BiggerPockets Real Estate Podcast - 334: Using Other People’s Money to Take Down Flips, Multifamily and Self-Storage Deals with Ben Lapidus

Episode Date: June 13, 2019

Self-storage with OPM! Today’s guest Ben Lapidus sits down and spills the beans on his strategies for buying self-storage units and running an investment fund with other people’s money. Ben has some really great advice for those who want to get started in self-storage, including how he got started getting 25% of other people’s deals, why he jumped from single family into commercial opportunities, and how he mitigates risk in the self storage space. You also won’t want to miss what he shares regarding how he picks a market, his criteria for buying a deal, and where he recommends brand new self storage investors get their start (hint-it’s all about size). If you want to have your mind blown, you CAN’T miss his technique for seller financing negotiating where he improves his terms by saving the seller’s money on their taxes-brilliant! This episode is completely full of high energy, content packed, practical advice for getting into commercial opportunities with other people’s money and we guarantee you will learn a TON. Download today and buckle your seat belt! In This Episode We Cover: How Ben found real estate after finding success in other business ventures Starting off investing with partners and getting 25% of the deal with none of the risk or capital Why he jumped from SFR to apartments What he learned buying an awful property on his first deal How he put together his first syndication Why he invests in self storage How he found opportunities while looking for something else How he focuses on his strengths and finds partners to handle his weaknesses How he finds deals in today’s market His criteria for what he needs to see in a market How he mitigates risk when buying self storage Why he looks for “expansion potential” How he finances his deals, the strategy he recommends for newer self storage buyers to look into His BRILLIANT tax saving strategy he uses to save thousands of dollars on seller financing opportunities The one thing he think should be taught in school that isn’t How he recommends people improve their people skills and forming connections And SO much more! Links from the Show BiggerPockets Forums BiggerPockets Webinar BiggerPockets Premium Best Ever Conference BiggerPockets Podcast 227: From Single Family Houses to $130,000,000 in Multifamily with Joe Fairless $13M in Equity from One Deal & Cash Flowing Despite Being Comatose with AJ Osborne Learn more about your ad choices. Visit megaphone.fm/adchoices

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and be sure to join the millions of others who have benefited from biggerpockets.com. Your home for real estate investing online. What's going on, everyone? This is Brandon Turner, host of the Bigger Pockets podcast here with the co-host of the hour, Mr. David Green. David, welcome to the show, man. Thank you, but what does co-host of the hour mean? You're the co-host only for the first hour. After that, we kick you off when we bring somebody else.

I don't know. That's exactly how it sounds. It's like man of the hour, right? But it's a co-host of the hour instead of man in the hour. making me sound like I'm making a cameo on the podcast. Like this is a Game of Thrones episode and like one hour into it. My head's chopped off and I'm replaced with a lanister. Ed Shearin was in an episode of Game of Thrones once.

He made a little cameo. Did you know that? Yeah, he was sitting by the campfire singing a little song. I do remember that. Yeah, you know, so you're probably died. You're pretty much just like Ed. That's why people call you game of Ed. Well, today's episode is packed full of Game of Thrones references, actually.

We compare Brandon to Tyrion. Yes, that's true. That was it pretty much. Yeah. the one right here. So I guess how like jam-packed could be subjective. But it is a really, really good episode. Our guest today is very articulate, much better than what I'm trying to say right now. It's high energy. He's very smart. He makes up for my lack of intelligence. Don't worry, guys. You're going to love it. Well, yeah, today's guest is Ben Lapidus. He's a super cool guy.

He runs the best ever conference that I was speaking at last a couple months ago. And I met him there And I was like, man, this guy is wake and smart and doing some really, really cool stuff and has an amazing story. I mean, in his story, he talks about how he got started with his first couple deals. And then he figured out a really cool strategy for investing in rentals with no money down. I mean, like, legitimately, like, he would get a piece of a bunch of rental deals without having to put any money into it. It's a really cool strategy that if you're brand new to real estate, you're going to love this strategy. Then he talks later about negotiating seller financing, which is phenomenal. His tip on that, it's towards the end, but listen for that.

He talks about self-storage, which is a really, really fascinating industry that might just, like, change your entire, like, thought on what you want to get into next. Self-storage now is going to be like, oh, that's the next shiny object. It is really cool. He bought a car wash. He talks about that. That's pretty cool. And then he tells later about ideal where he lost $120,000 on a flip. And the lessons he learned from that will save you from that happening to you. At least that's my hope.

