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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. We only talk about the best advice ever, we don’t get into any fluffy stuff.
With us today, for Follow Along Friday, like we usually do, is Theo Hicks. How are you doing?
Theo Hicks: I’m doing good, Joe.
Joe Fairless: Nice to have you on the show again. We are excited for multiple reasons. One is, well, we’re live – that’s a reason to get excited… Another reason is that we just released our second book, The Best Real Estate Investing Advice Ever Vol. 2, and we already have 16-17 reviews on Amazon.
In case you’re wondering how we got those reviews so quickly – we took a page out of Tim Ferriss’ book and we provided transcripts of the book to a slight number of people, and they were able to read it beforehand. That way when we launch we have a lot of genuine reviews. We didn’t say “Give us five stars”, we said “Give us a genuine review”, and so they did.
If you are listening to this, or watching — by the way, Best Ever listeners who are listening via the podcast, we do this live via Facebook usually every Monday around 10-[10:30] AM EST. So you can always check us out there on our Facebook page (www.facebook.com/meetjoefairless/). But if you’re listening, then I’ll describe what I’m doing… I’m holding up the Vol. 2 book, and what I’d like to do is make an offer to everyone watching the video as well as listening to this podcast to get a bonus guide, which Theo will explain in a second what that is. You’ll get the bonus guide when you buy and e-mail your receipt to firstname.lastname@example.org. What is that bonus guide?
Theo Hicks: The book is the Best Ever Advice from the second one hundred episodes (101-199). In the book we basically go over the background of the guests and then whatever advice they provided at the end of the podcast. As the Best Ever listener know, we have the infamous Lightning Round…
Joe Fairless: Infamous?
Theo Hicks: Yes.
Joe Fairless: Infamous? For bad reasons?
Theo Hicks: Oh, sorry, famous!
Joe Fairless: Famous!
Theo Hicks: The famous Best Ever Lightning Round. I didn’t realize what infamous meant… I appreciate that, letting me know that I’ve been using that incorrectly for my entire life. Anyways… So the Best Ever Book, Best Ever Way To Give Back, and then the Best Ever Deal. So the bonus guide is the Best Ever Deals from the second one hundred episodes, and it ends with Grant Cardone’s Best Ever Deal where he actually provides two really interesting deals. He’s a very animated person, and it’s done in their language, too. If you’re a follower of Grant Cardone, you’ll be able to see in the writing him saying it out loud.
In reality it’s nine deals, but it’s the eight top guests from the second one hundred episodes, and the Best Ever Deals they provided during the Lightning Round.
Joe Fairless: Outstanding. Just like the first volume, all the profits from this book are being donated to Junior Achievement Cincinnati, so you’re helping kids in underserved communities learn financial literacy and entrepreneurial skills when you educate yourself with The Best Real Estate Investing Advice Ever Vol. 2 book.
Alright, sweet. Today what do we wanna talk about?
Theo Hicks: We’re talking about the deal that you’ve just recently close down, and how you are preparing the equity raise. Obviously, you’ve gotten the deal closed, so that by default means that you have not raised the money before the deal – I know you’ve talked about that before… You’re planning going in the process now that you got the deal closed, how you go about raising the money.
Joe Fairless: I wanna be careful of the terms we use when you say “We got the deal closed.” So we were awarded the deal through a process, and we got into the best and final round, and they said yes. We jumped on a conference call and talked through stuff, and now we were awarded the deal, but we do not yet have it under contract. It’s kind of a chicken before the egg type of situation, because while we don’t have it under contract, we also wanna get a head start because we know we’ve been awarded it. So what I’m doing is I’m lining up the equity just knowing strategically, “Okay, we need about 7-8 million dollars, depending on the financing we ultimately go with.” 7-8 million dollars – where are those equity sources coming from?
The approach that I recommend taking is 1) making sure that you have the equity before you get awarded a deal like this, which we do; it’s just a matter of which specific sources is it coming from. So make sure you have it prior. And 2) first you want to list out the different types of sources that it would come from, and then second you wanna create a document that is just one sheet that outlines the high-level overview of it.
