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JC 025: 3 Keys to Real Estate – Scale, Value and Risk with Ike Mutabanna

September 13th, 2017 | no comments

Learn how to penetrate new real estate markets

JC 025: 3 Keys to Real Estate – Scale, Value and Risk with Ike MutabannaIke Mutabanna is a real estate entrepreneur and the president of Dallas, Texas based IHM Business Group. Ike also hosts the successful podcast, “The Side Business Show,” where listeners learn how to grow their wealth through running a wide variety of side businesses.

Over the last 15 years Ike has spent time as co-founder, president and CTO in a variety of startups and turnaround companies. He’s originally from India where he attended the University of Bombay, India and earned his BE degree. Ike also has a MS degree in Engineering from the University of Cincinnati.

Ike is an active commercial real estate investor and multifamily syndicator. In his downtime you will find Ike pursuing his newfound passion for mountain climbing, having recently started training for technical climbs on rock cliffs.

The 3X advantages of syndication versus single-family investment:

1) Risk diversification is much better in a ten-unit apartment building versus three single-family houses.

2) Economies of scale is better in terms of net income. The more net income allows you to hire property managers, allowing you to focus your time and energy on further investments.

3) Value appreciation – you have the ability to force appreciation with creative strategies to increase rent and overall income and push the value of your properties.

Five key points:

  1. When investing instate you have the definite advantages of knowing your local market and the ability to study that market in depth, without needing to rely on other people to relay information. You can easily build networks by attending meetups and creating partnerships.
  2. When investing out of state it is essential to take the time to build a trusted and solid team before proceeding with investments.

 

  1. Take advantage of your opportunities when you are investing instate: visit neighborhoods personally, study the local markets, take detailed notes and photos of different neighborhoods and create a thorough database which you can easily refer to when looking into new investment opportunities.

 

  1. Multifamily syndication provides the opportunity for much larger scale where investors can achieve larger returns on their investment

 

  1. It is important to find an activity outside of your business that inspires you and that will assist in training your mind and help you maintain an energetic and motivated state. You then transfer that energy back into your business.

Favorite athlete: Sunil “Sunny” Gavaskar – Famous Indian cricket player.

Learn about the game of cricket here: https://en.wikipedia.org/wiki/Cricket

Favorite books:

Favorite quote: “When you want something really, really bad and you take the action to achieve it, the universe comes together to help you achieve it.” The Alchemist – Paulo Coelho.

Check out The Side Business Show podcasts and contact Ike here: www.thesidebusinessshow.com

or podcast: thesidebusiness.show

Thank you Ike for taking the time to share your story and business insight with us.

Listen to all the episodes of The Real Estate Locker Room Show and sign up for my FREE monthly newsletter at www.johncarneyonline.com

 

POST GAME REPORT: Episode Transcript

JC 025: 3 Keys to Real Estate; Scale, Value and Risk with Ike Mutabanna

Learn how to penetrate new real estate markets

Announcer: Welcome to the, “Real Estate Locker Room Show” with John Carney. Did you know investing in real estate is a team sport? Join John and his guests as they explore the business of real estate and athletic competition. The goal for this show is to grant you direct access to the real estate pros that are closing profitable deals and growing their businesses. On the “Real Estate Locker Room Show” we are getting in the ring with successful investors, developers, operators, and all of the industry professionals to learn what it takes to achieve on-going success. Now it’s time to kick-off and level up with new ways to grow your real estate business.

John Carney: Welcome back to the Real Estate Locker Room Show everybody. I’m your host John Carney, coming at you from my office here on the sunny Westside of Cleveland, Ohio this fantastic Monday afternoon in the month of August. We are going to be talking to a real estate investor and entrepreneur Ikbal Mutabanna, who is on the line and joining us in The Locker Room from Texas. But before we get into that I just want to remind you: the purpose of The Real Estate Locker Room Show is to help you as an investor or a real estate professional who supports the industry in some capacity, or someone who’s looking to break into real estate — we really want you to be able to: number one, recruit the best team of professionals that you can to work with you; to position yourself for success and really elevate your real estate game.

The person who we’re going to be talking with has definitely done that. We met through networking. Here you go, I’m up in Ohio and being connected to Ike and his business partners from Texas and Colorado. So that is just a matter of being in the game and participating in networking events I suppose. But anyways, welcome to the locker room Ike.

Ike Mutabanna: Hey, thank you John. I’m excited to be here.

John Carney: Yea. I’m stoked to have you. So, let me just let the audience know a little bit about you. Ike is his nickname, but Ikbal Mutabanna is the president of IHM Business Group. His previous business ventures include strategic technology services, commercial real estate syndication and multifamily acquisition. Ike is also the host of a podcast called The Side Business Show, where listeners learn how to build wealth through a variety of side businesses, regardless of whether they are full time employees, stay at home mums or students.

Previously, Ike spent 15 years as co-founder, president and CTO in a variety of startups and turnaround companies. He earned his MS degree in engineering from the University of Cincinnati and a BE degree from the University of Bombay in India. Ike enjoys mountain climbing and has recently started training for technical climbs on rock cliffs. He lives in Dallas, Texas with his wife and two beautiful children.

Alright, so let’s get into it Ike. Not only are you an entrepreneur on the technology side and experienced business operator, but you’re also a real estate investor.

Ike Mutabanna: I am.

John Carney: Well, before we get into everything that you’re doing real estate related I like to warm up on the show and just get the conversation going with a few sports related questions. Do you have a favorite athlete that you looked up to as a kid?

Ike Mutabanna: As a kid, that’s a good question. Yes, there was actually. The only caveat that I will say John is that, because I grew up in India, some of the sports played there are different than the sports that we are familiar with in the U.S. So you being — having lived in Australia you’re probably familiar with cricket and field hockey.

John Carney: I am definitely familiar with cricket and my wife is a huge fan, so I’m into the test match cricket.

Ike Mutabanna: Right, right. So as far as cricket is concerned, there was a very famous — so cricket, for those of our listeners who don’t know what that is, it’s a game very similar to baseball, just a slightly different shaped bat and a ball that is made of living material, and a few different rules.

