In this session, Joe Fairless will help you identify your liabilities, maximize your opportunities, and accelerate your growth for your business.
Register for the Best Ever Conference here: www.besteverconference.com
TRANSCRIPTION
Joe Fairless: Welcome to another special episode of The Best Real Estate Investing Advice Ever Show, where we are sharing the top sessions from The Best Ever Conference 2021. This year, the Best Ever conference is back in person, February 24th through 26th. Come join us, Denver, Colorado. You’ll hear all the new keynote speakers, you’ll meet some new business partners, you’ll learn some insights from the presentations and from the people you meet, that you can apply to your business today. Here is an example of a session from last year that is still relevant today and will be beneficial for you.
Everyone, looking forward to our conversation. I’m grateful to be here and I’m grateful that it’s remote, it’s virtual, but we’re all here, we’re all learning, we’re all looking to improve ourselves. I have a lot of respect for you because you’re putting a priority and an emphasis on growing. That’s ultimately what it’s all about. Coincidentally, that’s what this conversation is about. It’s about the evolutionary ideas that I have for you. It’s based off of things that I’ve learned for the last 12 months, it’s based off of things that I’ve come across. I thought “You know what? I’m going to document these five evolutionary ideas and I’m going to share it with the community because it was helpful for me personally.” Anytime I go to an event, anytime I hear a presentation, I’m not looking to apply all of the items that I hear from someone presenting, I’m not looking to meet everybody in the room. I’m simply looking for one substantive relationship if it’s with an individual, or I’m looking for one item that I can apply to my business. That’s what my recommendation is for you for this conversation. I have five ideas for you but if one of them is applicable, then it’s a win.
Let’s talk really quickly about my background, just for some context, in case you’re not familiar. $1.2 billion worth of assets under management, I’m the co-founder of Ashcroft Capital. In addition to that, I’m the founder of the Best Ever platform. With that platform, we have the conference, clearly, we have Best Ever causes which is near and dear to my heart. My wife and I have personally donated to over, I believe, 36 nonprofit organizations for the past 36 plus months, we do one organization a month. Apartment syndication book and a couple of other things. As you can see in this picture, I’m married, and I have a two-year-old named Quinn who is ever so active, and more so by the day. Let’s talk about the five outcomes for our conversation today.
The first outcome is, first and foremost, that I want to have a conversation with you about an area that I suspect is not being paid attention to enough, and is actually your largest liability as it relates to building a business. That’s number one. Number two is I want to make sure that we’re all getting the most out of our team members, but also our team members are fulfilled, and they have the right sense of direction for what we’re looking to do. So I have a tip for you there. Number three, a big challenge, is finding the right deals, that pencil in a compressed cap rate environment, also ensuring that we are still delivering on the expectations that our investors have, from a profitability standpoint, and then also maintaining sanity and protecting against anomalies that might come up whenever we’re doing deals. By anomaly I mean, if you have 25 deals, then you might have 23 that are performing but maybe two are struggling. How do we protect our investors against that and then ultimately, how do we also protect ourselves and the company against any anomalies that might come up?
Number four is a suggestion that I have based off of what I’ve experienced as it relates to thought leadership platforms. I am not going to talk about that you need a thought leadership platform. Holy cow, we were talking about that at the first Best Ever Conference. I’m not going to talk about that. I’m going to assume that you already know you’ll need a thought leadership platform. What I’m going to talk about is what’s the evolutionary next step from the thought leadership platform. The fifth is I’m going to talk about the success paradox. The success paradox is something that you likely have come across, but perhaps haven’t consciously paid attention to, some consequences of the success paradox, and a solution for that. So let’s dig right into it.
