WS595: Adding Value by Being Educated with Davide Pio

[INTRODUCTION]

[00:00:00] ANNOUNCER: Welcome to The Real Estate Syndication Show. Whether you are a seasoned investor or building a new real estate business, this is the show for you. Whitney Sewell talks to top experts in the business. Our goal is to help you master real estate syndication.

And now your host, Whitney Sewell.

[INTERVIEW]

[00:00:24] WS: This is your daily real estate syndication show. I’m your host, Whitney Sewell. Today, our guest is Davide Pio. Thanks for being on the show, Davide.

[00:00:33] DP: Thanks, Whitney.

[00:00:33] WS: Davide is a Broker Associate and Investment Consultant, Co-founder at BG Asset Management, certified commercial investment member and instructor and specializes in asset portfolio reallocation and repositioning, including asset planning strategies, 1031, tax-deferred exchanges, and other complex investment structures.

Well, Davide, that – We all have to be somewhat familiar with or need to be, right? But it’s unfortunate that a lot of times people make big decisions about selling or buying or at times when they shouldn’t. I’m looking forward to like getting into that a little bit today with you. But tell the listeners a little more about who you are and maybe where you’re located and your focus right now in the industry.

[00:01:13] DP: Yes. I’m located in the San Francisco Bay area. I’ve been in real estate for 14 years. I got in during the worst possible time, right just as the Great Recession was happening, so that was fun to say the least. I kind of got started from there and used some old sales techniques to kind of know how to work the people I knew well. At this time, in the San Francisco Bay area, you can buy units at 50 grand a pop, 50 grand a door, which is insane. A lot of people at that time didn’t trust the stock market, so they were able to take a lot of their assets out of the stocks, minimal tax consequences, and put into real estate. It’s one of those kind of snowballing effects, where you help one client, they tend to come back within a couple years’ time frame. Then, of course, they have friends and family, and they have friends and family. It kind of snowballs and snowballs from there.

80+ percent of what I do is on any given year about apartment deals. The other 20%, 15+ percent tends to be in the industrial sector, mainly because of my family’s background. They’ve been in the trucking industry since before I was born, so I kind of grew up with it. It’s kind of been the second extension of me. I do random houses locally for family friends since I did that for my first year or so in just a matter of memorizing forms in California. Yeah, that’s kind of the gist of it. I do random one-off deals here and there. Few triple-net deals here and there. Last year for some reason, I happened to have two sizable church deals. That was fun to learn all the tax laws when it comes to churches and the nonprofits. But that’s the general gist of things.

[00:02:44] WS: Interesting. Okay. I wanted to ask you, you said you got in during the Great Recession I assume around 2008. Was that right before and then it went way down for you? Or were you like in at the right time where you could catch it on the way up?

[00:02:58] DP: I got my license in ‘06 but I didn’t actually start until ’07. Thank God, at that time I was 23 I believe and I still lived at home and I had a decent amount of money in the savings account when I quit my old job and started real estate full-time. My first year, I actually made negative money. I never knew you can do that, but that tends to happen. Then the year after that, I got lucky with a handful of deals. Some people knew that I’d been doing business for two years. They didn’t really know or trust anyone, and I kind of snowballed since then. Every year, for the most part, it’s kind of been a gradual increase, increase, family, friends of family, friends of friends. Clients find out about you through referrals and things like that.

[00:03:40] WS: Nice. I was going to ask you if everything went down, why did you stay in?

[00:03:44] DP: I did pretty decent my second year and I was like, “All right, I can do this.” Especially knowing since people – This was when everyone was struggling. I remember I did a price drop on a property that was referred to me from LA or something like that, and people were like, “Oh, my God. You did a price drop. You’re going to kill all the comps.” I went, “They’re not going to sell it at this price. What does it matter?” It was a very interesting time.

[00:04:04] WS: You mentioned that you made negative money. Just for our listeners that don’t understand what you’re talking about, what do you mean?

[00:04:09] DP: I mean zero dollars and then I still had expenses, so I had to literally pay for things and had money going out. Of course, in real estate, you’re an independent broker, so you get to write that stuff off. I literally showed negative income on my taxes.

[00:04:26] WS: Nice. So, you were hooked then, right?

[00:04:29] DP: Yeah. Tell me about it.

[00:04:32] WS: It’s interesting like in your business, I mean, whether you’re on the active side like myself or whether you’re a broker. It’s so important that you understand some of the tax implications when you’re speaking with sellers and things like that so that you can help explain some of those implications when they’re making these decisions. It sounds like you’ve really become an expert in some of these things, so I think you’ve been able to help some sellers in the process.

