Build A Portfolio Of Seller Financing Cash Flow With Nick Disney

The REI Diamonds Show - Daniel Breslin | Nick Disney | Seller Financing

 

Guest: Nick Disney is the founder of Sell My San Antonio House. His company specializes in flipping houses to owner occupants using seller financing.

 

Big Idea: Instead of selling conventionally using bank financing and real estate agents, Nick sells directly to his owner-occupant buyers and provides seller financing. These 10%+ interest-bearing notes are then sold off to investors who enjoy 30 years of payments, receiving 3.4 times their original investment.

 

This episode is also sponsored by Lending Home. Lending Home offers reliable & low-cost fix & flip loans with interest rates as low as 9.25%. Buy & hold loans offered even lower. Get a FREE iPad when you close your first deal by registering here now.

 

Resources mentioned in this episode:

Sell My San Antonio House

 

View the episode description & transcript here:

Build a Portfolio of Seller Financing Cash Flow with Nick Disney – REI Diamonds

 

Nick & I Discuss Seller Financing:

Creating a Legal Seller Financed Transaction

Underwriting the Borrower

How to “Refi” your note after purchase

Long-term Cash Flow without Tenant & Repair Headaches

 

Relevant Episodes: (200+ Content-Packed Interviews in Total)

Buying Mortgage Notes Generates 15% + Returns with Brian Lauchner

Dave Van Horn on The Process of Investing in Notes

100+ Unit Apartment Syndication with Stephanie Walter

Watch the Episode here

 

Listen to the Podcast here

 

Build A Portfolio Of Seller Financing Cash Flow With Nick Disney

Nick Disney, welcome to The REI Diamonds Show. How are you doing?

I’m doing great. I appreciate you having me.

For sure. I’m in Chicago. I’ll be heading to Florida in January. I just got back from the Bahamas. The cold weather is here now in Chicago. Location stamping for the audience. Where are you right now?

San Antonio, Texas. We don’t do cold weather. We shut down the whole city. We’re not built for it. It’s nice here. It’s down 60. We’re pretty chilly.

From Real Estate Beginnings To A Proven Business Model

For those who may not know who you are, you have a pretty strong Instagram following. You put out a lot of content there. They may want to check that out. Would you mind giving us a short synopsis of the development of your career and then what the business model looks like?

 

The REI Diamonds Show - Daniel Breslin | Nick Disney | Seller Financing

 

I’m a single-family real estate investor in San Antonio, Texas. That’s 99% of our business. We started buying, wholesaling, and some flips. We started building the rental portfolio. Now it has transitioned into buying, rehabbing, and selling with owner finance. We want to sell the property and create a promissory note, which is our preferred method to produce long-term cashflow. We create notes. We keep some of them, and we sell some of those notes to other folks who want to buy the payment stream on the back end.

Business Models And Mortgage Lending Laws

I have a friend. He was a guest on the show five years ago, maybe before he even started doing this. Dan Sadowski. He’s out of Delaware. A lot of locals in Philly probably know the name. He put this business model together and never took his course, never went to his networking event or the little seminars he did. He’s moved on to developing resorts or something like that at this point.

The basis of his strategy seemed sound to me. I’m like, that would be great. Sell it off and hold the note. Here’s where I always got stumped. I’m hoping you can get this cleared off the table right from the beginning, the mortgage lending laws. Selling it on, and I held paper on two deals, had to foreclose on both of them and got a pretty big payout in terms of the size of the loan from bailouts. It was foreclosure bailout grants they got.

I’m like, that was enough. I’m not even going to bother chasing them for the other $5,000 or whatever. If they call one day, I’ll give them a payoff and release it. If not, it is what it is. The thing that had me worried that I would lose sleep at night is I don’t want to violate federal mortgage laws by creating too many notes. Maybe you have some insight on what those guidelines are and maybe how you could get around that.

They do change, like your national law, and there are some state laws. The biggest key that I would tell anybody to get started is we run everything through an RMLO, residential mortgage loan originator. We have one, and I’m sure there’s one local to wherever you’re at. They specialize in creating seller finance notes. They’re all licensed, and they know all of the rules, and they are very good at helping you follow all the rules. If you follow all the rules, document everything appropriately, and operate your business as you should operate it, it has not been an issue for us at all.

Seller finance is probably more popular in Texas than almost any other state. Some people do it all over. Creating too many hasn’t been a problem. Where people have run into problems is when they were doing different than directly selling it. If we sell a house, you buy it. We’re going to have a mortgage note, deed of trust, we’re going to give you the deed. You own it. We don’t do lease options.

We don’t do rent-to-own. We don’t do any of those types of creative strategies. Not to say that there’s anything wrong with it. We directly sell them, and then we’re collecting a principal and interest payment. I would not let that deter you or any of you from doing it. If that’s what they want to do, make sure that you have the right people watching out for you.

You Google RMLO mortgage loan. Are they servicing companies, Nick?

Those are not the servicing companies. A residential mortgage loan originator, any bank that you went and got a loan from is going to have an RMLO in there. You just didn’t know that’s what it is. This company, if we take ours, for example. We’re going to sell this house to Jimmy. He’s going to buy it. We’re going to put together his file and his paperwork.

There are certain things that you have to document. We have to have a sales contract. We have to have proof of income. We have to have tax returns, bank statements, all these things that will go in there. They will run them. They will show their ability to repay. They will also create our disclosures. Anybody that’s ever got a mortgage, you’ll get your initial disclosures that you have to sign. You’ll have final disclosures that you have to sign later.

They will produce all those for us and make sure that everything is done appropriately, that we have correct debt to income for our borrowers, and that we don’t go outside of any of the rules. There are also certain timelines you have to follow. You can’t send the final disclosures ten minutes before they close. Most of them would be honest mistakes, but they would help protect you and make sure you do things the right way. That is where I would tell people to start. If there’s anybody in your local area that’s doing a lot of owner finance, they probably have somebody that they could refer you to.

It’s interesting. I didn’t know they existed, and I didn’t do all this stuff. There were some loans where you could do one loan, but if you did more than one loan, you got in trouble. Does that mean if I did that, and I did the paperwork on my own and didn’t get all the disclosures and everything, I did one, I’m okay? If I started doing 5 or 10 of them, I’m not. You’re not a lawyer, right?

We’re not, but I could give you the general idea. It also depends on who you do that loan to. I’m an investor. If you did a loan to me, you could probably write about anything you wanted in there. Most of ours are owner-occupants. There is a different set of rules there for the owner-occupant. They’re meant to protect families, protect against predatory lending, and things like that. I would check with your attorney, but it was 3 or more in a 12-month year. If you did 1 or 2, it was no problem. You still would want to follow the rules.

Once you did that third, you fell into a different set of rules, and it would impact things like, we don’t do balloon payments, but putting balloon payments in, and then terms. There’s another set of rules you’d want to make sure that you follow. My advice, it’s not that hard to do it right from the first one if you’re going to do it. Start the right way with the first one. That way, if you got to more than the limit, you’d still be okay.

Breaking Down A Recent Real Estate Deal

For the sake of a linear conversation, let’s go through an example. Maybe it’s a real one that you did in the last six months, like purchase price, rehab. Let’s go through all the numbers, and all the details, and then we’ll talk about the sale. Who’s the buyer avatar on that actual deal? Was there an application process, down payment, etc.? If we could start with the numbers of the deal, buy, rehab, renovate, and then go through the rest of the transaction to give the audience an example.

For sure. I think it’s a great idea. We’re in San Antonio, so that is a lower price point market in general if you’re looking at the US. One that we are closing, we bought it for $90,000. It needed some work, so we bought it for $90,000. We had to put in right about $25,000, but for the sake of round numbers, let’s call it $25,000. You’ve got $115,000 in this property. This is in an area where we have owner-financed a lot. That’s typically a blue-collar neighborhood. We have a good quality product. They’re safe neighborhoods. They may not be the fanciest neighborhoods, but we sold the property.

We have it under contract for $165,000. The borrower is bringing $25,000 total. That’s not just a $25,000 down payment. That $25,000 includes his down payment and closing costs, and we do have everybody prepay escrows, so taxes and insurance. That’s a total $25,000 financial commitment from the person who wants to buy the house. We’re going to finance it for 30 years. We had it rehabbed.

We have a sales guy. He was showing the property. Most of them we don’t sell on the MLS. We’re typically going to have signs in the yard, Facebook Marketplace, and some in our network. Reached out, and wants to own a home. Got a good job. The guy makes good money. He saved $25,000, which is not the easiest thing in the world to do, but he is a contractor. He doesn’t have traditional paycheck stubs.

He doesn’t have probably the greatest documentation of his financial history, but he’s worked for a long time as a contractor, and he makes good money, and he can show that he makes his money consistently over a long period of time. When you start to put all that together, we still have the same state sales contract. We still have the same owner finance addendum.

We’re still going to collect everything to document that he does make this much money and can repay it. Once we take that, we will send all that to the RMLO, and they’re going to say, we need this, we need his IDs, we need any bank statements, any tax returns, any financial documentation we can use. They will send us back a report, “Mr. So-and-so, we’ve got his report back.” We show his debt-to-income looks good. I remember because I looked at it, I think the previous day, it’s like 14%.

Here’s one of the key factors that we focus on owner finance. It doesn’t mean this person has bad credit. It doesn’t mean that at all, but it could very well mean that they have no credit. This gentleman paid cash for his truck. He has two of them. He paid cash for both of them. He has no credit cards. He’s never had a credit card. He doesn’t use our US financial system the way a lot of people do. There’s not a lot of credit history. His credit score is not good, but it’s not because of negatives, it’s because it doesn’t exist. He has no other fixed debt than our mortgage and no other fixed set payments. His DTI is low.

 

If you follow all the rules, document everything properly, and run your business the right way, seller financing is a solid strategy.

 

Someone like that has a lot of success in our model of consistently making their payment. They get to own a home, and we get the cash flow. We approved him, and the RMLO will send the initial disclosures. For folks that don’t know, the initial disclosures are breaking down, it’s like his closing disclosure, what his payment’s going to look like over time, and what his estimated closing costs are going to be. He signed those. We’ve got him set up with a closing date at the title company. We do have everybody close with the title even if they don’t want to. I do recommend it. It’s a better process.

It helps protect them and you. Three days before, he’ll get his final disclosures, which will have his final numbers of exactly what all his costs are. We’ll close him at the title company. One thing that we do is we do always use a third-party note servicer. That’s the person who will collect the payments, and he’ll make his payments directly to them. They will then send us the principal and interest portion of it. We do require everybody to escrow, so they will hold the escrow accounts for taxes and insurance, and make sure they’re paid out at the end of the year, similar to the mortgage that anyone else has had.

What kind of an interest rate does he have on this one?

We’re typically at 10.9%.

Is that a legal limit based on something, or you’re allowed to select the interest rate?

We are allowed to select it up to a certain point. The limit is somewhere around probably 18% or 19%. We don’t need to go that high. We wouldn’t go that high. Even if you could charge it, I’m telling you it would be a bad idea because you’re going to set that person up for failure. You’re going to create more headaches, and that’s not our business model. At 10.9%, we do make a good return, but it also allows them to make their payment. We’re trying to set up long-term payments where they pay every month, 15 or 30 years, and we’ll make plenty of money like that. We don’t need to charge them a ridiculous interest rate.

What is the payment roughly?

Principal and interest are going to be right around $1,420 a month.

Are you typically selling to this client? There’s a sign on the loan that says, buy this home for $1,420 a month. Is this a payment-driven transaction for him, or is it price, or maybe most of them?

We can’t put the actual payment on the sign. You can’t say, “For this much.” Typically, our person who buys a house, their financial concerns are how much is the down payment. We do charge more than typical in our business, but we have a lower default rate as well. They want to know that, and then they want to know what their monthly payment is. That’s typically where they’re driven.

