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Regardless of whether you are a well-established company or a startup, the consequences of a weak business model are the same. For the existing company, it’s the inability to recognize that the company’s business model is no longer relevant and the subsequent failure to pivot will eventually doom the company. For the startup, its convincing yourself and potentially investors, that you have a business model that will ignite or disrupt an industry, but without any early revenue, and that is potentially dooming.

The graveyard of startups is full of companies that failed to get to revenue early. Failory lists 67 startups that failed, possibly due to a poor business model and a lack of early revenue. For startups, the difference between survival and running out of runway always comes down to taking your eyes off of cash flow. Why? Because when you’re in the middle of the startup run, it’s pretty easy to fall into a trap of wasting time on feel-good tasks that feel like progress but don’t bring in any money. Perhaps its building partnerships, or focusing on good PR. Maybe you are focused on “wins” that look good, like 40,000 website downloads but don’t bring in any real revenue.

If you believe that the odds of startup survival depend on how fast you can generate revenue, then getting to revenue fast is to do nothing else but seek it out. Here are some of things you should consider in getting to revenue fast.

Don’t raise investor money early. Raising money is not the same as generating revenue. Look for ways to generate real revenue with an early customer to test out not just the business model but the product or service. No one pays you for a business model. Test your product or services benefits with early customers willing to pay and adjust accordingly on the customer feedback. Plus you will keep your valuable equity for when you might really need it.

Build out the product not the company. Don’t waste early time and effort building out a company with an expensive website, an office space, a cool t-shirt and a host of other unnecessary things. Work out of home, a co-working space or a friend’s office (for free) and focus all your energy on building out the product or service. Test that with paying customers. Remember, no matter how cool your brand is, your mission or how far out your business plan goes, you’re not an entrepreneur until someone pays you money for something you’ve sold them.

Go to work. In the early days, you are the product developer, marketer and project leader. Don’t get ahead of yourself and hire several employees before you have revenue. Use friends, freelancers if you have to but don’t build out a team until you can afford it. Utilize SaaS tools, simple financial software and sales hutzpah to get your first paying customers. If you have them, lean on mentors and advisors for advice.

The first version is supposed to be ugly. Don’t try and create the perfect product or service as you will launch with that mentality. Get it to good enough and test it with early customers. Reid Hoffman, co-founder at LinkedIn once said that if you are not somewhat embarrassed by your first version of your product/service, then you are launching too late. You need the early feedback from the first customers to create the next refinement or possible pivot. Narrow it down and get to an important feature set for your first segment of customers. Then collect the money, figure out the next priorities based on what works and what breaks, and move on to building the next feature.

Execution before innovation. If you think about successful startups, they started simply by doing or testing something. In the early days, it might not be about innovation but more about execution. Airbnb’s co-founders rented their own bedrooms on a busy weekend in San Francisco to test if someone would actually pay them for their rooms. They did not have a fancy website, a sophisticated algorithm, other cross sell services, etc. They simply tested the notion that people would pay to rent their rooms for the weekend.

Focus on your first 10 customers. In the early days, focusing on TAM (Total Addressable Market), SAM (Service Addressable Market), or SOM (Service Obtainable Market), might look good in a pitch deck, but to get early revenue fast, you need to really focus on your first 10 customers. Who are they, where are they and how can you close them? You might be in a multi-billion marketplace but you need early paying customers. Learn from the first ten customers, then go to 20 customers. Learn from them, then get to 30, and so on until you have definitive, repeatable, scalable revenue streams.

Ashley:
This is Real Estate Rookie episode 276.

Annie:
There’s literally no reason not to use a broker. They’ll negotiate for you, they have a better sense of what’s going on in the market, what valuation is the right valuation, what to come in at, how to negotiate, so that’s number one. Find a broker, and they’re out there. And I would search for specifically a commercial broker. Some dip in both worlds, but if you’re doing commercial all day long, you just have a better sense of what’s going on in the market.

Ashley:
My name is Ashley Kehr and I’m here with my co-host, Tony Robinson.

Tony:
And welcome to the Real Estate Rookie Podcast where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. Today I want to shout out someone by the username of Kell Bell Atwell, who left us a five star review and says, “My husband and I both started listening to this podcast in October of 2022 and have been so inspired by Tony, Ashley and all of their guests. With the help of this show, we were able to jump into action and purchase our first home by mid-December. As raft guides, we spend half the year in Colorado and the other half in St. Louis, so the game plan now to utilize our other St. Louis home as a midterm rental for traveling nurses during rafting season in the fall months we’re out in Colorado. Thank you so much all for the great insight.
Kellbell Atwell, we love hearing stories just like that, so we appreciate you giving us a shout out and that five star review. And if you’re a Rookie audience member and you haven’t yet left us a review, please do. The more views we get, the more people we can help. The more people we can help is what we love doing here, so there you go. Ashley, what’s going on? You got a different background today. You’re just traveling the last couple of weeks. Every time I see you, it’s a different scenery behind you.

Ashley:
Yeah. Well, this one is because we usually don’t record on this day, so I’m actually at what is going to be my future office. I did a full kitchen in here, so it could be a residential unit too that I didn’t need as my office anymore, but I’m currently sitting at the kitchen counter where the dishwasher goes and I don’t have the dishwasher yet, so my legs are just under that opening of the cabinets. It’s actually pretty convenient sitting here just on a stool.

Tony:
And you’ve got a beautiful view behind you, these picturesque windows.

Ashley:
And then there’s a driveway out there and a concrete pad, but then on the other side of the driveway is a beautiful pond out there. It’s actually pretty nice, so the kids can play out there and stuff while I sit in here and work.

Tony:
Well, we got a good episode for the people today, right? We’ve got Annie Larner on, and Annie is a commercial real estate broker. She’s been in the game for a while and she is just such a wealth of knowledge and she gives, I don’t know, think of James Dainard’s episode when it came to estimating rehab costs, this is the equivalent for working with the commercial broker. She has so much information on how to be effective in that relationship and what to look for and what works and what doesn’t work, so I really enjoyed this conversation with her today.

Ashley:
And I think a key takeaway away, as Tony mentioned, working with a commercial broker your first thought was I’m going for off market deals. I’m not going to use an agent, she goes into exactly why you should use a broker when you are buying commercial. And I think that they’re great examples and it’s can be such a benefit to you. I didn’t even realize that there was websites. She talks about different websites like LoopNet and CREXI, which C-R-E-X-I, you should be signed up more if you’re looking for a commercial real estate. But she talked about a couple other ones that you only have access to if you are a commercial broker, and it’s not like the MLS where you can go and see what’s on the MLS on Zillow or realtor.com. So I found that really interesting and it’s just one of the benefits, but lots of great information. Annie, welcome to the show. Thank you so much for joining us. Can you start off telling everyone a little bit about yourself?

Annie:
Yeah, you got it. Thanks so much for having me. My name’s Annie Larner and I’m a commercial real estate broker in Colorado. Northern Colorado, specifically the greater Boulder area, as we say. And in Colorado, real estate brokers can practice whatever they want, residential or commercial, but generally what happens is you fall into one or the other and end up specializing in one or the other because they’re somewhat different worlds, and we’ll I’m sure get into what that all means. I specialize in commercial, so we do sales and leasing of commercial properties.
And I’m on a team with about six other brokers and I got into commercial real estate by way of marketing, actually. My background is marketing and consulting for businesses. I’ve always been in B2B. I love working with businesses, I specifically love working with small businesses. So commercial when I started working for real estate and my clients became real estate brokers, my interest with real estate combined with my love of working with businesses and now investors often combined both worlds, so that’s how I landed in brokerage.

Ashley:
And what about investing yourself? Can you tell us a little bit about your personal experience as an investor?

Annie:
Totally. When you jump into real estate, you end up just seeing a lot of deals by accident. I didn’t really have a ton of intention to invest a lot in real estate, but we stumbled on some properties and was able to combine money with other brokers and work out some deals. I have a friend who has a lot more assets than we do, and so he works out deals with us and brings deals where he will put down the majority of the money and then we come in as a minority share owner of a property and we put together an LLC and buy it. And so we found a residential property in this area that was kind of a flip, and we ended up buying it and we put maybe $40,000 into it and then we rented it for a year and just stocked away some money.
We didn’t treat it as an income property really, it was more just savings, whatever. We maximized the rent as much as possible, and then we were able to put that back on the market a year later and I think we bought it for $382 and rented it out, covered all our expenses for the year. We put $40,000 in and then the next year sold it for… now I’m trying to remember… $650,000-something one year later, so it was a good little project. Those are kind of the deals that we’re looking at. It was lucky, but they don’t all work out.
We just got lucky with that one. It worked out really well and it just was in this perfect spot and three bedroom, two bathroom, a yard, which around here, three bedroom, two bathroom and a yard is everything you need because you have space for dogs, because if you don’t have a space for dogs, you eliminate so much of your renter pool. And with three bedroom, two bathroom you can get a group of young adults that can all put up a little bit more of a budget. If you make it somewhat nice and not super college whole type of thing, then you can bring in a few more people. So that’s what we focused on.

Tony:
Annie, I love that you have experience on both sides of the spectrum. And you talked about this a little bit already, but there are obviously benefits to both the commercial and the residential space, but for our rookie audience, a lot of them maybe don’t have any deals yet. Do you think that there are enough benefits for them to jump into commercial as their first deal or do you feel that a lot of the people that you work with, are they usually more experienced investors that have worked their way up to commercial? What are your thoughts there?

Annie:
Good question. Definitely, commercial investors tend to be a little bit more savvy because they’ve maybe been doing it a little longer, and mainly the big difference is they have a little bit more capital. I think that’s probably the biggest barrier to entrance if you do want to start investing in commercial. I think it’s just as easy if not easier and there’s a lot of benefits for buying commercial property over residential that appeal to me even, but the problem is you just need a little bit more capital because commercial buildings not always, but they tend to be a little bit more expensive and you need a lot more capital to sustain them in terms of maintenance and vacancies that you have to deal with.
But the deals are longer, so if you can absorb a lot of that, you can set yourself up for commercial. But there’s certainly workarounds and I think if you can pool money with groups and work with a good broker broker who can help you work through all of those deal structures, it’s a really good opportunity and I’d love to share more about how to look at commercial deals and what to watch out for, how it’s a little bit different.

Tony:
Just one follow up question to that, Annie, because you said that it’s just as easy if not easier to get a commercial deal. Elaborate on that because I think for most of our rookies that are listening, they think of the word commercial and just they’re overwhelmed by everything that goes into that. So elaborate on what you feel it might be actually easier to get a commercial deal.

Annie:
Well, the pool of buyers is smaller, just simply put. With residential at least around here, we have a strong market here and you have a lot of buyers lined up even in this weird downturn that we’re experiencing right now. And with commercial, they sit on the market a long time, nine months. It’s unusual for a commercial property that’s for sale, especially one that’s in the more accessible range, we’re talking about something maybe $500,000 to $1.5 million, a building like that sometimes, especially if it doesn’t have the income that a lot of the investors want to see, will sit there for a while and there’s actually room for negotiation.
You can actually put in an offer what you can afford and then go to the table to negotiate, where sometimes with investors, when you’re investing in residential properties or looking to do flips, I think that there’s a longer line out that door and you have to get a little bit more aggressive. So I guess acquisition is what I mean by that with commercial. You have a few more options, you just got to know what you’re looking for and be ready.

Ashley:
Annie, for a rookie investor that’s going to be listening to this podcast and thinking, “You know what? I think I would actually like to try investing in commercial real estate,” where is the first place or the first thing they should do to actually start that action to propel themselves into the commercial side of investing?

Annie:
Great question. Caveat, I’m a broker, but I would say find a broker. Number one, in the commercial side properties we are not as readily available to search and find in commercial the way that they are in residential, and the biggest reason is that we don’t really have the equivalent of an MLS in the commercial world. This multiple listing system, they’re so nice. I You can love them, you can hate them, but one thing they do do nicely is syndicate all these properties to these different websites that are totally available to the public. On commercial we have LoopNet, and I’m sure if you’ve ever looked up commercial properties, you’ve used LoopNet. LoopNet’s great. It’s the public-facing version of CoStar, and CoStar’s by far the market leader in the property data exchanges. But other than LoopNet, everything else is behind a wall that’s accessible by licensed brokers.
So all of these property exchange databases that we call, like Catalyst, CoStar, LoopNet, CREXI. CREXI you can use with a login, and I would recommend that for investors who are looking to just browse properties. But ultimately, you’re going to have brokers who have access to the pool of properties that are available and they’re going to be more networked with other brokers in the industry and know what properties are coming up, what’s available. They’re going to be more likely to be able to access off-market deals for you. So just finding a property alone, just use a broker. If you’re a buyer, it’s just the same as it is in residential where you don’t pay for your broker and you don’t pay their commissions, the landlord or seller pays the commissions.
The only time when you might pay commissions to a buyer’s broker is if you bought an off-market deal, which is something you got to be ready for, and they might want to sign a exclusive with you so that you do cover their fees if it’s off market. And that does tend to happen depending on what you’re looking for, but for the most part you’ll find something on the market, and so there’s no literally no reason not to use a broker. They’ll negotiate for you, they have a better sense of what’s going on in the market, what valuation is the right valuation, what to come in at, how to negotiate. So that’s number one, find a broker. And they’re out there, and I would search for specifically a commercial broker. Some dip in both worlds, but if you’re doing commercial all day long, you just have a better sense of what’s going on in the market.

