Real Estate Nerds

Welcome back to the Real Estate Nerds Podcast. On today’s Best Deals episode, our host, real estate attorney Scott Smith welcomes residential and commercial real estate investor Darrin Gross. The pair of investors discuss Darrin’s first deal, which also happened to be one of his best. Darrin has since established a healthy portfolio of properties in no small part because of his ability to negotiate and identify the needs and problems of sellers. After all, a seller's problem is an investor's opportunity. Tune in to hear the full conversation and get some tips on improving your own real estate deals.

Darrin Gross and His Best Deal

Scott and Darrin talk a bit about Darrin’s background, entry into the world of real estate investing, and the duplex that started it all.

[1:00] Darrin is an insurance broker by day, and his work first exposed him to real estate investing.

[3:00] Darrin’s first property was an atypical duplex that was fairly rundown. Within seven months, Darrin had a second property and was earning close to half of his ordinary income.

[5:00] Scott asks Darrin about how he formed his team. In his early career, his team was disorganized.At first, he had only a property manager in place. His lender was also his seller, and he had another person helping with maintenance.

[7:00] Darrin’s earliest motivation for entering real estate was straight forward and modest: he wanted a new car. He also observed friends having success in passive investments, and that drove him to get involved.

[8:30] “The important thing about this property is that it’s the one that got me going.” The closing, like the property itself, was unconventional. The fact that his seller was carrying the note meant he bypassed certain typical pieces of the real estate buying process, like securing financing and inspections.

[10:00] Darrin describes how he got creative with this property. His essentially flipped the property several months later and was able to help a friend who needed $10,000 for another investment. Darrin was able to solve this problem with a line of credit he had, and crunched the numbers himself. He had an early realization: “You can make the deal work for you. It’s not always about what somebody is asking.” [10:30]

Darrin Gross’s Dealmaking: Negotiations and Motivation

Scott and Darrin dive into some of the details about what Darrin’s experiences have taught him about making good deals. The two investors talk about negotiation strategies and ways to gauge and exploit the motivations of a seller.

[12:00] Darrin also made some early observations about negotiations: “If you start high you can’t work your way low. If you start low, you can work your way up.” He tends to run the numbers first to find what works best for him, then make an offer that may interest the other party. He doesn’t tend to worry about offending the other party or catering to exactly what they ask for, but rather what number he can justify.

[13:30] Scott and Darrin briefly discuss the roles and motivations of brokers. Darrin believes brokers are beholden to sellers to get as much as they can for a property. Scott makes the point that quick sales and commissions for themselves are a big part of their job. Darrin agrees, but points out that.

[15:00] Darrin points out approaching with not just an offer, but a lender and pre-approval letter, can go a long way with closing with a seller.

[16:00] Darrin’s best deal involved a highly motivated seller. He knows from experience this played a role in his success: “You have to have a motivated seller if you want to get a good deal.” [16:45] In this case, the motivation was easy to detect--the seller needed $10,000 cash.

[17:34] Scott asks what information can be used to detect how motivated a seller is. On top of asking and looking at what degree a seller is willing to negotiate, Darrin advises looking at circumstances that might be a problem for the seller, but an opportunity for the investor.

[19:00] Darrin advises that investors run their own numbers as part of due diligence.

[20:00] Knowing a seller’s reasons for selling gives investors an opportunity to identify circumstances that can later be used in negotiation. With Darrin’s experience buying distressed properties, finding more information can lead to unique opportunities for a better deal.

The Takeaway: Get in the Game to Win It

Scott and Darrin close the show by discussing the major lesson listeners can learn from this deal. For Darrin, the important lesson he learned was that he had to just dive in to real estate to enjoy success in it.

[22:50] Scott asks Darrin what key takeaway listeners can take from his story. For Darrin, the answer is simple: “You’ve got to get in the game. If you’re not playing, you can’t win the game.” If he hadn’t gotten in on his first deal, he wouldn’t have his current success.

[24:00] The value in this deal, which Darrin refers to as his “accidental flip” for how he was able to leverage quickly to another buyer, is largely that it became a springboard: “That first property is what propelled and set me up to buy additional properties.” Scott agrees that the benefits that come your way aren’t the ones you expect.

[26:00] Darrin now makes regular monthly income from passive investment, and has also seized on real estate as an opportunity to pass on wealth to his children.

On this week’s episode of The Real Estate Nerds Podcast, Scott sits down with fellow real estate investor Joe Fairless. You may know Joe from his incredibly popular “Best Investing Advice Ever” Podcast, or two “Best Ever” investing books. He is a wildly successful apartment complex investor. Joe has come on the show today to tell our host and real estate attorney Scott Smith about his all-time best, and earliest, apartment syndication deal.

Joel Fairless’s Best Deal: An Apartment Syndication Success Story

Scott welcomes Joe onto the show and asks a bit about his background. The two investors bond over their Texas roots, then immediately dig into the details of Joe’s best deal.

[1:00] Joe is a full-time investor focusing on apartment communities, specifically via partnership syndications. Originally from Texas, he now lives in Cincinatti with his wife, who is expecting their first child together at the time of this recording. Joe is here to tell us about his best deal, which also happened to be the first deal he did with his current company. The property is in Houston, TX and called Woodglen Village.