After that, the actual sales price of the house is usually a third question. That’s their concern most of the time. If we can keep that principal and interest similar to what the rents are around there, it makes a lot of sense to them. They will have taxes and insurance on top of that, but they can see that they own the home. Down payment, monthly payment, and opportunity to own a home is probably the biggest driver.

Are you not allowed to put the down payment and the monthly payment in your Facebook ads? It’s not allowed to go on the sign.

You can’t put in the monthly payment. You can’t say what the monthly payment is, and that it would vary anyway. You can advertise the down payment that you’re asking for. That will typically be in our ads. $25,000 down is pretty much our standard. That varies. We can run our business, but it’s not uncommon that we get $30,000 or $35,000 that people bring to the table.

Out of the $25,000, are we talking about $5,000 or $10,000 for prepaid escrow and the closing costs?

It will vary depending on the time of year, but you’re probably $7,500. $7,500 is going to go to closing costs and their prepaid escrows because they’re going to fund taxes, which are probably taxes a little higher in some other places. They’re going to fund the interest and then their closing costs.

You got $17,500 coming out of your $165,000 purchase price. You don’t have to typically pay an agent because you’re selling them directly.

We have a guy that works for us, so we do pay him per house. We’re not selling 3% for our agent, 3% for theirs.

We’ll keep the commissions out of the math for the sake of the example. $147,500 is the note, and he’s paying $1,420 a month. You have this principal balance of $147,500 that’s written to produce 10% interest. That alone is pretty good, but now let’s talk about how you’re financing that stack. Is Nick Disney got $140,000? You’re in there for $115,000, so you got some upside in the profit there. Are you leaving that $90,000, $100,000, or $110,000 in your own cash in the deal, or are you now selling that off? What’s the exit to maybe clean up your books and get to the final profit on this deal?

It’s a combination. We do sell a lot of them. This one we will sell because I already have someone that wants to buy it. If they buy it, we sell ours at an unpaid principal balance. If it’s $147,500, that’s the purchase price, $147,500.

Will it have to be seasoned for six months before that person steps in, or your brand is strong enough with this buyer? We’re like, “Give me the 10.9%.”

That’s exactly what it is. It’s the relationship. It’s not the first note that he’s bought. It’s the relationship and the product that you put out. He’ll buy it right after.

 

If you help someone and ensure they don’t lose money, they will tell everyone you did right by them, and that will help your business in the long run.

 

We’re talking about a 10% down mortgage for this buyer. I don’t feel like it’s unreasonable to pay 10.9% based on the risk profile. The borrower has no credit history. They can’t go get a 6.5% or 7% mortgage that’s out there in the market now. They’re only putting 10% down. There’s no PMI. It’s a good deal. It’s a fair deal.

I believe it is.

How many of these notes have you originated and sold? Do you know, Nick?

I don’t. It’s in the hundreds. It’s somewhere in there.

Do you know if any of those have defaulted?

Absolutely. There is no perfect system. We’re good. We have an incredibly low default rate. We may have 1 or 2 a year. We’ve learned a lot over a long period of time. When I say we don’t do bad credit, because if you do, you’re going to have more defaults. Someone who brings had to save $25,000, worked hard to save that most of the time. It’s not easy for a person to do. They’re committed, but things happen. We’ll do that. We rarely have one default out of the gate. If we do that, then we’ll remedy that for the investor because that’s also part of the relationship.

What do you mean by remedy? Is it working it out with the buyer, some combination?

It’s usually a combination. We’ll always work it out. If Dan bought the note, “Nick, I didn’t get paid.” That’s not good. One, “We have to get your permission, but we’ll reach out on your behalf.” We’ve already met them. We’ll talk to them, and see if we can get it worked out. If we can’t, and it’s right out of the gate, typically we say, “That’s our fault. How about I give you another one? We trade it out.” I can give you one and buy back the problem. If I buy back the problem from you, then you won’t have any problems. You go tell everybody that I’m a great guy and I fixed them all. It does work out for both of us. It’s easy for us to fix it.

Is that a written guarantee for your investor at all?

There’s no way to write it. There’s no way for me to write it in there.

Not legally, right?

No. I asked about it. Other people have asked me about it, which is why I asked the attorney about it. It’s not, but you’ve been doing this a long time, if you help someone and you make sure that they don’t lose any money, they will go tell everybody else that you made sure. It’s going to help your business in the long run. It’s much easier for us to fix the issue with a note than most other people because that’s our whole business model. We’re doing it every day. We put it right back in the system.

That’s the other thing. It’s like if I’m sitting here in Chicago and I buy this note in San Antonio and then it goes bad, I’m like, “I’m now hunting around for the foreclosure attorney. I’m figuring out how to get it back through the sheriff’s sale or whatever it is that goes on there.” It’s fast in Texas. The laws are favorable for lenders in Texas.

It makes sense to have notes that are in Texas, is probably part of the reason why an at-par $147,500 note can transact, is because there’s a certain security that comes with being in Texas, with the way the laws work there. If it’s torn up at all and needs another paint job, it’s like I’m sitting here in Chicago having to figure out who can paint my house, who can put the lockbox on there, who can come in and fix the broken pipe or whatever else is going on.

Handling Defaulted Notes And Foreclosure Strategies

That sounds like a big nightmare, but at least some verbal willingness to jump in there and swap that out on your behalf would make me feel a little better about plunging in and earning my 10.9%. If a note goes bad, what’s your action item? Are you making an attempt for cash for keys? The backup plan is like taking it to the courthouse steps.

Rarely do we have to go to the courthouse steps. The first thing that we do, whether it’s my note or somebody else is we will contact them. We make everyone come to the office. They have to sit down with us if they want to buy a house from us. One, we get an interview in person, but two, they know us. If we call, they know who’s calling. They know there’s a problem even if we sell it. It does help. We will go talk to them. We’ll knock on the door.

Most of the time, if it’s one payment, the conversation is, “I’m sorry. We didn’t have as much work. I’ll make two payments next month.” It’s not a problem. You get the same amount of money. If they can’t and they can’t make it up and it has to go through, I don’t go down and do the foreclosure. I will give anybody our foreclosure attorney. I’m going to send them an email.

He’s going to start the process, and then if it goes all the way and they don’t catch up, which is very rare, he’s going to send a second email saying, “What’s the opening bid from the lender,” which, if you own the note, you would have your opening bid, what you feel like your costs are. The foreclosure is pretty simple and straightforward in Texas. Again, we do everything we can to try to avoid that. It’s fewer headaches, and it’s a lot smoother.

Do you know how many have made it to that extreme end of the process?

When I first started, more. They were my notes because I made a fair amount of mistakes. I don’t know the number. It’s less than that have gone all the way to foreclosure. It’s less than twenty. It’s not many.

Out of 100, 200, or 300?

 

A bank won’t just give you money for any note. You need an established relationship with them, and they need to understand real estate.

 

It’s more than 300. I don’t know. 400 or 500. Very low. You have to follow the process because if you don’t and you just Wild West it, you’re going to give yourself headaches.

I cringe at the thought of trying to duplicate this system. I’ve been in foreclosure in Chicago and the Philadelphia region. We have a judicial system, which means there’s a 1-to-3-year court process before you get a judgment. The judgment then goes to the sheriff’s sale to be scheduled. That could take anywhere from 1 to 6 months to get to the step. You’re talking, it’s three years. You’re like, I’m over here having to pay property taxes to protect my mortgage for two years.

We don’t have that.

I cringe at picking the wrong state and not having somebody who’s a third party handling that stuff. It’s good that you have the volume there. 20 out of 500, it’s probably a 2% or 3% default rate in the whole country. That’s probably about average with Fannie Mae, Freddie Mac, and conventional mortgages, we’re probably in the 2% to 4% range anytime. If the market’s in a state of crashing, we’re probably 3% to 6% or higher. When we came through 2008, 2009, and 2010, recently, if I had to guess, and I haven’t checked in like 6 to 9 months, I think we’re at a 2% to 3% default rate. That default rate wasn’t that they made it all the way through the process, that was foreclosure filings that I was tracking.

Those were the default rates on that. Your model is to cycle the cash back out. You’ve made $17,500. It’s flipping a house without the cost of the real estate agent. You’ve chiseled down that expense to whatever it is you’re paying your internal sales guy. You’re all in for $115,000. Your net profits are a clean $40,000 to $50,000 on a deal like this. Do you think if you took it to the open market, it would have been more like, “We’ll give you $155,000 with a $5,000 assist?” Are you able to get a market value without quite as hard of a negotiation, maybe, if you were to go to market?

We sell ours at market value. We’ll run comps. We sell them at value, and so we don’t get a lot of pushback on the price, so we’re getting that. We do have a couple extra steps, but we do control more of the steps, and it’s more predictable in our model, and we have fewer people as far as the buyer, buyer’s agent, other issues coming through, so it does allow us to be very smooth. We’re pretty dialed in our buy, rehab, sell, and then either sell the note or there are other options. Sometimes we’ll refinance. You can refinance a note like you can a house as well, so that’s something that more people should do.

How Refinancing Strategies Unlock Investment Potential

Let’s go on that thread then. We ran through the example of selling the note and getting your cash back out, so how does the refinance work?

It’s going to work very similar to the way you’d refinance a rental property. I relate to that because many people have done that, but you’re not refinancing the property because you don’t own it. What you own, or what you have is this note and deed of trust. You have this income stream or a note receivable. You can take that and pledge that as your collateral to the bank. You are not going to walk into any old bank and do this.

It’s not going to happen. One, you probably need to have an established relationship with them. They don’t tend to open this up to anyone, and they’re typically going to be one of your local banks that understands real estate, and you’ve built a relationship with them. Once you have done that, if you have this note, you can go in and refinance it very similar to the way you would refinance a rental property, and you’ll pull back a bunch of that capital.

Let’s say Dan had a good deal and went through our entire process. He’s $115,000 in, but he has a note, and he can refinance and get most of his $115,000 back out, then he doesn’t have nearly as much money left in this deal, but he still is collecting the payment. He has a payment to make to his bank for his cash-out refi on the note.

Is there a small spread there? What do you think about a note you know was refinanced in the last six months? What was the interest they were paying to the bank?

7.5%.

You’re making the 7.5% to the 10.9%, so a 3% spread on the interest. That’s the goal. Is that the standard?

It would be hard to say that’s the standard because it varies. I don’t even know if there is a standard. What worked for us, especially when money was a little cheaper and interest rates would go down, is if we had a 30-year at 10.9%, and so this payment is X, and we would go back and get a 10 or a 15 from the bank at a little bit lower interest rate. If you could wash those out, you would give up those first few payments, but you have all of your money back.

You get all your money back, and you still have, even if the payment, the cashflow is not very much, once you pay off because the one you get is going to be shorter, it’s not going to be a 30-year note, it’s going to be a shorter note, you have, if it’s 10 or 20 years of gravy, or 15 years of gravy left over. That allowed for growth because we were using the same capital more than once.

At that point in time, was it more advantageous for you to not ever sell off any notes? It almost feels like it would be. Why bother with the headache of having to guarantee verbally these notes and deal with investor calls when the payments stop? Why bother with all that headache? Why not refinance every one of them?

It is because they do two different things. When you refinance them out, you’re hanging on to them, and it is simpler and saves some steps, and you’ll get those back-end payments, which is great. When you sell them, you’re getting cash in your business, and any business that needs to recoup capital and put cash in, because you’re still going to have other expenses, and so, when you sell them, you’re putting cash back in, and when you’re hanging on to them, you’re creating long-term cashflow.

You’re leaving some of that cash every time you refi in the deal, in a sense.

Typically, you are.

