“If I find something that meets your financial goals, would you like me to share it with you?”
How did you make the transition?
“I started investing in single family homes [while living] in New York city, investing in properties where I was from in Texas…in 2009.
I ended up buying 4 homes as “buy and holds”.
I still had my full time job. It was a slow transition. I started learning Real Estate Investing in 2006, and in 2012 I left, so that’s 6 years. I never visited a house before I purchased it. Once I left, I realized that I couldn’t get approved for a mortgage because I didn’t have stable income [From a full-time job] coming in. And single family homes just weren’t cutting it from a financial goal, fast enough for what I wanted to accomplish. So I started studying multi-family and studied how to raise money from investors and closed on my first syndicated deal, 168 units in Cincinnati in July of 2013.”
[JC: The majority of our successful students have started investing while still working full-time. Our investor of the year in 2016, Michael Johnston, continues to work full-time and just quit his job in 2017. Sometimes, having a full-time job can be a benefit to your real estate investing side hustle because you have an easier time getting financing.
Also, Joe lived in an area (New York City) where it is difficult to find deals. So, he was able to invest virtually without EVER seeing a property in person. So as long as you do your due diligence with online tools and work the numbers right, you can invest in other markets if yours is too competitive.]
Most of our students are investing in single family properties. If someone is a single family property investor, how do they make the transition to commercial properties?
How I was able to overcome the challenge of not having any experience in the commercial space…is that I simply surrounded with people who HAD that experience.
-A Local Management Company – If you are setting your real estate empire up as a business and not another job. You’ll want to have a 3rd party management company or create your own management company. Having a local partner in the market [That you are investing in virtually] is critical. Let’s pretend Josh owns a property management company…then you can you can say:
“I was speaking to Josh’s team in Cleveland, they are going to be handling the management for the property that I purchased for the next 6 months in Cleveland.”
That statement is going to give us a lot of credibility and go a long way in establishing us in the mind of the broker. Because the broker thinks:
“Ok he’s talking to a credible property management company in Cleveland.” Then you’re able to have a credible conversation.
The second person or entity…is a Consultant or at least modeling somebody who is willing and able to give you their expertise and answer your questions on an ongoing basis. It’s a must. We can read all the books, listen to all the podcasts, and participate in as many forums as possible. But eventually, you’re going to need somebody who is there to help answer the questions that you have during the unique aspects of a particular deal.
So I aligned myself with a Property Management Company, and with a Consultant. With those 2 entities, (In addition to a tremendous psychological expansion of my mind whenever I was looking at apartments) I was able to make the transition.
I was originally looking at a 30 unit building as my first purchase in Tulsa, Oklahoma…I thought I could confidently raise $300,000-$400,000. We made 8 or 9 offers and nothing came back. My consultant ended up coming across a deal in Cincinnati. The challenge was that it was 168 units, not 30 units. And instead of raising $300,000-$400,000, I needed over $1,000,000. I had never raised a penny before, but with the support of the team around me, I grew INTO the deal. There’s no way in hell I would have EVER selected a deal with 168 units [Without the team]. After I got so familiar with the 168 units, after I evaluated it, I said: “There’s no way I’m going LOWER than 168 units.” I think that is a big part of it, playing in the big leagues with the big league players and having some allies on your team who are at that level, so you can go in there with your eyes wide open and intelligently make it happen.
All the individuals who closed on their first multi-family deal…I guarantee you that they would say that their first regret is that they didn’t go large enough. How you do that is that you follow the 3 things I mentioned before:
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1. Find those who are successfully doing it.
2. Get a Consultant.
3. Have a local team in place.
[JC: Align yourself with a consultant, and align yourself with a property management company in the area that understands rent roles, tenant placement, and how to manage these large multi-family units. The best multi-family deals may not be in your “back yard.” If you look at the deal, the numbers tell you what is a good deal, and what isn’t. When you start doing flips, rentals, or multi-families on a larger scale, you get used to it and never go back.