[2:46] Scott observes that syndication partnerships are often the “next level” for investors: “With 1-4 single or multi-family units it’s hard to go wrong...But with apartment buildings you have to be a little more careful.” He asks Joe for more background on the deal.

[3:00] Joe shares that his business partner found the deal, before the two were officially partners but just mutual friends. The partner, Frank, had found the deal but had no money to close it. Frank had failed to secure funding from private equity groups, but once he partnered with Joe, Joe was able to use his network of investors to help fund the project and eventually got on board himself.

[5:00] “I didn’t want any part in the deal initially, because I hadn’t looked at it, and I just didn’t have the time,” Joe tells Scott. His mind was changed, however once Frank exhausted the options in Joe’s network and Joe finally actually laid eyes on the deal and realized its potential.

[6:00] Scott asks how Joe saw the makings of this Best Deal that others had missed. Spoiler alert: Joe doesn’t have a magic wand. In retrospect, he thinks Frank was shot down so many times because of his lack of experience, although Frank certainly had Joe speculates the other investors

[bctt tweet="Nothing in my life has meaning until I decide to give it meaning. That’s how I approach life.." username="RoyalLegalLaw"]

Investing Psychology: Joe’s Winning Approach to Challenges Closed His Best Deal

[7:30] Joe shares his initial greatest challenge with this deal: “This was summer of 2015 in Houston, TX...There were headlines in all the papers about oil plummeting and Houston being in big trouble. Since this deal was in Houston, that scared off a lot of people, including our lender about a week before close.” The lender attempted to re-trade, or change the terms of the deal in their favor (in the form of more equity that Joe and Frank did not agree two). The partners, fortunately, switched lenders.

[8:35] Joe’s network at this time was still developing, and he and Frank got a lot of rejection. Today, Joe’s network is massive and he rarely needs to even find his own deals But during this time, Joe had to reach out to his fellow Houston investors on LinkedIn and persuade them to get in on it: “It was incredibly challenging for the market, the location being in Houston, and the things that were happening with oil dominating all the headlines, and the lack of track record for debt and equity lenders and investors.” [9:57]

[10:30] Joe’s initial risk in this deal was $140,000. Scott asks about how he coped with the stress.

[11:00] Scott mentions that many investors use a morning routine on the logic that, “If I can own the morning, I can own the day.”

[11:12] While Joe agrees, his own stress management is more philosophical in nature: “Nothing in my life has meaning until I decide to give it meaning. That’s how I approach life.”

[12:10] Joe elaborates on his business philosophy, “What I believe is that when challenges arise, it’s happening for me and not to me...It’s there so I can become a better and stronger entrepreneur and real estate investor.”

[13:00] The two investors discuss their approaches to rising to challenges and working through fear, rather than falling beneath its weight and influence. Scott observes that Joe’s philosophy is a mental discipline. Joe shares how he developed this positive business mindset. He credits his current success largely to this discipline and having gratitude for what he has today.

[14:45] When Joe is struggling in his personal life, he volunteers for perspective: “There’s always someone that’s worse off. Having a good mindset is necessary to being a successful entrepreneur.” [15:15]

[16:00] Scott asks Joe whether long-term success has more to do with strong mindset or technical knowledge of real estate investing. Joe replies: “The really successful investors are the ones who evolve over time.” He isn’t referring so much to changing classes, but to “Work harder on yourself than you do your job.” [16:50] He believes this habit brings investors to the next level. Scott agrees that failure to do internal work can hinder an investor, while a willingness to do so

[18:47] Scott asks how this deal wound up becoming Joe’s best deal despite the challenges he described. Joe explains that the biggest challenge was getting to close. He and Frank bought the $14.1M property with $1M, and a mere 16 months later in December of 2016, they were refinanced for a $26M re-revaluation.

[20:00] Joe and Frank still own this Houston complex today, and Joe is grateful to have this amazing property in his portfolio still.

The Takeaway: Work on Yourself, and Good Deals Will Follow

Joe and Scott conclude with the greatest lesson from Joe’s Best Deal, which has much more to do on working on your internal condition than real estate skills. Here’s what Joe wants investors to learn from his success.

[20:30] Scott observes that Joe’s success is dependent on his mentality: “That strong internal drive can be our biggest resource.”

[21:18] Joe believes the biggest lesson investors can learn from his story is the value of working harder on yourself than the real estate. Scott agrees that putting yourself and your health/well-being first is a sure path to success. If you aren’t in top shape, your investments can’t follow.

WelcomeWelcome back to The Real Estate Nerds Podcast! On today’s Best Deals episode, our host, real estate attorney Scott Smith welcomes Josh Bauerle. Josh isn’t just an investor--he’s also a CPA. As we soon found out, his background in number-crunching truly served him when he made his first and best deal. Listen to the full show to hear the play-by-play of how a collection of Midwestern properties (and a series of carefully planned meetings and negotiations) launched Josh into the real estate world on the right foot.

Josh Bauerle’s Best Deal:

Josh joins Scott to tell him a bit about his life before and in the beginning of his real estate career. Then, the two get right into the circumstances that led up to his best deal.

