TM
The Master of Mobile Home Investing: Glenn Stromberg TITANTALK
Realty Matters: Calculating Real Estate Risks STRATEGY
Passionwith Purpose JOE FAIRLESS ON SAMPLING LIFE AND BEING HIS BEST EVER
$5.95 U.S. :: $6.95 CAN JUNE 2020
WHY DO A HANDS-FREE INVESTMENT WITH LAND CONTRACTS?
3. SOMEONE ELSE PAYS YOU WHILE THEY IMPROVE YOUR ASSET 1. 8% TO 12% RETURNS 2. YOUR TIME IS TOO VALUABLE FOR AN INVESTMENT THAT REQUIRES EFFORT
WHEN SOLD TO FAMILY
FAMILY REPAIRS DURING OCCUPATION
2 | think realty magazine :: june 2020
Schedule a discovery call with your Philanthroinvestor ® Consultant today! (844) 552-8828
WANT TO LEARN MORE?
info@equityandhelp.com www.equityandhelp.com
HERE IS A REAL INVESTOR CASE STUDY
Account Opened: 2018 Profile Investor: Thomas A. Location: Minnesota, USA Background: Retired Banker, Real Estate Management. Goals: More time to share with family, investments with transparency.
What Was Done
Initial Investment: $144K. First 2 properties sold within 1 month. Full portfolio sold and performing within 5 months.
Cap Rate Scheduled Performance
Projected Cap Rate 2019
Results
14.40%
PROPERTY 1
Cap Rate 2018
14.51%
PROPERTY 2
18.56%
13.32%
PROPERTY 3
10.77%
TM
140K
135K
130K
Stock Fund
125K
FIRST 2 PROPERTIES SOLD TO FAMILIES
ALL ASSETS PERFORMING
Market Comparison
INITIAL PURCHASE
FINAL PROPERTY SOLD TO FAMILY
Aug Sep
Aug Sep Oct Nov Dec
Jan Feb Mar Apr May Jun Jul
Feb Mar Apr May Jun Jul
2019
2018
Past performance is no guarantee of future results. We are not an investment firm, We are a wholesale real estate and property management company performing our actions as a trustee.
thinkrealty . com | 3
CONTENTS
INSIDE THIS ISSUE
THINK REALTY 8 News & Events 10 Think Realty Supplier: Sunbelt Rentals
INVESTOR STORIES 14 Presidents’ Circle Member Abhi Golhar talks business tips during and after COVID-19
16 Titan Talk Featured Titan: Glenn Stromberg with Stromberg Investment Group
ENGAGEMENT 31 Realty Matters
How to calculate risk to determine probability of an outcome by Brian Wojcik
22
COVER FEATURE
34 Preparation Surviving the unknown to thrive afterward by Michael Zuber 35 Sponsored Content: Investor Review
PASSIONWITH A PURPOSE
FUNDAMENTALS 52 10 Benefits of Investing in Self-Storage
30
12
You can store more reward with this asset class by Fernando Angelucci and Steven Wear
INVESTOR STORIES
ENGAGEMENT
56 Doing the Right Thing What to do when a tenant loses their job? by Nicole Seidner
COACHING
EASY ANSWERS
Finding the best opportunity isn’t always easy but always worth it
Tips from an attorney to protect yourself — and your investments
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58 Recessions and Real Estate When bankruptcy could be the best option by Bruce Kellogg
62 Real Estate and Your IRA
Where do you want to house your real estate? by W.J. Mencarow
STRATEGY 66 Talking Loudly: Navigating Through Turbulence Winning in real estate with risk mitigation by Nathan Trunfio
74 Reducing Risk in Rental Properties Assessing budget, location, and more when investing in rentals by Daniela Andreevska
76 Mitigate Risk with Build-for-Rent An investing strategy that allows investors AND builders to do what they do best by Bruce McNeilage
Joe Fairless on sampling life and being his best ever
DESIGN POINT 82 Design Guide Featured Designer: Tamara Day
by Katie Bean
MARKET & TRENDS 86 Spotlight: Charlotte, NC by Fred Heigold III
72
96
92 Risk Aversion
STRATEGY
MINDSET
In a sea of IF, it’s a matter of when you exit a market by Ingo Winzer
A REAL RISK ASSESSMENT
YOUR FOCUS MITIGATES FUTURE RISKS
Is your approach to risk management working?
Why your mind (not your bank account) wins battles for you
thinkrealty . com | 5
PUBLISHER & CEO Eddie Wilson
EDITOR-IN-CHIEF Kelli White
SALES MANAGER Rodney Halford RHalford@ThinkRealty.com 816-398-4111 x86122
FULFILLMENT COORDINATOR Blair Pierce
DESIGNER David Rodriguez
CONTRIBUTERS Daniela Andreevska Fernando Angelucci Katie Bean Clint Coons Tamara Day Fred Heigold III MeiLani Hock Bruce Kellogg Bruce McNeilage
W. J. Mencarow Tammy Phelps Nicole Seidner Steve Streetman Nathan Trunfio Steven Wear Eddie Wilson Ingo Winzer Brian Wojcik Michael Zuber
HEY! LET’S BE FRIENDS! GET SOCIAL. STAY CONNECTED.