Ashley:
To follow up with that question, and you already answered part of it for me as to what value can you expect a broker to bring to you? So you said negotiating, help you figure out where the market is at, what this property is actually valued at, things like that. What are some other things that a broker would help you with? So maybe during the acquisition side, are they helping you with here’s the items like a lease agreement, things like that that you should be getting from the seller and then after you’re under contract, are they assisting in the due diligence? And so what are those pieces that someone should ask if a broker is knowledgeable in those areas and provides those services?

Annie:
Definitely. A broker will, number one, help you find out what’s on the market, if you get under contract, get under contract at the right price. And then due diligence is pretty long. We tend to be under contract for 30 to 90 days in commercial. I have a deal closing next week that’s almost 90 days that we’ve been under contract and it wasn’t even complicated, it just takes a long time to get environmentals done. Inspections, there’s a lot of title work. And then of course tenants, so that’s the next thing that I’ll speak to. Actually, if you’re buying a building with tenant or tenants in it, there’s a level of complexity there. Imagine this, you had an owner that’s had a commercial building with a bunch of tenants in it for, I don’t know, 10 years. And over those 10 years, they’ve signed five different leases or six different leases releases, and some are gross leases and some are net leases and some are modified gross.
Some have a deal with the guy that if he cleans the closet and gives foot massages on Fridays, that he gets $200 off of his rent that month. And all of this stuff survives closing, so that has to be captured and recorded and represented through what are called estoppels. And I’m sure if you’ve bought houses with renters, you’ve had estoppels, but with commercial they can get really complicated because it’s these it’s businesses and it affects their bottom line. And it’s important that whatever security deposits and all kinds of stuff, that all has to be transferred in your settlement sheets later at closing. So these estoppels can get a little complicated and you want to make sure you have a broker that’s helping you take a look at those and make sure everything checks out, that that transfer into that landlord role when these tenants survive closing is smooth and that there’s a really strong understanding.
I have a building right now that we closed on in December and it had 12 estoppels, 12 tenants and it was like an 8,000 square foot building. It wasn’t big, so lots of tenants for it. And we’re now however many months later and there’s questions coming up again about estoppels and security deposits and last month’s rents and things that weren’t accounted for. And in theory, nothing has to happen because that those estoppels are legal documents that survive closing, but we now have questions about that, so we got to be super diligent about how that’s handled and a broker will come by your side. And then, sorry I’m talking a lot, but just to answer your second question about what happens when you do become a landlord and how a broker can help you. Again, leasing.
Leasing is an ongoing thing. If you have tenants and you are going to have to keep tenants and that’s part of your investment strategy, you’re not actually occupying it, you’re trying to just gain, you’re just doing it for income, you’re going to want a broker that knows a lot about the market and what rents are in the market and how to negotiate a strong tenant for you, how to vet the tenant that comes to the table, how to get longer deals for you, and leasing is just an ongoing thing. Renewals, leases start to expire, people are going to renegotiate that and it’s really nice to have a broker on your side who can just handle that for you.
You can do the leasing yourself and I would recommend doing a lot of good research about how to negotiate good leases, but I can’t tell you how many times I’ve worked with sellers who come to the table and you could tell they weren’t working with a broker because their leases are all super under market, rents are really under market. You have messy lease documents that are hard to make heads or tails of, and that affects you when you go to sell the building and you get under contract and you have to do due diligence and everybody starts looking at these messy leases and says, “Oh my gosh. These are way under market, the value of this building’s not here. These cap rates don’t check out,” and then you have to renegotiate your price. So having really strong leases in place with rents that make sense that are either at or above market will help you when you go to earn your money back at sale.

Tony:
Yeah, Annie, so much valuable information there, and I just want to call out because I know for so many of our rookies they can probably be listening to this and their heads are spinning, but I think that goes back to the point of why having someone that has the experience is so important if you do want to get into commercial space. But just one last thing on the due diligence period. I think we all are somewhat familiar with what happens with a single family house during escrow and the inspections you need to pull, but with the commercial property, what are some of the additional inspections that someone should be looking at to make sure that this property’s a smart one to buy?

Annie:
Almost always you’re going to see an environmental done. So we call that there’s a phase one, phase two there. There’s different phases of environmentals that you do. At a minimum, you’re probably going to want to do a phase one. And so that’s going to go through the building and test for asbestos and other toxic materials that might be throughout the building, and those can get really complicated if you have a building that has changed ceiling tiles. If you have a multi-tenant building and in each of these different units, the tenants have done different buildouts for their business, you’re going to have a variety of different materials throughout the buildings.
This same property that I mentioned that was this roughly 7,000 square foot building, we did an environmental and I think they took 90 samples for the environmental. So it took all day and it was really long, and that’s just a phase one. And then if you’re sitting on a property that’s an industrial property that has more complexities, you might get into a phase two depending on the what comes back from that phase one, and you could end up buying a building that’s a brown site. When it comes to commerce, you have businesses doing a lot of different things on these properties, and so environmentals are really important and that’s usually what causes the you to be on a contract for so much longer on commercial.

Ashley:
I had a property under contract that went into a phase one. It was self-storage but it also had a commercial building with it, and the phase one failed because there was a mechanic shop operating out of it and the phase one notated that there could have been oil spillage. So wanted to go to a phase two, but the seller wouldn’t allow it. He wouldn’t allow the phase two to be done on the property, and our broker told us that that could be because if there is an issue and we back out, he is now aware of that issue and has to disclose it and most likely would have to remediate it.
So we actually walked away from that deal because the seller wouldn’t even agree, and he ended up reimbursing me for the phase one and I gave him that report so he did have it for another buyer. So that kind of worked out okay and I didn’t lose a lot of money in doing my due diligence, but that’s something else to be aware of too, is that you’re ready to move forward and the seller actually puts a stop to it and says, “I don’t want to know what’s wrong with it.”

Annie:
Totally. These commercial deals unravel in the final hour so often. Because most of the buyers are investors and the sellers are investors, you have first of all, maybe a lot of ego, but also oftentimes if the deals, the numbers don’t make sense, they’re just going to walk away and walk to the next one. So it’s really tenuous. The process can fall apart at inspection resolution or in that final hour so often, and I would say that’s another thing to really be ready for, just like with your story, Ashley.

Tony:
So Annie, one thing that you mentioned that I just want to make sure we go back to was cap rate. You very briefly mentioned that word, so can you break down or define exactly what a cap rate is and what role it plays in commercial real estate?

Annie:
Absolutely. So in commercial real estate, we value properties by a few different methods depending on the situation. And this is real estate 101, so everybody bear with me. But you can look at just purely comps or you can look at underlying land value if the property is a piece of crap and ultimately someone wants to just redevelop it or do some urban infill, so there’s really no value in the structure and you’re looking at under underlying land value, so you do a per square foot or per acre basis. And then there’s income, and that’s the most common one because most people invest in commercial for the income, you look at income. And the way we value an income property is through this capitalization rate. It’s just this dumb formula that can be really confusing, but basically, you take your net operating incomes, your NOI, which is your income minus everything it takes to operate and run the building.
So taxes, insurance, maintenance, and you even take your loan out of there, so cap rates don’t account for your loan, it’s really just trying to look at the building itself, and we get that NOI and you divide it by the value of the building or what you want the value of the building to be. So if it’s $1 million, if it’s on the market for $1 million, you would take the NOI and divide it by 1 million, and you ended up with this percentage that’s somewhere between 4% and 10%. And really what it is, it’s not really a return as much as it is a measure of risk, risk and return. So a cap rate that is in that 4 to 5% is going to tell you that this is a property that has a high value, it’s probably in a more urban market, like in our case Boulder, where value is sustained and continuously increases, but the rents as a result against that value are not as high.
And so you’re getting a lower cap rate on that, but it’s a more safe, long-term investment. It’s going to grow steadily. It’s like the bonds of commercial real estate. And then a higher cap rate is simply going to tell you it’s a riskier market, like the value is lower as compared with the income, but the odds of you finding really good long-term tenants might be a little lower because you’re out in more of a rural or a suburban market that is a little less of a surefire bet. So it’s just riskier, so it’s the stock of real estate investments. So cap rates, you’re going to hear it all the time and a lot of times you’ll buy a building that there is no cap rate listed and you’re like, “What’s the cap rate?” Well, it might be empty.
Or in the case of a building I’m under contract right now, half of it’s rented and the other half isn’t, and so in that case, cap rate’s irrelevant. You could do a proforma cap rate and estimate based on market rents and the number of square footage, the rentable versus usable, we would estimate that you could get this cap rate if you bought it for this. But ultimately, there is no cap rate, so you have to think about how it’s valued. So in that case, we’d rely on comps and look at price per square foot of similar buildings that have sold in that market and estimate this is what it could be, but it’s not quite there so we’ll give you a discount for that, and this is how we’ve arrived at this price per square foot.

Tony:
If I’m a new investor, Annie, how do I figure out what the cap rate is for any given area?

Annie:
Well, I would just go to LoopNet. Go to LoopNet and first of all, pick what do you want to invest in? Retail, industrial or office? Industrial tends to have more of those lower cap rates because you have really long-term tenants and the value’s always high of industrial buildings, like warehouses and stuff. But pick one of those and then do a search for all 10 to 20,000 square foot warehouses in a certain market and just filter it by that and start looking at brochures and listings and see what they’re listing the cap rate at, and usually they’ll call it out. They’ll be like, “This is an eight cap. Check it out, eight cap.” You’re like, “Yeah, but it’s in Salem,” so duh, of course it’s an eight cap.
But if you go into a more of an urban area, like a college town or somewhere like that, and you’ll see this often on multifamily and a college town where rents are always really steady, you’re going to mostly see four multifamily always has the lowest caps because again, it’s so steady and everybody needs a place to live. And so if you’re buying a multifamily property, even four units, you’re going to expect that four to five cap. If you see a six cap on a multifamily in a college town for example, that’s probably a good buy, but you’re going to have a lot of people lined up for a buy like that.

Ashley:
Annie, when looking at a cap rate that’s on listing, is there anything you should be doing to verify that the cap rate is actually calculated correctly? Are there some common things that you see that maybe the seller didn’t tell the broker about or whatever that is, but are there just a couple things that we should be looking for when analyzing a deal that might have been left out when the cap rate was configured?

Annie:
Absolutely. Great question, because the cap rate is a good thing to verify. One, because they might have not calculated it correctly and there’s actually a higher cap rate and you discover that and that’s a total nugget, or that they’re totally bloating the cap rate. So the first thing you’ll do, you don’t even have to be under contract actually, when something’s for sale and you’re interested in it, ask for rent roll. And so that’s going to be a spreadsheet that you’re going to get from the brokers listing it or the seller, and this is going to show all the different tenants, what rent they’re paying, when their lease ends, some other high level strokes there on their terms of their leases. And then on that rent roll, it should show all expenses as well. And from there you’ll see taxes, here’s what insurance is, here’s what maintenance is.
And sometimes, often you can tell pretty quickly how savvy a seller is and how good of track they’ve been keeping of these expenses based on whether those are estimated. And if you think they’re estimated, you can just start asking some questions like what are really the expenses here? Did this guy get out and shovel the snow by himself every day? Who fixed the roof? Did you pay a roofer or did you get up there and play with some tar? Really find out what the expenses are going to be when you take this on, how much you’re willing to do yourself. Check the taxes and make sure that those are listed correctly. And you can quickly look at all that stuff to make sure that the cap rate was calculated correctly, and then you can start playing with your offer. So if it’s listed for $1 million and you know you’re not going to buy it for anything more than 850,000, then you calculate the NOI against your anticipated purchase acquisition price and figure out what your cap rate is that you’re going for.

Tony:
Annie, I think that’s one of the things that makes commercial real estate so enticing for so many people is that you have more control over the value of that property because if I buy a single family house, most of our portfolio we buy short-term rentals, and we can take that property and make it perform tremendously well, but the value of that property is always going to be tied to comparable sales of other houses in that area. But if I go out and I buy a hotel and I can take the NOI from $500,000 to $1 million, now I’ve significantly increased the value of that property. So I’m just curious, Annie, from the clients that you’ve worked with, have you seen them utilize that strategy effectively where they buy an underperforming asset, they’re able to stabilize it, improve it, and dramatically increase the value of that property?

Annie:
100%. That’s the goal. That’s ultimately our goal, is to buy an underperforming piece of property and stabilize rents. And if you can find an opportunity for that and then get it for the right price, of course every seller thinks that their property doesn’t stink at all so you got to get it for the right price, but once you do that, and then over time. This stuff takes time, because commercial leases are usually two to five, sometimes seven, 10 years long, and it might take time to get it to a stable enough place to take it back to market. But again, another reason to work with a broker who can work on stabilizing that property and getting some nice rents in there for you. But yes, that’s exactly the goal. Stabilize it, add some value. Make sure you’re taking good care of the building too, you don’t want it to have any major problems that can be uncovered in due diligence, and then bring it back to market. That’s exactly right, Tony.

Tony:
I love that. We got a campground under contract in West Virginia right now, and that’s a big goal of ours is that they’ve dramatically underutilized this property and there’s some big upside there, so I’m excited for that. You mentioned another word that I want to go back to, Annie, which was proforma. Can you define what that is? And also, proformas aren’t always the best source of information to really understand how a property might do. You might have some sellers that have proformas that say this is the world’s best property, but you do a little bit of digging and you find something else. So what exactly is a proforma and how can a rookie real estate investor use that to make a smart decision about buying a property?