Why don’t we get into maybe an example that you’ve had recently and let’s just jump in a little bit to how you were able to help the seller thinking through some of these tax implications that were happening or was going to happen?

[00:05:05] DP: Yeah, sure. I always tell people I’m not an accountant. I’m not a lawyer. But I’m one of those weird, nerdy people that I like to catch up on what’s going on with the accounting laws like the CARES Act and the new stuff they’re passing now, which they’re kind of passing almost on a weekly basis with everything that’s going on with the coronavirus. Then in addition to that, I’m one of those weird people that I like to be able to the Bar Association and listen to people duke it out.

I remember one of the most interesting one was listening to a landlord attorney and tenant attorney for a retail debate, like three-line items for about four hours, and you start to learn all these nuanced things from each side in the perspective. When you start to see lease clauses, you start to see how the attorneys see it and the extremes that it could be taken into.

But the thing I do is I like to try to take that knowledge and bring it in. Most real estate deals – I feel like the shortsighted thing is a lot of real estate deals are going to be you sell and you buy. Maybe the most complex thing is do a 1031 exchange. There’s literally been times where I told people not to sell.

Case in point, with the one we are briefly talking about before we went on air is I had one of my – I had a potential client that I knew. He was referred to me by a long-term client that I’d done 8, 9, 10 deals with. They were very close friends, almost family but not quite. They had been neighbors for 20+ years. I visited his house. As we’re walking in, I – The neighbor had kind of gave me a little bit of a summary and a heads up on things. You mentioned – I asked him, “How long does this guy own this property?” He said, “Oh, like 30 some – 35 years.” As we’re walking through the door, I said, “I’m going to talk myself out of a deal. Just watch.” 

I walked to this guy’s house, an apartment building located in the East Bay, and he’s literally got my competitors listing agreement not signed but filled out on his desk. The guy is in his late 70s, super sharp, watching the Jeopardy. We started talking. In summary, he explained it to me that he isn’t the investor of the family. His kids are. His kids are all older and they’re in their 50s and 60s, but one’s a teacher and one’s a – They don’t do investments. That’s his thing, and he didn’t want to overburden them by passing away because he was in his late 70s and leaving him with the issues.

Long story short, I told them the price was about a million. My competitor said, “Give or take $25,000, we’re in the same ballpark.” I said, “What are you going to do? Are you going to 1031 exchange it?” “No, it’s too much work. It’s – I don’t want to burden them.” I said, “Do you understand your tax bill with federal and state depreciation recapture is going to be – The rough number was about 350 grand, so you sell for a million and you walk away with 650.” He goes, “Ah, I didn’t know all these taxes we’re going to come into play.” Blah, blah, blah. I said, “Can I give you an alternative suggestion?” He goes, “Yeah.” I said, “Have someone manage it for you and wait till you die.”

He looks at me and I go, “I know it’s morbid but,” and I explained to him the estate tax law where in summary, when you pass away and your kids inherit your property, your stocks, and things like that, it gets reassessed as if they had purchased it for the value the day you passed. I next gave him a quick example like an Apple stock that you buy for a dollar. You sell it 100. You pay $65 in taxes. But if you pass away and it goes to your kids, it’s as if your kids bought it at $100. They’re not going to pay it at any profit unless it sells above $100. He looks at me and he goes, “That’s a really good idea. I never thought about that. How do you get paid?” I said, “Well, normally I would bill you $300 an hour but I’m not going to do that for 10 hours of my time. Hopefully, your kids call me when you die.” I go, “I know it’s morbid. But if you need the references, I’ll be more than happy to help.”

Sure enough, about four or five years later, the guy had passed away. I was invited to the funeral. I was one of, I don’t know, probably about 50 people. It’s a relatively small funeral. I basically hung out with a neighbor and one of his nephews that I knew just a little bit that I’d met in the last couple years. They said, “Hey, if you will introduce yourself to the kids,” who are in their, again, 50s or 60s at this point. I went there and one of the daughters recognized me and she goes, “The lawyer gave me your card. We know exactly who you are. We’ll call you when all this stuff this done.”

Sure enough, they just sold the property. They paid zero taxes. Between me and the attorney and the accountant, we kind of had everything on the same thing, and it’s one of those things where I can very easily just sold the deal and been done. A lot of brokers I feel look at that point. I like to look at things a little more nuanced, because that’s how you solidify business. When there are attorneys and there are accountants, where they pay – Have degrees in the wall and they pay $500 or $1,000 an hour, say, “Yeah, the “dumb brokers” listen to this person.” You kind of solidify your client at that point.

