Dave:
Hey, everyone. Welcome to On The Market. I’m your host, Dave Meyer. Today, we are going to be trying something a little bit new. For the first part of our show we have Clay Finck joining us, who is the host of the Millennial Investing podcast and is an expert on the stock market. And he’s going to teach us and inform us about what is going on in the stock market right now.
And I know, listen, I work for BiggerPockets, I get that most of the people listening to this are active or aspiring real estate investors, but it is really important for real estate investors and investors of all type to understand what is going on in different asset classes. Because as Clay is going to explain to all of us today, you will see that there are correlations and that these asset classes, although they’re different, are really interrelated and a lot of the same principles about investing apply.
During the second half of the show, Kathy, James and Henry joined me to break down what we learned from Clay and talk about how real estate investors should use the information that we learn and how to use the stock market to further your real estate investing career. I think you’re all going to enjoy this new format, but if you have any feedback, thoughts about how we can improve, please make sure to let me know.
You can hit me up on Instagram, where I’m @thedatadeli, or you can always find me on BiggerPockets. With that we’re going to take a short break and then jump into our interview with Clay Finck from the Millennial Investing podcast.
Clay Finck, welcome to the On The Market podcast. Thanks so much for being here.

Clay:
David, so excited to be here. Thank you so much for having me.

Dave:
Of course. So, before we jump into what’s going on in the stock market, can you give our audience a little bit of background about you and how you got into being such an expert on the stock market?

Clay:
Yeah. So, growing up, I was always pretty good at math. Math was kind of my thing and never really knew anything about investing growing up. Wish I learned about it sooner, but we all go on our own journey and figure it out one way or another. And never really talked about money growing up. But when I was 18 or 19, I read this biography of Warren Buffet.
Since I’m from Nebraska, I was pretty familiar with Buffet and I was like, “How in the world did this guy become one of the richest people on the planet?” And I was reading about this idea of investing and I’m just like, “Why is no one talking about this?” So, I just wanted to learn as much as I could about investing. And that’s how I discovered the Investor’s Podcast Network. Stig and Preston started that podcast back in 2014, and it was just very clear to me that they really knew what they were talking about.
They were founded on studying Warren Buffet and I just loved learning about it, learning about the markets, and just loved this idea of having your money work for you. And it’s been said that the stock market is the most powerful wealth building machine that’s out there. Some of your listeners might not agree with that. I know many people have become millionaires investing in real estate as well. Both methods work very well. And one of our hosts actually, Robert Leonard, he’s my co-host on our Millennial Investing show, he actually provides these Buffet type principles to the real estate market where he invests in what he knows.
He invests in high probability type events where he can get high cash flow and has a high level of certainty. So, he has taken the ideas he’s learned from the stock market and applied it to real estate. So, I went on to college and went the traditional corporate path. I worked in insurance for a few years and TIP had an opening for a host on their Millennial Investing show. And I was like, “Heck, I’ll just throw my hat in the ring.” Didn’t really expect to end up getting it, but here we are speaking today. I’m about coming up on a year for being a host for the show and just having the time of my life, talking with some really good investors every week, it’s a lot of fun.

Dave:
Good for you. That’s an awesome story, I really enjoyed hearing that. And I do think that our audience would probably debate on the stock market vs. real estate. But personally I believe that it doesn’t have to be either/or, that these things are supplementary. And that’s the whole reason why we wanted to have you on to talk about how you can build wealth and even passive income through the stock market, which we’ll get to in a minute. But I’d like to start just by addressing the elephant in the room, which is the stock market’s recent performance, at least over the over 2022, has been a fairly significant decline. So, could you give us a summary of where the market is today and maybe provide some historical context about the era we’re in right now?

Clay:
Absolutely. So, I just checked prior to this recording, the S&P 500’s down roughly 20% year to date. A lot of investors are probably pretty spooked. And really what’s been driving the markets, from our view, over the past few years is really driven by what the Federal Reserve is doing. And this is where it kind of goes over people’s heads, but I’m going to try and simplify things as much as I can here. So, the Federal Reserve just really has its hands in the overall financial markets.
If you just simply plot the money supply or the assets on the Fed’s balance sheet, and you plot that against the S&P 500, which is just the general stock market trend, those are very highly correlated. So, if the Federal Reserve is printing more money, we’re seeing the prices of financial assets like the stock market go up, and when they stop printing money or they kind of taper things down or normalize, then you see the stock market throw a fit and pull back.
And right now we’re seeing that time where the Federal Reserve isn’t being as accommodative to the markets and we’re seeing the market pull back. And it’s not the first time we’ve seen this. Around March 2020, we had the COVID pandemic hit and financial markets were in a mess. We saw a really sharp draw down in stocks in March 2020, and the Federal Reserve was very accommodative during that time period, because they really needed to be, to prevent a global recession like 2008.
So, they were accommodative to the financial markets, they printed more money, they handed out these stimulus checks and these PPP loans, and the Fed said that inflation wouldn’t really be a problem. Well, it ended up being a huge problem, and that’s where we’re at today. You have inflation running at, call it 8%, and the bond market, which a bond is really just a contract. You put down $1,000 today, and you might get some sort of yield on that until the bond’s maturity and get your $1,000 back.
So, if bonds are yielding 3%, you lock in a contract to get a 3% yield. But inflation’s 8%, then that’s not really a good deal because you’re losing purchasing power. So, that just really throws the markets in for a loop. And once the Fed realized that inflation wasn’t really transitory, it looked like it was going to stick around, that’s when they decided they wanted to contract the economy and try and not be as accommodative. And, again, that’s why we’re seeing things pull back. So, to put it really simply, the Fed’s either expanding the money supply or they’re contracting the money supply.
Since March 2020, they were really just expanding it, and we saw asset prices explode, stocks go up, real estate as well is kind of correlated with that. So, real estate markets went up as well. And interest rates play into it too, because the Fed has influence on where interest rates are set. So, right now the Fed isn’t expanding or providing that easing, they’re doing the opposite. So, the money supply is contracting a bit, they’re taking some money out of the system. So, it’s natural to think that the prices of those financial assets that were influenced by the expansion of the money supply is now seeing the opposite.
And I guess I’ll also mention that if you look back at history, you look at, like I mentioned, March 2020, when the Fed needs to be accommodative to the markets, they will. So, it’s my expectation that eventually things are likely to break down, so we’re going to see some sort of breakdown in the economy. I don’t know where exactly it’s going to be. And once the Fed recognizes that liquidity needs to be added to the system, they need to provide more money to help fill the gap somewhere it’s needed, they’re going to do that.
They did that in March 2020. The repo market, which we don’t have to dig into, it’s essentially the plumbing of the financial system, that had liquidity issues in September 2019, and they stepped in and provided liquidity there, because that’s really their job. They’re the lender of last resort, they’re the bank for banks. And since our economy is largely driven by credit and all these loans out there, a lot of the money out there is just loans given out by a bank. You can run into issues when there’s liquidity issues, especially with these larger institutions.

Dave:
Thank you for that. That’s super helpful. So, it sounds like similar to the real estate market, we’re just seeing that the Fed was being very supportive to the economy, and in particular when monetary supplies increase, you see asset values go up. That happened in real estate, that happened in the stock market. And now that the Fed is changing course, we are seeing that reverse in the stock market. Now it’s not reversing yet in the housing market. We’ve talked a lot about it on this show, so we’re not going to get into that here.
But it sounds like what you’re saying is that the Feds raising rates until inflation goes down, or until economic activity declines to the point where they’re like, “Okay, we can live with a little bit of inflation, but we have to add monetary supply to make sure this recession that we are likely in, or going into, doesn’t get too deep and too serious.” And if that’s the case, do you expect the stock market to be in a bear market, or remain relatively flat until the Fed again changes course and starts adding liquidity in the market by lowering rates?

Clay:
Yeah, 100%. I think we could definitely see more downside given that the Fed is taking money out of the system and they’re raising interest rates, and we can talk about that relationship if you’d like, but yeah, I expect… I guess I shouldn’t say I expect, I wouldn’t be surprised to see more downside from here. The Fed is really trying to tackle the inflation problem. They don’t really mind or care if people’s stocks are going down now, because they really need to get a grip on inflation. But like you said, they’re going to try and tighten as much as they can until something breaks in the economy.

Dave:
That’s just a terrifying statement, right? I keep hearing people say that. It’s like, “They’re going to tighten until something breaks.” I can’t believe that our economy is basically like inflation or breaking right now. Those are the two options it seems like.

Clay:
Right. Well, in 2008 they started their quantitative easing program. They printed over a trillion dollars. So, they turned on that spigot and we’ve come to find out over the last, call it 14 years, that it’s really, really hard for them to turn that spigot off. And that’s just the reality of the situation and the way I see it. So, I could see more downside for any financial asset market. It could be real estate, stocks, crypto, or whatever, but I do expect once they do reverse course, we’ll see a strong rebound in the stock market for sure.

Dave:
Yeah. I mean everything you’re saying makes a lot of sense logically. So, we’re seeing the stock market on a whole has a lot of interest rate sensitivity. Are there certain segments of stocks or certain types of stocks that do better or worse in this type of rising interest rate environment?

Clay:
Yeah. So, from a high level, I would say the valuation of stocks is really driven by two things currently. I talked about the money supply and how that has an effect on the stock market and how those are really correlated. But the other major driving factor is interest rates. The value of really any asset is based on the discounted future cash flow. So, if you’re a real estate investor, say you have a, call it a property, that’s $100,000. That might be the price someone’s offering it to you. You can look at what’s that going to produce per month or per year, and kind of project that out.
And using those cash flows, you can come up with some sort of reasonable or conservative value what you would pay for that property. So, it’s the same idea for the stock market. In terms of which types of stocks are hurt more by higher interest rates, it’s pretty obvious just looking at the past performance of some stocks. In the low rate environment we saw in 2020 and 2021, the “growth names” are the ones that tend to do really well in that environment. So, the companies that ARK invest in that grow at 100% per year, don’t really have much earnings today. They may in the future.
Companies like Tesla growing very fast, don’t really have too much for earnings today. Very fast growing companies do well in a low rate environment. And when you look at it through the discounted cash flow lens, that makes sense, because they have earnings really far out into the future. Tesla, they may have a lot of earnings in 10 years. When you discount that at 2%, that really doesn’t bring down those earnings too much. But if you discount it at 6% or 8%, that really hurts the value of Tesla today. So, that’s why you’ve seen the higher growth companies get hurt more.
And then you look at say a stable company that isn’t growing near as fast, you can call that a value stock. I’ll just pull a company like Costco. It’s a very stable company, they have strong cash flows and it’s very reasonable to think that those cash flows are going to continue to grow over time. Well, Costco isn’t down near as much as many of these other growth names, because of the way it’s valued and also how the market perceives the riskiness in that sort of company. So, I guess the big takeaway here is that the value of stocks are really driven by Federal Reserve policy, for sure, and then also interest rates as well.
So, a big question might be, where are interest rates going to go in the future? You have some people saying that we’re going to see higher rates because of the high inflation. I would maybe push back on that, because the Fed wants to maybe be accommodative in the future. So, that would mean they would need to lower rates to stimulate the economy. But in terms of my strategy, I just look to try and buy and hold really good companies, or just simply index funds. And we can dig into that if you’d like as well.

Dave:
Yeah, that’s a great segue, because I do want to talk to our audience who is mostly real estate investors, aspiring investors, but I would imagine that the vast majority of people listening are also interested in investing in the stock market. And even if you’re not, understanding the stock market is vitally important because what happens in one major asset class like the stock market, or you reference the bond market earlier, has a huge implication on what happens in the real estate market and vice versa.
Because investors are always chasing yield, they’re chasing the best opportunity, and so if some asset classes are performing poorly and other ones are doing well, you could see money going from the stock market or crypto into real estate or vice versa. So, even if you’re not interested in investing, it’s super important to understand this. But I do want to talk about if there are opportunities right now, because I am a complete novice, but I look at the stock market and I’m fortunate because I’m not trying to retire anytime soon.
And so, although I don’t like seeing my portfolio go down, I have confidence that it will go back up in the future. And I’m looking at some of these stocks, I’m like, “Ooh, it’s a sale.” There’s all this stuff discounted. Is that a stupid way to look at it, or are there actually opportunities right now?

Clay:
Yeah, absolutely you can find opportunities out there. I guess zooming out a bit, TIP was really founded on studying Warren Buffet’s value investing principles. So, we are looking to pay a fair price for the investments we have. For those who aren’t familiar with Buffet, he’s really looking for businesses that are really easy to understand, companies that have a strong moat or competitive advantage, so their earnings are expected to continue far into the future. And he is looking for a company that’s trading at a price that’s attractive to him.
And then it’s also companies that are growing and have stable earnings and have good management. So, I do have like a watch list of stocks that I’m keeping my eye on. And we have a tool here at TIP, there are a lot of stock investing tools, but TIP has one called TIP Finance that I use to determine an expected return I can get on a stock. So, I could punch in what’s the stock going to earn maybe next year? What do I expect those earnings to grow at? And then essentially there’s a calculator that says if you bought the stock today, you would get this return.
So, that’s kind of my process for how I’m looking at stocks. At any point in time you might have good opportunities, it’s just depending on what sort of yield or rate of return you’re looking to get. Apple might be trading at $150 today, say I could punch it in the calculator, say I come up with a call it a 6% or 8% expected return. Obviously the price could go even lower, but that pushes my expected return even higher. So, when you find those companies that you want to own for the long term and they’re really good businesses and they aren’t materially affected by these short term swings in the market, then you can treat any dip as a buying opportunity given you’re applying those strict principles and buying those really good businesses.
Outside of that, I’m always dollar cost averaging into index funds. I specifically do VOO and QQQ. VOO is just an S&P 500 fund, which is just the general stock market. And then QQQ is just a technology ETF, which is like the Nasdaq, so it’s many of the big tech companies.

Dave:
I love the idea of dollar cost averaging. It’s actually something I do both in the stock market, still doing it now buying in at a regular interval. I do it with real estate as well, but could you just explain to our audience what dollar cost averaging is?

Clay:
Yeah. So, dollar cost averaging is essentially taking the timing out of the market completely. So, say you get paid from your job every two weeks on Friday, you can set up, say with Vanguard, you can set up an automatic purchase of say an index fund, like VOO. So, I can set up on Vanguard every two weeks the day I get paid, I’m going to put this much into the ETF. There’s a ton of benefits to this. You’re taking timing and the emotions completely out of it. If you just let the money pile up in your bank account, you might try and buy when things are really hot. So, you’re buying really high, which is not a good thing obviously. And then when things dump down to the drain, you might be trying to sell.
So, it really just automates your whole process and takes the human emotions out of it. So, I think both of those are really key. And you mentioned the real estate. I hear so many people saying that, “Oh, I don’t want to get into real estate, because the market’s going to crash,” or whatever. Well, eventually it might crash. It’s crashed occasionally in the past, but if you apply that dollar cost averaging strategy, say you buy one or two properties a year for five years, maybe you have one bad year, but all the other years are going to more than make up for that. So, that’s kind of how I think about it in terms of real estate, and I think dollar cost averaging is a really good strategy for real estate investors as well.

Dave:
Totally. It makes so much sense. I mean I’m someone who spends half of my life analyzing the housing market and data and what’s going on there. And I think I know what might happen in the housing market, but no one knows for sure. And I imagine you probably feel similarly about the stock market. You are informed, educated, have good opinions and logical thoughts, but things happen that you can’t foresee. And I think that the dollar cost averaging is so great, because it’s just the humble approach.
It’s just admitting that you don’t know what is going to happen in the market. But what you do know is that over time asset markets, both the stock market and real estate market, go up. And if you could just attach yourself to the average over time, you are going to have tremendous benefit to your financial situation. So, thank you for explaining that. That’s something I really like. One specific part of the stock market I wanted to ask you about was dividend stocks. Because a lot of people who listen to this, and myself included, get into real estate because they’re interested in financial independence and the FIRE movement, and that is centered a lot around cash flow.
And that’s why a lot of people love real estate so much, is because it offers cash flow in addition to appreciation and tax benefits and all the rest. But to me, dividend stocks are sort of the equivalent of a cash flowing house in the stock market. So, I’m curious if you could just first tell our audience what a dividend stock is, and is now a good time to look at any particular dividend stocks?

