WS1610: What is the Best Way to Start A Real Estate Business | #Highlights

EPISODE 1610

[INTRODUCTION]

Whitney Sewell (WS): This is your Daily Real Estate Syndication Show and I’m your host, Whitney Sewell. Today we’ve packed a number of shows together to give you some highlights. I know you’re gonna enjoy this show. Thank you for being with us today!

[INTERVIEW 1]

WS: Keith, welcome back to the show. We’re gonna jump right into, you know, should we concentrate or diversify and what does that look like? And So Keith, welcome back. Let’s jump right in.

KB:  Sure. Thanks for having me back. So concentration versus diversification. Concentration is where you can focus all your time and efforts on something like business investing. And that’s how you’re able to quickly grow a business to get 10x returns; it’s because you’re applying more effort than just your money. That’s where what is going to yield the biggest results quickly. So, I like to be concentrated enough to win big, but as you grow and you have some success, you’re successful, it’s important to start some diversification. That’s what’s going to allow you to prepare to absorb a big loss if you need it. One of the ways I see people lose money is they get concentrated so much in a business, that if something happens with that business, could be a pandemic, any number of things happen, that business shuts down. If they had all their wealth tied up in that business that can wipe them out. I want to be diversified enough. So I can come back, I’ve got some other assets. And I’m not just talking like with a financial advisor where you’re in a bunch of stocks and bonds, but there’s a whole bunch of other private assets where you can get into and earn 15%, 20% plus return on your money if you know where to invest. So in other words, 

WS:  Love that. So, concentrated enough, I felt like it’s so important to just the educational component as well in the beginning, and learning what you’re investing in and you’re putting so much time. And you said, after you reach a little success, then it’s time to branch out potentially. So walk us through maybe how you have done that or how you advise now – how much is enough or how much you know is enough that you’ve won or you’ve had enough success that we should start thinking about diversifying? 

KB:  So, first and foremost, I have something that most people will never have, and that is enough. In thinking through my own journey, we were very concentrated on real estate, we did well. And then as I mentioned in our last segment, I exited most of our active investments between 2016-2017. We sold a lot of our commercial real estate projects, and I was able to place funds with some great performing syndicators. I was really concentrated initially on multifamily and it went really well. I had some guys who are consistently doubling our money every two to four years. Great, but as some of that has paid off, and especially in multifamily, as some of the interest rates tick up, I ask people who are doubling our money or I get a big payoff. So if I invested $100,000, and now they’re giving me $200,000, I’m putting $100,000 back with them again but I’m taking that second $100,000 and I’m putting it in other things. So, for us, we’ve diversified across different startups that have done well. We bought into a gold mine, bought into some oil and gas deals that have just done phenomenally. There’s a whole range of things, a lot of different investments. But that’s kind of like the base of trying to diversify across things outside of real estate. Not diversifying just for the sake of diversifying but being across multiple assets that are also expected to do well regardless of how the market does and that operate in different ways. So, the stock market goes up, certain investments go great, and other ones perform better when the stock market is trending downwards. So being aware of that and kind of spreading across multiple great investments has really helped us.

WS:  Speak to how you educated yourself to know those things. I was thinking about how the listener can better understand maybe the types of investing that they should get into or maybe their investment strategy that they should develop. I feel like it begins with education, right, the concentration on learning some type of investment, but you know, where would you direct them to go? Is there a specific type of investment or maybe somewhere to gain some education around how they should create their strategy?

KB:  So, in my community, I suggest people start with their competitive advantage. So if you go to, any guru usually knows one asset class really well and they think that asset class is the thing to always be in, all the time, always, and forever. I don’t quite agree with that. I would rather look at what is your skills, what is your experience, and what kind of funds do we have to work with. What does your network look like? All of that feeds into your competitive advantage. And then before we even look at that, I like to start with your vision. Where is it that you want to go? What do you want life to look like, time with family, financial success, charity, whatever it is. Get clear on your vision then let’s assess what we’ve got to work with. And then let’s pick an investment strategy that matches that. And I love to work with people or help people guide them through the options that are available to them. And then if you’ve got multiple options, which ones are most in favor of this current economic environment, what is likely to do really well, and then you can pick and choose a result that feels satisfying for you and also with your economic winds at your back to help you have success.

