to be back on Follow Along Friday as well. It’s been, as you said, two months. We did do lots of Syndication School, and then I did some Follow Along Fridays last months [unintelligible [00:02:10].20] I’m looking forward to talking with you again and I’m looking forward to jumping into our topic today. It’s gonna be interesting.

Well, while I’ve been away my obsession with chess has gone to another level… And I am reading books, I have a chess coach who comes over once a week. He’s a third-year medical student at the University of Cincinnati, medical school… And I’m bringing this up because this is a real estate investing podcast, and I have a couple relevant real estate investing things to talk about as it relates to chess.

Two things I’ve learned — and I’ve learned a whole bunch from playing chess. I’ve played about 250 games over the course of this year, not over the last two months… And I know that because I play chess with friends, and so it tracks that – which my chess coach scoffs at; he’s like, “Well, whenever you wanna play real chess, you go and you play with those people.” Alright, whatever… But I’ve played about 250 games, or a little bit more than that, over the course of this year. I play Colleen, my wife, frequently. Less frequently now that I’ve been taking lessons; she doesn’t find it as enjoyable… Because I’ve picked up some tips. But what I wanna mention is a recent game I was playing Colleen, my wife – and I haven’t’ looked up the record recently, but I’m like 50 wins and 10 losses against her. But all the losses were whenever I was really getting started, before I started really studying it… Well, this past week I played her. I was just dominating; I had my rooks in front of her king and queen, and I had some pieces pinned, and just doing really well. Then she moved out of it, I got a couple pieces, a bishop and a knight or something, so I was up six points… And then all of a sudden I get careless, and I move my queen, and it’s unprotected, and she snatches the queen. Then she proceeds to win the game as a result of that.

So what I realized is — well, first off she’s not someone you wanna lose to, because you’ll hear about it time and time again. You’ll hear about it at night, you’ll hear about it in the morning, you’ll hear about it throughout the day… And she’ll actually delay playing you again to soak up the win. So that’s one thing I realized…

The second thing I realized, and more relevant to everyone else, is I was thinking “What can I learn from this, from a real estate investing lesson?” And the first thing that came to mind was respect your competition. And I don’t think that’s the final lesson for this, but I think it’s relevant – respect your competition – because I was playing haphazardly, so to speak… Because I knew “Hey, I’ve beat her a lot of times before, so I can do it again.” And there’s merit to that in real estate investing. But I thought a little bit more about it. I was like “Well, what I really learned is it’s important to start sharp, but stay sharper.” Or another way to put it is “Start strong and get stronger as you go.” And I’ll just speak for myself, and probably a lot of Best Ever listeners, you’ve come across this, and it’ll be helpful for your business.

For my business, we have started strong. We have over 700 million dollars worth of apartment communities, and we’re rocking and rollin’… But if I were to be complacent or haphazard the same way I was in this chess match with real estate investing and our company, bad things will happen.

So it’s important that this serves as a reminder for me – and perhaps it can for anyone listening… But for me it was a reminder that “You know what – I can be beat at any time, if I don’t bring my A game.” But even a little bit deeper than that; if I don’t continue to put in the focus and the effort and the attention that got me to this point… I was destroying her on the game, and then I made a bad move, and then lost the match. Same thing with real estate investing. We’re doing very well, but should I lose focus and not put the same attention towards the business as I did leading up to this point, same thing can happen. So that served as a reminder for me.

Theo Hicks: Yeah, that’s a really good lesson, Joe… And it kind of reminds me of another analogy, the sports analogy, where you’ll  hear about someone who obviously played — I guess you can see this multiple times in sports, during their career, where they obviously start off really strong, and then once they get really good, all the attention gets on them…

Joe Fairless: Once they sign that fat contract.

Theo Hicks: Yeah, that fat contract, they win a championship, then they get maybe movie deals, and commercials, and the next thing you know, because their focus is on something on else… I mean, obviously they’re still focusing on sports, but they’re not fully focusing on it… So then they get worse, and they get cut, or whatever.