Like, Follow & Share for the Latest Real Estate News, Trends and Insights from Think Realty
COVER PHOTOGRAPHY The Joe Fairless marketing team
Are you following Think Realty on social media? Things move pretty fast in real estate. Don’t miss out on the latest trends, tips, insights and news from your trusted resource for all things real estate investing! Follow. Like. Love. Share. Comment. You can do it all with Think Realty’s social media channels. Join the conversations in Think Realty social communities and connect with like-minded members who range from first-time to seasoned investors. Check out all of our social media channels and connect with us - and other investors - today!
Think Realty 12200 N. Ambassador Dr. Suite 301 (Office A) Kansas City, Missouri 64163 816-398-4130 ThinkRealty.com Copyright ©2020 Think Realty ABOUT THIS MAGAZINE :: Think Realty Magazine is a publication of Affinity Real Estate Media LLC. Reproduction or use of any editorial or graphic, without permission, is prohibited. We are not responsible for the content of any paid advertisements. For reprint rights; to ob- tain a detailed statement of our privacy policy; and for all single-copy requests, address changes and other subscription inquiries: SUBSCRIPTIONS :: The annual subscription for Think Realty Magazine is $36.00 in the U.S. Order online at www.ThinkRealty.com or call 816-398-4085. Provide your full name, address and telephone number. DISCLAIMER :: Think Realty Magazine , its owners, contractors, distributors and their respective representatives do not provide tax, accounting, investment or legal advice and make no guarantee as to the effectiveness or success of any investment or tax strategies discussed herein. Please consult your own independent adviser as to any questions you have or decision you are contemplating.
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6 | think realty magazine :: june 2020
In a world that’s changing really quickly, the only strategy that is guaranteed to fail is not taking risks.” —Mark Zuckerberg
FROM THE EDI TOR- IN-CHI EF
Change, Chance, and Sticking with Your Strengths
uckerberg’s quote couldn’t be more apropos right now as the world is changing faster than Z
Sticking to your strengths will guide you through the unknowns. Also in this issue, the titan of mobile home investing,
ever. Sudden changes like what we’ve experienced this year can be overwhelming, or they can be viewed as just another layer of reality we have always known — that in times of change you must adapt to survive. In
Glenn Stromberg, talks about how one of the lowest points in the American economy turned into a blessing for his business. Read his story — the first in Think Realty’s new Titan Talk series —on p. 16. The team at Think Realty has been navigating these seemingly risky times right along with you. We continue to bring you valuable information and tools to help you grow, manage, and sustain your investment businesses. We look forward to seeing many of you next month at our conference in Baltimore, where a wealth of education will be available to help you build wealth through real estate. Stay strong, take risks, and keep learning. What you don’t know now could end up being your greatest success later. •
times of change, you must take risks. And, after all, in the real estate industry, risk is one constant that the savviest investors know for sure. Learning how to manage risks is what will help you sustain long-term uncertainties. In the cover story, read about the risks Joe Fairless made on his journey to real estate investing and how those risks have taken him to own the nationally recognized “Best Ever” podcast, a billion-dollar investment capital firm, and more. While mitigating the risks he took, he always implemented the important lesson of focusing on his strengths.
Keep Going!
KELLI WHITE, EDITOR-IN-CHIEF
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THINK REALTY
NEWS & EVENTS
Think Realty's Core Focus is to be the trusted source in the Real Estate Investment Industry by providing products and services focused on serving the Real Estate Investor.
Think RealtyHonors Nominations Open!
E ach year, Think Realty honors leaders in the industry who exemplify the best in real estate investing. Not only have the winners achieved great success in their own right, but they also demonstrate Think Realty’s mission of being trusted resources within the real estate investing industry. Know someone who fits this description? Nominate them today! Nominations are open for the 2020 Think Realty Honors through June 30. Go to thinkrealty.com/honors now and enter your picks! Winners will be announced at the Think Realty Conference & Expo held in Atlanta this September.
T hink Realty is highlighting some of the most renowned leaders in the real estate investing industry through the new Titan Talk series. Think Realty owner and CEO Eddie Wilson personally spotlights these great achievers. Look for their videos, interviews, and articles to appear this summer! The first Titan talking is Glenn Stromberg with Stromberg Investment Group. You can read his story on p. 16. Titans Are Talking
Eddie Wilson
Glenn Stromberg
8 | think realty magazine :: june 2020
Think Realty Baltimore Conference & Expo
O n July 13-14, 2020, attendees can choose among a wealth of real estate information from educational presen- tations to inspirational workshops. Wholesalers, lenders and investors will mingle in an uplifting, supportive learning environment. Think Realty Resident Experts will share knowledge on topics such as wealth building, busi- ness practices, and more. Invest in yourself and sign up today!