How much? Is it $10,000 or $20,000 on each one? What is it, a $115,000 note, what are they going to give you on the refi?

We’ll use that one as an example. $103,000, $250,000, so there, you’re leaving $12,000 in it. Some are less. When you have a good deal, those are the great ones to refi because then you can get all your money out. Say we had bought that $10,000 or $12,000 less, then you get all of your money back out and you don’t have anything left in, those are great to refi. Your business needs capital, you have people to pay, and it’s a balance of the long-term and the short-term win, and the business needs both. That’s why we would use both.

 

Know what your goal is. Assess whether the product you buy truly accomplishes what you’re trying to do.

 

Is that $103,000, $250,000, that’s not based on the principal balance of the note? It must be based on either a desktop or drive-by or an actual appraisal of the property, and then an LTV from there. Is that the metric the bank is using?

Exactly. It typically won’t be a full appraisal, it’ll typically be a drive-by. It depends on the bank, but typically, we were at 70%. It’ll be 70% of the appraisal value or the unpaid principal balance, whichever is lower. They’re going to take the lower number and they’re going to give you 70% of that.

Seventy percent of the unpaid balance?

Right. They would do an appraisal on the property, it’s going to come in at $165,000. You could refi up to 70% of the $165,000, up to the unpaid principal balance. They’re not going to give you more than what the commissary note is.

The other one was 70% and it was the lower number. What was the lower number, you said?

The lower number that I said?

I don’t know, I may have missed it. My mind is blown because I’m like, it can’t be refi notes. How many of these could I get? I’m going to fly down to Texas and see this banker so I can set up a few million dollars worth of these.

I know some people who have them, and some banks will do millions. It’s in the cards for you.

You said 70% of the appraised value. If that $165,000 example, I’ll do the math, times 0.7, that’s $115,000 they’ll give you on that loan.

They would give you that, but they won’t give you more than what the unpaid principal balance is, so whichever one is less.

On that one, he owes us $147,000. If I bought the note for $147,000, I’d be getting $115,500 back. $147,500. I would have $32,000 in the deal in that instance.

In that instance, you would.

In those instances, I get it. That makes sense why you would sell because how many of these $32,000 long-term 30-year investments do you want to have sitting there as a business owner? I get it in that instance. Are there times when someone instead, I imagine San Antonio houses had a little appreciation over the last couple of years, you bought two years ago, there’s a little bit of mortgage paydown, but the house traded at $135,000 two years ago, and now it’s at $155,000 or $160,000. It made sense to season your note for a year or two before you do the refi. Is that maybe a strategy too?

It’s a pretty good strategy. I’ve never thought about it. We never used it like that. It makes a lot of sense. You can do that. It’s always easier if you don’t have the reputation or relationships, to season your note for a few years because if you want to sell it or refi it, you’re going to get a higher appraisal. If you go to sell it and somebody, you can show a good pay history, “This guy’s never missed a payment in two years.” That shows a lot of confidence. You’ll probably get a higher value for selling a longer-seasoned note. There are always reasons to hang on to them.

If you’re a business owner and you’re continually turning, then to your point, sometimes you’re not going to want to leave that money in there. The majority of people who buy notes are not full-time real estate investors who are actively investing. They understand real estate. They like it. They want the cash flow, and they don’t want the headache of, say, rentals or running a business. For them, they’re like, “I want to put this here, and I want to get paid every month.” They’re not running the business that you’re running. They have different goals.

It makes sense. There are two ways that anyone reading could go about it. People are doing this as a business model. I know someone in Minneapolis doing this exact business model. I’m looking from the outside. I know he has a few bucks in the bank. He might be keeping the money in there. He’s probably got this refi thing set up. There’s no way I’m going to hold paper on a flip house and then hold paper and then wait for the money. I thought that’s what he was doing. No way. If you can refinance back out and set them up for the long term, it starts to make a lot more sense how something like that would scale.

The audience could do this type of deal in the strategy on their own and flip the house, set up the note, and work a business model that way. Maybe someone has 5 or 10 rental properties, or maybe even more. It’s feeling the way that I am and probably the other clients, where it’s like the tenants and the toilets and the eviction going on. It’s like, I’ve lost quite a lot of sleep from rental properties over the past seven years since I started buying them and owning them. I’m whittling them down as we speak for that reason.

A note that’s paying is set up properly with the RMLO in place and the servicer in place. I didn’t have either of those on any of the notes that I’ve done. I can see the attraction for a more passive real estate investment. At 10.9%, if it’s 6.5%, it doesn’t seem worth the effort. At 10.9%, you’re starting to get into the, “Maybe it’s worth the effort to figure this out.”

At 10.9%, if it’s passive and it’s written down, and it’s people that transition from rentals to buying notes are typically doing because it’s passive, they don’t have to do anything. They like real estate in general, and they get to keep it as collateral. It’s very predictable. We don’t have the swings, let’s say the up and down that you see in a stock market. It’s 10.9%. That’s what it is. It’s very predictable. For people who want that, it’s a great fit. If you’re looking for something else, then there’s probably something else that’s a better fit.

Investor Journeys: Transitioning From Rentals To Notes

Are there any avatars that you have, where they were in the rental business, and you guys connected a few years ago, and now they’re transitioned and they’re doing mortgage notes? Maybe you could, without naming names, tell the story a little bit.

I have several, but one that comes to mind, he’d owned several rental properties. I think he still has one. He was also a short-term private lender for us for a long time. He’s a great guy. He saw what we were doing, but he was committed for the longest time, me and him. He sold a rental, and he’s like, “I want one of these notes.” I’m like, “We built you one.” He kept them, and then he’d sell one every other year. We’ve probably worked with him for 10 or 12 years now. I think he’s got one left, and he’s like, “I don’t ever want anything else. Give me these notes. Let me get paid, and I’m going to travel.” That’s his vision.

 

Build the best relationships you can now, and take care of them. Then, the money will take care of itself.

 

That’s what he wants to do. It’s a win-win. A lot of people will also do a combination, using the rentals for the equity, and they’re easy to leverage in comparison. Owning the notes, if you have liquid, especially if you’re further on for the pure cashflow because they’re going to give you more cash flow, and it’s more predictable. Sometimes having that balance, we see that a lot. A lot of people have a lot of success. That’s our business model. We have a balance of having both and using each one for what they do well, and not trying to make a rental be your primary cash flow driver when something else might be better.

What do you think about someone’s got twenty rental properties? If you had twenty rental properties, and you weren’t sitting in your seat, but you were in my seat, let’s say having the conversation with you, what would be the balance? Is it done in a dollar amount? Not a number of properties. 50-50, 60-40. You love them. Maybe yours is like, “I’d be like 100% and get rid of all 20.” I don’t know.

I think as I’m transitioning, I’m probably getting more. I don’t know that I’d get rid of them all at once, but the conversation that I often have with people is, what’s your goal or what’s your number? Let’s say our average note pays $1,500 a month. If your cashflow number is $6,000 a month, and then that pays all your bills, we’ll use easy math here, then getting to the first four notes is huge because you can see then the advantage of having $1,500 a month times four. You’ve got your $6,000 on 30-year notes, depending on where you’re at.

If that was covered for the next 30 years, that was all your bills. You get a lot of freedom. For each person, that number is going to be different. That is a way that I would encourage someone to look at it, because they might be like, “I want to hang onto these rentals, but I also want to have the protection of this cash flow. Maybe I sell 3, 6, 8 and keep the others. What could I turn that for long-term cash flow?” That is how I would look at it. For me, you’re correct. I’ll sell them off as I go along, turn them into notes, and then do whatever I feel like doing.

The only thing that probably is unsettling to the person with the twenty rentals is the twenty rentals are hopefully staying at least at their current value and producing the rent, the return. They come with the chiseling away of the turnover expenses and the repairs. That has to be accounted for. The growing taxes on the properties are going to chisel away at the cashflow. You have a lot of things eating at your principal balance in a rental portfolio as time goes on.

Ideally, your equity spread grows. You have a larger pile with rental properties, but you do have the monthly payment chiseling away at your principal balance. That might be the only other negative side of the coin, which would be seeing the principal balances go down. Hopefully, you have another method of running your business or running your life, where you’re able to continue to replenish the note supply as it were.

You’re right, but they’re amortized like any other loan. It’s also not like you get that first $1,500 payment, and the balance went down by $1,500. You get a $1,500 payment, and the balance goes down by $7 or something because all that interest is paid upfront. I would, to your point, encourage people to maybe save some of that so they can buy another one, and then you can have it replenish itself and make it last an incredibly long time.

Aligning Investments With Your Financial Goals

I love it. What are the things that I maybe forget to ask, that are probably pertinent for the audience?

I think for the audience, step back and know what your goal is, and whatever product you’re going to buy. If it’s rentals, flips, owner finance, self-storage, or commercial, does it truly accomplish what you’re trying to do? It is because I have made those mistakes. You buy certain things, and they’re not going to give you, reach your goals. I think if they know that, then they should, at a minimum, learn about notes.

It’s much easier to own them than typically people think. If you have capital, you can buy one tomorrow. Know what that is. How would that balance your portfolio? If it would add to it, I would encourage you to look at it. From my experience, the notes are typically more cashflow that’s more predictable. Balance that with what your goals are. Everybody’s got to set the best thing for them.

Must-Read Books For Real Estate Success

I love it. Are there 1 or 2 book recommendations you would have that have been impactful in your fifteen-year real estate career?

Eat That Frog has helped me a lot. I’d like to use it. Rich Dad Poor Dad was where I got my start, like any of us. Eat That Frog, the idea is to do the hardest thing first and get it out of the way. Makes everything else easier to do. It’s very short. It’s very easy to read. I still say it to myself. I like that one for anybody else. That’s the one that stands out.

Crown Jewel Of Wisdom For Investors

Crown Jewel of Wisdom. You’ve been at it for fifteen years, which is a setup because you’ve already talked about transitioning. If you were going to go back and tell yourself what the Crown Jewel of Wisdom is, knowing everything you know now, back fifteen years ago when you were first starting into business, what would that be?

Build the best relationships you can now and take care of them. The money will take care of itself. Now that I’ve done this long enough, I’ve had relationships for years and years and years. They may not have made a lot of money upfront, or maybe you didn’t maximize every single dollar out of the gate, but building the relationships with the right people, both of you will make so much more over the long term. That’s what I would go back on day one and focus on. I think it’d be great for anybody getting started.

Before I ask my final questions, is there somewhere they can go to get more Nick Disney?

You can find me on Instagram, @RealEstate_Nick1, we put a lot of content on there. Feel free to reach out to me, or send me an email. I love to connect with people. If we can work together, if I can help you, if you can help me, whatever it is, [email protected]. I like to talk to people. I love real estate. If we can connect and do something, I’m happy to do it.

Reflecting On Acts Of Kindness

My final question is, what is the kindest thing anyone has ever done for you?

Real estate-related or in general?

You answer how you want.

I’m going to keep it real estate-related, so you don’t pull up my heartstrings here. When I started, there was this guy, I had no money, and no one would lend me any money. He lent me money on these deals, which he probably shouldn’t have, I probably wouldn’t have. It allowed me to get started on several of these initial deals. As you know, getting through those first few is such a game-changer. Knowing that you can do it, it doesn’t matter how much money you make. Without him taking a chance on me, because he believed that I could do it for whatever reason, I’m super thankful. He was super kind, and it was something they didn’t have to do. It made a huge impact on me.

I could answer with a very similar situation early on myself. I get that. I remember he gave me a $10,000 construction draw, my first lender. My credit was terrible. The scenario, I wouldn’t have lent myself. He gave me the $10,000. I’m like, “$10,000, this is amazing.” He’s still a business partner to this day. I guess he made the right choice, and I paid him back his money with interest.

There you go.

