Matthew is a returning guest from episode JF1432 and today he talks about figuring out new ways to accomplish old goals. Matt has been a full-time investor for 15 years and in that time has successfully completed projects involving dozens of fix and flips, office buildings, single-family homes, and apartment buildings.
Matt Faircloth Real Estate Background:
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“Move forward with faith and take action” – Matt Faircloth
Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless. 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. With us today, Matt Faircloth. How are you doing Matt?
Matt Faircloth: I’m awesome, Joe. So great to be with you today.
Joe Fairless: Well, I’m glad to hear that, and I’m looking forward to our conversation. Best Ever listeners, because today is Sunday, we’ve got a special segment for you called Skillset Sunday. And first off, a little refresher about Matt, and then that will help tee this up. So Matt’s a full-time real estate investor. He’s completed dozens of flips, but also now focuses on office buildings, commercial real estate, apartment deals. He just had a rather large closing that he and his team done. Yeah, woohoo, nice work on that! And that actually leads into our conversation.
The conversation and the outcome of this conversation for you Best Ever listeners is to learn about some ways to have some stretch goals and to try new methods to reach old goals. So maybe you’ve been trying to reach certain goals, you have not achieved them – well, we’re going to talk about the thought process to take to try new methods to reach those same goals that you’ve been trying to achieve. So with that being said, Matt, what’s the best way to start out this conversation?
Matt Faircloth: Well, I’ll tell a little bit of the backstory to lead us up to the point where I hit that pivot where I said “Okay, I can stretch myself, or I can keep doing what I’ve been doing.” So let me give you a one-minute background story. So my company, as your business is too, we are regionally focused on specific territories. We are not a company that will buy anywhere in the continental United States. That’s not what we do. We are focused on North Carolina and Kentucky. That’s it. So a deal came up in a market we had been shopping in North Carolina, in Winston-Salem, and it came across our plate… And we have been a company that’s been able to put together say, I don’t know, maybe $5 million to $8 million transactions. In the apartment building world, that requires an equity raise of somewhere in the two to three million dollar range. We’ve gotten pretty good at that. So I’ve got a really good mechanism down for raising two to three million dollars for a real estate transaction, to the point where I can repeat it over and over again, as often as I need to, for deals. And we had built a pretty good wheelhouse of doing it.
So this deal in Winston-Salem comes up and the numbers work, everything checks the boxes, the location is phenomenal, everything’s awesome about it… And it’s an $18.5 million purchase, which is more than double anything else we’d ever put together before. 336 units, so more unit count than we’ve done, more equity we need than we’ve ever done, more loan amount than we’ve ever done, more everything.
Joe Fairless: What was the highest amount of equity you’d raised up until that point? On one deal.
Matt Faircloth: Just over three. Like three and a half.
Joe Fairless: Three. Okay. And how much was this one requiring?
Matt Faircloth: We’re doing this a little differently… This one is a total of $12 million in equity, but because the bridge debt world has changed and it’s very hard to get construction dollars from banks, what we’re doing is we’re going in with the Freddie floater product, which is a floating rate mortgage, lower loan to value, and we’re going to raise construction dollars as we need them during the process. So we don’t have all the money we need at closing, we’re going to get it as we go, which is an interesting process as well.
Joe Fairless: So in total 12… But how much to close it out?
Matt Faircloth: To close the deal. Eight.
Joe Fairless: Eight? Okay.
Matt Faircloth: To close the deal. Yes.
Joe Fairless: Got it. So a significant jump from three to eight, and ultimately 12. Okay.
Matt Faircloth: Right. There was some faith in there, and just crossing my fingers and knowing, “Okay, listen. I’ll just get in and do it.” That was the crossroads that I was at, Joe. It was the fork in the road to say, “Okay, do I tell my team that worked very hard to find this deal, do I say, “You know what, guys? A little too big, we probably should refer it to a larger outfit that can take down something like this, that has a long track record on taking down something like this.” And that conversation did come up. Are we okay? Do we want a stretch like this? And we decided to take it on and to go for it and we’ll figure it out. And that’s really what you and I were talking offline about, it’s about the growth that happens when you get into something where you’re not exactly 100% sure how you’re going to make it happen. But you got to move forward in faith that it’s going to work out. You’ve got to take action, too. But I decided to go for it and just had the confidence that me and my team would figure it out. I was just crossing my fingers.
And what’s interesting, Joe, is what happened was we put it under contract, and we tried the method, amd we went, “Okay, let’s go raise money.” Well, I used my method that I know to raise two to three million dollars. I did that, and guess what? We raised two to three million dollars.