SPEAKERS INCLUDE:
Brent Kesler The Money Multiplier Keynote Speaker
Demetrios Barnes SmartRent
Charles Sells PIP Group
Gary Beasley Roofstock
Tom Olson Good Success
Clint Coons Anderson Business Advisors Featured Speaker
Charlie Einsmann Clear Sky Financial
Jeff Tesch RCN Capital
Jason Engelman Freaky Fast Homebuyers Featured Speaker
Sam Jacknin Clear Sky Financial
Daniel Huertas Washington Capital Partners
To learn more about upcoming Think Realty events and to buy tickets, visit ThinkRealty.com/TR-Events.
thinkrealty . com | 9
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thinkrealty . com | 11
INVESTOR STORIES
COACHING
The HoneyHole FINDING THE BEST OPPORTUNITY ISN’T ALWAYS EASY BUT ALWAYS WORTH IT
by Tammy Phelps
YOU KNOWTHE SAYING, “SHE COULDN’T SEE THE FOREST FOR THE TREES”? While coaching new real estate investors, I find myself in many forests. My job as a coach is to guide them through it. Here is a story about an investor named Stephanie who found herself, literally, in a forest-like investment opportunity. So, how did we turn opportunity to prosperity? Stephanie asked me to come look at a ‘wholesale deal’ with a $10,000 profit as it was outside-of- the-box. She said, “You can’t see the property for the trees!” After
my third U-turn, I finally found the driveway. An excellent location surrounded by affluent homes nestled on a Sherwood Forest lot were two single-family homes. As I started towards the larger house with the front door swinging Stephanie shrieked, “Uh! You’re not going in there are you?” She reluctantly tip-toed behind me through the hoarded dark rooms and overpowering stench. Upon exiting and standing in the middle of the driveway between the two houses, she put her head down and whispered, “I made a mistake, didn’t I?” With my arms out wide, I spun around and said, “Do you see what I see?” I asked her to look through a new set of lenses with me and visualize the sweet future of a
honey hole overflowing with liquid gold (aka cashflow.) We discussed the initial phase of due diligence and — if lucky — at best both houses would be rehabbed and rent-ready in four to six months. Drum roll, please... Would you rather take little to no risk TODAY and receive a one-time $10,000 wholesale fee in 7-14 days or take a managed calculated risk requiring hard work and lots of due diligence knowing that in less than six months you would receive $4,500 per month for a LIFETIME? Believe it or not, when I have shared this story and asked similar questions, the response has been stunning. Most say, “I’d take the money and run!” It was definitely a not-so-
12 | think realty magazine :: june 2020
ordinary opportunity that required Stephanie to color outside the lines and at times it disrupted her confidence as an investor. There were moments, days, and weeks of aggravation and frustration as everything ended up being a challenge. At the time Stephanie asked for my thoughts and support, we had known each other 10 years and she was addicted to the quick-turn wholesales, but she realized it was always going to be an endless tireless pursuit of hustling deals. When the profit is gone there isn’t anymore “mailbox money.” She confided in me that she was exhausted wholesaling and wished she had been acquiring cash-flowing assets during those 10 years. At 62 she had nothing
to sustain her future except her not-enough pension and the color copies of wholesale cashiers checks of the past. She was closing on three houses within 30 days that she just joint- venture renovated with respectful profit margins BUT... the hustle and grind wore her out. The challenges and struggle were real as the lot couldn’t be subdivided, but it was grandfathered in to allow two houses on the lot. There were multiple contractor issues, and it took longer than expected, but she had the deal under contract for $165,000. She put $100,000 into the rehab. The property appraised for $560,000 and today she receives $4,500 every month!
TODAY, STEPHANIE IS IN HOT PURSUIT OF HER NEXT HONEY HOLE THAT MAYBE SHEWILL FIND THROUGH THE TREES .
Tammy Phelps is known as “The Lady Boss of Real Estate.” She is an education- al speaker, coach, mentor, and founder of Capital City REIA, a Real Estate Investment Alliance in Maryland, D.C.,
and Virginia. The group’s focus is on the personal growth and business development of the real estate entrepreneur.
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thinkrealty . com | 13
INVESTOR STORIES
PRESIDENTS' CIRCLE Presidents’ Circle ADAPTING AND LEARNING IN UNCERTAIN TIMES
The Presidents’ Circle is a select group of top-performing executives from both the private lending and real estate investing industries who gather at exclusive events to network, learn, and tackle challenges in a confidential setting.
What business practice did you adopt due to COVID-19 that youwill continue post- pandemic andwhy? This month, we asked Presidents’ Circle member and Think Realty podcast host Abhi Golhar:
I’m also a big believer in building a business, not a job. That’s why I’ve invested a lot of my time building automations and custom dashboards/software to help me scale the businesses I own when the floodgates open back up again. The benefit of developing technology now is the ability to drive more revenue and take an opportunity to a national audience more quickly. Here is an example of how I am helping a local lender in Atlanta do just that. He is currently at $5 million per month in origination. Building automations and tech unique to his business will open his lending business to a national audience. The best part? He’s projecting ~$15million/month in origination within 12 months. While other lenders are sleeping on tinkering with and improving their tech, he’s positioning himself to crush it.” •
There are two business practices that I’ve focused more on during COVID-19 that I expect to continue into the future: 1. Give greater value to others, and 2. Invest my time building better automations for my business. Just like many of you, I know I can provide extreme value in the real estate space and can suggest tools and books other business owners, lenders, and investors can read to enhance their mindset to positively affect their communities or serve their causes better. Giving value here is a great way for me to stay front of mind and sew a seed with folks that may pay dividends a few years from now.