Annie:
Totally. Don’t be intimidated by a proforma. Actually, you could use a really simple one. You can get really complicated and get really out of control on it, but a proforma is basically a spreadsheet that you’re going to use to calculate how you think this property can perform, what kind of income you can really get from it if you did everything that you want to do in the end, if all things are perfect. So if you buy a building that’s 80% leased and you know that you want to get it up to 95% lease, you want to get these longer term deals in, you want to get the best rents can, what is your rate of return when you do that and what’d you buy it for?
And then in your proforma, that’s where you do want to start playing with loan money. So you throw in how much you’re financing, how much cash, when you want to refinance. You can get really complicated with these, but ultimately a proforma’s just saying this is what the picture is today and in the future, this is what it’s going to look like if I can do everything that I want to do and create the value that I want to create.

Ashley:
Annie, when doing the proforma, what are some things that someone should be aware of? So for example, if the seller prepared proforma as to here’s what the property’s doing now but we know that it can do this, what are some things even if you’re creating the proforma on your own that people should watch out for that might not even be on the actual? So one thing I’ve seen that’s common around Buffalo is you’re buying from a mom and pop, the pop goes and he does the snowplowing, so there’s nothing that’s listed on the expenses for snowplowing, or maybe their insurance policy doesn’t even cover anything. We toured a campground before that had wood-burning stoves in some of the cabins. Their insurance policy did not cover if something happened with those wood-burning stoves, so that just showed that the premium was probably going to be a lot higher than what they had that was on their current profit and loss. So can you touch on maybe some of those other things that we should keep an eye out for?

Annie:
I think honestly, you just nailed it. Expenses. I think expenses is the biggest thing. Everybody can bloat their rents. One, be conservative on rents. You don’t know what’s going to happen in this world. We’re having a crisis in office right now, so a lot of people had proformas that are not working for them in office at all right now. So be super conservative on your rents and be liberal on your expenses. Just know that however that seller’s running the property right now, you’re probably going to spend way more than they did, even if you don’t. But in your proforma, pretend like you are.
You’re going to hire out that snow removal company. You’re going to work with the roofer. You’re going to get overinsured, umbrella, everything, and then you’re going to have to deal with financing too, because nobody has $2 million laying around. And it might be that you don’t make money on this property for five years, it might be only value for seven years. Especially when you’re in a market with those lower cap rates, it takes time to make money. And so I would say just be liberal on the expenses and conservative on your rents and just try to work with the worst case scenarios, and if it’s still working, it might be worth taking a look at.

Tony:
So you mentioned, Annie, about office being in a crisis right now. I guess I’m just curious, with all the experiences you have, how are you seeing investors in the commercial space pivot given where we’re at in the economic cycle today?

Annie:
It’s a big one. Here in our market in Boulder, our office vacancies are at 12.6% right now, and that’s still not that high, it’s just really high for us. I think New York City’s at 15% potentially. And in Boulder, just by comparison, our historic rents over the last five to six years have been around 6 to 8%, or vacancies, excuse me. So 12% is double and we’re definitely feeling it. It feels like there’s just office everywhere. So I think that sellers and landlords, so on the rent side, are getting there. They kind of understand the state that we’re in, that they’re going to start needing to make more concessions, that prices and rents are going to need to reflect the market, but we’ve had such good rents historically that it’s going to be slower than we want it to be for sellers to respond, landlords.
Meanwhile, buyers and tenants expect the world. So in office, we’re just getting offers. We’re getting proposals for rents that are half of asking, and we’re seeing offers where you can tell the buyers are just expecting this fire sale and sellers just aren’t there yet. So we’re in this gap period, and I think sellers are waiting for things to bounce back or level out of it. Buyers are sitting on cash and thinking that they’re going to get the best deals in the world, and only time will really tell. I’m not sure if that answers your question, but that’s kind of what we’re seeing. And that’s mostly in office. It’s still really healthy in industrial. Good luck buying a warehouse, everybody’s lined up for those. Good luck buying multifamily, it’s still really strong.
Retail kind of goes up and down depending on where it is and what type of retail you’re talking about, but offices, a little bit of identity crisis. We’re just not seeing it come back yet. We’re still seeing a lot of work from home hybrid models, so it’s a weird time. I just think we’re going to need a little bit more time. And overall, commercial just moves a little slower because these deals are longer and leases are longer and so the response rate, and you have a lot of institutional investors and they have really long deals, so it just takes a little bit more time for us to see exactly how it’s going to pan out.

Tony:
I’m curious, Annie, given you have such a wide exposure to all these different types of commercial real estate, if you were a rookie investor and you were starting fresh today, which type of commercial real estate would you go after? Would you go after industrial? Would you go after multifamily? When I think for myself of which commercial asset class might have the most upside, right now we’re looking at hotels and motels because we’re already in the Airbnb space, so there’s some upside there for us operationally. But I also love the idea of the strip mall that has the dentist and the nail salon and the barbershop because those are things that you can’t do virtually, so to me it’s like you’re going to have some upside there. But I’m curious, what are your thoughts? If you had to start today, which way would you go?

Annie:
Well, it depends on your budget and I would say it depends on your interest. You’re going to have to deal with these tenants and you want to know their business, so if you’re going to go after warehouses or if you’re going to have something in heavy industry, I would suggest you understand a little bit about the types of businesses that will be your tenants. Do you know about autobody stuff? Do you know about manufacturing? Do you know about storage? If you understand their business, you can work with them a little bit better and know your market and what makes a qualified tenant, where retail is quite its own thing too. So versus office, we see a lot of small office owners are people with an insurance agency or businesses that have had to rent these types of spaces before themselves and understand what goes into an office or what makes you a good office landlord. So if there’s something that you already maybe have a little bit of knowledge or interest in to begin with, maybe start there.
Industrial’s just a higher price point. It’s just harder to buy. Even the smallest big warehouse, they’re out there, but ultimately you’re going to need several million to get in on a warehouse. They have a lot of maintenance, they’re just bigger and it’s just bigger animal versus maybe a small multi-tenant professional office building that’s a little bit more bite size for your first time investor, especially if you can occupy one of those and be on site. Retail also tends to be really big because you get these, like you said, strip malls, but everybody has that cute little downtown district that has the boutique retail building that you might be able to buy for under $1 million. And it’s a little bit risky because you may have one tenant or two tenants and so you’re really dependent on those businesses, but it starts somewhere. You just got to buy one and get it going and stabilize it. So if your small town is what you love and you’re interested in that and you want to see success in your downtown business district, start looking there and you’ll be a really good landlord.

Ashley:
That’s exactly what happened with me. There was just this beautiful mixed use brick building in this super small town and I just loved it so much, and I waited over two years to buy this building because they first then wanted $90,000 and I ended up getting it for $20,000. But part of my holdup of actually purchasing it was that I didn’t know what to put into it. It was such a small town, what would people need in there? Could I fill both units? So what we did was we actually put in a liquor store in there because there wasn’t one that was close to that town at all. So we opened a business and bought the building, and then we had the two residential units upstairs, which we had other units in that same town and there was still a high demand for units.
So that was kind of our safety net of getting into commercial was going with that mixed use, where we were so familiar with residential that we knew the residential units could carry the building in case our liquor store business failed and we couldn’t rent the other side. And we ended up getting a cute little boutique gift/clothing store that went into the other side, and it really does make it nice in that main street. But that was a big hold up for us too, is to what could actually even go in there and delayed us from actually buying it. But one thing I want to ask is with the leasing process and finding those tenants, is that something your commercial broker can help you with as far as doing the vetting, writing up the lease? And maybe you could even talk about triple net leases too with commercial tenants.

Annie:
Great. Absolutely. In my work I do about 80% leases and 20% sales, so we mostly do leasing, which is so valuable for all of our sales because tenants and leasing are so relevant to the buying and selling of commercial deals. Completely relevant, so we have an idea of where the market’s at, what rents are at, what people are asking for, what tenant demand is, which all plays into it. So yes, your broker will continue to do all of your leasing if you want them to, and it works just like sales in terms of commissions. Generally, a broker will get somewhere between five and 6% of the net value of the lease, so your brokers incentivized to bring in a longer deal. If they bring in a five-year term with higher rents, then they get a little bit higher commissions, they’re working on your behalf. So they’ll do the marketing, put it out there on all those property exchanges that I was talking about that other brokers see.
In our firm, we’re pretty obsessive about putting stuff on Craigslist and everywhere we can to reach tenants even who aren’t represented, because so many tenants are not represented by brokers, and then bring those tenants in and vet them. Very important. I’ve had my horror stories from the past. Even this past year, I toured a tenant that turned out to be a second degree murderer and a total con artist who’s indicted in the state of Colorado. And we toured it and it was this deal, it was the deal from heaven. They wanted everything. It was too good to literally be true. So you want your broker out there doing some vetting for you, and then when they can bring a qualified tenant the table, they can help that with that proposal process of putting together here’s what we propose for rents, terms, everything, come to terms with that, and then move into the lease phase.
And then when renewals come up, your broker can help you renegotiate renewals or maybe put it back out there if that tenant’s going to move out and find the next tenant for you. And keep in mind not just vacancies, but the time that it takes to find a tenant in a commercial deal is months. It’s not something that happens overnight. The absolute fastest deal I’ve ever been able to do, a lease deal that was the perfect place, it was the first thing we saw. These tenants moved so fast, they were awesome, they were on it. Everything I told them to do, they did it immediately and the absolute fastest we could close, this was like two and a half months from the time they said, I want this place to when we signed the lease. So it does take time.
Sometimes it takes six month, and I know landlords get frustrated and after a while they’re like, “What are you doing for me?” But it’s just finding that perfect match. Depending on the landlord and how picky they are, it can take long too, so there’s a lot of dynamics. What was the second half of your question? Net leases. So let’s talk about leases. In commercial, you’re going to see there’s a few different types of leases, and it’s really important because it plays into later your rent role and your proforma and your cap rate and everything that we talked about. Landlords tend to favor what are called triple net leases, and what that means is you divide up the rent and you take base rent, and base rent is just all the money that goes straight into landlord’s pocket.
That is just the pure rent, and that’s usually represented in a price per square foot per year. It’s so annoyingly confusing, but bear with me. Let’s say you have a 1,000 square foot space and it’s $10 per square foot per year. Well, how do I figure out my monthly rent? You take $10 times 1,000 and that’s your annual rent, and you take that annual rent and you divide it by 12, and that’s how you find out what you’re going to pay monthly. So that’s just what’s called base rent. And then there’s this other, what’s the word? Not fixed rent, but-

Tony:
Variable.

Annie:
… Thank you. Variable rent called the triple net or the OPEX, operating expenses, triple net nets, whatever you want to call it. And that is the three ends, so it’s insurance, taxes, maintenance. Common area maintenance, CAM. And so that’s like all the stuff that you have to do to maintain hallways and bathrooms and sidewalks. Everything that’s shared between the tenants is our common area maintenance. And so we have that, we have insurance and taxes, and these are pass through costs. Landlords do not like to pay those things because that’s on the tenant. They say, “That’s on the tenant.” So landlords pass this cost through to the tenant in a price per square foot basis. Usually it’s somewhere between $4, and if you’re down in the Pearl Street Mall in Boulder, it’s $25, really expensive. So you have to add that triple net number on top of your base rent.
So let’s say your base rent is $10 and your triple net number is $5. Your total rent is $15 per square foot per year. You times that by the number of your rentable square feet, we talked about that, and then you divide it by 12 and that’s your monthly rent. That’s everything you owe to your landlord every month. And landlords like this because taxes and insurance and maintenance are variable costs. They can’t predict those. They don’t like things that are unpredictable. They want to know what kind of money they’re going to get at the end of the month. So they take all those expenses that they think will add up to X over the year divided by 12, and then each tenant pays their pro rata share. So if you occupy 10% of the building, you pay 10% of that, and if you occupy this, you pay whatever.
And so at the end of the year, landlords have to do a little bit of accounting and add up all those expenses, all the income they got from the triple net and reconcile that. Was I right? Was I wrong? Was I overestimating? Was I underestimating? And if you overestimated, you owe that money back to the tenant, and if you underestimated, the tenant has a bill and pays you. So all of your variable expenses are covered and then you have the base rent that you just get every month. So that’s why with the NOI, going back to that, why we take those variable costs out, because we really just want to know what the rent is that you’re getting, the hard rent. Anyway, so dumb, so confusing, but just know if you’re out there looking at what rents are, there’s usually base rent and then there’s operating expenses.
Now, you can also run a gross lease, and a lot of landlords prefer this just for simplicity’s sake, or they’ve owned the building 1 million years and they don’t care anymore. It’s all paid off, whatever. They want to be a good landlord, they want to have long-term tenants and they’re buddies with the guy that’s in there, so you just run gross leases. And so you can just do a per month gross and include utilities even, and a lot of tenants of course love that because it gets really predictable what their expenses are every month. You can do a modified gross where it’s all of your rent minus utilities, you have to go pay that separately, or you could do a gross per square foot.
There’s a lot of different ways you could skin the cat, but ultimately gross leases are a little bit easier on landlords because they don’t have to do all that counting and reconciling at the end of the year and maybe pay an accountant to do something that is really annoying, so some people just like how simple it is. But generally, if you’re trying to really build value and build a good income property that’s going to sell for a lot later, you want to run net leases because your savvy investors will understand that and it’s more predictable for everyone.