But we have an Indian player when I was growing up by the name of Sunil Gavaskar, also known as Sunny, who scored the highest number of runs in cricket at that time. He was later, of course, his records are broken about 15, 20 years later, but while growing up he was my idol in a sense. Not just for the game but also for his sportsmanship and his gentlemanly conduct in everything he did.

John Carney: You know, for the audience who — I know we have global listeners out there — but for the audience here in the states or North America who’s not familiar with cricket, it is a gentleman’s sport. But don’t take that as — these balls are travelling incredibly fast right at you. And they spin, right?

Ike Mutabanna: Yea they spin. I mean the spin is I think far more than I’ve seen in baseball, just because of the fact that it also bounces before it hits the batter.

John Carney: I just don’t see myself getting padded up and in the nets in front of a fast bowler anytime in my life.

Ike Mutabanna: Yea, I’ve done that, I’ve been hit quite a few times so I like the field now.

John Carney: So, you grew up playing organized cricket when you were living in India?

Ike Mutabanna: Well, it’s interesting, even though cricket was a very prevalent game in India, it still is, in fact, it’s considered to be the second biggest religion in India, after Hinduism. The reality is when I was growing up, India was actually the champion in world field hockey so that’s the game that I played most when I was growing up.

John Carney: Which, now you’re in North America, and it’s really, we’re an ice hockey culture.

Ike Mutabanna: We’re an ice hockey culture, exactly. So I watch ice hockey, it’s similar. Different enough that I don’t necessarily follow it anymore. But yea, that was I think my passion all the way until college and then it fell apart once I left college.

John Carney: Alright, well thank you for sharing that history of growing up in a foreign country with our audience and bringing a new sport to the forefront of the conversations we have here in The Locker Room, and we’ll make sure that we link in plenty of stuff related to Sully and cricket in the show notes.

Alright, so real estate: we were talking when we met here in Cleveland about your past work experience. You lived in Indonesia and worked in technology startups and now you’re here in the United States. You went to school in Ohio and got an advanced degree and real estate is something that you’re pursuing.

So why don’t you give the audience the ten-thousand-foot view of what you do in the real estate game?

Ike Mutabanna: Sure. So I started real estate in a very small fashion about three or four years ago. I used to live in Boston, Massachusetts and, you know, like most people in this industry who first — who are not from real estate backgrounds — their first instinct is to go buy a single-family house that they can rent out. Or a duplex. And that’s pretty much what I did for a couple of years. Never really made that much of a profit from doing that, because generally the financial economics of that doesn’t work out too well. Your vacancy can hit you if you have vacant periods, when there’s turnover of tenants you tend to then get hit by all of the changes and the maintenance things that you have to do in the house. So I never really took it very seriously.

But about a year and a half ago, when I had moved to Dallas by then, I got introduced to our common friend actually, Joe Fairless, who is big in the multifamily apartment building business. And that really intrigued me, because of the economies of scale in that business. So I started studying it, I invested in a couple of those last year, and as I started doing that and studying the markets really well, it became apparent to me that that is really where real estate can achieve the kind of scale and profit and goals that you can strive after, right? Where you’re not going after the small little peanuts that you can get in the single-family world, but you’re really going after something that can build generational wealth. So that’s what intrigued me. I started going after it. And then really entered that full time at the beginning of this year.

So since then I’ve been working on syndication for large apartment complexes in DFW. I’ve got about three that I’ve invested in so far, and around the time that I started looking at expanding that portfolio is when I got introduced by my partner in Colorado to Cleveland. It just so turns out that his family is in Cleveland and we started just hearing this little buzz about Cleveland from a bunch of different sources. So that’s what brought us to Cleveland, that’s when I met you John and since then what I’ve been doing is working on expanding the network of people that we know in Cleveland, and trying to figure out how I can put in place all of the different players I need in order to be successful in the Cleveland market, considering that I’m going to be an out of state investor.

John Carney: Right, and that is — let’s talk about that. You’re in state in Texas. Are you in city? Are you in Dallas or are you looking at markets outside of Dallas?

Ike Mutabanna: Well, so far, I haven’t looked at markets outside of Dallas. The Dallas Fort Worth Metroplex itself is so massive that you can easily consider it to be equivalent to three or four different cities all meshed together. So there’s just such massive opportunities happening here that I’ve not really had the chance to look at other parts of Texas. We did briefly look into Houston, decided not to venture that at this time because, while Houston was attractive say about a few years ago, I think the dip in oil prices hit the economy pretty hard. So that doesn’t mean there are investors who are not in there, in fact there are investors in there who are actually grabbing up properties because they’ve gone done in value. I just don’t play in that particular niche. My goal is to play in the niche of looking at really stable class C plus or B type properties where we can really work on doing some amount of repositioning, but largely focus on the cash flow aspect. So we haven’t really done into Houston.

We looked at San Antonio, the market felt a bit too small but I haven’t ruled it out. In fact, just last week made a really good contact there and there’s a potential that San Antonio might be on the horizon. I did meet another person who started investing in San Antonio from California. So clearly there’s interest in that market as well.

John Carney: Yea, so. I suppose — I didn’t mean to cut you off.

Ike Mutabanna: That’s fine.

John Carney: The question that’s sort of coming to my mind is, not only are you — you’ve moved around in the United States, so you’re establishing a business in multifamily real estate in your home town at the moment, which is Dallas, right? And then you’re also looking to other markets.

So whether they’re in state or out of state, let’s talk about how you went about recruiting your team locally, and then how that translates into how to be time efficient and find the right people in another market. Because this is an important message that I’d like to get across. And I believe that you’ve got the experience to give the pro tips on how to achieve that.

Ike Mutabanna: Sure. So there’s a substantial difference between investing in state and out of state. What happens is, in in state, as I started becoming familiar with the market, really studying the market, the ability for me to be on the ground made it much more of a favorable situation, where I did not necessarily have to depend on others to confirm things for me. If I heard of a particular neighborhood which was on the upswing and there was some good developments happening there, it would be a 15, 20-minute drive for me to get out there, park my car, walk around, really study the neighborhood in detail. And I have a habit of making lots and lots of notes. Every time I go to a neighborhood I’ll sit down and I won’t carry too much, I’ll just carry my phone with me. I enjoy using Google Keep. So I’ll just start making notes, I’ll take a few photographs.

