JF2174: Working Harder With Gino Barbaro

Gino Barbaro Real Estate Background:

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“Education times action equals results” – Gino Barbaro

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Theo Hicks: Hello Best Ever listeners. Welcome to the best real estate investing advice ever show. My name is Theo Hicks and today we’re speaking with Gino Barbaro. Gino, how are you doing today?

Gino Barbaro: I’m doing good, Theo. Thanks for having me on.

Theo Hicks: Yep, absolutely. Thank you for joining us. So Gino is the co-founder of Jake & Gino, a multifamily real estate education company; he’s the best selling author of three books, Wheelbarrow Profits, The Honeybee and Family and Food and the Friars. His portfolio consists of 1,500 multifamily units, he’s based in St. Augustine, Florida, and you can say hi to him at jakeandgino.com. So Gino, do you mind telling us a little bit more about your background and then what you’re focused on today?

Gino Barbaro: Sure, Theo. I came up in the restaurant world, bought a restaurant eons ago, it feels like, over 20 years ago, with the family up in New York. I loved it for the first 10, 15 years; it was great. Great recession comes along and everything changes, and I just said to myself, “I need to be doing something different.” I was already getting into real estate, buying little fourplexes, I got into mixed-use buildings, I got into self-storage, and I had failed at all those, because I didn’t take the proper education. I was taking massive action… And 2009 comes along, and I meet Jake thankfully, and he is a pharmaceutical rep at our restaurant, getting drug orders to sell to the doctor’s offices, and he’s doing these pitches, he’s trying to sell them pharmaceuticals. And for me, I loved him because he worked really hard, he was motivated, he was a great sales guy and I just knew that we’d click. I knew that one thing if you know anything about real estate. So I just kept the relationship going and in 2011, he moved down to Knoxville, Tennessee. I had no idea where Knoxville was. All I knew is I whipped out the laptop, started looking at deals down there and I’m like, “Wow, these deals make sense as opposed to New York.” So we created that relationship, and 18 months after he moved – it took us 18 months, Theo – we got our first deal, a little 25-unit complex. From there three months after that, we got our second deal, and then it just kept snowballing.

So for Jake and I, we’re pretty fortunate. We had timed the market– we just got lucky. We started buying where we could actually refinance the proceeds out and put it into the next deal. So the first 1000 units, we were able to buy ourselves – just me, Jake and a partner, Mike. And then after 1000 units, we’re like, “You know what, everyone’s out there syndicating deals, raising money, let’s learn it.” So for me, it’s the mantra ‘education times action equals results’. I wanted to get educated and I started learning the syndication model, and then ultimately, you learn, you do and you teach. We did our first syndication around 18 months ago, and the next 500 units was from syndication. So that’s what we’re focusing on now; we’re focusing on raising capital. We’ll still do deals internally, depending on the deal size, the deal structure, where it is, and we’re looking to start a fund. That’s our main goal for Q3 and Q4 of this year.

Theo Hicks: Perfect. Thanks for sharing that. I definitely wanna talk about the more recent syndication side, but you mentioned education multiple times during your background; obviously, you’ve written books. You’re a co-founder of a real estate education company, and then you also mentioned that it took you 18 months to do your first deal and that when you met Jake, you didn’t know anything about real estate. So do you mind just telling us what was going during those 18 months? Why did it take so long? Why did you decide to focus on education, as opposed to just other [unintelligible [00:05:53].20] who just do it and figure it out?

Gino Barbaro: Great question, Theo. The last 18 months, Jake and I have spent over $300,000 on our education, on consulting. You can get to a certain point in life and that’s where you stop, and you’re going to continue to need to grow. So when you’re buying your first deal, it’s different than when you’re buying your fifth deal. Things change, sizes change, asset class change, the amount of capital you need to raise changes. So you’re in constant growth mode, and if you’re not growing, you’re dying, and the only way you grow is by constantly educating yourself.

I challenge everyone out there to read the book Mindset by Carol Dweck. What I love about it is you need to have a growth mindset, you need to be constantly growing. If you have a fixed mindset where you’re like, “I know everything. I can do it myself,” well, you know what? Chances are, you’re not going to do it yourself, you’re not going to progress. You can, but it’s going to be a lot slower, you’re gonna make a lot more mistakes, and it’s gonna be a lot more painful, and that’s why it took Jake and I 18 months to get our first deal. We didn’t have a community like Jake and Gino, we didn’t have that proper education. I really started flourishing in real estate, believe it or not, Theo, when I went to life coaching school and I became a certified life coach. And I love coaching because one of the things it taught me was to ask the right questions. I wasn’t asking the right questions and I didn’t have clarity in my life. Why was I doing multifamily? Everyone out there’s gonna say, “Yeah, I just want to make some passive income.” That’s not the real reason for me, ultimately. For me, ultimately, I did multifamily for a couple of reasons. I was able to leave New York, move down to Florida, I could do it anywhere I wanted to, I was able to create multiple businesses from multifamily and I was able to scale. So once I really started working on myself, on my personal development and on my mindset, I was able to transcend and remove a lot of those limiting beliefs that I had. It takes money to make money, money is scarce; all those limiting beliefs that I had. If you can believe you can do something, then you know what – you’re going to become better at that skill itself, you’re going to learn it better and you’re going to take more action.