[1:30] Josh is both an investor and a CPA. His CPA background informs his real estate investing, particularly regarding how he structures deals. Today he has 15 properties, though he started with only two.

[2:00] Scott asks for the “10,000 feet” view of Josh’s best deal. He began looking at a triplex in the rural Midwest, where properties are cheap. He eyeballed a $40,000 triplex, but was presented with 20 properties, but settled on 13 owner-financed properties. He ended up being able to take them all. Between receiving 90% of the financing from the seller and a loan for the remaining 10%, he acquired these properties with none of his own money down.

[3:00] Scott asks how Josh managed to find the seller that made this deal possible. Josh knew the seller personally from his small hometown. The seller even knew his parents. Josh was able to leverage this relationship and negotiate until he was pleased with the deal structure.

[4:30] Josh’s familiarity with the area helped him make this deal: “This was in my hometown. I could look at the street and know if it was a good area or bad area.”

[5:00] While his prior relationship with the seller served Josh, it also made him more hesitant to “lowball” him. The seller wanted $460,000. Since he made a counter-offer of $330,000.

[5:49] Josh’s experience as a CPA helped him manage this negotiation: “I came in with this giant binder. I had every single property I wanted laid out. I went onto BiggerPockets, ran the numbers, and looked at the numbers on comparable properties in the area.” Being so well prepared allowed Josh to justify his counter-offer without offending the seller.

[6:40] Between Josh’s thorough due diligence and smart negotiations, he ended up paying only $341,000 for all thirteen properties.

[7:20] Convincing the owner to finance the properties was Josh’s next step. He also showed up fully prepared with his credit report, income, and all the information to respond to the seller’s potential objections. He was even able to point out how the financing would save the seller money on capital gains taxes. This strategy was successful: “I think the key was I just went in and every objection he had, I had an answer for it. So there was really nothing left for him to say.” [8:40]

Sealing the Deal

Josh surely found a great opportunity with these properties. So Scott wanted to know how he finalized the deal and ensured his success with the seller.

[9:00] Scott asks whether Josh had anyone coaching him through these sophisticated negotiations. He did not. Josh relied on his experience as a CPA and his experience as partial owner of family properties to make the deal.

[10:09] Josh points out that new investors are often too quick to accept unfavorable terms, and cautions against this: “You have to be willing to walk away if it’s a bad deal.” Scott asks what dealbreakers Josh knew going in, and he shares what he wasn’t willing to budge on and what his “walk-away number” was.

[11:00] Josh was very mindful of his due diligence throughout the buying process. He was well aware that his properties, which averaged $39,000 each in value, weren’t going to be perfect, but conducted thorough inspections to avoid missing major defects. The seller also had anxieties about what to do in the event he needed to foreclose on Josh. These were relieved by involving an attorney who drew up a contract that satisfied both parties.

[12:51 Josh highlights a truth that this negotiation experience taught him: “I think with any deal you have to be flexible on either the terms or the price.”

[13:45] Scott has found that in his experience, wealthier people are less fixated on price and more interested in good terms. He gives a couple of examples from his own investing life.

[15:30] Scott asks Josh about the transition from closing to managing the properties. Josh explains that in this part of the country, owning property means managing it yourself. He had the good fortune of lucking into good tenants, and most of the properties were already occupied. His terms included that the seller get properties “rent-ready,” though the two were far apart on what that phrase actually means. For instance, he had to pay to fix a water line immediately on one property. Nevertheless, Josh’s transition into management was smooth.

The Takeaways: Build Trust and Do Your Homework

Josh and Scott wrap up the show with the major takeaways listeners can learn from Josh’s success story. The human pieces that made this investment work were Josh’s ability to listen, research his properties exhaustively, and build the necessary trust to get the deal he wanted.

[17:10] The two investors discuss the importance of trust in these transactions. Josh offers advice on going with your gut: “Something in you is going to to tell you that either you can trust someone or you can’t...You’ve got to trust your instincts.”

[18:41] Scott highlights how more points of contact and meetings with a person gives you a sense of who they really are. This doesn’t apply just to his business, but is a general principle he also uses when hiring for his own firm, Royal Legal Solutions: “We don’t hire anyone without having at least three contacts with them...People will tell you what’s wrong with them. And everyone has something wrong with them, so once we know what it is, it’s like ‘Cool. Welcome to the family!’”

[20:00] While Scott’s major lesson learned is getting to know a person well and develop trust, for Josh, the major lesson is the value of doing your homework. If he hadn’t been thoroughly prepared and investigated every aspect of the deal--down to the cost of property taxes--he would not have been nearly as successful. He believes this also gained him credibility: “Successful people want to know that you did your homework.” [21:41]

[23:00] Scott makes one final observation about Josh’s Best Deal: “This is a story about really listening to people and giving them what they what they want, down to an emotional level.”

Welcome back to the Real Estate Nerds Podcast. On today’s Best Deals episode, our host, real estate attorney Scott Smith welcomes residential and commercial real estate investor Darrin Gross. The pair of investors discuss Darrin’s first deal, which also happened to be one of his best. Darrin has since established a healthy portfolio of properties in no small part because of his ability to negotiate and identify the needs and problems of sellers. After all, a seller's problem is an investor's opportunity. Tune in to hear the full conversation and get some tips on improving your own real estate deals.