But I’ve built up a huge databank of notes of a lot of the neighborhoods in the Dallas area. And that’s something I can do on an ongoing basis, which is really helpful because that means when I get an opportunity presented, or one that I’m looking at, I don’t necessarily have to depend on a pro-forma or someone else telling me what is the potential of an area or not.

But when you go to out of state, you no longer have that luxury, right? Unless you’re willing to fly down like two or three times a month. You really don’t have the luxury to go and do that on a regular basis.

So the big difference between how I’ve been able to do things in Dallas versus when I’m targeting a place like Cleveland, is that in Dallas I’ve done a lot of the groundwork myself and now I’ve spread the word, I’ve gone and attended meetups, which again, something I can do when I’m in state but I cannot do when I’m out of state. And I’ve made a lot of contacts. I’ve also made — I’ve created partnerships with larger firms, people who are much bigger than me in this industry, and many times, rather than finding my own deals, I go participate in their deals.

Interestingly, one of the companies I partner with, they actually are not in Dallas themselves, even though one of the partners is originally from Dallas. So when they get deals it’s easy enough for me to go validate their underwriting and all of the assumptions they’ve made, to make sure that I’m comfortable with it. Again, something not so simple to do when you’re out of state.

So as far as Cleveland is concerned, we realized early on that the only way we were going to be successful is if we spent the time upfront in building out a solid team before we even took the first step of identifying and trying to evaluate a property. So in fact, to be honest, I haven’t evaluated a single property so far, from an underwriting perspective in Cleveland. All I’ve been working on is just a slow, patient process of talking to people in Cleveland, finding the right set of partners in every different area that I need. So whether it’s property managers, whether it’s brokers, whether it’s lenders, title insurance, CPAs, lawyers. We’ve just been going methodically one by one talking to people.

I did visit Cleveland for about a week, which is when you and I were able to meet up, thankfully. And that was a very instructive week because again, as I said, because of the fact that in state, while you get a really solid lay of the neighborhoods, you can’t depend on a map or someone telling you something to realize what works and what doesn’t.

While I was in Cleveland, as an example — I’m sorry if I’m rambling, do stop me so that I can focus in a particular direction you might want John — but as I was looking at the area near Case Western Reserve University, what we found was, literally after crossing three streets there was dramatic change in the nature of the neighborhood. It went from a neighborhood where I would consider under my strategy a very desirable area to buy a multi-family, to a neighborhood where I would want to stay away. And in fact we encountered police cars, when we went up and talked to them and the police officers told us to stay away from that section. We’re talking about a few streets, we’re not even talking about an entire neighborhood changing. So that’s a big disadvantage that out of state investors are going to face when investing in an area that’s not in their backyard. And it’s very important to do some groundwork but then build a really, really superb team that they can over time depend on.

John Carney: Right, you definitely want your boots on the ground, reading from the same sheet of music as you, and you want their marching orders to be clear. So I’m familiar with the area around Case, and I’ve scouted it out, and literally, you come across the wrong side of the tracks are the wrong side of the tracks.

Now I’ve done similar work to yourself, I invested and built a business around Phoenix, Arizona, based on a solid team and good relationships and limited knowledge of the area, and was successful and loved that market. But you have to have — in our case it was an investor who was also a real estate agent was our go-to guy. And he would be the first one to tell you, “No, that side of the street is no good, this side of the street is great. And I’ve got three houses here on this side of the street. Would never buy something on that side of the street.” So, that’s all sound advice as far as pros and cons for looking at your home town versus out of town. And then talk a little bit about the syndication. How does that look if I want to invest with you? Give the audience a little bit of: I wake up in the morning and work on this so that I can buy a building with this many doors.

Ike Mutabanna: So I think one of the factors about syndication is the economics of it, right? I work on syndication in the DFW area, primarily on really large properties. So mostly which is 100 doors or more. What that brings in is the kind of scale where you can not only achieve much larger returns on your investment, but you can also drive a much better return for your investors.

So one of the goals we try and do is that we try and ensure that we can return a certain amount of cash flow back to investors which we give them as a preferred return, and our goal is to try and beat what they would have got from alternative sources. So when most investors, sophisticated ones, when they talk to us the first thing they’ll say is, “Why can’t I just put this in a hedge fund or put this in an XYZ mutual fund where I can easily get 5, 6 or 7 percent returns?”

The argument that we have to be able to provide them is that not only can we exceed that, but the fact is that this is being backed up by a hard asset. So it’s very important for that to be an asset that is truly valuable.

Now many investors, when they get into syndication, there’s a different strategy that people will follow, right? Because of the fact that we follow a very cash flow driven philosophy, we don’t necessarily look at appreciation from a very wide angle. We don’t go after really large appreciation. So we stay away from properties where there is speculation that there might be five, six, seven times growth. Usually what happens in those cases is that either the market is severely undervalued because of some reason that we don’t necessarily know yet, or it’s in a neighborhood where there is a speculative element telling you that appreciation is going to happen but you have no way of knowing.

On the other hand when you go to a more conservative underwriting technique, where you say that we think we can get 2x or 2.5x multiple on this property, but we can drive 10% cash flow returns, well now that becomes very attractive. Because we’re not promising you that for every 50k you put in you’re going to get 150 or 200k back, but what we are saying that is that on a yearly basis we’re going to be able to return 10% back to you, which in most markets is a fantastic return. You know, you’ll be lucky if in certain places you can get even five or six percent, which usually matches what aggressive investors can get in the stock market or in hedge funds.

So our syndication philosophy is very much driven around finding properties that are larger scale, 100 plus doors, in fact almost every one I’ve done is 200 plus doors. And where we can — our underwriting can be conservative enough that we can promise, not promise, but rather where we can project, very conservatively, that we can return the capital with ten percent returns on a yearly cash basis, as well as potentially reach a 2x multiple.