WS: Makes a ton of sense. Are there any other resources that you would recommend to say, hey, this is another way to quickly learn about some of maybe the risks or how to gain the best ROI or maybe some ways you’ve done that? But ultimately, right now, the educational component, anything else,

KB:  Let me share something really quick that I think will be really helpful, that’s just good for every investor to know just simplifying strategy. Just a quick visual here. I have what I call Double Dip assets, you make money from cash flow and equity. And if you invest in assets, I think everybody starting off should do double dip assets. And I’ll give you a few examples of these in a moment. But from a theoretical perspective, that cash flow is going to help pay for your lifestyle costs, you never have to sell positive cash-flowing assets so that lowers your risk. But cash flow often means you’ve got cash that’s taxed at higher ordinary rates versus equity growth which is going to help you build wealth, usually those assets are going to go up with inflation. So if we’re in a high inflationary environment, more likely like we are now, it’s helpful to have assets that appreciate with inflation and selling those assets, things that go on the long term are typically taxed at those lower capital gains rates. 

KB: Double Dip assets are both cash flow and equity growing so it gives you the best of both of those, meaning you get more cash flow, and often that cash flow triggers more equity. So, some examples of what these might look like, cash flow in today’s world, bonds, super exciting, I know maybe loans as a lender, when you’re lending like hard money or many service-based businesses. They’re strictly cash, often not worth much at sale. Equity growth, non-dividend paying stocks. I can think of some reasons why you invest in them, they’re just not my favorite. Land is just going to sit there, your personal home, startups, all of these have a place but they’re going to be more complex and advanced and they’re riskier because you don’t have the cash flow as part of it. Double Dip assets, dividend-paying stocks, rental houses, apartments, and businesses with strong IP systems that can operate without you; those are all great examples of some basic strategies that can make a real difference and help lower the risk for investors.

WS:  Keith, speak to finding an investment. We all want something with a higher return but low risk, no doubt. Speak to how you’ve done that or how you find those now or even you know, help others to do the same. 

KB:  So, for me, it’s really about asymmetrical risk. Asymmetrical risk is high upside, low downside. Typically, people think higher risk means potential for higher returns. But to me, that also means a higher risk of loss of principal; that doesn’t sound fun. And so what’s an example of asymmetrical risk? Real estate 2010, when you’re able to buy houses for less than you can build them for, that’s a great example I can get in, there’s a low-interest rate financing, fantastic deal, I do that all the way long, especially when inflation is paying down my debt. It just felt like a good deal. In 2019, COVID hit and a lot of businesses were on sale. You got a lot of baby boomers who are going to be retiring over the next decade. Most of the time, they’re shutting down their businesses; they’re not selling them. So it’s often you’re able to acquire these businesses for little to nothing. Many times, they just don’t want to see their life’s work going in the trash by shutting it down. They want their employees to be taken care of. So you can likely take it over for little money. And you might even be able to retain them as an advisor, meaning that they just don’t mind having a monthly coffee with you to hear about how their business is going and giving you free advice on what they would do. They probably want that connection, especially in retirement. 

KB: And so, I think buying businesses is a fantastic opportunity. I will also say, oil and gas today, rehabbing oil and gas wells. There’s a guy that’s in our group that’s what he does. He said he was the only qualified buyer on a fantastic project in the Dallas area or in the state of Texas and it’s getting 40% to 60% internal rates of return for the investor. That sounds crazy high but if you look at the market, you see, Chevron and Exxon are going more green. They’re pulling out of all these small projects, they’ve got a few legacy projects, but they’re not doing a bunch of new investments as the world shifts toward more green. A lot of the small operators went bankrupt as the Saudis tried to bring down oil prices, I think that was 2019-ish. And so as a result, there was little financing, there was little demand, it drove a lot of the small operators out of business. So there’s this whole vacuum in there of what’s possible. 