The first is the current situation. How I’ll structure this conversation is we’ll talk about what your current situation might be. Again, each of these five things doesn’t necessarily have to apply to you right now. Perhaps you will come across this current situation, and again, if you can pick one of these five things out, then I think it’s a good thing, and hopefully apply even more than that. For anyone who knows me, besides family and business, I’m currently obsessed with chess. For the last two years, I’ve been obsessed with chess. I went from the Chess With Friends app, to now and phasing that out, and I’ve graduated to chess.com app, so I’m playing people all across the world at all hours of the night. I tend to play more foreigners than Americans because I play at, again, all hours of the night. Americans are all asleep and I’m playing chess. So I am currently obsessed with chess. There’s a lot of parallels between real estate and chess. We’re not going to get into that in this conversation. I will mention one aspect of how there’s a carryover.
In chess, there are three ways to describe a mistake, basically, when you make a bad move, and they’re very kind about it. The first is inaccuracy. If you make a move and it’s inaccurate, or it’s an inaccuracy, you could have made a better move but it’s okay, there’s plenty of time for you to redeem yourself. So one isn’t an inaccuracy. The second is a mistake, they just flat out call you out, “Hey, that’s not an inaccuracy. That’s a mistake. That was a bad move. You shouldn’t have done it.” But not all is lost. But the third is called a blunder. If you blunder, you’re pretty much done, you’re pretty much going to lose the game unless there’s some miracle that takes place. As I was researching chess in my spare time, I came across this blog post. It really resonated with me as a real estate investor. As you can see, it’s what are the main reasons you blunder in chess? The number one reason is they were just careless, they weren’t thinking through things, and perhaps they were overconfident. It got me thinking, what is an area in real estate… I’m specifically talking about commercial real estate because that’s what we’re talking about at this conference. And even more so, perhaps, syndication. It doesn’t have to be multifamily, syndication across any property type.
I was thinking, “Where does that really apply and where could I and other real estate investors perhaps have a vulnerable point where we are perhaps careless?” I would recommend that right now, just for a moment, just think. Where might I be a little careless in my real estate business that it could cause a blunder? Where might that be? I have all points of vulnerability, due diligence, or maybe not underwriting properly, or maybe don’t have the right team. But what could cause a very large blunder where I’m not paying particular attention to enough? What I came across it and when I thought of this, my guess is that if we were in person and I asked that question to a roomful of hundreds of attendees, my guess is that there wouldn’t be one person who would mention what I’m about to call out as an area of vulnerability that they might be too lax in. That area is compliance.
Break: [00:08:51] – [00:10:30]
Joe Fairless: If there are any issues from a compliance standpoint in the syndication industry, then it could very well cause a blunder for your business. The thought process here is… I have a picture here as you can see, with Patrick Mahomes, I went to Texas Tech guns up, he’s getting crushed right there, I feel so bad for him. I bring that up because we’re essentially the quarterbacks of our business. If you look at NFL salaries and those multi-billion-dollar organizations, they know the importance of protecting your blindside. I would say that compliance, for 99% of the people who are listening and participating in this conference, is a blindside. You might be thinking, “You know, Joe. Not me, I’m not part of 99%. I’ve got a securities attorney.” The thing that I’ve noticed, not all securities attorneys –I have a very good one– but most securities attorneys and attorneys in general, we have the same challenge with them as we do accountants.
When you ask an accountant, securities attorney, or real estate attorney a question, they give a great answer, direct to the point, you got your answer. But the problem with that is if you’re not asking the right questions and if you’re not asking them enough times as you’re progressing through your business, then you’re not covered. With the NFL, I’ve seen that the left tackles are actually paid three times more than running backs on average, and two times more than receivers. You might be surprised by that. I was thinking, with our syndication business, are we not prioritizing compliance enough, and generally speaking, across the industry? I would say yes, we’re not. My solution is twofold for this. I’m not just saying, “Hey, it’s important to be more aware of it.” But I have two solutions. One is, if you have more than three syndications in your portfolio that you’re managing, that means you’ve got some momentum, you’re building a business, you have built a business, and now it’s time to get serious about having someone dedicated to ensure that you and your team are being compliant.
