Brian Buffini On Success And Future Of Real Estate Agents

Brian Buffini Success Tour

Overview

Real estate investors and their real estate agents have a symbiotic relationship. They need each other to thrive. Few know this better than Brian Buffini.

Today, both investors and their agents face challenges and opportunities created by technology, economic cycles and demographic shifts – just to name a few!

In this episode, we look at real estate investing through the eyes of a man who’s trained more real estate agents worldwide than anyone else. Plus, he’s a lifelong investor and a great American success story.

So tune in to be enlightened and inspired as Brian Buffini shares lessons from his life as an investor, agent, trainer and entrepreneur.

Discussing the symbiotic relationship between real estate agents and real estate investors:

  • Your experienced real estate agent, investor and show host, Robert Helms
  • His grateful for the great mentors co-host, Russell Gray
  • The Godfather of Real Estate, Bob Helms
  • Master Real Estate Agent Trainer, Brian Buffini

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(Show Transcript)

 

Welcome

Robert Helms: Welcome to the Real Estate Guys Radio Program – I’m your host, Robert Helms. Joining us this week, as usual, co-host and financial strategist Russell Gray –

Russell Gray: Hey Robert –

Robert Helms: And the man we call the Godfather of real estate – he’s been investing in real estate in 7 different decades – Bob Helms –

Bob Helms: Good morning, guys! Great to see you both!

Robert Helms: Yes indeed! We’re here in beautiful San Diego, California. Always a great place to come and super excited because our guest today hails from this part of the country, and it just so happened that our schedules came together – and we’ll tell you all about him before we introduce him, but – we’re talking today about the role of the real estate agent; we are very pro professional.

 

Avoiding the “Discount Agent”

You hear a lot of folks that say that you can save the commission if you don’t use a real estate agent. Or, here’s the thing – here’s how you negotiate – none of that. We are all about loyalty, getting great agents in the market you’re in, and sticking with them – because a great agent never costs you money; they make you money.

Russell Gray: Well I mean if you think about it, if you had a major health issue – brain surgery, heart surgery, cancer – something like that – do you want the cheapest doctor? Do you want the least motivated professional? Or do you want the person who can charge a premium, because they’re great at what they do?

I mean, at the end of the day, price doesn’t necessarily mean that you’re getting the best, but most of the time the best don’t work cheap.

If you think about the amount of money you’re going to make on a piece of real estate over the lifetime of ownership, one or two percentage points on the front end is inconsequential. And if that’s the difference between success or failure in your deal, you don’t have a deal.

Robert Helms: Well, not only that – you want your agent to have the gumption to get up every day and the incentive to work with you. Right, Bob? You sold real estate for 1,000 years – and there’s certain clients that you would be happy to take their call, and there’s other folks that you see their name on your cell phone and you go I think I’m busy right now.

Bob Helms: I know I’m busy right now – it’s just a matter of anticipating who you’re going to work with, your reputation precedes you. You only get one. You need to take care of it, and you need to make sure that the people you pay aren’t all about discounting.

Discounting is a terrible, terrible burden to pay, because you don’t get what you think you’re getting with people that discount. I want to pay people extra – not short – because I want them to earn it.

 

The Business of Relationships

Robert Helms: Such an interesting mindset, you know. I always tell people that you should ask the agent if they’ll take less, and if they do, then don’t use that agent – because if they’re going to cave in on their commission the minute you meet them, what’s going to happen when they’re negotiating on your behalf?

There’s a lot to be said for developing great relationships. And of course, this is a relationship business.

If you’ve heard the show a lot, you’ve heard us harp on that – but we’re in the business of relationships, and one of your primary teammates is your agent.

Now, if you’re a real estate investor, you may have more than one agent – and that’s because you have more than one product type, or more than one marketplace. If I’m buying property in two states, then even legally I need two different agents.

What you don’t want is two or three agents in the same market competing. It sounds like a good idea – I’m going to get three agents working for me, and that’ll really get them motivated to – who can bring me the best deal.

That’s the worst way to motivate an agent. In fact, you want to develop a loyalty relationship so that you’re the one – you’re on their short list – they call when they get a great deal.

Russell Gray: You know I think it really comes down to understanding what the real estate agent is going to do for you. What you’re really doing is you’re buying into a network.

This is somebody who’s taken the time to go out into a community and to get to know that community – to build a brand – to build a reputation – you know, they talk about farming and real estate – the idea that a real estate agent – and anybody listening to this probably has that going on.

They’re getting solicitations in their mailbox, and they’re having people knock on their doors and hang fliers and things – there are people who work certain geographies, and they begin to build up their reputation. After a while, people begin to trust them – and so when it comes time to list their property, they’re going to do business with that person.

If you want to have the opportunity to find that deal – the guy that controls the inventory – you’ve got to have the guy who has that brand – who has that reputation. Really, that’s what you’re hiring.

Sometimes we forget – we think, “Oh, we’re just going to hire somebody to manage my transaction.”

Your relationship with your agent is so much bigger than that – that’s why I’m really excited to hear from today’s guest – because Brian is just the king of going out and building that brand and building that network and creating those relationships with the community to where you have access.

As a real estate investor, I’m looking for the person who’s got control of the inventory, so I can be at the top of the list in terms of when that good deal shows up.

 

Building Referrals is Key

Bob Helms: Well, great real estate agents bring a lot more to the table than just experience. Experience is urgent – it’s necessary – but much more important is their attitude.

It’s where they come from. They’re looking for referrals; they want to get them and give them. You only get that on one basis – as our guest today will say.

You have to earn it. It has to be an important part of who you are, and how you go about that. If I’m interested in maintaining – keeping – a client, I’ve got to take good care of that client. It doesn’t take a lot, but surprisingly a lot of people never bother to do it.

Robert Helms: You know, naturally, Bob, I think – looking back at the time we sold real estate together – you just did that. I mean, you weren’t trained to go get referrals; you just had a genuine interest in people, you did a great job for them, and they did what people do when you do a great job for them.

They worked with you again, they told their friends, they told their neighbors – and you built a referral based business – without a handbook or a training course.

Bob Helms: Well if you look at what happens if you’re not that attentive, and you’re not paying attention – it’s called, you don’t get any referrals. As a matter of fact, you do a transaction as an agent – and you think you did a pretty good job.

But the question happens – now what? Did they call you the next time around? Did you continue to touch them? Did you continue to be somebody who was delivering service to them?

And many agents are shocked when not only did they not get a referral – they didn’t get the next deal directly from that client, and it’s just a weakness in the system.

And it’s so easy to overcome – if you pay attention, you can do all the business you want to do.

Robert Helms: It’s amazing – and the worst thing that happens as a real estate agent is when you drive by a house that you sold, and someone else’s sign is in the yard. That tells you you’re not doing the job.

So how is it that you as an investor find the right agent? How do you keep the right agent? How do you change agents when you need to? Those are all things we’ll be talking about today.

When we come back, you’ll meet our guest. Many years ago, we had a chance to go to a seminar given by this gentleman, and I had been in real estate already many years. We were quite successful; top 1% of our company – but he blew me away with the simple idea of asking for the referral, and building the business.

Today, Brian Buffini has trained more than 3 million agents in more than 35 countries, and he’s going to share some wisdom with us.

 

Background on Brian Buffini and the Buffini Company

Robert Helms: Please welcome to The Real Estate Guys radio program the amazing Brian Buffini. How are you sir?

Brian Buffini: I’m great. Thanks Robert – thanks for having me.

Robert Helms: Oh, absolutely. You know, we haven’t seen each other in quite a while. I went to your amazing one day event, and then went to the turning point in Monterey – just the end of our real estate career, if you will, and I have to say you worked me out of a job.

Brian Buffini: Great. (laughter)

Robert Helms: We took what you taught, and really embraced that, and did extremely well – and today, we don’t sell real estate. Happily, we spend our time investing in real estate instead.

But what’s amazing – and if you will, because our audience, I’m not sure, is clued into what you do – but your story’s amazing. You didn’t start in San Diego. You started in Ireland. How’d you get here?

Brian Buffini: Well I – born and raised in Dublin, Ireland. I came to America in 1986 on a vacation. I had two very specific goals – I wanted to get a suntan, and meet sun tanned girls.

Robert Helms: Alright!

Brian Buffini: And so I ended up – I’m still kind of pasty, and I married a black girl, so it didn’t quite pan out the way I was hoping, you know?

So I came out here – I was selling t-shirts on the beach – down and off of Pacific Beach, off a cart. I actually was moving $50,000 worth of t-shirts and sweatshirts a month, so it was pretty good.

So I always liked to sell, and while I was here, about three weeks before I was going home to Ireland, I got in a motorcycle accident. I got broadsided by a car, and I was in and out of the hospital for the next two years. $252,000 in medical bills and expenses, 19 years old, 7,000 miles away from home, and my family was pretty poor – you know, didn’t have a lot of money.

So, I found myself in that spot. And so, when you have no money, when you’re totally broke, you don’t know anybody, and you don’t have any discernible skills, the obvious choice is real estate.

Robert Helms: Yes.

Brian Buffini: So that’s what I did. And so I dove right in. And while I got my license, the first home I ever bought – I bought myself. And I had – I had no money, back in the day – this is 1987 – the beginning of ’87.

And – one page contract, used three credit cards – which I wouldn’t advise today – but I was a painter’s son, so I knew how to fix and work with properties. And I spent $14,822, and the reason I know that is because I had $15,000 on the credit cards.

Robert Helms: Wow.

Brian Buffini: Bought a house for $106,000 – and put 14+ grand into it, sold it for $169,000. And so that was my first transaction.

After that, that was kind of the path I was on, where I later developed a methodology, as you know, for developing referrals as a real estate agent, but I also never lost – and have never lost my pension for buying and investing in real estate. In fact, when I leave here today, I’m going to go put a deal together. So, real estate’s been very, very good to me.

Within the next three years, I was debt-free, thanks to both owning real estate and selling real estate as an agent. And within the year after that I was the number 5 real estate agent in the state of California – the year after that I was number 5 real estate agent in the country. By 26 years of age, I owned $6 million worth of real estate, and I was selling 100 homes a year.

You know, from that point on, that was the foundation from which I eventually built what is now Buffini Company – the largest coaching and training company in the world.

Brian Buffini referrals

And we train not just realtors, but business people all over the world now. But it was from that foundation – and I still love real estate. I still train real estate agents. I still own real estate. I still buy real estate – I’m not a big fan of selling real estate – I’m a big fan of holding onto real estate – that’s my story, and I’m sticking to it.

Robert Helms: Awesome. Good stuff. Well, not everyone makes the transition from success in the business to mentoring – and really, the idea of that – what you did was successful, now how can I share that with other people? How did that part of the business come about?

Brian Buffini: What happens in real estate, as you know, is that people go to conferences and conventions all the time, because it’s either that or work. So, hey, there’s somebody coming to town with a free seminar – let me do that.

So there was a number of conferences and speakers and events around, and I eventually – you know, I was the top salesman for Remax, for example.

So they brought me in and they asked me to sit on a panel. And I would share a very simple process of how I developed trust with my customers, how I exceeded their expectations, and how I got them to send me referrals, and why I was selling 100 homes a year.

And all of my business was referral; I had 0 advertising budget. I would finish this panel, and there’d be 500 people in the room, and it seemed like 490 of them were standing in line to talk to me and going, how do you do this? How do you this? How do you do – that sounds like me. I want to have – I want to take care of my customers. I want to do a great job for people. And most do.

But the industry was teaching cold call, door knocking, you know, the lead trainer at the time had a phrase – “Find ’em, fleece ’em, and forget ’em.” So what I was talking about was somewhat contrary to that.

Robert Helms: Yeah.

Brian Helms: And so I did a number – for two years, I volunteered at least one day a month that I would speak, whether they were seminar speakers, or real estate conferences that I would get requested – and I would do that.

And it was my way of giving back to the industry. But I’m also a businessman – and after two years, and my phone is blowing up, and people are sending me letters and emails, I go, you know, I think I might do this.

Robert Helms: Yeah

Brian Buffini: And I wasn’t going to do it on a grand scale – I decided I was going to do it here in San Diego. So on February 14th, 20 years ago, 1996, I held an event that I promoted in three weeks – and I’d just sent out a letter – a fax [laughter] – to all of the people I’d done a transaction with, and I said, hey – a lot of times people have asked me, hey, how do I do what I do? And so on and so forth. I’m going to come and share with you. And I did a free seminar, right here in Mission Valley, San Diego. And 460 people showed up.

It was probably to this day – and we’ve done over 2,000 seminars – it’s probably the most meaningful event I ever had, because it was all people who knew me, who I had done business with, and I had established a relationship with.

And they were like, I’m here because I watched you, and I’ve watched you do your craft. I’ve watched you – how you’ve treated me. You know, I would send every agent I was ever on a transaction with – I would send that agent a personal note, during the transaction, and after the transaction. I believed in a cooperating spirit.

It was never – we could negotiate and be tough in a negotiation, but it was always about working for our clients and being pros. And so that first event – some of the top pros in San Diego said, “man, you’re on to something”.

And so I gathered a few guys together and we started, and we said all right, maybe we’ll do a few more of these. Within 12 months, we were seeing 3 to 4,000 people every month. Our events were sold out all over the country. Companies came and sponsored the events. I built a coaching program, and a training program.

Then, every time someone had a need – I never said oh I’m going to build this product and sell it to people – every time they said, “Man, I really need help with this – ” and we’d ask them why, and we’d give them ideas, and we’d give them all of our stuff for free, and then we ended up systemizing it.

So, today, we have 15,000 members that are in a coaching relationship with us. They sell 1 out of every 8 homes in the United States, and 1 out of every 7 homes in Canada.

We have a couple hundred staff up the coast here that are great coaches and mentors and trainers that provide all of the resources these folks need. I think, when you try to provide – when you try to make a buck, and everybody should make a buck – we’re all capitalists here – but I think when you try to make a buck, you’ll end up stuck always trying to make a buck. But if you try to fill a need, you have a chance to build a business.

brian buffini work by referral

But if you meet the need, and then really are genuinely interested in the person on the other side of the need, now you create advocates.

Our company grew, at one stage, no less than 40% a year for 10 consecutive years, as today without a single dollar of advertising. We’re a $50 million a year business today that has no advertising budget.

We have a lot of advocates. We have a lot of people who believe in what we do, it’s helped them, and then they tell their friends. I know it’s kind of quaint, but doing the right thing, in the right way for the right motives, produces the right results. You can be a good guy and win.

Robert Helms: It’s what Jim Rohn would call enlightened self-interest. So capitalist for sure, but if you’re not providing value – and I love the – I don’t want to miss this nuance – we talked at the start of the show about how important the relationship is between a client – a home buyer/seller/investor, and their agent. But it’s bigger than that, right?

We often say that this is not a business of competition. It’s a business of cooperation. Sure, we might go up against each other on a listing every now and then, but more often than not, agents need each other to provide inventory.

So this idea of not only is the relationship with the client – but with the other agent – that’s gold right there.

Brian Buffini: Well, it gets to probably three different things, right? There’s 1.25 million realtors in the United States. There’s another double that amount for number the people with a license, see. So there’s 2 and a half million real estate licenses running around the United States.

The challenge is, if you get into the transaction – and again, this is – you have new agents, and so on and so forth. But if you get into a transaction with someone who’s desperate – you get into a transaction – Ben Franklin said, “It’s hard for an empty purse to stand upright.”

So what happens then is, everything’s a panic. Everything’s a freak show. It’s three days before the closing, a storm comes through, you get the call at 8 o’clock at night, the fence fell down – the fence fell down. They’re freaked out, they’re panicked – I told the seller I’d pay half, I told them you’d pay the other half. Those are the kind of calls where I say, “I’m sorry, I have a bad connection” – you know?

But a lot of agents are coming from a place of desperation. Last year – and the National Association of Realtors doesn’t want this coming out – but the average sales agent in the United States last year made about $35,000 – gross commissions. Now when you get a NAR number, they include broker revenue in there.

So if you get a sales agent who grossed $35,000 and then has to pay their broker split, and whatever else, it says the average agent in the United States last year took home 20 grand.

Now here’s the thing – if you’re dealing with someone who’s making 20 grand a year, and there’s a $5- or a $10,000 commission on the table, they’re pretty desperate. And so that’s part of the challenge. And so, you know, God’s created all people equal, but not all realtors are equal.

 

Look for the Real Professionals

Brian Buffini: What you’re looking for are the pro’s. If you’re a pro, you want to be a pro. And I don’t care – we work with new agents all the time.

We have a new agent training program that the average new agent sells 12 homes in their first 16 weeks of real estate. That’s a great start to a career. But their fundamentals – they are professionally sound. They are taught what to do and how to do – how to serve the customer – how to build a database.

If you’re looking for an agent and it’s – ok, they’re the cheapest; you guys were talking about this – they’re the most available – they might be the most problematic. And so that’s the agent that’s freaked out during the transaction. You want someone who’s a pro. You want someone who’s a rock.

You want someone who says, “You know what, Robert, I’ve got to be honest with you. I don’t think you should buy this one. I don’t think you should buy this one, because I don’t think you’re going to get out of this one.”

The amount of people I’ve told in my career I’ve told in my career not to buy, or, “You know, I don’t think now’s a good time to sell, for you, based on your needs.” You can do that. It’s hard for an empty purse to stand upright – the full purse can look someone in the eye and say, “You know what, maybe not now. Because I’m more interested in a relationship.”

 

Respecting Your Client – A Top Priority for Being Professional

One of my top clients in my whole life was a real estate investor. And I was – here I am, I’m 19 years of age, I’m doing an open house, in a drive by community in San Diego, ok? And I’m not talking about pizza, ok. This lady walks in the door – she’s about 5 foot tall, about 250 pounds, a little Mexican lady – Anna Deleon. She has sauce down the front of her shirt. She walks in, I say, “Hello, how are you doing?”

We walk through the house. She asks a lot of good questions – some I didn’t know – and I said, “You know, I don’t know the answer – but I’m going to find out.”

I followed up with her. I got her her answers. I wrote her a note to thank her. I followed up a week later, “Hey, did you have any questions, so on and so forth.”

She goes, “You. You come to my house. You come to my house, tonight.” So I go to her house that night.

She goes, “Here’s the house I want to buy.” A house I hadn’t seen.

She goes, “Do you have an offer?” Now I had you know done two or three deals at this stage. I pulled out the contract. She kind of helps me through writing out the contract. Anna Deleon bought 10 homes – one for each of her grandchildren.

Now I didn’t have the courage until about the third sale to ask her, why in the hell she was talking to me. Cause I was 19. I obviously didn’t have as much experience to share. She said this – she goes, “I go to these houses all the time – the cars, and the nice BMW in the driveway. You followed up with me. You treated me with respect. You always showed eagerness.”

And she said, “When you told me that you didn’t know the answer, and then you found out the answer, I trusted you.” That woman taught me the real estate business. She taught me how to be a real estate investor.

She made me a fortune. I was actually the executor for her estate years later, and I didn’t know how much real estate she owned, but she owned a lot – a lot of real estate. Buying, holding, built herself a fortune – bought every one of her grandkids a house.

She’s walking in open houses, and the realtors wouldn’t give her the time of day, because she was a heavy set Mexican lady with spaghetti sauce on her shirt.

 

Trends in Technology, and Millennials in the Market

Robert Helms: Great, great lesson there. People shouldn’t judge, but they do. And if you will instead treat every client as though they had the potential to be your best client, amazing things will happen for you.

Well, Brian, you sit in a really interesting seat, because you have 15,000 agents across the world, plus people that come to trainings – and that’s just the members, right?

So you kind of have your pulse on what’s happening on the agent side. And as we’re seeing huge changes in technology, potential changes in the market, conflicting information about where the economy’s going, we’re in an election year – let’s talk about the things you see have changed for the real estate profession.

Brian Buffini: Well I’ve done 15 major media interviews in the last 40 days. And so we’ve been on a little bit of a blitz. For a reason.

Brian Buffini: And because every one of these – whether it’s CNN Money, or Money Magazine, or whoever else we’ve done this interview with – they all have two questions. Tech, tech, tech – and the Millennials are coming. And the Millennials are coming. It’s like the Russians are coming. The Millennials are coming.

A great example is I had this interview with a gal from CNN Money, and she’s just blasting away. She’s like, “the real estate business needs interruption. The real estate business is about to get Uber-ized.” Because this was the theme of her story.

“Real estate agents are a thing of the past, and by the way there’s 80 million Millennials – there’s far more than the Baby Boomers – and Millennials don’t pay for anything.”

And she’s going on, and she has her position, and I’m like, “Look, I’m in this business 30 years so I’ll give you my best. But she’s blazing away – blazing away. So finally I said – we were not seeing eye to eye – but so finally, I asked her this question. I go, Can I ask – can we stop on this for a second – kind of stopped the interview. And I said, “Do you own a home?”

Silence. So I go, “Hmmm. Are you looking for a home right now?”

She goes, “Yeah.”

“I thought you were.” I said, “Are you a Millennial?”

“Yes I am.”

I said, “Are you using technology and apps to search for properties and look?” I go, “Great, let me just walk you through this.” I said, “I’m just going to give you the top 10 things that can go wrong on a real estate transaction.” I go, “This is just the highlights – this is not down into the weeds.”

I started going through, from appraisals, to the negotiations, to the home inspections, to the title report, to the financing – that underwriters really don’t go to heaven – all of these different things – and we go through all of these different – and I said, “Look, this is just the tip on the iceberg.”