Clay:
Yeah. Well, I wanted to say to your point earlier, people look at the real estate market or look at the stock market and they just see all this risk. The market could crash this year. Well, what’s your alternative? Just hold cash your whole entire life? Well, you have to look at what are the opportunity costs? What are you going to do if you don’t invest in real estate, or don’t invest in stocks? Holding cash is a guaranteed losing strategy.
So, like you said, dollar cost averaging helps reduce that risk in the market. And then having that long term approach also almost eliminates your risk. Buying and holding quality real estate or quality companies and holding them for a very long time takes that risk out of it. So, having the right mindset and just being educated on why you’re buying what you are, I think is really powerful. In terms of dividend stocks, so companies essentially earn money, earn profits, and they can do two things really, I guess, three things with that money.
They could either pay out those earnings as a dividend. So, if you own Coca-Cola stock and they pay out a dollar per share in dividends, then the shareholders get that dividend. Other things the company could do with those earnings is either buy back shares. So, many companies do this. Apple is one that is very popular for doing this and has led to the stock performance doing very well. So, they can take some of those earnings and buy back the shares. That makes the existing shareholders own more of the business. Buffet’s a huge fan of share buybacks.
And the third thing a company can do with their earnings is just simply reinvest back into the business. And different strategies are good for different companies. A company that’s more in growth mode, say like Tesla, they do not want to pay a dividend because they have all these opportunities in the market in terms of electric vehicles and reinvesting back into the business. And essentially they believe they can get a high rate of return on their money should they just reinvest back into the business and go out and produce more cars, or do whatever Elon thinks is best.
While a company like Coca-Cola is a whole lot more mature, so they’re going to want to reward shareholders for owning their stock and pay a dividend. So, that’s the reason dividends even exists in the first place. For someone who’s newer to investing, I think index funds are a really good place to start for dividends. I’m going to mention two here. One is VYM, which is a Vanguard high dividend ETF. I think it’s a really good option. They pay a dividend quarterly, which is every three months. So, you get four dividend payments per year.
And at the time of this recording the yields about 2.7%. So, every $100 you put in, you’d get around $2.70 In that first year based on what the dividend performance has been over the last 12 months. And it looks like the stock price right now is around $100 actually. And I did add up the dividends over the last 12 months and it was actually $3.20. And just to try and look at how has that changed over time, the dividend five years ago was $2.30. So, the dividend itself has increased by 40% over time, meaning that those companies earnings have grown over time, they’ve decided to increase those dividends over time.
So, a lot of these really good companies that pay dividends are going to increase the dividend rate at least by, call it 5%. At least the rate of inflation is what I would expect. And another option newer investors might consider is VIG. This one is geared more towards dividend appreciation. It’s another Vanguard ETF, and the yield on this one’s about 1.7% and their dividend per share has grown even more than that 40% for VYM. And outside of that, investors might consider individual stocks. To get a start, you could just look at the holdings of these index funds to get ideas.
And some companies that stand out to me are Home Depot, Walmart, Microsoft, and Lockheed Martin. Some of these might pay a dividend higher or lower than these index funds, but I just wanted to run a few rules of thumb I have when it comes to picking dividend stocks. Number one would be do not chase a yield. If a stock has a yield of over 5% in today’s market, that is a huge red flag to me. So many people I see got suckered into buying AT&T. It had a 6% dividend yield at 30 bucks a share and people were thinking that there was no risk buying this company, they paid an incredible dividend, it will be around forever.
Well, they ended up cutting their dividends substantially, and now the stock’s trading at around $21 per share. So, when the dividend yield is 5% or more, that’s the market’s way of telling me that this is probably not a great stock to hold and it’s probably a lot riskier than you might think. Then again when it comes to dividend investing, you want to be in it for the long haul. So, it’s probably not the best place to park cash that you need within the next year or two. Dividend stocks probably aren’t your best bet for short term cash.
And then if it were me, I’d, again, try and stick to Buffet’s principles. Companies that are easy to understand, they have a strong moat and competitive advantage, and they have generally a lower PE and they’re more of a value stock rather than a gross stock.

Dave:
That’s awesome. Thank you so much. I think there’s this thought process in the world of real estate that there’s no way to get cash flow from the stock market, but clearly there is, but the cash flow rates are probably not what you would expect in real estate. I actually tend on the lower side of caring about cash flow right now, but you still want 5%, 6% cash flow minimum. Some people are only looking for deals over 10%.
But if you are looking for a diversified portfolio that produces cash flow, dividend stocks can provide the dual benefits that cash flow in real estate do, which is the ability to generate some cash, albeit probably less in terms of cash on cash return, but still can appreciate and provide appreciation as well. Clay, this has been super helpful. We do have to go soon, but is there anything else you think our audience should know about the current state of the stock market or any opportunities you see?

Clay:
Yeah. I guess one thing I wanted to mention is that given all this stuff with the Fed, two billionaires that have had a huge impact on TIP is obviously Warren Buffet, but another one’s actually Ray Dalio. And Ray Dalio is actually very popular for this thesis he put together related to the long term debt cycle and what I was talking about earlier. Essentially the Feds kind of in this really difficult situation where they want to tackle inflation, but they want to keep markets stable.
And they just really have this big conundrum. And what I will say is that I think we could be heading for a really inflationary time period. They really want to tackle inflation now, but they might not have a good way to really do that. They might not have a way to tackle that inflation problem without things really breaking down and we enter a really bad recession. So, given what we’ve learned from Ray Dalio, we think money printing is likely to continue and that might mean a really inflationary time period.
And you might think about how you might position yourself if we enter that sort of time period. And I can’t help but think about real estate investors. They are in the perfect situation for this type of scenario where they’re taking on a loan and they have these, it’s likely a 30 year fixed loan or 15 year, whatever the loan term might be, but oftentimes it’s a fixed mortgage. So, you’re making those fixed payments every month. So, if you have high inflation, that means your payments are getting easier to pay off over time.
If you have good real estate, you likely have tenants occupying that real estate every single month. So, rents are increasing over time, because there’s inflation. So, that’s just extra profit for you. Also, obviously your expenses are going to increase some as well, but I guess extra icing on the cake is what you real estate investors might call it is the appreciation. If there’s an inflationary time period, the dollar becomes worth less over time. It might be a different currency for you given you’re in Europe, depending on where you’re investing, but the dollar’s becoming worth less over time.
So, that means the appreciation of real estate. So, it’s just this really good scenario for real estate investors, I think, given they’re buying and holding quality properties. And then the same thing kind of applies to quality individual stocks. The great companies are able to increase their prices over time, they have that pricing power to be an inflation hedge and help them weather through that storm.

Dave:
Clay, that was awesome. I wasn’t expecting a real estate investing pitch from you, but I certainly appreciate it. This has been super helpful. And I think on behalf of our audience, who might not be as familiar with this topic, this has been a great primer and helps understand the state of the current stock market and the economy as a whole. If people want to learn more about the stock market or you, Clay, where can they do that?

Clay:
Yeah. I host the Millennial Investing podcast. That’s the name of the show. It’s under the Investors Podcast Network is the company. They have two different shows under their network. My co-host, Robert Leonard, actually has a real estate show as well. It’s called Real Estate 101. So, he hosts a show that’s released on Mondays, and then I host a show on the Millennial Investing feed that we release on Tuesdays and Thursdays.

Dave:
Awesome. Great. I was actually chatting with Robert earlier today and hopefully we’re going to have him on the show at some point too, because he seems like a great investor to connect with. Clay, thank you so much. If you want to learn more, check out Clay’s podcast. We really appreciate you being here.

Clay:
Thanks so much, David.

Dave:
For the second part of our episode today, I am joined by Kathy Fettke, James Dainard and Henry Washington to talk about what everything we just learned from Clay means for aspiring and active real estate investors. Henry, what do you think of the conversation with Clay?

Henry:
I enjoyed it, man. Here’s why I enjoyed it. One, he was a bigger fan of real estate than I thought he was going to be, so that’s awesome.

Dave:
Totally. I thought he was going to just be slamming on real estate the whole time, but he’s kind of supported us.

Henry:
Absolutely. I love the way he summed up the economic market that we’re in and that we may see an inflationary period continue and the best hedge in his eyes for doing that. He felt like real estate investors were in the best position given that economic environment, because we’ve talked about it many times as real estate being an amazing hedge against inflation. So, that’s comforting to hear in a world of not comforting news every day. And also there was a lot of reinforcement around, because I get questions a lot around real estate versus a stock market versus crypto and where should I be putting my money and should I be investing in any of them, because they all seem to not be doing great based on some sort of outsider’s perspective.
And the theme that I heard was longterm investing, no matter your market or investment platform, seems to be what people should be looking at. Is you buy things that you feel like, A, are good companies or are good properties and you buy them when you feel like the market conditions best suit you. And then you hold those things for the long term and you see the trajectory of the stock market. If you take a zoomed out look at the stock market over the last 50 years, you’re going to see a growth, right? Same thing with real estate. And so be smart about your injuries, buy things that you feel like are valuable that fit your investing strategy, and then hold those great things and you should see a decent return.

Dave:
That’s great input. Yeah, it seems like the same foundational principles hold true whether you’re talking about rental property investing or holding onto a good stock, it’s really about long term growth. And I know that in the stock market, people do day trade or swing trade during good times. Maybe that’s not true right now and they should be focusing on those principles, like Clay said. James, what did you take away from the conversation?

James:
At the end of the day, investors are just looking for the same types of investment engines. As he walked through the simplicity of the stock market and just the basic investment engines, it’s just so similar to real estate in general. There’s the growth stocks that are just like flipping properties, there’s the dividend stocks that are like holding properties. Like for me as an investor, I’m doing buy and hold, I’m doing development, I’m doing fix and flip. And I kind of have this pie chart I work with of how I want to work my capital, and it’s really no different than what they do in the stock market. And it’s amazing that they’re all tied together so dramatically.
With the stocks, like what he was talking about with the Fed and how they printed too much money and how much these growth stocks increased rapidly, it was the same things with flips. Flips did the exact same thing. As the Fed printed more money, these things grew so quickly, and so everybody has been crushing it the last couple years. And now everyone’s trying to also figure out what’s that magic portfolio. Where do you put your money? How do you grow it steadily? And the growth stocks or those flip properties are going to be harder to do in the near future.
But the biggest takeaway I had was, at the end of the day we’re just investors buying different types of assets and we’re all trying to beat inflation. And there’s tons of different ways that you can cut up your investments, it’s a matter of what you want to do and how much risk you want to have.

Dave:
Yeah, I love the parallel. He did really make it simple. I sometimes feel like I know something about the stock market, then I’m quickly reminded that I don’t know anything about it. But he did really make it understandable in a way that you can relate to, like you were just saying, like there are flips and growth stocks, there’s different levels of risk. And it seems like when monetary policy was so easy recently, just like it was in real estate, people were just taking risks and now people are becoming more risk averse. And it’s easy in the stock market to sell something when you become risk averse. And that’s why prices can fall so much faster, relatively to real estate. Kathy, what about you? What do you think of the conversation with Clay?

Kathy:
Well, it just reminded me that there’s a big difference between active and passive investing. And a lot of what we talk about here and at BiggerPockets is active investing, but when you’ve got lots of people who are busy with the job that they’re doing, the stock market exists for them because it’s really passive, right? And you can have somebody manage that for you if you don’t have the time to study it. Like I wouldn’t. Today obviously there’s a lot of options that didn’t exist when I was in my twenties where you could just go on your phone and all of a sudden you’ve bought a stock or sold a stock.
It’s really easy to do today. But the bottom line is stocks are investing in businesses. So, if you pick a business that you believe in or that’s relevant, it’s got to stay relevant. So, any investment, it’s so important to pay attention if you don’t have somebody managing it for you, because big companies that seem steady can become obsolete when new technology wipes them out. Look at Netflix, for example. They were able to adapt with the times. But think of all the companies that went under, who didn’t. Netflix went to streaming and they really nailed it, although I don’t know if they’re making any profit and I wouldn’t necessarily invest there because I would need somebody to manage my stocks, because I don’t have the time to study.

Dave:
Do you invest in the stock market though?

Kathy:
Yeah, we do a little, because we wanted to play with the new things that are out there and then just buy stocks on our phone and see what people are doing. And in 2020 it just made sense. So many solid companies were down, so we bought the dip and that worked out really well. And even with stocks going down this year, we made money. So, that was just fun. I look at it more like a gamble, a fun little gamble that we were trying to learn. But if I were going to put millions in the stock market, you better believe I would have someone manage that for me, who has an excellent track record. And that’s the same in real estate. I feel like sometimes passive investors get snubbed a little bit, because they have to trust someone else. They’re busy or they’re retired and they don’t have time to be active.
And that’s why syndications can be so great, because it’s like a stock. It’s usually in an LLC, which is you’re buying a unit versus a stock, because it’s, again, in a LLC. But it’s the same idea, you’re trusting someone else to manage this investment for you because they know it better, they have more experience, and they have the time and maybe you don’t. That’s what I’ve been doing for years. And I sometimes see in the comments, “Why would someone buy a “turnkey” property? Well, because they’re busy.
I have people from all over the world that can’t come to America to do the things that active investors do. There’s lots of passive investors out there that need the stock market, that need syndications, that need turnkey property.

Dave:
Totally. I mean BiggerPockets was basically invented because most people don’t want to take the time to learn about other asset classes. It’s just like sort of the default, right? You grow up and you’re taught the way to invest is the stock market. You don’t even really necessarily learn that there are other ways to invest. And I think that’s changing largely because of BiggerPockets and crypto and what you all are doing. But I think that’s a really interesting point about how syndications and passive real estate investing is a good alternative for people who might have heard this episode and think, “No, stock market’s not for me.” Henry, what is your personal experience and exposure to the stock market?

Henry:
I started investing in the stock market, well, probably late 2020, early 2021, and I did it. Like a lot of people we were home during the pandemic and I found myself with more time to research things than I typically had. And so I had also started a side hustle that started to produce income, more income than I was expecting it to produce. And so I had cash sitting in a bank account and that scared me. And so I wanted to put that somewhere where I could put it fairly quickly and yield and get a return on it. And so like with real estate, yes, I could have put it to work in real estate, but not as quickly. I’ve got to go out and I’ve got to find a good deal to put the money into and those sorts of things.
And so I started to learn about the stock market, and what I learned was there’s a lot to learn, just like with real estate. And so I wanted to be as simple and as hands off as possible while still managing it myself. And so I just decided to buy about two to three companies that I believe in, and I would dollar cost average into those. They talked a little bit about that on the show, what dollar cost averaging is. And so I dollar cost averaged into two to three stocks that I believed in, or individual companies, and then as well as two to three ETFs.
And I haven’t veered from that strategy. The plan is to hold them for at least 10 years. And so I don’t pay attention to when it’s up and when it’s down, because I haven’t hit my time to look at whether I should liquidate those or not. And so it literally takes the emotion out of it for me. If things are tanking, the news doesn’t scare me, because my plan is to hold and I will just stick to that plan regardless of what the market’s doing. I

Dave:
I am surprised, honestly, Henry and Kathy both pick individual stocks. I thought all three of you would say, “Oh, I just put in an index fund, or I just use betterment,” or something like that or one of those robo-advisors, but I respect it. But I guess if you’re just treating it as something fun, Kathy, you would just pick something because that is more fun. James, are you the same way? Do you pick individual stocks?

James:
Unfortunately I do. One of the worst things I ever did was download the trading app on my phone, because like Kathy say, it’s kind of gambling for me.

Dave:
It’s just a game. Yeah. They make it into a game. It’s fun.

Kathy:
Yeah.

James:
It is a game that I’m not good at, that’s what I’ve learned. Because I’m a buy it whole guy, but I’m also a flipper and on the short term I’m not good at being patient. I would say I have made the mistake and the funny thing is when people come into my office as a real estate broker, I always tell my clients, “Don’t buy what you don’t know, because it’s high risk. And if you don’t really understand it, learn about it, go to BiggerPockets and get educated. Because if you make uneducated decisions, you can have some major consequences out of that.” And then soon as I tell people that, I turn around, get on my little app, and I start buying stuff and selling stuff and it goes red.
I pick the individual stocks. I have a self-directed IRA. I did roll into one that’s in just more of an index fund, works for steady growth. I kind of go that route. It was a very small IRA. Other than that, I have slowly pulled my cash out of my app and what I have learned is, Henry is completely right, buying the long term, like buying and steadily growing is the right move, because I don’t know what I’m doing. If I’m a flipper and I get into the market, or I’m a buy it whole person, I get into start flipping and I haven’t learned my processes, it’s not going to go that well.
And if I don’t know it, I go for steady growth. Because other than that, I’m just making uneducated… Actually a good buddy of mine, he’s a financial planner, he just said, he goes, “What you’re doing is no different than gambling, and you might as well have more fun and go to Vegas.” He’s like, “Because you’re sitting in your bed playing on your app when you could be having this great time in Vegas.” He goes, “And your odds are better there than what you’re doing right now.”

Kathy:
And you get free drinks.

James:
Free drinks. But I have definitely got some tax write offs this year from the trading app.

Henry:
Took some losses.

James:
I took a bad one. I went up against Elon Musk and that was a bad idea.

Dave:
Oh, I sold my Tesla stock way too early. It was a huge mistake.

James:
You know what’s a bigger mistake, shorting the Tesla stock.

Dave:
Oh, okay. I didn’t do that bad. So, I actually saw something, and we all mentioned like going on these trading apps that make it super easy, and I saw this study that showed that there is a negative correlation between how frequently you look at your portfolio and your returns. So, it’s basically like they get you to open it and the more you open it, the worse you do. Because you’re just, like Henry said, you’re supposed to buy it for long term, unless you are a super sophisticated day trader and you really know what you’re doing there.
But I thought that was super interesting. So, one thing that I started looking through old BiggerPockets forums to look at questions about the stock market before we recorded this episode. And one thing that people have asked is should they put money into the stock market to save up for a deal? Maybe you’ve done one deal, you’re waiting for that second deal, you’re putting money in. Would you put it in the stock market? Have you ever done that, or is that something you would consider, Kathy?