[00:09:46] WS: I feel like you had a long-term – Just the long range in mind there. You added so much value literally to them that now I’m sure you’re probably the first person they think of if somebody – If they meet a friend even that says, “Oh, I got a piece of property I‘m wanting to sell.”

[00:10:01] DP: Yeah, yeah. Apparently, the guy didn’t have his trust in order. He had a will but that was about it. We’ve talked about probate and how trusts help kind of sidestep that for lack of better expression. About two weeks later, the neighbor – My original client called me and asked for two references of attorneys, and I gave him both that I had in the Bay Area and I didn’t know it was for that gentleman. The guy’s net worth ended up being six, seven, eight times more than what I thought it was, even though he lived in a relatively modest house. I mean, I didn’t just save him on the taxes and the family had the taxes on. The asset when inherited, it was on other things that I had no clue. That one discussion led to them saving significantly much more on other assets that I didn’t even know existed because I didn’t know the whole story.

[00:10:47] WS: Wow! Davide, how did you educate yourself about the tax side of this? I mean, a lot of the people – I feel like whether you’re broke or you’re an active syndicator like myself, I mean, you spend so much time learning so much about investing in commercial real estate. But we don’t always understand the tax side or the implications, right? How did you educate yourself?

[00:11:05] DP: I like to think I’m smart but mainly just because I borrow stuff from everyone else, I’m definitely no genius. I ask a ton of questions, and my questions always have more questions. I’ve never been the type of person that gets scared to ask. The old saying, the squeaky wheel gets the oil kind of a thing. There’s been tons of situations where – A lot of my fundamentals came from CCIM, which CCIM teaches a lot about depreciation and how that works and capital gains and basis and that kind of thing. It takes a couple classes and a significant amount of time working on the spreadsheets, but I just put it into practice. That’s an amazing foundation in the real estate world.

I don’t know how taxes works when it comes to businesses or employee deductions and things like that because it’s not my world, but that was a great fundamental thing. From then, you start hearing random terms or you started seeing random speakers talk about these additional nuanced tricks of the trade like QPRT or this way that these wealth funds work, and it’s a matter of, A, going online and doing as much research as you can, and you get a lot of basic fundamental knowledge about it and when it may be applicable. But I always have more questions, and it literally comes to the point where I call the people that kind of introduced it a little bit. I just call people and say, “Hey, look. I’ll pay you whatever you charge for two hours of your time.” I’ve got 35 nuanced questions, and it usually builds into like 60 or 70 nuanced questions, but I take notes and things like that. I don’t have them all memorized but I tend to keep things very organized. The more you practice it, the more it works.

Case in point, I had – I mentioned I sold two churches in a year, which is a bit random. One of the churches I sold, I knew a significant amount of the questions, but the owner kept having more questions. He had three, four basic questions which I had to go research, which led me to have another 10 more questions. I ended up calling the State Board of Equalizations that deals with tax implication with the churches. From that, I learned a ton of knowledge. Literally, nine months later, I went up for a listing appointment on an $8 million deal for a Hindu temple in the Bay Area, and the reason I got it over the other broker which is a big national brand was because they had – It was a non-profit group, but they had very knowledgeable people. There were accountants, engineers.

One guy had owned and sold I think three or four businesses that he built from the ground up out in Silicon Valley. Very successful people, but real estate just wasn’t their forte, but they definitely weren’t – They knew a lot of conceptual stuff from other parts of their trade and they had questions for about an hour, an hour and a half. Because I had already learned that knowledge literally nine months before on a much smaller church deal, I was able to take literally those answers and relay it over to them. Sure enough, I got the listing and ended up selling it for a little more than $8 million with some creative financing in mind.

It’s things like that that you learn the basic and you kind of just keep – Intellectual curiosity is just as strong as motivation and may help you go a long way in your business.

[00:14:11] WS: Awesome. Yeah, you’re adding value. In return, you’re gaining value as well. No doubt about it and from your experience and the time that you’ve invested to learn these things.

But tell me a little bit about the CCIM designation, and have had numerous people in the show you have that. However, I just love your opinion for the listeners who are thinking about should I pursue that or not. I just want to like – Who do you think really is best suited to pursue that? Or maybe there’s people who have and you think, “Well, why in the world did you go after that?”