The reason why you do the one-sheet prior to giving an investor package is because the time right now where the debt financing is not determined yet – we don’t have it under contract yet, but we’re working on the purchasing sale agreement right now and we should have it in the next couple days – is because we were able to tease out the opportunity to the people who I already know and who I have a relationship with. So I’m able to do that now.
The risk is that since we don’t have it technically under contract, by sharing it with a couple people maybe it comes back to the seller, and the seller is like “Well, maybe I don’t want to go with this…” I don’t know, I can’t think of a real world scenario where things would go sour, or a realistic scenario where things would go sour. But still, I wanna be careful not to send out the complete package and go full steam ahead until I have the deal under contract.
I guess one thing that could happen is for whatever reason I send it out to my investors, and the purchase sale agreement doesn’t go through, and then I’ve sent out an opportunity and now there’s no opportunity… But it’s such a small chance of happening.
So let’s talk about the approach. One is to have the equity lined up beforehand, or at least know you have the capability to bring in the equity. Two is to identify the specific investors who would bring that equity, at least conceptually. They don’t have to be the exact people, because things change whenever you start speaking to investors; some invest more, some invest less, some don’t invest, some do invest… It’s just how things go. Three is to have a one-sheet, so that you can share with them the high-level opportunity while you’re still finalizing in the underwriting, and in our case the debt financing. Then four, you create a marketing package that is more robust, and that has everything from the projected returns to the market info, to the team and everything in between.
That’s the four-step process, but one thing I’d say as a supporting point is we also have a videographer who has a drone, and he is going to the property in two days, assuming we have good weather, and going to do the drone thing over the top of the property, in the rooms, the amenities, close by retail, and we’re gonna put together an investor video like we’ve done on previous deals, which really helps bring the project to life.
So do that four-step process, and then find a videographer to do some drone footage and get some shots of the actual property. It costs about a thousand, two thousand dollars, up to five thousand dollars, depending on how robust you want the video. It’s certainly worth it.
Theo Hicks: So step three was a one-page document, right? And step four was more detail. After step three, are you sending it out to your investors, or you wait until step four to send one to investors?
Joe Fairless: I feel comfortable sending out the one-sheet to investors if I get around to it before the contract is in place. The contract should be in place by tomorrow end of day, and I’ve got a lot going on between today and tomorrow. If I am able to, I’ll send out the one-sheet; if not, then I will send it out once we have it under contract. It’s really just a way to share the opportunity while we’re working on the robust marketing package, which takes about a week, a week and a half to do.
While we’re doing that, we don’t wanna sit on our hands, so we send out a one-sheet just to share the high-level opportunity and get the initial interest.
Theo Hicks: Okay, so you send that to the people on the list you’re creating in the earlier steps… Is there a type of investor…? Are you saying like “This group of people, I know them from here”, or are you saying a specific name on this list?
Joe Fairless: Both. I have specific names on the list based on what they’ve shared with me their goals are. Now that I know what their goals are, I know if this opportunity will match up to their goals. What I do is I have my money-raising tracker spreadsheet, and I’m happy to give everyone listening/watching the template for that; just ask for the money-raising tracker by e-mailing email@example.com if you haven’t got it already. It’s the spreadsheet template that I use for my investors, that I created from scratch.
I just simply identify the investors who I think would be most likely interested in this based on their goals, and then I send it out to them.
Theo Hicks: Is there a number on there, too? Like, “I expect to be able to raise this amount from this person?” Or is it just their name?
Joe Fairless: It’s the low range and high range amount, based on our conversations or historical investments. That allows me to identify how many investors we will likely need for the deal based on the low range and the high range in the people I’m reaching out to.
Theo Hicks: Okay, so we send the one-sheet out to this list of investors… For this example, you’re saying it might be between 8-9 million dollars, and then let’s say on our Excel spreadsheet on the low end it’s 9 million dollars and the high end it’s 12 million dollars for the total… You send it out to all of them – what happens if you get more than what you actually need? What happens in that situation?