Ashley:
Thank you, Annie. That was a great breakdown on the leases and I think that’s very valuable for us all to hear as to that side. Not just the acquisition piece of a property, but when you’re actually looking to lease out the property, you do have different options. And as a reminder, all leases are negotiable, whether you’re the landlord or the tenant. So as long as it’s a legal contract you want to have that, but any other pieces and parts, that’s up to you and your tenant to negotiate and can be changed. Annie, in my notes I have one thing that I should have asked earlier but we didn’t get to it, and I want to make sure that we ask you this. I want to know about zoning for commercial property. So if you’re looking at a property and it’s currently used as one thing, how can you get creative with the zoning of properties when looking to purchase to use it to your benefit as the buyer?

Annie:
Super important. Zoning is so important. Well, sometimes it’s not important, but it mostly is really important. As an example, today I was showing a property to a tenant, and this property is in this area of East Boulder called Flatiron Park, and it’s this industrial flex area. And a flex property, by the way, is where maybe you have a warehouse, it’s like the mullet of commercial where it’s party in the front or party in the back and business in front. You have an office, maybe 40% or 30 or 20% of his office and the rest is warehouse. So you might be e-commerce or who knows what, electrician, flex space and industrial. And this area of Boulder is all IG, which is general industrial. And there’s so many offices over here because it’s flex space, and in an IG zoning, you can’t put a pure professional office.
And so you can’t put in an insurance agency that has clients that come and see them because the parking’s not set up for that, and there’s all these different zoning things. But an architecture firm, are they professional service? Are they not? It’s kind of this gray area. So when you’re buying a commercial property, you got to look at the zoning and figure out how that’s going to limit you with what kind of tenants you can put in to your space, especially if you’re looking in maybe a flex area or industrial. Most of the time it’s just commercial. It’ll just be commercial, and it’s like what is that? I don’t know. Pretty much anyone can go into commercial, but downtown districts a lot of times…
I live in Longmont, Colorado and in our downtown, we don’t a allow pawn shops, but we do have a lot of pawn shops on the main drag, and that’s because they’re grandfathered in. But if you bought this based on the proforma of this awesome rent for a pawn shop, when that lease is up, you’re going to have to kick them out because it’s grandfathered in. So make sure you know what those different zoning is and what kinds of tenants can go into it, if you’re in a more permissive zoning, if you’re in a less permissive zoning, and that’s something you can call up your municipality and ask them those questions. Usually it’s listed in great detail on the website or your broker should know. Super important though.

Tony:
Annie, you’ve been a wealth of knowledge and I feel like you’ve given us such a great introduction into the world of commercial real estate investing, but obviously there’s so much more, so if folks want to maybe follow up with you after the podcast episode, where can they go to get in touch with you?

Annie:
Great question. You can email me. My email is [email protected] Our brokerage is Market Real Estate and it’s marketboulder.com, so you can find some more information there. Instagram, annielarner. Talk about real estate sometimes, but also kids, fair warning. I’d love to help anyone.

Ashley:
Well, Annie, thank you so much for coming on. We really appreciated it, and I think this is really the first time we’ve had a commercial broker on that talked about the commercial real estate, and we’ve had very few rookies that have come on to talk about it too, so thank you so much for joining us. (singing)

Bill Rudin, Rudin Management Co. co-chairman and CEO, joins ‘Squawk Box’ to discuss Rudin’s concerns with the regional bank sector, the state of commercial real estate and how to balance the need for revenue and desire to attract wealthy people.

By Ashley Sharp, executive director at Dwell with Dignity.

Being a mom is hard. Having a job is hard. When you put those two things together, what do you get? One of the hardest jobs in the entire world. As a working mom myself, I can attest that the challenges we face are plentiful.

They can range from feelings of guilt to the struggle to achieve an effective work-life balance, the pressure of societal expectations and stereotypes, and the impact on one’s mental and physical health.

Let’s delve into these difficulties and discuss how best to navigate them. You’ve got this, girl.

The Worst Kind Of Trip

Let’s start with the obvious one: the never-ending guilt trip.

No matter how much we achieve at work or how much love and care we pour into our families, there’s always that nagging voice in our head that tells us we’re not doing enough. It’s like we’re running a constant marathon, trying to catch up with the expectations of the world around us.

And the sad part is that, in my experience, these expectations are often self-imposed.

So, my advice: Cut yourself some slack, sister. You’re doing the best you can at work and home, and that’s what truly matters. One thing I’ve started doing is writing in my journal daily and listing out my personal and professional accomplishments.

Ran a successful meeting and energized my team: check. Got all my kids to school on time: check.

The Balancing Act

As a working mom, I struggle to balance work and home life.

On the one hand, you want to give your best at work and climb the corporate ladder. On the other hand, you want to be there for your kids, be the best mom you can be and give your partner the support they need. It’s a delicate dance, and it’s not uncommon to feel like you’re failing at one aspect or the other.

The reality is that there’s no such thing as a perfect balance. It’s all about finding what works for your family and your business and making compromises when needed.

There will be some weeks where you feel like you’re failing left and right at work. There will be other weeks when you feel like nothing you do as a mom is right.

Instead of getting stressed out over not being perfect (nobody is), focus on what you did well and congratulate yourself. If you land a new client, treat yourself to your favorite dessert. If you finish potty training your child, reward yourself with a relaxing night out.

Walking The Line

Now, let’s talk about the stereotypes and the double standards. As working moms, we often face criticism from all sides.

Some people assume that we’re neglecting our children or that we’re not committed to our careers. They may perceive us as being too aggressive or too soft.

It’s a no-win situation, and it can be tough to navigate. But you know what they say: “What other people think of you is none of your business.”

Do what’s best for you, your family and your business. Don’t let the whispers of others deter you from achieving your goals.

Making Time For Yourself

Finally, let’s not forget the impact these challenges can have on our mental and physical health. The stress and the constant hustle can take a toll on us, leaving us feeling exhausted and burned out.

It’s important that we take care of ourselves. Do what you need to recharge your batteries, whether it’s having a night where you watch movies and eat ice cream or taking time for a quiet coffee break in between meetings.

Not only can taking a break help to improve your well-being, but it can also make you a better employee, leader and mom.

Letting Your Strength Shine Through

Being a working mom is not for the faint of heart. But, let me tell you: It can also be one of the most rewarding experiences you’ll ever have. It’s a journey filled with challenges and triumphs, and it’s a testament to the strength and determination of women everywhere.

So hold your head up high, stay positive and don’t be afraid to ask for help at work or at home when you need it. We’ve got this, ladies.

This article is presented by New Western. Read our editorial guidelines for more information.

Let’s face it. It would be tough to become a local expert in every market where you are interested in buying an investment property. It takes a great deal of time and effort to become an expert in your own neighborhood. 

You need to build relationships with contractors and real estate agents and learn about zoning, permitting, city ordinances, development rules, and short-term rental regulations– this is all in addition to constantly staying up to date on what homes are selling for in your neighborhoods.

It’s time well spent on your business. And investors looking to expand and grow their fix-and-flip or buy-and-hold rental business eventually realize that building a team becomes crucial for sustainable growth. And sanity, of course. 

Hiring a CPA, real estate attorney, and virtual assistant are pretty straightforward additions to help you organize and operate your business.   

But there are seven crucial relationships you need to develop to truly become a local market expert. How they can help you, however, might not be obvious.

City and County officials

Why do you need to know city and county employees who just pass laws, require permits and lengthen timelines? 

Those city and county officials live in the community and care enough about their city or county to participate in the management and growth of that community. They also look out for their neighbors. They are not the evil, unseen “man behind the curtain” pounding a gavel and finding pure joy in crushing your investment goals. 

City and county officials know everything about zoning, ordinances, and development. Before you consider investing, city and county officials can let you know if you are even allowed to do that type of project and, even better, how you can do it. Imagine how much time and money you could save if you knew that the zoning and regulations don’t allow short-term rentals, that city water isn’t available, or that the property next to your cute little rental home was just zoned for commercial use and a Walmart is being built. 

Lenders

Why do you need to build a relationship with a lender? Will they give you more money if you do? 

Not likely. But the more types of lenders you do business with will allow you to do more business in general. Your lender doesn’t have to be a big national bank. Local banks and credit unions loan money in their communities and often can get creative with their loan options and offer better rates than big banks. They also know land owners, business owners, and people in the community who are looking to buy and sell their homes or may be headed to foreclosure.  

You’ll find out about more deals when you work with multiple lending partners, especially if you start using creative financing strategies. When you work with private money lenders, transactional lenders, and syndicates who pool money together, you open yourself up to more opportunities. You can build a partnership, gain equity in a project, take on a piece of an investment property, and grow your portfolio and reputation.

Real Estate Agents

Why would you need to spend time developing a relationship with a real estate agent?

Not all real estate agents work with investors. In fact, even if they’ve worked with investors, that doesn’t mean they have enough knowledge to support your business strategy. You need a real estate agent that only works with investors and is an expert in the market you are looking to purchase in.

Not only do investor-focused agents know home values and have access to the MLS–but they also have specialized local data, know how to calculate after-repair value, have access to off-market properties, and have relationships with everyone. A real estate agent might be the most important relationship to have in a local market because they are constantly transacting and working with every type of vendor you could possibly need, from contractors to attorneys, title companies, lenders, and of course, buyers and sellers.      

Title Companies

Why do you need a relationship with a local title company when title companies basically do the exact same thing in every city? 

Not all title insurance companies are created equal. On the surface, it might look like title companies provide the same services. They are a neutral third party that researches and insures the title on a property and helps facilitate the closing process between buyers and sellers. 

But, not all title companies work with investors or have experience closing on investment properties where buyers and sellers have multiple strategies. A traditional home transaction usually involves one buyer, one seller, and one lender with standard escrow instructions. Investors often deal with properties that have complicated title issues, not to mention they also have partners, business entities, creative financing, double closes, varying inspection periods, and specific escrow instructions. The documents and amendments involved in an investor transaction can get very detailed, and every deal is different. 

You can build relationships with multiple title companies that know how to work with investors and grow your business with them. In fact, they will even call you when they need a reliable investor to get a deal done rather than letting it fall apart and missing out on their fee. 

Surveyors

Why do you need a relationship with a surveyor at all? Aren’t they just licensed, neutral third-party vendors who cost a lot of money? 

Yes, surveyors are licensed and regulated, and the documentation they create on a property is filed, recorded, and becomes a living legal document. That document protects your investment whether you are buying or selling because a current survey will represent boundary lines, improvements, utilities, easements, and right-of-ways. It is the legal road map of a property. 

Surveyors also know people. They know property owners, neighbors, real estate agents and have personal relationships with city and county employees and officials. They also know the zoning and ordinance laws and what’s happening with the city council and local development projects. They know the history of a city and county and also where that city and county are headed when it comes to highways, new businesses, and planned communities.  

Wholesalers

Why would you want a connection with an unlicensed wholesaler who never actually owns the property he is selling? 

A better way to define wholesaling is that it’s an investment strategy, not just a person’s profession. Wholesaling a deal is just one way to approach buying and selling real estate. And wholesale investors can’t take on every deal they come across and often have deals to pass on to other investors. 

And one step further—the investors, real estate agents, business owners, or entrepreneurs who wholesale will also have a deal to sell, are looking to buy, partner, recommend vendors, and contractors. When you do business and build relationships with people who wholesale as a career or as a strategy, you can do more business and get better deals just by helping each other out.    

Other Investors

Why would you ever need to be friends or business associates of your direct competitors? 

Other investors are your competition and could snag your deals and steal your contractors. That’s one way of looking at it but also extremely short-sighted. Investors who come together have more resources. A newer investor could partner with an experienced investor to gain knowledge, and that experienced investor could gain equity or profit in the deal. Some experienced investors are exiting the market and need to offload properties. Rather than pass on a property, an investor could give that deal to another investor. One investor may be looking to park cash in a project, while another is looking for funding. The greatest network you could build is one with like-minded professionals who can help each other achieve larger goals and ultimately get to financial independence faster.  

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

By Nathan Beckord

Sometimes a company comes along with an idea that seems so obvious in hindsight (Oh, of course—that makes sense!) that it’s almost surprising to learn its product hasn’t been the industry standard for years. Product management platform Productboard is one of those companies.

After raising more than $260 million with a total valuation of $1.725 billion, it’s clear that investors see Productboard’s value. But that wasn’t always the case. Cofounder Hubert Palan tells me that early on, he made the mistake of pitching investors who just didn’t “get it.”

He spent quite a bit of time trying to persuade VCs with no product background that there was a market for a platform similar to Jira or Salesforce designed specifically for product managers. Platforms like Jira are essential to the task management process of developing apps and web features, like coding, testing, and other aspects of engineering delivery.

“But product management is not project management,” says Hubert. “It is about understanding who the customers are and the pain points they have.”

Before Productboard, there was no end-to-end platform for the entire product management lifecycle. Product teams often relied on a patchwork of spreadsheets and workarounds to incorporate things like customer, design, and manager feedback into their processes. A better product management system assures that startups can “de-risk the whole delivery process,” Hubert adds. “And end up building the right things … not waste years of our lives building stuff that nobody needs.”

Rest assured, that’s not Productboard. Here Hubert shares his top tips for raising capital, whether or not you’re the next startup unicorn.

How to raise capital for your startup

1. When raising capital, know what you really need

Productboard wasn’t an overnight success. Hubert and his cofounder, Daniel Hejl, founded the company in 2014, but didn’t debut the platform until TechCrunch’s Disrupt Startup Battlefield in September 2016.