Now I said, “You’re a Millennial. Just to give you a little context on that. Millennials represent about a third of the buyers – but they only represent one of the sellers. Can I ask you this question? You’re looking for a home, you want to do it yourself and trust your app – here are the 10 things that are going to wrong. I’ve done thousands of real estate transactions and something happened on every one of them where the stuff hit the fan.”

And I go, “Let me ask you this question – a couple things. If you go and find this property – you’re a Millennial, right? You don’t believe in paying for anything,” I said, “What are you paying for? The seller pays the commission in real estate.”

So I go, “Where is that to start with?” I go, secondly, “Don’t you want someone to hold your hand and walk you through the minefield of all these things that are going to go wrong?” I go, “Let me just tell you this – there’s a commercial that says there’s an app for this – let me tell you, there’s not an app for when the stuff hits the fan, and you need to walk through the details of a real estate transaction.

That’s where you need a person – a skilled pro who has knowledge, who has expertise, and has the personal character to care enough about you to put your interests first, and walk you through it – because they get their jollies from seeing you moving into that home and handing you the keys.”

I go, “That’s the deal.” And I go, “So if you think that’s going to be outsourced to some app,” I go, “maybe.” But I said, “I’ll say this. The statistics don’t bear out.”

I said, “They’ve been keeping track of for sale by owner statistics since 1970. We have more technology than ever before. We have more resources than ever before, and last year – 2015 – was the lowest number of for sale by owner since they kept history. Ever. Since they kept a record of it.

Robert Helms: Do you remember when the MLS came out, and it was supposed to be public? And agents were freaking out, because we had the book to start with, and then we had the 300 bod dumb terminal, and we had the information – and we thought, the minute we give that to the public – we’re done – this business is over. Realtors are more important than ever before today for the reasons you just said.

 

Competition Creates Opportunities; What Competition is doing for Real Estate

Robert Helms: Hey, let’s talk about what’s happening on the other side of the business which is that, competition in any business creates a great opportunity for the consumer to have choice, but it also changes the nature of the game. Right?

Take your business. When we were heading into the hot real estate market back in ’05/’06, I remember going to one of your big events – things were huge. There were a lot of people in your business.

When the downturn came – not so many people in your business. So, today, what are you seeing from that perspective – the competition and what that is doing for the real estate community.

Brian Buffini: Well, I believe competition makes everybody better. And efficiency gets driven through the market.

That’s one of the things that technology does. I mean, I’m an American by choice – I’m an American citizen, but I bleed green still – so I still have a little bit of a stranger in a strange land perspective. And I see this with Americans particularly – which is, a fascination with technology, and almost an abdication to it: “Oh my God, this is going to do this. This thing is going to water my lawn and do my dishes for me.”

The truth is that technology makes things more efficient. Like you were talking about, the MLS books. Well, now it’s on a person’s phone with Zillow.

I used to be lost, most of my career, trying to use Thomas’ Brothers map. And now, I’ve got Siri telling me, “turn left Brian – you’re lost”. I mean, I think I would have sold twice as many homes, honest to God, if I’d have had GPS. It makes things fantastic.

And there’s a neat thing online if you check it out called “The Evolution of the Desk,” and it shows the desk in 1980, and the desk today. And what the efficiencies that technology brings to the table. So, what are we watching in real estate? What are we watching in the world?

I used to go travel all over the world – get out, get a cab. You never knew what you were getting, who you were getting, what language they spoke, or where they were taking you – is it the shortest route? The longest route? And am I going to get mugged at the end of it?

Now along comes Uber. Now Uber, they do the technology. It’s on your phone. They show the little car’s coming, and it’s a clean, black car, yada yada. Now, the Uber driver – he has abdicated the lead generation part of his business to Uber. So because of that, he has to pay Uber 25%.

You have to count the cost. Uber doesn’t own any cars, they don’t hire any drivers, they don’t pay a lot of expenses; they generate leads. They’ve brought something more to the market. That technology has made it better – it’s better for the consumer. There are technologies and processes in real estate today that are more efficient for both the consumer and for the agent.

 

brian buffini on real estate apps like Zillow

 

So, for example – I’ll give you an example with Zillow. Zillow is for realtors – realtors really have some mixed emotions about Zillow. And one of the reasons for it, is that a lot of the information is not that accurate. You know, they’re off by square footage – it’s available, it’s unavailable – so on and so forth. But let me share with you this – consumers love it. Love it.

Consumers don’t care if it has hardwood floors or doesn’t have floors or marble – they’re just looking. It gets you.

You know, the folks that used to be the nosy neighbors, now you actually get to find out – you know that house you have no business going in, because you don’t qualify to even drive up the driveway? You get to check it all out. Consumers love it.

So, the “Zillows” of the world – and there’s many of these now – have created far more interest in real estate. They’ve created far more exposure to real estate. But here’s what we’ve found. 92% of people start their search online – 89% of those who start their search online get an endorsed professional – they get a referral. By the way, with Millennials, it’s higher; people think Millennials are different. Millennials are actually more committed to old school referrals than Baby Boomers.

Millennials are the first generation to grow up with the infomercial as part of their DNA. They watched it as children. They’re immune to sales pitches.

So the old realtor who goes, “Come into office for 20 minutes – I need to see you.” You’re not getting the Millennial into the office. You’re going to have to meet them at a coffee shop. The dynamic is 1) they are far more educated, 2) they have a great frame of reference, so they know a good deal when they see it, and then 3) they’re looking for someone they can trust when the opportunity arises.

Now, I will say this to you; that I believe the future of real estate – and we train 200,000 realtors in the US and Canada alone every year. I’ll say this. What you’re going to see, is an increased pressure on commissions.

What I actually believe you’ll see – people have been saying for years that the real estate agent’s going out of business – the real estate agent is going nowhere. The pressure is going to be at the real estate brokerage level. And it’s the real estate brokerage that’s getting squeezed. And that’s where – that model is what’s actually getting interrupted. The old brick and mortar office. 

84% of realtors who are affiliated with a brick and mortar office, now consider their primary office their home. Because, we used to have to come into the office – examine the microfiche – ok? Like James Bond. Now I’ve got everything I need on my phone.

 

Technology Increasing Effectiveness and Efficiency

I interviewed Neil Armstrong, years ago, at one of our events. He said he went to the moon with less technology in the cockpit of Apollo 11 than was on my cell phone.

brian buffini on millenials using iphone

So now, the technology and the speed of the information – the ability to communicate – Docusign – my Gosh, if Docusign had been around in my early days – my wife wouldn’t have known how many properties we would have bought. That’s all I have to say. The fact that I had to have a discussion about every time I wanted to buy an investment property – they eliminated – but Docusign, “honey, you’re on file!”. You know?

So, it’s made things more efficient – made things more effective. You guys did a great job of talking about value today – talked about not getting the discounted broker and so on and so forth.

But I would say this – I believe commission pressure is a thing of the future. I think realtors need to have a long term perspective.

If you have listeners that are buying multiple properties, then a realtor should take a look at it as a business arrangement, and should say, this is a bulk deal arrangement.

If you’re Suzy homeowner and you’re not buying another home for 10 years, you’ve got to pay the freight. But if you’re going to buy – do a deal with me every quarter, or whatever else – we’ve got to look at a different arrangement.

Now I would also say – and to support what you guys said earlier on – is a lot of times investors – they’re watching the dimes and counting the pennies, and they need to, because you’ve got to be careful to make money on real estate.

But, on the way out, you’ve got to realize that the average real estate agent sells a home for 14% higher than someone selling it for themselves. And so, their commission is more than covered – because of their ability to promote and market.

They’re going to get multiple offers – multiple people interested – and more people means more interest, more interest means it sells quicker and faster at a higher price.

So, I do believe there’s going to be more pressure in the marketplace for realtors. It might not be, “Oh, I’m going to sell it for 3% or 4%.” It might be, “I’m going to give you $1,000 off,” or “I’m going to do this,” or “I’m going to do that,” or “I’ll help with this closing cost,” or whatever.

But I think the other side is – you want to make sure you’re working with a real pro, because they’re going to make you more money than they cost you.

Robert Helms: You know in any business, as efficiencies come in, and it becomes easier to do the business, then it’s fine that the previous model changes. I don’t think there’s any objection to an agent saying, “Well I’m stuck on a figure,” right?

I mean, commissions are negotiable, by law. And it’s really – you go to different marketplaces, and there are different practices. We’re in a lot of international markets where commissions are 10% typically. It’s like, “Wow!”

We often say, “Yeah just so you guys know if you decide to buy in this country, typically the agents get paid 10%.” And an agent will pipe up and say, “Yeah, and we haven’t had a raise in 10 years.”

But, if I can do – as an agent – if I can do more business, if I can reach more people, and if I can do it more efficiently, then shouldn’t the cost come down for everybody? So it’s not getting – you’ve got to get your mind around – doing more business and having your bottom line increase is more important than what the gross commission is.

Brian Buffini: Well, I just think the future is this – you’re going to see a smaller amount of realtors doing a higher amount of business. That’s just the way it is. And you’re going to see an awful lot of agents who do a very small percentage. That continues on. I mean, when somebody says to me, “How big is your market?”

I’ll have consultants come in and they’ll say, “How big is the market in the United States?”  

And I say, “It’s 400,000 agents.”

And they go, “No, there’s almost a million three agents…” and I go, “No, there’s a million three people who are affiliated with the National Association of Realtors who have a license, but they’re not my customer.”

They’re not my customer. My target is the 400,000 people who’ve made this their career, who are solid pro’s, who get it done, who make a good living at it, and who might need to improve their skills – get better, have a better quality of life – we can help them with that.

Robert Helms: Now Brian, I know we do have listeners who are in the profession, and in case someone’s interested in finding out what you guys do in terms of coaching, and your programs, and your amazing live events – what’s the best way for them to find that out?

Brian Buffini: Go to Buffinicompany.com – they’ll find everything they need to know, live events. We have teams of people.

I think I’ll do 8 live events this year, but the company probably puts on 50. And so, we have a team of coaches, trainers, and everything in between. Our marketing that we provide for agents goes to 1.5 million homes every month. So, we ring the bell for a lot of people.

Robert Helms: And it’s amazing stuff – I’ll tell you. We didn’t really get into that part of your business. But if you’re in the business – whether you’re a lender, a real estate agent professional, even an affiliated person – like title company and all those folks – check it out. It really did a ton for our business last year selling retail. So, great, great stuff. Great to have you on the program, finally!

Brian Buffini: My pleasure. You guys are doing a fantastic job.

Robert Helms: Thank you, sir.

 

Show Recap

That’s Brian Buffini from beautiful San Diego California – amazing to hear from Brian Buffini.

Russel: Oh, absolutely. The guy’s an icon in the business. It reminds me of the first time I met Tom Hopkins – and of course, Tom’s a little bit longer in the tooth, but these guys are legends in the business.

And even if you’re out there listening and you’ve never heard of either one of them, I think the thing that you need to understand is that they’ve affected you. There are people out there who have conducted transactions on your behalf that have been trained by these guys.

What I love in both cases – with Tom and his sales ability – very excited to spend time with Tom on the Investors Summit at Sea coming up, but with Brian, and just his whole concept of building your network, working through referrals, and taking care of the customer first. All of those things that he was talking about, is so powerful – because it translates not just into real estate – right?

I came out of the mortgage business. Many of my mortgage reps were using Brian Buffini’s training. They made me a lot of money. Brian Buffini made me a lot of money; and that’s awesome.

But you know, we teach syndicators. You just got done talking about The Secrets of Successful Syndication.

At that seminar, one of the major things that people learn how to do in the syndication business – because even though the new laws have been passed – and it’s possible to advertise – syndication – raising private money – is very much a business about networking.

And if you don’t know how to network – and it’s a skill – if you don’t know how to network, some people are gifted in naturally, like Bob here – right? But if you think that it’s something that people are just born into – it’s not that way. It is a skill – it’s a learnable skill – and there’s nobody – and there’s nobody better at teaching it than Brian Buffini.

Robert Helms: This is what’s great – when you talk about advertising for syndication – yeah, we had shows on that – that’s wonderful. Real estate agents have been able to advertise for a long time. And they have. And who gets the business? Do you pick a realtor by their ad? Or by a relationship?

The great agents who service their clients well – it’s not that they’re trying to figure out how to get a referral – it occurs naturally.

What Brian does is he helps people in that process. You may have a great heart to help people, and you may do great business as a real estate agent, and those of us that have investment property – we want a great agent like that. That doesn’t necessarily mean they have the skills or the tools to get the word out. It’s going to happen – but it can happen much better if you have a program, and a system.

Of course, just the fact that we have so much in common – I was sitting here just thinking man, we have so much in common with this guy, at so many levels. And just a really great opportunity to hear about his takes on the business, because he does have this perspective of training a couple hundred thousand agents a year, and coaching 15,000 agents – that’s a lot of agents!

Bob Helms: There’s not a lot of people I know who are better connected to the real estate space – and he’s been doing it for years. The thing about him is that he’s so consistent. He has the skills and the tools, and he’s compassionate. But, he understands what makes it work is to deliver. You have to deliver what your client needs. If you do that consistently, you won’t have any shortage of business; you’ll have all the business you can handle.

Robert Helms: So as an investor, as we kind of wrap up, I think there are some things to take away from this show that are critical. One is that your relationship with your professionals is critical. You’re the executive producer; you’re the quarterback of your implementation team on real estate investing.

You’ve got to find sharp folks. You’ve got to find the types of agents that will get up early, stay late, sniff out deals, and bring them to you. But it’s a two way street.

Russell Gray: Well, yeah. Certainly it is. We talk all the time about how one of the great ways you can tip somebody in your vendor circle – the people who are providing you services – is to give them a referral. It doesn’t cost you anything except the risk that you take that they don’t do a great job. But if you believe in them, and they’ve done a good job, and you want to say thank you, you don’t always have to write a bigger check – right? Sometimes it’s just giving them the referral – giving them your influence – and that’s really the point, right?

He talks about teaching real estate agents how to – and business professionals in general – how to build their brand – how to build their worth – their value – by growing their network; the number of people that know them, like them, trust them, and know that they’re in the business – right?

Well, you can do the same thing as a real estate investor – and you should, because every single service provider that you work with is plugged into a whole network of people that you don’t know – and that’s all part of the deal flow.

That’s all part of access to intellectual capital – people who know how to get things done – and it’s all part of your growing your network, because of the 6th degrees of separation concept; the idea that somebody knows somebody who knows somebody who knows that person that has exactly got the right answer or the right resource that you need to solve your problem or advance your agenda.

So, learning how to master the art of networking and building your business through referral is something that applies to everybody listening to the show, no matter what you do for a living – investor, real estate professional – business of any kind.

Bob Helms: Somebody who is really good at referrals does a lot more than simply give you the name of an agent somewhere. I could pick maybe 6 agents that I could send you to. What I want is for you to have the outcome you want. So I can’t just give you a name; I’ve got to do enough work to make sure that they have the tools, the skills, and are a good match for you, or else there’s no reason to make that referral.

Robert Helms: Yeah, so just make sure as you’re out there, and you’re looking for ages and marketplaces, that the best place to go is for a referral. You’re going to search out a great agent or a marketplace, and then the other side of it – be that referring person, as well. Oh by the way – Brian’s a great guy, as well.

If you haven’t yet done so, there’s plenty of time for you to register for the 14th annual Investor Summit at Sea 2016.

Excited about this. It’s just right around the corner. But you do have to move – there’s time, but there’s just not a lot of time because we’re down to a few cabins. It’s going to be absolutely extraordinary. We’ve G. Edward Griffin – the author of The Creature from Jekyll Island coming; Tom Hopkins coming back with us for his third year; and also, joining us for his third year, the amazing Robert Kiyosaki.

You can get all the details on our website https://realestateguysradio.com/ and click on events. Big thanks to Brian Buffini for sharing his wisdom. Until next week, go out and make some equity happen.

 


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2016 Predictions That Impact Real Estate Investors

2016 predictions - the road ahead

Overview

How do 2016 predictions from a variety of sources impact you as a real estate investor. There is a LOT of uncertainty heading into 2016…

The stock market is off to its worst start since the Great Depression. Oil is tanking. China’s in a slump. Retail holiday sales were soft.

Yet the U.S. government reports a strong jobs market. Rents have been rising. Mortgage rates remain low in spite of the Fed’s decision to bump up the federal funds rate in December.

All this against the backdrop of one of the most unusual election years in U.S. history.

In this episode, we take a look into the crystal balls of a variety of pundits and industry observers…and toss in our two cents…as we try to decide if 2016 will be a bullish, bearish or boring year for real estate investors.

Discussing networking tips for real estate investors:

  • Your entertaining and never predictable host, Robert Helms
  • His crystal ball co-host, Russell Gray
  • The Godfather of Real Estate, Bob Helms

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(Show Transcript)

 

Welcome

Robert Helms: Welcome to The Real Estate Guys radio program. I’m your host, Robert Helms. Joining me this week as usual, Co-Host Financial Strategist Russell Gray.

Russell Gray: Hey, Robert!

Robert Helms: And the man we call the Godfather of Real Estate, Bob Helms is with us.

Bob Helms: Always fun to be on The Real Estate Guys Show.

Robert Helms: A big hello and howdy and hugs to the folks that came out to Creating Your Future, the 2016 goals retreat. My goodness, what an amazing group of folks, and look out, because we’ve got goal achievers out there and great stuff’s going to happen.

It’s going to be a great year, but it’s also, at the beginning of the year, a great time to say, “Well, what is everybody thinking?” It takes a couple of weeks usually until the predictions start to come out.

All of the pundits, and all of the industry experts, and all of the economists for the various real estate boards, and all those folks come out and say, “Here’s what the year’s going to look like for real estate, and then for things that affect real estate.” We are taking a look today at all those 2016 predictions because there’s just a lot of folks who apparently have crystal balls out there.

 

2016 Will Be An Especially Interesting Year

Russell Gray: Yeah, it’s going to be an especially interesting year, 2016. We’ve got a lot of things going on.

We’ve got the Fed moved for the first time in 10 years on raising interest rates, and so we’re going to be sailing into that. Whether they’re going to follow up with some more increases or not remains to be seen. What is going to be the effect? We’ve got that we’re dealing with.

We’ve got an election year, which is always interesting. I would think that this is probably one of the more polarizing election years.

We’ve got a lot of things going on in the world geopolitically. We’re starting to really begin to realize the impact of China on the rest of the world. For a long time, it was China’s growth that was fueling; now it’s China’s decline that is impacting.

There’s a lot of dynamics we haven’t really had to deal with for a number of years that now people are beginning to look at. It’s going to be interesting to see what all of these market observers are thinking as they take a look out there through their crystal balls and try to decide how it’s going to impact real estate. We’re going to take a look at that and try to figure out how it’s going to impact real estate investors.

Robert Helms: For 10 years, we did our live Investor Mentoring Club events, where we had hundreds of people coming out once a month, and every January it was the same. We would take a look at the predictions from last year and what really happened, and then we would look forward to see the predictions of folks in the real estate space.

Always interesting, because it is that nobody has a crystal ball and we just take our best guess. The Real Estate Guys are journalists, really. It’s not our opinion that matters. Instead, we survey a lot of folks to see what they think, and so we’ll talk about some general predictions that may or may not affect real estate and how that might, and I think maybe start with some of the fun ones actually.

Then from there, we’ll break down by product type and some regional markets, at least of the U.S., what the outlook looks like.

 

2016 Predictions – Marijuana Becomes More Accepted

Top 5 predictions from MarketWatch came out. Here’s one that says basically in 2016, marijuana’s going to become legal. Now that’s a pretty broad thing. I’ll tell you what, here at this event we did last week, we had another group at the same hotel we were at, and they were a big medical marijuana group.

Russell Gray: Robert, you’ve been doing events longer than I’ve been with you, but for the last 14 years, we’ve been doing events together. I don’t think that we’ve ever been at an event where there was actually public condoned smoking going on. We would walk by this big tent outside the hotel venue, and every once in awhile somebody would go into, well in my case, the men’s room, and woo!

The thing that’s interesting about that, we’ve watched what’s happened to real estate in particular in Colorado when Colorado was leading the charge. That has had a profound effect on the pricing of real estate, and not just housing, because it’s affected the prosperity, but some of the retail.

Retail has been a sector that’s been under a lot of pressure, but they’re opening up these dispensaries. Then industrial because these guys are actually coming and growing, and now even agricultural land because now that they don’t have to hide their growing inside these industrial buildings, it’s a lot cheaper just to go out and buy a piece of land in a rural area and put together a farm.

There’s a lot of things that are going on in the real estate space that’s being directly affected through the growing acceptance in society of marijuana.

Robert Helms: That’s why I wanted to start with some of these fun things. I don’t want to dwell on any of them, but how does this affect real estate?

Like we first said, marijuana’s going to become legal. You’re like, “Well, that has nothing to do with real estate.” Actually, it has a lot to do with real estate.

 

2016 Predictions – Star Wars Mania Increases

Here’s another one. Star Wars mania will only intensify. The new Star Wars movie is out, and another one’s coming out in 18 months, another one after that, so great. What does that have to do with real estate? Think about it. People are going out to the movies. Theme parks are bringing in record numbers, especially those that are affiliated with these kind of folks.

When you stay at a theme park, you’re usually not staying in the park; you’re staying at a hotel. We’re going to talk about the hotel sector before we’re done because there’s some strong, strong indicators in hotel. You read a headline, and you’re like, “Well, that doesn’t really have anything to do with real estate,” and maybe it does.

 

2016 Predictions – Student Loans and Millennials

How about this one? Student loan forgiveness will be expanded. How can that possibly affect real estate?