Nick, I had a blast. I got pages of notes. My mind is blown. I can’t believe that you can refi these notes. This opens up a whole sky-blue ocean out here of a new asset class in my mind. I appreciate you reaching out and getting us connected here so that we could have the show.

Thanks for having me. I enjoyed it. Let’s stay in touch.

 

Important Links

“Work Shop” Author Joe Brady On The Evolution Of Retail Real Estate

The REI Diamonds Show - Daniel Breslin | Joe Brady | Retail Real Estate

 

Guest: “Work Shop” author Joe Brady is an expert in retail commercial real estate. He served as CEO of Americas at The Instant Group as well as head of real estate for Walgreens. His early career includes capital markets & brokerage with a business-sale exit to JLL.

 

Big Idea: Real estate may go up in value, but it certainly comes with an expiration date. Retail & office are the 2 recent asset classes where much of the product is simply useless and worthless—as many properties have sold at land value minus demolition costs. Joe has observed that retail has been forced to evolve because of the iPhone, and now office is facing the same challenges.

This episode is also sponsored by Lending Home. Lending Home offers reliable & low-cost fix & flip loans with interest rates as low as 9.25%. Buy & hold loans offered even lower. Get a FREE iPad when you close your first deal by registering here now.

 

Resources mentioned in this episode:

Joe Brady

 

View the episode description & transcript here:

“Work Shop” Author Joe Brady on the Evolution of Retail Real Estate – REI Diamonds

 

Joe Brady & I Discuss the Evolution of Retail Real Estate:

  • How to Engage a Mentor with Cold Outreach
  • Effectiveness is Superior to Productivity
  • Recent Grocery-Anchored Retail Development
  • Tenant Driven Development = Lower Risk Development

 

Relevant Episodes: (200+ Content-Packed Interviews in Total)

Watch the episode here

 

Listen to the podcast here

 

“Work Shop” Author Joe Brady On The Evolution Of Retail Real Estate

Joe Brady, welcome to the REI Diamonds Show. How are you?

I’m doing great, Dan. Thanks for having me.

Building A Legacy In Commercial Real Estate

Joe, we’ll talk about your background with Walgreens as head of national real estate, I believe. We were talking before we hit record about how we’re both Philadelphia guys, then Chicago guys and then Florida guys still to this day. With that, do you want to give a brief background of your career history and how that’s led up to what you’re currently doing, Joe?

I’m happy to. I’ve been in commercial real estate for 35 years or so. During that time, I’ve had a chance to sit almost at every seat at the table. I’ve been on the capital market side, the brokerage side, the advisory side, and the principal side. I grew up in the retail business and was a part of some very high-volume rollouts, including Hollywood Video, back when that was an industry. There’s only one Blockbuster left. Did you know that?

Somebody mentioned that two years ago. It must be like a museum now or something.

It’s a swag shop. It’s in Oregon, of all places. That industry doesn’t exist, but I was part of the team that rolled out 2,000 of those stores. We took the skills and the relationships and rolled that into an outsourcing business that we ran from 2000 to 2008. T-Mobile USA became our biggest client. We opened another 2,000 of those stores, the first 2,000 T-Mobile stores in the US. I wound up selling that business to JLL on January 3rd, 2008.

For those who don’t track history, that was lucky timing. I’ll take it. I spent time at JLL running the retail practice, ran the banking industry group. I was doing a combination of retail and office. I had an opportunity to join Walgreens as head of real estate. I was there for almost four years. Right before the pandemic, I left and joined a company called The Instant Group, which is the Airbnb of flexible office space.

If you can imagine joining this company, I was the CEO of the Americas, the company was based in London, it’s the Airbnb of flexible office space. It also builds out office space for Fortune 100 clients, and then Instant would run those spaces, creating a lot of agility and flexibility in the office world, which didn’t exist. I started that in December of 2019. Three and a half months later, the pandemic hit, and everyone was looking around thinking, “What are we going to do about office space? No one was in the office.”

For the next four years, we quadrupled the revenue and the business, building out offices from Buenos Aires to Mexico City to Toronto, throughout the U.S. It was fun. While that was happening, I kept hearing all of the same death knells and chatter that I heard ten years ago about what retail said about office. It struck me that I had seen this movie before.

I started putting some thoughts to paper about what we learned in the retail world and what the office industry could learn from retail, given that there were two dramatically impactful forces. One was this acceleration of technology in our world, and two, how consumers were reacting to that acceleration. The short of it was that real estate wasn’t keeping up with those changes. Retail had to learn the hard way. Office now is going through a tough period.

 

The REI Diamonds Show - Daniel Breslin | Joe Brady | Retail Real Estate

 

It’s ironic. My very outside observation of Walgreens’ story, and this is uneducated, so take everything with a grain of salt, this is my gut feeling. I remember from 2015 or 2016 through 2020, you could usually track distress or the assets that are starting to fall out of favor on Ten-X, the commercial real estate auction platform, or any other auction platform. When the distress started to occur, it was in 2009 or 2010 that we started, I started remembering personally seeing shopping malls and retail centers start to hit the auction sites as the retail death knell, as you called it, was starting to pop up.

I think that the trend in retail seemed to happen over a lot slower period. What happened in 2008, 2009, and 2010, and all the bankruptcies, was cycling out of a lot of weaker retailers that went bankrupt, and a lot of vacant space came online during that time period. It felt a lot slower than what we witnessed in office, to me. Again, this could be me talking out my ass, and I don’t have the numbers to back it up. Office was one-two left-right and a knockout punch by COVID. It was like this instantaneous thing with office because Zoom went from $40 to $400 a share, and their subscriber growth was through the roof.

Walgreens Strategy And Retail Trends

We’re doing a Zoom call as a result of that instant tech shift from the black swan event of COVID. I remember Walgreens, being in the retail space, they started showing up on the Ten-X auction platforms, and they were selling for $2.5 or $3.5 million, sometimes less, sometimes more. When COVID came, and the COVID money and the vaccines came out, there wasn’t a single Walgreens site available anywhere in the auction. I’m starting to see them pop back up again. It’s interesting. I’d be curious what your observation, if you’re allowed to speak on it, with Walgreens and maybe some of that trend with the retail death knell and how that might affect someone with such a large footprint like that.

Especially with hard corners all over the US, some of the best-located real estate. That was the strategy for Walgreens, hard corner, the highest traffic corners in XYZ location, with a very large facade, store, and real class A presentation compared to what I remember seeing from CVS and Rite Aid. Middle of the block, kind of weird, nowhere near the caliber of real estate that Walgreens had. I think that that strategy must have served them well for a long time. I don’t know, what would be your comments, if you’re allowed to say anything from the inside, and for the rest of the retail?

I’m far enough removed from it. While I have had some experience having sat in the seat, I’ve also seen what’s happened since. Dan, you said that from about 2010 on, things started to change a bit from a retail perspective. Remember, the iPhone came out in 2007. It took a couple of years for retailers to get good, or at least start to provide a relevant and acceptable shopping experience online.

Everyone thought, this whole cell phone thing or online was going to replace brick and mortar. You heard the death knells of no one’s ever going to go to a store again. The truth was the retailers realized that the consumers were voting with their wallets. They were saying, “You’re either relevant and I want to spend money with you, or you’re irrelevant and you’re going to go on the dust heap of history and you’re going to go away.” That applied to malls as well as to retail locations.

The C malls have largely been bulldozed, and the B malls have largely been D malls. What you’re seeing now is more of a mixed-use layout with live, work, and play. You’re seeing gyms come in. You’re seeing multifamily coming in as well. Quite interesting. From a Walgreens perspective, you’re right. The theory was, how do we get as close to 80% of the US population? How can we be 5 to 10 minutes from 80% of the US population? How do we drive our business from the pharmacy back of house and then enable the front of house, which, frankly, had insult pricing? When you looked at buying a Diet Coke at Walgreens, it was because you were dying and you needed it. You were willing to pay anything.

What happened is these two stories now come together, this confluence. I remember talking to the head of Duane Reade in New York City, which Walgreens owns. He tracked a number of different items, and he was able to get 4 or 5 different items delivered by Amazon to his home cheaper than what he could get himself, buying it in-store with his employee discount. Think about that. The consumer is not dumb. The consumer is very smart, in fact. They’ve decided to vote with their feet. There’s this whole separate parallel conversation we can have, which is a little bit of a rabbit hole, but it’s around organized retail crime.

In addition to having extraordinary competition with the front of the house that Walgreens was experiencing, and having price compression on drug costs from the back of the house and getting proper reimbursements, there was a huge margin squeeze happening in and of itself. You then factor in that there is a Tony Soprano of the dark supply chain that’s sending people, armies of these street urchins, into stores and swiping entire shelves of products. ICSC, which is the retail industry trade group, has done an analysis, and the impact on the US is about $100 billion a year. For Walgreens, it’s about $4 billion a year.

For your audience who goes into a CVS, a Walgreens, or a Target, you see everything behind a locked plastic little door. It’s a horrible customer experience, but what’s the alternative, like having everything ripped off and there’s no product? There has to be a better answer to that. In any event, Walgreens has had a number of pressures on their margin. They tried a number of different things, whether it’s primary care inside the store that didn’t work. They’re trying to dislodge that. What you’re seeing now is, and they announced publicly, that 1,200 stores would be closed. Many of those are going to be natural expirations of a lease.

In other words, Walgreens would initially open and have somewhere between a 15- and 25-year lease and then have a series of five-year options thereafter. It was almost rote that you would click off those options. Sure, we want to stay at that location. What the company has said is, we’re going to let some of these stores naturally expire, go away. We’re going to move on, and we’re going to focus on markets and stores where we have the business, we have the pharmacy business, we have good front-of-house business, the real estate makes sense. Slim down from what was at one point over 9,000 stores to probably a chain that’s going to be 5,000 or less. I’m supposing, but it probably needs to get there.

Career Path Advice In Real Estate

It’s interesting. I’m going to take a detour from our trends. Before we touch on some of the things you wrote about in Workshop, I want to back up to the 30,000-foot level of people who are building their own careers and are tuning in to this. I believe I had it written down here somewhere. Maybe I didn’t. You were in capital markets. You were in brokerage. You were part of this rollout of several thousand locations in two different instances. You talked about being on the principal side. Were they variously happening throughout your career?

Maybe if someone is tuning in, should they also try to take a circuitous route like that and maybe do brokerage to learn and get the contacts? Maybe they should be going after some executive-level real estate job if that’s what their training and background is because there’s a lot more benefit, perhaps, when you get to the principal side. I’ll plug my side, I’ve always gone to the principal side. It’s like principal, principal, principal.

I want to run the deal. I want to make the decisions. I want to take all the risk and hopefully make the gain on the upside. Do you have any advice to somebody, or maybe yourself starting back out again, of paying attention to one of those categories or doing it exactly in that same method? If you had your choice and could wave a wand.

Clearly, you’re smarter than I am.

I don’t know about that.

I was curious when I came out of business school. I went to UNC-Chapel Hill, and I went to work for First Chicago, which is now part of J.P. Morgan, in the corporate finance group. Part of my thinking was, I wanted to understand where the money came from and how it worked. That was 1990. Knee-deep in the S&L crisis, I showed up in the real estate department. All we were doing was real estate workouts. It was a phenomenal opportunity to see how projects and developers had approached situations where, under one condition, things made sense.

You had a major macro change, being a crisis, in this case, the S&L crisis, and how that impacted the value of real estate and what people had to do to work out those projects and who won and who lost. It was interesting. Interesting for me to see because I had no risk. I had no downside. I was learning. I was a sponge. I have had an opportunity to get entrepreneurial, to be that principal. For your true entrepreneur audience, that can mean sleepless nights. That can mean making payroll.