Kathy:
Oh no, I haven’t done that. I really like, talking about passive investing, I would prefer to do notes and lend to flippers who have a track record. Because to me that’s a solid, safe return, it’s secured generally to the property, and it would be three or four month hold. That’s where I put it and generally get about 10 to 12% that I can really count on and I don’t have to worry. One of the things they said is we’re talking about the Fed and when the Fed makes decisions, it affects the stock market a lot, and we have no control over that. We don’t know what they’re going to do and sometimes they don’t get it right.
And you can see people in the stock market follow every single word that is said at any Fed meeting, because they know that then it’s going to matter in a moment. So, I don’t want to be nervous all the time. So, I had a roommate who was a day trader and he would just be depressed all the time. It was like bipolar, he’d be up and he’d be down. I can’t do that. So, something like just lending, that’s where I put my short term money.

Dave:
That’s fantastic advice, because I honestly have put money into the stock market between deals, because it’s more liquid. But that’s obviously when it’s easier to do that in a bull market that you have confidence is going to continue like the last couple of years, because there’s, sure, short term fluctuations, but you can wait a week and sell it and probably do okay. Right now, I mean according to Clay, he thinks there’s more downside risk in the stock market. So, right now just parking it somewhere to buy something in six months you could come away with less. So, definitely a little bit riskier. James, do you have anything you do to in between deals, or anything you recommend to people, like Kathy said, for parking your money in between investments into real estate?

James:
Yeah. I think when you’re making that decision, the first thing that you want to really look at is if I’m trying to get to buy into another deal, I need to figure out how much money do I need to buy that deal. So, I have to figure out what kind of deal do I want to buy? How much capital do I need for that? Is it a cheap single family house where I can put very little money down, lever it up and get most back? Is it a multi-family where I’m going to leave more money in? And then based on that you have to go the stock market is going to make me 5% or 6% for the year. Is that going to grow fast enough for me to get to that down payment?
And many times, for me, it doesn’t get there fast enough. And so you have to kind of move your money around into higher yield items, like Kathy said. I do a lot of hard money lending. I’m buying and selling notes all the time. I’m doing short term loans. I like it, because I know how to underwrite it correctly and I can mitigate my risk. If I’m buying that stock and it’s going down or there’s a probability it’s going to go down if I’m buying it, I don’t know that as well as I know underwriting. So for me, I’m a real estate professional that’s actively in the market, so I can look at things, I can evaluate the risk on those a lot better as far as lending on a house than I can evaluating a stock.
And so if you want to grow that nest egg, you want to do what you’re good at, because you don’t want that to go down. And as an investor, you want to evaluate what are you good at? What is your talent? And then I would invest in those sectors. If you’re good at shorting stocks, then go short some stocks and try to earn a little bit more money that way. If you’re not good at it, but you want steady yield, the one big thing you want to do is make sure you’re beating inflation or staying with inflation right now.
Because if you are saving up for that next deal and your money’s going down every year, that’s a problem. And so depending on your talents, you want to pick the right engines and either just mitigate risk by not getting eaten alive by inflation, or if you want to grow faster, which I’m a fast person, I’m always looking for those high pop, high profit things or high yield, because I’m trying to grow that nest egg bigger so I can go buy more. And I’m always about trying to get that nest egg as big as possible. And so the higher, the yield, which are short term notes, flips, shortening stocks, could be crypto bubbles, those things, those growth, that’s what’s going to get you a little faster.
But you have to be comfortable with risk. Just like anything, you can lose it as quick as you can make it. And so you want to evaluate yourself and then make the right investments.

Dave:
That’s really interesting, because it sounds like all three of you are saying that the traditional idea that you should diversify your portfolio, at least across different asset classes, is not how you look at your portfolio and how you allocate capital to your investments. Henry, I saw you laughing. What do you think about that?

Henry:
Yeah, no, I totally agree with you. So, I would say less than 10% of my net worth is invested in the stock market and crypto combined. And so I don’t have a ton of my wealth in those markets, because I just love real estate, I understand real estate, for all the reasons James just said. If I need money quick, I know how to do that in real estate better than I know how to do that in any other type of market. If I need money long term, I know how to do that in real estate better than I know how to do that in the stock market or crypto or anywhere else.
And so I am going to diversify my portfolio within real estate first, because I understand most investment strategies in the real estate realm well. Whereas in the stock market, I understand one strategy, and it’s not a strategy that returns me tons and tons of dollars a month over month. It’s a long term play. And I don’t even know if that worked yet, because it hasn’t been 10 years of me holding those stocks, right? So, like you said during the interview, it’s putting the average to work for you.
If I zoom out 10 years, I can see that there’s probably going to be growth within that 10 years based on history in the stock market, and I’m betting that that continues over the next 10 years. It’s just taking the averages and putting them in my favor. TBD on how well it works and/or doesn’t work. So, if I need money quickly, I’m going to look within real estate, just like Kathy or James is, to turn some money around quickly, versus anywhere else.

Dave:
Kathy, I’m curious with the people you work with, you often, correct me if I’m wrong, raise money from a lot of passive investors. Are a lot of just generally speaking the people who invest with you, primarily invested in other asset classes and then they turn to you for real estate diversification? Or are these people who are like primarily real estate investors?

Kathy:
It kind of started with people who maybe sensed something was wrong. Our company started in 2003, so you could kind of see this might not turn out well. And people who could sense that wanted to get their money out of the stock market and into something else that just felt more stable. And at the time we were helping people buy cash flow properties in Texas [inaudible 00:57:55]. They were brand new and they cash flowed, and it made sense. So, we had a lot of people self-direct their IRAs, get it out of the market, buy these solid properties in Texas, and they didn’t even feel that downturn.
So, that was exciting to be able to help people avert catastrophe. And if you’re in your fifties and sixties and seventies, you are not taking risks. My nephews take big risks. They live in their cars, they make over $100,000 and they totally gamble with it. And my sweet nephew, he lost all of it because he betted against some things and he was wrong. But that’s okay, he’s young, he’s in his early twenties. But when you’re in your fifties and sixties, you don’t want to start over.
So, a lot of these people just saw what happened in 2008, are starting to get the jitters again, just don’t want to lose everything again. So, when we can show them, look, we have syndications where you’re secured in a first position, or there’s low LTVs on this. When we can show them it’s a hard asset, that cash flows and isn’t a growth market, that feels better to people who are looking at retirement or well into retirement.

Dave:
And do you see it as risky yourself being almost primarily invested in real estate? Almost entirely, I should say, almost entirely invested in real estate.

Kathy:
The biggest risk I’ve taken in real estate is not listening to myself, honestly. I give all this advice and then sometimes don’t take it. But a lot of the syndications we first did were slam dunks, because we were buying in 2010, everything was so cheap. Then we’ve been very much into land development and that has been highly challenged and doesn’t cash flow. So, I’m not looking for more ground up development deals, even though I’m sure people have made lots of money in them. That tends to be a little bit more risky. So, just as a passive investor, you just kind of got to know which investments are riskier than others. If you’re going to go into an apartment, say that’s a C class apartment, and it has a deep, deep renovation. There’s a little bit more risk there, because you’re renovating something.
We had a lot of challenges with something like that that we did, whereas you’re going to buy more of a B or A class newer property that only needs a little bit of renovation and is in a really good part of town, that’s going to be less risk, especially if the loan is lower. So , if the LTV is going to be… I have older investors who they don’t want to invest in anything where the LTVs over 65%, and others just don’t want risk. And that’s fine.
And so that’s a lot of what we focus on is we offer different things where it’ll be just a lending fund at 60% LTV, that’s… You’re not supposed to say safe, but that’s pretty secure versus the land development where I’ll go into it saying, “Look, this is risky, but the return could be really amazing.”

Dave:
That’s great advice. I mean within every asset class, crypto, stock, real estate, there are levels of risk. And even if you want to pick one, if you want to invest entirely in real estate, you can diversify your portfolio across types of real estate investing, just like you can do in the stock market too. I don’t know enough about crypto to really comment on strategies there, but I’m with James. My crypto record looks like James’s stock record, I think. But I will just say before we go, I guess I take a little bit more diverse approach here.
I’d say probably 25% of my net worth, 30% maybe is in the stock market. And honestly, I think it’s mostly because of FOMO. I don’t want to like miss out if the stock market goes on some run. But I do generally, at least over the last few years, have put money into the stock market, tried to let it improve while I’m waiting between deals. But that’s because the stock market was clearly in a bull market over the last decade and it was pretty, relatively safe to just buy into index funds.
So, there are definitely different approaches to it. It sounds like the three of you almost entirely in real estate, but I do think there’s a good amount of smaller investors, myself being one of them, who do a little bit more diversification. Because I am a lot passive, just like Kathy was saying, have a full-time job and like to look for different ways to invest passively. Okay. Well, thank you, all three of you for that. That was super helpful. And if you all listening to this, like this kind of episode, we’d love to hear from you.
You can find any of us on Instagram, but I think what we’re really looking for is are these types of shows where we look at other asset classes or alternative types of investment through the lens of real estate investing, are helpful to you? We would love to know. So, please reach out to us. Before we go, we do want to go back to our real estate roots. We actually have a deal scenario, but first let’s take a quick break and move to our crowd source.
All right, today’s deal scenario for our crowd source is contributed from the BiggerPockets forums by a member named Ryan Williams. And Ryan says that this scenario is very common in his market, which is Denver. And he says that multifamily prices are very high. For the most part they don’t cash flow with just traditional rentals. If you had the capital to swing an initial loss or get close to breaking even, is trusting future appreciation and rent growth enough to make purchasing these high price multi-families a good deal for investors? James, let’s start with you. What do you make of the situation?

James:
I think my first question would be is how much liquidity do you have to feed this engine? And is that going to prevent you from doing other investments in general? I know in 2008 I made a big mistake and bought a lot of properties just for appreciation and long term investments, and wasn’t considering the cash flow as much. It was more about accumulating wealth and property, and that hurt at the end of the day, because when we go into any kind of recession, the economy slows down and things happen. And every time it slows down, the negative cash flow can really hurt and it can snowball very quickly. And so you want to make sure that minimum, if you’re going to buy that way, I would have at least 12 months of mortgage payments set aside to cover that gap.
I personally do not buy assets unless they are paying me, because for me it’s a liability, it’s not an asset. I need to generate cash flow off of it. If I’m buying something for appreciation and that I’m not making income on it, then it’s a turn. I make an income by selling that property at that point. I won’t feed the beast, I want the beast to feed me. And especially as you go forward as in your investment career, it really depends on where you’re also at. When I was younger, I had a lot more appetite for getting higher equity position properties rather than cash flow, because I was really trying to springboard that wealth, but big profit hits, then I could reinvest that into more stable investments. But be careful buying on appreciation.
Right now we’re probably not going to have a whole lot of it over the next 24 months. And so you’re going to be just feeding an asset to where you can get better growth somewhere else. So, make sure that the assets are paying you or they’re not assets. Another thing you can do is maybe just forget… people often time they hear like, “I’ve got to go buy a multifamily,” because that’s what I hear online. That doesn’t mean that’s the right strategy for you. You might want to look at a different asset class that can pay you to get you going, gets you into real estate, gives you an investment and you don’t have to feed it.
Like single family housing, we’re starting to see good cash flow on those again, because the rates have spiked, things are slowing down, and now we can kind of get into the right type of deal. So, look at different types of assets and explore your other options rather than just being fixated on one specific type in a specific market that might not be right for you.

Dave:
That’s good advice.

Kathy:
Yeah. I have so many questions about that.

Dave:
All right. Well, Kathy, I wanted to bring this to you next, because you just gave a great answer about the spectrum of risk in real estate investing. Where does this one fall on your spectrum?

Kathy:
It’s so funny, because I’m in California and I go to these groups and people are buying like that all the time. Where are you going to find something here that cash flows? I watch people do it and they seem to make money. It’s not my thing, but California has been known for appreciation over time, so people take that risk and they just assume that rents are going to go up and values will go up over time. Again, it’s not for me. In Denver, there’s so many questions I would have about this property. Is it new? Is it old? Does it need fixing? Are you going to be, like James said, are you going to be feeding it? So, it’s actually going to be severely negative cash flow over time, or is it newer in an up and coming area?
Are you going to get bonus depreciation? That’s the big one. If you have a tax problem, this apartment might be your saving grace. It might be the thing that makes you so much money just from the tax benefits alone if it qualifies for the bonus depreciation. So, I would look into that. But my first reaction was doesn’t sound like a great deal to me, it sounds like a headache. But, again, if it’s a really well located property that doesn’t need a lot of work, it could make sense. So, too many factors there that we just don’t know the answers to. If it’s an old building, not in a growing area and it just breaks even, I would run and I’d run fast.

Dave:
All right, Henry, what’s the last word on this?

Henry:
So, my gut’s telling me I wouldn’t buy that, and here’s why. For exactly what James said, you’re typically going to have to feed that for a while. And so even if you rent it out, there’s some additional, you’ll have to add to that mortgage payment every month since it’s not going to cash flow. And then you have to consider your maintenance, your taxes, your insurance, your vacancy, all these other things that are going to cost you money every month. So, all that leads me to believe if that’s a strategy that you’re looking at because you’re banking on the appreciation long term, then you probably have some cash sitting in your bank account. And if you’ve got some cash sitting in your bank account, I always tell people like, “Yes, you can’t find some cash flowing multi-families on the market in a lot of areas of the country, but you can find them off market.”
And so your strategies are, it’s not that there aren’t properties for you to buy, it’s that just you haven’t figured out how to go find those properties that meet that criteria that you’re looking for yet. And if you’re in a position where you’ve got a day job, you don’t have the time to go figure out how to find those properties, and you do have that cash, which I’m assuming you do, then do exactly what Kathy talked about earlier and partner with somebody who already does that for you. So, find somebody who has a fund, who’s going out and they’re finding these off market properties that do hit the numbers and get you the return. And you can put that money to work in that fund that still produces you monthly cash flow.
And some funds will pay you monthly, some funds will pay you quarterly. So, do your research and find a fund who already does the hard part for you and goes out and finds those good deals, and you can get a return on your investment on the money you have sitting in your account, all through real estate, without you having to go and buy something that’s going to cost you money month over month. And then as you build up that capital, maybe things change in the market and you can start to find more cash flowing assets later. Real estate’s just like any other thing you’re going to buy.
Somebody’s figured out how to go buy that thing at a discount, right? If you want to buy cars and you say, “Well, cars are crazy overpriced right now.” Well, dealers are buying them cheap, right? They figured out the way to go buy cheap property. So, it’s just you’ve got to find that method to finding the deals in the type of product you’re looking to buy. And if you don’t have the time to do that, then leverage somebody who does, that you trust.

Dave:
All right. That’s great advice for Ryan who is mostly investing in Denver. So, Ryan, hopefully this is helpful to you. This is great advice. Generally agree with all of you. I think if this is one of your first deals, that is a lot of risk that I would take on. If, like Kathy said, this is part of a tax strategy or part of a much broader, more sophisticated portfolio strategy, there could be ways that this works. But if this is relatively new to you, one of your first properties, I think that’s going to be a little too risky, at least for me.
All right, Henry, Kathy, James, thank you all so much for being here. We threw you all a curve ball, made you talk about the stock market. You all handled it very well. So, thank you very much. And if you are listening to this and have any feedback for us on this show, make sure to reach out to us on Instagram. I am @thedatadeli. James what’s your handle?

James:
It is @jdainflips.

Dave:
Henry?

Henry:
@theHenryWashington.

Dave:
And Kathy?

Kathy:
@KathyFettke.

Dave:
All right. Thank you, everyone. We will see you again soon. On The Market is created by me, Dave Meyer and Kailyn Bennett. Produced by Kailyn Bennett, editing by Joel Esparza and Onyx Media. Copywriting by Nate Weintraub and a very special thanks to the entire BiggerPockets team. The content on the show, On The Market, are opinions only. All listeners should independently verify data points, opinions, and investment strategies.

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David:
This is the BiggerPockets Podcast Show 637.

Amy:
So there are a lot of that investors out there who may be thinking, “Why do I need to learn how to raise capital? I don’t want to flip. I don’t want to wholesale. I don’t want to even implement the Burst strategy. I want to go by turnkey rental properties. I want to go invest in a commercial syndication. I want to go start a fund.” Okay, fine. You still need to know how to raise capital to do all those things, right? So we’ve all heard cash is king. It is endless opportunities when you know how to raise capital. You’re going to start getting approached like I did from people out there who want you to be their capital partner and compensate you very well to raise money for their business.

David:
What’s going on everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast here today with my amazing co-host Rob, Roberto, Abasolo. Rob, how are you today?

Rob:
Good, man. I am still recovering from our two-hour conversation on the phone the other night where I biked the entire time. My legs have been like jello ever since.

David:
Bro, I got to compliment you. You were on a bike the whole time and I didn’t know it, meaning you never actually got out of breath, which would lead me to believe you might not be a human being, which would actually explain your amazing hair all at the same time, like if we were on the phone for two hours, which is quite the feat as it is. But you were on a bike the entire time and I didn’t know.

Rob:
Well, it helps that you were just doing one, two hour metaphor the whole time. I don’t know if you remember this. I never actually said anything on that call so that’s probably why.

David:
It was a two-hour monologue where you were just forced to listen, just like the Seeing Greene episodes that I make you show up and listen to me and praise me without actually allowing you to speak.

Rob:
Oh, now that’s what we call a callback. And a good one, a good one at that.