Russell Gray: Anybody that’s been paying attention, everybody’s waiting for the first time buyer, those millennials, to step into the housing market and begin to push things up because that’s typically what drives the market.

The millennials have not been pushing on the front end of the market. Part of it is because they don’t have the same sense of urgency their predecessors had in terms of appreciation, because they were basically coming of age, if you will, in the downturn. It’s like, “Hey, it’s not that big of a deal.”

The other thing is it takes them longer to get their families started. Part of that is just socially because they’ve grown up in the era of social networking and a lot of exposure on the internet and much broader access to entertainment. They begin to realize there’s a lot of things to do in life that maybe they want to get out of the way before they settle down and get married.

I think I’m qualified to have a bit of an opinion, even though I’m long past being a millennial, but I’ve got a bunch of them in my life because my kids are all millennials.

2016 predictions - student loans and millennials as renters

The other big one is the student loan thing because that is a big debt burden that many, many young people are starting life with. They’re trying to figure out, “How do I deal with that in a soft job economy, while housing prices have actually been going up because of the big stimulus trying to push the housing market?” The fact that they may get some relief from that could really have an impact on real estate, especially in the starter housing market.

Robert Helms: It sure could, and that debt load, of course, happened at a very difficult time already. The whole student debt isn’t something you can’t just easily write off or make go away like other debt, and so there’s a whole bunch around that.

 

2016 Predictions – Commercial Drone Use Will Be Legalized

Here’s another fun one: commercial drone use will be legalized. It’s a prediction from MarketWatch, this year’s commercial drone use. Okay, well drones are out there. Now you have to register your drone if it’s of a certain size in the U.S. Other countries are thinking about this. How’s that going to affect real estate?

Russell Gray: We try to make sure that the commercials that we have here on the radio show don’t drone on and on and on.

Robert Helms: We try. That’s for sure. Think about what this does. There’s been talk about delivery via drone, and that’s going to cut down on maybe employment, maybe use of resources.

Then there’s all kinds of talk about and use of commercial drones in photography certainly, and in surveys, and weather. It’s a technological advance that maybe has some real estate connotations. Certainly we’re using a commercial drone in our development projects to get some of the greatest aerial footage we can, and that’s had a market effect.

Bob Helms: Yeah, and I have a grandson, 8 years old, who has been an airplane kid all his life. He’s got hundreds of models, but he flies helicopters. I don’t know how many drones he’s got, but it’s 7 or 8, and of course he can’t wait to get his hands on that big commercial drone in the real estate development project. Here’s a kid, he’s even thinking about opening a drone school so he can teach others how to do it. He’s 8.

Robert Helms: That’s his business, right? He wants to open a school where he can teach pilots how to fly drones. According to MarketWatch, that might be a good business to be in, so who knows, right?

Start with some fun ones to get the ball rolling, but let’s talk about what some of the predictions are for the year because there’s a lot of folks out there that have the right to have an opinion. Like Russ mentioned, “I’ve got millennials in my life, so I kind of know how they think, I talk to them about it,” so you’ve got a right. Someone who doesn’t, not so much. They know what they read.

 

2016 Predictions – Oil’s Impact on Real Estate

Forbes puts out an article every year where they quote different people, and they look for different predictions. There’s a lot of interesting specific predictions. Commodities are big in the news and certainly oil. When oil got below 30 this last week, well that’s news.

Russell Gray: Yeah, the oil story’s a huge story, and any long time listeners to The Real Estate Guys know for the last year we’ve really been paying attention to oil, primarily because we have been suspicious over this course of stimulus that somewhere, we call it the squish factor, it was going to come out in the economy.

Back when we lowered the standards for lending in order to make it easier for people to buy houses, the net result was a housing bubble and a bond market bust. There was the derivatives going on. It created a rapid expansion of credit.

In the area of oil, what’s happened is because of cheap money, oil drillers have been able to borrow huge sums of money based on financial models where their worst case scenario, maybe when oil was $90 or $100, worst case scenario, 40, 50% drop, $40 or $50. Fairly prudent, right?

Robert Helms: Right, yes sure.

Russell Gray: When I had my real estate portfolio, my models were all based on I could absorb a 30 or 40% decrease in my income, not a 95% decrease.

These guys that are sitting there looking at $30 a barrel oil, they’re hemorrhaging cash. This the thing that a lot of people don’t understand: they have to keep pumping to generate cash flow even though it’s negative profit.

Robert Helms: They’re pumping at a loss because the cash flow is what they need to service debt and pay employees.

2016 predictions - oil impact

Russell Gray: That’s right. It slows down how fast their balance sheet implodes. They’re hoping against hope maybe that the price will go up.

We’ve already got 30 companies with over $13 billion of debt, according to a Wall Street Journal article on January 11, that have declared bankruptcy.

These major oil companies have reduced their budgets by 50%: that’s employees, that’s exploration, that’s R&D. These are good high paying jobs, and so that has a big effect.

Then when you go back and you look at the history of the job recovery in the United States from 2008 to now, a big chunk of it has been oil-related.

If there’s one story that is probably the most likely to impact real estate directly in terms of employment, it’s oil, and in terms of the financial markets.

If those debts go bad and people start taking losses on bonds in the financial markets, just like they did with subprime, we don’t know, but there could be a bunch of derivatives stacked up beneath it, and it could start that ripple effect.

You look at the volatility in the markets, as they’ve started out the beginning of the year, I think oil is a big contributor to that lack of certainty and how skittish everybody is in the paper asset markets.

Robert Helms: Here’s the oil prediction from Forbes: “Oil shall crumble like the weak child it is as Iran starts pumping, Iraq stays calmish, and OPEC chaos continues. When prices fall into the 20’s, though, things will start to reverse. The most expensive U.S. and Canadian supplies begin to dry up, and eventually all the oil in storage and at sea gets sold. Then we’ll see a sharp reversal, and prices will end the year, 2016, north of $50 a barrel.”

Russell Gray: I wouldn’t think that that’s the consensus, because nobody is shutting down production. They’re not. They’re going to go bankrupt, and when they go bankrupt they’ll shut down production. There’s venture funds out there that have raised hundreds of millions of dollars that are getting ready to go buy these assets.

Robert Helms: Let’s step back because I didn’t want to dwell on oil or drill on oil, but some oil companies have the issues, and the big issue they have is debt. They’ve got a debt service.

We know some folks in the oil business who only have a single project that has any debt and the rest have no debt, so they really could shut it down if they needed to. The oil they are drilling, they’re delivering some return to investors.

Russell Gray: Right, and those are the guys that are in a position to weather a downturn. You can learn a lot from studying what those guys are doing in terms of managing their portfolios.

If it wasn’t oil, let’s say it was rents that were going down. If rents went down, is your portfolio structured in such a way that you could survive that? That’s a good question to ask.

One side note on oil, Canada has been a big driver of real estate in Phoenix, in Arizona for example, because the Canadian dollar, because of strong oil, was strong against the U.S. dollar, and so the Canadians were able to come down and buy U.S. real estate with their strong Canadian dollar.

Now that’s reversing, and so a lot of these things that have been driving the real estate market, in Arizona in particular, could, I’m not saying it will, and if I was invested there, that would be something I would be paying attention to, could begin to slow down the interest of the Canadians in coming into the Arizona market.

You have to deal with your own individual neighborhoods and talk to your real estate professionals that you work with that have the thumb on the pulse of that local market to find out what the real trends are, but it’s something that you can begin to see.

The ripple effect at what goes on at these higher levels, it pushes out and affects, not even just from country to country, but we’re talking Wall Street and we’re also talking all the way down to Main Street.

 

Predictions vs. Perceptions

Russell Gray: What we’re doing is talking about people’s predictions and then perhaps our thoughts about them, neither one of which is necessarily right or wrong.

Bob Helms: Perception’s an interesting thing. You said, Russ, “If I was invested, I’d be paying attention.” It’s so interesting. If you’re not invested, if you aren’t close to it someplace, you’re not necessarily paying attention, let alone saying, “What impact does it have on the things I am paying attention to?”

I have a little personal story. Simply, I’m a legatee. I had an aunt who was in an oil collective. She died in Oklahoma. She had a lot of brothers and sisters. She left all the kids a little share of that, so I’ve been getting a monthly check for 10 years or 12 years or something and not paying any attention to it because it was automatic.

I’m still getting that check; it’s just not monthly. It’s about every third or fourth month that I get a check of approximately the same amount. The difference, by the way, is that there’s a difference in the check that’s more than I spend on gas personally for my automobile altogether. I appreciate the low pump price. I’m sure people do, but there’s a lot more to it than the low pump price.

Robert Helms: It affects so many things, transportation and all that kind of stuff. We’re talking today about predictions in the New Year, lots of sharp folks are out there making their best guesses. We’re going to talk about some of our thoughts, and ultimately you’re going to decide what makes sense for you.

 

2016 Predictions – Currency Valuation & Bitcoin

Robert Helms: It’s a new year and we’re looking at some predictions that lots of folks from different industries are making and just trying to stimulate your thought as a real estate investor as to the things you hear in the news and what you should pay attention to.

One of the things that of course is on everyone’s mind is the value of their currency. With listeners in over 190 countries, we have buying power in our currency. Then compared to other currencies in the world, as they’re stronger or weaker, that affects imports and exports and ultimately what we pay for things, and that’s why currency’s important. The dollar was strong in 2015, stronger than every currency but one.

Russell Gray: Yeah, that’s interesting. Bitcoin crushed the dollar in 2015, and there’s a whole story behind that. Not to dwell on it, but as you’re looking out at trends, we pay attention to alternatives to the dollar.

Of course there’s other currencies. The yuan has been the one that we’ve been paying the most attention to in terms of currencies.

We’ve also been paying attention to gold and silver because those are used by a lot of people as a monetary metal, at least as terms of a store of value, you don’t trade in it, but you can see that certain countries are beginning to accumulate it. You can see record sales of gold and silver Eagles in the United States the last couple of years. We had a big kickoff to 2016, so that tells you something.

You see the growth of cryptocurrencies. Bitcoin is the biggest. It’s the Kleenex of the … It’s the brand name that everybody associates the product with, but there’s actually 3 gold-backed cryptocurriences now.

Bitcoin is not-gold backed, and there’s other cryptocurrencies. The fact that society is beginning to adopt these alternatives to the dollar, that sovereigns are beginning to look for alternatives to the dollar, if I denominate my wealth in dollars, that’s a trend I’ve got to pay attention to.

 

Real Assets in Unstable Times

Robert Helms: You bet. When we talk about some of the big predictors out there, folks like Fortune and Forbes and MarketWatch, that’s different than a lot of the more alternative sources and stuff that we look at, too, who are predicting that there’s going to be a need for alternative everything, alternative exchanges and currencies.

We’re big fans of real asset investing. We invest in things that are real. Real estate, obviously, that’s like the “Duh,” but there are other things like gold, silver, commodities, oil, that are real as opposed to some market equity that can go and come in no time at all.

One of the articles, that we won’t get into the details of for today, was about Apple’s 6000% increase since 15 years ago or whatever and how amazing that is, one of the few stocks to ever do that, and so forth. How do you know 15 years ago which of the myriad stocks to pick? Only in hindsight can we really learn some of these things, and really as real estate investors, we want to be focused forward.

Russell Gray: Just a little sidebar on that. One of the concerns I always have as an investor, when you’re looking at things that are real that are pretty straightforward to understand, that have intrinsic value because of what they are, that’s one thing. When you are looking at a financial statement for a company, and you’re trying to determine … You think about Enron, whose financial statements were completely fabricated, and you look at these companies that do accounting tricks.

To me things that are real, things that are essential, things that are tangible, that I can understand with simple business models where I can verify the essential data to determine the value, to me in an environment like we’re in right now, is a lot safer place to play.

2016 Predictions – Food Delivery & Distribution

Robert Helms: All right. Final predictions there from Forbes is that both gold and the dollar will end the year below where they started it, so we shall see.

Fortune has some interesting predictions which also may have something to do with real estate, but aren’t as directly related. Here’s an interesting one. The food delivery bubble will pop.

“Everybody eats,” they say, but we may not eat nearly enough to support the ballooning food delivery tech category. There’s a lot of these companies that today do and some companies that soon will be delivering food to us rather than us going to the grocery store.

This can be a wonderful service, but you probably remember more than 10 years ago, a couple of those services went belly up. Their prediction is all these new food delivery services, as great as that is, aren’t going to be able to sustain.

Russell Gray: Is that groceries or prepared food, do you know?

Robert Helms: It’s both. It’s both groceries, meal kits, meal delivery, and then some of the big warehouse type stores who are doing delivery.

Russell Gray: Okay. If that’s true, and I’m not convinced that it is, but if it were true, obviously the impact is going to be on the distribution workers and things like that.

Distribution’s such an interesting topic to start with because I started out my personal career as an adult as a material handler. That was a fancy title that meant that my job was to move to a box from point A to point B, so I operated forklifts and hand trucks, and I got to drive a little Bobtail truck, and learned how to back up to a loading dock, and all of that.

A lot of that was manual labor, and of course with technology, they’ve been able to eliminate a lot of those types of jobs. If that particular call is correct and there’s less packages going around, then there’s probably going to be less work in the distribution sector.

Robert Helms: Interesting enough, as we’re looking at 2015, overall shipping surprisingly was down. You would think as more people are buying stuff online, and realizing the convenience of having things shipped, and the inconsequential amount of shipping compared to the price of the goods, and yet shipping down. That’s a concern if you are in markets where shipping is part of the story.

Russell Gray: Yeah, we’ve talked a lot about that because to us those are the types of jobs that are difficult to outsource. At least you’re not going to lose them to China. You’re not going to ship something to China, or Mexico, or Asia, and then ship it back.

You do that when you’re manufacturing but not for distribution, so the distribution is going to happen in certain geographic regions. That’s been basically a pretty good call. I think it will probably continue to be a good call, but to your point earlier about drones, there’s some changes in the way trucking is going to work. I think we’re probably going to be covering that here shortly. You just got done talking about maybe the demand.

We’ve had Matt Kirchoff on the show a couple of times. He was on The Summit at Sea with us a couple years back. In fact, he’s the one that warned us that China … Everybody’s like, “Oh, China’s doing great,” and he’s like “Uh, guys, hey. Watch China. China’s not doing so great.” I was like, “Really? That doesn’t make any sense to me.” He called it.

Richard Russell, his whole thing with Dow Theory is looking into the Dow Transports. If people aren’t moving packages, if things aren’t shipping, then there’s an economic slowdown coming. This, what you’re talking about, Robert, is a slow down in shipments, is something that could indicate a broader economic weakness. People aren’t spending.

 

2016 Predictions – Robots Driving More

Robert Helms: Absolutely. That’s why you got to pay attention to this stuff early, leading indicators, trailing indicators. Speaking of drones, here’s our last prediction before we go to the break, and then lots of real estate predictions. Robots, according to Fortune, will be doing more of your driving.

As you know, there’s lots of companies that are looking at self-driving cars and all of that stuff, and interesting enough, in PriceWaterhouseCoopers Real Estate report and predictions for 2016, the question they pose is: should we be building fewer parking garages if in fact where the world is heading is to driverless cars?

Russell Gray: You’ve got the Uber factor-

Robert Helms: You do.

2016 predictions - robots driving

Russell Gray: … which is part of it. You look at these towns that really have grown up on shipping routes and their truck stops, and then things grow up around that because those are convenient points, and as they get a little bit of infrastructure. If you drive around, if you’ve ever driven cross country, you know what I’m talking about.

Imagine if all the sudden you don’t have as many people, those businesses will begin to fail, or they will begin to have to cut back because there will not be as many people. You’ll still get maybe the tourists and the people traveling, but that bread and butter trucking business, if there’s no drivers in those things … You think, “God, that’d be so weird to think about.”

Think about all the things that are in your life right now that are technology driven. For example, right now we had the big minimum wage increase in the food service, and there are major corporations like McDonald’s that are already beginning to experiment with fully automated robotic ordering.

I rent a lot of cars. I go in and I use kiosks. I go in, I swipe my drivers license, swipe my credit card, I print out my thing, and I don’t even talk to a human being, and then I walk down to the garage and pick up the car.

This is how technology, and robotics in particular, is beginning to replace the work that a lot of the entry level people were doing. Those are the kind of people that rent.

Now if those jobs are being eliminated, these are things that could have an impact on you as a landlord. Again, it goes back to this idea: wherever you’re invest in, whatever demographic you’re serving, pay attention to how these macro-trends are trickling down to the street level because they will end up on your PNL and your balance sheets.

Bob Helms: Certain parts of this whole idea of having a car that you don’t drive are pretty reasonable and easy to understand, particularly in urban areas, but think of sprawling Los Angeles. Why are there 12 zillion cars there?

Robert Helms: Right.

Bob Helms: Because people are not going to the same destination at the same time. What’s created, the great sprawl, the total infill of city to city to city, is all about people and where they’re going and what they choose to do. I’m having a problem projecting forward and seeing that applied to a place like LA.

Robert Helms: Here’s the thing. We’ve already seen what Uber has done in terms of disruption. All that has been is fewer taxis and people that are driving private cars.

That’s not as big of a disruption as what they’re doing in Japan, the Robot Taxi: the car you get in with no driver, never will have a driver. Doesn’t ever park anywhere except to let you out, is stored dozens of miles away from the town it services, and you don’t ever interact with anybody.

It used to be you had to get on a bus because all of us were going the same way, or a train because we’re all going to the same city. With Robot Taxi in Japan, doesn’t matter where you’re going.

Russell Gray: Johnny Cab.

Bob Helms: Johnny Cab. That’s right.

Russell Gray: Remember that from Total Recall?

Bob Helms: From Total Recall. Yes, exactly.

Russell Gray: I have a prediction regarding driverless cars.

Bob Helms: All right.

Russell Gray: More drunk people. How many people have said, “Hey, we’re going to go out drinking tonight. Let’s Uber.” If your car’s going to drive you, it’s like, “Hey, I can drink all the time.”

Robert Helms: Excellent!

Russell Gray: “I don’t need to worry about drunk driving.”

Robert Helms: All right, well let’s look for the stocks of those beverage companies to increase perhaps.

 

2016 Predictions – California Real Estate

Robert Helms: We’re talking about market predictions, what some of the experts are saying about what might happen in the new year. Of course we’re always interested in what people think, and then we’re going to find out how it works in the real world.

Let’s take a quick prediction now from Leslie Appleton-Young. She’s the Chief Economist for the California Association of Realtors, so just one of the U.S. states, but it’s a big one, and it’s been a strong market.

California was overall pretty strong real estate-wise in 2015. Here’s what she said, the end of November: “California home prices for 2016 and the number of sales will both edge up slightly in 2016.” She expects home prices to go up somewhere in the 3% range and number of sales to go up in the 5 to 6% range.

Russell Gray: Let’s say she’s right, and you see 3% appreciation. If you are out there looking to invest in a property, and you’re thinking to yourself, “Okay, I’m going to get into this property,” maybe even a homebuyer, you’re going to get into the property. You’re like, “I’m going to buy this property, and I’ll live there for 2, 3 years.”

If you’ve got a 6 to 8 or 10% cost of sales on the back end of that and you’re only getting 3% appreciation, you may want to think twice about that strategy.

You have to pay attention to the logic how she got there, and ask yourself, “Does this make sense to me? Does what she said at the macro affect where I’m at in the micro, in my particular market? Then how would that level of growth affect my exit and holding strategies?” Sometimes when you don’t get much appreciation …

We’ve been in markets where it’s been 20, 30, 40%. There are markets right now in the United States last year in 2015 that did 10, 15%.

You can get into a property, and you can get out of a property in a couple of years and break even or maybe at a profit when you have that kind of growth, but at 3%, not so much. I would say with that long history of maybe an average of 5 or 6%, what I’m really hearing her say is it’s a below average amount of appreciation.

Robert Helms: There’s a huge nuance there. You don’t just buy a property in California. That’s way too big of an area. If she’s saying as the Chief Economist for California Association of Realtors, number 1, she has a bent. She’s in the housing area, and that’s her bread and butter. She been at this game a long time.

California, even within her presentation, there are markets that will exceed and there are markets that won’t. She’s got a couple of California markets that she thinks are unhealthy. We can only look at big picture. Today, as a real estate investor, you have to look at the smaller picture.

Bob Helms: As a real estate investor, I’m looking for that equity growth if I can find it, but as a homeowner, that’s secondary to me, generally.

First of all, I may not know how long I’m going to be there, or I may know I’m going to be there a long time and the equity will be what it is. What am I looking for as a homeowner? The living conditions that I want, the neighborhood I want, what I can afford, best housing, best schools, whatever.

Point is, we think equity’s urgent. I think you guys wrote a book about that. Was it called “Equity Happens”? Yeah, I think so. Investors think that way; homeowners do not.

 

2016 Predictions – Housing Affordability On The Rise

Robert Helms: That’s a good segue into this report that comes out every year. One of the main resources I look to is the PWC Emerging Trends report. PriceWaterhouseCoopers put out this amazing report, very detailed.

Here’s what they do. They go out and they survey a whole bunch of folks who have earned the right to have an opinion. So leaders of industry and housing, development, management, asset management, all those folks, to say, “From sitting in your seat, what do you see?”

This is a huge report. You can Google around and find it. It’s 100 pages and it’s free.

Housing affordability concerns are on the rise. Why developers are building condominiums and mid-density products. There’s other products that are coming onto the market, and pricing is going up. We’ll talk in a little bit about the different markets and where. Housing affordability’s been pretty good, and as prices edge up, that’s a concern.

Russell Gray: Here’s the thing. I think going forward, at least in 2016, I don’t think you can count on lower interest rates to compensate for unaffordable housing. I don’t think the mortgage rates are going to save that part of the market.