So for me, that first deal took 18 months because we had no credibility. No one really believed in us. I don’t even think we believed in ourselves. We didn’t have the proper training. We didn’t have the proper ability to network with the brokers. We thought that the brokers were there to serve us. No, the brokers have the deals. We have to treat the brokers really well; we’re the ones who are selling ourselves to the brokers. That whole mind shift took a little while for us. When we finally realized that, that’s when the deals started coming to us.

Theo Hicks: Okay, it’s the book Mindset. My wife had to read that for work. It was maybe, I don’t know, three or four months ago.

Gino Barbaro: What’d she think about it?

Theo Hicks: She said a lot of things you’re talking about. All she was talking about was the growth mindset versus a fixed mindset for literally every single thing that she saw.

Gino Barbaro: Theo, do you know what’s amazing about it? For me, I’m a parent, I have six kids, and we homeschool our kids right now; not because we have to. We’ve been homeschooling for over 20 years. And for me, the way we teach our kids – and this is a way for everyone out there – if we tell our kids that yeah, you’re really smart, that’s one thing. When they get challenged in life and they can’t figure it out, they’re gonna fall back to the fixed mindset by saying, “You know what, I’m smart. I can’t figure it out. I’m just going to quit.” But when you teach your kids, “Hey Theo, you really gotta work hard. If you want something, it takes a lot of dedication and a lot of hard work, and if you came in third place, it’s okay.” My kids call second place the first loser, and it’s okay, because you didn’t win, you came in second place; there’s nothing wrong with that. If you want to get into first place, you just need to work harder, and the growth mindset is all about working harder, working harder. If we can teach our kids that, so when they come up against a challenge and they have the clarity, and they have the hard work mind ethic and not quitting up, patience and persistence and keep on going, I think that’s one of the best things that we can teach kids with education. That’s what really was stressed in that book Mindset, and for me, it’s been a game-changer as far as relating with my kids and helping the students in the community by saying, “There’s a lot of hard work involved. We’re all smart. There’s a lot of really smart people out there. Multifamily real estate is not rocket science, but you do need to work really hard and you need to create and learn certain skills.”

Theo Hicks: So one of those skills you mentioned, and you mentioned that you didn’t know this going in, and that you eventually learned it, was how to properly build a relationship with brokers, and that originally you thought that they were there to serve you, but then you realized it’s the opposite… And obviously brokers are great sources for deals, and the better relationship you have with them, the more likely it is that they’re going to send you an off-market deal or send you a deal before other people see it. So from your experience, what are some of the top two or three things that people need to do right away in order to build that type of relationship with the broker, on top of obviously realizing that they’re not there to serve you?

Gino Barbaro: That’s a great question. Let me preface that by saying, we talk about the three pillars of real estate. We talked about market cycle, we talk about debt, and then we talk about the exit strategy. The first thing you need to realize is the market cycle. When I got into it back in 2013, 2014, early 2000s, the market cycle was definitely a buyer’s market cycle. So brokers were a lot hungrier back then than they were in the last couple of years. So you have to figure out what part of the market cycle is.

Right now, all of a sudden, the light switch has been just slammed back down and hey, it’s a buyer’s market again. So we have to figure that out. But with brokers, you don’t want to become their friends. They don’t want to take you out for a cup of coffee. They want you to be able to close the deal, they want you to know what cap rates are, they want you to be educated on it. They don’t want you to waste their time; that’s the first thing. I think the second thing is if you’re going to be serious and you’re gonna be talking to a broker, opt into their list. Start opting into their lists and start receiving their offering memorandums, and what I like to say is you do diligence on the market, and start going and doing some property tours with them; that’s what they want. They want to see that you’re serious about the property, they want to see that you’re serious about taking the deal down; don’t waste their time. Now for us in the beginning, Jake was a sales guy. He was always thinking about that you have to sell the broker, and you really do. You have to sell the broker on what your credibility is, on what you can do. So we created something called a Credibility Book, which is a business plan laid out with our strategy, laid out with why we invest in a certain market, laid out with how we get our money back to our investors, laid out with our case studies… So when a broker sees it, he sees that we’re serious. You have the website, you have the credibility book and you’re able to speak to them, I think, intelligently and you show to them that you’re not going to waste their time, and always be on top of mind to them.