David:
All right. In today’s episode, Rob and I continue our conversation with Amy Mahjoory about raising money to invest in your real estate deals. In the last episode we just did with Amy, she explained her framework and how to build a foundation with people, including an elevator pitch that you can use. I believe hers was 14 words and made a lot of sense. And today we get deeper into how to put yourself in positions to use that information. Rob, what was some of your favorite parts of today’s show?

Rob:
Yeah, I think we’re really just breaking down barriers here. Honestly, it’s very simple. Because when we started in the last episode, she talks about, it was actually 13 words, 13 very specific words with a 20 word follow up. And then today’s episode, we actually talk about how to go from follow up to actually taking action in five very tangible steps you can take today to go out and raise millions and millions of dollars if you do it correctly. This ranges everywhere from basically putting yourself out there online, to hosting local meetups. I don’t want to give too much of the good stuff away because, yeah, some of these I don’t think some of you will be expecting.

David:
Yeah. And this is a great show because we get it to tactical advice. This isn’t just the overall, “Yeah, put yourself out there. Yeah, go to a meetup.” Nope. This is exactly what type of events to look for, how you should dress when you go, what you should say and how to cater it to your individual personality. So if you’re someone who’s serious about wanting to raise money and invest in real estate, this is a must listen episode. So please listen all the way to the end because we keep it rolling all throughout.
Before we bring in Amy, I’ve got a quick tip for you today. Go to biggerpockets.com/reshow. That is the podcast page where you can find out about the other BiggerPockets Podcast, but even more importantly, there’s free stuff. So if you go to biggerpockets.com/reshow, you’ll find some free information for you, a masterclass from Brandon Turner himself about building a brand. We’re working on getting him to do one about building a beard, but for now we have the Brand class, as well as some free stuff that Amy has given that will supplement your journey into raising private money. Rob, anything you want to say before bringing Amy?

Rob:
No, I’ve got nothing to say. Let’s get into the episode. Leave me alone. Don’t laugh at me. I’ll laugh at you.

David:
All right, Rob smooth as a jagged knife, Abasolo rolling into the show.
Amy Mahjoory, welcome back to the BiggerPockets Podcast. Excited to have you here for Part 2 of your four-part frame work. Would you mind doing a little recap on what we covered on the last episode and then giving people an idea of what they can expect in today’s episode?

Amy:
Yeah, absolutely. It is great to be back with you guys today. And really, we’re just going to continue the conversation around private money. In the last episode, we talked about what is private money, what isn’t it, who are we going to target, what are those initial conversations going to look like. We ended it with an overview of our FACT framework, specifically building your foundation. And there are a lot of moving parts that go into building your foundation which is step one of my FACT framework, such as really knowing your role, being confident in who you are and what you’re doing, making sure you’ve got the right mindset, making sure you’ve got your goals in place, your business plan, your target market identified. It really ends with us starting to plant seeds and really announce to the world who we are and what we do. And the way we did that under building our foundation was through our four second power pitch. So here we are today and I’m excited to get into step two of my FACT framework, which has taking action.

Rob:
Right. So just to recap, let’s see if I’ve got this correctly. I was paying very close attention when we did this the first time. So F is for foundation, A is for action, C is for Chipotle or credibility, whichever one you want, and then T is for transaction. Is that right?

Amy:
Yes. Thank you. And then we also touched on some common fears and objections that hold investors like us back from taking action.

Rob:
So let’s jump into action. Yeah, let’s get into that because I know we started touching on that a little bit towards the end of the last episode.

Amy:
Yeah. So now that we’ve built a solid foundation, we’re confident in who we are and what we’re doing and 24/7 we’re dropping that four second power pitch on anyone and everyone above and beyond our friends and family members, we want to focus on continuing to build our list of prospective private money lenders. Because a friendly reminder, I’m going to be one of the very few people who will tell you raising money is easy when you have step systems and strategies, but you don’t need to depend on your friends and family members, right? So how do we take the 70 trust and rapport building strategies that I’ve created and start implementing them so we can start to convert some of these individuals. So what I want to share with you guys today are five very specific strategies that you can start to implement right now in order to build your list of real private money lenders.
And the very first one, it sounds easier said than done, you guys. And ask yourselves, how often have you done this once I share it with you. Step one of taking action is getting referrals from everyone you talk to. So you’re going to see that everything is very closely linked to one another. So the end of building our foundation is the four second power pitch. We end that four second power pitch with a request for a referral, which is step one of taking action. So everyone we talk to in person or over the phone, we want to make sure we ask for anywhere from one to three referrals of somebody else who may be interested in knowing how to earn double digit returns backed by real estate.
And this is very powerful, you guys, because earlier I mentioned that I didn’t start prioritizing raising capital until my second deal. When I actually implemented the strategies I’m sharing with you today on my very first deal using private money from a complete stranger because I asked for referrals of a referral of a referral of a referral, in just three weeks, you guys, in 21 days, I was able to raise $390,000 in private money. And for me, that was huge because we all have different goals, right? One of my goals was I wanted to be on TV. I wanted to work with HGTV. And had I not been able to raise that money, that was the very first property that was showcased on HGTV, and I would’ve missed out on that opportunity. In addition to, a great profit as well. So word of mouth goes a very long way. Don’t shy back from asking anyone and everyone you talk to for that.

Rob:
So a tangible example of this would be you say, “Hey, I teach people how to make a double digit return in real estate.” “Oh, tell me more about that.” And then you say, “Oh, I’m a real estate developer in Chicago,” insert city here. They might say, “Oh, you know what? I actually have an uncle that does that.” And so if you find out that the person that you’re talking to doesn’t necessarily want to invest or they show no interest, then at that moment you would then kind of push a little bit further and say, “Well, hey, actually sounds like him and I would have a lot of things to connect over. Would you mind putting us in touch?” Would that be an example of a referral or do you like it to even feel a little bit more organic than that?

Amy:
No, that was actually perfect. I also like to incentivize my audience and the people we’re talking to. Now, there is a way we want to go about this so that we are not violating any SEC regulations. But you can still tell people at a very high level, “Hey, I also pay marketing fees or consulting fees for any referral that you send to me who ends up investing.” So whether maybe it’s, pick a number, a $500 thank you fee for your referrals that they end up investing, but just make it a flat rate instead of a percentage of the loan amount.

Rob:
So a bit of, yeah, like an incentive, “Hey, I’ll pay you $500 if I end up closing a deal with X or X person that you mentioned or you set me up with.”

Amy:
Absolutely. Regardless if the deal makes money or loses money. We’re not going to base the referral fee on that, because that is a violation of SEC. So just a flat fee to thank you for the intro if they end up investing with me.

Rob:
Okay. Okay. And have you raised a lot of money through the actual… I mean, I know you did on your first one. You talked about the $390,000. But is this a pretty common place where you’re usually finding success?

Amy:
It’s very common and that’s also a great segue into the second strategy. And I’m going to share that with you guys right now because it just makes sense to do so. In the last episode, I talked about consistency and how I consistently implemented these strategies for 18 months. After a year and a half, I no longer had to do what we’re talking about today. I could pick up the phone and have whatever I wanted, whenever I wanted. Now, do referrals really work? Did that result in a big chunk of the private money I have invested? Absolutely.
So a second strategy I will share with you as it pertains to getting out there and taking action, specifically getting creative and thinking outside the box. So how do we network and raise money with non real estate related individuals? Because it’s very common for us to think, “Oh, I’m going to raise money. In addition to asking my friends and family members, I’ll go to my local RIA or I’ll go ask another investor or I’ll ask someone at my local meetup.” So let’s go above and beyond that.
So I’ve got a LinkedIn strategy. This LinkedIn strategy, everyone that I connected with on LinkedIn, the sole purpose of this strategy which I will share with you in just a minute, is to get referrals. So here’s what I would do. Actually, let me ask you guys this. So to Rob and David, put yourselves in the shoes of a brand new investor. If I were to ask you, “Hey, you guys, we need some private money. Go on to LinkedIn and see if you can find private money lenders on LinkedIn.” If we’re looking for private money, what are some key terms you would search for on LinkedIn?

Rob:
Real estate.

Amy:
Perfect.

Rob:
Real estate investor?

Amy:
Perfect.

Rob:
I don’t know. I guess real estate… Do people say they’re flippers on LinkedIn? Like a house flipper?

Amy:
You’re absolutely right. And that’s what a lot of people do. I love it. They may even search for private money, but the three that you mentioned are perfect. Now, this is such a good example of what we don’t want to do because we want to start to think about who has money, who is someone of influence, who is someone of success and power for example, above and beyond real estate investors. So instead of searching for those traditional words that you just shared, Rob, go into LinkedIn and do a key term search on investment banker, financial advisor, stock broker, right? They don’t necessarily work in real estate, but they know people with money, right?
My whole purpose of getting in front of them is to ask for a referral, “Hey, I’m not here to dilly daily. I’m not here to waste your time.” Now, I don’t do this in my first message. What I’ll do is I’ll connect with someone on LinkedIn. And I do not outsource this, you guys. I don’t set up bots. I don’t set up automations. I do this myself. Still today if I were to do this and I do for some of my students, I’m typing these messages up myself because people can tell. When I get those automated messages on LinkedIn, I don’t know about you, but I delete or I do not open the majority of them.
What’s cool about this strategy that I’m sharing with you is as of late, the response rate is a 50, 50% response rate. When I implemented this 10 years ago, it was only a 20% response rate. So what I do is I put in a request to connect, and it’s two sentences. “Hey, Rob, I’m reaching out due to common connections. There may be a way for us to work together and leverage off of one another’s network.” I just put that out there. “Do you have five minutes” I’m very specific, “for an exploratory conversation on how we may be able to help each other out?” Copy paste, copy paste, copy paste. All I’m changing is the name. Set a goal to do that 10 people a day.

David:
What I like about that is most people are on LinkedIn, at least this is my impression, specifically because they’re trying to make money out of their network. I think there’s a handful of really successful business people that have it dialed in and they have a LinkedIn profile to showcase what they’re already doing. But I think the majority of people are trying to get to that point and they’re like, “Well, Facebook is for my high school friends and my family. Instagram is when I want attention. And LinkedIn is when I want to try to make money.” So by saying, leverage each other’s networks, you’re dangling the very fruit in front of their nose that they went on LinkedIn to find.

Amy:
Totally. I love it. The results are insane, you guys. I just had somebody fly out to shadow me for a full day. He’s actually one of my active students. He couldn’t believe the results that he was getting real time. It was insane. So once the person you’re addressing responds, and again it’s going to be about a 50% respond rate. And no, those who do not respond, I do not follow up. This is just my style. I don’t have time for that. If they don’t see the value in responding, I’m moving on to the other 50% that do. So when they respond, we hop on a call. And what I say to them is, “Hey, thank you so much for your time. I’m not here to waste your time. Just so you know, I’m a real estate investor.” Basically your 22nd power pitch, right? Your follow up.
“All of our deals are funded through investors, which is what allows us to grow and scale. So I know you may not be a real estate investor, I wanted to reach out to you in case you have a client that wants to diversify their portfolio and invest in real estate. You have a client who wants to do that? Use me as your go-to real estate investor. Anytime your client invests with me, I will compensate you in the form of a marketing or consulting service.” Because they may have a license that may be an ethical violation. You can work that out with him or her, but there are still ways to compensate them. “And hey, by the way, I promise never to go to your client directly without going through you first.”
No one’s going to say no to that. No one has ever said no to that in the last 10 years. Now has every single person delivered? No, but enough of them have. And then it’s the same thing, referral, referral, referral. What do you say to these people? It’s the four second power pitch. What do you do once they’re interested? You take them through your private money presentation, right? We touched on this briefly in the last segment.

David:
And not to derail you Amy, but I just want to clarify for those that are not in the professional arena of real estate sales, many licensed professions have laws against receiving referral fees. So for instance, if you are a licensed realtor, you can receive a referral fee from another realtor who sends you business. But if you’re not licensed, it’s actually legal for you to receive compensation from a realtor. That’s one of the reasons realtors can’t pay you when you say, “Hey, my aunt wants to sell her house.” Same is true in lending. Lenders can’t receive referral fees from other lenders. There’s a lot of different rules about when you can and when you can’t. The Real Estate Settlement Procedures Act covers a lot of that. But it’s good that you’re highlighting this because if you call it a marketing fee, that often doesn’t fall underneath the umbrella of referral, which could get them or you in trouble if you’re receiving funds and you’re not a licensed person.

Amy:
Exactly. And David, thank you for highlighting that because this still happens to me. I am not a licensed realtor. And you better believe because of the network I’ve built and the blood, sweat, and tears I’ve put into my business the last 10 years, yeah, I’m taking a “referral fee” from a realtor. And many realtors don’t know. When you tell them, “Hey, no, no problem. I’m not a licensed realtor. I’ll take my referral fee in the form of a marketing or consulting service,” a lot of them don’t even know that that’s okay. And so they always say, “Let me go talk to my managing broker and I’ll get back to you.” And I say, “No problem.” And no, I don’t put contracts in place for that. This is the honor system. If they don’t pay out on it, word of mouth goes a long way. I just won’t do business with them again.

David:
But it’s good to note that because if you’re a person on LinkedIn and you get a message from someone that’s like, “Hey, this is what I can pay you for whatever,” they may be thinking, “Oh, this is a trap,” right? “This is somebody coming after me to see if I’m going to take the bait and then I’m going to get in trouble.” So by spelling it out clearly in the beginning, you can kind of lower those defenses. The verbiage matters, I guess, is what I’m getting into here.

Amy:
Absolutely. And again, I am not a real estate attorney. I am not a real estate professional. If you guys have any questions on this, talk to your real estate attorney.

Rob:
Okay. So we’ve talked about word of mouth, meetup, and LinkedIn. One of the things I was curious when you were talking about meetups, because I think a lot of people will get in their head on this specific point and they say, “Well, what if I decide to host a meetup and nobody shows up?” Do you have any tips for someone that’s kind of nervous to do this on how they might be able to get people to that meetup?

Amy:
Great question. Meetups are amazing. Whether you’re new or experienced, the minute you start hosting your own meetup, you are instantly looked at as a subject matter expert in your market. You don’t have to have necessarily all the answers or all the experience. Create and host a meetup and invite a guest speaker. Invite a realtor, a designer, an architect, right? A hard money lender. And yeah, guess what, you guys? You can actually start to generate referral fees from all these guest speakers, because now you’re putting them into an environment where they have the ability to generate more business.
So meetups are great. I love it. Which leads me to strategy number three of today’s conversation. I actually have a meetup strategy. And here’s what we do. It’s again another creative way of thinking outside the box and building trust and rapport with people who have nothing to do with real estate. So go into meet up and do a key term search on entrepreneurs. Any event in your market. I’d even say get crazy. Go within a one hour radius. Any event in your market that has to do with entrepreneurs, go to it. I don’t care if it’s the food and beverage industry, the gaming industry, the tech industry. Because every entrepreneur has had to build a team or raise money, right? So if they can’t help you or they may not want to help you, they’re still going to know somebody who can. So again, it’s referrals, referrals, referrals. Putting yourself into unique environments where there are people who know people with money or people who have money.
And in addition to searching for entrepreneurs, also search for venture capital. Venture capital, venture capitalist. It’s a bunch of investors sitting in a room waiting to deploy their money, right? Go make them deploy it into your real estate business. What do you guys think?

Rob:
Yeah, that makes sense. I’m always a little timid to go to venture capitalist because I always hear that the terms aren’t quite so beautiful. What are your thoughts there?

Amy:
Oh, see, I love that because I don’t care what their terms are, right? So I always respond with, “That’s awesome. Thank you so much. My standard process is everyone receives the same rate of return, which is a 12% annualized return backed by real estate. If this is something you’d like to discuss more, I’d love to work with you. Let me know when we can chat about it.”

Rob:
Yeah. Yeah. Actually one thing we didn’t really cover earlier, just so I understand even your structure a little bit more and that might give a little bit clarity here moving forward, you give a 12% annualized return. So if someone invests $100,000 into one of your things, they should expect in one year, $112,000 back?

Amy:
Perfect. Yep. It’s 1% a month.

Rob:
Okay. And then do you, on top of that… Okay. So do you pay the 1% a month or do you give it to them at the very end?

Amy:
I always pay at the end in one lump sum. My private monies, the majority of them are just listed on the HUD statement as their payoff balance is listed, and I just let the title companies.

Rob:
And then lastly, when you are raising money, are you trying to get the investor to, like let’s say you’re doing the flip, to buy the entire house outright and then fund the renovation? Or are you trying to get them to give you 20% of the flips that you can go and get a hard money loan and renovate it with effectively another lender?

Amy:
God, I’m just filled with great questions today. That’s very, very good because that comes up often. So that’s your choice. If you live in a market where average price points for distressed property are $500,000, $600,000 and you’ve never raised money before, go put a hard money lender in first lien position. There’s nothing wrong with that. I love my hard money lenders. They were good to me. I still take care of them. I still send them business. That way all you have to raise is the gap funding, that 30%, 20%, plus all your caring cost. And then as you become an expert at raising capital, as much as you love your hard money lenders, you can phase them out. You can positively impact your bottom line and put more money in your pocket. No guarantees though, right? But then we still take care of our hard money lenders through referrals in our network.

Rob:
Okay. So ideally it’s a… I mean, you effectively start with both, but as you get really good at raising the private equity or the private money, you sort of phase out the hard money loan people, you take care of everyone with referrals. But you phase them out simply because you don’t necessarily want to keep paying points and origination fees and all that kind of stuff. Does that sound right?