The growth is going to have to come from stronger employment, stronger real wages. Certainly the low oil prices are helping, but you could make the argument that’s being offset by the rising healthcare costs for the average family, so that’s an issue.

You’ve got the issues with the interest rates, like I said, not really getting where they need to be, but the reverse of that is that now you’re beginning to see the lending standards loosen up a little bit. Loans are becoming more available.

The big picture with real estate always is that all the powers that be are definitely working to make housing affordable, whatever you call affordable. A lot of times the things they do to make things more affordable make it more expensive on a purchase basis, but they make it more affordable on a monthly payment basis.

 

2016 Predictions – Rise Of The Renters

Robert Helms: Let’s talk about what’s good for who. If affordability’s down, the next paragraph in this report is the rise of the renters. If housing affordability is down, is that a bad thing if you’re an investor?

Russell Gray: No!

Robert Helms: No, it’s a great thing.

Russell Gray: No, it’s a great thing. You’ve got more tenants, you’ve got a lower price to purchase, you’ve got a higher cap rate. It’s a more profitable scenario for you, so it’s actually a great thing.

Robert Helms: This report, this Emerging Trends in Real Estate, this is just within their housing sector, they’re saying another interesting thing about renters, and I quote, “Attitudes about renting have changed, respondents noted. Renting is no longer seen as only a temporary step on the road to home-ownership but as an alternative, and today we’re seeing the rise of permanent renters, a new demographic in Canadian markets as well as in the U.S. markets,” so more and more renters.

Let’s take a look at what some of these big picture trends are for this year. First of all, their summation of the year is this is going to be a year of coordinating offense and defense for real estate investors. There’s both, and they go through different product types and desirability of city locations, suburban locations, all those kinds of things.

Just some high notes. One is the decline in home ownership continues. We are at the lowest level of home-ownership we’ve been in basically ever.

What’s interesting in this report is they show that broken down by age group, so 10 years swaths: everyone under 35, everyone over 65, and then the 10 years in the middle. The group that’s been affected the most in decline of home-ownership is age 35 to 44.

Overall, we’re at 63.4% of households owning, and that’s down from in 20 years 69.2%, and that’s meaningful. It’s down in every age category. The least amount of change is 65 and older. Of course a lot of folks that are 65 and older bought those houses some time ago and still have them, so they’re homeowners.

Now I know you’re going to want to know where the top markets. Before we’re done, we’re going to make sure, probably the last thing we do today is share with you the number 1 market predicted by everybody.

What’s interesting is they’ve asked all of these respondents in this report, putting it together, the importance of what their issues are this year. The top issues probably don’t seem surprising.

Before I get to the top issues, let me share some of the things, the lower issues. Things they’re not all that concerned about. If we start there, you’re going to think, “Well, those are things people should be concerned about.”

They’re not very concerned about the rising cost of education. They’re not very concerned about immigration. They’re not too concerned about deleveraging. They’re not concerned about sustainable buildings or wellness and health features in buildings. Those are things you might think, “Well, no, people should be concerned.” Here’s what they’re concerned about. Number 1, job growth. Well, duh!

Russell Gray: Duh.

Robert Helms: Job growth affects almost every real estate asset. Income and wage growth, interest rates, and of course as Russ points out, interest rates aren’t likely to go lower. The Feds made the first increase, and there’s a lot of predictions that we left on the sidelines from different folks about how many times will the Fed raise and how much.

If you were to put that all on a spreadsheet, it’s going to come out like about 50 basis points at the end of the year. You had everyone up to 2 all the way down to .1, but somewhere between 40 and 50 basis points.

Russell Gray: You know what’s interesting about that is that I’m looking at an article from December 16 when they first raised the interest rate to 25 basis points. It’s talking about the Fed’s projection.

It says, “The economic projections that the Federal Reserve policymakers released on Wednesday anticipate U.S. economic growth at 2.4% next year and a rebound in inflation to 2% by 2018. The new projections came as the Fed carried out its first rate hike in almost a decade and set out a path for rate rises for 2016 that projected a 1.375 year end Federal funds rate,” so we’ll see. This was a Reuters article from December 16, 2015 if you care to look it up.

 

2016 Predictions – More Real Estate Emerging Trends

Robert Helms: Hey, here’s an interesting exhibit where they’ve asked all of these investors and fund managers where they’re looking to invest this year and the potential investment universe, they call this, by market classification. Where are people interested in investing?

Number 1 category within real estate is office followed by multi-family. Probably if you look back in the past few years, you’ll see multi-family was higher than office.

Office is strong and continues to be in certain markets, so we’ll talk about some of the particular market sectors here in just a minute. The big picture is that we’ve got a change in what people are looking to invest in in real estate. That may affect you, it may not.

We’re talking about some predictions the experts are making for 2016 and trying to stimulate your brain about stuff to think about.We’re looking at this PWC Emerging Trends report.

A couple interesting things, just quick high notes on a few things. Availability of capital for real estate in 2016. Number 1 equity source of all the sources? Foreign investors.

Number 1 lending source of all the lending sources? Securitized CMBS.

All right. Let’s look at investment prospects by asset class. Now again, we would argue that real estate isn’t necessarily an asset class, but we’re talking about within real estate, the different types of real estate, those could be asset classes. Where are the investors? Number 1 this year is private direct real estate investments.

That’s a bigger stack of capital than REITs, publicly listed homebuilders, publicly listed real estate companies, commercial mortgage backed securities. All that pales in comparison to private direct real estate investors.

Still you, and me, and those of us who invest in real estate are the horse when it comes to buying assets, all the way up to the Ken McElroys of the world and folks that buy huge, huge stuff.

What about REITs? REITS have performed pretty well, and right now, in the views of many of the folks interviewed for this, the outlook for the REITs sector is bullish.

“Business as good as it’s every been,” one of the REIT executives said. Well, okay. The market will be good for at least another 2 years at a very conservative estimate.

Reits are publicly traded vehicles to invest in real estate. I’m going to guess that most of our listeners, that’s not their primary focus, but that tells you kind of sentiment of the traditional Wall Street market and what they think about real estate.

Bob Helms: It’s an area in which it’s hands off. It’s passive investment. For a lot of people, that works really well, particularly people who have gone through and built an investment portfolio, and are at a point where they’re ready to back away from it.

They don’t want to be out of real estate. They just want to be out of management. REITs are huge, multi-national REITs, billions of dollars broke into 2 categories. Either I own property or I finance the loans for that property. It’s a narrow segment, although it can incorporate a lot of different kind of properties.

Robert Helms: Now they have a section in here about what foreign currency is coming into the U.S., and the number 1 source of capital from non-U.S. investors as a whole is the country of Canada, not China, not Japan, not Australia.

Canada has been number 1 in office, number 1 in multi-family, number 1 certainly in the industrial sector. Not number 1 in retail. Number 1 in retail investment into the U.S.: Australia. That’s interesting to look at.

Probably more interesting is what’s going to happen, according to these experts, in particular markets. Here’s a great quote from this report. “2016 is the year of the secondary tertiary markets. They continue to be more attractive on a relative opportunity basis than some of the gateway cities. Gateway cities, as we know, are places people might want to be, but we’re thinking of cities like Nashville, Charlotte, Indianapolis, Louisville, Portland, Austin, Raleigh-Durham.

2016 predictions - secondary and tertiary markets like nashville

These cities continue to attract hosts of people, and there are a lot of places that people love to live and work. They are manageable environments and have a better value proposition.” That’s a quote from one of the respondents. Looking at those markets, not surprised.

Russell Gray: No, not at all. What happens is the popular markets, if you will, get overbought, and now you’ve got to go find something else. That’s not just true from an investment perspective; that’s true from a living perspective in a business.

A business or a individual who’s looking for a place to live when they’re out their shopping, these markets that are the popular markets get very expensive. Then it’s like, “Okay, I’ve got to kind of … What’s number 2 on my list.” Hence secondary or tertiary.

These are all great markets with great infrastructure, transportation, shopping, education, all the things you look for. In fact, getting more familiar with a lot of those markets is one of our goals for 2016, and you’re going to be hearing more about that as the year progresses.

 

2016 Predictions – The U.S. Will Have A Housing Shortage

Robert Helms: Now one of the predictions that folks have been making for a long time is that eventually the U.S., and we’re just talking about the U.S. now because this report is there, obviously we look at a lot of other places, but the U.S. is going to have a housing shortage.

We’re going to need to build more houses. In certain places that’s not true. Right now here are the top 5 homebuilding markets, so the top 5 places where there’s demand for homebuilding.

Number 5 is Denver, Colorado, number 4 Seattle, Washington, number 3 is Charlotte. Charlotte you don’t think about necessarily. It’s more of a secondary market but pretty strong. Then number 2 and number 1, both Texas markets. Number 2 Austin, and number 1 Dallas-Fort Worth for homebuilding markets, so interesting.

In the office sector, office is an interesting trend because office is up right now. There is a lot of activity in office, and we’re seeing it emerge in the buy hold sell recommendations they do. That is they poll all of these folks and they say, “For your product type and these markets, are you a buy, are you a hold, are you a sell?” Then they put all that information to say where the strongest markets.

Office right now, strongest market, New York-Brooklyn, followed by Minneapolis-St. Paul.

Now you would think New York, well duh, but Minneapolis? I don’t know. How about number 3? Portland, Oregon. Number 4 Austin, Texas. Number 5 Atlanta, Georgia.

Those are the strong markets. Now that’s a culmination because even though Minneapolis-St. Paul is number 2, it’s got a higher percentage of people saying sell than hold compared to some of these other markets, but a lot on the buy side. Office, interesting, interesting sector to watch.

Retail. Now retail has, as you said, been hit. Right now the outlet for retail looks fairly bullish in some of the top 20 markets.

Top markets are: number 1 New York-Brooklyn, number 2 Miami, followed by Austin, Portland, and Los Angeles.

Now again, when we talk about retail today, there’s categories of retail. We’re not going to break it down into that, but if there’s opportunity you think of the retail sector, go check that out.

Hotels an interesting sector right now. Hotels pretty bullish in some areas and bearish in others. The kinds of properties, there’s business hotels, there’s resort hotels.

Right now the top markets for hotel: number 1 San Diego, California, number 2 Tampa and St. Petersburg in Florida, then in 3 and 4 are the Bay Area, San Francisco and San Jose of California for hotel.

We were talking off mic about the fact that if you look at that, San Diego is more of a destination, vacation, maybe conference city, whereas San Jose more business oriented. Not that people don’t certainly go to San Francisco to visit, but not that many people vacation in San Jose. That’s more of a business or that a lot of companies, Silicon Valley and all that, need for hotels.

Russell Gray: Yeah, as native San Joseans, we can tell you that, no insult, but we know the market well. I’m guessing there’s just not a lot of people that on their short list of places they want to go for vacation, it’s San Jose.

Robert Helms: Absolutely.

Russell Gray: This year with the Super Bowl, they’re going to be coming to Santa Clara, so that’s exciting.

Robert Helms: Last year, with the last Grateful Dead shows, so there you go.

All right, multi-family. Everyone knows about multi-family prospects look pretty good.

Here are the top markets according to the research for multi-family: number 1 Orlando. Orlando needs apartments, followed by Minneapolis-St. Paul. Put that on the list out in 2 of the categories in the top 5. San Diego, Los Angeles, San Francisco, so good markets.

Now overall, what about overall markets? Of all the markets and all the respondents, what is the top market to watch in the United States of America? Dallas-Fort Worth. That’s the market. That’s the MSA people have their eyes on for lots of reasons. This could be a 5 hour show, because we’ve got all kinds of predictions we didn’t even get to.

 

Get a 360 Perspective

The point is a prediction is only somebody’s opinion. It may be an educated opinion because they’ve done research.

A lot of folks, like PWC here, they poll a lot of people. That’s kind of what we’ve done. We’ve colored it with some of our nuances and context and understanding, but we don’t have a crystal ball. They might; we don’t. We just look at what all these folks are saying, and that gives us the ideas of what we should be watching.

Russell Gray: Yeah, absolutely. The thing is you have to keep your head in the game, and you’ve got to listen to a lot of different opinions. You have to ask yourself, “What makes sense, and what makes sense in my market?”

Then the other part, whenever you’re reading anybody or listening to anything anybody has to say, including us, you have to ask yourself, “What’s their agenda? Do they have a paradigm?”

They may not mean to misled. They may not be trying to spin any way. It’s just the way they see things. It’s how they filter things.

Think about all that, and then ask yourself the same question. “How do I filter things? What am I not seeing that I need to see?” I call it getting a 360.

I love doing these kind of shows. I love especially when we can go to networking events and conferences where a lot of these people are, and we can go from session to session to session, and then end up on the trade show floor and the cocktail hour at night, beginning to have these conversations and say, “Hey, how is it you see this? What did you mean by that?”

It’s one of the things I love best about The Investor Summit at Sea. We have that opportunity to get the 360.

You got people from all different disciplines. You’ve got people who are coming from different product types and investment backgrounds, different geographies, different occupations.

You have these lively, lively conversations. Then you have a lot of time to just consider it, and think about it, and then go back and clarify.

When you come out of an event, whether it’s a 1 day conference, or a 2 day conference, or 9 days, or 8 days like The Summit at Sea is, you have so much more clarity about what you see in the marketplace, and how to interpret it, and then what moves you’re going to make to either make more money or protect what you’ve already got.

Robert Helms: There is only one huge, giant problem with The Investor Summit at Sea, and that is there’s 4 cabins left. If you’re not yet signed up to join The Real Estate Guys, G. Edward Griffin, Tom Hopkins, and Robert Kiyosaki, live on The Investor Summit at Sea, then get to the website and do that, realestateguysradio.com, and click Summit at Sea.

Big thanks to all the folks who have made these predictions, and we’ll know next year whether or not they were true. Happy investing to you. Next week, we have an amazing real estate investor and a trainer of real estate agents. Brian Buffini will be with us. You’re going to want to catch next week’s show.

Until then, go out and make some equity happen.


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Networking Tips for Real Estate Investors

networking tips for real estate investors

Overview

It’s been said your net worth is based on the size of your network. In any business, and certainly including real estate investing, a big network of the right people is arguably your MOST valuable asset.

Standing on the threshold of a New Year is an ideal time to reflect on the lessons of last year, envision the possibilities for the future, and decide what to focus on over the next 12 months.

In this episode, we discuss networking tips – the what, why and how of building your network and interview a special guest who’s part of one of the largest real estate investor networks in the country.

Listen in and discover how you can accelerate your success in the New Year and beyond…by building a bigger and better network.

Discussing networking tips for real estate investors:

  • Your you’d never know he was an introvert host, Robert Helms
  • His I’m going to crush this conference floor like I crush oil and vinegar salads co-host, Russell Gray
  • President of National REA and Founder of REIFA, Scott Whaley

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Welcome

Robert Helms: Welcome to The Real Estate Guys Radio Program. I guess that means we’re now on our 20th year of broadcasting. I’m your host, Robert Helms. Let’s say happy new year to our co-host, financial strategist Russell Gray.

Russell Gray: Happy new year, Robert.

Robert Helms: Can you believe it’s been this many years?

Russell Gray: It’s crazy.

Robert Helms: It’s crazy. I don’t feel any older.

Russell Gray: I don’t feel older, and then somebody sends me a picture of myself. We finally updated the picture on the website, and it was like, “Wow.”

Robert Helms: You know, I liked having our younger brothers on the website.

Russell Gray: It was great, yeah.

Robert Helms: That was nice. Time marches on, but you know what? This is the greatest time of year, just coming through the holidays, which is always wonderful. Now a brand new blank slate, a clean canvas, a new year is here.

Russell Gray: Yeah. It’s like football. It’s a new season. It’s an opportunity to set lofty goals. It’s an opportunity to get all the lessons from last season and figure out what you want to change and what you want to do well and recommit yourself and reinvigorate yourself. It’s a lot of fun. It is definitely my favorite time of year.

 

You Are A Product Of The Culture Around You

Robert Helms: What is it that makes a particular person, a particular business owner, a particular real estate investor more successful than another? One of the distinctions is the people they hang out with, the crowd that you associate yourself with. The environment and association has so much impact on who you are and how successful you become in any business, in any sports, in any peer group.

jim rohn 5 people

Russell Gray: Well, think about it. Just imagine if you showed up in this earth and they locked you in a closet and you never interacted with anybody. How quickly would you pick up the language? How quickly would you pick up the social mores? How quickly would you learn how to do basic functions of survival? You wouldn’t learn anything. Why should it be any different when someone decides, “Hey, I want to change my life. I want to go from being a working class drone sitting in a cubical somewhere doing something I hate, living for Fridays and retirement, to I want to become the master of my own destiny. I want to go out and build a portfolio. I want to have streams of passive income coming in that are going to allow me to live how I want to live and do what I want to do with my time”?

If you decide you want to go down that path, there are people who’ve done it, who are doing it, that are accessing resources and thought patterns and habits and attitudes, all of which you need to begin to pick up. It’s part of a culture, just like you learn a culture when you’re in any type of society. Without that cultural interaction, without that involvement with the right people, you’re not going to pick it up. If I wanted to learn how to speak Spanish and then I got stuck living in Taiwan somewhere and I’m hanging out with a bunch of Chinese people, how well am I going to learn to speak Spanish?

Robert Helms: Not too well.

Russell Gray: I’m going to learn to speak Taiwanese.

Robert Helms: Poquito solamente.

Russell Gray: Right? I’m going to learn how to use chopsticks. I’m going to learn to think about all kinds of things a certain way that is in that culture. If I want to be a real estate investor, if I want to be the kind of guy or gal who knows how to create streams of passive income through the vehicle of real estate, there are attitudes, habits, beliefs, knowledge, and professional people that I need to understand, be connected with, that have to become part of who I am. The only way that’s going to happen is if I immerse myself in that culture, and the quicker you do it and the more of it you do, the faster you’re going to get there.

 

Networking Tips To Build Your Real Estate Network

Robert Helms: That’s what we’re going to talk about today. How do you build your real estate network? How do you go from wherever you are right now in your real estate portfolio building and expand that? Could you 2x in 2016? Could you 10x? Is this a year for expansion for you?

It starts with expanding your mind, getting more information, but it can’t just be information. Information stuck in your brain doesn’t do any good. For all these years, our motto has been education for effective action. You get educated so you can take action. A great way to get educated is to do so being around people that are doing the thing, getting it done.

We had a great show last week with a lot of folks that are out there doing it. We’ve got another great year of wonderful guests, people who are going to share their best ideas, best practices with you.

We’re going to talk today on the show about what are some of the ways, some of the practical ways that you can get around the right folks that can help you get to that next level in your real estate investing. It doesn’t matter if you’ve never invested before.

We get a lot of people that listen to our show who are dreaming of being real estate investors. That … you know what? … is awesome. It starts with a dream, with this idea that I can have more, like you were talking about, Russ.

What can I do with my life? As far as I can tell, this is a one shot deal. You have all your beliefs about what happens when you’re gone, but this time around, here we are. We’ve got this amazing opportunity. You’re not getting any younger, and yet you have this brand new wonderful year to work with, so there’s a lot you can do. The great news is we’re going to share a ton of ideas with you today that you can put into action.

Russell Gray: Why were you pointing at me when you were saying that you’re not getting any younger? What are you saying?

Robert Helms: I don’t know. Well, three fingers were pointing back at me, so I guess it’s all the same. Here’s what’s great. Time is not necessarily a zero-sum game, because you can collapse time frames.

One of our favorite things to do as The Real Estate Guys is to be able to shave time off of whatever it takes to get something done. In our Syndication Mentoring Club, we’ve got a group of dedicated folks who are taking what took us 10 or 12 or 15 years to do and doing it in a couple years.

Russell Gray: Stick with me on this, because the vast majority of people listening to this are information junkies. I know I was an information junkie, and in many ways I still am an information junkie.

Robert Helms: Yes.

Russell Gray: You said something at the top that I want to make sure that we cover. Get ready, we’re about to hit you over the head with a sledgehammer, you information junkies out there, because you think it’s about the information, and it isn’t. It isn’t about the information.

You need to have information, so don’t get me wrong, but, see, the vast majority of people who read books never meet the author. The vast majority of people who listen to the podcast never come and meet the host or never come to a live event. There are tens of thousands, hundreds of thousands of people that listen to this podcast, and only a few hundred that actually ever come out to a live event.

People say, “Well, gosh, why don’t you guys have more webinars and why don’t you have more books?” Even the one book we wrote is kind of out of print. It’s on our to-do list. It’s because it’s not about that.

Robert Helms: Right.

Russell Gray: It really isn’t about that. If you were to come over and look at my bookshelf in my library, I have a whole shelf dedicated to books that are signed by the authors. We go out of our way traveling all over the place to meet people, because it isn’t the ideas alone. That’s the starting point.

I read somebody’s book so that when I meet them, not if, when I meet them, we can have a conversation about what they wrote about.

Robert Helms: I watch you do this and I’ve done the same thing. It’s such a great advantage when you can talk intelligently with an author about something they wrote. More often than not, they are humbled. Like, “Gosh, you actually read my book.”

Russell Gray: Again, the purpose of this interaction is to connect. When you know something about the person, when you have done your homework …

When I used to sell corporate sales, I’d go business to business. I would spend a lot of time studying the company. I would read their annual report if they were public. When we finally got websites back in the day, that was kind of new by the time I was leaving that, but anything I could get my hands on that told me … I would read the local business journal and I would look and see when their CEO had been quoted. I would look for their press releases. I would do anything I could to learn something about them so when I spoke to them I was able to connect. It was about building a relationship.