So, again, this show is just chocked full of really good stuff. And speaking of chalked full, what does chocked full mean? It's the same thing. I don't even know what that means. Like a lot of shock. I'm going to research that and have an answer for you on the next podcast. There's so many sayings like when we say a game was a barn burner. I never know what that means it was boring.

You never even say it's a real barn burner? No, I've never heard that. I never know. Does it mean it was exciting or it was boring? Because like watching a barn burn can't be very exciting. But it's kind of thrilling maybe. Like if it was like the neighbor's barn, you didn't like the neighbor. Anyway, moving on.

Before I get to the today's quick tip, I do want to just ask a quick favor. If you've not yet left a rating or review for our show, please do so. It really, really helps us out. It helps us reach more people. iTunes bases, all their algorithm recommendations largely on reviews and ratings. So if you haven't done that, just click that little five-star button on your app, on your iPhone or whatever you're using and let people know you like the show. And with that, let's get to today's quick tip. All right.

So today's quick tip is actually brought to us by our good friend Dave Meyer. What's up, Dave Meyer? Not too much. It's been a while. How you guys been? It's been a while. What was the last time you were on the Bigger Pockets podcast? It's been, I don't know, a year at least. I think so. Yeah, it was before David Green was the regular new new, the regular new host. So thanks for having me back. This should be fun. So we are actually talking about today's quick tip. And that is the brand new Bigger Pockets premium account. And I wanted to, I wanted to bring you on this show and talk about it because this doesn't apply to everybody. And I would say, you know, not every single person, but there are some people. But there are some people. people listen to the show right now, that this is going to be incredibly valuable. So let's just take like two minutes here and just start. What is Bigger Pockets Premium? You've been running this whole project, so that's why I thought you'd be the guy to explain. Yeah, yeah, absolutely. So thanks for having me. I'm excited to talk about this. It's a really cool new platform that we are launching. And basically, we are launching a new membership type that is geared towards people who are trying to grow their business. If you in some way service the real estate investor

community, the premium account is probably something you might want to think about. So if you're an agent, a lender, property manager, that sort of person, we have launched a whole new way for you to get in front of our audience. So you can create a marketing page, basically, that allow you to upload marketing materials. You'll be able to showcase any deals that you've done with our community. You'll be able to get reviews from people, our community. And ultimately, that will hopefully turn into some new business for you. And really, the way we came up with this was just, we wanted to leverage the strength of bigger pockets, which is our community. And so we wanted to make sure that agents would be able to get reviewed by our community and be able to, our community is participating in vetting

all the people that might be working with people from bigger pockets. All right. That is fantastic. Yeah. Why did you decide to build this? Well, honestly, we've gotten a lot of feedback from both sides of the community that this is something that they want. First and foremost, we have nearly half of the people who sign up for Bigger Pockets tell us that they are interested in meeting an agent, for example. There's also tons of people who are interested in meeting property managers, lenders, everything. I mean, it's something we talk about all the time here is how do you build a team, how do you surround yourself with people who are going to help you become successful? And Bigger Pockets, honestly, has been great at that over the long haul, but we haven't exactly made it easy.

So we're just trying to make a way to facilitate these connections. And then on the other side, obviously most people who are on bigger pockets participating in the community want to generate new leads for their business. And we figured we'd make a way for matchmaking to be a little bit simpler. So it's like a dating site, but for, Duncan. It's basically matchmaking. Yeah, exactly. Yeah, but it's only one way dating.

So I just want to be clear, like, we're not selling anyone's data to agents or anything like that. But if you're a bigger pockets member and you want to, find an agent, you can now browse through different agents, check out their qualifications, see which ones have the experience and the expertise that is most relevant to you. And then if you want to work with them, you can reach out to them on bigger pockets. It's as simple as that. I just can't get past one way dating. I think that's illegal in most states.

Well, I was wondering, because I have one of these accounts myself, right? And I'm wondering, when they come across my picture, which way do they have to swipe? Yeah, yeah. We're only swiping right for you, David. I'm sure you have a 100% success rate. Awesome. All right. So what do people do if they want to?

Yeah, I think that's an important distinction that we want to make is that we want high quality agents and we want high quality users. This isn't going to be just like another way for, you know, we want to make sure anyone on bigger pockets who reaches out to an agent is going to have an awesome experience. And we've really designed that this entire product with that angle in mind. All right. And where can people go if they want to find out more about this premium membership, to see if it's right for them in their business.