Joe Fairless: Well, it happens every time. The one time it hasn’t happened was my first deal. That was when I was getting started. The other time it hasn’t happened was when we took a little bit longer after we closed to close it out, just because a couple life circumstances happened with some investors. In case you’re curious how we’re able to close without completing the money-raise… Well, you have a certain amount – let’s say it’s $5, just for simplicity. You have a certain amount that you need to close which is $5, but you need $10 for the whole project. That would cover the improvement cost, fees, that sort of thing.
So you have a dollar amount that you can close with, and then also a dollar amount that you need for the actual project. When push comes to shove, if you have to, you could close without the total raise done. But to answer question, if I see conservatively there’s 9 million dollars of investors that I’m sending it to, but I need 7, then what I would do is if they all commit, then I would just do it first-come, first-served, which is the fairest way to do it.
What I tell them is first-come, first served, based on a signed subscription agreement, which is the legal document – PPM subscription agreement, operating agreement, and investor qualified form. Those four things. Then anyone who is after that, then we simply put them next in; if a life circumstance happens, a death in the family, someone has to move, losing their job, need liquidity, can’t do a whole for five years, that sort of thing (our projects are typically a five-year plan).
Theo Hicks: Awesome. I figured that was the case, and it’s good to hear your first didn’t happen, but then as time went on, you got more and more investors and they got better… You had “the problem” of having more people investing than you actually needed, so that’s pretty cool. Is there anything else in regards to the money raising process that we didn’t talk about?
Joe Fairless: Not in the context of this particular conversation, no.
Theo Hicks: Okay. Another thing we wanted to talk about today was a question we got from a listener… I’m just gonna read the question verbatim, and then maybe we can talk about it. It’s a very generic question:
“Hi, Joe. My name is Alexandria, I’m 20 years old, my husband just turned 30 and we have two kids. We are very interested in getting out of the 9-to-5 rat race and starting a journey towards financial freedom. We go about $203,000 on our home, and our neighbor just sold for $265,000. We are thinking about selling the home and using the funds to purchase our first multi-unit property, and maybe even live in one of the units, while we continue to work, save and repeat this process.
Our goal is to be able to cover our living expenses from rental income, which currently is about $4,000/month. Any thoughts or advice would be awesome.
We also have about $30,000 in savings, which we’re also willing to use to start this process.”
So $30,000 in savings right now, and the potential of getting another $60,000 — let’s say $45,000, after selling their property. So a total of $75,000 potentially to start their investment journey.
Joe Fairless: Well, I think it is clear and proven over and over that the best way to get started – there’s always exceptions, but I’d say the best way to get started generally speaking is to house hack… Live in one side, rent out the other three, ideally… Not just the other side. Rent out the other three, ideally buy a fourplex.
Alex, before you sell your primary residence, I would look at what you could command for rent for that property and see if that could cover your mortgage, because I’m a big fan of holding on to real estate for a very long time, and not selling unless you’re 1031 exchanging up into the next deal. I’ve just seen it time and time again on the podcast.
There’s certainly times when it makes sense to sell, if you need to exit for a life event and you need the cash quickly, or some other reason. But if you have $40,000-$45,000 equity in the house, you have a couple options before you actually sell.
One is I would see if you can cover your expenses and make just a little bit on the rent, because you do have that savings. So that’s one option.
The other is home equity line of credit, maybe get that at a lower interest rate, and you can use that for more money in the house-hacking scenario. I would look at those two things first, before you actually sell. Because even though your neighbor sold his house for $260,000, you owe $205,000, so that’s $55,000 plus closing costs… You’re looking at $40,000, and that’s if you sell — I don’t know if their house is apples-to-apples compared to their neighbors… So look at those two things first, that’s what I would do.
Ultimately, I love the mindset of house-hacking, which is what Alex is going towards. I would try to buy not only a duplex, but a fourplex if your significant other is cool with that. Because that’s a whole other topic if that’s the case. If so, let’s say your primary residence – let’s say you can break even or make a little bit of money on the property every month, and that includes factoring in maintenance items that have yet to occur, so tucking away some money, not just covering your mortgage, because other expenses will come up, like a roof or an HVAC system, things like that. So you’ve gotta tuck away money…
Let’s say you can make a little bit of money for that without selling; then I personally would take that $30,000, spend maybe $10,000-$15,000 and try and get a property either creatively via a motivated seller, or owner-financing with someone, and then approach it that way and get as many units as possible – up to four – with your deal.