So many people think it’s about the information, and it isn’t. You use the information so that you have things to talk about with other people.

Robert Helms: Such a good point. People often ask us, how is it that we’re as connected as we are with so many amazing people? Well, you just gave one of our secrets away. That’s exactly what we do. We are interested in them.

When you become interested in somebody, then generally you’re now interesting to them. That’s the way it works. How do you foster a relationship? It’s got to be based on something. Not just the weather. Not just we happen to be in the same place at the same time. Not just, “Oh, you’re hot-looking.” There has to be something there. When you read an author’s work and it speaks to you … Like take the example of how many people do we meet who say that Rich Dad Poor Dad changed their life? Tons of people. Tons.

Russell Gray: Right. Tons of people.

Robert Helms: Hundreds, thousands of people have told us that, even though we didn’t write that book. We didn’t even read it when it first came out. We didn’t read it for a few years after that. Our good friend … not always our friend, once our acquaintance, now our good friend … wrote that book and it had an incredible impact.

When someone’s life has been impacted by your words, that has meaning. When you have your favorite band, your favorite lecturer, your favorite author, and you have a chance to actually sit down with that person, they want to have that conversation more times than they don’t.

 

Networking Tips – Leverage Events to Meet People and Build Relationships

Russell Gray: Yeah. What we’re doing here, like resolution number one for this new year, 2016, instead of going out and buying 20 books at $10 each, or 30 books at $15 or $20 each, or whatever, go to one seminar for $150 or $200 or $1,000. People say, “Oh, you guys are always doing events.” Yes, exactly.

Robert Helms: Exactly.

Russell Gray: We’re always doing events, and we’re always promoting other people’s events.

Robert Helms: Yeah, not just our events.

Russell Gray: Because it isn’t about us making money. We charge what we have to charge to put on the event, and we’re business people so we need to make money, but we promote a lot of other events that we don’t get paid for. We go to them and we get a chance to interact with people, because we’re there building relationships, too.

Any opportunity we have to get together with our listeners and find out what you guys are going through, what you’re thinking, how you’re responding to the things we’re saying, what’s working, where you’re confused, that helps us.

When we do the Ask The Guys Show and people send us their questions, we love that. We can’t answer every question, but we love getting the questions. It helps us figure out where you’re at.

When you go to an event, when you get a chance to connect with people, it isn’t just the people in the front of the room. When you go to an exhibit hall and there’s a lot of people … Man, you know me, Robert. I start on the left side, I work my way all through methodically, one booth at a time, until I’ve talked to every single exhibitor at a show. The bigger the show, the more days I have to stay. I get up early, I stay late.

I’m in there constantly, because it’s such a target-rich environment, it’s such a great place to find all the people who are all there. Normally these people are super busy, couldn’t give you the time of day if you tried to stop them on the street, but now the only reason they’re there is to talk with people. The irony is so many people choose not to engage. Actually, you can get involved in a lot of really good quality conversations. It’s like speed dating. It’s so efficient.

networking tips - meet people at trade shows

Robert Helms: Think about it. These are companies that generally pay thousands of dollars to have the right to occupy that hundred square feet for that two- or three- or four-day event, so they’re very, very interested in promoting what they do. If you’re a potential user of those services, rather than bristle against that and go, “Oh, I don’t want to be sold anything,” you go to these events and you can learn a ton in a short period of time. You know all that capital for those books? Borrow the books from somebody or go to the library or go online, and then go to an event where you can meet somebody.

Maybe you have a favorite author. If that author’s appearing somewhere, go to book signings. Book signings are great. You get a chance to shake hands, to get your book signed, personalized, sometimes even a picture. Now, you don’t always get half an hour to sit there with the author, but at least you make a connection, and you can leverage that. Maybe that’ll be under a “building your brand” show, but today we’re talking about building your network.

See, here’s the deal. The more people that know you, like you, trust you, and know what you do, the better and more successful your business will be, no matter what it is.

If you’re a real estate investor, you want to develop a reputation, a brand, and you need to get people who are on board with that. You need to build a network of folks who know you.

Russell Gray: When you’re faced with a problem or a challenge or an opportunity, the more people that you can call that you have a relationship with that like you, to your point, Robert, that respect you, that want to help you …

Robert Helms: That will take your call.

Russell Gray: … especially if you’ve helped them, the faster … you talked earlier about compressing time frames … the faster you’re going to be able to get to the answer or find the resource. A lot of times, and this is the challenge, Kiyosaki writes about this all the time, is understanding that A-student mentality. It’s great to be smart. It is great to know things. It is great. The problem is you get trained in a system that says you always have to have the answer, you have to figure it out by yourself, and if you ask for help that’s cheating.

That is the exact opposite of what really works in the real world. What you want to do is you want to build relationships and continually expand that network and learn something about everybody and learn something about everything you can so you always have a way to bridge into a conversation, to make a good impression, to share something of value, and then to connect people.

We spend so much of our time doing this, and I’ve got to tell you, the goodwill that you build doing that will open up the doors to so many resources that you need. It makes the ability to get from point A to point B so much faster. The path is so much shorter, and you make less mistakes.

You Are Who You Surround Yourself With

Robert Helms: We’re super excited about a new year, and obviously you can probably tell in our energy that we’re excited about this topic, and that is: the people you hang out with make up your future.

Charlie Tremendous Jones said that you’ll be the same person in five years as you are today, except for two things: the books you read, and the people you meet. We’re going to talk today about how you can get around some of the right people.

Russell Gray: Yeah. I just go back to this notion that you have to understand really what you’re in the business of building, and it isn’t just a collection of books or a brain full of knowledge, but it’s really a directory, a database full of people that you have built goodwill with.

Once you have that, then it becomes kind of easy. Then, how do you stay in these relationships? How do you cultivate the relationships? That is, you’re always looking to add value. You don’t do this to get what you can get, you do it for what you can give.

Think about being a farmer. Think about being a person who is creating a field, if you will, and you want it to produce a lot of produce. You want it to be fruitful, and so you begin to go in and you begin to work it. Now, there’s going to be people that you don’t want in your network. They reflect badly on you.

Robert Helms: We call them weeds.

Russell Gray: They put bad ideas in your head. You’re going to have paradigms, some of which we tried to break at the top of the show pretty hard, that are rocks, that prevent the roots from growing, that prevent you from really getting anchored in your new area. You’re going to want to remove those.

You’re going to have baggage, you’re going to have stuff. You’re going to have to deal with all of that, but if you continually work it, the idea is that you want to nurture every single relationship that you’ve planted in this garden that you decided you want to keep, and you do that by adding value, not asking for favors but doing favors, trying to find what other people are looking for and bring that to them. It seems like such a subtle thing.

Here’s the other paradigm. We are so used to going through a scripted program. We get told from the time we’re in kindergarten, “This is what time you report, this is what time you take a break, this is what time you take a nap, this is what you’re homework assignment is, this is exactly the way you make the letter A, this is exactly what everything is.” That’s what we’re taught from kindergarten all the way through, most of us, working in a corporate machine somewhere. We are just scripted.

We go to college and we’re said, “Okay, you take this class, then you take that class, and you end up at the end with a degree.” It’s a very clear path.

The real world is a lot squishier than that. It is a lot more nebulous. It’s a lot more feeling your way. That’s why if you can tether yourself to somebody who has a little bit more visibility … Just imagine yourself. You walk into a room and you’re in a fog. It’s a complete fog, and you can’t see two feet in front of you, but you know there’s gold in this room, so what you do is you find somebody in the room who can see a little bit further than you. You put your hand on their hip and you move along with them, and then they connect to somebody else, and somebody else. Somebody in that room knows where that pot of gold is, and if you get the right connections, you’re going to end up at the pot of gold too.

That’s the way it’s at. Because of that, our scarcity mentality, our fear … The guy that goes into a seminar or goes into an exhibit hall and goes, “Well, I’m not going to talk to that person, I’m afraid of being sold.” What, is the guy going to lock you up?

Robert Helms: Right.

Russell Gray: What is the guy going to do?

Robert Helms: Pin you down and grab your wallet?

Russell Gray: Have a degree of understanding. Nobody’s going to make me do anything I don’t want to do. I’m open-minded. I’m here to explore. I’m not afraid of saying no. I’m not afraid of saying yes. I want to get to the right answer.

If you’re leading me to the pot of gold, I’m on board, and if I find out you’re not, then I can disconnect and look for somebody else who is.

It is not a firm process. You have to trust the process. You have to trust that if I will go out and I will begin to make these connections and I will begin to add value, I don’t exactly know how I’m going to get a return on my time, I don’t exactly know how I’m going to get a return on my investment, not everything I do will pay off or pay off right away, but if I do enough, sooner or later good things are going to start to happen.

I can tell you, if you’re on the outside looking in right now, and I’ve gone through this personally because I was kind of a homebody. I was kind of an information junkie. I was a study everything and analyze everything but not get out there and do stuff kind of guy, and I learned pretty soon that once I started getting out there, now I have absolute faith.

When I go out, I know something good is going to happen. I don’t know who, I don’t know where, I don’t know when. I just know if I’m out, I’m going to meet somebody and something good is going to happen. Guess what? Almost every single time, it does.

 

Practical Steps, Networking Tips & Preparing Yourself  to Network

Robert Helms: That is how you take the nebulous and make it the rock solid, is you go out and do it. There are some things you can do. It’s not all vague. Let’s talk about what football teams do.

Here we are right in the playoff season, and I know you love football. The team doesn’t just go out there and say, “Oh, let’s wing it. Let’s give it a try.” They prepare. They have plans. They have ideas.

Now, does it always go to plan? Of course not. The vague, nebulous part is they don’t know what the other team’s going to do. They don’t know which way the wind’s blowing. They don’t know what’s going to happen. They know that they’re prepared for lots of different eventualities.

How can you be prepared to go out and network? The first thing is, how do you show up? How do you show up when you walk into the room? Do you look successful? People say, “Well, you shouldn’t judge people by the way they look.” Yeah, well here’s a clue. People do. That’s the thing.

We talk about the 4-4-4 Rule, which is a wonderful thing I learned from a guy named Joel Bauer. He said, “Here’s the deal. When you dress nicer than everybody else, it takes you 4 minutes longer to get dressed in the morning, you are 4 degrees hotter all day because of what you’re wearing, and you get 4 times the respect.”

Whether or not you’re a person who dresses up, it doesn’t matter. You don’t have to wear a suit and tie or a dress. You have to look good for the crowd. A lot of people go to these real estate seminars like in dirty T-shirts and they didn’t even brush their hair. They’re like, “I’m just sitting here to get the information.” No, you’re not. You’re there to meet people that can influence your very future.

Russell Gray: You’re there to make an impression.

Robert Helms: Yeah.

Russell Gray: You’re going to make one.

Robert Helms: You’re going to make one.

Russell Gray: You just need to decide which one. You need to be strategic about the kind of impression you want to make.

networking tips - first impressions matter

Robert Helms: When we first met, you had a successful business in another industry, and yet you were looking to get into the real estate and the mortgage industry, so you didn’t show up as an office products guy. That’s not how you showed up.

You would’ve been very effective as an office product guy. You could play that role, but that wasn’t going to get my attention as a successful real estate guy. You came in with a completely different attitude, a makeup. It wasn’t that you lied. It wasn’t that you said you were something that you weren’t. It was all the way you position. You looked professional, you knew the language, you asked great questions. You don’t have to know everything, you just have to know who you’re trying to be.

Russell Gray: Well, I’d been studying. It goes back to that. When you and I get ready to go to a trade show, we go through the whole website. We look at every speaker. We Google every speaker. We think about which ones, if we only could meet the top five, who they would be. We come up with a plan to try to do that.

It might be a pre-approach. It might be when we get there we figure out where they’re at and when they’re speaking. We will make sure we sit someplace where we can have our face seen. We make eye contact. We’re actively listening. We’re always suited up, because that’s kind of our shtick. It’s very strategic and very intentional about what we do.

If we can learn something a little bit about what they want or need, sometimes you don’t know that. Sometimes it’ll be somewhere and something you may read on a website or something. Sometimes it may be if I hear them on another interview or a podcast and I can hear something they’ve said.

Sometimes it’ll be something they say during their talk in the front of the room. Sometimes I can go to their booth if they have their team there and I can find out a little bit. “So, tell me about your business. What’s the biggest challenge you’re facing? What’s the biggest opportunity? What has you most excited?” Very broad questions. Then people will talk, and then you learn.

Now when you engage with the main person, you’re like, “Hey, I’ve been following your company.” True? Yeah. It’s only been 10 minutes, but, “I’ve been following your company,” or, “I’ve been following your career and I like what you had to say today, and I’m just curious what you think about this or think about that.”

Again, you don’t have to be brilliant, because you don’t have to talk that much. What you have to do is just ask a few strategic questions and get the other person talking. You do have to have a level of confidence to be able to engage at that level.

Robert Helms: That’s back to the “be prepared”. You absolutely do. If it’s a conference about a particular niche, a particular demographic, you want to have a cursory knowledge of that so you can definitely get in the right conversations.

Russell Gray: For example, we were on a call the other night with one of our syndication students and we were talking to him a little bit. He was thinking about an industrial play in a particular industry, and he had some ideas about what he thought that the industry would want or need, and I said, “Well, you know what I would do is go try to figure out where the facilities people in that industry congregate, what they’re reading, and get on the mailing list. Start reading the newsletters, frequenting the websites. If you can attend a seminar where the thought leaders of the industry are sharing what the trends are and where the potholes are, then you’re going to quickly begin to understand if your thesis, being an outsider, is really plausible or not.

“It might make perfect sense to you in the incestuousness of your own mind, but if you don’t go out and rub your brain against other brains, especially people that are qualified to have opinions, then you’re not really going to know, and I would not put a bunch of real money on the line just betting that I’ve figured out what the industry’s problem is as an outsider looking in.” I want to go talk to the real people. I always say, if you want to build a better mousetrap, interview some mice.

Robert Helms: Right, absolutely.

Russell Gray: It’s about asking questions.

 

Networking Tips – Show Up Prepared

Robert Helms: This idea of how you show up is not only physically how you show up but also, are you prepared?

If you’re a real estate investor or you just want to be a real estate investor and someone says, “Well, great, let’s stay in contact,” do you have a business card? Do you have a business card that shows who you are, or are you scribbling your work e-mail on the back of somebody else’s business card?

You have a chance to show up however you want to show up. This is the Boy Scout motto: be prepared. When you go to an event, when you go to a local real estate investment club or association, when you go to one of those events, great places to meet people, great places to meet investors, expect something to happen, like you talked about, Russ, and then be prepared. Be prepared to follow up.

A lot of times people run out of business cards. It amazes me. I don’t know how this happens. You know you’re going to an event where you need to have business cards, and somehow you run out? You could print more. You could bring extras. They’re not that expensive. Be prepared.

It’s a really good idea to have your own website that is about your real estate business, even if you’re doing it part-time. When you don’t have a website to send somebody to, when you give them a Yahoo or a Gmail e-mail address, that’s not the same as when it’s yourname@yourbusiness.com and it really is your business, even if your business is just getting started. There’s a lot you can do to show up in the right way.

Russell Gray: Yeah. Don’t be the guy that goes out there and does the little color printer tear your own business cards apart and you hand somebody this little flimsy piece of paper.

Robert Helms: With the same cut-and-paste graphics that every other person that does that has.

Russell Gray: Yeah. Have an image, even if it’s just generic. If you can get your own name as a domain and you have a nice looking card that’s just simply your e-mail address and your name and your phone number … If it’s your cell phone, that’s fine. Hopefully you’ve got a professional greeting on it and it’s not some fun thing for your friends and family or whatever. Just make sure you have some of those basic things.

 

Networking Tips: Be Who You’re Becoming

Then, when you’re out there talking to people, the other thing is think about how you want to be perceived. This is a tough one, but I’m going to say it anyway. I really encourage the younger folks that I mentor to take an acting class. The reason I do that is because if you can think about if you’ve ever seen …

In fact, if you saw the movie Iron Man 3, it was great. Ben Kingsley played this guy who was supposed to be the Mandarin, this evil, super-capable guy. Really what he was was he was just a British actor that was just goofing off, drunk half the time, and then he would pass out, but he could act. He could really play the part.

The contrast showed really what a great actor he was, because you were watching him play two sides of the same personality. Just watching Ben Kingsley act was amazing. The reality is that you can do the same thing. Again, this is where it gets tough, because this is not about faking.

Robert Helms: No. Acting helps you convey emotion correctly. I’ve not done that before, but if you have a hard time communicating, acting classes are a great way for you to be able to communicate.

Russell Gray: You play the role, so you imagine yourself … If you think about it … I’m going to be a real estate investor and you think about the kind of real estate investors … Again, this goes back to being in an environment. You don’t have anything to draw on if you haven’t been around them.

We’ve hung around with Ken McElroy. We’ve hung around with Robert Kiyosaki. We’ve hung around with all kinds of people whose names you may not know, but they’re successful real estate investors. They all have a different style. They dress a certain way, they talk a certain way. They’re all very successful, so it’s not like one way or another is the way.

Robert Helms: No.

Russell Gray: They all have an aura of competence, of a confidence. They have a way they come across, and people take them seriously. You have to look at that. You look around and you draw upon these people that you know and you say, “Okay, well, I think that guy’s style is the style I would like to begin to emulate.”

Think about when you were an insecure teenager or preteen. You’d look around and try to figure out who the cool people were and the way they wore their hair or what kind of clothes they wore, the words and languaging and gestures they used. All of us carry around a little bit of that that are this amalgamation of things we collected along the way.

Growing up in the resource investment community and being into that, fitting into that subculture, is exactly the same. Your ability to set aside whatever paradigm you have of yourself today and become this new person …

One of my favorite quotes, and I hope this is one that I’m famous for someday, is, “Be who you’re becoming.” I was taught early in my sales career to fake it till you make it. I was the youngest person on a corporate sales firm. 22 years old, no college degree, wet behind the ear. I went out into corporate America and Silicon Valley, and I had to sell to corporate business people.

The way I did it was I had spent some time with a guy 12 years older than me and his partner who was 14 years older than me, and they used to take me out. I learned how to dress, I learned how to talk. When I went out, I wasn’t me, I was them. I just pretended I was them. I acted like I was them.

When they said, “Fake it till you make it,” I felt phony, and phoniness brings about an insecurity that comes out that people can smell. If you really study acting, like method acting, you become that character. In fact, you can look at these characters like Heath Ledger or Bela Lugosi that are so good they get lost in the character and they forget who they really are. Maybe it’s okay in this case to get that good.

networking tips - be who you are becoming

Again, this isn’t about trying to fake people out. This is about trying to effect change in your life, where maybe you’re 25, 30, 40 years old even, or maybe even older than that, and you’ve been a way, you’ve thought of yourself a certain way for a long time, but you’ve just, like, “Hey, it’s the beginning 2016, I’ve had it. I want to change my life. I don’t want to be who I’ve been.

The same level of thinking is going to continually take me to the same level result. I need an extreme makeover. I need a new attitude. I need a new look. I need a new style. I need a new network. I need new friends.” That’s what we’re talking about right here.

Whatever level you’re at, unless you’re at the very, very, very top of the food chain, there’s probably a level up you could go. We’re constantly trying to figure out, how do we get to the next level? How can we get to the next level? How can we find even more brilliant people, more accomplished people that we can hang out with? Then, how do we need to conduct ourselves to fit in that room?

Robert Helms: It’s, instead of “fake it till you make it,” “be who you’re becoming.” That’s not disingenuous, because the other side of the acting part is to really be who you are. Who you are is plenty, it just takes a little refinement and a little communication and a little influence.

You don’t want to change everything about yourself. The great parts of your personality and the wonderful parts of your life that are going to help you in real estate, you want to hang onto that, but we all need to shed some of those habits that aren’t serving us.

Russell Gray: That’s where you put your personal stamp on these things you pick up from other people that you find are effective. Tom Hopkins in his sales training says how he looked at the words that other successful people were using and he created his own words that he was able to use to create those same results. It’s the same thing. That’s really what I’m talking about.

 

Networking Tips – Build Your Network at a Real Estate Investment Club

Robert Helms: We’re talking today about building your network in the new year. What are things you can do to get around the right people? One of the things we’ve always talked about on this show, and we’ll give you a resource for this before we’re done, is going to a real estate investment club.

All over the world, not just in the US, but all over the world investors get together at meetups, at casual events, sometimes at membership organizations, where they talk real estate.

In fact, we had our own club like that for nearly 10 years where we got real estate investors together on a monthly basis. Sometimes it’s quarterly, sometimes it’s weekly. That’s a great way to get around real estate investors.

Russell Gray: Yeah. It goes back to this idea that you want to compress time frames. You want to learn from other people. You want to learn how to talk. That’s also important.

We talked earlier about how you show up. How you communicate, the words you use, your ability to put together ideas and sentences and phrases. It sounds so simple, but this is learning a whole new language. There’s new techniques and there’s new perspectives, especially when you’re learning a new product type. Y

ou can go to a real estate investment club. Most clubs are going to be about single family or residential investing. Some will get involved in multi-family. If you go to a higher level of multi-family, you’re going to go to other places where more professional, more higher level people are meeting, but it’s a great place to start.

I’d encourage not just going to the clubs that are about real estate investing, but go to things that are peripheral to real estate investing.

When the meltdown happened in 2008, one of the things that we took the opportunity to do, especially as we came off the treadmill of running the real estate investment club, we started traveling around to more investment conferences where people were investing outside of real estate.