Joe Fairless: What are the things that you do to raise two to three million like clock–
Matt Faircloth: There is a number of emails you need to send out to enroll people in your webinar. What we’ve been able to do is develop a pretty good magnet of people that reach out to us, that say “Hey, I want to invest in real estate with you.” So you call the last couple months worth of folks that called in… So the hot leads, if you will – we phone call those folks. We came in and we sent out two announcements to a webinar, and saying “Okay, we’re having a webinar.” We had 300 people show up on the webinar. Not show up, they registered. Because you know how these things go, right?
Joe Fairless: Yup.
Matt Faircloth: So they registered for the webinar. They watched the recording, and everything like that. Just webinar, and then present the whole deal, and then send out the recording, and that with some phone call follow-ups, in our world has been what we needed to do to raise two to three million dollars.
Joe Fairless: How many days in advance do you give them notice that there will be a webinar?
Matt Faircloth: We give them a week’s notice. About a week, a week and a half. And we just did a general presentation on the deal. “Hey, guys. This is what we’re going to talk about. Here’s the deal, here’s this, here’s that, here’s the opportunity, and everything like that. It was just here “Here’s everything.”
Joe Fairless: And you said phone calls, too. So you called the hot leads, but do you only call them? Or do you call everyone in your database? How do you approach that?
Matt Faircloth: We don’t call everyone in our database. That’s the two to three million dollar method, Joe. We didn’t call everybody in our database. We’ll talk about them…
Joe Fairless: Okay. Alright, alright. Cart before the horse. Okay.
Matt Faircloth: It’s okay. I love it. We can talk about the newly-discovered and soon to be patented $8 million methods that I had to come up with. [laughter] But the two to three million dollar method is you call your hot leads. Because I’ve had people that called me up that they were hot, and I didn’t have a deal.
This is a true story. I’ve never told you this story, but it’s a true story. A guy called me in August, and he was like, “Okay, I want a deal. Ready to go.” This isn’t this August. This was August a couple of years ago. And he said “I want to invest with you. Find me an opportunity.” That’s great. “Okay, listen. Hang out. I’m going to go find you an opportunity, my friend.” So October comes around. And not just for this person, but we put a deal under contract and I did my hot lead method and called back through my hot leads that had called the last couple of months… I had called this person up that called in August, and you know what he said?
Joe Fairless: “It took too long.”
Matt Faircloth: No, “I gave that money to Joe Fairless.”
Joe Fairless: Oooh… [laughter]
Matt Faircloth: I swear to God, it’s what…
Joe Fairless: So you did take too long.
Matt Faircloth: I said, “Well, it’s in good hands.” That’s what the point of that story is – that when people call, they’re not just shopping. Sometimes they’ll tell you this, “Well, I want to invest in a year or two.” But a lot of times when people call, they’re looking to place capital now. And if you don’t have something that’s available now… And it’s okay that you don’t. But if you don’t have something available now, they’re likely going to go — below Matt Faircloth’s name on the list is somebody else. And so if I don’t have anything at that time, they’re likely going to keep going. And that’s what he did. And God bless, he had money he had to put to work. And he did, and he put it to work. It’s in good hands, and all that. So I was happy for him. I said “Great. Joe’s a friend. That’s great.” But it’s that call the hot lead method that these folks hopefully have not gone somewhere else by the time you’d launched that webinars, so you let them know about it ahead of time; that was my two to three million dollar method. Then you do the webinar. Then you email everyone the recording to the webinar, and then you do a follow-up phone call to folks that were on the webinar.
Joe Fairless: So only those that were on the webinar that you were doing follow-up phone calls, for the first method.
Matt Faircloth: Yes.
Joe Fairless: Okay. Got it.
Matt Faircloth: Then you also had some sort of means for them to do a soft commit on a webinar. For us, back then, it was a Google doc saying like, “Hey, this is my name. This is if I’m accredited or not. And this is how much money we want to put in [unintelligible [00:11:02].00] list, whatever.” And that Google Form was the soft commit that they did. And that right there, given the database that we have, will get you two to three million bucks, and we had gotten pretty good at that. And also, the presentation on the webinar was solid enough that we could produce that. So we did that for this deal, and then we got two to three million dollars. And I said, “Oh, okay. We’re a quarter of the way there. That’s great. So now what?”