You can also apply this after they leave the league, too… They’re focusing on whatever their sport was, and then once they leave, they end up losing all of their money. Not all the time, obviously, but… I’m pretty sure we had a blog post, and it was a pretty high percentage that do.

I think that’s a really good lesson. Just because you are doing really well and have achieved your five-year goal doesn’t mean you can kind of just coast, or maybe pull back the reins, because as you mentioned, if you do that, it’s not just you maybe making a mistake, but there’s also other people that you’re in a sense competing against too, that could also have a big impact on your business. So yeah, I think this is a really good, relevant lesson, Joe.

Joe Fairless: Yeah. You can do a Google search on people who suck after signing a contract, and there’s all sorts of NFL players and NBA players… But they’re just in the public eye. There’s a saying “When people succeed, they party, but when they fail, they ponder.” If we celebrate – which is fine; we should, when we do well… But we should also ponder – what got us to this point, how much of it was luck, how much of it was being at the right place, at the right time, how much of it was execution, and what have I done to set the wheels in motion for future success? …which leads to the second and final thing I wanna mention; a different lesson that I got from chess that is relevant.

By the way, I’m learning a whole bunch of lessons that are applicable to real estate; I’m just mentioning two here. It’s a quote from a book that I’m reading. The book is called Logical Chess: Move by Move, Every Move Explained, by Irving Chernev. I might have unintentionally butchered his last name… But Logical Chess: Move by Move, Every Move Explained – this was recommended to me by the chess teacher. His name is Vincent, and I call him Master Vincent, because he’s got a 2000 in chess score, so I call him Master Vincent. So this was recommended to me by Master Vincent… And here’s the quote from the book. “The master does not search for combinations.” In this case they’re talking about chess masters. “The master does not search for combinations, he creates the conditions that make it possible for them to appear.”

Where this is coming from is when you go to Washington Square Park in New York City, or any other public park where people are playing chess, and you see some hustlers who have the chessboard out and they’re wanting to play games – those experts who are very good at chess can play multiple games (most of them) very quickly, and they can beat most of the people they play. How can they do that? They don’t have all the combinations memorized, because that’s quite a powerful computer that you have to have in order to have all the combinations memorized. Instead, they put the pieces in place so that the combinations appear, and traps appear, and they can then win.

How is this relevant for real estate investing? Well, I was just talking to a friend of mine… He was about to put his second large multifamily property under contract yesterday; he had no properties a year-and-a-half ago, and he is the lead general partner on the first deal that he closed on, and then he will be the lead general partner, partnering up with his business partner, so him and his friend are the lead general partners on both deals… And he said “I’m excited about what’s going on. It’s also kind of surreal.” And those weren’t his exact words, but I’m paraphrasing… And I said “Well, this quote actually is perfect for you”, and I read him the quote, “…because what you’ve done” – he’s got a podcast he does on a daily basis, and he attends all the real estate investing events that he can attend, he has a full-time job, and he’s still doing a daily podcast, just putting in the work and setting the foundation. And I said “What you’ve done is you’ve created conditions for yourself to be successful, and now success is appearing in front of you, deals are appearing in front of you, investors are appearing in front of you because you’ve created the conditions to be successful.” And that is a recipe for prolonged success, that is a recipe for prolonged growth.

So the question when we look at our businesses should be “What conditions have I created that will make the deal show up? What conditions have I created that will make investors show up?” Because it’s one thing if we say “How can I get a deal?” No, no, no. Dumb question. Not “How can I get a deal?” The question should be “How can I create the conditions that will make a deal show up?” And even deeper, “What conditions have others created that make deals show up for them?” That gets you the real answer to the question that you’re really trying to ask and solve for. Because ultimately, you want a deal, you want investors, you wanna grow the business. So it’s not “How can I get a deal?”, you’re going straight to the effect. But you wanna identify what the cause is. So “What conditions can I create for the deal to show up?” So in this case, you cultivate your investor database, you start building out your team, you look at what others have done, you align yourself with someone or multiple people who are doing what you wanna do… All those things.