ABHI GOLHAR Think Realty Podcast Host
14 | think realty magazine :: june 2020
thinkrealty . com | 15
TITAN TALK
INDUSTRY LEADER
The Master of Mobile Home Investing INDUSTRY TITAN GLENN STROMBERG TALKS SUCCESS, FAITH, AND WHAT REALLY MAKES HIM CHUCKLE
ByKelliWhite
Business inMotion In nearly four decades working in the real estate market, Glenn Stromberg has realized that the misconceptions surrounding mobile homes has kept most investors and hedge funds out of that niche market. These misconceptions — and his decision not to believe them — have worked well for Stromberg. According to Stromberg, his company oper- ates using an “open secret — the most over- looked and undervalued class of real estate: mobile homes.” But it is Stromberg’s strat- egy and his ability to pivot in perilous times that propelled him to titan status. Although he has completed thousands of mobile home deals, Stromberg’s passion is to share his knowledge to help others. His company, Stromberg Investment Group, has been providing passive investing op- portunities since 2006, although his real estate career started decades earlier.
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Stromberg began his real estate career in 1982, quickly becoming a top sales manager for amobile home dealership. Over his 38 years in the mobile home industry, he has developedmobile
home subdivisions, owned amobile home park, owned and operatedmobile home sales centers, and bought, sold, and leased single-family homes.
A fter college, he took a job in corporate America and realized his vision was to be an entrepreneur. It must have been fate when he answered a newspaper ad about selling mobile homes because in just two years selling at a dealership, he was promoted to sales manager. His entrepreneurial journey continued when he started a business with a friend, growing it to 13 locations in Texas then selling his portion. Stromberg has owned a mobile home park, developed a mobile home subdivision, and for 15 years had a Clayton franchise, which was one of Warren Buffet’s companies. Stromberg jokes he was partners with Warren Buffett even though he has never met him! After selling the Clayton franchise, Stromberg started buying manufactured homes, but this time they were on land. Stromberg started with the fix-and-flip method and still does some of that, but in 2008 the recession forced him to change his model, and it turned out to be a business blessing.
“In our current business model, we keep some mobile home properties and turnkey others to investors. We don’t use banks; we use all private money,” Stromberg said. “Our investors love us because their returns are better than (sometimes double) what they can get with single-family homes.” With more than a dozen employees in four states, Stromberg Investment Group continues to thrive. With over 350 homes under management spanning four states, SIG deploys over $1 million in investment capital each month and closes on average 12 properties each month. “While millions may play in the real estate arena, very few actually understand it to the level Glenn does and few investors create opportunities that are a win-win for both parties. Since Stromberg Investment Group’s inception, Glenn has had a strong and well-articulated vision for this company, and I am honored to be the one to execute that vision. There is no titan in the industry more humble than Glenn, and he will continue to prosper for years to come,” said Melissa Hamaker, COO of Stromberg Investment Group.
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ATitan Talks Real Estate If you’ve met Glenn Stromberg, you know he’s a fast talker. And if you’ve talked with him, you know he exudes joy and a willingness to help others. Not only a master in his niche of REI, Stromberg is at the top when it comes to character. In a fast-paced conversation with the titan of mobile home invest- ing, Stromberg shared the importance of not only strategic investing, but of the things beyond business that bring true success. Keep up with Stromberg in this fun Q&A:
good. When the banks quit lending, I had 18 properties on the field, and I couldn’t give them away. I had to rethink my model. I didn’t want to rent and deal with tenants and toilets, but I learned what others were doing right and came up with a property management system and discovered passive income. It became a blessing in disguise and the beauty of it is our current model is recession proof. The fix-and-flip method is good, but you have to keep repeating it. If you want to make money while you’re sleeping, this is the way to go. Our current model is recession proof because people need affordable housing. TR Who have been titans — in real estate or otherwise — that you have admired, and why? GS Obviously, Jesus and the lessons he taught. The golden rule and so forth. My dad taught me about being an entrepreneur and encouraged me to do anything I wanted to do. Also, President Reagan. I admired his character, positive attitude, and the way he conducted himself. He was a hero of mine. I also have two spiritual mentors as well — pastors Ron Lyles and Don Gentry — who helped me when I first started going to church. These titans have all made a difference in my life. TR What growing pains has your company endured? GS We’ve gone from just me to 15 employees and a lot of 1099 contractors. Learning and growing through masterminds gave me guidance to turn around cashflow issues and grow smart. I read Jim Collins’ book Good to Great, which says no more than 20 percent growth per year. I believe that. Companies get in trouble when they grow too fast. But I love growing a business. It’s fun for me. I heard when I was young, that most millionaires own their own business or get into real estate, so I wanted to do