It is very easy. All I got to do is go to biggerpockets.com slash premium. And from there, you can upgrade to a premium account if you already have a company profile. If not, you will be prompted to create a company profile. It's super easy. It takes less than a minute. And you can upgrade after that. Very, very cool.

All right. Well, good deal. Well, with that, that is awesome. Thanks for having me, guys. It's awesome. Thank you, Dave Meyer. And with that, I'm just going to jump right into the show because Dave and I have talked too much in this introduction, and I want you guys to get to know, Ben.

So without further ado, let's get to today's interview with Ben Lapidus. All right, Ben, welcome to the Bigger Pockets podcast, man. Good to have you here. Thank you so much for having me, Brandon. Good to be here. Yeah, this should be a good time today. So tell me about yourself. I mean, you and I hung out a bit there in Denver, and I got to know you a little bit,

but I never heard your early story. So how did you get into real estate? What came before and what was kind of the impetus into the business? Yeah, man. So the quick and dirty is in college about a decade ago. I was headed towards Wall Street doing the investment banking thing in 2009, which was an awful time to try and figure that out. So quit my internship, headed to Costa Rica on a whim, found a business model that worked with study abroad. tourism was dead. The green fad was just picking up. So we started a study abroad company for renewable energy, sustainability, water conservation, bringing environmental engineers to Costa Rica, which then expanded to Iceland and Japan. So three years later, we were due to about $2 million a year in business,

sold out, used that money to buy my first couple of rentals because at the same time, my parents were trying to find a retirement home. They didn't want to move yet, even though they had it, and they were renting it out. And they're like, hey, you've got a finance degree. Help us figure this out. So they bought one. and then they bought another one, and I helped them with that. And they bought a third one. I helped a little bit more. And by the time I had sold my shares in the business, they had bought five or six. And I had experience with that.

So I just turned key system, bought my first two rental properties all on my own. Got to New York after I sold my business, signed up for an ad tech company. First one I p-oed. The second company I worked with, had a major acquisition. And I was surrounded by a lot of people that had just made a lot of money. and they heard that I was buying these like cheapo houses in 2012 that were cash flow in at like 20%. And so they're like, hey, I don't want to figure that out. I've got way too much to do, you know, making a million dollars a year or whatever.

Here's 50 grand or 100 granders. I just go buy me a house. And so I did, but I'm not a broker. I was an investor myself. So we had an agreement, which I did this seven, eight times, where I would just own 25% of whatever they bought. And I would get 25% of the cash flow, 25% of the equity. And they would hold the mortgage and put in 100% of the cash.

capital. That's awesome. Yeah, yeah. That was my little hack to, to try and build up my balance sheet. Before I sold my business, I had like 800 bucks to my name. And then all of a sudden, I had this fat, six-figure check, bought a couple of houses. And then my balance sheet just started snowballing with other people's money. So I turned that into syndicating my first multifamily portfolio. I didn't know I was syndicating, so I definitely did it wrong. You know, a 24-year-old doesn't know what he's doing. There wasn't, there wasn't good conferences at the time to meet people. people, you know that. That's true. So, okay, so let's dive into this a little bit. You said some really good stuff here. So first of all, I love that you just like jumped in at that young age, bought a

couple rentals instead of like, why did you not go, like, what way did it different for you to not just go blow that money on a, you know, $80,000 car or like most people like at that age, when they get a big chunk of money, they just go and spend like, you know, you worked hard, you know, reward yourself. Why did you decide to put it into rentals? Yeah, I had a, I'm pretty disciplined upbringing financially and just always resonated in the back of my mind. Do what people aren't willing to do today so that I can do what people can't do tomorrow. And so, you know, that's always just resonating with me. I'm always thinking about that.

Like, how can I work? How can I invest in myself today so that I don't have to do things I don't want to do, you know, five, 10, 20, 50 years down the line. So that was, yeah, that was a mindset. Yeah, I was talking to a friend yesterday who said, he was telling me how a buddy of his works in like oil and gas. And they, it's like on this boom bus cycle. And the guy will go from making, you know, $100,000, $150,000 a year.

And then a couple years later, we'll be making nothing. And it said every like three years, he loses his house and goes into foreclosure and loses all his vehicles. And then he'll get, he'll go and buy a new house and like a big trailer and like a bunch of RVs and four wheelers and then lose it all again. It's like this cycle. Oh my God. People get into. Yeah. That gives me anxiety.