What really hits home for me is the need to have “allies” in your corner. Joe mentions that he never would have had the guts to raise over 1 million dollars and invest in a building with 168 units without some kind of mentorship. Our most successful students have invested in coaching to help them get to the level they desire to be at, because our coaches are actively and successfully, “Doing it.” For Joe, having a mentor was the difference between a 30 unit building, and a 168 unit building. Even if you never thought of yourself as an investor who invests at the scale that Joe does, if you do a couple deals successfully at that level, you’ll quickly increase your “appetite” and ability for deals of this scale. ]
Let’s talk about syndication. What is your take on the definition of “Syndication” and how does it help you raise money to buy multi-family properties?
I like to define it using an example: Everyone has likely participated in a “Syndication” if you’ve flown somewhere. If you fly somewhere, you buy a ticket, get on a plane with other people, and you arrive at a destination you all chose to arrive at.
It’s the same with a syndicated deal in real estate. You put in a little bit of money, (Relatively speaking) to buy something that is worth much more (In this case, a building. In the previous example, it was renting an airplane). And you’re able to arrive at the financial goal that you want, in whatever the projected profits are. So, all syndication is, is when you raise money from individuals and you participate in something larger, and you all share the benefits.
So for the investors that I have in my network, we do just that. I am constantly speaking to my friends and my network about what I’m up to and learning about their goals. That’s key for me. .. If I find a deal, we underwrite it, and we put a presentation together for my network of investors. I do it on a “Deal by Deal” basis. I’m not scrambling to raise money. What I do prior to [Needing the money] I simply have conversations with [My investors]. I ask them about their financial goals, and learn about their financial goals, what they determine success looks like with their investing. Once I know that, I can see whether we are a good fit for a syndicated deal. Then I ask them: “If I find something that meets your financial goals, would you like me to share it with you?” Everybody said “Yes” so far.
[JC: This reminds me of Warren Buffett. When Warren Buffett started his company, (Berkshire-Hathaway) it was much like a syndication. He put a little bit of his own money into the company. And was able to prove to his investors that he had a successful track record with his stock recommendations. He was able to put a large amount of shareholder interest in the company, while everyone else put up the money. So he basically contributed the “intellectual capital”, and the investors contributed the monetary capital. And it sounds like Joe is kind of in similar situation where, he might be contributing a little bit of his own monetary capital, but what he is really doing is being the “Ring Leader.” He is contributing his Intellectual Capital, to find the deals, vet them out, underwrite them, and produce a good investment opportunity, while everyone else produces the monetary investment.
So as you can see, the most important part of real estate investing is getting the funding. Who are the individuals who are most likely to loan you private money? Those that know and trust you will be the most likely to invest in your deals. This is the reason why when any person that you know thinks of “Real Estate,” you need to be the top of mind reference. If someone in your network knows someone who wants to sell their house, they need to be thinking of you. If someone in your network knows someone who is losing their retirement money in the stock market and is searching for better investments, they need to be thinking of you. Your network of investors, fans, and “cheerleaders” can bring you the money and the investors that you need to succeed in real estate investing. So, it is important to stay in touch with your network. Find out what their financial goals are, and what THEY want. If you have private money BEFORE you get a deal, you will be able to close faster and easier.
Syndication is essentially what we’re doing with private lenders (Except we do a “Debt Financing,” whereas syndications use an “Equity Ownership” model). You might put in some, or even none of your own money into a deal. You contribute the Intellectual Capital, and your private lenders contribute the Monetary Capital. If your network knows what you do, and needs you to invest their money, how can they say no?]
Anything else you’d like to say?
“The secret to living is giving.”
A cousin of that quote is: “Help people get what they want, and you’ll eventually get everything you want.”
I think as long as we live by that mantra, things are going to be great.
JC: Here’s a guy who starts investing virtually, learns about syndication and raising private money, and takes on a 168 unit building as his first multi-family investment. Joe would probably tell you, “I just got in, and took action. I learned and took action. I didn’t just learn, and learn, and learn.” Don’t just continue to attend webinars and classes…You have to go do it! Get out into the field and start making offers! You might have to make 2 offers to get a deal. You might have to make 30-40 offers to get a great deal. But unless you make an offer, no one is going to know you’re a real estate investor, and making offers is where it begins.
Be Daring,
Josh
Joe Fairless is real estate investor based in Cincinnati, Kentucky. Mostly investing in commercial property, he currently controls over $132,000,000 of real estate.