TR Success means many different things to different people. What does success mean to you? GS Simple. It’s being in God’s will. Ten years ago, I heard the phrase, is GOD the CEO of your life? That was a game changer. I get up every morning with a set of God goals: love life, love people. When I asked God to guide me each day, everything did change. Also, having time to do what you want when you want. That’s a great luxury. To me that’s success. I tell our team, if we take care of our investors and tenants, the rest will come and the company will be profitable. TR If you could give your younger self advice, what would it be? GS I would have gotten in mastermind groups a lot earlier. I’ve learned your network truly becomes your net worth. The connections you make puts you on the fast track to success. I would have read The Purpose Driven Life earlier in my life. Outside of the Bible, that’s the book that helped me understand my calling. Also, Traction and E-Myth were the best business books I’ve ever read. They taught me business skills and how to delegate properly. I would have read
them sooner. TR What is your greatest virtue? Your weakest? GS I have a desire to help and mentor people. I care about others and want to create win-wins in everything we do. I enjoy mentoring young people and helping them. My weakness is patience. I’m not the most patient man in the world. I want things done and want them done now, but I’m better now than when I was younger! I had a temper, I don’t have that anymore, but I could still be more patient. But I work on that every day. I am concentrating these days on becoming a better listener and thinking before I talk. I am trying to improve on both those areas. I want to be remembered as an honest man who loved God and loved people and made a difference in peoples’ lives. TR They say success comes after failure. Can you describe a time you failed and how you persevered or what you learned? GS In 2008, before the crash, I was buying, fixing and flipping the same type of properties as I do now: doublewides on land. No overhead. I was selling three properties at a time, bringing in $30,000 each. Life was
18 | think realty magazine :: june 2020
Eddie Wilson, Glenn Stromberg and Melissa Hamaker at the 2019 Think Realty Honors celebration.
both! It’s a great way to build wealth. With passive income, you get cashflow every month and tax-deferred appreciation over time. Plus, it is fun to employ people see them prosper and be a part of a winning team. I feel blessed to go to work each day. TR You have said one reason you began investing in mobile homes is because there is little competition and lots of inventory. Has this changed? GS That hasn’t changed. There is still lots of inventory. It is hard to finance with conventional lending, so there is a competitive advantage with private lending. The Coronavirus will take competition away and provide even more inventory. TR How do you feel you have influenced the industry? GS I have been lucky because I got in so long ago. But it all came together in
S tay tuned for more as this titan dialogue continues when Think Realty owner Eddie Wilson visits Glenn Stromberg’s company and asks some questions of his own. Like, was there ever a time Stromberg felt he would fail? Look for the Titan Talk video featuring Eddie and Glenn to appear later this month! it, and offers full-time property management. We keep 30 percent and we turnkey 70 percent to our investors. TR What makes you laugh no matter your mood? GS Three movies from back in the 80s that crack me up every time I watch them: The Blues Brothers, Caddy Shack, and Animal House. Animal House was an on-screen replica of my own fraternity house! That was back before my Christian days!
2008 when I was forced to form a new business model. I am always known as The Mobile Home Guy and helped make these property types mainstream. That will be my legacy. I believe I have the best-kept secret in real estate investing, and I want to get the word out and change peoples’ lives. TR What qualities do you admire in other industry influencers? GS I am attracted to people with character. I don’t like boasters. It’s the quiet one, the humble one that I admire. And honesty is huge. TR Can you explain to newer investors how strategy is different from niche? GS Yes, they are absolutely two totally different things. Mobile home investing is the niche, but there are many different strategies to invest in them. We are the only company that buys a mobile home, fixes it up like new, rents
thinkrealty . com | 19
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COVER STORY
JOE FAIRLESS
PASSION WITH A PURPOSE Joe Fairless on sampling life and being his best ever
BY KATIE BEAN
n his early days of real estate investing, Joe Fairless was living in an unairconditioned apartment, attending Rich Dad Poor Dad
I
seminars and taking improv and standup classes. Each was a formative experience that led to his national success as a real estate investor, businessman, author, and famed podcaster of the Best Real Estate Investing Advice Ever Show. AROOMWITHOUTAVIEW After graduating from Texas Tech University in Lubbock, Fairless headed to New York City to begin his career in advertising. It was his perception that the best advertising firms were in New York, and he wanted to work with the best. He got a job working on Madison Avenue — famously known for the “Mad Men” of the mid-20th century. With his first job came a salary of about $30,000 per year. “At the time, my paycheck and rent were about the same,” Fairless said. That didn’t leave him much room for saving. He also had about $18,000 in student loans. “I had to make it happen.” Working tirelessly, Fairless did make it happen. He became the youngest vice president of a New York ad agency. But as his stature at work rose, he didn’t follow suit in his living situation. After one year in Brooklyn’s East Flatbush neighborhood, Fairless lived in East Village for nine years. His apartment had two bedrooms — one without