[00:14:42a] DP: Sure. I found out about CCIM by accident. One of the best pieces of advice when I first got started into this business from my broker was when you start off, take as many classes you can. As you continue your career, it’s going to be harder and harder to find time. Great piece of advice. I’ll never forget that and I still try to do it even now that times that I’m super slammed. You have the realtor umbrella. If anyone ever gets the chance to go to Chicago, they have literally the realtor building, and a lot of the realtor designations are in each floor. So IRM which is basically the top designation for property managers takes up a floor. CCIM takes up another floor. SIOR which is for kind of like the good old boys’ club for the office and industrial group is another floor and so on and so forth.

CCIM is basically four main classes with basically for the classes of a bunch of nuanced elective courses, but it’s for four-day classes. It’s class one that’s four days. Class two that’s four days, and you have to usually travel around the country to do them. Then at the end, in addition to taking the classes, you have to do a portfolio showing that you not only have the knowledge but you actually put it into practice. It’s anyone, bankers, brokers, investors, people that do site selection. I actually met a guy that did site selection for all the West Coast McDonald’s for the Western three or four states, which is amazing to have him in a class. You meet some very unique people.

In summary, how I would recommend some of the classes is – I remember someone told me this, and this is still the best example is CCIM is basically a one or two-semester MBA class crushed into four days and applicable to real estate. No theory, just this is actually how it works. The guy that told me this was someone that had just graduated from Haas at Berkeley, which is one of the top, give or take, three, four, five business schools in the country. He goes, “I learned more in one class than I did in one or two semesters, and it’s applicable to real estate.” They give you great fundamental knowledge on taxes. Some of the other classes go into demographics and financial analysis.

Anyone that’s thinking about getting into real estate or investing period should take at least the first class. That’s what I always tell people. Take the first class, because I feel like that should be something that everyone knows just like how to change your oil or pay your taxes or balance your books kind of a thing. It’s one of those fundamental things about investing that everyone should take. Then if you like real estate and you want to keep pursuing real estate in the commercial world, then you can take the other ones. But if you’re a residential broker, an investor, take the first one.

I’ve had people ask if they should read books, if they should – Take the first class. The way that they teach and the way that it’s – The big large groups like CBRE, Jones Lang LaSalle don’t teach the basics of commercial real estate investing, because CCIM has, for lack of better expression, perfected it and they don’t see the reason to reinvent the wheel. So, it’s very common that you get a lot of these big brokers from the big brokerage houses that come in and learn. Then they go pursue further skills inside CBRE, Marcus & Millichap and Jones Lang LaSalle. But that’s kind of the thing that everyone just sends their brokers to to kind of get the fundamental training on how a lot of this analysis works.

[00:17:57] WS: Sure. What about you know you as a broker and if you’re working with operators who are obviously wanting deal flow and looking at deals that you have for sale? How does that work as far as one that maybe has – It’ll say they’re only even so that you don’t know either one of them yet, but one has that designation and the other one doesn’t. What’s your expectation then?

[00:18:18] DP: It’s almost like an even understanding, right? If you meet someone and the first time you talk to him, it comes out somehow that they went to UC Berkeley or Stanford or MIT. It doesn’t mean they’re the smartest person in the world. It doesn’t mean they’re a genius. It doesn’t mean that they’re a nice person or a good person. But at least you have a fundamental thing of, “You went to MIT.” At least I know you have this level of competence and intelligence to graduate from MIT or graduate from Harvard or graduate from Stanford. It’s the real estate version of that. It doesn’t mean you’re a genius. It doesn’t mean you’re a pleasure to work with. It means there’s at least the fundamental baseline of foundation where at least you can, “Okay, I don’t have to build up to you. At least I know we can start from this level one. It can only go up.” That’s the best way I would compare it.

[00:19:03] WS: That’s great. No. That’s great, Davide. I’ve just wondered that myself because I’ve known numerous people. We have numerous guests with that designation but we haven’t really talked about it in depth. But just a few final questions. What’s a way that you’ve recently improved your business that we can apply to ours?

[00:19:17] DP: When it comes to – In the sense of a broker, the one thing is always prospect in good times and bad, even though it’s tedious and everybody hates it, whether it’s warm calls to people you know just to keep in touch, especially in a time like that where one’s kind of by force sitting in their house. In most instances, I try to make it a point to call 5+ people a day. Do I get that way? No, but you’d be surprised what you find out just from family and friends and things like that like, “Oh, they no longer live here. They moved to another country. They live in this city. This is what’s going on with their life. They have kids,” especially where if you haven’t talked to them in one, two, three years. But if the relationship is there, it’s there. If it’s not, at least you’ll know. It’s not a, “Hey, I’ll see you in the grocery store,” and say hello and then it’s going to be awkward forever.