Amy:
Yeah, because you don’t need to. That’s absolutely right. And you don’t need to because, you guys, if you think about it, if you borrow $100,000 which is nothing, I’m being uber conservative right now.

Rob:
Right.

Amy:
For some of the newbies, the cost of that capital is going to be, let’s say 13% annualized if you’re brand new with no assets and let’s say three points, the cost of that capital is $16,000. Now at the end of the day, I don’t care about the cost of the money. It’s about the availability of the funds. We can all have hard money tomorrow. I don’t care. I bake it into the deal. Whereas, the cost of that same $100,000 is only $12,000 when you’re working with private money. So the difference is $4,000. But is $4,000 going to make or break the bank? No, but that’s $4,000 on just $100,000 deal, right? So what if you’re raising a half a million dollars, which most of us do on one deal anyways? That’s 20 Gs, right? Or a million dollars? Or we do five deals a year? 10 deals a year? So the points really start to add up.

Rob:
Yeah, definitely. I mean, when David and I would close on our Scottsdale property, I think a point for us was like $30,000 or something like that.

Amy:
[inaudible 00:25:31].

Rob:
Yeah. On the luxury stuff, it can get pretty up there. And I didn’t mean to derail this, but I know that a lot of people are super interested in this topic. I don’t know if this goes into the T of FACT. Is that a little bit more on the transaction side?

Amy:
I could talk about this for hours, you guys, so it’s all good with me. No, this actually comes in under step three, the credibility piece, which I think we’re going to into later.

Rob:
Okay, cool. Yeah. Yeah. Okay, cool, just making sure. So a little preview I guess. Sorry, I get a little excited here when you talk about raising money because this is something that I think it’s very important for me right now. It comes at a pivotal time in my career where I move out of buying single family acquisitions and I move into scaling rapidly. For example, I mean by the time this comes out, I should have closed on a 20 unit, a motel in New York. And so we were able to acquire that property via raising money. I think a lot of people… This is kind of the difference between slowly building your portfolio, but there comes a time where if you don’t want to just buy your home after home after home, raising money is super important if you want to scale in a big way. Now, obviously your mileage may vary. It’s not the case for everybody, but for me it is right now. So I always get very curious about the actual nuances here.

Amy:
Yeah. And that’s interesting because you’ve talked about the Burst strategy. A lot of the examples I’ve shared revolved around fix and flips. So there are a lot of that investors out there who may be thinking, “Why do I need to learn how to raise capital? I don’t want to flip, I don’t want to wholesale. I don’t want to even implement the Burst strategy. I want to go by turnkey rental properties. I want to go invest in a commercial syndication. I want to go start a fund.” Okay, fine. You still need to know how to raise capital to do all those things, right? So we’ve all heard cash is king. It is endless opportunities when you know how to raise capital. You’re going to start getting approached like I did from people out there who want you to be their capital partner and compensate you very well to raise money for their business. So there’s so many ways that you guys can get creative and really just from this one skill set, start to generate so many multiple streams of income.

Rob:
Yeah. Yeah, totally. So I guess that kind of goes into the meetup side of things, which is kind of where we left off. When you said that you were going to these different events, you’re going to meetups that aren’t particularly, I guess they may be adjacent to what you do, but not necessarily. You go and you network with those people. You give your four second power pitch, maybe even the 22nd follow up. And then from there, you invite them back to your meetup that you’ll be hosting pretty soon. Is that right?

Amy:
Sometimes I will if they’ve expressed an interest. My main strategy is to place myself into environments where there’s money. And so going to other entrepreneurial events means I’m aligning myself and surrounding myself with other business owners who have been challenged with the same task as me, and as a result they know people with money or they have money of their own they may want to invest. And sure, if that conversation leads to it, I have absolutely invited them to my meetup. Maybe they’ll be a guest speaker. But it’s cool, it’s another great segue into the four strategy that I wanted to share, which is coming off meetups and [inaudible 00:28:59] that into attending high end fundraising events.
An example I often share is we talked about this earlier. How do we start to integrate these creative trust and rapport building strategies into our day to day lifestyle? Is it just something that we do without being as calculated the more we practice and the better we get? Yes, absolutely. So for example, when I started my real estate business, I was living in this high rise condo in Downtown Chicago. I was single at the time and I was maybe eating out a little more than I should have. I would always frequent this dive establishment that I loved. Once I started prioritizing the power of raising capital, I said to myself, “Amy, what are you willing to sacrifice? Is it really a sacrifice if you can’t go to Snickers your all time favorite dive bar three days a week, and instead one day a week, you go to a fancy restaurant,” right? During happy hour in a non creepy way and you start to talk to the locals, to the business owners.
Or every year I would invest in a VIP ticket and I’d go to the Chicago Auto Show. I could care less about cars. I don’t even know anything about cars. I don’t care. But when I spend, I don’t know if it was $200 or $400 to a black tie event and I go to the Chicago Auto Show by myself, which was very nervous as extroverted as I am for me, I’m placing myself into environments where there are people with money. And I would work the room, again in a non creepy way. 15 minutes, that’s it. I would try to shake as many hands as I could every 15 minutes. What am I saying to these people? I’m going to sound like a broken record, you guys. It’s the four second power pitch, right? I’m just planting seeds.
So going to fundraising events is a great strategy. I would challenge you to ask yourself, if you really believe that you’re sacrificing activity A with activity B when you maybe skip out on a family lunch or even a family dinner or a coffee talk with a girlfriend or guy friend, is it really a sacrifice? Because what does it mean if you’re working towards crushing that goal, right? There’s so much that you can tie to this. But fundraising events have been very fruitful for me as well. What about you guys?

Rob:
Yeah. I mean, when you say fundraising event, it’s not necessarily just quite like a literal charitable drive or anything like that. In your mind, the way you’re defining a fundraising event is just maybe like a high ticket event or something that’s a paid entry where there are wealthier individuals that might be more investment-focused. Is that correct?

Amy:
Yeah, you’re absolutely right. Yeah, high ticket events. I mean, depending on your market, there are a lot of high ticket fundraising events as well. But I would really focus it on high end because that’s where the other business owners and entrepreneurs are going as well. And if it’s not within your budget, again, what are you willing to sacrifice?

Rob:
Right.

Amy:
Don’t get [inaudible 00:32:22].

Rob:
Lunch for a month or go to this event and raise money, right?

Amy:
Thank you. Exactly.

Rob:
So I’m kind of curious on this. What are your thoughts on “looking the part”? If you’re going to an investor, is it okay to be like a casual dressed? Or do you really take on the philosophy of like, “Hey, look the part, be the part,” especially with these fundraising events?

Amy:
Oh man, I don’t know if you want to ask me that question. So here’s my response, because I told you I’m very direct. I’m going to give you the good, the bad, the in between.

Rob:
Okay.

Amy:
Now, I’m always going to dressed respectful. And at a black tie event, I’m going to dress up. But once I quit my job at Dell, I mean even still today, I’m wearing a white t-shirt and black leggings. I mean, I don’t have fancy clothes. Maybe three dresses I use when I hop on a stage and do a keynote. But no, I’m casual. I’m respectful, but casual. Because what I have found is people want to know you. They’re investing in you. And as a result of investing in you, they’re investing in your business. I’m not going to show up in a dress or a suit. Or I may get crazy and wear heels with a pair of jeans, but that’s it.

Rob:
Okay. So really what you’re comfortable with, you know?

Amy:
Yeah. Just be you. Do you, I mean, there have been times where I’d literally be wrapping up a meeting with a general contractor in my gym clothes and I’d go straight into a private money meeting and I crack a joke about it. I mean, at the end of the day, we are all just normal people, right? And everyone can relate to our day to day lifestyles. So I crack jokes often, and I do that with my private money lenders as well.

Rob:
Yeah, that’s good. That’s good. So David, you don’t have to wear a tuxedo every day, man. Just be yourself. I think that’s the tip here.

David:
Okay. So my thoughts on this question is really good. First off, I do think certain people do need to dress differently than others. I guess I’m just saying it’s not a blanket statement for everybody. So Amy can get away with wearing the top and the leggings that she described, because Amy, you’re very articulate. You are clearly confident and professional, and you’ve done this before. Your personality, the way that you come across, is very strong and confident. So that makes me feel safe if I’m going to let you borrow money.
There’s other people that have naturally withdrawn personalities. Maybe haven’t done this as much that are going to be a little more timid or pensive. They’re looking at their shoes when they’re talking. They have a harder time holding eye contact. What I tell those people is, “You need to be wearing a nice suit and you need to come across very strong” because that will add strength to the impression that you’re giving to somebody. Someone like me that just kind of like steamrolls everyone, I know that’s a thing that I tend to do, it’s almost better if I’m not wearing really nice clothes because it’s too much. It’s like looking directly at the sun. You’re like, “Oh, I can’t even listen to you because you’re just like pounding me.” So I noticed I could get away with wearing way dressed down from everyone else, right? But I do think that it’s custom fit for every personality. And this is the same thing I tell real estate agents that are on my team.
Amy, you’re amazing me with how many of the strategies that you’re using to raise money are the same things that other businesses do when they’re just trying to find leads. What you’re really talking about is a lead for your business when it comes to money. These strategies are so similar. What I tell them is if you are a sort of not as confident person, maybe a little more shy and introverted, having a nice car will really help you because it’ll make people say, “Well, what is it about that gal? She’s driving a really nice car, even though she doesn’t talk much. Maybe she’s just a genius and she doesn’t communicate well.” Or if you’re someone who is very bold, I actually dial it back. I drive a Camry. I don’t want to show up somewhere in a Ferrari where now people think that I’m this pretentious a-hole and I have to do a lot of work to overcome the objections that you got when you just saw me walk in the door. I want to make it as easy as myself as possible to get my point across.

Rob:
I mean, it really seems like it boils down to authenticity though, right? I mean, I’m in the midst of getting my real estate license and I have kind of an apprentice that I’m training who’s going to be doing a lot of the transactional work by my side. I was talking about creating content and how I plan on starting a YouTube channel that focuses on the Houston market. And she was like, “You’re going to wear that?” And I’m like, “Yeah, I’m going to wear a graphic tees, tees with funny things on it, tees with skulls on it, my black pocket tee. It doesn’t matter.” Because I was like, “I don’t want to be the realtor that wears the suit. I want to be the millennial realtor that’s super casual.” And I think she was like, “Okay, if you’re sure.” And I’m like, “Yeah, I’m sure. I do it every day.” People don’t really consider what I wear because I think it’s all about the conversation and the authenticity that drives that conversation.

Amy:
Yeah. Both of you just gave really great pieces of advice. It ultimately does come down really to your personality and things you need to strengthen. So for those of you out there who are newer or maybe you’re an expert real estate investor but you’re new at raising private money, if you’re not sure what approach to take, you’re a part of an amazing community. Turn to your BiggerPockets community or other communities that you’re a part of and ask for support, ask for advice. Ask for help and let them help you if you would like some support in that area.

Rob:
So have we covered off every strategy? I know we talked about word of mouth, meetup, LinkedIn, fundraising. Was there one that we were missing there?

Amy:
Yeah. I wanted to really wrap it with something you touched on earlier, Rob, which was pretty cool. Remember, I joked about you stealing my thunder?

Rob:
Oh, right, right. In Episode 1.

Amy:
Which is your online presence, because I come across so many real estate investors of across all ages who will shy away from social media. Social media is so powerful. There are such respectful and tactful ways that we can share what we are doing as individuals, as business owners on social media. And really when it comes to your online presence, this is the fifth strategy I wanted to highlight with you today, there are two things I would invite you to consider. Number one is making sure you have a credible website. It does not have to be a fancy website. It does not have to be a complex, big investment website. I don’t even care for newbies if it’s just a landing page. Because whether we like it or not, one of the very first things every private money lender is going to do when we speak to them whether it’s in person or over the phone is Google us and check out our website. So we want to make sure we have some sort of a landing page, a core website for them.
And then number two is we do want to make sure that we are active on social media. Specifically, and this can be debated or discussed, I have found success and I continue to find success on Instagram and LinkedIn. 10 years ago, Facebook was one of my strategies. I’m not converting anything on Facebook anymore, considered a weakness of mine. But with private money and other parts of my business, Instagram and LinkedIn have been amazing. I just had a conversation with my videographer yesterday. She’s trying to get me on TikTok and I’m like, “Girl, I don’t have time for that.” But your online presence is huge. And if you need help figuring out what to share or what to post, share other people’s content. Take a BiggerPockets post or podcast, share it. “Hey, you guys, check out this great read from BiggerPockets on the interest rates or the economic downturn or the trendiest paint colors for spring,” whatever, HGTV.
Take projects that somebody else in your network is working on. Share them. We’re all looking at properties, right? David touched on deal flow, lead flow, marketing for deals earlier. The next time you walk a property, take your phone and take a selfie photo or video, “Hey, you guys, about to walk this distress property. Stay tuned for updates.” People love watching that. Put it on social media. You’re not saying you bought it. You’re not saying it’s yours. You’re not saying you’re going to buy it. You’re just saying, “Hey, check out this property.”
The next time you go to a meetup or a networking event or even when you’re on a podcast or a virtual event, take a screenshot, take a picture. Share it, right? You don’t have to say you’re talking to a coach for example. You can just say, “Collaborating with other like-minded investors. Excited about what the future has in store.” So there’s a lot we can do when it comes to building your online presence. The two key takeaways is having a core website, and then number two, having a social media presence. What do you guys think about that?

Rob:
Oh, 100%. So I always talk about putting yourself out there, letting people know what you did. I think I talked about this in Episode 1. And a lot of people are like, “Well, Rob, it’s easy. You got a YouTube channel and blah, blah, blah, blah, blah, blah,” right? And I’m like, “Well, I mean, I’ve got that channel because I put myself out there,” A, just to dismiss that, but B, most of the partnerships that I have, have not come from my platform. They’ve actually come from the interpersonal communications in my life because I was always posting photos of my tiny houses and of my glamping things and people are like, “Whoa, tell me more about that.”
So just right off the bat, posting on your social channels and letting people know, that’s going to be huge for you. But secondly, you do have to work for posting to social and creating a social presence. So I don’t want to necessarily simplify that, but I do think that it’s also not incredibly difficult to build that brand out. You can absolutely do reels in TikTok. And I know a lot of people that make seven figures from the marketing they do just off of reels in TikTok, right? Reels, that’s what Instagram is pushing right now. And so if you make a lot of reels, there’s a very high likelihood that Instagram is going to be pushing your content out to new audiences. It’s the same thing with TikTok. Most of the time when I post a TikTok, it’s going out to people that aren’t in my audience. And if it goes viral, it’s going viral from people that have never seen my content before. And then it gets served up to my audience.
And so a lot of people think you have to have a really big platform to do this kind of stuff, but it’s just not true. You can post something on TikTok and be an overnight sensation if you really hit the points right, if you’ve got a good hook, if you’ve got a good video overall. So I just think a lot of people tend to hold themselves back on the premise of comparing themselves to other real estate content creators and they say, “Oh, I’m not going to be really great when I get started.” And the reality is, you’re not going to be great when you get started doing this. You got to work towards it. You got to work at enhancing your brand and posting daily and consistently. And if you do that, you will see results.

Amy:
But you know what’s so crazy, Rob, is I just had this conversation yesterday. I mentioned earlier I was talking to my videographer and I said to her, “Should I start a YouTube channel? Because I have one, but I do nothing with it. And oh my God, my coaches and mentors are telling me I need to do this.” So it doesn’t matter how experienced or successful we are, you guys. We all have fear, right? And things that hold us back from taking action. It may sound silly to other people, but one of mine is, I don’t know how to start a YouTube channel. Am I going to get criticized by people? I can’t deal with the negative comments. What do I do? But I know I have all of this content that I want to share and raise awareness on. So even you just sharing your story and your experiences has motivated and inspired me.

Rob:
Well, and we actually just talked about this recently on Episode 629 with Brandon Turner. We talked about growing your personal brand and your social presence online. I mean, it was effectively a 45 minute masterclass on everything you need to know to really develop your personal, your ecosystem, whether it’s TikTok, Instagram, Facebook, YouTube, or everything. So if you’re interested in learning more about that, be sure and go download that and give it a listen after this episode.

Amy:
Yeah. Again, thank you for that. I selfishly appreciate that. At the end of the day, you guys, it’s all about our mindset, right? And remembering that we are providing others with an opportunity to invest. If they don’t see it that way, then we genuinely have to believe that’s their loss and we’re going to go respond to the other 15 people knocking on our door, ready to invest with us. Even if we don’t have 15 people knocking on our door.
And here’s the best part. Once these transactions start to come in, which is step four of the FACT framework, which I know we’ll get into later, then it’s going to have a snowball effect on everything you’re doing. And yes, you’re actually going to have more money coming into your business than you even want or need. And so there are going to be ways where you are respectfully going to work with private money lenders, and then also turn away private money lenders whose ethics and morale do not align with yours. Because remember, we don’t need them. We don’t need their money, right? Because we have the right mindset. They need us. We are the ones providing them with double digit returns, with a protected, secured, and insured asset. They’re not getting that in the stock market. They’re not getting it in the bank. So as long as you have the right mindset going into this and you remind yourself of who you are, what your ethics and what your morale consists of, you guys are going to have no problem getting out there and confidently raising money.