John Carney: That all makes sense to me. And I’ll sort of come back at you with my summary. My question being, do you bring improving the property and raising the rents, right? You didn’t mention that, but is that part of your overall strategy?

Ike Mutabanna: Absolutely.

John Carney: Okay.

Ike Mutabanna: Absolutely. That’s always part of the strategy John. The extent to which you can achieve that can vary, our goal is always to find properties that are — where the rents are some percentage below what the market can bear. And one of the things that we try to keep in mind is that when we project our financials on the basis of doing the rehab and the renovations for repositioning, that we’re not projecting that we’re going to go try to match the market, we’re just going to try and improve the rents to come close to the market but still stay below. Because that’s what insures that we’re left with some buffer to deal with market fluctuations.

John Carney: So to recap: you’re finding units, your sweet spots, plus or minus 200 doors. You’re not trying to set a record in that area for the highest rent, what you’re trying to do is find undervalued properties that are undervalued by rent and fix those up and improve the multiples so that your investors get a preferred return and then you can scale the business model by replicating it. Would you say that’s accurate?

Ike Mutabanna: That’s a great recap.

John Carney: So we just acquired a large asset. It was a complex capital stack. Having a seat at the table through this entire process from the day we first went and looked at this building, until where we are now, under construction building 29 units out. That’s almost coming up on a year for the work.

But I would throw this back out to you and the listeners: once you have been invited into a multifamily deal that’s a little bit more complicated than your standard single family home transaction, you’ll learn that with the right team in place you can go back out and do it again. Would you second that?

Ike Mutabanna: Absolutely. You do it once. The first time is definitely frightening. It’s also really, really hard. I think a lot of people under — they don’t realize how hard it can be to convince investors when you’re doing it for the first time. But once you’re over that hurdle; you’ve learned the business; you’ve learned how your entire process flows; you’ve learned the language, you’ve learned how you’re able to communicate with investors, what you can and cannot say. It starts becoming a lot more second nature to you the next time around. And you just get better every time. And you keep learning as well.

John Carney: So let’s carry that thought on and — I’m going to pick your brain here for just another couple of minutes before we wind this up — but three tips that you could give a listener or someone who, if you’re approaching an investor, what would be — sorry I’m a little all over the shop.

I’m just going to pick a number out and say $50,000, or maybe I’m too high, maybe $25,000 can get you a seat at the table. Talk about the three advantages of being in real estate through the syndication model. Especially if this is something that you want to pursue as a career. You have to get started and you have to learn somehow. So why not get started now with someone like yourself? So what are the three advantages that you can offer up to the listeners that would say, “Hey, think big, play big and this is why?”

Ike Mutabanna: Sure. So I would say that the first thing is almost self-evident, which is the economies of scale. There is absolutely no chance that in the single-family world you are going to achieve the kind of scale that you can achieve in multifamily. And the scale goes in many different directions, right? It’s not just in terms of the net income that you can derive, but it’s also the risk. When you have three single family houses versus a ten-unit apartment building, your risk is diversified in a far better way than when you have those three houses. So the risk diversification.

There’s better economies of scale in terms of net income, there’s also economy of scale in terms of the cost, right? How you manage the cost. Once you start going into larger size properties in multifamily, you find it easier to be able to afford to have property managers who can manage things for you where you’re just more of in a supervisory role. That makes it easier for you to start than once you’ve done one to go to another, because you’re not managing everything yourself. When your single-family world, unless you amass a really large portfolio of maybe 10, 15, 20 properties, you necessarily may not want to hire a property manager to do it for you because that then cuts into the little income that you’re making anyway on those. So those are the big advantages that I would talk about.

The other interesting advantage that you would see in multifamily is that, unlike single family, where the valuation of a single family, which is dependent on the market comps, in the case of multifamily it actually depends on the rental income that you can drive. Which means you can force appreciation. So if you can come up with creative ways in which you can increase rent, you can increase overall income, you can force appreciation in the valuation of that property, which is something that is phenomenal. What other asset can you think of where you can actually decide how much — and as long as, of course, certain parameters are fulfilled where you can push the values up by actively doing things in that property. So I would say risk mitigation, economies of scale and value appreciation. Three really solid reasons why multi family is a far superior asset.

 

John Carney: I love it. Great advice and thanks for coming up with those quickly on the spot Ike. Well I wrap this up with what I like to call the two-minute drill. And these are just a couple of questions I’m going to throw at you rapid fire.

Are you a reader? And if so do you have a favorite business book or non-fiction book that you’ve read more than once or you made some notes in that you keep on your desk and refer to from time to time?

 

Ike Mutabanna: Yea I’m a reader. A very avid reader. I’ll mention two books. One is non-fiction and one is a fiction but which has a lot of — it’s really influenced me a lot in my business life. The non-fiction is a very old book by Dale Carnegie called “How to Influence People.” Really old book, some of the things in there might sound outdated, but the underlying principles are really solid. And they relate to always having what he calls a “you” attitude. When you’re working with someone how do you do something for them is what you should be thinking about, because when you do that, it all comes around eventually.

The other really awesome book that I’ve kept close to me is called “The Alchemist” by Paulo Coelho. Even though that book is a fiction book, it’s usually coded more in the circles of people who like to read books that sound spiritual in nature. It is spiritual and it has helped me from that perspective. But it has also helped me motivate and inspire myself in what I’m doing. There’s a very interesting sentence in there which I’m going to paraphrase. It says, “when you want something really, really bad and you take the action to achieve it, the universe comes together to help you achieve it.” Which I think is fantastic. It’s a phenomenal way to think about something.

 

John Carney: So I’m going to use that in the show notes as your favorite quote. And I like that. I mean, I don’t know, there’s a lot of good motivational sayings that come from business leaders and athletes alike about overcoming the odds and the obstacles, and I think I’m kind of looking back now, some of the people I follow, on my social media threads are quoting the stoics.

So nothing is outdated because guys like Marcus Aurelius were writing this down a long long time ago and it’s pretty relevant to life and business today, right?

 

Ike Mutabanna: True, very true.