22 | think realty magazine :: june 2020
I HAD CUSTOMERS BEFORE I HAD A PRODUCT”
JOE FAIRLESS
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windows — one bathroom, a dorm-style fridge, a stove and a sink. He had a rotating cast of Craig- slist roommates who joined him. Because the apartment had no air conditioning and one room was windowless, Fairless worked out a system where he and his roommate would rotate rooms every six months so they could take turns getting a breeze. During one of his stints in the windowless room, Fairless said he got desper- ate and bought a window unit. He set it on top of a dresser and turned it on. He found cool relief … for about five minutes, before realizing hot exhaust was coming out the sides of the unit. “That was the end of that experiment,” he said. Meanwhile, his friends ribbed him for “liv- ing like a college kid.” His living situation, they thought, didn’t befit an advertising executive. Fairless, however, had a plan. Living with roommates for so long allowed him to start
T he coronavirus pandemic, which has disrupted lives and businesses worldwide, is a reminder after years of economic strength that risks are always lurking around the corner. The illness and the shelter-in-place orders put in place to stem its transmission brought the economy to a screeching halt and ushered in a bear market. That will leave its mark on the multifamily sector, predicted Joe Fairless, co-founder of Ashcroft Capital. “People who are needing to sell this summer are in big-time trouble,” he said. With stay-at-home restrictions this spring putting mil- lions out of work and jeopardizing timely rent payments, Fairless said P&L statements “are going to look terri - ble.” Though everyone will understand the circumstanc- es, he said, sellers will be at a disadvantage. “The worst place to be is needing to sell over the next eight months,” he said. “If you’re in a position to buy, there could be opportunities in summer and early fall to buy at good prices.” Ashcroft Capital “certainly would be buying in this en- vironment,” Fairless said, though the quick shifts in the market this spring scuttled a deal that no longer looked attractive. Fairless said he and his business partner had to exit a deal earlier this year that “just wasn’t the same as when we initially had it under contract.” The move resulted in a loss of hundreds of thousands of dollars for him and his partner. He explained the reasoning in an email to investors — many of whom thanked him for putting their interests first. “I would love to build trust in other ways besides losing hundreds of thousands of dollars, but it’s the long game,” he said. “There will be instances where you will lose money. Keep in mind the long game. Continue to take care of investors — without relationships in this business, we’re nothing.” • Pandemic Shifts Calculus in Multifamily Market
saving, especially as his salary increased with his promotions. In 2009, he made his first real estate investment: a $76,000 single-family house in Dun- canville, Texas, a southern suburb of Dallas. ‘SAMPLING LIFE EXPERIENCES’ Fairless followed that first investment proper - ty with others until he owned four single-family homes. It wasn’t long before he realized the mod- el wasn’t scalable: gains were wiped out by va- cancy costs when a renter moved out, and it took a while to save for a down payment for each new
24 | think realty magazine :: june 2020
I HAD NO INTENTION OF
BEINGASTANDUP COMEDIAN, I JUST WANTED TO BE BETTERAT PUBLIC SPEAKING, AND THAT DID HELPME.”
JOE FAIRLESS
property. This realization, in combina- tion with other nudges in his life, set Fairless on a path to learn more about real estate investing. In his full-time job at the ad agen- cy, Fairless felt “unsettled,” as he described it, so he decided to start “sampling life experiences.” It was during this time that he attended Rich Dad Poor Dad seminars, which teach strategies to create cashflow outside of a day job and how to fund investments. He talked to other investors and kept notes on their advice. He taught a class on how to buy single-family homes, which led to a breakthrough moment: He sent information from his class to a family friend and a former boss. Both said to let them know if Fairless did “something larger than single-family homes.” “I had customers before I had a product,” he said.
Knowing he needed to capitalize on the business opportunity, Fair- less decided to focus on investing in apartment buildings. What he hadn’t yet decided was whether real estate investing, a side gig at the time, would remain a hobby or become his main focus. CAMEAND CONQUERED The stay-at-home orders of 2020 aren’t the first time Fairless has seen his work patterns disrupted. He was in New York when Hurricane Sandy hit in fall 2012, causing record storm surges in the Northeast and result- ing in an estimated $70.2 million in damages. The mechanical room was flooded at the ad agency, so he worked from home while it was being fixed. He liked working on his own terms and was ready to make the leap to becoming his own boss.
In November, shortly before Thanksgiving, Fairless emailed his family and informed them: “I came, I conquered, and now I don’t care at all” about his advertising career. He was ready to give his notice in January. The timeline was unexpectedly moved up: In December, Fairless was laid off after the agency lost a big client, which came with one month of severance pay. He had about $50,000 from a cash-out refinance, and it was go-time. Once again, he had to “make it happen.” ALOTOF LESSONS To get started on his new venture, Fairless went to meetups and net- working events, seeking introduc- tions. He reached out to authors of books about investing in apartment buildings, who also made introduc- tions for him.