Rob:
Yeah. Well, this was awesome. I’m really excited to get to the C, the credibility step here in the next episode. But to quickly recap here, I just wanted to make sure I got the five action strategies correct, and in no particular order. I know you have a lot more of these, so we’ll definitely need to cover these at a later point.
But starting with number one, word of mouth. Referrals. Getting yourself out there, meeting people, asking if those people know people that might want to invest with you. Number two, having a meetup. And if you want to market that meetup, go to several different meetups around the world. Oh sorry, around the city within a one hour radius, I think is what you said. I mean, you could do around the world if you want, it’s just going to be a lot more expensive. But go and network with people outside of your network and see if you can get them to come to your meetup. And by doing so, you’ll prove that you’re a subject matter expert and people will more than likely build a little bit of trust and rapport with you because they see you as somewhat of a local leader in that space.
Three would be getting onto LinkedIn and making connections with a lot of people. Make sure that you’re not building any kind of bots or any VAs doing this. Try to have a personal message that you send to a lot of people. Let’s not say be on the nose here and hit up real estate investors or real estate flippers, but people that might actually have wealth in a different arena that are looking to diversify. So physicians, maybe even like you said, a venture capitalists, doctor, all that kind of stuff. Then we move into number four, which is fundraising events. Go to some high ticket events, high ticket events that you might have to go and buy a ticket. Maybe it’s a conference. Maybe it’s another event that’s a $500 car show in your city and try to network with as many people as you can.
And then lastly, online. Put yourself out there online, whether it’s posting to your personal pages or really just kind of digging in to the Instagram side of things or digging into TikTok or whatever that might mean. But really being consistent and intentional about your social posting. Does that sound right? Did I miss anything there?

Amy:
It was perfect. Thank you, sir.

Rob:
Thank you. Well, we appreciate it. I mean, this is really a master class. It’s going to be an amazing four part series. We’re super, super excited. Before we wrap up today, was there anything else that you wanted to just leave us with as we kind of get ready for the next episode?

Amy:
I don’t think so, you guys. Just really remember I guess what’s your why, right? We’ve all heard about that, right? What’s your why? What’s your driving force? Because you guys got this, whether it’s raising capital or other parts of your real estate business, you can do it. Tap into your why when you feel like you may be lacking motivation. And just turn to your community for support. And we got you and we’ll see you in the next episode.

Rob:
Awesome. Well, before we head out, can you tell us a little bit more about where people can learn about you online?

Amy:
Yeah, absolutely. I’m trying to, as much as possible, share as many tips and strategies on Instagram primarily. So I’m always sharing videos or pointers or graphics. So if you just check out my Instagram handle, which is just my first and last name, @amymahjoory, you can connect with me there. I don’t outsource any of that, so it’s a direct line to me. If you have any questions that went unanswered on this series, feel free to hit me up via Instagram and I’ll respond within 24 hours.

Rob:
Awesome. David, what about you, man?

David:
Find me, @davidgreene24. Check out my YouTube at youtube.com/davidgreenerealestate. And you can message me on the BiggerPockets’ platform. It was weird. I took a second there to try to remember what my YouTube thing was, even though it is the most boring name anyone could ever think of.

Rob:
Hey, you can find me at YouTube at youtube.com.

David:
That’s exactly what I did. I was trying to buy myself time to remember what the name was there. Doesn’t happen too often. All right, Amy, this has been a blast. I’m excited. We have more going on.
Personally, this is just my opinion, we’re probably entering into a market that’s going to be the best buyer’s market we’ve seen in at least eight or nine years. And if you are looking to ramp up, right now is a great time to be borrowing money. And for those that have money that don’t know how to invest in real estate, they have to earn a return on it because inflation’s eating it up. So on the people who need to lend money, they have pressure on the people who want to be buying houses. Like us, we have pressure because the market’s good. This is a very good time to be getting into the industry.
So if you guys like this content, stay tuned because we’re going to have Amy back for some more shows to complete her four step process. So my advice would be to go practice some of what you’ve learned right now on some of the people that are in your life. See if your elevator pitch can be improved. See if you can set yourself up to start attending some meetups, and maybe you can even start posting online. Getting some of the bugs worked out on your own game. And then the next time we have Amy on, you’ll have even more information to put into play.
All right, I’m going to get us out of here. This is David Greene for Rob Be Yourself, because everyone else has taken Abasolo, signing off.

The Bureau of Labor Statistics has released the latest Consumer Price Index. Despite any chatter that may have predicted otherwise, inflation is still at a 40-year high and a 1.3% increase from the month before. Though inflation impacts everyone one way or the other, its effect on the housing market keeps getting more interesting, especially since it’s not fully visible through the statistics. 

After all, when the price of gas is so high that people can’t make it to their kids’ doctor’s appointments without taking out loans and food prices are 24% higher in school cafeterias, nothing could be worse than rent prices increasing for some of these families, unless you count now people having to give up their pets, too.

And, as we know, landlords have to keep up, so increasing rent is what’s going to happen anyway. In some cities, these increases are over 10%. Even those who may be in a position to get out of their leases and make a home purchase—as the housing market may finally start to show signs of cooling—interest rate hikes may keep them in their rentals longer. 

What Does the Latest CPI Data Tell Us?

The price increases we’re seeing is broad. Over the last 12 months, gas is up 11.2%, food is up 10.4%, shelter increased 5.6%, and energy as a whole increased by a whopping 41.6%. 

In total, prices are up 9.1% since last June.

Though we did get a bit of a reprieve from gas prices in mid-June and the Fed continued to raise rates to fight inflation, the bottom line hasn’t changed. Unfortunately, the average person’s ability to afford basic necessities continues to get worse. 

In Other News

Additionally, while not in the CPI report, the Euro is continuing to lose its value against the U.S. dollar, with one of the factors being the Fed raising interest rates, along with the Russian invasion of Ukraine. Whether this is a chicken-or-egg situation is beside the point. This may be great for summer travelers, but not so fast. Airlines have been taking a major hit since the pandemic began with a 9+ billion dollar loss and staffing issues to boot. Consequently, with gas up as well, airline tickets are the most expensive they’ve been in years.

Despite this, Americans are still planning vacations, as noted in a recent short-term rental report on BiggerPockets.

The Housing Market Is Still Wild, But Cooling

Alongside this report, the housing market has seen some changes over the last few weeks, but whether this is good or bad depends on whom you ask. Even though there are indicators that prices are starting to cool down, it’s still a war for homebuyers. 

Supply constraints continued to be plagued by construction costs, leaving many developers on the sidelines. As of April, the cost of building materials had gone up 19% year-over-year, according to NAHB, and it’s likely to continue increasing. Combine that with gas prices and a global supply chain that’s remained in limbo, building projects may start to get pushed back, and those in the midst of a project could be putting off the completion date. May saw housing starts of privately owned units decrease from 1.8M to 1.5M.

Investors: What Should You Do Now?

While sifting through the news has been confusing, and it seems like there’s not much positivity on the horizon, as long as your tenants are still paying rent, you’re still doing okay.

While housing prices are high in every market, some markets still have decent opportunities. As an investor, you should do some research and check out these top 10 markets in the U.S. to invest in now.

Be on the lookout for the next GDP report on July 28. If growth was negative in Q2, the U.S. will be in a technical recession. We’ll be covering what you need to know here on BiggerPockets.

Prepare for a market shift

Modify your investing tactics—not only to survive an economic downturn, but to also thrive! Take any recession in stride and never be intimidated by a market shift again with Recession-Proof Real Estate Investing.

Alicia Garcia-Herrero of Natixis discusses the challenges that China’s real estate sector is facing and the implications of banks being urged to step up lending to projects.

David:
This is the BiggerPockets podcast, show 636.

Amy:
We always want to end every relevant conversation with a request for a referral. So if somebody says they love what you’re doing and they’d love to support you, but they’re not in a position to invest, just say, “Hey, no problem, do you happen to know anyone else who is interested in getting double digit returns backed by real estate? Let me know.” So I ended every single conversation when I first got started 10 years ago with a request for a referral and I did that for 18 months consistently.

David:
What’s going on everyone. This is David Greene, your host of the BiggerPockets podcast here today with another Seeing Greene episode. In today’s show, I will be taking questions from different people that have submitted them. And Rob, is that you?

Rob:
I don’t know why you always make me sit through all the Seeing Greenes. You don’t ever let me talk. So I thought today would be the first Seeing Greene, where maybe we change it up a bit. Are you cool with that? I’ve got some questions and they all revolve around the idea of raising money.

David:
I call it Seeing Greene, because I want you to see me, not to actually speak and be heard. But I suppose since you’re here and you’ve already jumped in, it’s not much I can do about that. Is there?

Rob:
Nope, we’re here, we’re here. We got a really good episode for everybody at home. We are interviewing Amy Mahjoory, who is a master at raising private equity. And she’s got this very amazing framework that we get into very tangible steps on how you can go out into the world and raise money, not just from friends and family, but total strangers out in the wild.
I think this was a really impressive thing. She really broke down a lot of the objections that I had, which is, well, if you don’t go to friends and families, who can you actually raise money from? And she gives us a lot of stories that really opened my eyes a little bit.
So this is going to be something that we’re committed to teaching here on the podcast, because I know raising money is a very scary and very intangible thing to learn about because everybody tells you how to do it, but there aren’t necessarily tangible steps.
So we’re going to actually be making this into a four step I guess, or a four part series if you will and the first two episodes are going to air here. And today we’re going to be covering the foundation needed to go out and raise private money. So with that, can you kick us off with a quick tip and then we’ll jump right in.

David:
Yeah. Today’s quick tip, go to biggerpockets.com/reshow. This is for the various podcasts we have. And if you go there, you will find various free goodies, including a masterclass by Brandon Turner himself on building your personal brand and some information that will help you on your capital raising journey from today’s guest, Amy Mahjoory. So check that out. And in fact, I would even recommend to randomly check it out every once in a while and see what free stuff BiggerPockets might have put out there for you. A little bit of an Easter egg that you can go find even when it’s not Easter.

Rob:
Are we still giving away your signed head shots on there, do you know, or we discontinued that?

David:
Well, there’s been a lot of demand for the boy band style poster of me with my shirt off and some hearts floating over my head. I haven’t decided if I’m going to offer those on BiggerPockets or if I’m going to sell them as part of a charity type event because they’re worth so much money. So stay tuned for that.

Rob:
All right. Well you can find David in this month’s TigerBeat. What’s that? I don’t know. Do you know what that is? Okay, we’ll-

David:
Yeah, that’s one of those old magazines where that Hanson and the MMMBop crowd, that’s where they would feature them.

Rob:
Right. Okay. Well, you can find David in this month’s TigerBeat, but until then let’s jump in.

David:
The great green tiger. Amy Mahjoory, welcome to the BiggerPockets podcast. How are you today?

Amy:
I’m doing well. Thank you very much for having me.

David:
It is our pleasure. Now you have a fascinating take on how people can make money in real estate. And I suppose it’s something that everyone would be better off to learn, but especially new people don’t understand the power of it. So I’m excited to hear your platform, your framework, your story today, but can we start off by hearing what your portfolio looks like now, and then a little bit about your background?

Amy:
Yeah, absolutely. My background’s very traditional. My portfolio these days is very diverse. I’ve been investing in real estate over the last 10 years and during that time, because of my ability to raise capital, I’ve raised millions of dollars in private money, I now have the opportunity to pick and choose what deals I want to invest in.
So as a brand new real estate investor, 10 years ago, I started out heavily in fix and flips in downtown Chicago in the high end market, wholesaling like a lot of other investors. And then I started to slowly grow my passive income portfolio, made a couple of risky investments, lost it all, had to rebuild. And now the majority of my portfolio is investing passively into commercial syndications. And then I still fix and flip, but on a much larger scale here in Austin, Texas.

David:
Awesome. And how on earth did you get started to get to this point?

Amy:
I had no idea what I was doing 10 years ago. I was that person sitting at home watching HGTV and all the DIY channels. And I knew that real estate was something I wanted to do as a side hustle, that was it, while I pursued what I thought was my dream job at Nike. And I am a perfectionist, I’m very type A competitive personality, so I didn’t want to try to figure out on my own, I wanted that fast track to success, even though my goal was only two to three flips that year. So I invested in a coaching program and then the rest is really history.

Rob:
Was the coaching program focused on any one thing? Was it flipping and that’s why you started there?

Amy:
It was everything from A to Z in your real estate business. So building a team, interviewing general contractors, outsourcing, systematizing, contracts, analyzing deals, marketing for deals. So everything, I guess you would need to be a well-rounded real estate investor.

Rob:
So give us an idea of you do this, you get started, you start doing the flipping and you also said that you did high end as well in this Chicago market, I believe. Did you immediately start flipping high end homes or is it just a general progression to get to that point?

Amy:
That is such a good question because this comes up all the time. I never knew I was good at raising money. This is something that always came very easy to me. Earlier I said my goal was two to three flips just as a side hustle. And the reason I really fell into the luxury market was because what I had found is during my first six months of investing, I was much more calculated and low risk because I focused on the low dollar one bed, one bath condos in downtown Chicago. It’s always the same thing, kitchen, bathroom, flooring, paint, kitchen, bathroom, flooring, paint. We never had to worry about any of the other big ticket items.
Well, I started to talk to my acquisitions manager and we realized there was a huge market that hadn’t been tapped into in the north side of Chicago because of the high dollar price points. Everyone’s going to the middle income price points. So it was very saturated with, quote-unquote, “competitors.” And so I took a step back and I said, “Hey, I had raised all this money on accident, so fine. I’m not scared of the price points. I’m just going to jump right into the luxury market.” So that’s how it started. Nobody was going there and every property I put an offer in on, it kept getting accepted.

Rob:
That’s awesome. Okay, so you start … Well, actually I wanted to ask something really fast as a follow up. You said you had an acquisitions manager, generally a lot of people don’t particularly have that at the very beginning. That’s something that is added to a team. Describe that role. Is that someone that you actually hired? Was it someone that was hired on a per deal basis? How did that arrangement work?

Amy:
That is a phenomenal question. So I’m going to go right into coaching mode. So a lot of newbies will be like, “I don’t have a team, I can’t do this or I can’t do that,” and I take a step back and I say, “Everyone has a team, whether you know it or not.” So for me, when I refer to an acquisitions manager in year one, that’s just a fancy way of referring to my realtor.
The majority of my deals came through the MLS and they still do, and through networking. And I had a couple of different realtors that I worked with. My realtors also happened to be investors themselves. So they wore two hats, they would analyze the deals for me because they were investors before they even brought them to me, whether they were pocket listings or MLS listings.

Rob:
Oh, I love when that happens. At this point, I think David and I have talked about acquiring houses and luxury houses and I get realtors that send me deals all the time and they’ll even do the comps for me, they’ll show me the comps in the area and they’ll say, “Hey, here’s what I think it’s going to make. Here’s the cash on cash return.” And it’s always like, okay, there’s a significantly higher chance I’m going to work with someone who does the work before I even ask for it. So that’s always nice to hear.

Amy:
Totally. Yeah. And that’s something we don’t want to do right off the bat, we want to make sure our realtors or acquisitions managers or whatever, know that we have a vested interest. Do a couple deals with them. They will gladly fill out your deal analyzer. Just educate them on how it works and be like, “Look, I want to make our decision making process as easy as possible. If you can fill this out, it takes two minutes and then send it to me, I’ll let you know yes or no within 24 hours, whether or not it’s going to work.”

Rob:
Sure, sure. And you mentioned you, quote-unquote, “accidentally raised this money,” which most of the time we’re working, we’re working to raise money. And so I’m curious, when you were embarking on this whole journey of going the raising money route, how were you able to, I guess prove yourself? I don’t know, did you have a track record of success before you raised this money, or was it something specific that you were able to pitch to them that really got them on board?

Amy:
Yeah. It’s crazy, I didn’t have a track record. I mean, I started raising money on my second deal and we all have strengths and weaknesses, right? I am terrible at marketing, all aspects of marketing, but I’m just very good at building rapport and trust with people and that’s what raising capital is. You’re building relationships, you’re leveraging off existing relationships from your inner circle, you’re outer circle, but the way you get these individuals to ultimately invest with you is through confidence and that confidence comes through your education.
So you’re constantly educating them on who you are, what you’re doing, what’s in it for them, what’s in it for you, what are the risks, are there guarantees. I have 15 different credibility pieces that I’ll take my prospective lenders through. Sometimes after three, they commit to the deal. Sometimes after 15, they don’t commit to the deal. So it’s just educating them on your standard process.

David:
Amy, what do you say, how much weight would you give to someone’s ability to articulate themselves well or their strength in communication when it comes to raising money, as opposed to just being good at finding a deal and good at real estate investing?

Amy:
Yeah, that’s a phenomenal question. When you have the right people in your network, whether it’s coaches, mentors, or systems and scripts that, and I’ll give you guys some, but that you want to start to create yourselves, anybody can get out there and raise money. So sure, it came very easy for me.
People will always ask, “Well, it’s easy for you because you relied on your friends and family members.” And I didn’t because I’m stubborn, plus they weren’t supportive. And when they heard that, they would say, “Oh, it’s easy for you because you just bought a list.” I’ve never bought a list.
So having scripts and systems really gives you guys and even coaches and mentors, the confidence to get out there and raise money the right way from the right people, because you will turn people away, regardless of your experience, regardless of your liquidity. We’re always being told we got to have skin in the game, I’m actually going to squash that today, and then regardless of whether you’re doing it part-time or full-time.