That’s gotten me deals. I still send people email blasts. That’s super cheap. Just being present on social media, whether that’s your personal social media or if you have a business one. I had a business social media. Except for my YouTube, for the most part it’s just nothing ever came to fruition even after long term was my personal social media. People know what I do. I don’t talk about all the time. It comes up sporadically, but those sporadic moments where it comes up I will almost always have someone send me an inquiry of even if it’s just a matter of, “Hey, I’m at this situation. Can you help?”

Again, it’s on those things where I’m pretty good on turning one deal into two or three because I look further down the line than just the sell and the purchase kind of a thing.

[00:20:47] WS: Wow! Great advice. What’s the number one thing that’s contributed to your success?

[00:20:51] DP: I’m really good at keeping in contact with people. Even when it has nothing to do with sales, I’ve always been good about being old-school and calling people in their birthdays. I don’t just send a random text message. I’m pretty good about responding to text messages in a timely manner. I’m not one of those people that has a million of those little red dots on my iPhone where I need to respond to 300 people. I can’t be like that. I get mini-ADD in that sense but I’m pretty responsive. People appreciate that in the business life and personal life.

Then like we started off saying, it’s a snowball effect. In the beginning, you start small. You do two, three, four deals. But as time goes, it gradually starts to increase. As people see that you’re doing volume – One of the problems I see is some people think maybe you get too big. I’ve been doing this 14 years, and people think that, “Oh, you will do my small little deal that’s a couple hundred thousand dollars because you always – Every time that you do mention that you do these large deals, I see it on your website.” I go, “No, no, no. I’ll do small deals, medium, large I don’t care. I’m not going to help you buy a house for $100,000 in Alabama, because it’s not my market and everything. But I’ll find someone for you.” I always try to take care of people. But just keeping in contact with people I think has definitely been my best asset for sure.

[00:22:06] WS: Is there way that you track that or a tool that you use to keep up with that?

[00:22:11] DP: I literally got a CRM a year ago and I have yet to use it, but my assistant is about to start using it because I got my assistant about six months ago. That’s wrapping up and doing all my marketing now. No, It’s just been – Like I said, they’ve all been personal friends, people I know. I don’t really call random people. It tends to be more people I know. Then it tends to kind of snowball from there. Soon or recently I should say, the last literally pre-Corona, about for like two weeks, I was starting to make cold calls. That was new because I’d probably done before then like nine cold calls my whole life, and they were somewhat targeted. But it’s one of those things that I know I got to start getting in the habit of.

Again, my thing is kind of always been the email blasts and social media and YouTube. That’s kind of been my deal flow. I’m just generally keeping contact with people by whatever method that works for them.

[00:23:00] WS: How do you like to give back?

[00:23:02] DP: I love to teach. I feel one of my strengths is I feel like I’m really good at explaining a complex concept and kind of making it really simple to a layman, regardless of what your background is, whether it’s cars or whatever. I feel like I can change that relationship. Whatever nuanced thing that works for you and clicks in your head, and I feel like that’s always been one of my strengths.

I remember trying to learn things about electricity. I’d read upon it and I watched a million YouTube videos. It just never clicked. Finally, one guy sat with me and he explained it to me the same way they all do online two or three times. Then finally by the third time, he goes, “I got a good way to explain it,” to me and he gave me a little bit different nuanced version, and it all clicked, and I went, “Now, I get it.” It’s that lightbulb when you explain to people.

The same appreciation I get when I help my clients later on that, “Oh, I started off and I started with a little condo. Now, I’ve got 10 units under my belt and then my house and all my rent is – My mortgage is almost entirely subsidized by my investments and I can just go quit my job whenever I want.” That’s very satisfying to me, the same way if someone can say, “Hey, you did this for my career. I started here, but you taught me how to kind of go to this path and you helped me with random questions along the way. Now, I’m here on my career, and that’s happened where you’ve been –”

Some people get close to where I’m at and like, “Wow, it’s impressive. [inaudible 00:24:23].” I really enjoy teaching for sure.

[00:24:27] WS: Awesome, Davide. We appreciate how you’ve given back today to the listeners and myself and just appreciate your time. Tell them how they can get in touch with and learn more about you.

[00:24:35] DP: Yeah, yeah. My website is iliveinthebayarea.com. Nuanced to say, I do stuff all around the country, although the Bay Area is kind of my stomping ground, the San Francisco Bay Area. You can easily Google me by my name, David Pio, or my phone number is (510) 815-2000.

[END OF INTERVIEW]

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[OUTRO]

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