My suggestion is to hire someone, an in-house compliance person. If that’s not in the budget because if you look on Glassdoor, it’s between 80 to 250 to $300,000 salary for an in-house compliance person. If that’s not in the budget, then bring someone on part-time and then transition them into full-time, maybe as a contractor, transition them into full-time later. That would be one solution. The other is, I would recommend getting the proper insurance directors and officers for insurance. If you don’t have it, I recommend doing that. This is simply to cover our blindside as real estate investors who syndicate deals. If you’re not syndicating deals, then it’s not as relevant to you because you’re not doing any securities. But maybe you actually are, but you mistakenly think you are not. I would recommend having more protection and more oversight on your team. That would be protecting your blindside.
Number two is that you’ve got team members and right now, clearly, they’re mostly remote, if not all of them are remote. They might not have been remote in the past, but now they are. How do you, as a business owner, feel good about that work is being done and that you’re maximizing the potential of your team members? On the other side of the fence, as a team member, how do you help them be set up for success so that they can take the ball and run with it versus not being clear on exactly what the responsibilities are? Because that’s the main thing I’ve found as a challenge for me personally is with remote team members. You’re not there in the office, you can’t look them in the eye, you can’t talk to them and get some nonverbal cues on how things are going. That’s very challenging. The solution that I came up with, it’s not a revolutionary solution, but it is an evolutionary solution, certainly, if we’re not doing this already. That is to identify a single KPI per team member, that way you know what they’re on the payroll for. If you haven’t done this already, it’s a beautiful exercise.
Not only for you, because it gives you confidence and comfort, quite frankly, that “Hey, they’re on the team and this is the way that they make more money than I pay them.” Not only that, but I found that when you give team members clear direction like this, it’s very much appreciated. It helps them feel better about what they’re doing because they know they’re going towards the direction that you both want them to go towards, that helps the business, they grow, you grow, and everyone benefits. But I want to mention that sometimes when someone is farther away from the money source, what I mean by that is a salesperson, for example. I have some sample team members of mine, I have just one through five, just for sample team members, I want to give you some different examples. A salesperson, for example, it’s very clear, ROI. How much are they compensated? How much XYZ do they bring in? Then there’s the simple compensation structure. But what about, for example, a team member number four who has multiple responsibilities? What about that team member?
That team member is the one that oversees my Best Ever brand. That team member is ultimately responsible for the profitability of the brand. Think about when you’re coming up with the one KPI per team member, think about how you can as closely as possible connect that KPI with profitability for the company. That will help you sleep better at night knowing that you are setting them up on a course to help you grow the business, also to help them perform. You might come across –you will come across I should say– a team member who might be say, an executive assistant or a project manager. In those cases, it’s harder to associate one KPI for that team member. If you can’t do one KPI for that team member, then my suggestion is to have a one-sentence description of what their role is that way they can use it and you can use that, at least, as a way to identify what their focus is and what their role is.
The third thing I’d like to suggest to you is that if you are in a current situation where it’s tough to find deals, I think that’s a common occurrence on finding deals, tough to find deals. Two is even if I find the deals, I’m not sure if they’re going to be generating the returns that my investors are looking for. That’s a challenge because we’re a compressed cap rate environment. Three, as I mentioned earlier, protecting against anomalies that might come up on deals where you’re performing across the board, but there might be a couple of deals that aren’t performing as well as you’d like. How do you protect against that? We’ve talked about this throughout the conference. I say “we” I mean other people. Today, have talked about this throughout the conference, that is the fund model. I would say that with the fund model, what I found is that it’s a beautiful, beautiful solution to solve those three challenges. I’ll get into specifics because that’s what this conference is all about, it’s about getting into specifics. I’ll back up what I just said with some points to illustrate it a little bit more.