I know. You know that story? Like, oh, what did that? Yeah, no. No thanks. Like, wow, what if he just, like, lived on, like, half that didn't come and put the other half away? Like, he'd probably be out of a job right now. Like, man, but people, and I don't know how you train people that way.

I don't know how you get people to think that way. I don't know. I don't know either. I, um, I, I, I love, I love my sibling. But they decided to go, uh, live life differently. And so, you know, same, same exact upbringing, uh, but just responded to it differently. Yeah. Yeah.

Yeah. I'm not sure. I get you. I like what you did, though. You bought a, what was it, a two unit for your daughter so that she got like, four unit, yeah. Four unit for your daughter. That's, I'm sure people have, I don't know if you talked about it on the show before, but that's pretty badass. That's, that's a good way to start.

I think that's, I think for those who don't know what you're talking about, I bought a fourplex for my daughter the week she was born on an 18 year mortgage. Well, it's really a 30 year, but I haven't set up an 18 year pay off numbers. So it'll be paid off when she goes to college. So now to be worth three or four hundred thousand dollars, she can use that money to get into real estate or to go to college. or whatever she wants, it's her deal. But basically she gets a C real estate for the next whatever. So anyway, kind of cool. Anyway, hey, look at you, Ben.

Your memory story, that's awesome. All right, so you go to New York, you get this 25% of these deals, which, by the way, I think is a phenomenal strategy. If you're listening to the show right now and you're like, I'm trying to get started, I just don't have anything. I'm not sure what to do. Like, what a great thing. I'm going to go find deals for people.

I'm going to put all this stuff together. And I'm going to get a small piece of the puzzle. It's the same thing we say all the time. 50% of a great deal. In this case, 25% of a great deal is still better than 100% of nothing. So, like, you were gaining knowledge, gaining experience, all that. Very cool. Where were those properties at, by the way?

Was this Midwest somewhere? All in Richmond, Virginia. I picked up 12 to 14. I think it was 14 houses. Yeah, over three years. Well, very, very cool. All right. Then, all right.

So why then I'm going to steal, David wrote this question here, but I'm going to ask it. Why did you move? You said you syndicated your first deal. I want to know that. transition. Why did you go from any single family? And then walk us through that very first syndicated deal. Okay. So I actually became friends with Joe Fairless before he was the Joe Fairless that we all know and love today. And so before he had the podcast, before he had the books and everything, he put on a Skillshare class in New York. He was also in advertising. He

lived a few blocks from me. And so he put on a Skillshare class, you know, like how to buy a $7 million apartment building for $15 grand. And we had a mutual friend. That mutual friend brought me out. I think there was like five people at this class is like, you know, that picture that you see on, on, you know, that he uses everywhere. He like took it at that class. And so he showed me this. I was like, oh, my God, I can actually go and buy an apartment building. I can put in the exact same amount of work to buy an apartment building as I would for a single family. So I started looking.

I was proactive about it. It didn't just fall in my lap. And I bought an awful property. I did not buy a good one. Yeah. So I was like, oh, this is the exact same as buying a single family house or a portfolio of them. It's the exact same. It's really not.

I ended up getting out of the deal okay. But I purchased this thing for more per door than it was worth. I could not increase rents the way I was able to for the single family. I couldn't put all the money into the renovation. And I was way too optimistic about my capital stack and just did not have the working capital that I needed to survive the ups and downs. Yeah. So that's that's the highlight. level. Okay. How did I syndicate it? So this, there's a good story with this one because I had a list of

70 people. I was like, I can call these 70 people. A lot of them were people that had done houses with. Everybody said no. It was an apartment building. They weren't, it didn't like the idea of being one of five people to work with. And one person said no. And I was like, okay, so I've got like, I don't know, 100 grand and I need 400 grand. And so one person said no. And the next day, I'm in the middle of like a meeting at work and I see that this person's calling me and I'm like, I'm going to get in trouble if I picked this up, but I did it anyway. I just like walked out of the meeting, didn't say anything, went to the stairwell, picked it up and said, hi, what's going on? I thought we said it was no. He's like, actually, you know, I've been thinking about it. I just want to, I want a relationship

with you. So I'm here sitting with somebody that I just met. I've never met them before. I'm talking about you. I don't know why, but you came up and this person's interested. If you can convince them to co-invest right now, like, we'll, we'll complete the deal for you. And I was like, oh, okay. So 20 minutes later, he said, all right, show up to my apartment. It's 15th Central Park West, wherever it was, for lunch on Friday. We did not talk about the deal at all. And an hour later, he wrote me the check.