Scott and Darrin talk a bit about Darrin’s background, entry into the world of real estate investing, and the duplex that started it all.

[1:00] Darrin is an insurance broker by day, and his work first exposed him to real estate investing.

[3:00] Darrin’s first property was an atypical duplex that was fairly rundown. Within seven months, Darrin had a second property and was earning close to half of his ordinary income.

[5:00] Scott asks Darrin about how he formed his team. In his early career, his team was disorganized.At first, he had only a property manager in place. His lender was also his seller, and he had another person helping with maintenance.

[7:00] Darrin’s earliest motivation for entering real estate was straight forward and modest: he wanted a new car. He also observed friends having success in passive investments, and that drove him to get involved.

[8:30] “The important thing about this property is that it’s the one that got me going.” The closing, like the property itself, was unconventional. The fact that his seller was carrying the note meant he bypassed certain typical pieces of the real estate buying process, like securing financing and inspections.

[10:00] Darrin describes how he got creative with this property. His essentially flipped the property several months later and was able to help a friend who needed $10,000 for another investment. Darrin was able to solve this problem with a line of credit he had, and crunched the numbers himself. He had an early realization: “You can make the deal work for you. It’s not always about what somebody is asking.” [10:30]

Darrin Gross’s Dealmaking: Negotiations and Motivation

Scott and Darrin dive into some of the details about what Darrin’s experiences have taught him about making good deals. The two investors talk about negotiation strategies and ways to gauge and exploit the motivations of a seller.

[12:00] Darrin also made some early observations about negotiations: “If you start high you can’t work your way low. If you start low, you can work your way up.” He tends to run the numbers first to find what works best for him, then make an offer that may interest the other party. He doesn’t tend to worry about offending the other party or catering to exactly what they ask for, but rather what number he can justify.

[13:30] Scott and Darrin briefly discuss the roles and motivations of brokers. Darrin believes brokers are beholden to sellers to get as much as they can for a property. Scott makes the point that quick sales and commissions for themselves are a big part of their job. Darrin agrees, but points out that.

[15:00] Darrin points out approaching with not just an offer, but a lender and pre-approval letter, can go a long way with closing with a seller.

[16:00] Darrin’s best deal involved a highly motivated seller. He knows from experience this played a role in his success: “You have to have a motivated seller if you want to get a good deal.” [16:45] In this case, the motivation was easy to detect--the seller needed $10,000 cash.

[17:34] Scott asks what information can be used to detect how motivated a seller is. On top of asking and looking at what degree a seller is willing to negotiate, Darrin advises looking at circumstances that might be a problem for the seller, but an opportunity for the investor.

[19:00] Darrin advises that investors run their own numbers as part of due diligence.

[20:00] Knowing a seller’s reasons for selling gives investors an opportunity to identify circumstances that can later be used in negotiation. With Darrin’s experience buying distressed properties, finding more information can lead to unique opportunities for a better deal.

The Takeaway: Get in the Game to Win It

Scott and Darrin close the show by discussing the major lesson listeners can learn from this deal. For Darrin, the important lesson he learned was that he had to just dive in to real estate to enjoy success in it.

[22:50] Scott asks Darrin what key takeaway listeners can take from his story. For Darrin, the answer is simple: “You’ve got to get in the game. If you’re not playing, you can’t win the game.” If he hadn’t gotten in on his first deal, he wouldn’t have his current success.

[24:00] The value in this deal, which Darrin refers to as his “accidental flip” for how he was able to leverage quickly to another buyer, is largely that it became a springboard: “That first property is what propelled and set me up to buy additional properties.” Scott agrees that the benefits that come your way aren’t the ones you expect.

[26:00] Darrin now makes regular monthly income from passive investment, and has also seized on real estate as an opportunity to pass on wealth to his children.

Welcome back to the Real Estate Nerds Podcast! On today’s Bad Beats episode, real estate investor and entrepreneur Mitch Stephen joins our host, attorney Scott Smith, to tell us about the details of one of his deals--and he has made plenty of them. But today, instead of concentrating on his successes, the two investors will conduct a postmortem on one of Mitch’s all-time worst deals.

Mitch Stephen’s Bad Beat: Lots and Lending

Scott welcomes Joel onto the show. The two investors discuss

[1:00] Mitch owns about 1500 houses in the San Antonio, TX area. He began his real estate career in 1996 and averages 100 new real estate purchases per year. He excels at raising private money, with $12-13 million currently under his control. He also began loaning money to competitors for additional income.

[2:40] In fact, Mitch’s bad beat began with an ill-advised lending transaction. He wasn’t familiar with the person requesting the loan or type of loan, and it was outside of his typical wheelhouse. This would later become a fatal flaw, but he’s learned his lesson: “It seems like every time I get out of my lane, I get hit by a truck.”

Scott agrees that this is important: “Stay in your lane. Do what you know how to do.”