I would always say to them, “Get their phone number, start texting them every three or four weeks, just checking in, seeing how things are going. Not always pestering about the deal, but try to build a relationship with them,” because real estate, what it comes down to– I think every business, but especially real estate, it’s really about your network and it’s really about networking with people in the business; and the bigger your network grows, the more brokers you know, the more possibility of a deal landing on your desk.

Theo Hicks: Is that credibility book like a PDF or PowerPoint presentation?

Gino Barbaro: Yeah, what we do is you can go to jakeandgino.com/honeybee, and on that page, you’ll see a copy of our credibility book. It’s a PDF document. If you want to print it out, ours is about 20 pages long. When you first start out, it should be seven 7, 8, 10 pages. You want to really focus on what market you’re in. So we’re in Knoxville; you want to talk about why Knoxville, maybe talk about the job growth, the population growth, the number of employers. Really put some nice pictures in there and not too word-heavy because people are more visual. Then you want to talk about what your strategies are. So we’ve done owner financing, we’ve done refi roles, we’ve also raised capital. So talk what your strategy is; then if you’ve done a couple of deals, put your deals in the portfolio. Also, whether it’s are you a full-time investor, are you a W2, give your bio in the book, and then also talk about the case studies.

So on all our various deals – we’ve done different deals, whether we’ve owner financed them, we’ve raised NOI – talk about that. And then finally, ultimately, just give them your blueprint, your roadmap of what you’re going to do with their money, how you’re getting their money back.

Theo Hicks: Perfect. Okay, let’s transition into syndication now. So obviously, your situation is a little bit different because a lot of people want to start raising money right away. You already had 1000 units, and then moved on to syndicating afterwards. So let me ask you like this – if you could go back, would you still have waited until you had done this many deals before starting syndication, or do you think you’d have been capable of doing it at 500 units or 200 units, 100 units, or do you think you really needed to wait until you did?

Gino Barbaro: That’s a great question. I don’t know the answer. I probably would have started syndicating sooner, but limiting beliefs of “Wow, I’m taking investor money, I’m a fiduciary, I’m not sure if I can do that.” I think part of it goes back to the three pillars of real estate; it’s the market cycle. At the time the market cycle when I started, syndication wasn’t a big thing. The Jobs Act that just passed, it was a little bit more regulatory, it was a little bit harder, and the deals out there – they were great to syndicate, but I just said, “Jake, let’s start small. We want equity in these deals. We don’t want to bring investors on.”

We should have probably done it sooner, but I wasn’t ready. So for me, that part of the market cycle we’re in right now, it may be a little bit harder to syndicate, only because you have to come up with so much reserves for your financing. Is that going to last forever? I don’t think so. Probably, the next 6 to 12 months Fannie and Freddie will start loosening up. That’s why you don’t know what you don’t know, that’s why it’s important. I keep stressing that word education. If I’d known about syndication when I started out with Jake, maybe I would have gotten on to it sooner. I started listening to the podcasts, I started talking to other syndicators, I met Joe Fairless on the journey around ’13, ’14 and we had started discussing that… But for us, it’s just one tool in the toolbox. I think in the next 6 to 12 months, the big opportunities are going to be owner financing and community banks; that’s how we started out. Now for me, like I said, I had that limiting belief. I probably should have started sooner, but it’s okay. I’m here where I am right now, and I’m pretty happy where I am right now, and it’s just like we said, one tool in the toolbox and we will continue to syndicate.

Theo Hicks: Perfect. Thank you for sharing that. Once you were ready to raise money, you guys decided to go ahead were like, “Alright, we’re gonna do a syndication”, do you mind just walking us through what you started doing? Did you send out an email blast saying, “Hey, we’re raising money now. Come on and join us,” or what was your exact step-by-step process for raising money for that first deal?

Gino Barbaro: Well, I think Joe Fairless has got a great blueprint, and I think I must have followed it not even thinking about it. We’re all a brand out there, we all have to create our own brands, and we were Jake & Gino. We started the education just because we wanted to write a book, and then from writing the book, Jake says to me, having the great partner that he is, “Let’s start a podcast.” I’m like, “Okay.” I think next month  we’ve been doing the show for five years. So we just started the podcast and from there, people started listening to it every day, you start creating that brand, you start creating that likeness from people. They get to know you, like you and trust you, and in 2017, we had our first live event. First, live event, we started signing up investors. People start trusting you, they start looking at you, they’re like, “You know what? These guys have got credibility.”