 

John Carney: Okay. Well one last question. How do you train for success? You’ve moved around the world, you’re a successful person, you know how to recruit a team. But how does that look like? How do you achieve that consistently?

 

Ike Mutabanna: I think what I try to do is always take up one activity that is not related to my business which I take up as a passion activity. Something that I put a lot of energy and effort into and that usually helps me train my mind to stay in that super energetic state, which then transfers into my work and business as well. So what I’ve recently started doing is — I mean I’ve always been an avid mountain climber, I’ve never really done any kind of technical climbs, it’s usually just been putting on my hiking boots and going with a bunch of friends and trying climbing whatever peaks are accessible. But about a year ago, I started realizing that if I really wanted to scale some heights here I needed to learn how to do technical climbs. And so then I went ahead and joined this local group that does a lot of technical climbs and they have beginner’s groups as well. So I’ve started doing that, it’s very early stage yet, but my goal is within a year’s time to get to a point where I can go climb at least one intermediate level peak in the U.S. which involves some amount of rock climbing.

 

John Carney: That’s a great goal. That’s a highly — you have to be very highly focused and strong to scale intermediate level fixed rope climbs. So I mean, I wish you the best of luck in learning that, and not that you won’t achieve it, but that’s going to be a practice. It takes mental and physical discipline to build up that stamina to be good at it. I lived in Colorado for a number of years, I was never a fixed rope mountain climbing type person. There’s so many sports and activities available out there that that just wasn’t one that I fell into but when I see photos of the people I know standing on top of these spires, it’s awe-inspiring. So that is great, thank you for sharing that.

Alright, well there you have it folks. I truly hoped that you picked up some actionable advice today from my conversation with Ike. And I want to thank Ike for taking the time out of his busy day to join us in The Locker Room. Where can our audience find you if they are interested in following you online or maybe even connecting with you to talk about syndication opportunities?

 

Ike Mutabanna: Sure. I think the easiest way is to go to my podcast website: it’s called thesidebusiness.show. You could also go to thesidebusinessshow.com and it has both my podcasts and also my contact information on it. I’d love to hear from your listeners.

 

John Carney: Perfect. You’ll be easy to find then. Alright. There we are.

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The mission here once again is to help you elevate your real estate game and be successful. If you like what this show is all about, I’d be grateful if you would leave us a five-star review on iTunes, Stitcher or your preferred podcast platform so that other like-minded real estate professionals and people just like you can find us when they are searching for real estate shows.

The post-game report show notes, links and additional content related to this show, specifically to the wonderful world of cricket, will be available on my website: johncarneyonline.com/podcast, and while you are there feel free to drop your email into the newsletter sign up form and you’ll occasionally receive some real estate investing insights, tips, tricks, hacks and useful tools from me.

Remember to stay focused on your goals, have fun and stay in the game. I’m your host John Carney and until next week, please remember to work hard, play hard and profit hard in your real estate game.

One more time, really thankful for you taking the time out of your busy day Ike to share your story of success.

Ike Mutabanna: My pleasure John. Thanks for inviting me.

(Music Out)

End Audio

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© John Carney 2017

JC 002: Multifamily Syndication, Teams and Giving More with Joe Fairless

March 29th, 2017 | no comments
Meet Joe Fairless; real estate investor, multifamily syndicator, philanthropist, author and host of the world’s longest running daily real estate podcast, The Best Real Estate Investing Advice Ever Show.

 

Joe started his career in advertising on Madison Avenue in New York City. He began researching real estate as a way to achieve financial independence.

In 2009 Joe began investing in single-family homes. Joe wanted to scale his real estate investment business and focused his attention on multifamily buildings and syndications as a strategy to grow bigger, faster. Now Joe controls over $85 Million in multifamily real estate.

Joe competed in baseball and football growing up and played football in college. The lesson that he learned sports that he applies to real estate every day is that when something bad happens, learn form it quickly and move on quickly.

Favorite quote, “the secret to living is giving”

Check out Joe’s book, The Best Real Estate Investing Advice Ever. Volume I

Tune in and subscribe to Joe’s podcast, Best Real Estate Investing Advice Ever Show

You can reach out to Joe directly by email to info@joefairless.com Don’t forget to mention that you heard him on John Carney’s podcast and receive your FREE APARTMENT RESOURCES GUIDE.

Thanks again Joe for taking the time to share your story with us.

POST GAME REPORT: Episode Transcript

The Real Estate Locker Room Podcast

JC 002 Multifamily Syndication, Teams and Giving More with Joe Fairless

 

Announcer:  Welcome to the, “Real Estate Locker Room Show” with John Carney. Did you know investing in real estate is a team sport? Join John and his team as they explore the business of real estate and athletic competition. The goal for this show is to grant you direct access to the real estate pros that are closing profitable deals and growing their businesses. On the “Real Estate Locker Room Show” we are getting in the ring with successful investors, developers, operators, and all of the industry professionals to learn what it takes to achieve on-going success. Now it’s time to kick-off and level off with new place to grow your real estate business.

 

John Carney:  Hello and welcome back to the Real Estate Locker Room Show. I’m your host, John Carney, coming at you from Cleveland Ohio. Joining me today in the locker room, from Cincinnati Ohio, is Joe Fairless. Joe is a real estate investor, a podcast host, a philanthropist, and author. If you’re not familiar with Joe’s show on iTunes, it is the world’s longest running daily podcast for real estate. It’s the Best Real Estate Investing Advice Show. Joe has interviewed Barbara Corcoran, the author we all know so well in the real estate world, Robert Kiyosaki, as well as hundreds of other high profile and influential real estate investors. His podcast has over 4000 daily downloads, and 140,000 each month. And we’re up to episode #771, so check that out. Along with being a Podcast Host, Joe is also the author of, “Best Real Estate Investing Advice – Volume 1.” which we can talk about. I remember seeing that release, it blew-up Amazon. So, check out his book as well. Klout considers Joe the top 5% online influencer. Joe is an active, full-time real estate investor, who controls over $54 million in real estate at the moment. His focus is on multiple family. How are you doing Joe? Thanks for taking the time to share your experience with our audience.  