That can mean one thing goes wrong and everything could go. Sometimes you’re on a razor’s edge. It’s not always, as Scott Galloway says, “Champagne and cocaine” when you’re an entrepreneur. You’re up against it. I’ve had situations where I’ve built several businesses that got to a point where I could sell them. When I did sell them, I felt comfortable, for instance, going into JLL and being in a corporate environment. It allowed me to recharge my batteries. It allowed me to get a little bit more balance in my life. It allowed me to think about next.

All along the way, Dan, and I think you’ll appreciate this, I know it’s been part of your success, and I’ve tried to collect as many people as possible. I tried to be a good mentee when I was younger, asking a lot of questions, and trying to meet as many people as possible. It wasn’t always easy because sometimes it’s a bit awkward.

I had this friend who I remember, his name’s Ken Marino, he called me up one day and he said, “I met this guy named Trammell Crow.” I said, “That’s a company.” He’s like, “No, it’s a guy. I called him up and said, sir, I would love to come to Dallas and see you. Could I spend fifteen minutes with you?” I thought you were not allowed to do that. Ken said, “Of course, you can.” It opened my eyes.

For the readers out there, there are senior people in the industry who would love to spend time with you. They’ll give you 15, 20, or 30 minutes. That, I think, is an important point. Don’t be shy. Collect as many people. When you start to get my role in the industry, and you’re approaching it as well, Dan, it’s like all of a sudden, we become the mentor. I’ve always said I’m nice to young people because I never know when I’m going to be working for them, even though maybe they were working for me prior.

 

There are senior people in the industry who would gladly give you their time. That is a crucial point. Don’t be shy. Connect with as many people as possible.

 

That’s come to pass, interestingly enough. This industry can be phenomenal. There are days when it might be hard work. When you’re doing deals with people you like and respect and you’re learning and you’re making money, it’s a super fun industry. That’s why making yourself available to industry groups, to conferences, to constantly learning is vitally important.

I’m going to make a plug for those who don’t recognize Trammell Crow. There’s a great book that was written, probably in the ’70s or ’80s, Trammell Crow, Master Builder by Robert Sobel. This is hands down the best book I’ve read, at least in the last 12 to 18 months. Hands down. To get in the door, to even talk on the phone with Trammell Crow, I don’t know if it was the father or maybe there’s a son by the same name. Either one. We’re talking about real estate development, American royalty if you were. I think Trammell Crow is the largest real estate developer, maybe on the planet, besides the Chinese government.

His son Harlan has been in the news a bit. He has a very good friendship with Clarence Thomas, but we won’t get into that in this episode. Trammell Crow built his business and sold his corporate services side of the business to CBRE, which is interesting. Trammell Crow still exists as a company, and they do development. The things that Mr. Crow did early on were remarkable. He was a visionary. He built some of the first industrial distribution centers in Dallas, and he built these large exhibition halls in Dallas. Anyway, a great book. I know that you’re interested in books, but that’s one on my shelf and one that’s important to me.

Networking And Reaching Out To Mentors

I shared it partially, “Read the book.” The other part is to look at the caliber that Ken Marino was able to contact by reaching up as he was somewhere in his career looking for some additional inspiration. The question I think I’d like to pull on a bit is, Joe, what pro tips would you give to somebody in like Ken’s position, who is sitting here contemplating making the call? What’s the process for that? What is the most organized approach for someone earlier in their career to reach out to someone they might want the 15 to 30 minutes? When people say to me, “I want to pick your brain,” I’m like, “Sorry, I don’t allow brain-picking.” That’s not the format. I’m curious if you have some tips on how that call may go successfully if somebody were to make that to you or someone else in some executive-level position somewhere.

I always default back to homework. You have to have a point of view, there has to be a reason. What kind of gift can you provide to a Trammell Crow in return? In other words, you may be early in your career, but you know something. It is because the world is changing so fast, that if you’re part of the I generation, Gen Z, or you’re a Millennial, maybe you have a different view or a thesis, a hypothesis on some real estate. You say, “I would love to have a conversation with you to share my thoughts.” I’d like to learn from you.

By the way, I think it’s vital to be authentic, to be vulnerable, and to share aspirations. In other words, if I called you up, Dan, I’d say, “I want to learn about being a principal. This is where I am so far. I’ve made some mistakes. You can commiserate,” but get to the crux of it. What is it? Come up with a thesis or an approach. Have your homework done. I sit on the advisory board at the University of Florida’s Bergstrom Real Estate Center, and I have mentees every year. I find myself having more conversations with students who are not my official mentees, but they’ve done their homework. They’ve either read my book, they’re interested in retail, or they’ve approached me after one of my lectures.

They have interesting perspectives that they want to test and say, “Is this on track, or am I thinking about this the right way, or what am I missing?” That type of engagement, for me, is healthy. I also want to prepare because I want to get something out of them. I want the perspective. How are you looking at power? How are you looking at jobs? What is your view of an office? How are you shopping? How much are you buying off Instagram ads? When was the last time you went into a bank? Are you physically going in, engaging in physical banking, or is everything electronic? There has to be this two-way street.

I love that. It’s like if I summarize it, I love the be prepared thing, do your homework. I wouldn’t take the call, I wouldn’t schedule the call if someone didn’t. If it was this blind pick-your-brain thing, it’s like, “Sorry, I’m tied up. I’m busy.” If somebody has done the research, and as a podcast host, I’ll get like, “Your last podcast was great.” Nothing else. That’s copy and paste. That’s not you did your homework.

The other part of the gift, or adding value, I think, to summarize that, have some agenda and how much time you’re expecting. “Can I get 15 to 30 minutes on a phone call? I’d like to talk about this, this, and this. Here’s what I’m thinking on this. Do you have time at 3:00 tomorrow, or would next Wednesday at 4:30 be better?” Two times, two dates, very specific, to allow the other person to not get caught in the trap of, “Can we do this sometime? Sure. When do you want to do it? 12:00 doesn’t work. How about this other thing?” Sorry, but five different replies for the busy executive are going to be overwhelming.

I want to make it very simple for the person I’m reaching out to, to know what’s going to be talked about. They can also prepare, which is the reason I want the agenda. If somebody were to reach out to me, I want the agenda so that I can be prepared to make sure, maybe I’m not the right person to even have this conversation. I can let you know that and maybe even give you direction as to who may be the right person.

Simple bullet points, and be sure to provide two times and dates you’ve committed to so that it’s very easy for them to confirm that. They throw it in their calendar. They can touch the email one time, and then you can move on to the 15 or 30 minutes, or whatever the case is. My final simple one, Joe, would you prefer they reached out that way for a 30-minute phone call or the lunch date?

I would say the 30-minute phone call. I travel quite a bit. The thought of nailing down a lunch date is difficult and remote. You could ask my wife. I think it’s a brilliant aspiration. If you could get to that point, somehow having a face-to-face, if you know you’re going to New York City for a conference in the second week of December, you should have your list of people that maybe you’ve talked to and say, can I buy you a cup of coffee?

It could be in the morning, could be in the afternoon. I do think there’s enormous value in having that face-to-face, having a handshake, and having eye contact in person. There’s neuroscience behind it that makes the bonds even stronger. The oxytocin that exists between two people when they’re together, not when they’re two-dimensional and on a show or a call. I’ll be in Chicago soon, so I’ll track you down. I think there’s an aspiration for you to get together for a coffee or lunch. Probably initially, if you can crack the code with a call, you’re doing well.

The Story Behind Writing “Work Shop”

You’re right about that. Cool. Workshop. The book you had written, did you co-write this with an author? Did you sit down and hatch this over a period of years? What was the genesis for the idea and the thesis of the book?

I had the idea, and I had written a number of articles and had a number of presentations and speeches. I left the Instant Group in June of 2023 and took about a nine-month sabbatical. During that time, another thing that I believe is vital for everyone, it doesn’t matter where you are in your career, is to have a growth mindset and to always be learning. I had this opportunity, and I took a course at MIT in AI and business strategy because I wanted to learn more about what was going on.

I took another course at the University of Chicago on behavioral economics. There have only been five Nobel prizes in economics awarded in and around behavioral economics. I thought that, if we’re going to focus on consumers and people, then it’s going to be important to understand behavioral science and what motivates people, what incentives work. I’ve been interested in this area of behavioral science and behavioral economics, and went to the source and took a course in it. Between those two, it helped form a bit of the backbone for the book. I wound up writing it myself.

I had a great publisher/editor called Grammar Factory. If any of you have ever considered writing a book, it’s not as hard as you might think it is. There are companies out there that can help streamline it. Grammar Factory is based in Montreal but is a global company. Scott McMillan, who’s the CEO, is fabulous to work with. It was affordable and great value for money. My editor was in Perth, Australia. I never met her, but it didn’t matter because we were operating asymmetrically. I’d write something, and then she’d look at it while I slept, and then it came back and forth. That’s the genesis of writing the book.

 

If you’ve ever considered writing a book, it’s not as hard as you might think. There are companies out there that can help streamline the process.

 

It wound up the whole process, probably six months. I wrote it because, A) I always wanted to write a book. I think you should have big life goals. B) I thought that I had something to say, and I wanted to share it. I wanted to provide a different point of view. Probably the best way to encapsulate my thoughts is by an example. Oftentimes, in real estate, we see the ribbon cutting, which is great, cut the ribbon, job done, let’s go play golf. In this new future world, I argue that the ribbon cutting is the beginning of the process because space is being used differently.

The consumer is voting in how they spend their time and money. We know for a fact that the consumer is voting with her wallet in retail. If you’re not relevant, you’re going to go away. If you are relevant, and you stay current, and you engage in the personalization, and if you’re engaging with Alo, or Lululemon, or Apple, or, name it, Restoration Hardware, RH, they’re getting hyper-personalized. They understand your buying preferences, they’re engaging with you on different levels.

In many respects, some of these retailers are now movements that we all want to be a part of, like Apple. The question then remains, how is the office class going to react, now that consumers, who are the employees of the new consumers are able to vote with their feet as to when and where they work? Assuming that you’re not working at a call center, or you’re not a surgeon, if you’re operating in the conceptual economy, your tool in trade is a laptop or a cell phone, you can work from anywhere.

Why are companies like Amazon mandating that people come back to an office five days a week? If part of it is to drive culture, culture is based on trust, and what way to erode trust faster than to issue a mandate? Why hire adults and then treat them like children? In particular, because the employees who are going and working at these companies are the same ones who have, for ten years, engaged in agency, autonomy, and optionality in how they spend their money. What we learned through the pandemic was that many people thought they hated their job, turns out, they hated their commute.

In Chicago, I lived in the western suburbs. If I had to go up to the North Shore to Walgreens, it could take anywhere from 40 minutes to 2 hours each way. That’s a massive trade. That’s why I wrote the book. I think there are a lot of important things that are in the book. I talk about this notion that shop, at one point, was a place you went to, it was a noun. It is because of technology that it became a verb. I argue that work is likewise going through that transformation. It was demonstrably paired up with office. If I said, “Dan, I’m going to work,” that meant I was going to an office. Today, those two are decoupled. Work is a verb.

I know that sounds obvious, but it’s no longer a noun or a physical place. It’s a thing we do irrespective of place. It can happen in an office. It can happen in a satellite office. It can happen in a WeWork. It can happen in an airport. It can happen in lots of different places. We have to be mindful of that. I think there’s some cost bias that a lot of companies have. I’ll use Amazon as an example, they own $50 billion worth of office space. Darn it, people need to go there. Other companies, who aren’t saddled with that much in terms of fixed space, can be smart about how they offer an ecosystem of places for people to work. You can expand your employee base. You can get mothers who are caretakers.