And the road to unicorn status is paved with quite a few rounds of fundraising. Most founders I speak to haven’t gotten quite as far as a Series D—or raised $260 million. “It is a big number,” says Hubert. “But for me, the absolute number is almost irrelevant, because it’s like, What is the opportunity?”

The opportunity, of course, is massive. The product management space is broad and Productboard is quickly becoming essential to companies large and small, especially those with distributed teams. That’s why Silicon Valley was very interested once Hubert and Daniel found VCs who understood Productboard’s value: Dragoneer Investment Group and Tiger Global led the Series D, while previous rounds included funding from Bessemer Venture Partners, Sequoia Capital, Kleiner Perkins, Index Ventures, and Credo Ventures.

Hubert says that whether you’re raising a Series A or D, the basic concepts of fundraising are the same. You should ask yourself questions about what you really need: Mostly cash? A great board member with experience in a specific market or a specific skill set? Someone who can help you attract the best talent to build out your team?

“Optimize for your goals,” he says. “Clearly spell it out.”

By the time Hubert and Daniel raised the Series D last year, Productboard needed capital that would allow the company to scale. It had already grown to about 400 employees (there are 500+ today) serving more than 6,000 customers, including household names like Disney and Volkswagen, big startups like Zoom, legacy institutions like JPMorgan Chase and “many, many small customers.”

2. #IYKYK: Find investors who understand your value

Before Productboard became the hottest tech startup in Silicon Valley (as well as the Czech Republic, where Hubert and Daniel built their initial engineering team), it found a champion in Ilya Fushman, a former partner at Index Ventures and former head of product at Dropbox.

Ilya was one of the first VCs who, because he shared a background as a product manager, “understood the pain point,” Hubert recalls. “I didn’t have to explain to him what product management was about. Zero time spent on that—it was much more about like, How are you going to solve it? What proof points do you have?”

With Ilya’s support, Index Ventures co-led Productboard’s $1.3 million 2016 seed round (with Credo Ventures and participation from Spread Capital).

Lesson learned? Don’t waste time trying to educate investors who don’t understand the problem your startup solves. “There are people who invest in the space who understand the problem. Find those people,” Hubert says. “You want to go the easiest route, the fastest route.”

That’s why it’s critical to research and identify your ideal investors. Hubert took a “segmentation” approach to this step, creating a spreadsheet that listed the characteristics of each firm, its partners, its reputation, and even its logo. He noted whether a firm or VC had previously invested in a similar space. But he cautions founders to beware of anyone who might have invested in a competitor. Reputable investors will quickly exclude themselves from making a deal that represents a conflict of interest.

More articles from AllBusiness.com:

3. Gather momentum among venture capital investors

When raising later rounds, Hubert asked his investor, senior advisors and mentors to review that spreadsheet with him. He asked them to rank those firms, so to speak, based on how well they knew them, whether they had partnered with them before, and how good of a fit they were for Productboard.

“Later on, I had some inbound interest because we were known already,” Hubert says. But before he started getting approached, Hubert asked his network—professors at the University of California, Berkeley, where he earned his MBA, and friends in the industry—for introductions. He often wouldn’t provide any digital information prior to initial conversations with investors: “I would just show up and talk to them about what we do, without any deck . . . just paint the vision.” That allowed him to gauge interest and compatibility without spending time on a formal pitch.

Each round became easier and easier. After Kleiner Perkins led Productboard’s Series A investment in 2018, the startup became a known entity in the VC community. Sequoia and Bessemer agreed to share its Series B round after fundraising became what Hubert tactfully calls a “very competitive situation.” Representatives from a team of interested investors “showed up in our hallway and said, ‘We’re not leaving until you sign our term sheet.’ They literally did leave for the night, but they were there back again at 6 a.m. the next day.”

(Readers: If you walked into the offices of a venture fund and told them you wouldn’t leave until you got a term sheet, you’d probably get arrested. But I guess it’s cute when VCs do it.)

4. Build a dream team—and steer clear of the jerks

A startup is only as strong as its team, and Hubert emphasizes the importance of hiring great people.

“Take time to back channel people and learn about who they are,” he says. He recommends asking investors to introduce you to potential team members in addition to fellow VCs. They might provide an intro to someone who has “been through a rough patch” that proved their mettle, or even people from a company that went bankrupt—“investments that didn’t work out,” Hubert adds. “The best investors will happily introduce you.”

They might even be a CEO who was fired by the investor, he notes.

“But was it for the right reasons? Was the investor reasonable and empathetic about the situation? The job of the investors is to protect the investments and do the best thing for the company, which might be to fire the CEO or founder . . . But if you’re being militant, unfriendly, an ignorant, no-empathy type of person . . . that tells you something,” he says.

“And I did find people like that even amongst the top firms, I did dig out stories and was like, ‘Well, I really don’t want to work with that person,” he adds.

Basically, investors are people too, with interpersonal disagreements and opinions you might disagree with. “Your ability to sort out these differences and opinions is critical,” says Hubert, who advises founders to choose their partners wisely—and work to nurture those relationships.

“Sometimes people raise the money and then they see the investors once during the board meetings,” he says.

Hubert recommends instead, “Get to a texting basis. Involve them even in things [even if] you don’t really need the input . . . just bringing them there with the intention to build the relationship. Especially now in this crazy, ‘distributed’ world—how much time are you actually spending together? You need to engineer it. But it pays off. Because then when things get tough, when you really need deep advice . . . you know them and you can rely on them. It’s all a matter of trust.”

Article is based on an interview between Nathan Beckord and Hubert Palan on an episode of the How I Raised It podcast.

About the Author

Nathan Beckord is the CEO of Foundersuite.com, which makes software for raising capital. Foundersuite has helped entrepreneurs raise over $9.7 billion in seed and venture capital since 2016.

David:
This is the BiggerPockets podcast, show 749.

Rob:
I never thought that while I was DoorDashing in college, not having the most clear vision of what I wanted to do after, that real estate would allow me to own over 10 properties right around a million and a half in valuation and have the ability to create some long-term consistent cash flow.

David:
What’s going on, everyone? This is David Greene, your host of the BiggerPockets podcast. Here today with my co-host, Rob Abasolo, with a show that is going to blow your mind. Today’s guest is 22-year-old Josh Janus, who has already established a real estate portfolio over 10 properties, is also selling houses as an agent. He sold $17 million last year. In this episode, Rob and I get into how he’s doing it and what he’s figured out that other people haven’t. My mind is still blown, Rob. How are you feeling?

Rob:
It’s one of those things where I’m just like when you find someone that unlocks something in real estate and they’re absolutely crushing, it’s super impressive, but when you find someone that’s 22 years old making six figures a month doing really well in real estate, it really is just one of those things where I’m like, “Man, I got to catch up.” And I’m like 10 years after this guy.

David:
That leads us to today’s quick tip: Get started in real estate early. How can you get started now? I’ve often heard it said that the best time to buy real estate is 10 years ago. The quicker you get that clock started, the better it’s going to be for you. The best deals that I have is the stuff that I bought the longest time ago. That does not mean to buy bad deals early, but buy good deals early and wait. Rob, what’s something about today’s show that you think people should keep an eye out for?

Rob:
Even with Josh’s success and how much money he was making, which we’ll get into that in the episode, he was still really honest about his fears getting into his first property that he probably could have straight-up paid cash for in one or two months. And so, it was just nice to hear that even someone that could be making so much money could still be vulnerable and fearful in their first deal, but it was really cool to see the glow up and to see that that first deal catapulted him to where he is today. Yeah, just a really cool inspiring moment, I think, to just hear him put it all out there.

David:
He also shares how he got started in business making duct tape wallets and DoorDashing. This is a person who listened to the podcast driving around, dropping off Jack in the box and pizzas and turned it into a real estate empire, just like many of you that are listening to this now really want. This is one I will listen to twice and pull as many pieces of information as you can out of this story to think of how you can apply it to your life. Without any further ado, let’s bring in real estate phenom, Josh Janus.
Today’s guest, Josh Janus, knew in high school that he wanted to retire by 30 years of age, so he built and managed different side hustles, from duct tape wallets to a successful sneaker business. Josh was a college student who also drove for DoorDash. Last year at age 22, he sold over 125 properties in his first year as a real estate agent, totaling over 17 million. As an investor-friendly agent, he has purchased and renovated over 10 properties using very little of his own money in real estate over the last seven months. We are going to unpack this today. Josh, welcome to the podcast.

Josh:
Thank you.

David:
Yeah, it sounds like you have a strong entrepreneurial focus. Before we get into how you accomplished everything that I’ve said, what was it about real estate that attracted you in the first place?

Josh:
When I was younger, I was always trying to save money. I didn’t really know exactly the most productive thing to do with it, but I was like, “Hey, I might as well stash it away and eventually I’ll figure it out.” I had around $10,000 saved up, like free capital to use. I was starting my college career, and I was introduced to the idea of house hacking when basically Googling what to do with 10 to $20,000 when you’re 20. That led me to BiggerPockets and that was my introduction to real estate as a whole.

David:
Did you ever actually go anywhere with house hacking?

Josh:
I was close. So back when I was living in Cleveland, Ohio, I was looking at properties. I figured out where I wanted a house hack, but I ended up switching and going to a different college, I went to the Ohio State University, and then my next journey was going to be the house hack there, but I didn’t actually end up doing it.

Rob:
So Josh, it seems like obviously you’re a little bit entrepreneurial here. Before we get into the real estate stuff, because I think even at the age of 22, having $10,000 in your bank account is a hard thing. A lot of people are like, “How can I get 10,000 bucks?” So can you tell us a little bit about how you even got the 10,000 bucks? Did you just have a ton of side hustles or were you working a job?

Josh:
Sure. I was working. I was doing a lot of side hustles. I used to make duct tape wallets when I was in middle school and try to sell those. That was fun. The next thing was really interested in was sneakers, the whole sneaker culture, reselling, because I was a pretty big basketball player and I was exposed to that industry. I was going to different sneaker events, I would rent out a table, bring as much shoes as I could fit in my couple bags and try to sell them and basically just kept those profits over the years.

Rob:
Nice. What did a duct tape wallet run you back in the day?

David:
Oh, man, it was like $5 to sell. I mean, it was a lot of work for $5.

Rob:
Oh, I see, because I was going to say a roll of… well, toilet paper… sorry, duct tape going to cost you like three, four bucks, so yeah, if you can make-

David:
See, Josh, this is my problem, Rob always forgets to include the value of time. He only looks at the money when he calculates ROI, you can see.

Rob:
That’s true, but you had a lot of time.

Josh:
True. Yeah, I was doing it in class and on the bus.

David:
This reminds me of me. I wish I had had something. I’ve always had a very difficult time paying attention in class, in school. Anytime that I have to follow somebody else’s pace, if they’re talking too slow, I’m like, “Ah.” My brain just wanders. I can’t sit there. They didn’t have fidget spinners. Or what’s the other things that everybody plays with now, Rob?

Rob:
Fidget cubes.

David:
Fidget cubes, there you go. Right? What did we have in my day? We had stupid pencils with different colored lead that you could click the different colors and play with, or we had these bracelets that you could snap on your wrists and they would curl up in a ball. I doubt either of you guys ever saw those things, but-

Rob:
Oh yeah, you still have that bright pink one that you always play with during the podcast?

David:
Yeah. And when I work out. That’s my lucky workout wristband. Bright pink, absolutely. PinkerPockets for the win. You’re entrepreneurial at heart, Josh, which I love because I know this is where you learn the fundamentals that later translated into real estate investing. We interviewed Ryan Pineda on our podcast years ago, and he talked about how he flipped couches. He would buy couches, fix them up, and flip them, which he then later turned into a house flipping business, and now he’s built an entire empire, which I like to think we are basically the ones that launched in into the atmosphere. But Ryan took that atmospheric launch and built something pretty cool out of it. So I’m curious if you could share what lessons do you think you learned with some of these early endeavors that translated into real estate later?

Josh:
I guess in the sneaker culture you would see some of these really cool shoes that athletes were wearing or celebrities, and maybe you’d flip a few pairs, you’d make like 500 bucks. And you’d want to take that profit and immediately buy your own pair to keep and wear. My mindset was I’d rather save that money and maybe put it towards an asset. I learned the idea of assets when I was younger, where you can actually use money to make more money. I didn’t really understand which assets to use at the time. I just knew that concept, and I was like, “It’s got to be a better way of spending my $500 profit.” So I think that’s one thing that I learned for sure when I was younger.

Rob:
By the way, that’s not the worst mindset to have where you say, “I really want this thing, so I’m going to figure out how to make money with this thing that I want, sell it, make a profit, and then get the thing that I want.” That’s real estate in a nutshell, right? You want to acquire property, so you buy a property, you flip it, you take the profits, and what do you do? And usually, if you’re a good real estate investor, you go and you dump it back into another property or you buy a property and have other people pay for it, long-term rentals or short-term rentals. I think the mindset is not incorrect, it’s just really impressive that you found out at a very young age that instead of buying sneakers, you should put it into something that’s going to make you more money.

Josh:
Yeah, I think I was always trying to find more ways to be more productive with my money. I learned early on, for certain, shoes that I have to go to the store and wait multiple hours, I was thinking, “This isn’t very scalable if I want to try to get 20 pairs of shoes because I can’t be simultaneously at 20 places at the same time. I have to learn how to rely on other people.” Different things like that helped.