KB: One last way, it’s not always about finding value, but identifying how you can build the value. So one of my clients, in May 2019, was leaving single-family or he was in single-family, he’s like, I really want to own apartments. And so I said, well, apartments are expensive right now. Yes, it’s the best-performing asset class but how can we creatively get into apartments? And so we came up with asset conversions. So I said, I have a background in hotels, I suggest why don’t you go buy hotel projects, and convert them to apartments. And so we identified what the characteristics of a good conversion would look like. He got together with his business partner, and he would say, he’s 10x’d his net worth in just two and a half years. He’s got three projects, making strong multimillion dollar returns on individually, him personally on each and every one of those as a result. You can also do like certain retail space converted to self-storage, you can convert office buildings to apartments. So really getting creative and how you can create value can be a huge option. And so just being aware of the strategies in time and growing into that means that you can have a bigger toolbox to allow you to artificially create value where others might not see it.

[INTERVIEW 2]

WS: Our guest is Amy Sylvis. 

Prior to working in multifamily real estate, she spent 13 years in the pharmaceutical and biotech industries. And she was attracted to the real estate industry because of her previous health challenges and wanted to help others navigate illness. And today, she’s the founder and principal of Sylvis Capital with apartment investments in Alabama, Indiana, Georgia, Tennessee, and Texas. She’s going to help us to think through today some beginner things that we all wish we had known when we were first getting started in this business. 

WS: Amy, welcome back to the show. Honored to do some segments with you and focus on some of your specialties and even getting to hear the challenge that you overcame. It’s encouraging to me and I know it is for so many of the listeners as well. But we’re going to jump into some things today on what’s going to be helpful for the beginners, people that are getting started in this space, and some things you have learned. Many of us were told at one time that it takes, you know, a lot of money to get started in real estate. But I just wanted your take on some of these things and helping maybe the person listening who is brand new. And they see real estate as maybe you did ten years ago or longer, maybe they just read that purple book that we talked about. Give us some insight into that. How much money does it take to get into this game? And we’re gonna dive into some of your tips on getting started.

AS:  I love that. Yeah, so you think of large apartment buildings, we all just assume of millions, right? That’s only for people that are multi-multimillionaires. But in fact, $50,000, as little as that can get you in the game to be a passive investor. So, about half of our investors use self-directed IRA funds. That’s another thing that not many people realize is accessible to them. So, I just love talking about it. Because of the light, you know, how people’s faces light up when they see how accessible this space can be for them.

WS:  Yeah, especially the self-directed stuff. I mean, a lot of people have some of that somewhere from another job, or sometimes, years ago, it’s just sitting somewhere and they’ve not done anything with it. And even if you don’t have that much cash available, oftentimes, that’s just sitting somewhere and you could use it to get started passively, you know, $50,000.  What about on the active side? Did it take a lot of capital to get your business, your real estate business started?

AS:  I love that question too. Yes, and you know, one of Robert Kiyosaki’s favorite tropes is to use other people’s money, right? OPM. So you know, there really is a way for you to have investors, have folks invest in your deal. So you don’t have to utilize a ton of your own money. So, you know, it may take some coaching, it may take some mentoring if you want to learn the space, get some experience. But truly, even earnest money, you know, there are ways where you don’t even have to put down your own capital when you give a letter of intent to a broker. And so yes, the barriers to entry are significantly lower than I think most people realize, which is exciting.

WS:  Speak to how you educated yourself to gain the confidence to move forward in this space. You know, whether that’s through coaching, mentoring, or books, or what did that look like?