[3:00] Mitch new how to survive the recession in real estate, but he wasn’t as comfortable with his lending business. He received a request to make a loan for 15 properties in a gated community that averaged $120,000 apiece on 1-acre lots. He knew how to make loans on little houses, but not how to execute a $15 Million loan.

[4:30] The two investors discuss the temptation to deviate beyond your area of expertise. In his ordinary career, he always had ways to make his money back in the event of a defaulted loan: “If you can’t sell your house, what can you do with it? You can rent it.” [4:55] Mitch expressed his concerns about their inexperience to his partner, but the two were drawn in by the high value and projected return rates on the loan.

[6:00] The nature of lots as an asset class meant that Mitch’s usual “exit strategies” weren’t available to him.

[7:30] Mitch made the loan, and not 30 days later, Countrywide went under, officially starting the 2009 recession: “Within 15 days, every bank in the world was dried up and confessing that they were insolvent too.” [7:59] So within that month, he had every lot back and nobody set foot on one for roughly two years. Banks were reluctant to loan to even those with excellent credit in the wake of the crash.

[8:45] This bad timing made the deal go South immediately. $750,000 was the average home price in Mitch’s area. He points out that “That market is the first market to die in a recession.” This left Mitch in the position of owing $8,000 a month for the next 2.5 years.

[9:15] Mitch didn’t sell his first lot for 2 years and 6 months, and didn’t sell all of them for four years. The properties were essentially burning a hole in his pocket.

[10:21] Mitch was able to endure this loss for a couple of reasons. The first is simply about his own financial responsibility: “For as wealthy as I am, I’m ridiculously frugal.” He also credits his partner, who took on half of the costs. That partner had another partner who stuck with them both. In these ways, Mitch was able to keep his head above water, even in the face of rising property taxes.

[11:30] This combination of factors meant this Bad Beat didn’t compromise Mitch’s quality of life: “Even though I took a hit that was unpleasant, it didn’t affect me that much because I’ve been a good steward of my money my whole life.” Scott observes that Mitch was smart because he had built habits that made this gamble worth taking. Even if he lost big, he wouldn’t struggle to fill his gas tank or enjoy a high standard of living.

[13:00] Scott points out that there are great deals that come from outside of our comfortable investment classes. He asks how Mitch balances these opportunities, and the two agree that it’s important to get advice from an expert in the asset class that is new to you. Mitch feels the right advisor with the right experience could have made an excellent partner, who may have been able to predict the recession and its impact on the class.

[13:50] Scott agrees and offers this tip to new investors, or investors in new asset classes: “When you’re first getting involved in real estate transactions, always partner with somebody else who’s experienced in that area to some degree.”

[15:00] Mitch points out that federal regulations forced banks to divest their exposure in real estate. On top of negative cashflow, the bank wanted to demand $1 million back within 8 months.

[16:00] Mitch tells Scott how he coped with this immense level of stress and many problems: “You wake up early, you go to bed late, you attack your problem head on, stay busy so busy confronting your problems the problems that you don’t have time to worry about it.” He was fortunately able to get private loans to make up for the bank’s demand.

[17:30] Mitch shares his strategy for recession-proofing his current portfolio in the event of another recession.

[18:30] The two investors share their strategies for avoiding burnout. For Mitch, he engages in a daily prayer practice to draw strength, get centered, and open his mind to creative solutions to his problems. Scott recognizes that highly effective and successful people seem to have systems for

[19:31] Mitch has another tip for making it through hard times: “When times get tough, I stop drinking and doing all that fun stuff to stay focused.” Scott agrees this brings clarity and raises energy to take care of one’s health.

[20:43] Scott shares his own unusual piece of his morning routine. Before work, he boxes for an hour every day. His logic is that it shows him his strength and what he can make it through: “I already did three rounds this morning, there’s nothing that’s gonna hit me harder than my coach’s right cross!”

New and seasoned investors alike spend a lot of time worrying about capital. But according to today’s guest, once you learn how to raise capital, you can raise capital for anything. Venture capitalist Joel Block was raising capital initially for real estate. But once he learned how to tell stories and put the package together, he fell into venture capital transaction, which he raised about $10 million for--a path that led him to selling financial service packages on Wall Street. After selling that business to a Fortune 500 in 1995, he started investing in other companies and has been involved in about 40 different transactions since. When the market crashed in 2010, Joel saw opportunity where other investors saw disaster. He went back into real estate and started buying, which was ultimately a profitable decision. Joel says he now takes everything in stride. He joins our host and real estate attorney Scott Smith on this week’s episode of The Real Estate Nerds Podcast to talk about venture capital, real estate syndication, and investment crowdfunding. He shares some of the best deals he has experienced in his career so that listeners can copy the habits that have led to his success.

Joel Block’s Best Deal: A Lesson in the “Show Business” of Negotiations

Scott welcomes Joel onto the show. The two investors discuss how Joel’s best deal came to be.

[1:00] Joel started out as a CPA but wasn’t totally fulfilled. While he wasn’t a fan of the tax work, he enjoyed reading partnership agreements and was drawn to the real estate agreements. He met a partner and decided to go into real estate for himself. He fell into venture capital and quickly learned an important lesson: “Once you learn how to raise capital, you can raise capital for anything.” [1:54] His experience in real estate gave him the skill set to develop and sell a financial services company.