You can get people who are caretakers, whether it’s young children or older parents, to remain in the workforce and be productive. They’re also going to operate at different hours too. At the end of the day, if you’re in the conceptual world, if your tool and trade are ideas and analysis or creating products and things like that, do you have to be in an office 9:00 to 5:00, Monday through Friday, as if we’re still in the industrial era? Those are factory constructs. Things have to evolve. Part of what I wanted to do in the book is give some historical context, talk about how retail has learned, and give some thoughts on what office and the world of work should be looking like for the next couple of years.

Balancing Remote And Office Work

I’m excited. I ordered the book already. I always get the hardcover. I like them on my shelf for the future. The sunk cost theory is interesting with the mandate. Our business has maybe 22 acquisition people on the team, spread between three offices in the Atlanta region, Chicago, and the Philadelphia region. We were 100% remote when this thing started, 8, 9, or 10 years ago. We started forming the organization. We got offices in 2016, some small ones, in 2018 and 2019, a little larger. We’re now in some pretty decent-sized spaces, 5,000 to 10,000 square feet. These are not WeWork-sized type of offices. That comes with overhead.

I notice I get feedback from the team that they do find they’re more productive. They’re a little more creative in the office. They’re more savvy on the phone. They’re showing off for each other. We get this office culture where we do have a generation of more productivity and creative results that occur there because, invariably, whether it’s Netflix, the fridge, or it’s dinnertime, or there’s an Amazon delivery at the door, there’s a lot of interruptions that would occur in the home environment versus the office. We’re not five days in the office required.

We’re probably a few hours here and there, three times a week. There’s probably an all-day Monday and maybe half a day on Friday or something like that. A lot of our business happens out on location, at the physical property where we’re making the deal occur. It’s not like we could do a 9:00 to 5:00 and do it all from inside the office. I wonder to myself out loud, I guess with everybody, I’m not wondering to myself, but it’s like, what is that?

What is the right balance between those who are disciplined to be effective in the home office environment versus those who maybe didn’t spend years developing that home office environment, who love working at home, and who are probably more susceptible to interruptions because they haven’t thought through and built out the home office environment, versus the people who are easily capable of producing the same amount at their home office environment versus the office?

I think the office has its place, maybe for the people at the earlier end of the career, where the momentum’s there. There are people around them who’ve been doing the business for 5 and 10 years. In their first year or two, they will no doubt make more deals, and more productive deals and lose less money on behalf of the company when they’re operating out of the office. I think it’s a push-pull. I wonder, where is Amazon’s heart? Is it the $50 billion in sunk costs, or did they start to notice a falling off of creativity and effectiveness? Who knows?

I love that you bring up effectiveness because, in the conceptual age of this new-collar economy, is it about productivity, or is it about effectiveness? If I send out a hundred emails and I call you up, Dan, you’re my boss. It was like, “Dan, I sent out a hundred emails.” I could say I’ve been productive, and I’ve worked my ass off. Maybe another day, I send out three emails, and two of them turn into deals. I also got to play nine holes of golf that day. Do you care? I’m not here to say it’s all about working from home.

What I’d love to emphasize is that hybrid work is the flip side of the coin of omni-channel retail or hybrid retail. What we’ve seen in hybrid retail is about 20% of the time, 20% of total retail sales of $3 trillion, are happening in the e-commerce channel. What we’re dealing with is these multiple channels of how people are spending their money. I think there’s an equal and opposite example of how people make their money. Do we need to be Monday through Friday, 9:00 to 5:00, in an industrial-era construct? I don’t think so.

I think what has happened is that we have generations of Dilbert middle managers who have determined that if you’re sitting at your assigned station, you are therefore being productive, which is complete and utter bull hockey. It’s not true. I argue that leadership is greater than management, that we need leaders at all levels who are helping drive the company mission and mandate, who help define what being effective is, who then surround younger people with resources, and even mid-career people with resources.

 

Leadership is greater than management. We need leaders at all levels who drive the company’s mission and mandate and who help define effectiveness.

 

Michael Jordan needed a coach. Tiger Woods needed a coach. Everyone needs a coach. How many coaches are out there for the middle managers that we have? Very little, unless someone has some get-up-and-go, and they’re reading books, and they’re listening to podcasts like yours, and they’re doing a number of things. By and large, I argue that leadership is greater than management and that you need to focus on that. I argue that effectiveness is greater than productivity. Being in an office is fantastic. As a young person, you want to be in an office.

It’s generally a target-rich environment to find a mate. It’s where you find your friends. It’s where you develop your social networks. It’s vital. It’s where you learn from the silverbacks that are in and around. For middle management and even more senior people, you’re able to give back. What we’re seeing is this desire to have more of this experience happen in office settings, as opposed to passive attendance. Purposeful presence over passive attendance. During the pandemic, we were doing some research, and I heard this phrase that I loved, and I carry it with me, and it’s in the book, which is a philosophy that on-site is the new off-site.

When we have people coming together, is there an agenda? Is there a meal prepared? Is there a guest speaker? Are we challenging each other in a different way? I think mandates are an intellectually lazy, blunt instrument, and that we have to get a lot smarter to provide incentives for people. This is where it goes back to this whole notion of behavioral science and behavioral economics. What are the nudges that can get people to make the decision to be in an office? If it’s an environment where everyone’s there if it’s an opportunity where, if you’re not there, you have to opt-out, but otherwise, everyone’s opted in and going to be in the office.

If there’s something that can sway you and make the two-hour commute a day worth the trade, people will be in the office. I know there was a law firm in New York, and they had this mandate one day for everyone to be in the office, and out of 120, maybe 58 showed up. By the way, there’s no bite or bark in the event people miss a mandate. There’s no wholesale firing going on unless you’re Elon and you want a complete reduction in force, which he did at Twitter. That same group had another event two weeks after, and there was a social event after, call it business hours, and out of 128 people, it was 115 showed up. It’s not that people don’t want to show up, but they want to show up for a reason.

If you mandate that I have to come to an office and commute 15 miles each way or take public transportation, and I’m sitting at a cubicle and I’m on a Zoom call that I could be doing from home, and I could have seen my kids when they wake up, could have helped get them dressed, I could have been on the Zoom call, and then I could see them when they come home. I think there’s this interesting push-pull like you said, that goes from work-life balance to life-work balance, and you can still get some of the same things done.

I love it. I could go on this, this is a hot topic, debate it. We’re looking at office assets, we’re passing on everything. Some friends of mine have bought some very cheap, $10 a foot for class A space and class B plus, if not class A minus location, phenomenal deals. They’re going to make a shitload of money. It’s going to take 5 to 10 years. Certainly, for the next 24 to 36 months, it’s probably not going to be fun for them to own these assets.

Joining LRG Investors and Future Plans

I think you’re right and spot on with the experience being created, people rethinking, and turning this into more of the omnichannel retail model. We have to evolve what the office is for and what we’re doing to attract people back to the office. I’ll digress, and we’re going to shift gears here a little bit. You joined as a partner, LRG Investors and you guys have in, I believe, in the portfolio, shopping centers with grocery anchors, things of that nature, and have done quite a bit of tenant-driven development, which, for those tuning in, that’s what Trammell Crow built a significant portion of his business on, who we were mentioning earlier.

The tenant comes and says, “I need 100,000 square feet.” The landlord builds the 100,000, has the lease lined up, and the tenant day one. It’s a phenomenal development strategy if you can do that right. Would you mind pulling on the thread of the decision to join LRG and what you guys are anticipating doing over the next 18 to 24 months?

I’m happy to. LRG is the development and investment arm of Lockehouse Retail Group, which was founded by my friend Steve Cutter. He partnered with Josh Amoroso. They’ve built both companies. Again, this goes back to my earlier point of collecting people. I was doing deals with Cutter 25 years ago, easily, if not more. We’ve become friends and colleagues and have a great deal of mutual trust and respect. When it came time for me to think about doing something next, he and I always talked about doing something. With Josh and Steve, now we’re together.

What the company has done over the last 3 or 4 years is focused on acquiring grocery-anchored daily needs centers that have some adaptive reuse and some uptick in rental rates and outpads and things of that nature. It was difficult to build ground over the last 3 or 4 years. Rates were high, input costs were crazy, and labor was off the charts. It was a difficult time. We’ve seen a number of areas ease. Clearly, we’ve had two, a 50 and then a 25 basis point drop from the Fed.

We haven’t seen a reaction in ten years. In fact, the ten-year has gone up. We’re seeing more dollars, more equity capital dollars, chasing retail deals now than we have in the last five years. That’s for a number of reasons. One, there’s been over 100 million square feet of supply taken out of the retail equation. Those are the old B malls. It’s the last Kmart closed, if you can believe it, this fall. I say that most people say, “I didn’t even realize one was open.’ You have a number of retailers who are in a growth mode.

The jet fuel for those retailers is net new stores, adding to the store base. Starbucks is still blowing and going. The banks, Chase are opening up. I think they added something like 250 or 300 new bank branches. We’re seeing companies like CAVA coming into the picture. Their stock is up 300% since the beginning of the year. Wish I would have bought it. My friend Jeff Gaul is the chief development officer there. They’re blowing and going and doing great. It’s interesting because what they’re offering is this Mediterranean menu, have you been to a CAVA? Are you familiar with it?

Not yet. Tell me about it.

Think Mediterranean menu in what looks like a Chipotle. You have the whole lineup, the walking line to construct your pita or your bowl or whatever. Super healthy food, reasonably priced, great lifestyle. These guys are blowing and going, and they need to expand. The grocers are still expanding, the Sprouts of the world. We talked earlier about Trader Joe’s. You’re seeing Kroger and Publix following the demographics. I’m here in northeast Florida, in Jacksonville. You start looking at places like Daytona, which hearkens back to spring breaks and racing cars.

There are 10,000 new houses going in the Daytona market. It’s staggering. There are 1,200 people a day still moving to Florida. There’s a great opportunity to capture some of these demographic shifts to help meet the demand for growth. We feel like inflation has subsided some. We’re seeing better pricing, not super great yet. We tend to be doing, looking at single-tenant, built-to-suit, multi-tenant buildings under 10,000 square feet still don’t pencil great. Over 10,000, we’re seeing better probabilities. We think that our thesis is that the environment is going to continue to get better. I think the election means that carried interest is probably going to stay put.

Taxes are likely going to be reduced, regulations will be reduced. Hopefully, inflation on inputs will come down. It’ll start making a lot more sense. The capital markets are strong. Banks want to lend to retail. That wasn’t the case five years ago. I was at an ICSC trustees meeting. One of the phrases was, “Thank God we’re not office,” because there was a long time there where retail was out of favor, but it’s now back in favor. We’re looking at opportunities across the country. We have great coverage along the West Coast, Rocky Mountain West, as well as the East and the Southeast. We think that there’s a place to be, and to help clients grow and to make some money.

Trends In Retail Development And Store Sizes

The trend in retail, the new ground-up developments I know of personally, a friend of mine built a Starbucks, came out of the ground. That was under construction, I think last summer, maybe. I’m sure they’re serving coffee. Another friend of mine signed with 7 Brew. It’s a drive-through concept, red hot. They’re trading at lower cap rates than Starbucks. Who else do I have? Some car wash buddies who built 15 or 16 of those, maybe in the last 36 months, but they’re small.

It’s 2,000 square feet, give or take, maybe 3,000 or 4,000, small developments. I don’t know of any shopping centers, 100,000 or 80,000 square feet, that have gone ground-up anytime at all. We had a lot of that built in the 2000 to 2008 era. We were probably well oversupplied during that time period, like offices now. The bigger boxes, I don’t know, maybe you would have a little more accurate number, but are you seeing the grocery concepts also, where they may be used to be 35,000 or 40,000 square feet, and now it’s 20,000 or 25,000 square feet?