AS:  Yes, I read quite a bit. First, Robert Kiyosaki’s books, and then several other folks that were in this space just to get a general idea. And then yeah, I did enroll in a coaching and mentoring program that I found to be incredibly helpful. I know some people have various opinions about that but it’s really what you make of it. I found it to be hands-on. It was great to have someone who have again, been somewhere or was somewhere that I wanted to go and to be able to lean on that experience as questions came up, because, you know, it’s impossible to read everything from a book. So, that was quite instrumental. And then the network that actually came with that coaching program was another aspect that I found to be incredibly helpful. Finding other people that were on the same journey, that had different skills, and were going to the same place that I wanted to go. I’m still business partners with some of those folks today that I met within that program. So many benefits, at least on my end.

WS:  Yeah, the network is oftentimes something I feel like is so undervalued. When people see the big price tag to be part of a mentorship program. When I signed up for a mentorship program years ago, it was 12 and a half thousand dollars. I mean, literally, my wife and I were like, should we do this? This is more money than we’ve ever spent on anything, you know, why should we do this? We were so hesitant, I’ve never hired a mentor for anything. It’s kind of brand new to the entrepreneurship thing and the best money we ever spent. I mean, it was, hands down. And that same mentorship now I think is like $60-some- thousand with this individual and so, you know, in hindsight, if it had been $60,000, we couldn’t have afforded it at that time but I would have had to have found a way if I knew then what I know now, you know. But the network, it’s so important. People don’t think about that; you’re getting a piece that takes years to build.

AS:  That’s exactly it. It is all that compressing years or months into days or weeks that’s spot on. I think it’s tough to kind of visualize and see that especially, Whitney, I really related to what you said about this. I was a first-time entrepreneur. So it’s a different way of thinking from that maybe W-2 mindset or maybe even just from an inexperienced mindset of how can such a huge investment pay dividends? What does the network really do? How tangibly could that help me in my business and enable me to help others in terms? So I love that you brought up that point?

WS:  Yeah, I mean, to the point now, I have numerous mentors for different things, right? And I’m paying a lot more than that, than even $60,000 for mentorships on an annual basis. You know, it’s like, I know the value in it. And so, if you had to look back, Amy, ten years ago, what would you tell yourself that you wish you had known? That if you could talk to yourself and say, hey, Amy, you know, ten years ago, this is what you need to know about real estate or anything? What would that be?

AS: Get a team. I really had no concept of what that could look like, and how they could benefit me. And maybe other people are kind of type A-ish like I am, where, you know, if you’re gonna get something done, I can do it, I can get it going, I can really, I thought I could. And you know, what really value what I have, even more importantly, to a team being so new, I think even if I had appreciated and understood what being on a team and how that could have benefited me, I didn’t fully see how someone would want to necessarily be on my team because of my lack of experience and knowledge. So I wish I would have had somebody in my ear talking about limiting beliefs and helping me expand my mindset around that concept. Because talk about going further faster, even with the health struggles I had, I think I would have cracked in the industry significantly sooner.

WS: Who were the first people on your team? Or who would you encourage, you know, that person that’s trying to build that team now or thinking about getting into the space? Who should be the first people on there?

AS:  I really think people that are established in the space. If you can find a way to add value to folks that are successful, that have complementary skills to you, everyone has something that they can bring a value to, even if it’s just time or something in your corporate background or another skill set. Or maybe you’re in a location where other, you know, folks are looking to establish or invest. Yeah, but I think having, again just reiterating that common theme, we’re talking about, Whitney, but being around folks that are already where you want to be, to have that experience is invaluable beyond words.

WS: How did you get around those people?

AS: It was part of the mentorship program. It forced me. It was really a nice built-in concept. And one thing that was really surprising to me that was different than single-family, with multifamily that it’s not enough to simply have a downpayment to be able to get into this space. So, to be able to have the amount of money the bank requires for you to get the loan, you need to have the balance sheet and you need to have the experience most often so kind of built into this process was having to find a sponsor, having to find someone with that balance sheet and that experience to get the loan for my first property. So yes, it was definitely the network from that coaching mentoring program that forced me into networking and really was the catalyst to help me get my first deal.