David:
I tried different endeavors too. I worked at restaurants, and I learned how to sell wine and steak, and then I tried to get a job selling cars at one point and that didn’t work out. But ultimately, I think a lot of us see real estate as the pinnacle we’re trying to get to. We want to sell the most expensive thing we can. Getting a real estate license is not something you need this four-year degree. I wish it was. I’d feel much better if agents had to go get a two or four-year degree to so houses because there’d be less crappy ones out there, and we’ll get into your career there too, Josh. But was it the same thing for you that real estate was just a natural progression of the best thing that you could sell?

Josh:
Yeah, I think so. It seemed like I had to put almost, now they look back on it, the amount of time it takes for me to sell one house was almost the same amount of time and energy it took for me to sell one or two pairs of shoes in some ways.

David:
And your hands aren’t sore from creating these duct tape wallets all the time. It’s easier.

Josh:
Yes, that too.

David:
You let DocuSign do all the work, less paper cuts. All right, so let’s go back in time. You’re in college… I say go back in time, you’re 22 years old, you might still be in college. Where does this interest in real estate start to come into play? How and where did you start to dig in?

Josh:
I mean, I just was googling, “What do I do with 10,000 or $20,000? How do I invest it?” I can’t remember if it was BiggerPockets right away, but I saw house hack, and I was like, “Maybe I could buy a property on the college campus I was going to. Live in one unit, rent everything else out.” That slowly led me to understand, “Oh man, if I become an agent, I could figure out a way to find potentially the best deals,” so that was my goal.

David:
So you didn’t buy a house to house hack, but you got exposed to real estate, it made sense to you, and you thought, “You know what? I’ll just get my license and I’ll help other people do the same thing.”?

Josh:
Yep.

David:
All right. So did you just look up how to get a real estate license and just start studying and do that, or did you have a mentor that guided you?

Josh:
The first thing was diving into the BiggerPockets forums, really. This podcast might sound like a BiggerPockets promotion, but in all reality, a ton of my growth really stemmed from that foundation. But that was one of the first things. And then I also got latched onto a guy named Remington Lyman, who’s also an agent. He works at Reafco Real Estate, he owns the brokerage I work at. But I messaged him, I was explaining my situation. He hopped on a Zoom call with me, explained the benefits of house hacking like, “Maybe if you wanted to become an agent here or come here, we can teach you how to find off-market deals. We can help you build those systems.” And then next thing you know, I was working as hard as I can to get my license.

Rob:
So you’re getting your license, and obviously as you establish your real estate agent business, that’s going to take some time to get that deal flow and actually closing properties and making money. Were you working any other jobs while you were doing this or were you all in at the very beginning?

Josh:
In the very beginning, I was still taking classes. I was studying computer science, and then I was driving for DoorDash 20 to 30 hours a week. And then at any moment I could, I was trying to just cold call. That was my main source of finding deals in the beginning. My plan was cold call, find a deal, or at least get somebody to talk to me about their property, get some details, bring it to one of the agents that I was working with. They would break down the deal, explain like, “Maybe an investor would like this,” or get some clarification on what the rents are, the lease terms are. It started there.

Rob:
Were you ever deep in conversation, you’re like, “Give me one second,” and then you’d pause to take a photo of the DoorDash delivery to upload in the app and then get back on the call?

Josh:
Maybe. I was trying not to do the delivery while calling to… I was doing it when I was driving, but not necessarily-

Rob:
Oh, mid delivery.

Josh:
Yeah. Yeah.

Rob:
What kind of money does a DoorDasher make? If you’re working 20 to 30 hours a week, is that pretty good income? Can you give us a little frame of reference there?

Josh:
Yeah, I mean, I was around five to $800 per week, I think, working that amount of hours. That’s pretty good.

Rob:
Yeah, that’s solid, especially if you’re in college and you’re doing all that. So you’re DoorDash and making pretty good money for where you are in life and you’re cold calling. What was that first deal like when you actually landed a lead that became a transaction that paid you out?

Josh:
Definitely. So I was cold calling four units in what I would call A-Class area. I just found a guy that happened to be motivated that day. He was pretty easy to talk with. I presented it to the agent I was working with, he’s like, “Oh yeah, we could sell this deal.” So I wrote up an email, which is the way that we market our deals, then he presented it to his investors. Somebody ended up taking the deal on. That took about a month to close, as most properties do, and I basically made what I would make in a month and a half from DoorDash from that. I was pretty psyched because I thought, “I just need to knock out a few more of these and I could end up making this produce more income than just DoorDash.”

Rob:
So you started math out like, “Oh man, if I did this three times, I’ll make this amount of money.”

Josh:
Oh yeah, definitely. And then another thing is, if you get your license, you end up making a much bigger cut because you can actually represent either the seller or the buyer, depends on the situation, so I was making a referral fee. So as soon as that deal will close, I was like, “All right, I got to get my license. Let’s start studying right now and try to knock it out.”

Rob:
Yeah. So was that more, I don’t know, a wholesale deal where you’re calling, you find someone, you get a property off-market. They’re like, “Yeah, I’m willing to sell it.” Are you then passing that off to realtors to sell or were you selling it to an investor and taking a small fee for that?

Josh:
I worked under a realtor named Abe, so basically I just wrote all the details of the property, gave to him, and then he found an investor that was interested in the brokerage that I was working at. It’s like a hybrid form of wholesaling. We just don’t actually put the deals under contract, we just present the information to the potential investors.

Rob:
Makes sense. I guess you close this deal, you’re like, “Oh my gosh, I just got to do this many times.” You start getting more into this. How were you able to balance everything from getting your license to finishing college to, I assume, still maybe working some DoorDash here and there?

Josh:
I mean, at that point, basically I was like, “I’m just going to use all of my time outside of school to dedicate towards still maintaining a cold calling schedule,” which I think is really important, “and then getting my license.” So I got my license in about two months.

Rob:
Are cold call hours always 9:00 to 17:00 or were you getting creative and calling from 5:00 PM to 9:00 PM too?

Josh:
9:00 to 11:00 was my cold, cold calls, the people I’d never really talked to. And then I would use 13:00 to 17:000 as a lot of follow-ups or new cold calls. But it seemed like if you hit somebody in the morning when they’re driving, “Oh yeah, yeah, yeah, call me back later,” then I just hit them later, and usually that ended up being a pretty decent converter.

Rob:
David, do you consider yourself much of a very good cold caller? I’ve never heard this side of you before, so I’m curious.

David:
I did it in the beginning of my career when I had to. I didn’t love it, so I didn’t do it a lot. When you’re trying to find deals, most people fall into one of two categories. There’s the direct contact person, which is a cold caller, or there’s the content creator, which gets people coming to them. Most people usually take one of those two paths. And because I ended up as a podcast host and an author, I went the content creation side as opposed to the direct cold call.
Josh, I mean, you did what you could do because you didn’t have a huge podcast behind you to spread the word. I’m curious because you mentioned something, you talked about this wholesale hybrid model. Can you give us a little more detail of what you mean by how you were making money on these deals?

Josh:
So the seller was like, “Hey, I want 450 for this four unit.” And generally wholesalers would write up a contract, get it under contract, and then sell that contract for a fee. The way that we do it at the brokerage I work at, at Reafco, we don’t put it under contract. We just take all the details of the deal, write it in an email, and then present that to our investors. And then if one of our investors likes it or they want to write an offer, we just write up the offer and present it directly to the seller.

David:
How are you being compensated? Are you getting a listing agreement from the seller when you bring the buyer to them and there’s a commission in there for you guys?

Josh:
We don’t actually use listing agreements, no. During that timeframe when I didn’t have my license, I was getting a fourth of the commission for the agent I was working under. He got 3%, then the agent that brought the buyer got 3%, and then I ended up with 25% of the 3%. That’s how we did it.

David:
How were you guys getting commissions if there was no listing agreement?

Josh:
It’s still an executable contract with commissions in the agreement, so it’s going to say, “Seller to pay 6% to our brokerage.”

David:
I gotcha. So you would bring a buyer and in the offer it would have who was getting paid as far as the agents are concerned?

Josh:
Correct.

David:
I see. So rather than putting, getting a house, putting it on the market, letting everybody see it, trying to get offers, negotiating the highest one, you guys just cut to the chase and you said, “Hey, I got a buyer that will pay this much for your house. If you want to take the deal, here’s how much it’s going to cost you. Here’s what the net to use is going to be,” and you guys were running a little more efficiently.

Josh:
Yeah. I think it allows us to take advantage of those leads that aren’t as motivated to sign a listing agreement, because there’s a lot of people that fall in that category, I think.

David:
This is also a form of off-market deal, so other buyers didn’t have access to the same stuff that you guys were bringing them, correct?

Josh:
Yep.

Rob:
Yeah, but Josh, let’s say you’re presenting this property, because you don’t have a contractor, you don’t have a listing agreement, what would stop an investor if you say, “Hey, investor, I’ve got this cool property, here’s the address,” what would stop them from just going over you and going straight to the seller and just transacting the deal themselves?

Josh:
That’s a good question. We have an off-market agreement that we present to everybody prior to setting deals that roughly states, “If you go after a deal that we bring, you have to use us as your agent.” In the beginning when they haven’t signed it yet, we’ll send people rough descriptions of all the deals. It won’t have the address, usually won’t have pictures. But then if they’re like, “Hey, I really like the concept of this deal,” we’ll set on the agreement and then they sign it and we’re good to go.

David:
So it’s a form of a buyer representation agreement. People don’t realize you don’t have to set it up for every house that I show you or every house you could buy. You can say, “For this address, I have to be your agent,” but they could use a different buyer’s agent for different properties that get brought to them. That actually makes sense. I see now why you’re calling it a wholesale hybrid, because wholesalers do it that way. They say, “Here’s a three, two with 1,800 square feet in this zip code that would rent for this much money.” That’s all that people get to start with until they want to analyze it later. So you use that marketing approach paired with real estate contracts to protect each party there. What happened next? How did you get to the point that you were making more from these commissions than you were making from your DoorDashing?

Josh:
So that first check came in, that was about a month and a half’s worth of DoorDash. I had a lot of warm leads, people that weren’t ready to sell right away but they were getting close. I was basically like, “I’m going to take the next six weeks, I’m going to go really hard at this.” At that point, I was spending two to three times more hours per week on this than I was before. Then I got my license, then I started putting a whole bunch of deals in contract.

Rob:
When you say you’re putting two or three more hours, do you mean just in the follow-up?

Josh:
Sorry, my bad, two to three times more hours per week than I was before because I was like, “Hey, no more DoorDash for now, we’ll just work on real estate.”

Rob:
Got it. Was all that time on lead generation, was it following up with… because you said you had a large pool of warm leads, so these are people that, they’re interested, they’re not ready to pull the trigger necessarily, but if you keep approaching them, coming back to them, eventually they convert, right?

Josh:
Yeah, eventually. Yeah.

David:
All right. Were there any key learning points during this difficult time? What was going on in the market at this time? Was it still red-hot? Were things slowing down? Where are we in time?

Josh:
This is the beginning of ’22, so it was still hot, definitely. It was cooling off a little bit, but every deal that was decent that hit the market would have multiple offers and the listing agent would be getting hounded. It was definitely tough. At this time, I also tried to make a bigger presence on BiggerPockets, so I was posting a lot. I think I cranked out 1,000 posts in about three months.

Rob:
Wait, hold on. Okay, so that’s 90 days, so you were posting 10 times to 12 times a day on the BiggerPockets forums?

Josh:
Yep. That was my schedule. I believe from 5:30 to 6:30 every morning I had to spend an hour in BiggerPockets by posting or at least reading content and trying to provide value.

Rob:
Where you were making posts and actually putting content out there, what’s an example of something you’d throw out into the BiggerPockets universe?

Josh:
I mean, most of it was just comments on people’s questions. I would try to answer them the best that I could. I would talk about the Ohio market, the advantages to investing here. I would talk about my journey and how I’m learning.

Rob:
Did you feel like people start to know who you were? Did you get any relationships from doing that?

Josh:
Oh, yeah. People reaching out to me in BiggerPockets. They’re like, “Hey, I see a little bit about this market or real estate investing in general.” At that point, I was trying to manage those leads, and then I was also reaching out to other people. So I set up a Calendly link. I was like, “Hey, set up a 15-minute call with me. We’ll figure out what you’re looking for and how I can help.”

David:
So when the market was hot and listing agents were getting multiple offers, how are you getting sellers to agree to sell their properties through you to a specific buyer rather than putting it out there for everyone to see?

Josh:
I think the fact that we weren’t using listing agreements, they were a lot calmer. They didn’t feel like you were trying to push them to sell. It was more so I was like, “Hey man, what do you need for this property? What number would you not deny?” If that number made decent sense, we’d spend the time to write it up and market it out .

David:
And they weren’t having to fix their house up. I’m assuming a lot of these were probably sold with tenants already inside.

Josh:
Yeah, tenants inside. We’d get the rents, the lease terms. They would almost always be as is. Yep.

David:
What were you doing to find actual properties? Were you just pulling lists? Was this you’d be driving around and just look and see a multi-unit property you thought an investor would like?

Josh:
I was pulling lists from PropStream for the most part and targeting different areas. I was trying to pull lists of people that hadn’t sold in the last year or two years or that bought it for a really low price compared to what it was potentially worth now, because I felt like those could have been more motivated people.

Rob:
All right, so you’re in this world where you’re figuring out your systems, I see that you’ve developed habits, you had a schedule, you’re now an agent. Give us an idea, how long did it take from when you got your license to the first deal that you closed as an agent? How long did that take?