[2:45] Scott asks about how Joel originally got into his best deal. The deal he’s talking about was early in his career, which he believes in common: “I think some of the best stories happen early in your career, because everything is extraordinary then.” [3:11] Though he’s been a part of many great deals, including the sale of the firm that enabled him to go into real estate, he’s here to discuss his best real estate deal.

[3:30] After quitting his CPA job at Price Waterhouse, Joel started a property management firm. A shopping center in suburban Los Angeles needed to be improved, and had very low rents. The owner contacted Joel and he agreed to buy the property at only 26 years old. This deal happened in 1987.

[4:19] He bought the property for $2.2 million. They had to get mortgage from the bank and investors on board: “We had nothing. All we had was a little teeny line of credit from the bank, only about $25,000 between two of us guys.” They signed the contract, and Joel had only done one deal with his partner prior, and this was a far bigger deal.

[5:00] Investors laughed at him. Joel realizes in retrospect why: “Here’s the thing about young people: You’re too stupid to know any better, and that’s actually an advantage because you’re not afraid.“ But they were afraid, and started to look into reasons to back out, considering they’d just spent all the money they had on the deal. His seller, the older woman who had received his $25,000 by contract, was certainly not going to give him his money back either.

[6:00] Scott and Joel had a funny exchange about this situation.

Scott: Damn, grandma took you to school!

Joel: Yes, we absolutely got schooled by an old lady.

[6:30] Joel and his partner went back to their office, discouraged. They decided to call an inspector to check the property for asbestos, a hot topic in the late 80s. The inspector found trace amounts, but since there were no standards at the time, the investors were able to schedule an emergency meeting with the seller, her attorney, and all other parties with a stake in the deal to discuss this finding.

[bctt tweet="Put on the best show that you can." username="RoyalLegalLaw"]

[7:30] The investors played up the drama: “We had to put on the best show we could put on. All you have to do is go to a Ringling Brothers circus as a kid to know everything you need to know about show business...We were determined we were going to bring a 3-ring circus to this deal, because it was a really big problem.” [7:53]

[8:30] The 25 and 26 year old partners told the attorney point blank that they couldn’t buy the building because of the severity of the problem. He made it clear that he couldn’t be held liable for everyone in the building getting sick from asbestos--and absolutely floored the attorney. Fortunately for the young investors, this particular attorney had just gotten his ass kicked in an asbestos case days prior.

[9:30] Joel can only assume that the attorney. When they returned to the room, they informed the attorney the asbestos decontamination would cost at least $400,000. The attorney agreed to give it to them, reducing the property’s total price to $1.7 million.

[10:00] Because of this courageous negotiation, the property ended up being incredibly profitable for the two investors.

[11:00] Scott is impressed by Joel’s brave tactic and asks if this is common for him. Josh replies: “I’m a professional negotiator. It’s what I do...I look at the situation and deal with it in the way that it needs to be dealt with.”

[12:00] Scott points out that the attorney slipped up by not being familiar with what “trace” asbestos meant. This was in part a product of the time, but proved to be a critical error. The asbestos was under 1% and was unlikely to create the dramatic results Joel implied.

[13:15] While the two investors wanted out of the contract, the asbestos negotiation motivated the seller to do whatever it took to sell the property to them. While Joel and his partner originally just wanted their $25,000 back, they ended up getting a great deal.

[14:15] Scott and Joel discuss the value of “go big or go home” negotiations. This situation informed Joel’s book for entrepreneurs, which you can find out more about below.

The Takeaways: Be Courageous, Creative, and Resourceful

Joel and Scott wrap up the show by sharing their personal greatest lessons learned from Joel’s story.

[15:05] Scott shares the lesson that resonated most with him from Joel’s story: “The excitement of getting into a deal, in this case maybe the wrong deal, can really be turned around with some unconventional tactics.

[15:30] Joel shares that if you want to use other people’s money, you should protect it like it is your own--among some other tips for generating capital and creatively funding investments.

[16:30] Joel shares some of the resources he has available for investors learning to generate capital, create a serious real estate investment business. He also extends an invitation to his Symposium this year, with our host Scott Smith has intended. Scott noticed the wealth of insights into business models and the value networking with the individuals there. This is not a sales experience, but a networking opportunity to expose investors to some of the best in the field and take advantage of their knowledge.

Welcome back to The Real Estate Nerds Podcast! Lane Kawaoka knows the bandwagon of getting multiple houses to achieve the goal of passive income all too well. He bought eleven of them and realized there was an eviction or two--and at least three big catastrophes--happening every year, whether that was someone stealing an HVAC, major plumbing issues, or even the rain. Lane is a working engineer and remains in that industry by day. He made his real estate debut ten years ago, initially investing in single-family homes. Over eight years in that asset class, he got up to almost a dozen properties, then switched to syndication partnerships. Today, Lane is here to share the dirty laundry of his investing life and the worst deal that he has been through with our host, real estate attorney and fellow investor Scott Smith.

Lane’s Worst Deal: A Roth IRA Ponzi Scheme

Lane sits down with Scott to tell us about his background, transition into real estate, and the worst deal he made as he changed the direction of his real estate career.