With a fund versus doing single asset purchases, what it will allow you to do is it will increase the deal flow. The reason why it will increase the deal flow is that, right now, you ideally have identified a specific property type that you’re going after. Based off of that property type, you have a narrow window of deals that you can look at. When you do a fund, you could be more flexible with different properties that offer different types of returns as long as you ultimately average out to where you need to for your investors. For example, if you have historically been looking at say Class-C properties. Class-C properties tend to have better-projected returns, although you want to get out of them before the CapEx starts coming at you and buildings start falling apart. If you were doing Class-C properties before and you have a hard time finding Class-C properties, but you happen to come across a Class-B property, but your investors were looking for more of the Class-C returns.
If you had a fund, then as long as you’re getting your Class-C properties, you can mix in a Class-B property. It could have lower projected returns but because with the fund, you’re averaging out the returns, you’re able to still deliver for your investors but you’re also able to increase your deal flow. If you’re having a hard time with deal flow, consider a fund because you will open up the types of deals that you can buy while still staying within your area of expertise. I’m not saying go outside of your expertise, I’m simply saying that you can have lower projected returns on one deal, combine that with a higher projected return, and perhaps that lower projected return deal wouldn’t have been able to be purchased by you in the first place if you didn’t have a fund because your investors wouldn’t have gone for that, but combining it into a fund all as well.
The second way that it could potentially provide better investor returns, the second advantage, I should say, is that it could potentially provide better investor returns. The reason why is because you can commingle money in a fund, whereas single asset purchases, you clearly can’t do that. With a fund, if you buy say deal number one and the Capex is $6 million, then in that fund, you are now six months into it, and you’re now ready to buy deal number two for the fund. If the first deal was requiring per year projections, six million dollars, but as you’re into it, as you’re doing the renovations, and as you’re looking at the Capex budget, you’re coming in under that six-million-dollar mark. You’re thinking “Man, we’re actually doing really well. It’s going to cost four million or four and a half million, not six million dollars.” When you’re raising money for deal number two, you don’t have to raise as much money because you’ve already got one to one and a half million dollars in savings from deal one. Because you don’t have to raise as much money as you would have if you’re doing single asset purchases, you’re going to be coming out ahead from a return standpoint.
Break: [00:21:48] – [00:24:41]
Joe Fairless: The third thing I’d say is its better sanity. Because if you have a deal or two that is not going as projected and you have a lot of other deals that are… As a limited partner, if you’re in those deals that aren’t going as projected, that sucks because you’re in a deal that’s not going as projected. But as a limited partner, if you are in a fund with that operator, now those returns are averaged together. You’re in a fund where the other deals that are performing are picking up the slack from the deals that aren’t. As a general partner, that’s a beautiful thing too because now you have one fund that is performing, assuming that you’re hitting projections versus individually reporting on a single deal. From my standpoint, we looked at it extensively. It’s a win-win for the operator and the limited partner. I would recommend looking at that.
Here’s something for thought leadership and challenges that, I can tell you, I’ve personally faced. I’ve got the Best Ever podcast and it’s been going daily for 2500 or so days, literally every single day. I haven’t been doing all those interviews, especially over the last 12 months or so. Theo Hicks has been doing a lot of the interviews, but I’ve still been doing interviews. What I realized is that the more the syndication business, Ashcroft capital, the more that company grew, the less I focused on the thought leadership platform. The result was not good. By the way, it has nothing to do with the interview style that I was doing or Theo was doing. But there wasn’t a dedicated person solely focused on the brand and on all the content across all the different types of mediums within the platform. I recently hired an editorial director and she’s overseeing the entire brand now. So now we have someone in place for that. When she was doing an audit of the podcasts and of other platforms, there weren’t a lot of positive reviews as of late.