Josh:
That was December to March, so basically three months. I had my first 11 deals fall out of contract. It was pretty brutal. I felt like everything was falling out for the most unique reasons, but it was a big learning experience for me because I was making mistakes, for sure.

Rob:
Man, the 11 deals, that is brutal. David, is that normal at all? I know you run the David Greene team, the most elite real estate agents out there, is it normal for 11 deals to just fall out from a first-time realtor?

David:
No, but as I’m listening to Josh’s strategy here, that starts to make sense. This is more of a volume based approach. He has sellers that are not motivated. He has buyers that they don’t have a relationship with. Everyone’s a bit of a merchant marine here. It’s just pure numbers. If you can get me a deal that gets me the cash on cash return that I want, I’ll go forward. Or if you can get me this number that was probably higher than what they thought the property was worth. So you’ve got sellers that probably want to sell for more than a buyer would want to pay. You get buyers that are looking for the deal of the century. Every time you have these expectations that are off, it’s easier for a deal to fall apart. I’m assuming, Josh, you just had to make up for that with volume. You were probably just a workhorse that was constantly looking for sellers, looking for buyers, matching them together, moving on to the next thing.

Josh:
Definitely, yes. I haven’t really heard a summary like that before. That’s a very good way of explaining it. I was basically just taking two people that had a low chance of closing and putting him together. When that happens, you get a really low chance of closing.

Rob:
David is the king of this, by the way. He is the king of summarizing something so concisely and succinct. I remember we had… Let’s see, who was it? Chris Voss. Chris Voss came on and he gave a philosophical thing, and then David comes in, he’s like, “So basically, based on this and this, it’s this, right?” And Chris Voss was like, “Yeah, it is that. No one’s ever told me that before.” It was like watching… Who painted the Mona Lisa? The painter of the Mona Lisa paint the Mona Lisa, but in the real estate world. Michelangelo. Shoot, I’m about to look so dumb. Everyone in the comments are going to be like, “No, it wasn’t Michelangelo.”

David:
Well, the key is you have to do that with Chris Voss because you don’t want to end up in a negotiation with him.

Rob:
Oh no, I remember who it was. It was also the Blue Angels guy. He had this whole story about how he made a mistake in the jet, and then he was like, “Can you guess the reason that I made that mistake?” and then David was like, “Well, it was probably because you got too comfortable and blah, blah, blah.” And he was like, “I’ve told that story 1,100 times, and no one has ever said that to me. Yeah, that’s exactly why.” He was stunned. So anyways, I always like to point that out when I see it.

David:
Well, thank you. Quick tip here, if you would like to be able to do the same thing, stop looking for patterns to follow or as far as a strategy, “Give me a blueprint, I just want to go do something,” and start asking questions like, “Well, why did that work?” or “Why did that not work?” and then this stuff jumps out. So just from that information alone, I can tell certain things about Josh. He’s a workhorse. He does not get emotionally attached to any of these deals. When he puts something in contract, he doesn’t spend the money before it closes. He’s just like, “That’s a metric that goes on a spreadsheet. I am now back to going to work.” He focuses on what we call the lead measures, not the lag measure, so what is it I can do right now as opposed to measuring something that already happened?
This is all really good advice for everyone. You see this with real estate agents where they work really hard, they put a deal in contract, they get emotionally excited, they celebrate, they go out drinking with their friends, they start thinking about what they’re going to spend the money on, they’re calculating their commissions. Real estate agents can calculate 3% of anything, which is funny because we don’t all get 3% hardly ever anymore. But they get super attached to the deal, and then when something goes wrong, the appraisal comes in low, the inspection report is bad, the client can’t get the loan, whatever it is, they get really discouraged and then they go drinking again. Which is why most real estate agents all become alcoholics, because they’re drinking when they’re excited and they’re drinking when they’re bummed out and they’re just drinking all the time. I think Josh’s approach is much better because you’re approaching the business of selling homes like a real estate investor would think, where you’re just letting the numbers make the decisions. Am I off with that?

Josh:
You’re right. Yeah, it’s just keep put them in contract, figure out what mistake I made there and what can I change in my systems and my approach to potentially avoid that in the future.

David:
Okay, so let me ask you, what are some of the key mistakes that you can share that you learned when you put these deals together that made the deals fall apart?

Josh:
The first thing would be not vetting the sellers. Sometimes they wouldn’t… I mean, kind of funny, they didn’t even really know what they owned. They would say like, “Oh, these are three bedroom units.” And then you give them a contract, the inspector goes there, and they’re like, “Dude, there’s only two bedrooms.” And it’s like, ugh, you can’t do anything about that. You can’t just build a new bedroom. So that’s one thing.
Another thing is I learned about making sure the tenants are paying and the tenants are paying on time. That’s very important, so getting those estoppel agreements potentially in the beginning because that ended up causing issues at the end before closing multiple times. And then not necessarily vetting buyers very well. One example that’s kind of funny is I had a guy trying to buy two properties for $600,000. We fell two weeks prior to close because he couldn’t get financing. I learned that he had less than $10,000 in his bank and he was trying to put 25% down. I’m like, “Do we even do the math here?”

David:
It’s so funny, because I could just totally see how this method would attract those problems. This is trying to find a date on Craigslist. You’re like, “It’s a numbers game, baby.” You just got to keep lining them up because you’re going to get these people that are looking for a deal that’s unrealistic. The $8,000 guy, I bet you what he was doing was he brought this deal to other people and he was trying to get their money on this deal that had a high cash on cash return number because he listens to the podcast and he hears Brandon Turner say, “When you have a great deal, you can find the money.” He didn’t tell you that. He’s like, “Yeah, I’ll buy it,” and then he’s running around telling everyone he can, “What’s the raising private capital script I’m supposed to use?” He’s trying to get someone to come in on the deal. He ran out of time and then he has to just back out of it.
And you, Josh, you get to work your way through all of these really incredible scenarios that normally a real estate agent like us we’re like, “Oh, let’s see your proof of funds. Oh, you have $8,000. No, we’re not going to go show you homes.” You didn’t get to do that. Did you put a system together? Do you have a checklist now? Do you have a screening process for both the buyers and the sellers?

Josh:
Definitely, yeah. I try to write procedures for as many things as I can. I’ll hop on a phone call immediately with the people as soon as I meet them, little 15-minute meeting, make sure like, “Hey, are you pre-approved? If not, I have these lenders that I recommend. They’re great in this area. You want to connect with them.” I try to figure out their timeline, when you’re looking to lock down a deal. Another thing I think is really important for working with investors is, what is your criteria? A lot of investors don’t necessarily put that forward and agents can end up wasting time because they don’t really know what the people are looking for.

David:
Yeah, I think that’s a common complaint investors have too. “I told them what I want. The agent didn’t listen to me.” That’s one way to mess it up. The other way is the agent doesn’t even think to ask what do you want. It’s funny, in our world, someone will say they want a deal and we don’t even think to ask them to define what they mean by deal. Some people mean a really high cash on cash return. Some people mean a property in the best area. Some people mean something at significantly less than ARV. Some people mean just any multi-unit property. It can mean so many different things to people about a deal. Without asking what that means, it’s very hard to make sure that what you’re bringing them is going to land. In your experience, what are most of your investor clients looking for in what they call a deal?

Josh:
Around 60% of the people are trying to get into real estate. They have kids. They have a full-time job. They’re not trying to quit everything and just do real estate. So they want properties that are turnkey or close to they’re occupied, they’re producing a good sense of cash flow. They can buy a couple of those a year and be happy with a good portfolio and they’re done. And then the other 40% of people, I would say, are looking to do value add, the BRRRR strategy, creative financing when it comes up, self-management, anything that’s a little bit more involved and requires a lot more of your time, that’s for the other people.

David:
So these are the financial freedom group that you’re basically working with. They’re trying to get enough cash flow so they can quit their job.

Josh:
Yeah. I have a lot of calls where the first two minutes it’s like, “Yeah, I want to retire in five years.” It’s like, “You can do it, it’s just hard.”

David:
Let me show you how to sell some duct tape wallets.

Rob:
So you mentioned something earlier, Josh, a term estoppel. Do you think you can just give us a quick definition of what that is because it seemed like that was something that was popping up in a lot of these deals that fell out?

Josh:
Yeah. It’s basically a summary of what the tenant is paying, what their lease terms are, and showing that they have been paying. I don’t actually use estoppel agreements. That’s just a term that I thought most people knew. But it’s basically I want to see the rent history. Sometimes the seller will just show me bank account to show that the deposits are coming in or an actual summary or an owner’s statement from the property management company, something showing that the cash flow is real, it’s not fake.

Rob:
11 deals fall through, you close your first deal. Tell us a little bit about the actual numbers on that first one. You said that it was, I guess, the same as working a month and a half in the DoorDash world, right?

Josh:
Yeah. So it was a $450,000 four unit. There was 3% paid to the agent that I was working under, so he got $9,000… oh sorry, $12,000, and then I got a quarter of that, so I got around three grand.

Rob:
Nice. How did that feel?

Josh:
That was really cool. That was the biggest check I think I’ve ever gotten. I was a little intimidated, but I was like, “We don’t spend this now. This is our life for the next two months.”

Rob:
Oh yeah, that’s a lot of ramen noodles right there, especially at the beginning when you’re grinding so much. So let’s fast-forward a little bit because I know you’re grinding it out on the agent side. Tell us about your actual first deal, because David mentioned at the beginning of the show that you bought 10 deals, which I think was about $1.5 million in total for the portfolio. So how did you actually get into the investing side of things?

Josh:
Definitely. I started to sell a lot of properties. By month six, I had scaled my business up to $50,000 a month in commission. Actually I had cash reserves. I found these two duplexes listed by the same agent. They had been sitting on the market for a few months. I called him up and he was like, “Yeah, the owner has short-term debt on it, he really needs to sell it. They’re getting ready to call his note.” They were basically willing to sell them at a 30% discount. I ran my numbers and I was like, “This could make for a great BRRRR, both of them. You could be all in right around 70 to 75% ARV. When you pull your money out, it’s still going to produce a pretty solid cash flow.” So I had to really trust my numbers, but I decided to go after one of them.

Rob:
Okay. So wow, that’s a $50,000 a month, that’s what you were making. How old were you when you reached that number?

Josh:
21.

Rob:
21. David, does that make you feel like… I feel so lazy as a 21-year-old when I was back… I was not doing that. I was trying to make… I don’t know, man. That’s crazy. Congratulations. That is so cool.

David:
I was making less than that in a year, and that was still more money than everybody else that I knew.

Rob:
Dude, that’s crazy. So all of that, the $50,000 a month, obviously that’s going to lead into your investment strategy, but that just came from hunkering down on your agent business, growing those systems, developing your processes, and then you grew it into just 50K a month. That’s insane.

Josh:
Yeah. By month eight I actually got it to about 100K. Ever since then, I’m right around 100,000 a month. I’ve been leveraging VAs for a lot of procedures. I try to delegate as many tasks as I can as a realtor. Try not to, I don’t know, spend all day writing contracts, as an example, because that can take 30 minutes on average. A lot of days I’m writing between eight and 10 offers. That would be my entire day.

Rob:
Can I come work for you, please? Can David and I come work for you? Okay, so you have no deals in the first three months and you start to fire on all cylinders. By June of 2022 you decide to get your first investment, which is a BRRRR, it sounds like, or some kind of rehab. How did that go? Was that a whole new set of skills that you had to learn after already being so good at the real estate side, the realty side?

Josh:
Yeah, I mean I had never done any rehabs. I didn’t really know how to price things out very well. One of these contractors that I had been working with for my clients, I was like, “Hey, can you walk this for me? Give me a bid.” He gave me a bid. The numbers made sense. Another thing was I could only get the price where it made sense if the owner was able to sell both of them. So I was able to find another investor to buy the other one at the same time. We lined them both up. I used hard money for mine. They lended up to 90% of the project cost, which is your purchase price plus your rehab, or 70% of the ARV, whichever number is less.

David:
Well, it sounds like we’re already in the deal deep tag, because this is what we’re going to talk about. So let’s go ahead and make this official. At this segment of the show, we dive deep into a particular deal that our guest has done and get the juicy deets. So first question, what kind of property is this, Josh?

Josh:
It’s a duplex, two bedroom units.

David:
Are you sure there are two bedroom units? Do you know what you have? Are you one of those sellers that claims that he’s got more bedrooms than he does?

Josh:
Luckily this time I knew.

David:
All right, we’ll take your word.

Rob:
How’d you find it?

Josh:
It was on the market. It had been on there for a few months. I called the agent and he was like, “The current owner has short-term debt on it. They’re getting ready to call it. He really needs to sell. If you can sell this one and another one, you can get around a 30% discount.” So my job was to try to sell one of them because then my current situation, I was only comfortable with taking down one deal. I didn’t want to start with two $40,000 rehabs.

David:
Okay. How much was this property?

Josh:
It was 85,000. The rehab estimation was right around $30,000 for the one that I took down. The ARV that I had projected based on sales comps was right around 155,000.

Rob:
How’d you negotiate it?

Josh:
I mean, the agent basically told me that, “If you can close quick, if you can not have many contingencies, you can get it at this price.” So then I counted around 10,000 lower and then we met about halfway in the middle and got the deal done.

David:
And how did you end up funding it?

Josh:
I used hard money. I had to put down around 10%, and then I applied my commission because I was representing myself as part of my down payment. So I was only really out of pocket like $10,000.