Theo Hicks: Yeah, that’s really good advice. That first option I thought was amazing… They shouldn’t sell their property, they should rent it out if it’s possible; it makes sense. Unless they’re gonna do the creative financing on the second property they’re gonna buy, they’d have to refinance a new regular loan… Because again, two FHA loans… Because they have $30,000…
Joe Fairless: Does it say he has an FHA loan?
Theo Hicks: It does not. I was just assuming that they did. If they have an FHA loan, then they’d have to apply. If they don’t, then they’ll be fine.
Joe Fairless: Yeah, because you can only have one.
Theo Hicks: [unintelligible [00:20:25].01] I bought the property for $170,000. It was only like $5,000 down after closing costs and everything… So $35,000 is plenty of money in a house-hack, even if you go up to $300,000; at 3.5% now, that’s still only $9,500. I like the house hack idea… [unintelligible [00:20:45].08] all of it makes sense, and the rent’s high enough, because I’m sure if they own $203,000, their mortgage is probably kind of high, depending on what they did.
Joe Fairless: Good point, thank you for calling that out. It makes sense. So good luck with that, I wish you the best, and thanks for submitting your question. If anyone has questions like that, then feel free to e-mail firstname.lastname@example.org. If we’re able to get to the question on a show, we will, and we’ll be happy to help out as much as we can.
Theo Hicks: Totally. So the last thing that we wanted to talk about… I was going through Bigger Pockets just to learn about real estate and end up potentially finding some interesting topics to talk about in the podcast, and I saw someone was posting something… He said, “I’m going to rant”, and he was posting about how he gets coffee with newer investors… I believe he was a single-family investor, a wholesaler [unintelligible [00:21:38].16] and he was explaining how he meets with investors and he’s like he has no problem, he will give them advice on the wholesaling process and how to find deals and how to sell deals, how to make a buyer’s list and the source… But the one thing he had a problem with, when people asked him “What markets do you invest in?” or kind of going into the specifics of his business, specifically with regard to finding deals in his market. If the guy’s out of state, he’d be like “Oh yeah, this is how I find deals. But if you’re in my neighborhood, you’re direct competition and I’m not going to tell you that.” And then he said, “Rant over.”
Then people were commenting… I read some of the comments, and I’m just curious… I know that your main focus in your life is giving, so I’m just curious to see what you would think about, if… Obviously, in the short term that would make sense, because me and you are competing for a deal, and I say “Hey, there’s this deal available” or “Hey, I market in this neighborhood” and you find that deal, then you’re gonna take that deal and I’ll lose money in the short term. I wonder if – from my perspective – in the long-term that attitude would be beneficial to your business.
Joe Fairless: When I hear something like that, I would think about it differently, and I do, I practice this every freakin’ day, because believe me, I get a lot of people reaching out to me asking about my business. If I were him, I would ask “How can I use this?” If I were to ask that question “How can I use this?” then the answer – and I’m gonna brainstorm here, because I’m not a wholesaler, and you just told me about this question three seconds before we started airing this… The way I would approach it if I were him is there will be a way for me to bring on team member to help me get more deals, and they can grow by getting my help with the system I have set up, and this gentleman can grow because he’s getting more people helping him find more deals.
Because ultimately what he’s upset about is he is thinking he is giving, giving, giving, but yet they’re wanting to take more than what he’s willing to give. The value exchange is skewed in his mind, and maybe rightfully so… Therefore, if it continually happens, he can’t stop people from asking, but he can come up with a solution that helps the value exchange balance out.
Ultimately, we come across this – not only this example, but many times in life, where people are asking and asking and asking from us, and I get it more frequently now – every day I do a new podcast, the audience grows and I get more and more outreach, and some people just ask for things and they don’t offer to give anything. It’s my fault if I don’t strategically balance it out with how I approach the response. Because I can only control how I respond to what people say; I can’t control what people say.