David:
So before we get into your system, can you share some tips that you may have for people who are not as strong of a communicator, even if they have the information in their mind?

Amy:
Yeah, sure. It’s a step by step process. So whether you’re an introvert or an extrovert, the very first thing you want to do is make this mindset shift and we really want to believe that we are providing others with an opportunity to exist. I hear all too often, I feel bad asking this person for money. I don’t want them to think that they’re doing me a favor. Have you guys ever heard that?

David:
All the time.

Rob:
All the time, yep.

Amy:
Right? And so I just say, “Hey look, once you have a strict buying criteria, once you believe in what you’re doing, then you really are going to believe that you’re providing others with an opportunity.” That’s step one, making that mindset shift, because if you don’t believe in what you’re doing, you’re not going to have success raising capital.
And then what you want to do is just plant seeds. So I always say, “Hey, the minute you leave your house, anyone you encounter is a prospective private money lender.” So we can go through this now or later, but I have a four second power pitch and that’s going to be step one for every single person, whether they’re new or experienced to explain at a high level what they do to start to capture the interest of prospective private money lenders.

David:
Yeah, let’s start with that.

Rob:
Let’s do it. Yeah.

Amy:
Okay, cool. So keeping in mind that raising capital is rapport-based lending. So this four, second power pitch is something that I chose to implement 24/7, even when I was working my full-time J-O-B, which was a very demanding corporate job with Dell Computers. So I was working for them, I’m trying to figure out this real estate business/side hustle. And I made the decision to say, “Hey, if this four second power pitch risks me getting fired,” which it didn’t, “I’m okay with that.” So you guys decide what makes you comfortable.
So anytime I would encounter somebody new and they would ask me what I did for a living, or even if I came across an old friend or family member and they would ask me what I’d been up to, I would drop these 13 words on them, which is, “I show people how to earn double digit returns backed by real estate.” And then I would put it back on them, “It’s so great to meet you. What was it that you said that you do again?” Or, “It’s so good to see you again. It’s been a while.” So we’re purposely dangling that carrot so that they want to ask us for more information.

Rob:
So now did you find yourself using variation? Because it seems like a very powerful set of words here, but did you have to really accommodate for every specific, I guess conversation or did you always drive the conversation to that point and then drop those 13 words?

Amy:
That’s such a great question, and it’s the latter of the two. Very rarely would I take this specific script and tailor it. Now, there are times where investors have approached me and they’re very uncomfortable implementing this four second power pitch because they think to themselves, “Amy, what if somebody doesn’t even ask me what I’m doing? What am I supposed to do, go up in there and be like, Hey, this is what I do? That’s not going to flow smoothly.” And I’m like, “No, I know.”
So it’s all about the law of reciprocity. I use an example about my Uber driver, Larry, who was a retired physician, who I converted into a private money lender and he never asked me what I was doing. So eventually I asked him what he did outside of Uber, so that he would naturally ask me what I do, so I could drop the four second power pitch on them. But what about you guys? What have you found because I know you’ve raised capital before?

Rob:
At this point I have a platform myself and so does David and people typically reach out. I have an investment form at the bottom of every single one of my YouTube videos and it just asks questions like, what are you looking to invest in? What kind of project? Do you want a single family acquisition, new construction, tree house, wacky, everything in between, development? And I let people choose their own adventure because depending on how I’m feeling, because I pursue different types of real estate projects every single day. It’s not always the same thing. So if I’m feeling a tree house build, for example, that’ll be the investor that I reach out to first.
In conversation, it’s always a little tough to bring up. So I can see the benefit of this in general, having I guess a phrase that you can use to work into it because generally speaking, most people in my realm, in my day to day, they aren’t in real estate and so I typically try not to talk about real estate as to not bore them because I’m always the guy that talks about Airbnb too much and they’re always like, “We get it, you Airbnb.” And I’m like, “All right, all right, all right, I’ll bring it back.” Or my wife, “Hey, that’s enough. That’s enough.”

Amy:
Well, I guess for the both of you, I assume you have found that those individuals who have nothing to do with real estate may also serve as good private money lenders down the road, right? So we don’t have to always target other real estate professionals.

Rob:
Oh yeah, sure. For sure. I mean, look, this is my genuine belief here. I believe that you should put yourself out there in any capacity and talk about what you’re doing and that’s why I always I feel like I have to restrict talking about real estate because I do talk about it a lot. And I know in talking about it a lot, I’m going to be talking about my successes a lot and talking about the things that I do day to day. And by educating people on what I do and that I’m pretty good at it and that I’m pretty passionate at it, that’s when the conversation of investing with me will typically come up because they’re like, “Well, how do I get involved in this? I don’t know anything, but I do have money.” And that’s where you can really strike up the conversation.
So for me, when I’m working with a possible private money lender or anything like that, it’s all about just putting myself out there and educating them on who I am and why I like doing what I do and that typically opens the floodgates for me.

David:
I would say from my side, I rarely ever look for private money. That just isn’t something I do as much. I typically invest my own money more. So when I do borrow money from people, I make it super simple. I just pay them a straight interest rate for the time I have their money, and then when we pay it back, the payments stop.
So I don’t have to really look to initiate conversations in that direction. But what you said earlier is a hundred percent true where you can steer people into asking you the question that you want them to, by asking them that same question. The majority of human beings do not lead in most areas of life. They don’t lead in relationships. They don’t lead in business. They don’t lead in conversations. They wait for somebody else to set a tone and then they try to jump on board with what that person’s tone is.
So if you can be in that 5 to 10% of people that can say like what you said, so what do you do for work? Oh, I do this, very high chance are going to come back and say, what do you do? And that’s something I’ve learned if I want to bring real estate into a conversation, which as a real estate broker, as a mortgage broker, as a real estate investor, I always want the conversation to go that road if possible.
It’s very easy, you just ask them those questions, so what are some of your favorite ways to make money, or what are your plans for retirement? And if you just throw that out enough times, they’re going to come back and say, what’s your plan for retirement?

Amy:
No, absolutely. And the better we are at raising money, the more confident we will be, the more we can start to diversify these conversations and scripts, if you need a script, because you’ll be able to just really wing it because you’re so confident in who you are and what you do.
However, you guys both mentioned something that’s very, very powerful that I want to just touch on briefly. You both said that you don’t seek out your private money lenders, more than likely they’re the ones seeking you out and that’s very, very true.
There are a lot of people who will say, “Hey I got an email from this person. They want to deploy $500,000,” or, “Somebody’s telling me they want to be a private money lender.” We all get those messages on LinkedIn, right? Hey, I’m a private money lender, fill out this application. I’m going to lend you 70% of ARV at 7% annualized. So I just really want to reemphasize that yes, 95% of the time, we are the ones seeking out private money lenders.
So for the sake of this conversation to everyone listening, what we’re not talking about today is hard money because technically that’s private equity, that’s not what we’re talking about. We are not talking about somebody brokering a deal. Nothing’s wrong with that, I broker deals. And we’re not talking about banks, even the investor-friendly credit unions and community banks, right?
So we’re going to be seeking out everyone and anyone else, anyone and everyone who’s got cash or assets collecting dust, such as our Uber drivers, our neighbors, people at airports, people on airplanes, people, if you go to church, if you participate in sports, it’s literally anyone. So try to remember how to differentiate between what we are and are not targeting.

Rob:
Yeah. So let me clarify here, because if we’re talking about David’s method, which I know he does this a lot where he says, “Hey, you invest with me, I’ll give you a 10%, I guess interest on the money that you invest with me,” I think it’s just a straight, simple interest, would that not be hard money simply because of the technicality that there wasn’t an intermediary that was facilitating that deal, that works with the fund of hard money, I guess investors? What makes David’s style private money versus hard money, I guess since he is more in the 10% camp?

Amy:
Yeah. So really, what you’re offering, whether it’s 10% annualized or I offer 12% annualized and no points, I have found that that doesn’t matter. What differentiates us between hard money and private money is we are not a private financial institution. We may have an LLC that we’re doing these deals under, that doesn’t matter. But we are really targeting anyone and everyone else. I mean, you can even charge 12% annualized in two points and that’s still not going to make David for example, a hard money lender.
I can see how it can be argued both ways though, because he’s setting the standard, he’s dictating the terms. But for example, David, you’re not compliant or regulated by the SEC, I’m assuming. So that’s another big factor that differentiates us between us and hard money.

David:
Yeah. In general hard money is a blanket-

Rob:
Okay, so it’s really more the banking system that makes it-

David:
Also the fact hard money is a blanket term that is used to describe loans that are secured by a hard asset, so if you give someone a loan and their credit card collection secures it, or in a sense, a car note is a form of a hard money loan. When we use it in our vernacular of real estate investing, what we’re talking about is, like Amy said, an institution that is regulated, that is a official lender that will typically charge points on top of the interest that they pay and will have closing cost fees associated with the loan that they’re giving. Versus when we do private money, you don’t really have all of that red tape. There’s no title company that’s going to be involved in this.

Rob:
Got it, got it. Okay. One other thing I wanted to ask on the private money because David just talked about all the technicalities here with the hard money and it’s collateralized and all that stuff and we don’t really go through that whole process with private money. So when you’re going to an investor and you’re striking it up and then you agree on your terms, is it typically just solidified through a promissory note?

Amy:
Great question. Yes. So I use anywhere from three to five different contracts or term sheets. It’s always a promissory note summarizing the terms and conditions of our agreement. Amy promises to pay David $100,000 at a 10% annualized return backed by the property located at 123 Main Street within the next 12 months. I set up all my contracts on a 12 months month note, just for congruency purposes.
Number two, we’re always going to secure their investment, right? So we’re going to record a mortgage so that they have that tangible asset, so that we can’t sell the property without their written authorization. They can foreclose on us, if we decide to take off, which isn’t going to happen because that’s not what we do. And then number three is we’ll add them as the loss payee on the builder’s risk insurance policy.

Rob:
And you said you have five to six different contracts. Is that right? Did I did hear that correctly?

Amy:
Well, number four, sometimes I’ll throw in a personal guarantee. I don’t offer it up in the beginning as a part of my standard process. However, I have signed many personal guarantees and I will sign them if it comes up or if it’s a deal breaker, because at the end of the day, you guys, we shouldn’t be raising money if we don’t know what we’re doing, if we’re not confident in our ability to execute on the deal. And yeah, I’ve lost plenty of money and I have liquidated all of my assets to pay people back out of pocket because I think it’s the right thing to do. I’ve even had to put private money lenders on payment plans.
The opposite side of that is, hey, when you structure these deals the right way, there are no guarantees. So contractually they made an investment, I didn’t have to liquidate $1.4 million of real estate in 2017 and put people on payment plans, but for me, I couldn’t sleep at night until I knew that I had exhausted all efforts.

Rob:
Yeah, that makes sense. I think it’s our fiduciary responsibility to perform for our investors, so I think that’s the way to go. So I think as we talk about this and the promissory note and the protections and first time raisers and all that stuff, can we talk about some of the fears here that are floating around, especially in times like this?
I mean, if you’re a newbie investor, if you’re kind of green or you’re developing your portfolio, is there a lot of fear from the investor standpoint that you have to break down and work around? I mean, I suppose it depends on how adamant or how passionate an investor is to work with you, but what are common things that a newbie investor might hear from a fear standpoint from the investor?

Amy:
Yeah. There are so many fears and objections out there. I mean, it’s fear that holds all of us back from taking action and from raising capital, at least that’s what I found over the last 10 years.
So some very common ones are, I don’t have any experience. I’m brand new. No one’s going to lend me money. I’ve never done this before. So if you find yourself in that position, just remember, it doesn’t matter if you’ve done this before, because you have a team of experts who are supporting you. You have your general contractor, who’s been doing this for 20 years. You have your realtor, your designer, your real estate attorney. So for those of you who are new, just make sure you know how to hire a team, build a team, and then you highlight your team and even introduce your team. I’ve had private money lenders get on the phone with my general contractors during my first year to just build their confidence in me and my team. I’ve flown them out to Chicago. So that’s a common one. What about you guys?

Rob:
I think right now, I mean, obviously I think interest rates are something that are floating around. And especially in the Airbnb world right now, I mean, one thing that I’m hearing pretty often is a lot of people are stressing the whole idea of a slow down in bookings and this and that, but I think what we’re just seeing is a recalibration of normal seasonality. For example, in Joshua Tree, things were just last year, a phenomenal year across the board, but it isn’t always a popular place to be in the summer because, spoiler alert, deserts are very hot.
And so now I think things are evening out and going back to seasonality. And so I think I always have to educate people and remind them that we’ve been in this crazy run for a while and there’s been a lot of money to be made, but it’s not always normal and so you can’t always expect record number years every single year because that’s just not how it works.
So for me, I think it’s, there’s always that fear, especially with investors because I mean, we talk to investors several times a week, we always just have to remind them that it’s like, look, there’s seasonality to take into consideration, we have to budget accordingly. We have a padded bank account for emergencies and all that kind of stuff.
And so it’s like, we don’t typically pay our investors out monthly, which a lot of investors that I work with do want that, but especially, if you’re investing with us on the short term rental side, we like to have reserves. And so we really try to coach our investors to work with us on that and accept a quarterly payment or a biannual payment. That way we can actually account and budget for some of the down seasons. What about you, Dave?

David:
I think when I do raise money, I put an emphasis on approaching the person listening from the perspective of I’m educating them, because I think if they’re experienced with real estate investing, you’re not really having to sell them a lot, they’re going to be asking you the questions. They already know what to ask, they know what to look for. So if they’re hesitant or nervous, that means they don’t quite understand how this works and you have to make them feel safe before they even care about the return they’re going to get.
So I would take the approach of teaching them what does the BRRRR method mean. This is how they’re going to get their money back. The method is designed to recover capital so that they can be safe and they can get their money back, even if we don’t sell the house. If it’s a long distance thing, I would give them the Long-Distance Real Estate Investing book and I’d say, “This is a book that shows exactly what I’ll be doing. I’ll be putting a Core 4 together. That means I’ll have a lender, a contractor, an agent and a property manager that will be handling these components of the deal.” And I’d have a little diagram that showed property manager, this is what they do, and lender, this is what they do. I’d make it very simple.
And then I’d even probably leave them with some resources, if they wanted to learn more, hey, read this book. I’ll let you keep it, or something like that. No one’s going to read an entire book before they give you money, but the fact that they can see that this is a documented thing, this is not just you fly by night, throwing something around, will make most people feel better.
So I’m lazy in this sense and I’m always looking for how do I use resources that someone else has already made to support what I’m going to do, like an article out of BiggerPockets or a book from BiggerPockets or a podcast episode that talks about this. I’m much more likely to give it to them. And they’re going to hear the enthusiasm of the person talking, they’re going to realize, oh, this is not a rare thing everyone does, or a lot of people do this often so this isn’t a crazy, why is my nephew asking me this question, or why is this person I just met, this is something they always do. Rob?

Rob:
So selfishly, a lot of the videos on the Robuilt channel have come from these types of conversations where I get the same objections or the same questions over and over and over again and I’m like, “You know what? What if I made a 15 minute video that really goes in depth on the same question I get seven times a day?” That way, whenever people come to me worried, or they ask the question, I’m like, “Hey, you know what?”

David:
Send them a video link.

Rob:
“I made this video for you. Here you go. Please watch it, and then let’s chat.”

Amy:
Yeah. It’s funny because I will often tell the investors who have the element of fear, holding them back, “Hey, the number one reason why everyone in this country is not acting as a private money lender, assuming they’re in a position to do so is because to your point, they’re simply not educated on the process.” So let’s just get out there and educate them. That’s all it is, it’s a lack of education.
And in today’s market, especially, I’m sure everyone’s getting questioned about the economy, the market crashing. Well, none of us here can predict the future, right? Sure, we’re starting to see shifts. All that means is we don’t exit the real estate game, we just change our strategy and we shift with the evolving market.
And guess what, you guys? With inflation rates today, it’s even easier to raise money today for your real estate deals than it was in the past. Inflation’s north of 8%. Hey, private money lender. You have money sitting in the bank. Your bank is literally dying every day it’s sitting in your account. Or if somebody wants to take the time to Google, what does a bank do with my money, you’re going to see that they take the money that you put in the bank and they go invest it passively into real estate.

David:
Okay, so with your framework that you have that you teach people how to do this, where should they start?

Amy:
So I’ve created this four step unique methodology called my FACT framework. And step one of that FACT framework is building our foundation and the way we build our foundation, there are a few things that make it up such as being clear on who you are and what you’re doing, really knowing your role, having your business plans and goals in place, understanding why you’re doing this. But the key takeaway of step one, which is building our foundation is implementing that four second power pitch, 24/7.
So all we want to do as a part of building our foundation is we’re not asking for anything, we’re just announcing to the world who we are and what we do through that four second power pitch. Now we talked about the four second power pitch earlier and a very common follow up question that I’ll get is, “Hey Amy, what if somebody is into what I’m saying and they want to know more?”
Now, if you’re experienced, the conversation will naturally probably carry itself until you decide to end the conversation. For those of you who are greener investors, I have a 20 second follow up and I’ll rattle off the 20 second follow up, put it into your own words, fine tune it, make it your own, and then end it there. And if they want to know more, just say, “Hey, I’ll call you next week. We’ll hop on a quick call.” And if you’re not sure what to do, call up one of your coaches and mentors, and they’ll literally hold your hand every step of the way.
The 20 second power pitch is basically someone saying, “Hey, that sounds great. Can you tell me more?” I always respond with, “Yeah, I’m a developer based out of downtown Chicago and we’re currently on target to complete 10 transactions over the next 12 months. And our investors love it because they get to kick back and relax while we do all the work and they earn double digits backed by or with a protected, secured and insured asset. What was it that you said that you do again? It’s so nice to meet you.” And then that’s it.