[1:00] Lane’s first properties were out-of-state turnkeys. On his eleventh major property, he realized the major issues involved with each property were eating into his time, energy, and profit lines. He concluded the model that had worked for him for his first eight years was no longer scaleable.

[2:30] Veteran investors advised Lane to join them in the world of syndication and partnerships, even saying they personally wished they’d stopped single-family investing years before they did.

[3:30] 2011-2012 was the year Lane began investing as a Limited Partner. He had some money in a Roth IRA, a vehicle that was not yet familiar to him. He didn’t know what to invest in and got some advice from a custodian, who referred him to an unethical outfit that was essentially running a Ponzi scheme: “They were buying up single-family homes, C and D class properties. The deal was I was going to put up all the money for the title to the property.” [4:30]

[5:30] Because Roth IRAs restricted Lane to investments without debt, he put $43,000 down. The company promised him a 9% fixed rate and to split the profits of the sale 50-50. Lane found out that the company was not reputable as he began doing internet research. Problems later surfaced with his ability to connect those checks. “I was naive and I didn’t know anything. I didn’t know what I didn’t know.” [6:18]

[6:30] Getting a referral from an IRA Custodian was a bad idea, Lane now realizes. Those custodians are not investors: “I broke the cardinal rule of you don’t work with people you don’t know, like, or trust.” He now uses his network to verify leads ahead of entering into contracts.

[8:30] For the first couple of years, things went fine. Lane got his checks regularly, and felt fairly secure as he held the property’s title. Then he realized nobody was paying taxes on the property. A friend in a similar situation. He speculates that the Ponzi scheme imploded in terms of liquidity around the third year. He had the option to take legal action, but chose not to because he valued his time above that. Lane simply walked away.

[10:00] Scott wonders if an extreme level of due diligence, such as checking the tax rolls, would have helped Lane avoid this situation. He prefers more transparent deals now and avoids IRAs and QRPs altogether: “I like single-asset LLC deals instead of blind pools.”

[11:20] He believes people buy into the blind pools because of marketing angles: “Normally the unsophisticated investor goes into the blind pool because they buy into that. The more sophisticated investors want to know what the asset is.” Some underwrite it themselves, even.

[12:20] Scott probes Lane’s lack of confidence in Self-Directed IRAs/401(k)s. Lane asserts that the major draw--tax savings--isn’t that great; “You’re still going to pay taxes at some point. You’re just kicking the can down the road.” He prefers paying taxes today, because he believes his taxable income is lower now than it will be in the future. He also compares the numbers to his preferred style of investment (LP Syndication), and feels you have less leverage with self-directed funds because of government restrictions.

[13:30] Lane also feels IRA custodians push these accounts because they’re the ones profiting from them. He advises new investors to remove money from these accounts slowly and strategically.

The Takeaway: Avoid Scams by Building a High Quality Network

This one bad deal didn’t scare Lane off from Limited Partnerships or syndication investing. He’s going “all in” on this strategy now that he’s remedied the main problem that contributed to his falling for the Ponzi scheme: a lack of a solid network.

[14:30] Scott asks what Lane could have done to sniff out and avoid the Ponzi scheme. “You have to surround yourself with the right people. I didn’t have the right people at that point...It’s all your network.”

[15:00] Scott shares that he was once initially skeptical of networking and felt he was wasting time. “Did you have that same experience of having to kiss a lot of toads before finding someone who could really help you?” Lane responds that he did. He’s a type of investor that isn’t common at local meet-ups--he had to find a more “target-rich” environment for network.

[16:25] The two investors find that “pay to play” groups end up being higher value. Meet-ups are great for those who are new or into fix-and-flips, but passive investors may find more results (and fewer “toads”) at groups that require paid membership.

[18:00] Lane offers ways to connect, pointing out: “I’m always looking to connect with other investors. I’m always hunting for that next deal.”

"We all know what people do with long leashes. They’re going to hang themselves eventually."

Welcome back to The Real Estate Nerds Podcast! Lane Kawaoka knows the bandwagon of getting multiple houses to achieve the goal of passive income all too well. He bought eleven of them and realized there was an eviction or two--and at least three big catastrophes--happening every year, whether that was someone stealing an HVAC, major plumbing issues, or even the rain. Lane is a working engineer and remains in that industry by day. He made his real estate debut ten years ago, initially investing in single-family homes. Over eight years in that asset class, he got up to almost a dozen properties, then switched to syndication partnerships. Today, Lane is here to share the dirty laundry of his investing life and the worst deal that he has been through with our host, real estate attorney and fellow investor Scott Smith.

Lane’s Worst Deal: A Roth IRA Ponzi Scheme

Lane sits down with Scott to tell us about his background, transition into real estate, and the worst deal he made as he changed the direction of his real estate career.

[1:00] Lane’s first properties were out-of-state turnkeys. On his eleventh major property, he realized the major issues involved with each property were eating into his time, energy, and profit lines. He concluded the model that had worked for him for his first eight years was no longer scaleable.

[2:30] Veteran investors advised Lane to join them in the world of syndication and partnerships, even saying they personally wished they’d stopped single-family investing years before they did.