 

Joe Fairless:  My pleasure. Nice to be on the show. I know that you are a little under the weather. So, I will try to talk as much as I can. That way you don’t have to talk. I am really looking forward to our conversation.

 

John Carney:  An all-around good guy, thanks for that Joe. All right, we’re here to explore the intersection between elite sports and elite real estate investing. I like to stretch out, as with a sports related question? Who is your favorite athlete of all time? And why?

 

Joe Fairless:  Well, I’d say, the first person that comes to mind and it’s a little ridiculous, but Mickey Tettleton. He was baseball player who played for the Detroit Tigers, the Texas Rangers and probably others. He just had a funky batting stance and I just really enjoy how he approached the game a little bit differently. Because he had a batting stance where you know, you typically hold the bat upright, right before the pitcher throws. But, instead he had it just parallel to the ground. And then he would bring it upright, right before the pitch came. And what I liked about that is, it’s different. But, yet he was effective non-the-less. I think applying that in our real estate business is certainly noteworthy. Where we can approach things differently but then be just as effective, or more effective as before anyone else.

 

John Carney: I’m not familiar with this player and his batting stance, but I will look that up here shortly. You transitioned from the advertising world in New York City, to full time real estate investing. I’m interested in that journey, how people make that transition. Do you mind sharing your story about, “why real estate?”

 

Joe Fairless:  Yes. I am from Texas, where I graduated from college in 2005 from Texas Tech. as an advertising major and then went to New York City. I went from, cows and cotton, to concrete and I guess, no sun and lived in New York City for ten years. I worked on Madison Avenue after college, which is very prestigious, but it is also code for, I didn’t make any money at all because I was in a very competitive environment. I climbed the corporate ladder, became the youngest Vice President of a New York City advertisement agency and then, at the tail end of my advertising career, I started investing in real estate. The reason why is because I knew that I had to invest, I had to learn about investing, but I didn’t know quite what to do? So, I ended up reading a bunch of books, went to online forums, talked to people I knew and found real estate investment the choice that I wanted to pursue. Once I did that I started looking at what I wanted to invest in. Initially I bought single family homes and in 2009 I bought my first house. Not because I had a crystal ball, and I knew it was what the right time to buy. But, because I didn’t have any money. So, in 2009, I was very fortunate, I didn’t have any money until 2009. And once I bought in 2009, I bought my first house, $76,000.00 that rented for about $1100.00 or so. Rent is around $1200.00 now. Went for $1100.00 to $1200.00 now. I bought three more houses, and then realized that it just wasn’t happening fast enough. I would make $250.00 a month, on a house. And then a tenant would move out and I would have to pay, meaning me, would have to pay $5000.00 for move-in ready costs, the carpet, painting, and misc. fixes. There would be my profit that was going to be wiped out for a year and a half. I thought, wait a second; this isn’t going to make me financially independent. I’ve got to think of a different approach. I started studying multi-family investing, learned the process, bought a lot of books, started talking to a bunch of people. I ended up leaving my full-time job while I was still studying, multi-family investing. Well, after I left, I left because I just wasn’t digging it anymore and life is too short not to do stuff you enjoy and let it go by. Therefore, I started looking at syndication where I raise money from investors in my apartments and share in the profits. Because I couldn’t get approved for a mortgage for a house. And I couldn’t get approved for a mortgage for an apartment building. Because I didn’t have a W2 income. I was kind of forced to find creative ways to buy apartments, and that’s what I did, I wrote and learned how to raise money from investors. By getting something together, and share in the profits and now, you mentioned $54 million, it has actually increased, to $85 million, since the last buy out. So, now I control $85 million-dollars-worth of real estate. That is, apartment communities, that’s like 99% of it, apartment communities. I still have three homes but most of it is apartment communities and they are in Dallas, Fort Worth, and Houston, Texas.

 

John Carney:  Congratulations. So, you got into the single-family home game. Which is where, I don’t know? I’ve never really made this comparison before. But right now, up in Cleveland we’re in the ALS, so I’m thinking baseball right?

Yes, in order to get to the ALCS, all these guys started in Little League right? So you have to start somewhere. Would you say, the single-family home experience taught you what you needed to know to raise the bar to the next step because that’s part of the progression of being a real estate investor?

 

Joe Fairless:  Yes, I’d say it taught me what I needed to know and to learn more about it. It taught me that real estate is the way to go, for my own purposes. And it taught me that what I was doing at the time wasn’t going to be scalable and wasn’t going to help me become financially independent. I created a spreadsheet for my homes that included a home, I think it was like a home a year, 3 homes a year that I was going to buy. And over ten years it was like, oh, my god, stop the madness. Because I bought four homes, I was having a hard time keeping track of all the paperwork that’s involved with the property management, the insurance, the taxes. I was like, I do not want to scale this at all. And, I want to pause, by saying you can make money doing that approach by the way. People have and they do. I just didn’t want to set myself up with single-family homes. So, it inspired me. And gave me some perspective for what I did want to do.

 

John Carney:  Right. We both know people who have enormous single-family home portfolios. And a big key to that is, a big key to everything is management. You decided that your niche was going to move and we come across that all of the time too. You know, we are talking about sports, what athletic competition were you involved in, when you were growing-up?

 

Joe Fairless:  Well, I primarily played baseball and football. I played a little bit of football in college at a small Division III school. I primarily played baseball and football.

 

John Carney:  To be a collegian athlete, in any division, requires a certain amount of discipline. When you left the competitive sports arena of college did you see that it helped you apply what you learned through the discipline of sports and in your first job, and translate that right into real estate.

 

Joe Fairless:  I think what it taught me the most is that when something bad happens, learn from it quickly and move on quickly. That’s what so many people get caught up in. I’m on a softball team right now and I see people on my softball team and they make an error, or they strike out and when they strike out, they should kick themselves off the team… it’s soft pitch, when they pop-up, or hit a grounder…and they’re pissed off for four innings. It’s like, dude, get over it! Immediately, learn from it and get over it, immediately. Otherwise, you’re going to let that influence the rest of the game and they’re going to be compounding negative consequences. And that’s what I apply in business too. When stuff goes down, which happens weekly. Something goes wrong weekly. Sometimes daily depending on what’s happening but at least once a week. We got to learn from it quickly, and then move on.