And we called that database again, and called the folks that are on the webinar again, and had another webinar, the same webinar, we just did the same show again. We had 50 people sign up this time instead of 300, because a lot of our database had already seen the first one, so why would they want to go to the second one? So we got it up a little bit. And my team and I, we had to drop back and punt and have a huddle up. We’ve got to try something different. So again, we’re in the middle of Corona, crazy, COVID, potential recession, all this other kind of stuff right now… So what we realized is some investors are looking for something that’s a bit of a hedge, or want to know a little more detail about the deal that has to do with how the deal is recession-proof, or how it’s COVID-resistant, and everything like that. So we said “You know what we’re going to do? We’re going to do a webinar that’s just on that – how is this deal COVID resistant and recession-proof” That’s an interesting conversation. So we came up with those bullets, and we came up with a way tighter webinar. The first webinar, the one with the 300 people, went two hours. That’s another mistake. That’s too long a webinar. With the presentation, with Q&A, it went two hours.
Joe Fairless: What’s the right amount of time?
Matt Faircloth: I think that you should be presenting the opportunity in 30 minutes or less. And then another 30 minutes for Q&A, and then wrap it up.
Joe Fairless: Got it.
Matt Faircloth: People are busy, man. Get to the point, don’t spend too much time on the fluff or on spending 10 minutes introducing your team and everything like that. Just get going, because people are busy, and you want to respect that. So we tightened it way up and did a 30-minute thing on COVID and the recession. Now, we had a way bigger turnout for that one, because people were curious about that.
Joe Fairless: So this is a third webinar?
Matt Faircloth: Yes.
Joe Fairless: This is the third webinar about the same deal. Okay.
Matt Faircloth: About the same deal, but we did two things. We cranked up our email activity. I went to my assistant and I was like, “I want you to do an email every other day. Just stay on people’s radar.” Because again, maybe we needed to just kind of — given everything going on… And maybe just to raise a lot more money, you’ve got to kind of scream and yell a little bit louder.
Joe Fairless: Were you concerned about people unsubscribing from your list as a result of that?
Matt Faircloth: Sure. And I’m sure they did, and that’s okay, because if they really are not that concerned — if they really don’t want to hear that much from Matt, then that’s okay, they unsubscribed. And I think it’s a risk you have to run if you’re going to wave your hand in the air. I think list attrition is something that happens all the time, if you use your list; not that you have to email every day, but if you email every couple of days or once a week or whatever, you’re going to have attrition. Because people just might not want to hear what you have to say. And you can’t make that a reason why you don’t send emails, I don’t think.
Joe Fairless: And how long did you email every other day?
Matt Faircloth: We did that toward the last 30 to 45 days of the deal. We were every other day emailing. And what we did – we took snippets of the COVID webinar… And I’m jumping around a little bit. We did a COVID webinar, and we did a tax savings webinar, because we’re doing a cost segregation study. We’re hiring Yonah Weiss, if you know him… We’re hiring Yonah to do the cost seg.
So we realized that some investors know what cost seg is, and some investors know how it helps, other investors don’t. So I interviewed my CPA and took some video clips from him, took video clips from an interview I did with Yonah, and I took those two video clips and assembled them into a dozen emails that we sent out on a drip campaign about what is depreciation and why is it important. We had one couple invest in this deal, they came in later, after we started this cost seg conversation… They had sold a business and the wife was filing taxes as a real estate professional. And we saved them $200,000, because they put a significant amount of money into the deal; they were able to pretty much save every nickel that they were supposed to pay in income tax; it got deferred through cost seg and through the negative K1. Incredible. What a difference we get to make in this business. So I touted that in the email, obviously…
Joe Fairless: I remember reading it.
Matt Faircloth: Yeah. Leaving the personal information out. Think about the tagline on that one. We got a big open rate on that email, because it’s interesting, “Wow, $200,000. That’s crazy.” Now, it takes a specific investor under specific circumstances to get those savings, but it’s still at least a good conversation.
So we started thinking outside the box on ways to get people’s attention. And I think that lesson learned, a few lessons I got out of this whole thing, was to raise a lot of money you’ve got to get a lot of attention. And people care about different things. So some people cared about the hedge, about like, okay, recession and COVID-proof. That webinar got over 100 registrants.
Joe Fairless: And it was the third one.
Matt Faircloth: Yeah. So my registrations went up…
Joe Fairless: Right. From the second one.