It’s asking the right questions… Tony Robbins talks about “Ask a quality question, and you’ll get a quality answer.” Same thing here. Don’t ask “How can I get a deal? How can I get investors?” ask “What conditions can I create/should I create/have I created, that have allowed a deal to show up?” And then that will lead yourself to the deal, to the investors, to the increased business that you wanna have.

Theo Hicks: Yeah, and I think  — you’ve kind of mentioned this already, but one of the reasons why we talk about the thought leadership platform all the time… Because you hear about making a podcast, and it’s like “Well, how am I gonna get deals from making a podcast?” Well, as you mentioned, you’re creating conditions so that people know who you are, you’re being perceived as an expert, you’re meeting people, and from that — you meet someone, and through them you meet someone else, or you learn something, and the next thing you know, you’ve set up a system that allows you to eventually bring in team members, bring in investors… And then not be a one-off thing; I think that’s the difference – if you’re thinking about getting a deal, then you’re gonna focus on just getting a deal. Maybe you’re going online and looking for a deal, and underwriting all those deals… Once you find that deal, you need to do that same process again, whereas this sounds to me like – again, correct me if I’m wrong, Joe, but you wanna create a system, whereas you having to actually hunt for a deal every time you want one… You do things so that deals are continuously coming to you, and you can choose which ones you wanna do. That’s kind of what I’m getting at.

Joe Fairless: Yes, that’s true.

Theo Hicks: Something else it reminds me of, too – and again, I’m not saying that real estate is lucky, but I think the same concept is applying when people say “That’s just luck”, or whatever. Well, no. You create the conditions so that you can actually get lucky. [unintelligible [00:14:03].08] be in that exact spot, at that exact time in order to be lucky. So that’s something that you have a lot more control over.

For example, let’s say you create a thought leadership platform and you’re talking about how you’re starting a business, and you’re interviewing people, but you’re continuously mentioning that you wanna do a syndication deal… And someone listening to this just happens at that time to be listing a deal, or knows someone who’s listing a deal… So that’s lucky, that that guy happened to be selling a deal, or happened to know someone selling a deal at the exact same time you’re doing that leadership platform, but you would not have been able to get lucky if you weren’t actually continuously doing your weekly, your daily show. It’s kind of a vague example, but I think it applies here as well.

Joe Fairless: Someone hits a half-court shot to win the national championship in basketball.

Theo Hicks: That’s a good example.

Joe Fairless: Lucky shot, but holy cow… I guarantee  you he had practiced that at some point in time… Plus, they made it all the way to national championship, they put in the work to get to that point, to place them at that moment in time. And yeah, can he hit it nine times out of ten, or even four times out of ten? Probably not. But he put himself in a position to have that opportunity, and then it happened to fall through.

Theo Hicks: And one thing I wanted to mention going back to that first lesson, when you were talking about playing Colleen… In me and my wife’s relationship I think I’m the Colleen.

Joe Fairless: [laughs] She’s really good at chess?

Theo Hicks: No, we play a different game.

Joe Fairless: Oh, Bananagrams. You play Bananagrams.

Theo Hicks: But when she wins, even though I’m — I’m more like you [unintelligible [00:15:38].00] but I’m still joking around about it all day… [laughter] Like “Oh, you really wanna play again? Are you sure? Are you sure you can handle that? I don’t want you going to bed sad, or anything…”

Joe Fairless: Yeah, that wouldn’t go over well in our household… Cool.

Theo Hicks: Yeah. Are those the two lessons?

Joe Fairless: Yeah,

Theo Hicks: Perfect. Well, as Joe mentioned, it’s been a long time since we did the last Follow Along Friday – about two months; we are gonna continue doing the trivia questions for these Follow Along Fridays moving forward… The last Follow Along Friday we did, the trivia question was — and this is with me and someone else… And that is “What is the main difference between the cash-on-cash return metric and the internal rate of return metric?”