Rob:
What’d you end up ultimately doing with this property?

Josh:
I renovated it. It took a little bit longer than expected, as probably the vast majority of projects do. I learned a lot. As soon as I was done, I went to the bank, I refinanced it. I got almost all my money back out, and now I run it as a rental.

David:
Okay. So that was the outcome there. Tell me, what lessons did you learn from this deal?

Josh:
I was really scared of debt. I really didn’t have any debt prior to this. I was definitely scared of short-term debt because the hard money is like they’re knocking at your door in six months like, “It’s due.” The property, you either have to pay it off, you have to refinance it, or you have to sell it. So I was definitely intimidated taking on a property that currently wasn’t livable and needed around 30 grand to be livable. Those are the things that I was scared of, but I learned from the investors and mentors around me that you really need to trust your numbers in any instance when evaluating a deal because that’s what you can rely on, especially when you feel uncertain.

Rob:
So Josh, I guess I’m trying to understand because I know you said you used hard money and you were really nervous about, I guess, getting into this property and that you had needed $30,000 of work. But if I’m remembering correctly, were you making $50,000 a month at this point?

Josh:
Yes. Yeah.

Rob:
So what was the real concern here because it seems like you probably could have covered expenses pretty easily?

Josh:
Yeah. I mean, the property was also not in a city that I was living in, so I was mimicking the experience of an out-of-state investor because I bought it sight unseen. I was managing the entire project from remote, so I learned that.

Rob:
How do you feel now though? Looking back, were you like, “Oh, it actually wasn’t that bad,” or do you still have some of those same reservations doing the out-of-state stuff?

Josh:
I mean, after the first one I feel way better. I feel a lot more confident. I can rely on my team. I can rely on the knowledge that I bring to the table by understanding sales comparables and things like that.

David:
I’ve got two questions. One, have you read Long-Distance Real Estate Investing?

Josh:
Yes, I think that was the first book I read.

David:
Okay, good, because that’s the first book I wrote, so we have something in common. Number two, if I were to make a revised version of this book, based on your experience doing this deal out of state, what would you tell me to include in the book?

Josh:
I read it a while ago, so maybe this was in there, but-

David:
Bro, you’re 22 years old, how long ago could be a while?

Josh:
I don’t know, two years, year and a half. I would rely on multiple project managers. That can take the form of an agent just popping in every once in a while. That can be your property manager that is responsible for tenant relations, or that can just be a completely different contractor that comes in with his own third party opinion about how your project’s going.

David:
So you agree that the philosophy of have several people looking over everyone’s work could extend into the actual rehab management? That’s what you’re saying?

Josh:
Yeah.

David:
Okay. Anything else that I should know because I think I will revise this book, The BRRR, but a couple other ones when I get some time. I’m just curious what needs to go in these books to update them?

Josh:
Don’t rely on sales comparables that are old when you’re initially looking at the deal. Because generally, at least in my state, the appraisers are going to look at the most recent sales in the last six months when they’re appraising your property when it’s done. So the one thing that I did at my first deal was I was relying on a deal two doors down that appraised for the price I was going after, but by the time I was done with the rehab, that sales comp was outside the six-month window so they no longer could use it.

Rob:
That’s probably more relevant today, right?

David:
I think so. Yeah. I was just about to say, for the last 10 years, you looked at comps and that was your worst-case scenario. Odds are it was going to be better by the time it was done. The market has turned around. Rates have went from 3% to 7, 8%. Now we’re seeing appraisals come in low very frequently. A house could have sold for 800,000, you list it for 750, the appraisal comes in for 685 or something because rates have gone up so much. So that’s another thing you got to be aware of is prices can go down now that rates have gone up, and that can catch people by surprise. Any other surprises that came up specifically when it came to buying in another state that you just weren’t prepared for?

Josh:
Always estimate a little bit over your initial rehab budget. The first deal I bought, I don’t think the contractor looked up in the attic, but there were live electric wires running on the floor in the attic, which is number one, very dangerous and number two illegal. I had to address that immediately. That bumped my budget around 10%. I think at every project I’ve done since then, there’s always things that pop up. I think a 10% contingency should always be used.

David:
What about picking tenants, what can you tell us about choosing tenants? Looking into tenant history, what are some things you look for?

Josh:
If you’re buying something already tenant occupied, make sure they’re paying, they’re paying on time. You can see the way that they’re living. If you go in there and there’s stuff everywhere and it’s full of the ceiling, you might not always get your rent on time, let alone even get it. You could still make deals work even with a non-paying tenant, depending on how good it is. Just make sure you’re accounting those expenses in your numbers.

David:
Yeah. We briefly mentioned this earlier, and it’s worth repeating, it’s very easy, especially if you’re a new investor, you haven’t done this for a while, to get a lease to see this property’s making $950 a month, to run your numbers based on the lease. You close on the property, you realize the tenant’s eight months behind in rent, hasn’t been paying. The landlord hasn’t wanted to pay for an eviction or can’t afford an eviction, and so they just sold it to you. That’s why we verify that the money’s actually being deposited in the bank, not just what the lease is for. This is really, really, really important when you’re buying off-market properties or deals directly from sellers like you’re saying, because most people, when their property is doing well, they don’t think, “I should sell it.” Unless there’s like serious concerns in the market and people are thinking, “I want to sell before things turn around,” if your property is making money and nothing’s going wrong, you just don’t think about selling it. But when things start breaking, tenants stop paying, it becomes a headache, you try to fix it. When you realize you can’t fix it quickly, you sell, which is often exactly when buyers are getting introduced to that deal.
If you go in as the buyer expecting this is just a regular house on the MLS that a seller is put in pristine shape and they’re trying to get top dollar, you can really get taken advantage of. Do you have any stories you can share of clients you’ve had or situations you’ve had where that’s been the case?

Josh:
Yeah, an off-market deal that I didn’t sell, but it was in my office, but this is a great example. It was a duplex where both tenants were paying $1,100 a month. The rental comps were truly around 900, max 1,000. So it was really high, which should always be a red flag if you’re seeing units renting for way more than what everything else is around it. But when that property closed, when the seller got his key or when the seller’s PM got their keys and they went to the property, both units were vacated. It was vacant, and they both left. That investor, I’m assuming, was running numbers based on 2,200 a month in rent, and they’re not going to be getting that.

David:
That’s a great example. Thank you for sharing that. Let’s get some quick clarity here. This was your first deal. How quickly did the rest of your deals come together after this first one?

Josh:
Yeah, so the next four that I bought were around a month to two months after that. And then ever since then I’ve been picking up about one to three every single month.

David:
Are these you’re finding them the same way that you were finding deals for clients?

Josh:
Yeah, pretty much the same ways, yep.

David:
All right, Josh, looking ahead, what does your plan look like for how you intend to scale your portfolio?

Josh:
I’d like to build more contracting teams so that I can take on more projects at a time. Right now I’m working on 15 units. I’d like to build a 10X to that, rely on more people, W-2 more positions so that I can rely on them more and cut your cost down a little bit. Those are some lessons that I’ve learned from professional property managers.

David:
Now, are you using the BRRRR method on these properties very often?

Josh:
Yes, for sure.

David:
Okay, so with the change in the seasoning period that we’re seeing with a lot of conventional lenders, have you considered how that’s going to affect how quickly you can get capital out and the speed you’ll be able to scale?

Josh:
Definitely. My strategy hasn’t really been affected by that because I actually am not lendable still because I don’t have two years of the same income as a 1099 person. So basically I’m just refinancing out in non-QM products.

David:
That is awesome.

Rob:
Hey, David, you mentioned that there’s a change in the seasoning period. What is that change? I know with the BRRRR you have to have the tenant in there for I think six months. Is that what you mean, now it’s longer than six months?

David:
No, it’s not necessarily the tenant has to be in there, but if you are buying a property that has a loan on it and you want to refinance and pull cash out of the property, you now have to wait 12 months instead of six months if you’re going to use a conventional loan. Now, Josh, mentioned he’s using no-QM, which stands for non-qualified mortgage. This would be DSER products that you’re hearing a lot of people talk about. It’s important also to note that that does not mean subprime crap. These are still 30-year fixed rate loans. It’s not a whole lot different. The rate’s going to be a little bit higher because they’re not going to be basing your ability to repay off of the money you make, they’re going to be basing it off of what the property will produce itself, sort of commercial underwriting guidelines. But many loans are making you wait 12 months before you can take cash out of a property, not six. It sounds like from what you got going on, Josh, this isn’t slowing you down because you’re just making money through commissions as an agent, you’re not going to run out of cash, right?

Josh:
I don’t think so, no.

David:
Yep. I love that multi-pillared approach. When you’re not dependent on just one pillar, these changes don’t throw your game off because you’ve got several different approaches here. What are you thinking, Rob, about moving forward, Josh’s strategy?

Rob:
I think it’s good, man. I mean, you’re picking up a lot, right? I think it would be wise to really settle into it. If you’re at this point where you’re at 10, I would start thinking about… I guess I’m just seeing it in your personal situation. You’re young, you’re hungry, you’re making a ton of money, and you’re doing the right thing, you’re buying property. Instead of just pocketing 100K every month, you’re moving it into real estate funds. But I would say now is a moment to maybe take a step back and start considering your scale approach. How can you stop putting so much time into one to three properties every month? And how can you start maybe focusing on bigger plays that can maybe even effectively lower your tax bill because I know that this is something that you’re probably dealing with for the first time, making a ton of money and having to pay a ton of taxes on it, right?

Josh:
Yes. I jumped on the whole tax situation as early as I could. As an agent, I set up my intake commission through an S-corp versus an individual, so that lowers my tax burden substantially. And then I can also leverage cost segregations as well in the properties that I’m keeping to lower my commissions coming in. I’m trying to utilize as many strategies as I can.

David:
Absolutely.

Rob:
Hey, you don’t hear 22-year-olds talk about cost segregation all that often.

David:
Never heard that come out of a 22-year-old’s mouth, actually, it’s the first time.

Rob:
Seriously, dude, I feel like we got to talk about cost segregations more just on the podcast because it is the real estate cheat code that can save you, I mean in your case, hundreds of thousands of dollars in taxes. So that’s cool, man. I’m really glad to see that you’re saying it. It seems like you’re scaling up according to what you can do. So just think about how you can most effectively use your time, because you got the time and the money right now, now you just got to figure out how to use it the most effectively.

Josh:
True.

David:
Your first goal was to replace your DoorDash income. You’ve done that. What’s your next goal?

Josh:
My next goal, I want to have 100 units by the end of the year.

David:
100 units by the end of the year, that’s all.

Rob:
I mean, it seems like you’re thinking about exactly what I’m talking about, right? One to three properties in a year, that’s going to be 10 to 30 properties. So obviously you’re thinking, “How can I get to 100?” Right? I think it’s so cool, man, that you’re on this podcast. It’s a very inspirational story. You went from being a DoorDash driver to owning a $1.5 million portfolio. And it’s also just so crazy to know that next year your portfolio is going to be wildly different than what we’re talking about today.

Josh:
I think so, yeah.

David:
Congratulations, Josh. This is an awesome story. Thank you for sharing where you’re at. Very inspirational. You haven’t let anything stop you, including your age or how much I think you look like Dave Franco. You’re pushing forward in spite of all of this. You could have taken the Hollywood route. Instead, you took the real estate investing route, so welcome to our side. If people want to find out more about you, where’s the best place that they can find you?

Josh:
Two places. You can follow or message me on Instagram, @JoshJanus, just my name, and then same thing on BiggerPockets, Joshua Janus, I’m on there.

David:
All right. Rob, where can people find out more about you?

Rob:
You can find me over on Rob Belt on YouTube and Instagram and in your heart. Well, that joke won’t land because the other podcast comes out after this one, but-

David:
You will see why I laughed if you listen to a future podcast episode. That will make a lot of sense. This was a callback before it was actually said. This is some tenant type stuff that we’re getting into where we’re manipulating time for you guys on a podcast. You’re going to love it.

Rob:
It’s a call forward.

David:
Yes, a call forward even better. There you go. Josh, it totally makes sense you don’t know what we’re talking about, it will in the future, so just hang with us here. Thanks for being a good sport.
You can find me on social media, @DavidGreene24. Don’t ever send money to me because I’m not asking for your money. There’s a lot of fake accounts out there, so hopefully at one point I’ll be able to get the blue check mark. I heard that Meta is changing it so that you just pay like 15 bucks a month and people can stop getting scammed. It’s about time. You can also find me on YouTube, @DavidGreene24, or go to my website, davidgreene24.com and see what I got going on.
Josh, fantastic job. Very, very, very excited to hear what you’re doing, especially because you’re an agent and you move forward. Check out my books. Let me know what you think about the three books I wrote in the Top Producing Agent series for BiggerPockets. I’d be curious what you think as someone who’s 22 and is already crushing it. Rob, do you have any last words before we get out of here?

Rob:
Yeah, Josh, you could check out the books that David just talked about, but really the book that you need to be checking out is David’s upcoming book, Scale, which talks about how as a real estate agent you can scale your business. That will be coming out soon.

David:
All right.

Rob:
Promo code for that, we don’t have one. But anyways, check that out.

David:
We’ve got a call forward and a call back all in the same show. Great job, Rob.

Rob:
And we’re back.

David:
All right, Josh, we’re going to let you get out of here. This is David Greene for Rob ‘The Comedian’ Abusolo signing off.