It is because that I wasn’t putting the time that I needed towards it and, really, no one was, even though it was one of the most important foundational pieces of the brand. We’re fixing it. I bring this up because the podcast has 2500 plus interviews, you will come across this as you continue to grow. Ultimately, you want to spend time where, just like in real estate, you build the highest and best use on a piece of dirt. In business, you want to be in the highest and best use areas where you make the most money, and it’s fulfilling for you. As you grow your syndication business or commercial real estate business, your attention is going to go towards that, and your thought leadership platform can become stagnant if someone isn’t dedicated to paying attention to it. What I suggest is slowly transition it once it becomes mature. How I think about it is The Tonight Show where you had multiple hosts, Johnny Carson, and then a bunch of other people that have come since then. It’s a platform but then you can transition it to other people.
What you’ll find with my platform now is we have Theo Hicks who is a rock star and has been doing interviews, and he’ll still be doing some. Then we’ve got a show with Travis watts who you’ve heard from during this conference today. Then also Ash Patel, who a lot of you know is a commercial real estate investor who focuses on office and retail. He is going to be doing a lot of interviews for the podcasts. That way, I have the ability to focus on the stuff that makes me the most money. But then also, I’ll still be doing about three interviews or so a month in order to continue to be in the mix. Because I found it’s a great way to stay sharp, but it’s also not the highest and best use of my time. You also see that we’re transitioning from just Best Ever, to Best Ever commercial real estate, to triple downing exclusively focused on commercial real estate. I’ve talked to a lot of people who have thought leadership platforms that are mature, this is ultimately what they’re trying to do. So I’m just letting you know, this is what’s going to happen for you and that’s something to keep in mind. Identify some people who can eventually transition that over for you so you’re not as focused on it.
Lastly, I’ll say that once you implement these four things, if you do implement these four things or any of the four things, you might look like Mickey Mouse right here where it’s just like, “Hey, everything’s good,” whistling a tune. The challenge is what I call a success paradox, which is that the more successful you become in business, the more money you make in business, the less likely it is you’re going to receive constructive criticism from team members. Unless you proactively encourage that. It’s paradoxical because, in order for you to have become successful, you will have received, as you know, all sorts of constructive criticism, with some of it not constructive along the way. So how do we reconcile that as you become more successful, we get less feedback, which we would normally use to implement and become even better? The solution is fairly obvious. I was reading the book Mastery by Robert Greene. He talks about this exact scenario. What he suggests is to identify an event, say two to three months ago, that way, it’s not fresh from an emotional standpoint. You can think about it more as a third party involved, not necessarily personally involved. Think about an event that didn’t go according to plan and then think about how were you responsible for that taking place?
Something that happened to you that you didn’t like, what role did you have in that? What that does is it puts us taking more ownership in what we do, and it helps us get better feedback. The other thing I’d say is, who are the three people in your circle who will give that feedback to you? It’s necessary to have at least three people always in that circle to have that feedback for you. I can tell you, one, you saw the podcast review, the “Meh, so-so,” review. A team member shared that and I love it. I want that type of feedback. So that’s one for me. Two is, Ben actually, recently when we were talking about a welcome video for the conference. I was going to record it and he said, “Great, please record it. But can you do something better from a background standpoint? Because the last time it looked really unprofessional?” I was like, “Thank you for that. Yes, it did look unprofessional. I was kind of thinking that but no one mentioned anything to me. Thank you for that.” He ended up recording the welcome video in the studio to make sure it is professional and reflected the conference brand.
The third is here’s a quote from… It’s not a full quote because the full quote is Rated-R. I’ll let you read it. He said it looked like I was squinting in the sun. This is actually a friend, Ash, who’s going to be doing interviews. He said I was squinting in the sun or it also looked like I just saw one of our friends naked. I won’t mention the friend’s name. He said “That’s just a bad picture of you.” I said “Man, thank you. No one mentioned that to me. I appreciate that candid feedback.” So have three people on your team who will give you that candid feedback. With that, I’ll go ahead and wrap up.
I hope you gained some useful insights and actionable advice from this previous Best Ever Conference session. Remember, if you’re looking to scale your investing in 2022, we look forward to seeing you in Denver. Get 15% off right now with code BEC15 at besteverconference.com. That is code BEC15 for 15% off at besteverconference.com.
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