If you remember, these were all things that came out of either a blog we’ve done, a podcast we talked about, a  book we’ve written… And the one-word answer would be “time.” The cash-on-cash return is something that just is however money you make divided by the number of years, whereas the internal rate of return metric is something that — there’s a fancy formula for it, but the best way to calculate it is in Excel, and it takes the time value of money into account.

If I invest $1,000 and I receive my thousand dollars back in one year, then that IRR is gonna be higher than if I received $1,000 back in 20 years. So the main difference between those two metrics is time. I think when I mentioned the question I specified it being a one-word answer, so that one-word answer is time.

This week’s question is going to be kind of similar, but this time it’s gonna be the difference between the two main IRR factors. So what is the main difference between IRR and XIRR? This will be more than a one-word answer, but it may be condensed into one word. But it can also be a sentence of what the main difference between these two factors are. And again, you can submit this either if you’re listening to the podcast,, or if you’re watching this on YouTube, just put it in the comments below, and the first person to get this question correctly will receive a free copy of our first book. I can’t ask Joe about these ones, because obviously, Joe knows the answers to these questions, and then I’ll ruin this…

Joe Fairless: Or make me look like an idiot that I don’t know.

Theo Hicks: Exactly.

Joe Fairless: In this case I do know.

Theo Hicks: Yeah. You taught me this one. And then lastly, the apartment syndication resource of the week – we are still doing Syndication Schools. Those release two times a week on the podcast and on our YouTube channel… And for the majority of those we give away some sort of free document that accompanies those episodes. These are PowerPoint presentation templates, these are Excel calculators, PDF how-to guides, things that will help you in your apartment syndication journey… So we’re featuring some of the older documents on Follow Along Friday, just so you make sure you’re taking advantage of those.

This week is from series number 16, which was “How to secure financing for an apartment syndication deal?” We talked about the different types of loans, how to think about what type of loan to get… It’s a four-part series, so about two hours of content. For that series, the free document we gave away is the Top Loan Programs document.

This document goes over the characteristics, the pros and cons of the top apartment loan programs: agency debt, bridge loans, things like that. You can download that for free in the show notes below, or you can go to and download it in series number 16.

Joe Fairless: Everyone’s going to the conference – yes, in Keystone, February 20th through 22nd. If you haven’t signed up, you can go to and sign up. There’s a code for 5% off on the website; it’s  “5deal”, it gets you 5% off. Tickets go up every week, so you’ll wanna lock it in now.

I wanna meet you, shake your hand, give you a hug, whatever is appropriate, in-person. We haven’t announced yet what the panels and sessions will be, but I’ve got it in front of me, so I’ll give you a couple… We’ve got one panel, “Stories of the professional investor”, where we have passive investors talking about how they approach their finances and how they think about investing in deals, and what systems they use from a passive investor standpoint.

We have two tracks – one passive investor track, and one active investor track – throughout the conference, for the two days. On the active side, which is gonna be very interesting for passive as well, we have “Overcoming hardship.” Some individuals who have gone through bankruptcy, had some issues with SEC compliance, what happens after that… One of them has gone to jail, and has turned his life around. He’s gone to jail twice, actually, and has turned his life around… So if you think you’ve got it bad, then jail, bankruptcy, SEC on you – these individuals have overcome hardship and they talk about their story.

And then we have Frank, the co-founder of my company, and my good friend and business partner, with Ashcroft Capital. He’s got a presentation on underwriting in asset management he’s gonna be doing.

Lots of stuff… Go to and you can sign up. Looking forward to seeing you there.

Theo Hicks: Perfect. I am looking forward to it. I wasn’t able to make it last year, so I’ll definitely be there this year as well, meeting everyone.

Joe Fairless: Cool. Are we good to go?

Theo Hicks: Yeah.

Joe Fairless: Alright. Best Ever listeners, I enjoyed it; grateful to be back, and talk to you again tomorrow.

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