WS: So why would somebody partner with you with no experience? As you know, somebody that has the balance sheet and experience and I mean, I’ve lived that as well when needed that early on right? Now people are asking me for that. What does that look like though? What did it look like for you to for this person to trust you in that way? To say okay Amy, I know you haven’t done a deal yet but I’m going to partner with you and sign; I’m going to sign on the debt with you.

AS:  Yes. I passively invested with them prior to wanting to do a deal with them. I would love to say that that was strategic; it wasn’t. I didn’t think that far ahead. But it did provide the groundwork to build this great relationship where you know, this partnership, this passive investing was actually a joint venture where I wasn’t part of the general partnership team. But I was a JV that had some roles and responsibilities and starting off small like that and doing the things that I said I would do and being prompt and being professional and you know, going above and beyond my roles and the scope within that team to find ways to help everyone. Again, not with the expectation of getting anything in return but simply living that kind of go-giver life, if you will, to quote that Bob Berg book that I love so much. You know, time and building trust is a tremendous way to have someone view you as a strategic partner moving forward. So, that was very beneficial.

WS:  Any other thoughts on just what it takes to become a real estate investor?

AS:  You know, there is this concept of taking strategic risks, really building a belief table, if you will, to quote one of my great coaches, Trevor McGregor, of realizing the education that one has gone through or you have gone through, the people you’re surrounding yourself by and knowing that if you’re going to take a step, what feels like a step into maybe oblivion, the road is going to rise to your feet, and you’re gonna be able to figure out how to make something work. There is a real aspect of taking action even though something isn’t perfect that I think we all need to come to grips with as real estate investors. And surprisingly, it’ll serve you very well and be exciting. I promise.

WS:  Love that. Can you give us an example of maybe how you did that?

AS:  Gosh, you know, I think, buying my first property. It’s easy to think of all the things that can go wrong. It was during COVID, we all remember GDP was plummeting, unemployment was sky high. We were hearing, you know, little bits and pieces about an eviction moratorium on a national scale. Those are a lot of reasons to say, hey, you know, maybe this isn’t the ideal time to do this for the very first time. But again, on the other hand, there were many things that were in my favor. A lot of people were scared to invest. You know, there were still residents that needed safe, secure, affordable housing, and from kind of a moral and spiritual standpoint, you know, there were reasons in that column for me to take action even though I was a bit scared. So yes, thankfully, I did take that step and things have turned out tremendously well not only for our residents but for our investors. But that first deal, especially during such an uncertain time, was quite frightening. There’s no doubt about it.

WS:  Yeah. And I know Trevor pretty well, great guy. And I often use the phrase, you know, “done is better than perfect”. And we want to be as perfect as we can be which will never be perfect. But oftentimes, you know, we delay, because we’re waiting for it to be perfect, right? And then we end up taking no action. And so I just think about that often. So, I love that. Just a good reminder for us. What about any other steps that you would recommend to jumpstart somebody’s career in real estate? I mean, ten years and many setbacks for you, anything else that we haven’t talked about that you could say, hey, this is going to help you to jumpstart your career?

AS:  You know, I think aside from the educational piece, getting coaching, you know, getting into a coaching program is applicable, reading books, passive investing, I think, is always a great way, and just taking action, getting experience even if it’s on that tiny scale. I think those are all really exciting ways to gain the knowledge and experience that will help you build that foundation to get into the industry.

[END OF INTERVIEW]

[OUTRO]

Whitney Sewell: Thank you for being with us again today. I hope that you have learned a lot from the show. Don’t forget to like and subscribe. I hope you’re telling your friends about The Real Estate Syndication Show and how they can also build wealth in real estate. You can also go to LifeBridgeCapital.com and start investing today.

[END]