Now to directly answer your question and the rant, if I were him, I would change my thought process and think “How can I use this?” and then I would identify ways, when they ask me “Where do you market? What are your zip codes? What’s your exact process?”, I would say something like “Hey, I really enjoyed hanging out with you and talking through the introductory stuff; the deals that I get, I’ve got a specific thing that I’m sure you can understand there is a process that I use that if I share it with everyone, I probably wouldn’t get as many deals, therefore I wouldn’t be able to talk to people like you, because I would be scrambling to put food on my plate. But what I can do is blah-blah-blah…” That blah-blah-blah should be some sort of partnership opportunity where that beginning person who’s wanting to get started can partner with him, and whether they go find deals, they knock on doors, they put up bandit signs, they reach out to owners – whatever it is…
That’s understandable from the person who’s asking. They’d be like, “Okay, yeah, I get that. That’s logical, I understand why he wouldn’t be able to share with me that information.” Then it’s a win/win.
Now, I will also say, taking three steps back, if you are in an industry where someone can’t ask you a question and you answer it because you’re concerned that they’re gonna take business from you, you haven’t established yourself enough within that industry. Now, I wouldn’t give proprietary documents out to people who ask me “Hey Joe, can I see the financial model that you use to underwrite deals?” “No, you can’t have that. That’s something that we created from scratch.” But if they ask me stuff about deals, I’m not concerned about losing deals or opportunities to people, because 1) live in a world of abundance, but 2) we’ve established ourselves enough, we’re likely not gonna be budding up against each other. Plus, there’s a relatively high barrier to entry for the type of deals we’re buying, versus a beginner, who’s looking at $300,000-homes or million-dollar apartments. We’re buying 15, 30, 40-million-dollar apartment buildings.
The reason why I wouldn’t give proprietary documents out is because we’ve created the from scratch and I have a client program, I have private consulting clients, and they pay for my time… Ultimately, when you get to a certain point, you’ve got to be really protective of your time, and you also have to know the value that others are paying you to get access to your stuff, so you can’t be giving that away, as well.
There’s a lot of things to consider… The short answer, just to summarize, is think “How can I use this?” and come up with a solution for how you respond to help your business, because clearly, this guy’s having a rant, therefore it’s happened multiple times, therefore that’s on him, that’s his fault for getting annoyed, because he’s not the one who has come up with a solution to balance out the value exchange, so he needs to look in the mirror and he needs to determine how he can create an exchange that makes sense for him, because he knows that it’s going to happen again. He’s either gonna get pissed off and rant again when it happens, or he’s gonna have a solution for how others can help him grow his business while helping them out.
Theo Hicks: Yeah, that question “How can I use this?” is key. You kind of alluded that you use it for everything, but in this specific example “How can I use this” is about “How can I partner with this person? How can I maybe make my own client program? If I have a bunch of people coming and asking for my proprietary information and my sales process, why don’t I just monetize in some form or fashion?”
Something I said too is that I thought the same thing, how it came from that fear of potentially losing a deal to someone else, and that fear of competition. As you said, “How can I use that fear and interpret it differently?”, not think “Oh no, what are these people doing? What’s going on?!”, mean, and kind of looking in the mirror…
This is just spitballing here, but if you have that fear of the competition and someone taking the idea from you, that could be a sign telling you that you aren’t, as you said, as established as you need to be. I guess that wouldn’t work if you’re at the top tier levels, but if you’re afraid of losing the smaller deals to brand new investors, that means that you’re not established enough yet to be at the higher tier of working on multi-million-dollar apartment deals that are selling as brand new. Who you’re gonna be meeting with isn’t necessarily gonna be asking you “How can I buy a 20-million-dollar complex?” I mean, they might be, but I don’t know how often that would happen. That fear could be a sign of “I need to double down and establish myself, and start thinking bigger and expanding, doing bigger deals, so that I could help people that are like me now.”