They weren’t interested in real estate. They didn’t understand real estate. It helped us broaden our perspectives. A lot of that’s been reflected in the show over the years. Now we’ve obviously gotten back to going to the residential family conferences, and now we’re talking about going to other higher end conferences, trying to understand what’s going on at a bigger level. Part of that is because there’s bigger players right now in the residential space, people who weren’t in the space 5 or 10 years ago.

The idea of when you decide to pick out a group, a club, or wherever, try to pick one that is going to be populated by the kind of people that are involved in the kind of product types that you’re most interested in, or things that are related to or peripheral to that that could be connected.

Robert Helms: You don’t have to make a huge commitment on day one. A lot of times you can go around and visit a lot of different clubs. If you’re in a highly populated area, there might be a dozen different real estate investment clubs. Go to them all. Go and show up and see who’s there and what’s it like and so forth. Some clubs are more about selling you stuff, and some clubs are more about information. Both have a place.

 

Scott Whaley of National REA

In fact, today we have a very special guest. Scott Whaley is with us. Scott is the leader of the largest real estate investors association in the US, National REA, and the founder of the newly launched Real Estate Investor and Funding Association. He’s got over 15 years experience in real estate and lending, and has developed more than $30 million of real estate. Scott’s been a board member for the National Real Estate Association for more than 8 years. During that time he’s served two terms as vice president, and he’s currently the president of the National REA. Scott Whaley. How are you, Scott?

Scott Whaley: Great, Robert. How about you?

scott whaley national rea

Robert Helms: Very good. Today the world has changed and real estate is still a wonderful investment. It’s easier in a lot of ways to get information, but at the same time it’s harder to get good information. Tell us, if you will, let’s start at the beginning, what’s the role of a REA?

Scott Whaley: You’re definitely going to be different depending upon who you talk to. Some REAs are run for profit. Some are run by a board. Some think that they’re in the education business. Some think they’re in the support networking business. I’m more of the second. I think supporting and networking is a under-appreciated value.

Because the thing is, just as you yourself, I can try to learn and figure out everything on my own, but if I talk to Robert, he can give me the insight of like 30 years. At a REA, if it’s got really a lot of people who are going to give freely and they’re not like keep their hand out and asking for money, that value add makes everything else pale in comparison, because what are you going to value your time at?

They usually reduce it way too much to money, I believe. They don’t value their own time, like the time of going down to the wrong group or a place where people are only trying to get to … Like, “I’ll give you some stuff, but only if I get some stuff.” If they’re always doing that measuring, that’s probably not where you want to go.

Robert Helms: Yeah. That’s part of the mindset of it. We’ve had the chance and the opportunity to speak for a lot of different groups in a lot of different places all over the country and the world, and sometimes it’s a hard-charging investor who leads the group and their whole heart is just to bring everyone along, and other times it’s all about, “How much can we get out of the room tonight in dollars?”

It’s refreshing to see that at this level it’s more about the supporting today. We’ve been talking off mic a little about this, but let’s talk about the changing role. In the hey-day of real estate, before the crash, there was a REA chapter in every zip code, practically. We’ll use that generically.

Scott Whaley: Sure.

Robert Helms: I don’t mean a branded REA chapter, but a bunch of investors would get together and have some outcome. Then, of course, we went through all that turmoil, and we’ve shaken out who the real players are. Today, there’s a great opportunity to get around these other investors, and the model has changed.

Scott Whaley: Absolutely. If you find the people that are actually there and you can talk to other people, and I would suggest don’t talk to the person at the front of the stage as much as you talk to the other people in the crowd. You notice, have they been there for a long time? Do you see people who are successful and can say, “Look, I started with nothing, now I have 5 or I have 10 units,” and then they’re willing to just share what they have?

Robert Helms: Right. If you haven’t been to one of these events, there’s lots of different economic models. Some people charge for admittance at the door. Sometimes it’s a membership that’s a year long. Sometimes they’re free, and then you’re probably going to end up buying something. There’s lots of different models of it.

Before we talk about what you do at the national level, on the chapter basis, how is it that a new investor, someone interested in real estate investing, can get involved with a chapter?

Scott Whaley: Just show up. I would suggest if it resonates with you and you get in and these are people you want to be with, because here is the other piece. If they’re not your friends, if they’re not people you feel comfortable with, I would run, run, run away.

Because if you don’t have a good feeling about them, not that they’re giving you everything, not they’re being Mother Theresa, but this person, A, they know what they’re doing, B, I get the sense that they’re not just a predator and they’re not … Because it’s okay to ask for money, I believe.

Robert Helms: Sure.

Scott Whaley: It’s not a one or other. If you feel good about being around those people, you’re going to come back, and then probably I would trust that feeling. Then you will want to have an association.

Then here’s the secret to all training, I believe. It’s that you’re going to become like the people you like and the people you hang around. That’s nothing new. How long does that go? You hang out with those people … This is the way I got in the business. I got lucky enough to be around people that were phenomenally successful, and somehow I just became more like them without even thinking.

Robert Helms: That’s how it works.

Scott Whaley: Yeah.

 

How Vendor Roles Vary Between REAs

Robert Helms: It’s a great avenue for you to meet that investor in the chair next to you, say, “Hey, what’s working for you? What are you doing? What kinds of properties,” and so forth, but also it’s a chance to meet vendors. In this business we need people to help us execute our strategy. How does the vendor role vary between different REAs?

Scott Whaley: Some REAs have not thought it through that the vendors are probably their biggest asset, maybe along with some of the really highly experienced investors. A vendor in many cases is an investor.

Robert Helms: Sure.

Scott Whaley: They’ve been in the business a long time. They’ve seen so many deals. They are an asset that can look at your deal. They can say, “You know what? There’s this roofer or a contractor or a title company or an attorney or a lender.” They’re going to look at your deal and they will … “What do you think?” The thing is, if you ask, “What do you think?” … Because they’re seeing deals day in and day out, and they know that market because they live and breathe it.

Robert Helms: They have a different and probably bigger perspective.

Scott Whaley: Absolutely, and they know who’s credible. You ask them, “Well, who would you trust? Who would you go to? Who do you hang out with?” Pretty soon you find out the good characters all hang out with the good characters.

 

Networking Tips – Give First. Ask Later.

Robert Helms: Let’s take a practical example. At the REA meeting tonight there is a roofer who’s going to talk about the seven things you need to know about inspecting a roof. If he does a good job and he educates you and he gives you some things to think about, then why wouldn’t you say, “Hey, I’m going to get this guy’s card and maybe I’ll do business,” as opposed to the old model, which was, “I’m going to tell you the three of the seven things, but to get the really four good ones you’re going to have to come to my boot camp or pay $9.97 or sign up for my whatever it is.” It’s now the law of attraction. We’re going to attract the people that are helping us grow as real estate investors. Are you seeing that shift?

Scott Whaley: Absolutely, because I think it’s just working better. The other part, we’ve been so conditioned now, I think people see a pitch coming a mile away, like, “Oh, this is a free one.” Because if it’s a free event … Here’s the one thing. I think free is a great thing, but if you go to a meeting that’s always free, you’ve got to ask yourself, they have to be making money some way.

Robert Helms: Right.

Scott Whaley: Now, it may be free and they’re not promising a lot and they don’t deliver a lot, but somewhere somebody has to make money.

The one thing I love about this new social business model is that instead of, like, “Okay, I’ll give you my great information or my great knowledge, but first you give me money,” now it’s just changed. You do it the other way around. They give you great information, great advice, great feedback, knowing that you may not respond in like, but, you know what? They do it with 20 people. Because you may not even stay in the business. You may come by and move out of town.

Robert Helms: Right, but enough people will.

Scott Whaley: Enough people will. It’s just a smart, easier way. I will tell you from people who’ve actually switched to that model, I’ve had them say, “I used to be able to pitch and sell, and I could, that was really good,” they would actually say this, “but I didn’t like it. I was good at it, so I did it.” Now they say they do this new model, and they actually enjoy it. I’ve asked them. They’re going like, “Yeah, I love … This is actually kind of fun.”

National REA

Robert Helms: Yeah, absolutely. Let’s talk about this. There are a variety of groups that meet. Some are around a specific market, some are around a specific product type, some have affiliations. At the national level, talk about how you support groups and really what the national REA is all about.

Scott Whaley: It’s about scalability. I know that sounds kind of technical, but here is the challenge. When you see a small group, a great meetup, but it’s limited in its ability, no matter how great it is. If there’s 10 people there and they meet and they’re wonderful people, but how much can they help you, how much influence from vendors or other attention? Because they can’t deliver a lot.

Robert Helms: Not a lot of leverage.

Scott Whaley: Yeah. That’s the unfortunate thing. That’s a constraint. What national does is by having 100 chapters and about 40,000 investors all around the country, you couldn’t have a Home Depot come and negotiate individually with each chapter. They wouldn’t want to. It just doesn’t work. The numbers don’t work.

It’s just like an Airbnb or Uber. It doesn’t work if it was just one city and that’s all they did. What they do is they negotiate on the behalf of the locals. They also give them a lot of things that are not really tangible. We actually spend a lot of money on legislative, everything from labeling a person as a broker-dealer licensed if you do two owner-occupied sales and you carry the note … You do three of those, you’re a broker-dealer. We’re spending money to fight for that. That’s legislative.

We also negotiate with those people, with the vendors. If it’s a really good vendor and it’s something that would help that local chapter get more members, deliver more value to local people, then we will work with them and negotiate the deal on behalf of everybody in national.

Because at the end of the day we’ve got to deliver those goods, and the only way we’re going to be able to do it, and this is how high the bar has been set I think since 2006, you have to become the trusted authority.

You may not always be and you may have some track record and people may remember you back when whenever, but if you don’t become the trusted authority, then you’re the other. I think the other is a losing proposition long-term. Their day is not over, but people talk, and now people talk really effectively over long distances really fast.

Robert Helms: Yes, they do. You could hide before, and it’s harder to hide today.

Scott Whaley: You can run, but you can’t hide.

 

REIFA – Match.com for Lending

Robert Helms: All right, good stuff. Now, Scott, let’s talk about this new initiative. Let’s talk about REIFA. What is that all about?

reifa.org

Scott Whaley: Its genesis was in 2006, as you’re very aware since you do training in syndications, things like that. Before 2006 there was maybe one private lender in the back, kind of like Vito or Tony. It’s like, “Yo, go in the back … ” Because you didn’t need a private lender really, because they said if you fogged a mirror, you got a loan.

Bruce actually tells a story where the guy got the loan and he was dead. That’s amazing. Our experience was 90% of all investor loans were done by Bank of America, Country-Wide, and if you’re old enough, we are, there was no reason for any private sources of capital.

Then along comes 2006, mortgage meltdown. We all know about that. What happened was very surprising. A, you had Dodd–Frank and a lot of other regulations that made it … Banks are being penalized so heavily and regulated so hard, they don’t want to do investor deals.

They just don’t want to do especially small mom and pop individual investors, because they’ve got a compliance officer for almost every loan officer. It just doesn’t work, so they don’t want to do the business.

They leave, they go out of town. They’re now doing maybe 10% of the market. That 90% has been picked up, whether it’s somebody with a lot of cash or a private lender, a crowd-funder, self-directed IRA, hedge fund, foreign money. All these new pools of capital started out kind of small, and now most of them have trillions of dollars at their fingertips.

Now we’ve got this whole new arena, some people call it alts-fins. Some people call it peer-to-peer lending. Bottom line, it’s alternative financing, but there is no place, there’s no storefront and there’s no one website. When you ask people, “Okay, there’s all this money floating around, I hear about it … “

Robert Helms: Right, “How do I get it?”

Scott Whaley: “How do I get it?” You ask most people. “Well, I bumped into him. Ask Joe. Joe turned me onto him.” I think that’s totally insane. We have a thing called the internet and we have things called computers and smart phones. If they can find you the perfect date, they should be able to find you the perfect funding.

Robert Helms: Right. Here is the concept of the Match.com for financing.

Scott Whaley: Absolutely.

Robert Helms: Tell us how that works.

Scott Whaley: It’s just copycat. It’s the idea. I went and saw Airbnb and I tried it. I tried Lyft. I loved it. I love the idea that there was a consequence on either side of the equation if you don’t treat the person well, so it’s in your best interest to make sure the other person does well. I love that model.

In the old model there wasn’t that consequence. In lending, why not do that? In lending, how do we actually structure it where there’s no barrier between the person with the capital and the person with the need, the investor who needs capital to fund my rehab, my wholesale, my whatever, and the person with capital? That could be everything from self-directed IRA owner to a big hedge fund.

I was actually in a conference and it was a person from AssetAvenue. I said, “Do you believe there’s money for any deal?” He says, “Absolutely.” He says, “There is money available for any legitimate, just a legitimate return deal. The money is there.

Well, what’s the problem? The problem is there’s no way for us to connect because nobody’s being paid to connect us. If there’s no loan officer and there’s no storefront, somebody’s got to create that platform. We thought, “Well, how about if that was us?” What if there’s an association where we don’t charge to connect you guys?

I used to be a loan officer. I would get a couple points, point-and-a-half to two points, to connect you to a funding source. Even to this day that’s the way that model works, but that model … I don’t mean any disrespect. I was one. The truth is that model’s based upon two things. One is I can make sure you stay ignorant. You have to remain ignorant.

Robert Helms: I have to be the keeper of where all the great funding is, and you have to rely on me for it.

Scott Whaley: Exactly. I have to keep you ignorant. I can’t educate you, and I can’t tell you the whole truth and nothing but the truth. Because here’s the thing. If I told you, like, “Look, I’ve got 5 guys in my pocket who will pay me a point on the back end,” which is the model. If I said that to you, “but you know what? There’s like 10 other people out there down the street. They’re not going to pay me a point, but they will give you cheaper money faster,” obviously I go out of business. I can’t tell you that.

Happily so, I think that model is leaving, and I think in the new model is where we all get together and we review each other’s performance and we don’t charge for a transaction, just like Airbnb. You may charge a fraction on the processing, but basically you just get matched up, because there’s a lot of other ways to make money. You don’t have to make money on the transaction itself to make money in the business.

That’s our whole idea. It gets back to one of our other conversations, which is scalability. You can’t do it if you try to do this in just a small group. When we get together as a group or as a tribe or as a community, we can provide benefits that are beyond belief to our community. You know, what is the old saying? Either hang together or hang alone.

Scott Whaley: Right, exactly.

Robert Helms: All right. Well, if you’re interested in finding out if there is a local REA in your area …

Scott Whaley: Or REIFA.

Robert Helms: … or REIFA, what’s the best way for them to find that information out?

Scott Whaley: NationalREA.com, and just go under the little map there, and REIFA.org, R-E-I-F-, as in Frank, -A, REIFA.org. You will be able to find your local chapter on either one. The REIFAs often times are actually an addition to a local REA chapter.

Robert Helms: Right. Good stuff. All right, Scott.

Scott Whaley: Thank you, Robert.

Robert Helms: This has been great. Thanks for all the great information, and keep up the good work.

Scott Whaley: Looking forward to it. Thank you.

 

Show Recap

Robert Helms: You’re tuned to The Real Estate Guys Radio Program. Happy new year to you. Great to hang out with Scott Whaley.

Russell Gray: Yeah, it is. It’s always interesting, as I’ve been saying, when you get a chance to get around people that have a broader perspective, that have a lot of connections. You meet one guy like that, and just imagine how many doors potentially open up.

As I’m reflecting on that, I’m just encouraging everybody who’s out there listening who maybe is a small fry just out there just getting started, and you think about, “What can I do to really expand my influence?” and that is you begin to build your own little herd. Maybe start your own club. Become the leader of the club. Who knows how big it could get?

Robert Helms: Even before you go there, before you go start a club, because I know your mind is like that, but most people listening are probably not of the mind. It’s a heavy lift to start a club. There’s a way you can be a support mechanism in an existing club.

Russell Gray: Good point.

Robert Helms: You go and you show up and you help and you offer to do a class and you lead a little round table discussion, and before long you may be in a position to start a club. I wouldn’t discourage you. In fact, before we’re done we’ve got a great report that talks about exactly what to do if you’re thinking about starting your own club.

Sometimes it’s by necessity. You might be in an area where there is no club. “I’m going to start one.” We have a listener who is in an area like that who came to us a couple years ago and says, “Well, I can’t find a club, I think I’m going to start one,” and today he has a thriving little club where people get together and talk real estate. That’s a possibility.

The big point is don’t just show up, sit in the back, take notes, and leave. You might as well have not been there at all. You’re going to get some information, but, again, as we’ve talked about, it’s not about that. Start to form relationships.

As Scott talked about, different clubs have different personalities. Are these people you can hang out with and be friends with? That’s a big part of relationship building. Last week we did the show from the single family conference. We met a lot of great people at that event. What was great for us was it wasn’t the same old crowd we’ve been hanging around with necessarily.

We certainly saw some friends, some fellow podcasters, some listeners, some co-investors, but we were in Phoenix, so what do we do? Called up Kenny McElroy, and you and I and Ken hang out for several hours. To me, that was a great, great part of that trip. All the stuff we learned was great, all the new people we met, all the networking, but hanging out just you, me, and Kenny for three hours, that was pretty powerful too.

Russell Gray: Yeah, and it was great because he came to us and he’s got something he’s working on and he had a question. He had a problem, and we brainstormed on it. I don’t know that we came up with an answer, but at least we were trying, and now that we’re aware of that, in our travels we have the opportunity to potentially bring him an answer.

It goes back to the thing we’re saying. The idea is he knows that we have a pretty big network, we’re pretty well connected. He comes out and spends time with us, and not just because he likes us and not just because we can have some beers together and stuff. We’re all social and we have a good time and we’ve become friends, but he also knows that we’re connected and we’re going to ask him, “Hey, what are you working on and where are you stuck and what can we do to help?”

Robert Helms: He does the same thing with us.

Russell Gray: He does the same thing with us.

Robert Helms: This is the whole idea of networking. It isn’t, “How can I get something from that person?” It’s starting with adding value. “What can I do to help that person?” If you do that enough, if you just connect to people, great things are going to happen. You just have to have faith in the system.

Russell Gray: We talked at the top of the show about compressing time frames. First of all, you have to break paradigms that are in your own mind that prevent you. “Oh, I’m shy,” or, “Oh, I’m this,” or, “Oh, I’m that.” That’s why we talked about be who you’re becoming.

We also talked about getting out there. It’s not about the information, it’s about getting connected to people. You lead with value, Robert, as you were just mentioning. Where do you do that? You study, you listen, you learn, and you use that knowledge not to go build something in your portfolio as much as you use it to build a portfolio of people that you become connected with, and then you look for ways to add value.

The other part of that is to be intentional. There’s going to be people that you meet that have small networks, and you’re going to meet people that have no networks, and you’re going to meet people that have pretty big networks.

You’re going to quickly find out that the most competitive people in terms of getting into a relationship are the people that have the biggest networks. Everybody is trying to get with them. That’s okay. There’s nothing wrong with that. Most of the time the people who are trying to do that are leading with their need. They’re leading with what they want. They’re coming to get.

If you will enter into that relationship and not take that approach. If you will enter into that high-level strategic relationship with somebody that has a big network, a big connection of people that you would like to meet, then lead with how you can help.

You talked about on the club thing, which I think was a great point, kick in and volunteer. You may say, “Well, gee, I’m kind of shy. I don’t know how to walk into a room full of strangers and just start walking around introducing myself.” You know what? If you handled event registration and you signed everybody in, you’re going to meet every single person and you don’t have to initiate a single conversation. They’re all going to come to you.

Robert Helms: Most of these clubs, they need that help.

Russell Gray: That’s right. Be strategic about how you can have maximum exposure that fits into whatever level of personality you have at this particular point in time.

Robert Helms: We’ve had people approach us with that. We’ve had people in our listening audience that have said, “Hey, I’d love to come this event. I really can’t afford to right now, I’m a student, but I’d be happy to volunteer,” and we’ve struck deals with people that have come. Some have gone on to become big parts of our network, and some came for an event and that was it.

Figure out how you can add value. Is there something there for you? Because there will be if you’ll invest the time. To Scott’s point, make sure you start to find where your crowd is. Where is your group? To Russ’s point, if your group isn’t around, figure it out. You could start a club.

 

Free Special Report

In fact, we’ve got a great report that will do exactly that for you. It’s called 12 Questions to Ask When Starting Your Own Real Estate Investment Club.

Russell Gray: Yup. It’s designed really with what we learned in 10 years of running clubs and meeting people who ran clubs. If we had to start all over again, what are the things we wished we would’ve known or wish we could’ve thought about? That’s available.

If you just send an e-mail to club@realestateguysradio.com, that’s club@realestateguysradio.com, you can get that free report.

Here’s the thing. We’re at the time of year where we’re looking forward, we’re making our big plans. This is a time to be strategic. There’s only so many hours in a day, so many days in a week, so many weeks in a month or a year, and you’ve got to get a decent yield out of your time. It’s the one non-renewable resource.

This year is going to come or go no matter how much value you do or don’t put into it.

To be strategic and to really think about, “How can I compress time frames and get from here to there faster?”. The theme of this show is have a plan, and that plan should include connecting with the right people. Have a plan for making those connections by adding value, and then a followup plan to make sure you nurture those relationships.

If you go in with the attitude that, “I’m here to add value and good things are going to happen,” I’m here to tell you good things are going to happen. You’re going to end up being amazed at how quickly you can grow your network and your connections and have opportunities and deals and resources coming your way and how big your friends will get.

Then, once you do, if you decide to actually start a club or put yourself in a position where you’re influential within an existing club or program or network, you’re going to find that more and more people come to you. It really starts to build on its own momentum, and pretty soon you’ve got all kinds of people bringing you opportunities. That’s when it really starts to get fun.