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Around April 2013, Fairless had come across the deal that would kickstart his business: an apartment building in Cincinnati. “I learned a lot of lessons, tactically speaking, from that deal,” he said. The deal opened his eyes to risks that few new investors — and perhaps even seasoned investors — would see coming. The building owner told Fairless it was at 98 percent occupan- cy, but he could get it to 100 percent occupancy before the deal closed. “I said sure, do that,” Fairless said. Fairless later found out how the owner accomplished it: by recruiting people who weren’t qualified from a local homeless shelter and placing
them in units that weren’t rent-ready. He asked residents to pay one and a half months of rent upfront in return for two months free — after the deal closed. “Cincinnati was the first and only community that I lost money on,” Fair- less said. “When I sold the property, I gave investors a 14 percent return out of my own pocket, paid back over a year and a half. As a result, I had investors for life.” Since his entry into multifamily investing, Fairless has learned many lessons that have helped him succeed at Ashcroft Capital, which he runs with business partner Frank Roessler. The business owns nearly $1 billion in
assets, which are concentrated in the Dallas-Fort Worth metro area in Tex- as and Tampa, Orlando, and Jackson- ville in Florida. They focus on Class B value-add deals and buildings with 200 or more units. One key risk mit- igation strategy in selecting markets is a diverse employment base where no one industry makes up more than 25 percent of jobs. At Ashcroft Capital, Fairless imple- ments one important lesson: to focus on his strengths. In the beginning, he was doing everything on his own. Now, he said, he and Roessler have complementary skill sets. “We know what we’re good at and what we’re average at,” he said. “If
Can’t Get Away from Loving This Band
f you visit the “Top 10 Interesting Facts About Joe” at JoeFairless.com, one jumps out: He “attends more Third Eye Blind concerts than anyone you know (yes, they still tour).” So, what is the draw to this ‘90s hit machine? Is it because Fairless has a Semi-Charmed Life? “I don’t know how it became my band,” he said, but he appreciates the authenticity of the lyrics and says, “the songs are meaningful.” As a younger man in New York City, Fairless said he would travel to see the band whenever it was playing a show “anywhere close.” He even saw them twice in one night: He bought tickets to two concerts they played on a New Year’s Eve in Washington, D.C. All told, Fairless said he’s been to more than 30 Third Eye Blind concerts. He has a framed poster with a signed set list. “I appreciate any songwriter who writes about things they truly believe in,” he said. I
Featureflash Photo Agency / Shutterstock.com
Now that he’s a family man, he said doesn’t see the band as often as he used to, and that’s just How It’s Going to Be. •
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THE NUMBER- ONE THING THAT
IMPRESSES ME MOST IS PEOPLEWHO RISE ABOVE CHALLENGING CIRCUMSTANCES.”
JOE FAIRLESS
you’re average, you won’t perform well.” Fairless spends most of his time on his strength of investor relations. As a bonus, “building investor relationships is what I enjoy the most,” he said. COMBINING PASSIONWITH PURPOSE In the beginning, Fairless integrat- ed a passion project into his business that has paid dividends in creating connections he’s been able to foster. Around the time he started his busi- ness in 2013, Fairless began working with a business and life coach, who mentioned that podcasting was getting popular and suggested he try it. He decided to give it a shot. In his days of “sampling life experiences,” Fairless had taken both improv and standup comedy classes. “I had no intention of being a stand- up comedian,” he said. “I just wanted
to be better at public speaking, and that did help me.” He performed standup at Gotham Comedy Club in New York: “It was the longest five to seven minutes I’ve ever experienced,” he joked. With that background, Fairless first dipped a toe in as he taught himself how to master podcasting, from inter- viewing guests to editing. “I didn’t know how often I was going to do it. I wanted to find out if it was a good use of my time,” he said. After a few sporadic episodes, Fairless decided to go daily throughout November and December of 2013. He landed an editor and a sponsor who covered the cost of the editing, and The Best Real Estate Investing Advice Ever Show was off to the races. “There are a lot of benefits to building relationships with people on the show and building traction with listeners,” he said.
Fairless also was able to spin con- tent from the podcasts into two books, recapping some of the best advice from the first 200 episodes. He then wrote “Best Ever Apartment Syndica- tion Book,” a step-by-step guide. “I wish I had that book when I start- ed out,” Fairless said. He’s now working on a book for pas- sive investors that covers questions they should be asking before signing onto a deal. Another spinoff from the podcast is BestEverCauses.com, which high- lights one philanthropy per month. The charitable endeavor has featured more than 30 causes, all of which Fair- less donates to and promotes on air. The website includes a form for people to submit causes for consideration. “The number-one thing that im- presses me most is people who rise above challenging circumstances,” he said. •
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INVESTOR STORIES
DREAM BIG
WHY NOT GO FOR YOUR GOALS?