 

John Carney:  I agree, it’s a team effort, real estate or business. And whether you’re buying apartments or selling doughnuts you need a whole team of people to help you be successful. .

 

Joe Fairless:  Yes, I read that in a book somewhere too, but I forget which book?

 

John Carney: It’s really the same.

 

Joe Fairless:  I’m kidding, it’s your book.

 

John Carney:  I know. Doughnuts—that’s what got me, I just can’t come up with the doughnuts. I just moved back to the states. Now we have a Dunkin’ Doughnuts around the corner. So, of course I had to try that. But, along the lines of what you just said is something that I learned recently. And maybe it’s something we’ll, it was the way it was phrased? “A bad decision made quickly is better than a good decision that takes a long time to plan.” And this can be applied to when you have to make a decision quickly. If you don’t have all the time in the world, make a decision and if it isn’t the best decision at that time, you still have time to adjust.

 

Joe Fairless:  Yup. I agree with that for the most part. It depends on how high the stakes are? Sometimes it takes a little bit more. But, one of my favorite books, is, “Blink” by Malcom Gladwell. He talks about how he can a split decision, an informed decision in the blink of an eye. That is just as informed as if we’d spent months, years, pondering what we would or should do? Our eyes very much embrace that philosophy for the most part.

 

John Carney:  Malcom Gladwell’s fantastic. I like all his stuff. What are you working on right now? I think you might want to share with us, I guess?

 

Joe Fairless:  I’m working on a couple of things. I mean, the three ways I make money. Because let’s start there, and then we’ll talk about a couple of projects. Three ways I make money –

 

  1. By doing multi-families syndications. Where I raise money from investors and invest and put up a little bit of my own money on the deals. And then we share in the profits. We are under-writing multiple deals. Well, more than multiple. Lots of deals right now. My business partner is in Dallas, as we speak, literally as we speak. He’s in Dallas touring properties that we’re in the final found on. And so, I’m focused on that and getting my investors prepared for the next deal.

 

  1. The second way I make money is through my Podcasts. And really, when I say make money it’s pretty much break even, depending on my staff salaries. But, it is, a way for me to provide thought leadership, to learn by interviewing people like yourself and others who are very experienced, or doing something very interesting. And just keeping my mind sharp. So, working on continuing to optimize the Podcast, and getting the word out there.

 

  1. And then the third way, I make money is through my client consulting program. I have private group of clients that I walk, hand by hand through the multi-family syndication process. It’s a major amount of my time. So, I also am working on new content to continue to keep that program refreshed. My team and I upload a new piece of content each week to the resources site that my clients have access to.

 

Those three revenue streams are what I use to guide my months, my weeks, my days. In terms of what I focus on. Those are some of the projects.

 

John Carney:  Okay. And in each project, or each income stream I would imagine has a unique team allocated to that right? So, I mean, what they’re investing in, in real estate. Where you’re providing a service, like consulting service. Or you have to surround yourself with a group of people, correct? And would you look at those teams, as one big team, or individual teams, or how do you manage that?

 

Joe Fairless:  There’s overlap, for the most part. I have my administrative assistant, Samantha and I have my content creator, who helps me with the content and thought leadership, that’s Theo. He’s a Co-Author of the book with me. And we’re writing another one right now together. He and I and she and I, all three of us, overlap on all three of those revenue streams. As far as other team members go. I have team member who finds interview guests for my podcasts, as well as does the show notes and does the promotional efforts. And I have a team member who does all the editing of the podcasts. So, those are the four team members that are on my payroll every month. And then misc. contractors. Like, someone in India, who does SEO for me through UpWork.com. And some social media company that handles social media and things like that.

 

John Carney:  Got it. And I mean today, in today’s world, stay on track with real estate. You look at it like a business, the business of real estate, and being an investor. And you want to grow and attract money, right. Because everyone runs out of money. As someone put it recently, you have your internal/external team. The external team being your professionals, like, your accountants, and your local lawyers, your internal team being like, partners, mentors, and assistants. So where do you go when you have profile. How do you fit a profile into the mix if you’re starting out as a real estate investor and you want to raise the bar, build your portfolio, in whatever niche you’re in and take it to the next level? Would you recommend that raising your profile in your community is something you ought to look into doing?

 

Joe Fairless:  Yes. Help me understand what you’re asking?

 

John Carney:  You’ve got your team, and you’ve got your businesses up and running, but you’ve also built a great profile in the industry. When it comes to people who are investing in real estate, investors who are new or wanting to scale up. I just wanted you to touch on adding to your profile. You spoke about social media management and some content creation.

 

Joe Firless:  I think the most important thing when you talk about building your profile. Or building your brand, or creating awareness for yourself and your company is to find one platform that comes natural to you, that you enjoy posting on and own that one platform. One of the mistakes people make, is try to be everything to everyone all of the time. That’s huge mistake, because any one of these platforms, Instagram, Twitter, Facebook, a blog community, YouTube, iTunes, Amazon, has millions, upon millions of people to speak to and to connect with. The mistake people make is that they want to be everywhere at once. They water down their message and don’t focus on one thing. Just focus on one thing, on one platform that you enjoy posting on. Provide thought and leadership to your audience once you define them, and you’re going to over time, build a following. That’s going to translate into the direct business results.

 

John Fairless:  That is great business advice. So, I guess that’s what carries us onto the next question that I have. If you’re a rookie real estate investor, or a newbie that might have one deal or two deals under their belt and are just thinking of doing exactly what you did in your career—and that is, they may burn out on the corporate ladder side or just need a change of pace or might be wanting a move from a warm climate to a cold climate, or visa-versa—what advice would you have for them to kick-off and get started?