So for us, I think in the beginning, just creating a brand, start putting things on paper, start having the credibility book, start getting clear on why you’re syndicating. What is the reason why you’re syndicating? Are you doing it because you want to hold these deals long term? Are you doing it because you want to get into it three to five years? You have to figure out what your model is, and I think ultimately, start the brand, start a podcast, start writing blogs, start doing videos on YouTube, start getting your name out there and start creating a list of investors… Because unfortunately, most people, what they do is they’re like, “You know what? I’m going to go look for the deal, and then I’m going to look for the money,” and if you do that, you get the deal, and you will not be able to find the money, because you need to create what we call a substantive relationship, and I’ve been doing that all along for the first 18 months before we did our first syndication.

And for us, another reason why we waited, we had so many irons in the fire, as they like to say. We had the property management company, we were managing our properties day-to-day, we had the education company. We didn’t have time to get on phone calls and start talking to investors. What we ended up doing is we ended up creating ramp partners, brought on a fourth partner, and he was taking care of all the investor calls, he was taking care of all the emails… Because we’d grown our list of over 600 investors and to call and speak to every single one of them is a grind. It’s grueling. And we’re running other facets of the business. That’s probably one of the other reasons why we had taken a little while to start syndication, because when you have multiple businesses going on, you need to know where to focus on and that wasn’t our focus. But when you start running out of capital, that syndication model looks really great. So for us, really, Theo – start creating your brand, start learning, doing and then ultimately teaching it to others. You’ll have the credibility, you’ll be positioning yourself as an expert, people will see you as an expert, and then start trying to build up your list and start connecting with all those investors out there.

Theo Hicks: Okay Gino, besides everything else you’ve given so far, what is your best real estate in investing advice ever?

Gino Barbaro: Wow, the best real estate investing advice ever… For me, I think the two words ‘due diligence’ are probably the two most important words in life. When you’re doing something, make sure that you’ve done your due diligence, and all the mistakes that we’ve done in our deals, especially my first couple of deals – I didn’t know what due diligence was. When you get into a property, you take the deal down, you’re looking at a deal, you need to really scrutinize that deal, look at it so many different ways, make sure you go through the entire process of due diligence, whether it’s your underwriting, whether it’s inspecting the property, whether it’s inspecting the sellers, you have to dive through it and you have to make sure, and looking at it from a logical objective point of view; get your emotions out of it. Don’t pencil whip the deal, as one of our coaches likes to say, to make the numbers up, to make them work. Really take a logical, unemotional approach and dive into due diligence. And if you can have a good due diligence process, it’s going to save you a lot of time and it’s going to save you a lot of mistakes, and ultimately, it’s going to save you a ton of money.

Theo Hicks: Perfect. Are you ready for the Best Ever lightning round?

Gino Barbaro: Yep.

Break [00:19:04]:03] to [00:20:06]:09]

Theo Hicks: Alright, so I think you already answered this, but maybe you’ll give me a different book, but what is the best ever book you’ve recently read?

Gino Barbaro: I’ve read so many books in the last two months being shut in and doing all the work… I think all the listeners out there talking about raising capital, they need to read the book Pitch Anything by Oren Klaff. We had him on our podcast, he is a really entertaining dude, but his book Pitch Anything is amazing. It’ll help you actually create a pitch for yourself and really speak to investors differently than you are right now. So go pick up that book, Pitch Anything by Oren Klaff.

Theo Hicks: If your business were to collapse today, what would you do next?

Gino Barbaro: Rebuild it.

Theo Hicks: Alright, let’s talk about a deal that you lost the most money on. How much did you lose and then what lesson did you learn?

Gino Barbaro: I love that question, because that’s an easy one for me. 2006 November, bought a strip mall, 19,000 sqft up in Dutchess County, New York. It is about an hour and a half from New York City. It’s a dying market, I don’t know it – remember I said due diligence… I didn’t know what the market was, bought it in the wrong part of the market cycle, didn’t have an exit strategy, and the debt that I’ve gotten on it was terrible. So I made every mistake possible. I overpaid for it, and then I over-fixed the property, held it for ten years. And the worst part about losing half a million dollars in a deal was not the half a million dollars, because owning it for that long, you get a lot of learning lessons, you learn a ton about how to deal with tenants. The problem with owning something for ten years is the time that’s just sucked out of your life. Having that ability to not be able to focus on other things while I was worrying about this property – getting a call from the property manager every other day saying we’ve got a problem here. I should have cut bait and sold it sooner. One of the best things I ever did was sell the property for a huge loss, and got it off the balance sheet, got it off my mind, and I think about that property every three months now, which is great, so my mind can be used and spent on different things.