Robert Helms: Absolutely. Before you know it, you’ll be a recognized expert in your space and you’ll gain a lot of friends and a lot of knowledge and hopefully a lot of property along the way.

Hey, big thanks to Scott for sharing his time today. Super excited about this year. We’ve got a lot of great guests and a lot of great shows coming up for you. Until next week, go out and make some equity happen.


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Big Investors Impact on Investing in Single Family Homes

investing in single family homes

Overview

The world of investing in single family homes changed after the Great Recession. Once the sole purview of Mom & Pop investors, today huge hedge funds like Blackstone own tens of thousands of houses.

In this episode, broadcast from the 4th annual Single Family Residential Investment Forum in Scottsdale Arizona, we interview several of the many interesting folks we met there…and discuss how the new level of sophistication is changing the way the single family game is played.

Discussing how the recent changes impact investing in single family homes:

  • Your host who has seen a market change or two, Robert Helms
  • His single family minded, co-host, Russell Gray
  • Managing Director at FirstKey Lending and chair of event panel, Dennis Cisterna
  • SVP of Acquisitions & Underwriting at Patch of Land, Doug Cochrane
  • CEO, Real Wealth Network and Talk Show Host, Kathy Fettke
  • Long time listener and Real Estate Syndicator, Sep Bekam

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(Show Transcript)

Welcome

Robert Helms: Welcome to the Real Estate Guys Radio Program. Lots of ways to invest in real estate. Lots of styles of real estate investing. We’re going to talk today about the basic real estate investment: the single family house. It’s not what it always was. Things are changing, and a lot of great news. We’re at an amazing conference. We’re going to share a lot of guests with you today and a lot of great thoughts today on the Real Estate Guys Radio Program.

Single Family Home Market Changes

Welcome to the Real Estate Guys Radio Show. I’m your host, Robert Helms, from Phoenix, Arizona this week. Let’s say hello to co-host financial strategist Russell Gray.

Russell Gray: Hey, Robert.

Robert Helms: We’re at the Fourth Annual Single Family Rental Investment Conference put on by IMN. This is a group that we’ve been to some conferences of over the years. They do a bunch of great events and a whole bunch of different areas. About half of what they do is in real estate, and then they do continual education for attorneys and all kinds of different great stuff. Very, very interesting event. It’s single-family based. We’re talking about single family assets, but 80% of the room are in suits and ties.

Russell Gray: Yeah, I think obviously the Fourth Annual, right? Single family homes have been around for a very, very, very long time.

Robert Helms: Longer than four years.

Russell Gray: This is the fourth annual. What you see, the first thing you recognize, you talk about the suits and ties, but you just recognize that there has been a major shift in the single family home market. We’ve watched it happen. We went through the meltdown. There was a lot of mom and pop investors in the space in the run up. It was the hot commodity. Everybody and their brother and their mother and their sister was out there buying single family homes, bidding it up to whatever, holding it, hoping that they could sell it a year later for $50,000 or $100,000 more. Of course, we all know what happened.

In the wake of that, the prices dropped. It was a huge correction, to use a Wall Street term, and then a guy named Warren Buffet comes out and goes, “Hey, you know what? If I could go buy 200,000 family homes right now, I would.” The problem is it’s not a well-organized industry. It’s a mom and pop industry. Little by little, companies like Blackstone and big hedge funds aggregated capital, they went out there and painstakingly, property at a time … They were also able to buy groups of properties out of distress, foreclosure, from banks, and buying what they call tapes. Then they get rid of the garbage, they clean up the other stuff, then they get it tenanted, and they hold it for the production of income until some future date in time.

Around this has evolved this entire industry now that is creating software products and analytical products and all kinds of ancillary services so that that portfolio manager who is sitting there on 1,000 properties or 2,000 properties, or in some cases 10 and 20,000 single family properties, has a whole host of services that didn’t exist. Now a conference that is not completely dedicated to that, because there’s a lot of mom and pop investors here, too, but there’s a lot of people here that … Industries that did not even exist 10 years ago to service this particular niche. Of course with the big decline in home ownership in the United States and the big increase in rental, not just the number of renters, but the price that people are willing to pay to rent, it has really attracted a lot of attention.

It’s an interesting place to be, four years into the conference, especially talking to the people that have been here for a little while that are saying, “This is what I’ve seen the changes.” Of course, for us it’s just a point on the curve, but a lot of interesting things here.

Robert Helms: We’re going to meet many of the folks that are speakers and attendees, a lot of listeners that we’ve been able to say hello to here. It’s going to be a great show. You’re going to learn a lot, I’m sure.

You’re tuned to the Real Estate Guys Radio Program. I’m your host, Robert Helms.

Update On The Single Family Rental Industry

Welcome back to the Real Estate Guys Radio Program. We are in Phoenix, Arizona talking single family houses. Let’s say hello to a gentleman who chaired the first event yesterday, Mr. Dennis Cisterna. Dennis, you were the first guy out of the gate yesterday. You had a great panel. You were talking about kind of the big picture of where we are in the single family world. Give us the high notes.

Dennis Cisterna: Sure. We like to start off this event by really covering what’s going on in the macro economy, how that impacts the housing markets, and more particularly, how that impacts the single family rental industry. We cover a lot of the basic topics: GDP growth, employment growth, unemployment, the unemployment rate. There’s a lot of different factors going on right now that are contributing to a greater opportunity within the single family rental industry.

I think if you talk to most people on the street or you read any of the conventional wisdom about the economy, it still feels spongy. People don’t think we’re doing bad, but they certainly don’t think we’re doing good yet.

Robert Helms: Right.

Dennis Cisterna: One of the reasons for that is really the housing market. Although people think it has recovered, there’s really a lot of fragmentation and misinformation in the market right now.

For example, housing starts, building permit issuance is down 75% from the highs of the pre-recession, and about half of what they are historically. If you think about it, the population of the US is much larger now than it was in 1960-

Robert Helms: And increasing.

Dennis Cisterna: And increasing every year, and yet we’re only issuing half a million permits.

You haven’t had a real recovery in the owner occupied mortgage market. Even though the population is growing and growing, and there’s a need for a larger housing stock, we’re not building more homes and most of these people can’t afford or qualify to get a mortgage. You’re seeing some stagnation when it comes to existing home sales and new home sales. When you look at the price appreciation, a lot of it has been fueled by investor demand more than traditional demand from a consumer.

As it relates to the single family industry, it’s not a new market. I know a lot of people read in Bloomberg or the Wall Street Journal that Wall Street is taking over Main Street.

Robert Helms: Right.

Dennis Cisterna: That’s a great headline. There are 15 million single family homes in this country that are rented out right now.

Robert Helms: Okay.

Dennis Cisterna: Less than 200,000 of them are owned by institutional Wall Street firms, 1.3% of the market.

Robert Helms: One of the most amazing slides you showed was the number of people who just own a single house are by far the majority owners.

Dennis Cisterna: That’s right. One owner, one property, one rental property, is 48% of the market. It’s 11 million different people that own one rental property. A lot of that has been financed historically by Fannie Mae, Freddie Mac kind of investor loans, one to four units. What’s also interesting about this is because your audience doesn’t do just single family houses, the larger market considers plex product, duplex, triplex, condo, townhome, all that. When you’re looking at that, the market is actually 22 million homes, so it’s even bigger.

Robert Helms: Wow.

Dennis Cisterna: It is all related to the same. It is taking advantage of a decline in home ownership in the United States, which has steadily gone done since the recession hit. Because of a number of different forces, most economists project it’s going to continue to slide down. It’s kind of a perfect storm for people who want to invest in renters because you have a surging amount of demand. You have increased rental rates. You have a consumer base that can’t buy a home right now.

The personal savings rate in this country is declining so it’s making it harder and harder for people to even come up with the 3% they need for an agency backed loan, never mind 20% if they’re going to get a jumbo loan or nonconforming loan. It’s made a real struggle for people to increase that home ownership rate.

As a result, you’ve seen not only a tremendous amount of demand for rental housing, but some really incredible yields for folks that are investing in the space.

What used to be the norm was, okay, I’d get a Fannie or Freddie loan and I’d buy up to the amount of properties that my personal income allows. One of the real big benefits of the Wall Street firms coming in is they shook up the capital markets here where banks and private equity groups are saying, “Well, I’ll lend on those kind of homes. This seems like a safe bet. We expect housing to continue to appreciate. We expect there to be demand. This feels like a safe asset class to lend on.”

Starting in 2011 and 12 you had companies that started entering the space as lenders, instead of you, the smaller investor, being constrained by your personal income. You’re a dentist, great, if you’re a school teacher, you’re never getting past one investment property. Hence the 11 million people.

As these lenders entered the market, it let you stretch your dollar further. It also, because the debt was reasonably priced, these aren’t hard money loans that people are providing. These are more term loans, five, 10, even 30 year fixed rate loans that are generally priced more affordably than what the yield is on the property so the debt is accretive.

Not only is it letting you stretch your dollar further, but you’re able to get higher leveraged profits on top of that. Instead of buying one property with your $100,000, you’re buying 3 or 4 properties. Instead of making cash on cash return of 11%, you’re making 17%.

I’m sure a lot of your listeners look at all types of different asset classes and different investment objectives. 17% anywhere you’re going is pretty darn good. That doesn’t even factor in the potential appreciation for housing, right?

If you look at where home prices are right now, we’ve kind of righted the ship where pricing right now is kind of where it should have been if it’s been at it’s historical appreciation rate of 3% or so. There’s still a lot of markets that are undervalued.

There is some feeling that eventually the mortgage markets will begin to thaw, and what a great treat that is for someone that’s owning an income property that’s appreciated over time. If they need some additional liquidity they can sell part of their portfolio. It’s really just a very dynamic market right now.

It’s not really different than what happened in the, speaking of other asset classes, self-storage, multifamily, just normal big apartments. In the 1960s, the numbers weren’t that dissimilar. There was one owner, one apartment complex, that’s it. It wasn’t until REITs started being formed and people started aggregating we started to see the scale.

The good news is this industry’s taking off a lot of the efficiencies that those sectors have already created, so you’re seeing the maturity of this market happen at a pace I haven’t seen with any other asset class.

Because of the sheer size of it, 22 million units, there is opportunity out there whether you live in California or Texas or Florida or New York. You just have to be diligent about what you’re doing, as you should with any kind of investment.

Robert Helms: Whether you’re interested in acquiring two or 300 houses or just a couple of houses.

A Look at FirstKey Lending

Dennis Cisterna: That’s right. It’s been really interesting for me at FirstKey Lending, we’re one of the specialty finance companies in this space that we were created to help the smaller and middle market investors grow. I’m never going to have one of these publicly traded companies come to me because they can go directly to Wall Street and get their own bonds issued.

Robert Helms: Sure.

investing in single family homes with firstkey lending

Dennis Cisterna: But, a guy comes to us with five properties and he wants to own 50? Great. We’re going to provide him the leverage to increase his liquidity to keep buying more houses. There’s other lenders that do that same thing.

It’s really interesting. We’ve only been around for about three years. We’ve done a little over a billion dollars worth of loans over that time. The smallest loan we’ve done is one property, $75,000, and the biggest loan we’ve done is an acquisition line for over 100 million.

It’s really interesting when you have a good operator, a good investor. Once you unlock the power of debt, and again, reasonably priced debt with good terms, it’s amazing how quickly they’re able to scale their company.

I think if you took a survey of these big Wall Street guys, these guys must be the most efficient operators of all, they have the scalability. There should be economies of scale. I could bring out a parade of midsize investors that own between 50 and 500 homes and they blow those yields through the roof.

Robert Helms: That’s one of the recurring themes here, right? We’re seeing these mid-level guys. There were folks who have 3000 houses, 200 houses, all over the map. A lot of folks looking to get more, right? That’s a big theme here. You don’t see … There’s a lot more acquisition than you see divestitures it seems right now.

The Current Status of Financing

Robert Helms: The person that you deal with on a lending basis is a pretty wide range. It’s not just any one type of investor. Financing is critical for single family homes. We heard folks on different various panels who were putting together portfolios for cash, but our typical investor, listener, is probably somebody who wants to use leverage. The way that loans have changed over the last several years has been crazy. There’s so many changes, regulations, and so forth. What do you see? Is there going to be more availability of financing? On your panel there was the talk about nobody can qualify. What’s that look like?

Dennis Cisterna: Those are really two different types of lending, right? Getting an owner-occupied mortgage for the house you want to live in, that’s consumer financing, and that is the most regulated industry you could think about. I don’t do that personally. FirstKey doesn’t originate-

Robert Helms: That explains why you still have hair.

Dennis Cisterna: Right.

That industry is a tough nut to crack. If you look at a lot of what’s going on in that industry, it’s ripe for disruption. You’ve probably read a decent amount about these venture capital online crowdfunding kind of places where you apply in 15 minutes and you get your loan.

Getting any kind of consumer loan and following all the rules, there are not loans like that that take 15 minutes. That being said, what they do is they look at the qualifying metrics of a borrower much different. Whereas if you are going through a traditional mortgage for a home you want to buy, they’re looking at your income, your taxes for the last couple years.

They’re looking at your credit score. It doesn’t matter if you had one blip on your radar. The recession damaged the credit score for millions upon millions of people. There are a great percentage of those people that have then rectified. They haven’t missed a payment on anything since then. They just … The economy collapsed. There’s not much you can do, so why take these people out of the ball game?

Some of these new lenders in the space are saying, “This guy’s got a good job, he makes a lot of money, he can afford this mortgage. He’s paying this much in rent, if not more, already. Why not give this guy a reasonably priced loan?” That’s happening in the market right now. I think it’ll continue to happen.

With that side of the space you’re going to need the old guards of traditional mortgage finance to kind of pick up on the technology slant and pick up on a new way of underwriting their borrowers. The tried and true method obviously didn’t work before because everything still exploded anyway.

When it comes to these investor loans, these are business purpose loans, right? They’re not subject to the same amount of regulation that a traditional mortgage for an owner occupied unit would be. The big difference is, if any of your listeners before have done a Fannie or Freddie investor loan, it’s really all about the income of you as the borrower, not anything about the property. It’s silly when you’re buying an income producing property to not consider that.

One of the things that FirstKey has done, whether you’re the borrower of one property or 1,000 properties, we’re looking at the income on the property level. Of course we want you to be a respectable, solvent, smart business person, but we don’t expect everyone to be a multi-millionaire that wants to borrow to expand their real estate portfolio. Because we’re looking at the income of the property, then that goes back to, “Well, you need to become an efficient operator.”

Opportunity for Investing in the Single Family Homes Market

Dennis Cisterna: What’s great about this market is because it’s so fragmented right now, the yields are there. There’s the benefit of the technological advances in property management and rent collection.

Ten years ago there was only one way to collect rent, and that was by banging on the guy’s door for a check if he didn’t pay. Now, one of the big advancements that you’ve seen on the multifamily sector that certain operators are using on the single family side is, “Well, we’re going to do ACH debit and automatic payment with our tenants.” A. It’s less work for them. B. It reduces our collection loss tremendously.

This is all about effecting the bottom line, right? Even if you buy something at the right price, you want to make your yields even better by being a better operator. There are so many tools available to the average investor that weren’t there just two or three years ago.

This industry is piggybacking off all the work the multifamily sector has done. It’s piggybacking off all the work the big Wall Street guys have done when they acme into play. It’s basically rolling downhill for all the individual investors. They’re getting the benefit of technology, capital markets. It’s really interesting what’s going on in this sector right now.

I myself am an investor as well, right? Even though I do these loans, I’ve studied the housing markets for 15 years, and I haven’t really seen this kind of an opportunity for investors, big or small.

I think those don’t come along very often. If you had a ton of capital when the recession came, yes, you could have made a ton of money. If you were like most people, you were scrapping together and you didn’t know what to do. Now, with the advent of attractive financing and the fact that you’ve had appreciations in certain markets and still more room to grow, as well as increasing rents. That’s another great thing about it. Because there’s so much demand for rental properties, it keeps pushing rents up in a lot of different markets. It’s really an attractive space right now, and we’re still in the second inning of it.

Robert Helms: Yeah. All right, good stuff. I know we’re going to have folks that are interested in finding out how they can get ahold of you guys and learn more about your loan programs. What’s the easiest way to do that, Dennis?

Dennis Cisterna: The easiest way is to visit our website, which is FirstKeyLending.com. F-I-R-S-T K-E-Y lending dot com.

Robert Helms: All right, good stuff. Thanks for your time and a great contribution to the conference.

Dennis Cisterna: Thanks so much, appreciate it.

Robert Helms: You’re tuned to the Real Estate Guys Radio Program. More when we come back from Phoenix, Arizona. I’m your host, Robert Helms.

Crowdfunding with Patch Of Land

Robert Helms: Welcome back to the show. I’m your host, Robert Helms. We’re talking single family investment and very happy to have Doug Cochrane with us from Patch of Land. How are you, sir?

Doug Cochrane: I’m doing well. Thanks for having me on, Robert.

Investing in single family homes with patch of land crowdfunding

Robert Helms: Absolutely. Let’s talk about what you guys do. We’ve spent some time in the last couple weeks talking about crowdfunding and in fact you are hot and heavy into that. Tell us about Patch of Land.

Doug Cochrane: Sure. We are a real estate crowdfunding company that deals strictly with debt. There’s other companies out there that work in equity. We’re strictly a debt lender. We’re nationwide. We work with developers around the country, anything from single family homes, multifamily homes, hotels, all sorts of asset classes in the commercial range as well.

Robert Helms: This is fascinating because a lot of portals out there are all about a deal that gets split into pieces and investors can invest in it. What you guys do is pretty unique, though. You provide funding to a developer, to a syndicator, to put together a deal, and then you go out and piecemeal out the debt. Is that a way to explain it?

Doug Cochrane: Yeah, that’s a way to explain it. What we do, the elevator speech is we originate the loans, we underwrite them in house, and then we pre-fund the deal, meaning that we bring our own money into the deal, so we can get to the closing table quickly and so our borrowers can get on with their projects. Then what we do is we open it up to the crowd.

We put it up on our site, we give it a full property profile, the borrower profile. We’re very transparent. We put up everything on the site so that our investors, our accredited investors, who are our crowd, they come in, they can read about the project, see if that’s something that they want to add into their portfolio. It’s fractionalized. We have anything from one guy might take out the whole deal or we might have 20 or 30 people who put in smaller pieces.

Robert Helms: Of course you’ve already done all the underwriting, so you have the reports, disclosures, information about the property and I would also imagine, the sponsor.

Doug Cochrane: Exactly. What we do and part of the pre-funding that’s a benefit to both our borrowers and our investors is we’re willing to put our own money into the deal. Even if our crowd decides not to fill up the deal, we’re still confident of the project. We’ve done our underwriting and our due diligence, and we believe in the property and the sponsor that we’re willing to keep our own money into the deal as well.

Details of the Loans thru Patch of Land

Robert Helms: Let’s talk about, there’s kind of two angles of this. One is, “I’m a accredited investor. I want to put money at work. You guys have vetted deals. I’d like to be on the lending side. I could diversify by product type and market by investing in several deals.” What does it look like from that investor’s perspective? How do they sign up for the sight? What is it that they do? What are the minimums and range of investment and that kind of stuff?

Doug Cochrane: Sure. Our minimum per deal is $5,000. Typical loan size, we have a minimum loan amount that we do is $100,000. We go up to about 10 million. I think our biggest deal so far has been about 3.2 million on a hotel.

To get involved, I encourage everybody to go to the site, PatchofLand.com. Sign up as an investor if you’re an investor. Fill out some forms. Somebody from our IR team will contact them and bring you through the process. We ensure that everybody is accredited before they can invest in a project. If you’re a borrower, the same thing. You go to our site, you fill out a simple form, a loan officer will contact you and get you through the process and get you to the closing table as quickly as possible.

Robert Helms: What some of the critics say about crowdfunding is a lot of the deals don’t happen. In this case, the deal has happened. You guys have already funded it. It’s not a matter of, “I pledge $5,000 or $100,000 if the loan happens.” It’s already happened. I guess by the time that they see it on your site, it’s a done deal.

Doug Cochrane: It’s a done deal. The minute that they invest in the project, their money is working right away. We pay out dividends every month. They’re based off of borrower payment dependent notes. The second that you’re investing, your money’s at work.

Robert Helms: Can people invest with their IRAs?

Doug Cochrane: Yes.

Robert Helms: Okay. That’s pretty common today that people with self directed IRAs are looking for this kind of investment.

Doug Cochrane: Exactly.

Robert Helms: Let’s talk about the timeline. What’s the typical underwriting look like for on the developer side? I come to you with a project. I’m looking for funding. What’s that time period like?

Doug Cochrane: On the residential side, one to fours, we can typically close a loan within two weeks. We move pretty quickly. We’ve done it in five days, which is moving boulders. Honestly for our developers, the guys who are really organized and professional, those are the ones that we can get done very quickly. They know what they’re doing and it’s a pretty simple process.

Robert Helms: How does the loan compare on a competitive basis with some other loan they might get from a local bank or a lender?

Doug Cochrane: It’s very competitive. We, again, we’re a nationwide lender and we stay competitive within regions. Different regions have different pricing scales. Loans are priced based on the inherent risks, LTVs and experience and where it’s located, is it judicial, non-judicial. We have a whole proprietary scoring model when we’re pricing out loans that take into account all these different data points. We’re very competitive in that respect.

For our borrowers, our borrowers are guys who are getting great deals. Part of getting a great deal is being able to move quickly. That’s part of our biggest benefit is, like I said, we were able to close a deal in five days, which was pretty impressive and got us a borrower for life I think.