What are the trends in terms of the actual size of the store? Have they been shrinking the footprint and becoming more effective with inventory turns and the iPhone, the ability to order, or stable? What insight could you provide on the size of the stores that may have been developed in the last three years, and what you would expect to continue over the next three years as the development marketplace hopefully becomes a little more favorable?

That’s a good question. I would say, I’d point to Target. Target was very busy doing a lot of their in-city Targets, reducing their footprint, trying to go on college campuses in high-dense urban areas, and they came up against some of the same challenges I mentioned earlier around organized retail crime and difficult to operate. On their philosophy going forward, and I believe they announced over 100 new stores, they’re reverting back to their 125,000 and 135,000 square foot large prototypes.

Again, it goes hand in glove with the hybrid retail, because as much as the four-wall experience is well-lit and great, and the associates are fantastic and have a smile on their face, it’s also a last-mile distribution center. People are buying online, either having it delivered to their home or buying online and pick up in-store. You’re seeing more and more of these opportunities where “I’ve got two bagfuls that I need to pick up at Target”. I text them, pull into parking lot B, someone comes out, puts it right in my trunk, and I leave. Great experience.

We’re seeing an increase in some stores, and we’re seeing retailers test and learn. That is an important lesson, to see how the consumer is acting and reacting to different examples. A lot of A/B testing going on. It’s difficult to do with a capital asset as expensive as a piece of real estate, but if you’re a national retailer, you can test some things in one market, get learnings, and try something different in other markets. I think that’s important. The grocers, 50,000 or 60,000 square feet.

Walmart is back out again with their Neighborhood Market, a little bit reconstituted, but again, a super strong anchor that can help drive a lot of other daily needs. I am now, for the first time, starting to see the potential for ground-up grocery-anchored centers, starting to see site plans circulating and deals being talked about.

Are those deals in proximity to Daytona? I think it’s Daytona. We had a 250-lot subdivision I’m an investor in, where we’re selling that to Pulte or something like that. If I imagine that going in on the outskirts of Daytona or whatever the big city is, are those projects you’re seeing located near those newer development sites, I’d imagine?

The new housing development site? Absolutely. There’s an interesting project called Margaritaville that’s residential in focus. I think there’s probably less than half a dozen of these Margaritaville. There’s one by Hilton Head, there’s one that’s on LPGA Boulevard by Daytona. These things are sold out. There’s the next Lennar or Pulte or whatever is going.

D.R. Horton is building next to them. You have the initial public center that’s phase one, and now all of a sudden phase two is happening. You’re seeing all this happening in almost a step curve. As more and more people are moving full-time to different parts, particularly the Sunbelt, the daily-needs retailers have to respond.

Investment Philosophy: Hold Vs. Sell

It makes sense. One question on philosophy, a lot of times, I don’t know how true it is or whether it holds up, I thought I was a hold my rental portfolio forever kind of guy and buying things and holding them forever. That’s what I’m going to do. I signed a deed package for one the previous day. I have contracts on the others. I can’t wait to sell them all off because I’m going into partnerships where I’m a little more passive instead of dealing with the day-to-day management.

Curious, Lockehouse Retail Group, LRG investors, what’s your philosophy in terms of holding everything forever on one side of the scale, and then on the other side of the scale, maybe it’s buying it, get it stable, and immediately take it to market and cash out? Where do you guys fall in terms of the own forever or flip and get out of it philosophy?

I would say there are two different flavors. One, the grocery-anchored center, the daily-needs centers, we tend to hold those a little bit longer, allow them to season, and give us time to lift the rates. We typically look at a 15% uplift in rental rates. We try to capitalize or redevelop out pads and create value. A little bit longer horizon there. As far as the single-tenant assets go, given where the capital markets are, we’re more in the churn-and-burn mode, where it’s almost merchant building. We’re going to build them and then take them to market. It depends on the asset type, but it’s a mixed approach.

If we look back at Walgreens, you build it as a merchant, and from the outside or the inexperienced observer, you’d say, “You’d want to hold that forever, that’s Walgreens.” If you held it forever, they’re letting the lease expire on you. What are you going to rent that out to, a daycare center? What goes into the corner? Very difficult to backfill. That was one of my own lessons over the last 24 months, that nothing lasts forever, in a sense. You get this great collection of national tenants, solid credit, strong cap rate, and you have a length of term left on the lease.

You’ve got to sell it while it’s marketable because you get down to someone bringing you that same Walgreens deal, and there’s 2 or 3 years left on the lease. You’ll get the loan, but you’re guaranteeing a $3.9 or $3.8 million mortgage on a $5.2 million purchase. Not a comfortable position. That’s why the owner is selling that asset because the lease term is at the end. I think that’s a great model. We built our Vegas shopping center. I think we’re either going on the market by the end of the year or we’re going on the market in early 2025. Some of the retail numbers that we’re seeing are you’re selling on twelve more months after you own it.

It’s like this projected pro forma seasoning thing. There are buyers out there in the market who will pay it to maybe be in there as the demographics are improving, and maybe it’s a location. They’ll laugh at us for selling it at the price four years from now, maybe. It’s interesting to see the trend of retail properties getting hot again.

There was an interesting article in The Wall Street Journal this week, on November 12th, about how the real estate scions in New York City are breaking the cardinal rule, which was never sell, but they are having to sell. Rudin was one example, and a handful of others. Nothing’s forever. That’s sound advice.

Impactful Book Recommendations By Joe Brady

True enough. As we wrap up here, I have a couple more questions before we close. The first will be book recommendations. We talked about Trammell Crow earlier. Are there 1 or 2 other books, maybe real estate related or otherwise, that you found profoundly impactful and might be interesting to the reader?

One is around behavioral economics, and it’s called Nudge by Richard Thaler and Cass Sunstein. Thaler is a Nobel laureate in economics. His buddy Sunstein is a professor at the Harvard Law School. This is an important book, I recommend it often. It talks an awful lot about how you can engage in choice architecture to help people make good decisions without taking the agency and autonomy away from them. I think this is going to be an important area for us to focus on. We can’t be that intellectually lazy, blunt instrument when it comes to dealing with people interacting with our real estate.

How do we nudge them to come back into our space? The second book I would mention is probably a little bit more personal, but it’s called Build the Life You Want: The Art and Science of Happiness. It was written by Arthur C. Brooks with Oprah Winfrey. Arthur Brooks is the most popular professor at Harvard Business School, and he teaches a class on leadership and happiness. I’ve found his message to resonate and to be important as we navigate difficult times. I’m on the board of my national fraternity, the president of the board, responsible for, I’ve got 11,000 undergrads, and I have a 22-year-old son as well. I see what’s happening in the world with these kids.

We’re in an epidemic of loneliness, anxiety, depression, self-harm, non-accidental deaths. It’s not something that we should be proud of as a society. We need to arm not only ourselves, but we need to help arm our younger people with tools to be more resilient, to be more anti-fragile, to know that you’re going to have bad days, and so how do you deal with them? These lessons about happiness that Arthur Brooks talks about are impactful.

 

We are in an epidemic of loneliness, anxiety, and depression. We need to arm our younger generation with the tools to be more resilient.

 

I’ve had a chance to meet him. I’m working with him with the national fraternity as we take some of his lessons and bring them into the associate member education process. Again, another area, we can’t have successful real estate unless we have successful, functioning, energized, entrepreneurial, enterprising people to either shop or work in them. That’s another area that I’m pretty passionate about.

Jewel Of Wisdom For Young Professionals

I appreciate that. We’ll have to get those ordered myself. The crown jewel of wisdom, if you could go back, let’s pick a good point here, a good way to phrase this question because we talked a little bit about the principal and the banker and the brokerage side of things, let’s say you were starting with zero and you were one of the young people in your fraternity, what would be the crown jewel of wisdom that you would share with them, knowing everything you know now?

It might sound like a broken record, but I’d go back out to who are the most successful alumni out there, and how can I go and engage with them? I mentioned earlier about the University of Florida, the Bergstrom Real Estate Center. It turns out that Kelly Bergstrom, who’s the benefactor, was the president of J&B Realty out of Chicago, and he’s a fraternity brother. Not only have I but there’s been an army of young men who went and worked at J&B, who got to learn under Kelly.

Find a mentor, find a leader, and learn as much as you can. Sweep floors and fetch coffee, there should be no job below you. Show up early, stay late, and work hard. Ninety percent of winning is showing up, the other 10% is not leaving until you’re done. It’s almost like sending a handwritten note, it stands out. If you do that, and you work your ass off and don’t expect anyone to give you anything, and you’re going to outwork the next person, I think it’ll serve you well.

 

90% of winning is showing up. The other 10% is not leaving until you’re done.

 

That ties into our conversation earlier about doing your homework and reaching out to that person for some insight. One thing I think I would have had challenges with when I was 18, 19, 20, 21, I didn’t have enough perspective to maybe even select the right mentor. If there was some guy who had five rental properties, he would have been like the king of the hill, and I would have been ready to worship at his feet, for lack of a better, I would have thought he was the pinnacle.

What type of strategy advice would you additionally layer on for that person around trying to figure out who is maybe the right person to go out and contact? Maybe that’s step one, you’re asking the first mentor you identify, something like that. How would you go about maybe selecting that person, that you invest the time through the homework, come up with the agenda, and then schedule and do the meeting?

It can be that formulaic, or it can be super opportunistic. I’ll give you an example, Dan, and you’ll appreciate this from our Philadelphia background. As a kid, I thought the best job in the world was being a caddy. I was a caddy at the Philadelphia Country Club. You’re outside, you get paid in cash, get a little workout, you meet interesting people. There was a member-guest, and this gentleman named Tony Hayden, for those in Philadelphia, he was the head of the Cushman and Wakefield office.

I was his caddy. Very first day, he looked at me and said, “You’re going to forecaddy as much as you want, ride on the back of the cart, and we’re going to have a good couple of days here. By the way, here’s $100.” That was 40 years, that was a lot of money. I said, “Mr. Hayden, this is awesome.” I was studying electrical engineering at Villanova, that’s where I got my degree, but I got to interact with him. I asked if I could come interview with him, which I did.

Again, there was that opportunity. He looked like he was having more fun doing real estate than what I saw people doing in engineering. My golf game still stinks, even though I live on a golf course. In any event, I think you have to be open to it. Do these people match your goals and aspirations, your character, and your ethics? Does it feel good? If so, probe and ask questions. It doesn’t have to be like a master’s thesis on day one. It can be a couple of questions, and then follow up and work the angle.

Maybe it’s as simple as sitting down and thinking it through. No one gave me that idea when I was heading into Villanova. I remember my mom’s like, “Fill out the application. You might get in.” I’m like, “I’m not getting in.” I was working at a car dealership. All I wanted to do was drive the brand-new Trans Ams that they were delivering every day, like $9, whatever.

Eagle on the front, right?

Yeah, $6 or $7 an hour, whatever it was. It was like, it didn’t matter. These cars were so much fun that I had the chance to drive. I filled it out, and I thought, I’ll design cars. I’ll be a mechanical engineer. I checked the box. When I got there, I had a similar experience. I had always wanted to do real estate since I was a kid. Grandpop was a property manager and did the early math and figured out that was a good plan as far as making money. When I looked around at mechanical engineering, I had no idea what it was, or what I was getting into.

I was like, I don’t know if I want to do this. Sitting down to think it through is a great point. Maybe the action item is, and they did tell me this, someone told me this back when I was that age, go caddy, because you’ll meet interesting people. There you go. There it is. Go caddy, and you’ll get at least 6, 10, 15, or 20 in a summer’s worth of caddying, and interesting conversations to help develop the strategy. Joe, where can people go to get more Joe Brady?

You can go to my website, which is JoeBrady.ai. On the website, there are links to Amazon and Barnes & Noble for the book. There are some links to articles I’ve written, and podcasts and presentations that I’ve done.