 

Joe:  For someone starting out? I’d say, make sure that you know the basics of what you’re looking to do. Whether it’s a single family, or multi-family, or storage units, or office retail, industrial parking, or whatever? Learn the basics through books, and online forums. Then, once you know the basics. Identify people in your area who are doing what you want to do, reach out to him or her, or them, attend meetings. Speak to them, and get to know them. Buy them lunch, buy them dinner, buy them whatever, a book, or whatever. Add value, be very grateful and appreciative for their time in meeting them, the time they are spending with you. Be respectful of their time and go with an agenda. Have a focused conversation, make sure, if the meeting is for 30 minutes, you meet for 30 minutes. If they can stay longer, then by all means do it. But, be respectful of their time and say, “I know we scheduled for 30 minutes, are we good? Do we need to wrap this up?” Stay in touch with them. That’s probably the best way to get things going. I think 98% of the people who hear this, won’t do that. Instead they’ll read some books, do some online forums, listen to Podcasts. Then maybe reach out to one or two people at most. And not be respectful of their time, not buy them lunch. Not go in with an agenda. And that’s what happens and how the herd gets thinned. That’s how some people go to the top, some stay in the middle, some kind of float in between, and some sink to the bottom. So, I’d say fortunately you have an audience who is taking the time out of their day, to listen to this Podcast. So, I’m going to take that into consideration. In what I said earlier, I think a majority of the people listening will do that advice. But, in general the real estate investors who hear this advice, or where told this through some other channel, they won’t act on it. And it’s a shame, but it makes everyone who does that stand out, and be more successful.

 

John Carney:  Right and joining a community that’s actually not as large as people think it is. Or would you agree with that? I mean, that is also sound advice for the people that do listen to Podcasts, your Podcast, this show and the other good real estate Podcasts out there. What a great way to be in a conversation with people and learning something during that commute to work, or when you’re jogging. I quit radio probably two years ago when I was first told about Podcasts and started looking them up. The day I listened to my first Podcast I thought this is awesome! There’s more in it, and it just became a habit. So, when I moved back to the states, they were trying to sell me every subscription possible for radio. I told them I don’t listen to the radio and the guy couldn’t believe it. I listen to Podcasts, man and that’s how I continued to educate myself. Well, cool. That’s great advice Joe. Can we get into our two-minute drill here?

 

Joe Fairless:  Let’s do it!  And we’ll get to the rhythm and point of this interview.

 

John Carney:  What is your favorite sport? Or business book? That you’ve read recently?

 

Joe Fairless:  My favorite sport is, well recently, my favorite sport right now is softball.

 

John Carney:  Softball, okay, perfect, that’s a lot of fun. What about like books? Like, that might not have come up? Correct.

 

Joe Fairless:  Okay.

 

John Carney:  What is your favorite book related to either business, or for instance, sports.

 

Joe Fairless:  Okay, favorite book about business, sports, would be, “Crucial Conversations” and the whole point of the book is that they help you create a mutual purpose when the stakes are high, and opinions vary. And that’s the key, create mutual person and build up from there.  

 

John Carney:  Cool, I’m going to check that out. Is there one quote that keeps you motivated when things get tough? Like that one quote?

 

Joe Fairless:  Yeah, “The secret to living, is giving.” Another cousin of that quote is, “Help enough people get everything they want, you’ll get everything you want.”

 

John Carney:  Perfect. So, when the chips are down. Think about what you can do to give a little bit more.

 

Joe Fairless:  Yep.

 

John Carney:  Got it. Awesome. Do you have your #1 come from behind victory in real estate, and what did you learn from that?  

 

Joe Fairless:  The come from behind victory would be when my first syndication deal, it was about 2 and half weeks before we were supposed to close. We had over $200,000 worth of investor dollars go away for various reasons. And it was last minute. But, I got my one of my existing investors to go and bid what he had originally asked. And it ended up closing.

 

John Carney:  Did that translate into a happy investor at the end of the day.

 

Joe Fairless:  Yes, absolutely, certainly.

 

John Carney:  Going big. Is there any training for success? Like, your number one, maybe habit that you do on a daily basis. That would put you in a flow-state, or is it training for success habit?

 

Joe Fairless:  I have a liter of water with a scoop of wheat grass every single morning. I’ve been doing that every single morning for the last 3 years and it helps me stay healthy.

 

John Carney:  Fantastic. And then the #1 tip for winning more?

 

Joe Fairless: Would be, don’t focus on winning the score. Focus on winning the battle within how good you can be. Because the competition is in others. The competition is how good you can be within yourself.

 

John Carney:  Perfect, alright, that’s great! Well, thanks again for joining me today Joe. We want to be able to let our audience know exactly what, where they might be able to find you if they want to hook up on some social media, or carry on a conversation with you, where are you these days online?

 

Joe Fairless:  You can go to the App Store and just put my name – Joe Fairless, and you’ll find my Podcast, “The Best Real Estate Investing Advice Ever.”

 

John Carney:  And I highly recommend that all of you out there put that on your show list. So, when you’re in the car you can listen to great advice and the great guests that Joe has on his Podcast as well.

 

Joe Fairless:  I also say that if you Email me at info@joefairless.com I have a department resource guide that has all the websites and research places I go to when I’m researching markets, as well as books I wrote and recommend. So, email me at info@joefairless.com and mention that you heard me on John’s Podcast, and I’ll be happy to get that to you.

 

John Carney:  All right, perfect. So, there you have it folks. I truly hope that you picked up some actionable advice today, from Mr. Joe Fairless. Make sure to check-out this program – Post Game Report on iTunes. And while you’re there, please subscribe to the – Real Estate Locker Room Show to ensure that you never miss out on the pro tips from our guests. The mission here is to help you elevate your real estate game. If you like what this show is about, I’d be grateful if you would leave us a five star review on iTunes so that other like-minded real estate investors can find us easily. You can also visit John Carney online at www.johncarneyonline.com, for links and additional content associated with today’s show. And while you’re there please drop your Email into the newsletter sign-up form, to receive more real estate investing insight, tips and tricks, and other great stuff. Remember to stay focused on your goals, have fun, and stay in the game. I’m your host John Carney, and until next week, work hard, play hard, and profit hard. That’s a wrap Joe. Thanks again for taking some time out to share your story with us.
Joe Fairless:  Hey, I enjoyed it, thank you.

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