Matt Faircloth: …because we had this conversation. Yeah. And Joe, we had people that had gotten in after the first webinar. They increased their investments after that one, because [unintelligible [00:16:06].09] “I like what you guys are doing.” “I see what you guys are doing.” We had one guy go from 100k to 200k because they saw that we had really thought this thing out. And we had a lot of new investors come in.
But the biggest thing was being willing to have conversations with people in a manner that they cared about. “Yeah, I care about taxes; that’s my main thing.” And realizing that people that invest in real estate, they may want all the different things that real estate offers, but likely they want one thing or two things, and the other stuff is all just gravy. So we got connected to what people really want out of what syndicators can offer, so we pumped out emails that spoke to those specific conversations.
We also got a lot more personal. I got each of my team members to record a three-minute video and talk about what you love about this deal. And I got one of our investors, who is one of our larger investors, to record a three-minute video on what he loves about this deal. A lot of our investors are doctors, so he was in his scrubs, the mask, and everything, talking about what he loves about DeRosa Capital 11. So through all those efforts, we were able to clear a benchmark.
Joe Fairless: What are the categories of things that people care about? You mentioned you pivoted with the COVID-resistant, and recession-proof, and tax savings… What are they?
Matt Faircloth: Well, let’s go COVID-resistance beyond what that really is… Because people say, “I want something that’s recession-proof, or whatever.” What do you really want? You really want security. So I think that we as syndicators – and this is to your audience – if they’re able to address the security question on “Is my money safe?”, that’s really what they want to know. So if you can explain to them in their language how their money is safe – and in today’s world, that means are you recession-proof? Are you COVID-resistant? People ask the same security question. Maybe they’re asking in a different language, where they’ll say, “What kind of collateral do I have?” These are folks that have done a lot of private loans, but have never invested in equity, so they want to know, what kind of security do I have in your deal? What kind of collateral do I have? I don’t have a mortgage on the property; what do I have? So you explain what equity and ownership in an LLC gives you. So that was one conversation. Security.
And then the other thing is general taxes. Folks that earn a lot get it that it’s not about how much you make, it’s about how much you get to keep. So that tax level conversation is something that some investors don’t care about. Interestingly enough, anyone with an IRA was like, “Next, let’s talk about security. I don’t want to talk about taxes.” Because they know that the IRA does kind of defends them against that already. You have to watch who you’re talking to. If they have an IRA, don’t even bring up the tax savings, because they really can’t take advantage of it. So we went there; we tried some of the things ongoing to our personal story. Other people care about the market, because like, “Tell me why Winston-Salem, North Carolina is a great place to invest.” There were some folks that cared about that, too, so we did some e-blasts on why the markets amazing. So to answer your question, Joe, people also want to know why should they invest with you, the syndicator, and why should they invest in that market, and then why should they invest in that particular deal. And typically, it’s in that order that they want to know it. You can answer those questions in that order, and then there’s the security and the tax questions that come on top of it, too.
Joe Fairless: So I’m on your list, and I got 15 emails in the month of September. So it looks like you were doing it…
Matt Faircloth: We were busy.
Joe Fairless: ..,every other day. Yeah, you were busy. Every other day in the month of September, basically. Did you take a look at what your subscriber list was before and then what it was after, and just see what type of unsubscribe rate you got from that?
Matt Faircloth: What attrition we had. It’s good to know. I wish I could tell you that.
Joe Fairless: So it wasn’t a red flag with your team, like, “Hey, Matt… We can send out another email, but you realize we’re going to lose 20% of our database? Because yesterday we just lost 20%.” It wasn’t anything like that?
Matt Faircloth: No, I don’t think so. I don’t believe it was, and I don’t think that we lost anywhere near what folks would suspect that you would. Because at end of the day, people just auto-delete, skim through it, and everything like that. They tend to just look past emails, sometimes they go through the effort of unsubscribing, but at the end of the day, it does take a little bit to unsubscribe from something, versus just taking the time to delete. It’s not a big deal, you can just delete the email.
Joe Fairless: I ask that because I think some people would be concerned about the investors that we brought on to the list – it’s so precious, because we’ve worked so hard to get them, and then I don’t want to send them all these emails. But in your case, it worked. And that’s a surprising lesson that I learned from this conversation, in addition to other lessons, too.