By MeiLani Hock
Brain surgerywas only the beginning. My husband Michael and I used to dream of our bright future, which included becoming successful real estate investors and entrepreneurs with a big family. As time moved on, each of those dreams faded, except one. We mastered the dream of a big family! Each of our five children has brought new adventures and love into our home. At one point I caught a glimmer of those big dreams and decided to get my real estate license in a baby step to becoming a real estate investor. But along came baby number three (AJ) and we decided to put our real estate investment career on the back burner, so I got a more stable job to add to the family finances. Time passed and within two months of us welcoming baby number four, AJ was diagnosed with brain cancer. That first night after learning about AJ’s tumor was the hardest night in my life. I laid in a hospital bed holding my baby boy, listening to his deep breathing and hearing Michael sniffle his tears away. The next day the whirlwind of the cancer diagnosis accelerated. AJ was rushed into brain surgery. It happened to be AJ’s second birthday,
28 | think realty magazine :: june 2020
so we like to say that he got the best birthday present ever—a clean brain! During AJ’s seven weeks of radiation treatments, I became very good at watching strangers roll my baby on a gurney off into a hospital room where I was not allowed. Also during this time, I got laid off from my “stable” job. I felt like I was losing control of everything in my life, but somehow amidst the chaos, those dreams and goals from years earlier resur- faced. I declared to my husband, “I can’t just sit around and wait for him to die anymore!” I wanted to start our real estate investing company. I felt like there was more in store for us than being defined by this diagnosis. AJ’s cancer diagnosis was the wake-up call I needed in life. We had these beautiful children whom I truly be- lieved could be anything they wanted to be when they grew up. But there I was, not chasing my dreams as an adult. I realized it was time to stop making a list of excuses for all the reasons I couldn’t do the things I had dreamed of, and instead just jump in and DO. Instead of focusing on my situation with a “Why Me?” attitude, I instead chose a “Why NOT Me?” attitude. I dusted off my license and jumped into my life- long dream of real estate investing. I started flipping houses, building new construction, and buying short- and long-term rentals. We fell in love with the idea of Airbnbs that provide affordable lodging for families that need a home away from home like we did during treatments. Through that experience, I shifted my focus to hosting Airbnbs and working with landlords to set up their Airbnb systems. Last year we celebrated the miracle of five years of AJ’s clean scans. I now have five beautiful children am so grateful to be in an industry that allows me to accomplish all the goals on my list. After all, Why NOT Me to accomplish my goals? And why not you too? •
MeiLani coaches individuals, corporations, and large audiences on how to Stop Dreaming and Start Doing as well as how to launch and scale their own Airbnb Hosting business. Visit www.whynotmeacademy.com or listen to her podcast Why NOT Me? Academy.
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ENGAGEMENT
BUSINESS TIPS
EasyAnswers TIPS FROM AN ATTORNEY TO PROTECT YOURSELF — AND YOUR INVESTMENTS
When it comes to your real estate investing business, asking questions is part of the job. Often, the answers are simple but not necessarily definitive YES or NO. Think Realty Resident Expert, financial advisor, and attorney Clint Coons offers his advice to questions he hears from clients every day. Here are some questions that result in YES, NO and MAYBE.
Q: AS A REAL ESTATE INVESTOR DO I QUALIFY FOR ANY RELIEF UNDER THE CARES ACT?
A: Yes, you should consider applying for an Economic Injury Disaster Loan or look at the new IRA/QRP distribution rules that allow you to withdraw up to $100k for three years tax-free, or borrow up to $100k from your 401k.
A: No. To qualify for the Paycheck Protection Plan Loan you must have active income. Rental real estate produces passive income and does not qualify.
Q: IF I OWN RENTAL REAL ESTATE CAN I QUALIFY FOR THE PAYCHECK PROTECTION PLAN LOAN?
Q: DOES HOLDING RENTAL REAL ESTATE IN AN IRA CREATE ADDITIONAL TAXES?
A: Possibly. If the real estate is leveraged (i.e.,has a mortgage) then your IRA will be subject to Unrelated Debt Financed Income Tax. Holding leveraged investments is not a great idea for an IRA. You should consider using a solo 401k for these investments. A solo 401k is not subject to this tax.
Have a legal question that might affect your REI? Send questions to Think Realty’s editor at kwhite@thinkrealty.com.
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ENGAGEMENT
REALTY MATTERS
Risk Management
HOW TO CALCULATE RISK TO DETERMINE PROBABILITY OF AN OUTCOME
by Brian Wojcik
W
hen talking to prospective clients for my property management business, I always say, “rental prop-
WHAT IS RISK?
erty management is really about Risk Management.” I often tell the story of a client, who had previously decided to self-manage. Although he always tried to do the right thing, a small, innocent error led to a spiraling sequence of unfortunate events. The story was an example of how small errors may go undetected, unknown, and remain unrealized, until something goes wrong. Consequences in total were severe, not only financial misfortune, but it also left a lasting and profound psychological impact. But, if nothing goes wrong, is there any risk? Risk is measured using statistics and derived from both quantitative components and qualitative factors. Quali - tative factors are a challenge, particularly for individual or small unit-count property investments. Included are interpersonal relationship dynamics, such as behavior, which is possible to recognize but a challenge to quantify. Qualitative risk management planning effectively re - duces or eliminates consequences — and is the focus of this column — with most benefits achievable without
Various definitions of risk depend on its grammatical use: • a situation involving exposure to danger (Noun), or • expose (someone or something valued) to danger, harm, or loss (Verb).
statistics. An annual assessment exercise allows most real estate investors to improve business practices, whether doing rehabs, long-term holds, lending, or some combination. It is not difficult with the right tools and understanding and will elevate your business to the next level resulting in larger gains and smaller losses. Critical thinking and arithmetic are the only things necessary for implementation.
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