Robert Helms: Oh, wow. That’s awesome.

Doug Cochrane: On our commercial deals, we typically can close those out in about three to four weeks. They take a little longer. It’s a little more intense.

Robert Helms: What kind of loan to values?

Doug Cochrane: Loan to values on commercial deals it’s typically about 65%, maybe 70, depending on mitigating circumstances. On the residential side of things, if it’s a straight purchase, no renovations, typically about 75%. If there’s renovations involved, which is most of the time, it’s the majority of the kind of deals that we do, we look at a combined loan to value of 80%. What we’ll do is we’ll help finance the purchase of the property and the renovations as well.

Robert Helms: If you are looking at a deal and it’s passed muster for you guys, you make the loan, now you go out and look for the crowd. How long does it typically take for a loan to fund?

Doug Cochrane: That’s a great question. We’ve had loans … Our fastest loan filled up in about nine minutes.

Robert Helms: Okay, that’s pretty fast.

Doug Cochrane: I think that was about $200, $250,000 loan. Our average loan size is about 375. On average our loans close out in about 24 hours. For the larger ones it might take a little longer. Maybe a week.

Robert Helms: What kind of terms are these loans. Is this long-term financing? Is it more construction financing? Or is it all of the above?

Doug Cochrane: It’s short-term, typically 12 months. Interest only, no pre-paid penalties. We can go out as far as 18 months. We work with our developers. If we know that the renovation’s going to take a little bit longer, it’s up in Minnesota, it’s up in the northern regions and it’s wintertime, we kind of help take that into consideration that they might need a little extra time. We’ll give them an 18 month loan. We’re not trying to restrict anyone in their deals. We’re trying to work with our borrowers and individual circumstances. For the most part they’re 12 month, interest only, no pre-paid penalties.

Robert Helms: Doug, let’s talk geography. What kind of range of area do you guys work in?

Doug Cochrane: We’re nationwide. We’re currently in 20 states. We’re always looking to open up a new state. We have a high concentration in, I’d say, New Jersey, North Carolina, Florida, California. We’re, like I said, I Chicago. We do definitely like the Chicago area a lot as well, or I guess our borrowers like us there.

Robert Helms: All right, so whether or not you’re looking for a loan or you’re looking to invest in part of a loan, just go to the website at PatchofLand.com.

Doug Cochrane: Exactly.

Robert Helms: All right, good stuff. Thanks, Doug. Appreciate it.

Doug Cochrane: Thank you, Robert. Thanks for having me on.

Robert Helms: You’re tuned to the Real Estate Guys Radio Program. More when we come back from Phoenix, Arizona. I’m your host, Robert Helms.

Talking Single Family Home History with Kathy Fettke

Welcome back to the Real Estate Guys Radio Program. We’re talking single family houses. We’re in Phoenix, Arizona at the IMN Single Family Rental Investment Forum, and it’s a great pleasure to say hello to a long-term friend and fellow broadcaster, the amazing Kathy Fettke is with us. Hi, Kathy.

Kathy Fettke: Hi.

Robert Helms: It’s been too long.

Kathy Fettke: It has been way too long. It’s so fun to see you here at this amazing conference.

Robert Helms: Absolutely. We like to say that you’re one of the good gals out there educating and sharing ideas and all that kind of stuff. How long have you had your radio show.

Kathy Fettke: So long, it feels like. I started in, I think, 2000.

investing in single family homes - interview with kathy fettke from real wealth network

Robert Helms: Okay, so been doing it quite a while. Tell us today what you see as opportunity in the marketplace and what are you sharing with your students.

Kathy Fettke: I’m really just excited to see that I’m right. I’m around, we’re sitting here with these, the largest institutional investors in the world right here at this event and they’re copying us.

Robert Helms: Isn’t that something?

Kathy Fettke: Isn’t that interesting? Everything that comes out of their mouth, I think you and I said first. Don’t you think?

Robert Helms: Yeah, that’s pretty funny that that’s the case.

Kathy Fettke: Do you think they listen to us?

Robert Helms: I’m guessing maybe so. What’s funny, I don’t know if you track your broadcast listenership, we learned that our number one listener market is Washington DC.

Kathy Fettke: They are listening.

Robert Helms: I never would have guessed that, but I think maybe they are listening. It is, it’s validation.

Kathy Fettke: Yeah.

Robert Helms: Ten years ago a conference like this wouldn’t be attended by so many suits and ties, right?

Kathy Fettke: Of course, it would be mom and pops.

Robert Helms: It is very interesting the first day one of the slides was up it was the majority of single family homes are owned by mom and pops, by a person who owns one rental house.

Kathy Fettke: Right, right.

Robert Helms: There aren’t that many big institutions, but there’s more and more.

Kathy Fettke: It’s very interesting to see how they’re trying to make this into an industry, and they’re here to stay. Probably the biggest thing I got from this event is that they see the rental market growing, which you and I both know is happening.

All the reasons and the data behind that why people are leaning towards renting or they just can’t buy, although I’m going to constantly be encouraging them to do it. They should be buying. That is just an incredible … I thought we had the best opportunity in 2008, 2009, and I, you know, sometimes wish we could turn back the clock. Then to see these big players jumping in now? You got to know it’s not too late.

Robert Helms: Right, exactly.

Kathy Fettke: I remember when I first got into real estate, I would look at people who bought long ago and be a little jealous, you know. Just a little envious. You got in at the right time. You know, the same thing in looking back at 2009. It’s like, you could buy a house in Riverside for $65,0000. Why didn’t I buy 1,000?

Again, to see so much hype over what you and I and many of our listeners have been doing forever is really interesting. I’m a little fearful, tiny bit, that they’re going to just completely take it over. But like you said, nah, that can’t happen.

Robert Helms: Well yeah. A couple things that have happened about that, right? The first big groups that came in after the carnage and bought stuff in a lot of the markets that we have experience in, we thought that was going to be a game changer. It was for a little while.

To me, this new crop of folks seems to be a little better funded, a little more sophisticated. They’re buying better. They are taking some of the things that you’ve been teaching for a long time and following that, where before it was just hot money chasing whatever deals. Because the pricing was low, and we’ve had now home price appreciation, then it looks like they did well.

Today it seems like you’ve got to still sharpen your pencil. You’ve got to be careful of market selection. You’ve certainly got to be careful of tenant screening. All the basics of our business. It’s going to continue to be important.

Kathy Fettke: What I love about what I’m seeing here is it really truly is turning into a viable industry. I just walked down the aisles and you’ve got all these companies who are wanting to profit on this new thing. You’ve got these carpet companies that are offering cheaper discounts, and roofing and so forth.

In some ways I think it will become easier for the mom and pop, because they’ll just be better property managers out there and they’ll be better screening process and there’s all this software’s out there now that’s helping us do our research more. I think for me, again, it’s just really interesting to see. I feel a little old. Like, “Back in the day we used to have to do all this ourselves.” It’s becoming institutionalized.

Robert Helms: You know some of these … One of the panels yesterday where the eldest company was touting the fact that we were formed way back in 2008. Oh, wow, since the dawn of time. We had real estate before that, right?

It is changed. The very nature of the single family asset class now is different. A tenanted house is a different asset than an empty house, than an owner occupied house. Even though you’ve got multiple exit strategies, it’s one of the strengths of single family, and on our show we spend a lot more time on broader economics and we look at a lot of different stuff. We don’t spend as much time on single family as we certainly used to. This has been a really great thing for us to get our minds back into the single family home space.

Kathy Fettke: Yeah, I bet. Some of the most brilliant minds are here. Hearing their enthusiasm … Just hearing them talk about the stuff we have been, or at least I for sure have been talking about for years, which is cash flow, cash flow, cash flow, and then to have them basically say the market only wants cash flow, they don’t even care about the equity.

There doesn’t seem to be value on it on the market. They’re just trying to build these cash flow portfolios that then they can sell, which is kind of … I know there’s an appetite on Wall Street for that in anything. The software companies, the friends I know who own software companies, they’re just looking to create the membership sites and so forth. It’s all about cash flow. Again, it’s such an opportunity now to hopefully maybe even train the tenant. As standards rise, tenants may not be able to get away with some of the things they’ve been doing.

Robert Helms: Yeah. In the age of information, more information available than ever, even the whole tenant screening process has changed.

I remember certainly right after the big ugliness of the crash, your tenant had no credit score. You could no longer even use, it was no longer valid to even ask because everyone had lost a home, lost a job, lost their credit. Today they’re looking at different things, technology. Just walk into the exhibit hall here, all kinds of ways to make our lives easier as investors. That’s exciting.

Kathy Fettke: Yeah.

Robert Helms: At the same time, any time the big boys and girls start to get in it does make you pause and go, “Hmm, I was in the right place but can I maintain my edge?”

Your listeners, our listeners, can be very nimble. They can move quicker. That’s the other thing. The bigger the industry gets, the more there are chances to exploit those little unique opportunities, some of the smaller markets that you might favor as opposed to a larger market and looking for where there is opportunities, the market shifts. It changes. Today’s great market wasn’t great 10 years ago necessarily.

Kathy Fettke: No, no. Again, that’s how I got started. That’s again why I find this all really fascinating because back in 2004, 2005, I was doing loans. No matter what the headline news said, no matter what the chief economist of whatever came out with, I knew something was wrong. None of it made sense.

What was the book? There’s No Housing Bubble? That came out from David Lee Ray from NAR came out. I forget what it was, but basically saying there’s no housing boom. He came out with it in 2006. These top economists were saying one thing, but your gut, all you had to do was listen to your gut and say, “Why can I give someone up to five million dollars, a NINA loan, no income, no assets? Who would do that?”

Robert Helms: Something has to be wrong here.

Kathy Fettke: Who sat in a board room in a suit going, “This is a good idea. Let’s just give money away to anyone.”

Robert Helms: Of course now we know how that turned out.

Kathy Fettke: Right.

Robert Helms: Yet it does seem like there’s liquidity back in the lending side of the business again. We’re starting, I don’t know if it’s the same path or not. Don’t have a crystal ball. There was a period of time where you couldn’t get a loan and now there is.

What’s really interesting, I’ve discovered it here, I don’t know if you’ve seen it, but the lenders that are showing up that are specifically lending to investors, not any interest in loaning to an owner occupant, they’re just investor lenders from one to 100 units. That’s pretty good stuff.

Kathy Fettke: Yeah, it’s amazing. Back then when I was seeing the problem and we knew that there was, that California was over inflated, I got to have Robert Kiyosaki on the show and just like you and some people who had been around enough to know that something was wrong. They weren’t listening to the economists either. They were the ones that told me they were investing in Dallas.

We rapidly urged people to sell, sell, sell California and exchange it for Texas. I can’t tell you, you probably experienced this too, how many people would look down their nose at me and say, “Nothing happens in Texas.”

Robert Helms: Right.

Kathy Fettke: I’m going, “Maybe that’s a good thing, because something is about to happen here.”

Robert Helms: All the markets that were the high run of markets were the worst when it came to the exits and Texas was pretty slow and steady. Today there are Texas markets appreciating 12 and 15% a year. Is it time to be wary of Texas? I don’t know.

Tell us how we can listen to the podcast and get involved with the Real Wealth network.

Kathy Fettke: Wonderful. You can look at RealWealthShow.com or Real Wealth Show on iTunes, and then Real Wealth Network is how you find us. Membership is free and we just do a lot of education on how to be a smart real estate investor.

Robert Helms: That’s what we love about you.

Kathy Fettke: Yeah, thanks.

Robert Helms: Thanks for being on the show.

Kathy Fettke: Thanks so much.

Robert Helms: There’s Kathy Fettke. More when we come back. I am your host Robert Helms. We’re the Real Estate Guys.

Listener Guest and Real Estate Syndicator, Sep Bekam

Welcome back to the Real Estate Guys Radio Program. We’re in Phoenix, Arizona this week at the single family expo. This has been a pretty amazing event and one of the greatest things for us is when we run into listeners. Let’s welcome one of our long-term listeners and successful students, Sep Bekam. How are you, Sep?

Sep: Good, Robert. How are you?

real estate syndicator, sep bekam

Robert Helms: I’m great. First of all, thanks for reminding us about this event. I had been to a couple of the IMN shows over the years and I’ve been on their mailing list, but you reached out and said, “You guys ought to consider coming to this.” This has been a great event.

Sep: Yeah, glad to hear that.

Robert Helms: Let’s talk about your story a little bit. I think when we first met you were still active as an engineer and you got the real estate bug. Tell us your story.

Sep: Sure. So I am a long-time listener. I’ve been listening to you guys since, I think it was 2010. Bought a couple properties, just two four-plexes and came to the first syndication event that was in 2011.

Since then, with the tools that you guys have provided me and taught me over the years, I’ve been able to scale that up. I quit the rat race last year and I’ve been focusing primarily on multifamily syndication. Most of the properties were taking what you guys taught me and putting that into real life.

The challenge has been, multifamily has been, the cap rates have gone down quite a bit. There’s a lot more competition. Russ talks about a lot of the, even foreign capital has just wanting to be in US dollars. It’s hard to find the yields that my investors are used to with that asset class. I came across the IMN events through some mutual friends, also Real Estate Guys listeners, and focusing more on syndicating these portfolio-type deals.

Transitioning from Investor to Syndicator

Robert Helms: Let’s talk about this transition that you made from investing in your own account to now going out and raising money to invest. That’s a big jump for a lot of people. Take us through what that was like.

Sep: Sure. You hear a lot of success stories where everything goes right the first time, where the properties cash flow automatically. My experience was very different.

It took me two years to get my first, actually all the properties I had at the time, to cash flow. To date, I’ve gone through about 10 property management companies and I’m still a firm believer in using third party property management.

All the challenges that I had with the evictions and not being able to produce the income, it was always an owner problem. It was not having the right team managing that asset. You guys are really big in terms of having those systems in place and treating real estate like a business and not about the properties.

Along the way, as I was able to solve those problems with having the right team, that I’m thankful for, I’ve communicated that with my investors and I think they actually feel more secure in being a part of that type of pool of capital for a deal. They don’t have to go mistakes their own. They can leverage my experience and know there’s a good steward at the ship to protect their capital.

Robert Helms: It’s such a good point. People want to invest with someone who’s been there and seen that. Everyone wants to think we have a good track record, but the lessons you learn when things don’t go well make you a better manager as things get better, right?

It’s not about not making mistakes. It’s about learning from the things that go wrong. You’re a great student. I know that because you keep coming back and you put into practice what you learn, which is rare but necessary to be successful.

We were talking earlier today with some folks about how when the market changes you need to correct your strategy. You give a great example of that.

Multifamily makes sense for a lot of reasons, but right now where we sit, it’s hard to get inventory, the cap rates are compressed, the big guys are chasing the little guys out of the room.

Let’s talk about the single family market. That’s an interesting market. We’re starting to see the opposite effect having, where bigger money’s coming into the single family space. We’ve been talking about that here at this event for a couple days. What are your take always, your epiphanies, from what you’ve been learning in the last couple days here?

Sep: Sure. In essence, the hedge fund and these REITS got into buying these thousands and thousands of properties back during the recession when the, if I can phrase it as, there was blood on the streets at the time. They were taking advantage of the opportunity and they kind of created that space.

Before the notion, including myself, was that single family, well, you can only do 10 properties and then from there you have to go on to … you ran out of Fannie and Freddie type financing. Now there’s actually lenders that step in to fill in the void. There’s not really a cap on how many single families you can have.

In terms of thinking about the forward economy, if we’re buying a property, multifamily property at a compressed cap rate, that’s a speculation if we’re expecting that same property to have that same cap rate three years from now, five years from now. I think it’s safer to be in an asset class where the rents are still inelastic but the numbers make sense from the get go. You don’t have as much competition in there.

It’s really interesting in these panels at the conference where the REITs and these large fund managers are talking about the same concepts and ideas that you and Russ talk about on your podcast.

A couple years ago this was foreign concept to me. With you guys’ training and teaching it kind of opened my mind to that. I can see what they’re saying. They’re concerned about the same thing, slower wage growth. They’re going more for those markets where it makes sense at the get go.

Robert Helms: Yep, and it is a changing platform, right? We see the various asset classes within real estate change, fall in and out of favor. As an investor you got to be nimble.

I think one of the big things that people get stuck on is our motto, “Education for Effective Action.” You’re a guy that’s taken action. What would you say to a listener out there as a word of encouragement. You’ve worked hard and we’ve watched you really take the lessons and sharpen your pencil and study and take a lot of classes.

You’ve now gotten to the place where you’ve got a nice portfolio, things are going well. What would you say to that investor who’s not there yet?

Sep: I think it’s better to invest in themselves, for them to invest in their own education. Even after I went through your guys’ trainings, as I continue to do so, the properties I first started out with, I probably wouldn’t have bought them with the extra tools that I have on my tool belt now.

It’s powerful because then you learn that you’re not competing for properties on the MLS. You can find those great off market deals. You can set up systems in place so that those deals come to you automatically. You don’t need to put 25% down in every deal. You can go raise that capital from investors and have the capital waiting for you over there.

I think the education is definitely necessary, especially if you’re shy like me and sales doesn’t come naturally. If you’re afraid about making mistakes, I think those are definitely the people that should be in the business, because there’s a lot of sharks out there, but there’s definitely a need for people that actually want to protect their investor’s capital and grow that.

Robert Helms: All right, good stuff. We’ve got, of course, our syndication event coming up in January. Are we going to see you again at that one?

Sep: Absolutely.

Robert Helms: All right. Sep has been I think to virtually every syndication event we’ve done. It’s happening January 29th and 30th in Phoenix, Arizona. Come on out. You’ll have a great time and you get to hang out with Sep, as well. Appreciate your time today, man.

Sep: Thank you very much, Robert.

Robert Helms: Keep doing the thing.

Show Recap & How Sophistication in the Industry Affects Investing in Single Family Homes

A wonderful time here in Phoenix, Arizona. What a great variety of folks we’ve had on the show today.

Russell Gray: Yeah, it’s been great. It’s really interesting to see some old, familiar faces. It’s always great when listeners, you guys are out there in the audience, any time you come to a live event, please come see us. Say hello.

Robert Helms: It’s our favorite thing.

Russell Gray: It’s a lot of fun because we get a chance to hear how people are responding to the stuff we’re sticking out here on the radio and on the podcast and the newsletter and the blogs and all that. We really appreciate the feedback, good, bad, and ugly. All of that’s good.

Just as far as the conference itself, you know you heard that there’s just a lot of different people here that are viewing this asset class from different lenses. There’s so much opportunity because there’s so much change.

I think the big issue is going to be for people who just don’t acknowledge that the change is happening. We spend a lot of time on some of the macroeconomic factors. We talk about even some geopolitical factors on the show. We certainly talk about demographic factors, there’s geographic factors. Add to that mix now some technological factors and some business factors.

There’s a whole level of sophistication coming into this industry that really didn’t exist before. When you have that it does tighten the margins. You can’t just be a sloppy little operator out there competing against these big, well-oiled machines that are run by corporate executives that are savvy operationally.

You’re going to have to compete against that, and they’re going to be able to bid. We’ve heard a lot of the complaints over the years from the operators out there that are bidding, “Oh, these hedge funds are bidding it up to where it doesn’t make any sense.” Well, it doesn’t make any sense based on your operational cost. They can go in and they can buy an inefficient asset and they can make it efficient.

All of a sudden, a price that didn’t make sense for you can make sense for them. If you don’t adjust, if you don’t take advantage of some of these innovations and tools yourself, then you’re going to end up getting squeezed out of the market completely.

Robert Helms: Here’s the great news. Because those kinds of folks are in the marketplace, and vendors are sprouting up to support them, the fact that there are so many different non-owner-occupant lending opportunities out there today … You can borrow property now. The Fannie and Freddie stop is no longer there because of that. That’s all happened to serve these folks, and you get to be the beneficiary of it.

If it had just been mom and pops, the lenders that are popping up today, several of which are on this conference, wouldn’t be here. They’re in the business to service the guy with 500 or 1000 homes, but you get to benefit from that. Same with software, same with systems, same with buying power. A lot of the tools out there today, we get to take advantage of. The thing the individual investor can be is a lot more nimble.

Russell Gray: I think just coming back to that debt comment, which is an important one, a lot of times as real estate investors we only ever think about equity. It’s all we think about.

We think, “Okay, we’re going to buy the property. We’re going to be the owner.” We’re on the equity side of things. There are a lot of people who want to invest in the space that don’t want to be the equity. Their investment is to make the loan. That’s a great partnership.

Yes, they’re there to service from an equity perspective. Of course, you’re an equity guy, so you would do that. I came out of the debt side, right? Yes, you want to service, but really what you want to do is you want to get yourself in a position to get a stream of income.

As a real estate investor I’m going to go out there, I’m going to make a down payment. I’m going to take out a loan. I’m going to now receive a stream of income through the rental income. Then I’m going to service the mortgage.

The piece of this rental income stream that the lender gets is just the debt service. I get the difference between the profit, or the income on the property and the loan. Of course that’s what I’m doing is arbitraging. If I can borrow at five and earn at eight, then I make a 3% spread on the borrowed money, right?

The point is, it’s a symbiotic relationship. There are many people who want to feed on the single family home space at an institutional level. When that happens, lots of money becomes available. That means there’s lots of opportunity for people to access those funds, because the people on the debt side need you, on the equity side, to manage the asset because they don’t want to.

Robert Helms: All right. Big thanks to IMN. You can find out what they do at IMN.org. Lots of conferences in lots of places. Of course, to all the guests today, thanks for their time and expertise. Until next week, go out and make some equity happen.


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