Rob:
Well, what happens if, okay, so let’s say you get through your 13 or your intro, I teach people how to make double digits in real estate and then they say, “Oh cool,” and then maybe signaling that they don’t necessarily want to know more, do you just cap it off there or do you continue to drive that point?

Amy:
No. Look, I really believe I’m providing others with an opportunity. So if they want to end the conversation, I’m not going to push it on them because I really believe that’s their loss. Or maybe we haven’t done a good job of explaining to them who we are and what we’re doing later through my nurture sequence, my follow up sequence, I may choose to circle back with them.
But if they’re like, “Oh, that’s amazing, you want to go grab some dinner?” I’ll be like, “Yeah. Sounds great.” And then-

Rob:
Okay. Cool. Cool.

Amy:
Right? Depending on the relationship, I’ll try to weave it back in, in a very subtle and tactful manner.

Rob:
Good. Okay. And that’s what I’m wondering. I asked that for all the newbies that are listening to this that may not have raised money, when should one push or when should one pry or when should one go in for the … It’s like the one, two hook, right? When should they go in for I guess jab, jab hook, the second jab in it?

Amy:
Yeah. I mean what you can always do as well, if somebody is kind of like, “Oh, that sounds awesome. I wish I was in a position to invest or I’d love to invest eventually,” you can always say, because one of my strategies I think we’ll talk about later, which is step two of my FACT framework is, how do we take action?
We always want to end every relevant conversation with a request for a referral. So if somebody says they love what you’re doing and they’d love to support you, but they’re not in a position to invest, just say, “Hey, no problem. Do you happen to know anyone else who is interested in getting double digit returns backed by real estate? Let me know.” So I ended every single conversation when I first got started 10 years ago with a request for a referral and I did that for 18 months consistently.

Rob:
Okay. So I want to definitely drill down a little bit more on the foundation here, but just for reference so that we understand the different steps of your framework, can you just quickly take us through I guess the four sections of your framework?

Amy:
Yeah. So the foundation is step one of my FACT framework. So what does that look like? Do you have your scripts and systems in place? Do you understand your buying criteria? Do you have your target market identified? So being able to clearly and confidently articulate who you are and what you’re doing. And the main takeaway, the script is the four second power pitch. So that’s the foundation.
Once we’ve built our foundation, we’ve got the right mindset, we believe we’re providing others with an opportunity to invest, we’re consistently dropping that four second power pitch on people, then is step two of my FACT framework where we start to take action.
Step two is where we start to proactively connect with anyone and everyone, like coffee talks, in person meetings. If they live out of state, then we’ll schedule a Zoom session. But this is where we’re starting to educate people on who we are and what we do. We’re just, we’re booking appointments basically.
Step three of my FACT framework is the credibility piece. So step three is where as we’re taking action and we’re booking these 30 minute coffee talks, we want to make sure we have something to take to the coffee talks. We want to make sure we’ve got all of our credibility pieces created and customized before we start or as we’re starting to take action, because basically I use the credibility pieces as a part of our follow up system as well.
And then step four is the transactions. Hey guys, you consistently build your foundation, you take action, you’ve got your credibility pieces in place, then step four is the transactions will start to follow. And once you’ve converted a private money lender into investing, you want to focus on two things. What do you guys think those two things are?

Rob:
Okay. Let’s see.

David:
You’re saying once they’ve already committed to giving you money?

Amy:
Yeah. Once they’ve invested with you one time, what do we want to try to get them to do in the future?

David:
We want repeat business and we want referrals.

Amy:
Absolutely.

David:
What does the nurture system look like, you said?

Amy:
Oh no, I was just ending it with you’re absolutely right. So we want to make sure we take care of them, we stay in front of our audience, we keep them informed. Whether it’s good or bad, you guys we’re going to have change orders, we’re going to fall behind our project timelines. It is very, very critical to our success.

David:
Oh, that’s big.

Amy:
Yeah, proactively educate-

David:
Yeah, setting expectations.

Amy:
A hundred percent.

David:
So that’s an issue that we have in the different companies that I’m running with newer loan officers, newer real estate agents. Most people understand the idea of lead generation, going out and finding the next deal, finding the next person to let you borrow money, for us finding the next person that needs a loan or the next person that needs a real estate agent.
And we will work so hard to get a new customer, we’ll bend over backwards, we’ll do everything. Then you get them and maybe they’re having a bad day and they’re being pushy or rude, or something goes wrong and you have to take some time out of your day to explain it and for some reason, we resent having to do that. And then you lose the customer and you got to spend 10 times as much energy to go get the next one to start over again than if you’d put 10% of the energy into retaining the one that you had.
And that is a very good point, if you’re trying to build a sustainable business is yes, you will spend a lot of energy looking for clients, but spending more energy on retaining the clients you have and then getting organic referrals coming back is such a better and more sustainable model than giving elevator pitches for the next 50 years of your life and your business never grows past the point it’s at right now.

Rob:
Big time, big time. I mean, for us, I think we’re starting to realize that strategic partners are the best partners, right? All of my investors have been really great and when we really first started this whole private money raising thing, we were talking to everybody. If they had 50,000, if they had 100,000, it didn’t matter, we were just like, “Let’s talk to everybody. Let’s get on the phone.”
And I think as we started to realize, we really started being very selective with the investors that we worked with because we weren’t looking to just have a one and done transaction, we were hoping to do multiple transactions with the same investor. And fast forward to today, we have a lot of investors that are reaching out that that they have larger sums of money to invest.
And so we put a lot of energy into nurturing that relationship because if I could have three investors versus 30 on a single deal, not on syndication or anything like that, that to us is going to save so much more time because you’re right, David, we have to spend 10, 20, 30% more energy just making sure that relationship is great, but it’s still a lot less energy than talking to 50 people on Zoom every single week.

Amy:
Yeah, I agree with you. And for those of you wondering yes, you guys, when it comes to private money, you can absolutely get 100% funding from a private money lender, unlike the hard money guys. They’re not going to give us 100%. So with private money, because we set the standards, we can get 100% of our purchase price, our renovation costs and all of our carrying costs in the form of private money.
And in the beginning, sure, I would take investments from someone as little as $8,000, which I will never do again, but I did it in the beginning when I was building that list because for me it just wasn’t worth the time and energy. This investor happened to have ongoing questions.
So make it clear, if you would like, that as a private money lender, you are a silent stakeholder. You don’t have a say in the renovation, in the design, in my sales strategy. I will proactively keep you informed every month of what’s going on and then you’ll get paid back. I still tell them my standard process is I’ll pay you back principal plus interest at the end of the deal at the closing table.

Rob:
Yeah. So I want to dig back into foundation a little bit here because I’m really curious. I mean, I think if you’re interviewing for a job, for example, they say you as an interviewee should never bring up money first, if you do, you’ve already shown your hand. So I’m curious on your end, when you’re in the F stage of this, the foundation and you say, “Oh, I teach people how to make double digit returns,” are we now, even in this stage saying let’s get into the numbers, I need money, here’s how much I need, or is it truly just about really developing that relationship first?

Amy:
Yeah, it’s the latter of the two. It’s really just about raising awareness and developing that relationship. So we are not going to go through any numbers or quote-unquote, “ask for money” until step three, the credibility piece, where we take them through our deal analyzer, our org chart, our target market, all of our strategy, investment strategies, our contracts, our list of frequently asked questions, our private money presentations. So that comes as a part of step three.

Rob:
Got it, got it. So now let’s get into the 20 second follow up here, because this is where I’m curious if it stays within that F because you said, “Oh …” Can you remind us of the 20 second follow up really fast?

Amy:
The 20 second, it will stay as the tail end of the foundation. So the end of the foundation is the four second power pitch combined with the 20 second follow up. So I like to use them simultaneously, if somebody asks for more information.
So the 20 second power pitch again is assuming somebody likes your four second power pitch they want to know more, instead of going into a bunch of details and numbers, I just say, “Yeah, I’m a developer based out of downtown Chicago. And we currently are on target to renovate 10 properties over the next 12 months.” Or just tell people what your strategy is, we’re going to wholesale three properties. Or if you don’t have a strategy, just say, “We’re on target to complete two transactions.” That’s fine, just whatever your goals are. And our investors love it because they get to kick back and relax while we do all the work and they earn double digit returns with a protected, secured and insured asset. And then I end. That is the end of foundation.

Rob:
Right. So is there any amount of, just even from that follow up, because I’m sure you get a lot of people. I mean, you did say earlier in your example like, “Great, let’s go have dinner and talk about it.” Obviously that would lead to action, but I imagine that most of the time they’re like, “Wow, that’s really interesting. Let’s keep in touch.” So for those types of people, when you’re nurturing this foundation or building it up, what does that follow up look like outside of a person to person, in-person conversation?

Amy:
Well, if somebody wants to know more, then next week you begin step two of the FACT framework which is taking action. Step one of taking action is now we’re starting to preferably sit down in person or via Zoom and you’re going to start educating them on your business model. And that’s always, with a private money presentation, that’s going to be our very first credibility piece.

Rob:
Even with this presentation and everything that would still be in this foundation stage?

Amy:
No that’s step one of taking action. So foundation ends with the 20 second follow up. We’re done. Now, if they want to know more, we’re going to start taking action.

David:
So last question. If we know that we’re going into action, do you have any advice for transitions to make it easier to move from foundation into action?

Amy:
Yeah, because you want to have that level of confidence, especially for the newbies, oh my God, I just got a bunch of yeses, people want to know more. This just happened at a workshop I hosted the other day. So at a minimum, make sure that you have, let’s be a little proactive, at least one credibility piece ready to go.
And as you’re taking action and as you’re meeting with more people, as you’re getting creative and thinking outside the box and finding more people to meet with above and beyond your four second power pitch, you’ll have the confidence to know that you have that private money presentation ready to go, so you’re not going to refrain from scheduling that 30 minute coffee talk.

Rob:
I love it. Yeah. What I really like about this is I think a lot of people have … Not everyone is super social and it’s really tough to strike up a conversation with the stranger and everyone gets really nervous of small talk and what are we going to talk about? I don’t know this guy. Whatever.
And so I like that you get into every conversation with an intention like, hey, what do you do? Oh, what I do is this. And I’m just curious, in your experience, have you had a lot of surprise investors come out, in your whole life, just from random scenarios where you would never have expected it? Has your power pitch really been fruitful in some pretty unexpected situations I guess is what I’m asking.

Amy:
100% of the millions and millions, well above $20 million in private money that I’ve raised have come from complete strangers as a result of this four second power pitch, who I’ve developed a relationship with through my FACT framework. I did not target friends and family and I still don’t because I’m stubborn and that’s a whole nother story, but all of it came from random people.

Rob:
Oh wow, that’s cool. Because I think a lot of the advice out there is start in your network, start with your friends and family. You don’t, so can you give us what does that look like? I’m so curious because I think it sounds … I mean, you mentioned your Uber earlier, so I can understand that. But are you going out of your way on a day to day basis to meet people and talk to them?

Amy:
Yeah.

Rob:
Is that part of the game here, you have to be willing to just make new connections, whereas ordinarily you would probably ignore someone, not you personally, but a person?

Amy:
That is exactly right. And that is a hundred percent what step two of the FACT framework is all about. Amy, you’re telling me I don’t have to target my friends and family members? How in the world do I get everyone else in this world to invest with me? So where do we go to find people? What do we say? What environments do we put ourselves in? So that’s all we’re doing is we’re building our networking mind map under step two of my FACT framework. We’re taking action to network more creatively and to build more trust and rapport with people.
So another example, this is very, very calculated, and you guys, for those of you who are not comfortable doing this, the more you practice it, the easier it becomes and the less calculated it becomes. I’m on an airplane at least three times a month. Even still today, when I’m on an airplane, I will take out my laptop and purposely open it up at least one time and start scrolling through before and after photos, because what do you guys think that’s going to do?

Rob:
Ooh, what’s that?

Amy:
Oh my God, yes, this really is my project. No, I don’t work for somebody else. It’s my company. I’m also passive aggressive in case you can’t tell. But exactly, it’s capturing the interest of the people next to me, which allows me to go into that four second power pitch. So it’s the exact same system every single time. What’s the first thing you say to a stranger? The four second power pitch. How do you capture their attention? By getting creative and thinking outside the box. So that’s just one of literally 70 different strategies that I have.

Rob:
That’s awesome. David, I think you said that on airplanes, you’ll open up your laptop and just watch videos of yourself on BiggerPockets’ YouTube, right?

David:
That, various gym post-workout selfies, accolades and awards that I’ve received for various things. I like to max-

Rob:
You pull out all of your awards and put them on the little table?

David:
Yes, that’s exactly right.

Rob:
You know what? I have actually kind of done … I’ve edited my own videos on airplanes, but I always turn it away because I don’t want people to think that I’m just like watching videos of myself because I already do that. I mean, they just loop at home, but on an airplane, I’m nervous to show it.

David:
I want to get your thought, Amy, this is a good question, Rob. I swear airplanes have a different dynamic than everything else in the world, okay? I could go to Walmart, I could go to Home Depot, nobody knows who I am. I don’t get recognized ever. The second I’m in a airport, I get people recognizing me wanting to take pictures. If you’re on the plane, even more so. People will walk by and they’ll do that double take.
I haven’t quite figured out what it is that makes people recognize other people on airplanes, but I just flew back from Long Beach two days ago and I’m walking out of the bathroom, just basically zipped up and some guy goes, “David Greene.” And I just assumed, oh, you must have been at my meetup, right? You probably flew in for the same thing. Hey, talk to him for a little bit.
Then I sit down on the plane, he’s the guy I’m sitting next to, didn’t go to the meetup, had no idea that I was even there, just happened to be a person that likes BiggerPockets. Lo and behold, he’s actually working with one of our team members to buy a house in Sacramento. So shout out Derek, if you’re listening to this.
But I just thought that doesn’t happen anywhere else, but the minute I get in an airport, all of a sudden A, people recognize you or B, they’re open to conversations they don’t have at any other time. It’s like, you’re the guy I’m sitting next to on the plane, so I have to listen to you tell me all about your cryptocurrency dreams or your dog walking business that you want to start, or whatever it is, you just read Rich Dad Poor Dad and I’m going to hear about it for the next two and a half hours on the plane.
Can you share what you think makes it happen on an airplane, so we could possibly recreate that in other scenarios intentionally?

Amy:
That is so funny because that happens to me, but not on airplanes. So that has yet to happen to me on an airplane or at a airport, very seldom, but consistently people will recognize me because I did a four part series with HGTV. So I would actually, Rob, any insight? If you can crack that code, let us know, sir.

Rob:
It is always at the airport, isn’t it? It is David, that’s so true. You know what? I’m at this point now where it happens every so often and it’s always at an airport, but no one’s ever around. So I’ll go to my wife and I’ll be like, “Babe, someone recognized me from BiggerPockets.” And she’s like, “Sure.” And I’m like, “I swear. I swear.”
No, I don’t know. There’s two types of people on an airplane, the people that want to talk and the people that don’t want to talk. I used to be the former. I always love chatting with the person next to me and now airplanes are my sanctuary because I typically will fly with my kids and my wife. There’s two kids, they’re one and two and it gets very, very crazy. So when I get to travel on an airplane alone, I’m like, oh man, this is first class for me. It’s pure peace and quiet.
But I really like the advice here, honestly, just because I think whether you’re raising money from friends or family or not, there’s some pretty actionable steps here. I think there’s a lot of ways to get your yourself out there. For me, when I was first starting my short term rental journey, I was posting it on Facebook, on Instagram, just everything that I was doing and it’s cool. It’s a cool thing. I was really proud and people were like, “Tell me more about that.” And that’s how I was connected with people in my network.
You’re saying go out and meet people out in the wild and tell them what you do, put yourself out there, make chit chat, be uncomfortable and establish a connection there and it can be a very fruitful thing that leads to seven figures of fundraising.
And for me, I’m a content creator and I put myself out there on the internet every single day, every single week, and because I do that and because I teach people how to do it and because I love it and I educate them, the credibility, which I’m sure we’ll get into later is instantly set and people will email me and offer me money and they don’t even know me.
So that’s another form. You don’t have to even do either of these two things. You could just make content online and talk about what you do and love and show that you love this stuff and you’d be surprised at the amount of people that reach out.

Amy:
You’re stealing my thunder. That’s all a part of taking action. I love it.

Rob:
Oh, okay. All right, well, it’s a good preview for the next one. We got a couple more episodes of this.

David:
All right. That is fantastic. And I think that is a good point to wrap up part one of this segment on building a foundation with potential private money lenders. Amy, thank you very much for sharing what you did, this is really good. Everyone listening, if you continue listening, episode two will be airing next, as Amy gets into the next step in her process. I’m excited to see what you have to say here. This is David Greene for Rob delusions of aviation grandeur Abasolo signing off.