The Kindest Thing Someone Has Done For Joe

My final question, Joe, what is the kindest thing anyone has ever done for you?

When I was first out of college and working in Charlotte, North Carolina, I was working for my national fraternity. The executive director, one of my lifelong mentors, Durward Owen, knew that something went awry with the local bank branch. He grabbed me by the collar and took me in there. Somehow, they were taking advantage of me. It was a horrible experience.

I tried to forget it, but he brought me in, sat me down in the manager’s office, ripped this guy up one wall down the other, and said, “You don’t know who you’re dealing with here. This young man is going to be a leader of tomorrow. He’s going to be one of your biggest depositors here. You should rectify what happened. What you did is wrong.” I never had anyone stand up for me like that. I never thought I deserved it until that time. I felt that kindness and support allowed me to stand a little bit taller that day. I never forgot it.

Nice. Joe, I have four pages of notes. I had a fantastic time. I appreciate you coming to the show.

Dan, it was so good to be with you, a fellow Philadelphian to Chicago, and I wish you well. I hope to meet you live someday.

We’ll get it done.

 

Important Links

 

 

Short Term Rental Strategy with Danielle & Culin Tate

 

Short Term Rental Strategy with Danielle & Culin Tate

 

Guest: Danielle & Culin Tate went from unemployed to grossing over $1 Million annually through Short Term Rental/Airbnb Investing. Culin used his background in SEO to reverse engineer the AirBNB algorithm to rank their 10 listings on the top page.

Big Idea: Selecting the right properties for your portfolio in a tight geographic region provides the opportunity to better monopolize your chosen market.

 

 

    

Dan Breslin: Sweet. Yeah. So for listeners who don’t know, we’re on the video call. And you could see the host, Coach neon sign in the background. That is Danielle and Culin’s Hosting Company. They have 10 short term rentals that they have operated at what is an above average performance rate compared to what most people probably get out of their short term rentals soon to be 11. They’ve been doing this since 2018, and have written the book, which I believe, is also called Host Coach as well. Plug for the book. Cool. Welcome to the show. Do you guys want to share the backstory? How did you end up doing this, you know, starting in 2018, and maybe what’s the business model look like.

CTate: Yeah, yeah, excellent question. I started real estate the way a lot of people do kind of by accident, meaning that in 2018 I’ve always been a serial entrepreneur. I’ve had many startups, and in 2018 I was part of a startup that would basically shut down shop and just kind of looking at my life thinking. You know, I’ve got a 8 year old, son, am I gonna really go? You know, what’s the what’s the effort level look like starting another startup right? And and everybody that’s done that knows, you know the grind involved, and we had one short term rental at the time and it was, you know, a sideline kind of thing, but it was doing $4,000 a month or so in in gross revenue, and I thought. You know, I’ve always been kind of excited and interested in real estate. I could do easy math, and I can multiply 4 times 2 or 3, and start to see some scale there. And then doing what we do best. We iterated and used all of our background from having various tech companies separately and together, and really started to dig into. How do you make this perform? How do you? Once we had a couple we accidentally bought 3 from different people simultaneously. So we had enough to test some theories and really start to manipulate how we were presenting things and and work on the Airbnb Algorithm to be at 97% occupancy year round.

 

This Episode of The REI Diamonds Show is Sponsored by the Deal Machine. This Software Enables Real Estate Investors to Develop a Reliable & Low Cost Source of Off Market Deals. For a Limited Time, You Get Free Access at http://REIDealMachine.com/

 

This Episode is Also Sponsored by the Lending Home. Lending Home Offers Reliable & Low Cost Fix & Flip Loans with Interest Rates as Low as 9.25%.  Buy & Hold Loans Offered Even Lower.  Get a FREE IPad when you Close Your First Deal by Registering Now at  http://REILineOfCredit.com

 

Resources mentioned in this episode:

https://www.HostCoach.co/

 

For Access to Real Estate Deals You Can Buy & Sell for Profit:

https://AccessOffMarketDeals.com/podcast/

 

Danielle & Culin Tate & I Discuss Short Term Rental Investing:

  • Top Page Ranking on AirBNB

  • Benefits of a highly focused Short Term Rental Portfolio

  • Blue Ridge Mountains, Virginia

  • The Recent Evolution of Short Term Rentals

 


    

Relevant Episodes: (200+ Content Packed Interviews in Total)

 

The transcript of this episode can be found here.
Transcripts of all episodes can be found here.

Dallas – Fort Worth Industrial Real Estate Development with Michael Tran

 

Dallas – Fort Worth Industrial Real Estate Development with Michael Tran

 

Guest: Michael Tran is an associate vice president in the Colliers International Dallas-Fort Worth real estate office where he specializes in acquisitions & dispositions of industrial properties in Dallas-Fort Worth and throughout Texas. He has a background driving more than $600M in value through leasing and has closed more than 900 commercial real estate deals to date.

Big Idea: Dallas – Fort Worth Texas industrial real estate offers strong opportunities in the Small Bay Industrial flex space asset class. This asset class seems poised for continued cap rate compression & value increases as institutional investors have begun buying in bulk.

 

 

    

 

Michael Tran: Oh, yeah, yeah. You know, we’re we’re probably a little bit over like 9 50. Now, you know, we’ve had a little bit of slow down last year or 2. But you know, we’re a team of 5 guys who been out in the industry for over like 50 years combined. So we’ve got some heavy deal volume. We try to do at least 50 to a hundred transactions a year on the multi 10 industrial side.

Dan Breslin: So I am going to start us in a little bit of a unique philosophical place. If that’s okay, this is this is not going to be like a question. I have a little little bit of verbiage here to package this. So we have on one side of the coin, Sam Zell, and for anyone listening who does not know who Sam Zell is, Sam built a very large, multifamily portfolio. I believe he sold that. He built one of the largest mobile Home Park portfolios in the country. I believe he may have sold that he may still own it or his company, and he was probably the most known recently for timing in the office market and exiting equity office properties. I believe it was in 2017, and looking back, what we all know about office now, I mean, that was like impeccable timing. And unfortunately Sam Zell passed. So that’s Sam Zell and Sam Zell’s philosophy was. There’s way too much risk in developing real estate. There’s way too many assets out here that can be bought.

 

This Episode of The REI Diamonds Show is Sponsored by the Deal Machine. This Software Enables Real Estate Investors to Develop a Reliable & Low Cost Source of Off Market Deals. For a Limited Time, You Get Free Access at http://REIDealMachine.com/

 

This Episode is Also Sponsored by the Lending Home. Lending Home Offers Reliable & Low Cost Fix & Flip Loans with Interest Rates as Low as 9.25%.  Buy & Hold Loans Offered Even Lower.  Get a FREE IPad when you Close Your First Deal by Registering Now at  http://REILineOfCredit.com

 

Resources mentioned in this episode:

www.FlexBusinessParks.com

 

For Access to Real Estate Deals You Can Buy & Sell for Profit:

https://AccessOffMarketDeals.com/podcast/

 

Michael Tran & I Discuss Dallas-Fort Worth Real Estate:

  • Uncapped Income Opportunities

  • Development of Small Bay Industrial

  • Buying into the Upward Trend

  • Lower Risk from a Broad Tenant Base

 


    

Relevant Episodes: (200+ Content Packed Interviews in Total)

 

The transcript of this episode can be found here.
Transcripts of all episodes can be found here.

Selecting the Top Airbnb Real Estate Market with John Bianchi

 

Selecting the Top Airbnb Real Estate Market with John Bianchi

 

Guest: John Bianchi is an experienced entrepreneur specializing in analyzing Airbnb data and helping investors identify profitable short-term rental opportunities. With a background in data analysis, he transitioned from managing rental properties in Chicago to focusing on providing valuable insights and strategies for Airbnb investors.

Big Idea: Understanding Short Term Rental Markets relies on the data. John describes how to do this on the show and even offers his 40+ course on the topic absolutely free.

 

 

    

 

Dan Breslin: So I found in my research for today’s episode that you started off in the Airbnb space with a handful of units in Chicago. Would you mind starting the origination story there and then getting to how your business looks today.

John Bianchi: Yeah, I was just about to get into it. And and mention that I absolutely love Chicago. It’s my favorite place, like Chicago in the summer is one of the best places to live ever right the waterfront, everything you do there so great memories from Chicago. But what the way I got to Chicago was I was actually looking to try and go anywhere in the country that was going to be really profitable for short term rentals right. And as an analyst and data analyst, I looked everywhere like genuinely everywhere. And I thought Florida was the place to be with the way that I was trying to do things I was trying to do rental arbitrage at the time without getting too into it. You rent somebody’s house, and you put it up on Airbnb right? Not a great business model in the long run. I know that nowadays. But Florida was looking amazing. I actually went down to Florida, drove around to 7 different cities over a 1 month period, trying to make it work down in Florida and failed, thought of my face, and just woke up one morning and drove 24 h back to Canada. Like was like, I’m done, and I took off. And at that time I I had actually left and sold another business to go do this. And I thought Florida was going to be it, and it just wasn’t whatsoever.

And so I was trying to figure out like, where do I go now? Right like, where the hell am I supposed to go? I had raised money from people I, you know, told my family I was leaving, and all of a sudden I’m back like, I feel like an absolute loser. And so now I’m like, Okay, where do we go, and the 2 options I had were Chicago or San Diego and, you know, having already gone a quick 24 h away, I’m like, let’s just go to Chicago. It’s a lot closer. We’ll make it make it work up there. And yeah. So anyways ended up in Chicago, figured out where exactly to go within Chicago, which was Lincoln Park. That was like the gold mine when it came to short term rentals specifically 4 bedrooms. If you could set them up proper way. And I, you know, within the 1st 2 weeks had 3 properties ready to go. And or I’d found 3 properties. 3 landlords who are willing to rent it out to me to turn it into short term rentals over the next month and a half. I got those all up, and running ended up after a 2 year period, having about 15 up and running handful of rental arbitrage. Handful of property management. Had my own cleaning company out there as well, and it was it was going well. And then, you know, Covid came around and wiped that all out pretty quickly. Luckily I still had the contract still had the ownership of them, and was able to sell that to somebody else which was its own fiasco. But then the main thing that I really got out of this entire process of what I built up in Chicago was, I realized that I was really really good at analyzing Airbnb data to be able to find properties that were going to work out really well. And that there was a ridiculous amount of people in the Airbnb space that did not know how to do that whatsoever.

So through that realization, I’m kind of an opportunist. And I figured out that I could offer that service of analyzing Airbnb data to people. And I have been doing that for almost a little over 3 years now. And it’s just continued to snowball. And I’ve continued to build a business from there.

 

This Episode of The REI Diamonds Show is Sponsored by the Deal Machine. This Software Enables Real Estate Investors to Develop a Reliable & Low Cost Source of Off Market Deals. For a Limited Time, You Get Free Access at http://REIDealMachine.com/

 

This Episode is Also Sponsored by the Lending Home. Lending Home Offers Reliable & Low Cost Fix & Flip Loans with Interest Rates as Low as 9.25%.  Buy & Hold Loans Offered Even Lower.  Get a FREE IPad when you Close Your First Deal by Registering Now at  http://REILineOfCredit.com

 

Resources mentioned in this episode:

https://www.strsearch.com/

 

For Access to Real Estate Deals You Can Buy & Sell for Profit:

https://AccessOffMarketDeals.com/podcast/

 

John & I Discuss the Airbnb Real Estate Market:

  • How Hurricane Helene is impacting the Short Term Rental markets.

  • The risk of Oversaturation in any strong Airbnb market.

  • Get Good at Data to Win in Investing

  • 3 Metrics to Understand Any STR Market

 


    

Relevant Episodes: (200+ Content Packed Interviews in Total)

 

The transcript of this episode can be found here.
Transcripts of all episodes can be found here.