Matt Faircloth: I have an admin that was sending out those emails, and I know she would have flagged it. And I’d be willing to bet that it was very low on attrition. If you give me one second, I’ll give you the number on what it was, because I’m able to log in here while we’re looking. You know what it is, Joe – I hope I can use this word when you show… People worry too much about pissing people off, and everything like that. And I think obviously, once folks are investors, you really don’t want to do that, but I’m thinking if people worry about from a marketing perspective about shouting too loud or anything like that… We obviously don’t want to be bold or audacious or too over the top on things, but at the end of the day, I think that we’re also looking to get noticed. And when you get noticed, it’s okay that some people are like, “I don’t want to pay attention to that guy.” So we lost about 4%.
Joe Fairless: That’s nothing.
Matt Faircloth: Yeah. Regular attrition is less than that. Maybe 1% or 2%. But we lost four during the lifecycle of that campaign. It’s okay, people are going to do that. Sorry, if I went there, but I think that people worry too much about ticking off people on your list. Because at the end of the day, if they’re just on your list out of general curiosities, they’re likely not going to do much with you if you email them a lot. If you email them a lot, they’re either going to get interested or they’re not. If they’re not interested, but they want to see what else Matt has to offer in the future, they’ll probably just delete the email and wait till the next one comes around.
I’ll tell you one thing – it did confuse some people that were already in the deal. “Hey, why are you still emailing me? I’m already in this opportunity.” So you can’t just do a general shotgun email everybody. You’ve got to watch to see who’s on your email list. Take the folks that have already…
Joe Fairless: Segment it.
Matt Faircloth: Yeah, we learned that one. People were getting confused. “I’m in, man. You already have my [unintelligible [00:22:28].02] thing. Why are you still emailing me?” We had to watch who we’d already emailed. We also took out people that had roundly said they weren’t interested, just out of respect. So we’ve learned that you’ve got to segment, you can’t just literally blast everybody.
Joe Fairless: This has been a productive and such an educational conversation because of you and what you’ve shared with us. Thank you so much for that, Matt. Before we wrap up anything that we haven’t talked about, that you think we should, as it relates to this topic?
Matt Faircloth: I think that you and I got into the nuts and bolts and all that, which is awesome, because I think your investors are going to get lots of great nuggets. I think the big thing for them to take home, in general, is that if you don’t stretch yourself, you’re not going to grow. There’s a book called The Way of the Superior Man; it’s good for everybody. But The Way of the Superior Man – there is a chapter in that book that talks about being okay with a little bit of fear. And people sometimes won’t engage in change or won’t engage in growth because it makes them a little bit afraid.
What I’ve learned through reading that book, and just by living my life – that if I’m not a little bit afraid, a little bit scared about where I’m stepping, that I’m not stretching myself enough. Because fear is the indicator that I’m beyond my comfort zone. And I was a little afraid of this deal, of being able to take it down, and what happens if I don’t… But because I move forward anyway, I was able to bring things to the next level in my company, and I think that a lot of people don’t realize that the only way you’re going to grow, is by feeling the fear and acting anyway. Getting into it and jumping in and figuring things out. And hopefully these nuggets here on how to raise your equity game, too. Yeah, I agree, this has been an awesome interview.
Joe Fairless: Yeah. And regarding the faith and being comfortable with fear, I’m coming at it from a logical perspective too, or standpoint, because you had a lot of pieces in place that gave you the confidence to be comfortable taking a couple of steps, really, that are beyond where you had been. Whereas if someone’s starting out, then they’re looking at a $9 million equity raise, then that fear is very healthy, because they don’t have those pieces in place that you had already had.
Matt Faircloth: You would say reasonable steps.
Joe Fairless: Reasonable steps. Right.
Matt Faircloth: But you’ve got to know that the possibilities are there somehow. So I’m not saying “never invest in real estate before you go take down a $9 million equity raise and figure it out.” Again, don’t hear what Joe and I are saying the wrong way here, audience. I think you understand you’ve got to take reasonable steps forward into growing your business, and that a little bit of fear is good. A lot of fear is probably a sign that you probably shouldn’t be stretching that far. So you’ve got to find that even marriage where it’s outside your comfort zone and it’s a little bit of uncertainty; that’s healthy. But too much of it is probably a sign you’re not ready. You’ve got to know the difference.
Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?
Matt Faircloth: They can get a hold of us at our website, which is derosagroup.com. Everything’s out there – copies of my book can be purchased, you can connect with us, you can learn from us, you can invest with us. Everything’s out there.
Joe Fairless: Matt, a pleasure, as always talking to you, and learning about what you’ve learned… I can be educated too, I love learning this stuff, so thank you for sharing that. I hope you have a Best Ever weekend and talk to you again soon.
Matt Faircloth: Thanks Joe, for having me.
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