Joe Fairless: Yeah, it reminds me of the book that I haven’t read, because I don’t think I need to read to get the concepts, and that’s Blue Ocean Strategy, where basically you wanna swim in the blue ocean, not the red ocean where there’s blood in the water because there’s a feeding frenzy and a lot of people are around. The blue ocean strategy is where you’ve got the ocean all for yourself, and there’s not a lot of competition. Red ocean – the opposite.
Same with wholesaling. I assume this guy is a wholesaler. If so, and you’re in a business that someone who listens to one podcast episode can go start the business and compete with you, you’ve chosen to be in that business! The barrier to entry is basically just being able to breathe and having a phone; you don’t even need internet. And I’m not saying to be successful that’s what you only need, I’m just saying to get started in wholesaling that’s what you need.
They’re choosing a profession that has a low barrier to entry, so if you want to be more secure in the thought process, then 1) come up with that solution I mentioned earlier, and 2) maybe evolve the business, too. Really the larger thing is when you get upset about stuff, make sure that it’s not because of an insecurity or a lack of strategic thinking on your part. Because ultimately, we can’t control what other people say or think – definitely not think; maybe say. There might be some Tony Robbins voodoo that you could do to make people say stuff, but you can’t do that, so usually we need to just look in the mirror and do a self-assessment of our own stuff.
Theo Hicks: Yeah. Psychologically speaking, I’m a big proponent of projecting, and I tell myself when there’s something going on in the external world that’s annoying me, I essentially try to figure out what part of me is getting upset about that. There’s nothing to do with what’s out there, unless it’s like a tiger; then I would actually be seriously afraid. But if I’m fearful or getting upset about something that someone said to me [unintelligible [00:31:53].14]
If someone were to tell me that I was fat, I’d be like, “What are you talking about? I think I’m pretty fit.” But if someone said I was fat and they actually thought that, I would be very upset that they did that, and be offended and triggered; it’d be a sign that “Hey, maybe there’s something that I need to do to work on myself.” If someone called me stupid or dumb, or fill in the blank there… I try to think of that in the sense of everything — if someone does something to me or something happens to me and I react too emotionally (generally speaking; not every single time, obviously), I think of it as me projecting something on my inner lens of insecurity that I have, and I try to figure out what I need to do to fix that, because if I don’t fix something going on in my head, it’s just gonna keep happening over and over and over again, until I make some sort of change.
Joe Fairless: The book Crucial Conversations talks about telling yourself a story, and that story might be incorrect or correct. I recommend that to everyone I talk to. I’ve read that book multiple times. Crucial Conversations – buy that book if you haven’t bought it and read it. The last thing I’ll say and then we can wrap up is nothing in life has meaning until we decide to give it meaning. Everything that we’ve talked about in this episode, everything that I hear in my life – it does not have meaning until I internalize it and I project that back out.
Clearly that’s true, because everyone listening to this podcast will internalize it differently. Some people might think, “Holy cow, these are some insightful dudes”, some people might think “I just wasted the last 30 minutes of my life. Screw you Joe and Theo!”, others might think something in between. [laughter]
Theo Hicks: Yeah, I think it’s mostly the first one though.
Joe Fairless: Yeah, but the point is that nothing has meaning until we decide to give it meaning, and that’s something we’ve gotta really pay attention, and be guardians of our mind and determine how we decide what meaning to give certain things.
Alright, Best Ever listeners, I enjoyed our conversation, as always. Theo, good hanging out with you, as always.
Theo Hicks: Yeah, I love it. These conversations are fun. I like them a lot.
Joe Fairless: Where can the Best Ever listeners listen to your podcast, and really quickly, what’s your podcast about?
Theo Hicks: TheoHicks.org. Actually, the last 5-10 minutes of the conversation is what the podcast is all about, because it’s kind of taking a philosophical or psychological look at current events, and success, business and life in general… I was mentioning that inner lens – how to tweak that and clean that up so that you’re not projecting a bunch of nonsense to the world, so that you’re able to live a more fulfilling life. That’s the goal of the podcast, try to figure that out for myself and at the same time help others do the same.
Joe Fairless: Awesome. Well, Best Ever listeners, talk to you soon, and thanks for watching and listening!
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