[3:30] 2011-2012 was the year Lane began investing as a Limited Partner. He had some money in a Roth IRA, a vehicle that was not yet familiar to him. He didn’t know what to invest in and got some advice from a custodian, who referred him to an unethical outfit that was essentially running a Ponzi scheme: “They were buying up single-family homes, C and D class properties. The deal was I was going to put up all the money for the title to the property.” [4:30]

[5:30] Because Roth IRAs restricted Lane to investments without debt, he put $43,000 down. The company promised him a 9% fixed rate and to split the profits of the sale 50-50. Lane found out that the company was not reputable as he began doing internet research. Problems later surfaced with his ability to connect those checks. “I was naive and I didn’t know anything. I didn’t know what I didn’t know.” [6:18]

[6:30] Getting a referral from an IRA Custodian was a bad idea, Lane now realizes. Those custodians are not investors: “I broke the cardinal rule of you don’t work with people you don’t know, like, or trust.” He now uses his network to verify leads ahead of entering into contracts.

[8:30] For the first couple of years, things went fine. Lane got his checks regularly, and felt fairly secure as he held the property’s title. Then he realized nobody was paying taxes on the property. A friend in a similar situation. He speculates that the Ponzi scheme imploded in terms of liquidity around the third year. He had the option to take legal action, but chose not to because he valued his time above that. Lane simply walked away.

[10:00] Scott wonders if an extreme level of due diligence, such as checking the tax rolls, would have helped Lane avoid this situation. He prefers more transparent deals now and avoids IRAs and QRPs altogether: “I like single-asset LLC deals instead of blind pools.”

[11:20] He believes people buy into the blind pools because of marketing angles: “Normally the unsophisticated investor goes into the blind pool because they buy into that. The more sophisticated investors want to know what the asset is.” Some underwrite it themselves, even.

[12:20] Scott probes Lane’s lack of confidence in Self-Directed IRAs/401(k)s. Lane asserts that the major draw--tax savings--isn’t that great; “You’re still going to pay taxes at some point. You’re just kicking the can down the road.” He prefers paying taxes today, because he believes his taxable income is lower now than it will be in the future. He also compares the numbers to his preferred style of investment (LP Syndication), and feels you have less leverage with self-directed funds because of government restrictions.

[13:30] Lane also feels IRA custodians push these accounts because they’re the ones profiting from them. He advises new investors to remove money from these accounts slowly and strategically.

The Takeaway: Avoid Scams by Building a High Quality Network

This one bad deal didn’t scare Lane off from Limited Partnerships or syndication investing. He’s going “all in” on this strategy now that he’s remedied the main problem that contributed to his falling for the Ponzi scheme: a lack of a solid network.

[14:30] Scott asks what Lane could have done to sniff out and avoid the Ponzi scheme. “You have to surround yourself with the right people. I didn’t have the right people at that point...It’s all your network.”

[15:00] Scott shares that he was once initially skeptical of networking and felt he was wasting time. “Did you have that same experience of having to kiss a lot of toads before finding someone who could really help you?” Lane responds that he did. He’s a type of investor that isn’t common at local meet-ups--he had to find a more “target-rich” environment for network.

[16:25] The two investors find that “pay to play” groups end up being higher value. Meet-ups are great for those who are new or into fix-and-flips, but passive investors may find more results (and fewer “toads”) at groups that require paid membership.

[18:00] Lane offers ways to connect, pointing out: “I’m always looking to connect with other investors. I’m always hunting for that next deal.”

Welcome back to another Bad Beats episode of The Real Estate Nerds Podcast. Today, multi-family guru and investing coach Michael Blank joins us to do a post-mortem on one of his all-time worst deals. In a departure for our usual form, Michael's worst deal wasn't an unprofitable rental property, but a restaurant that started out well enough. Until, of course, it began costing him $10,000 a month and began taking a stressful toll on his life. He bought the franchise to quit his job and pursue true financial independence and freedom. And even though he lost big, Michael didn't lose in the long run. Tune in to hear what went wrong and how Michael has come to view this Bad Beat as a great lesson that helped transform him into the successful multi-family investor and teacher that he is today. You'll also get some tips on how to pursue your own bliss, recover from failure, and develop a mindset for a fulfilling life and career. Listen to Michael's full conversation with our host, real estate attorney and fellow investor Scott Smith, now.

Welcome back to another Bad Beats episode of The Real Estate Nerds Podcast. Today, multi-family guru and investing coach Michael Blank joins us to do a post-mortem on one of his all-time worst deals. In a departure for our usual form, Michael's worst deal wasn't an unprofitable rental property, but a restaurant that started out well enough. Until, of course, it began costing him $10,000 a month and began taking a stressful toll on his life. He bought the franchise to quit his job and pursue true financial independence and freedom. And even though he lost big, Michael didn't lose in the long run. Tune in to hear what went wrong and how Michael has come to view this Bad Beat as a great lesson that helped transform him into the successful multi-family investor and teacher that he is today. You'll also get some tips on how to pursue your own bliss, recover from failure, and develop a mindset for a fulfilling life and career. Listen to Michael's full conversation with our host, real estate attorney and fellow investor Scott Smith, now.