So for me, I’m beating the drum, Theo, but if I had really done my due diligence, if I’d really gotten educated, I would not have bought that property because it was in the wrong part of the market cycle, it was in the wrong market – no growth, no job growth, no population growth. I had terrible debt and I didn’t know why I was buying it. I didn’t know what I was ultimately going to do. Was I going to hold it long term? Was I going to refinance it? Was I going to flip it out? I didn’t think of any of these things before I got into the deal, and if I had, I would not have paid for that property, or I probably would have paid a couple of hundred grand less and gotten less. As far as pricing, I probably would have paid a ton less for it.

Theo Hicks: What is the best ever way you’d like to give back?

Gino Barbaro: For us, you referenced the book, Family, Food, and the Friars. When I was up in New York, I was a pretty big benefactor to the friars, Franciscan Friars of the Renewal, and I would go down to their friary and they’d have soup kitchens; they would deal with the poor in Harlem, or whether it was in Harlem, whether it was in Paterson, New Jersey, I’d just go down there and just spend time with them and cook, whether it was for the neighborhood or for them. I just love to spend time with them, because for them, it’s really giving to others. And I love being around them, because they’re in the service of others less fortunate, and for me, just to share that with my children and just to show my children that there are others out there struggling, for me, it was just a great feeling.

Theo Hicks: And then lastly, what’s the best ever place to reach you?

Gino Barbaro: jakeandgino.com and if you want to email me, it’s gino@jakeandgino.com. I answer all my emails, Theo.

Theo Hicks: Well, perfect. Thank you for sharing your email address and sharing your best ever advice today. I’ve got three pages worth of notes, just the top takeaways… And Best Ever listeners, make sure you relisten to this episode, a lot of powerful information… But you have a very strong focus on education first, before going out there and taking action. You have your formula, ‘education times action equals results’ and you don’t just mean educating yourself on real estate, but also focusing on the personal development side. You talked about how actually becoming a coach helped you figure out how to ask the right question, which ultimately helped you grow your business better. More tactically speaking, we talked about some of the best ways to build relationships with brokers. We talked about not wasting their time. They don’t want to be your friend, they want to know that you can close on the deal. So opt into their list, do property tours with them, show that you’re serious about taking on a deal, and then sell them what you can actually do by creating that credibility book, and you said that you can find a copy of your credibility book at jakeandgion.com/honeybee, and you gave us examples on what to put in that actual book.

And then always being top of mind – you mentioned getting their phone number and texting them every few weeks just to let them know what you’ve been doing. Again, not to just mindlessly bother them, but to have a specific reason why you’re reaching out to them.

We talked about your top tip for raising money, and that’s about creating a brand. So you talked about how you wrote a book, started a podcast, people started to know like and trust you, you eventually did your first live event, and because of all the previous work you’d put in with the book and the podcast, you were able to get investors from that event. And then also making sure you’ve got a clear understanding of, again, why personally you want to syndicate these deals. And then you also talked about you need money first before you actually find a deal to build that substantive relationship.

And then another really good way to raise money is to teach others how to raise money, because then you come across and portray yourself as an expert. And then lastly, your best ever advice which – it takes us full circle back to the education, which is understanding how to do proper due diligence, and that all the mistakes you’ve made has been because of not knowing what proper due diligence is. You gave us a perfect example of that property you did in November 2006. You gave us the exact specific date of when you actually did that property.

Gino Barbaro: That’s right. Painful, painful. November 6, bro. November 6th, 2006. I’ll never forget that. It is ingrained in my mind. That’s a good thing though, because if I hadn’t done that deal, then I never would have gotten into multifamily and I never would have dove into the education aspect. I would have continued to wing it.

Theo Hicks: Absolutely. And then the last thing you mentioned was about making sure you’re able to take the emotions out of the due diligence process, don’t try to– what was the words you used about penciling it in?

Gino Barbaro: Pencil whip. If you pencil whip a deal, you’re just making those numbers up. You’re making the deal work. And don’t fall in love with the deal, fall in love with the numbers.

Theo Hicks: Exactly. Be very logical and objective about it. So again, Gino, really appreciate it. Everyone, definitely relisten to this episode; very powerful. Thanks for joining us. Best Ever listeners, as always, thank you for listening. Have a best ever day and we will talk to you tomorrow.

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