Oh, funny. That's really like what a lot of syndication is, honestly, is just that relationship. Like if people like you and you can get them like you and trust you, they'll probably invest with you. I think that's the first thing. It's the same thing on the venture capital side. It's people first and then traction. second and then the product.

It's like, who are you? Can I trust you when I look you in the eyes? And, you know, what experience and track record do you have? And then I'm going to look at the asset. That's what I've found. That's so true and so good. So, oh, by the way, everybody, Joe Fairless. You mentioned Joe Fairless.

He's a good buddy of yours. I know a good buddy of mine. Joe was on episode 227 of the Bigger Pockets podcast. It was called from single family houses to 130 million in multifamily, which now I know he has way more than 130 million in multi-family because the guy is like, It's like a rocket ship. But anyway, I definitely recommend listen to that one. Everybody go over to BiggerPockets.com.

So I show 227 for more on Joe's story. And then I think even, I think if I recall it, I think even mentions that first meeting he had there in New York, which is funny that this is coming full picture now of you being at that thing. So where was the property at? That one was also in Richmond. Okay. So you started Richmond.

That's where your family's from? And then you were from originally, that right? No, they wanted to retire down there. Like a year before I bought my first house. They just moved there like three or four years ago, but we started buying stuff down there a decade ago. Okay, very cool. All right. So I guess walk us through what came next after that syndication.

Didn't go so well. You said you got out okay. Yeah. What was the picture there? Yeah. So it didn't go so well. It wasn't going negative, but it wasn't going positive. I wasn't producing the distributions.

And what I learned was is that I'm a finance guy. I love finding deals. I love having conversations. I love underwriting. I love negotiating, get it under contract, taking it all the way to close. And then I want to look at the next deal. I'm like a dog chasing squirrels, right? So the minutia of managing vendors, projects, asset management,

it's just not complimentary to my skill set. So around that time, I met my wife in New York. We decided to move out to Denver, Colorado. I said, I need to connect with some people. I know nobody in Colorado. Started the best ever conference. Met a lot of really cool people, yourself included. Two of those partnered up with,

and they were converting their strategy. They were doing a bunch of condo conversions in D.C. I had this cash flow experience. They had this wealth flipping experience. So we married it together, decided to focus on commercial, and now we're buying self-storage full-time. And I am doing acquisitions for that business full-time. Very cool.

Okay. Let me try to unpack some of this and then ask you a couple of questions to clarify it. Let's do it, David. So you're involved in several different kinds of real estate investing. And can you sum up all the different stuff that you're buying? Yeah. So over the last few years, we bought an RV park. We bought a several parts.

of land. We bought a car wash and mostly self-storage facilities. Car wash, self-storage, land, and did you say multifamily there? RV park. RV. Park. Okay. Now, why those things? Do they all have something in common? So really the emphasis is self-storage. That's what we spend all of our time looking for proactively. The car wash was, it conveyed with just an 80,000 square foot facility that we bought. So we looked at it. We said, you know what? We don't know car washes. We spent a month reading every single book in the universe on Amazon about car washes. If you can believe it, there's three of them. So it took us all of an hour to read through all those books.

We had more inspections than we probably needed, spent a lot of time networking, and said, you know what, we can figure this out. This is not going to make us a ton of money, but it's not going to kill the deal for us. The RV park, we just stumbled upon. That was a reactive acquisition versus proactive. And then the land is to support the construction of self-storage. So really self-storage is the focus. So that was what I was really hoping to pull out of this is you had a goal, self-storage,

but then in pursuit of that goal, you stumbled across other opportunities that if you had said, I don't know, what do I want to do? Do I want to do a car wash, a laundromat, a self-storage? You probably never would have taken any action. But because you pick something and you went for it, other stuff kind of fell into place because you were out there making things happen. Is that correct? Yeah, that's exactly right.

So we actually spent 90 days after we said, okay, these are our qualifications. We want to pick something with low operational maintenance. We want very few surprises under the dirt. And we want something that is becoming more institutionalized. So we had those qualifications. We went through all the asset classes through a strategic planning process. And we came across storage. And we said, okay, storage is what we're going to focus our time and attention on a few years ago.

And then we spent 90 days not doing anything, not looking for assets, not trying to raise money, just reading everything we could, networking, connecting with as many brokers as possible. and that was our education time period. It was not sufficient to be a master in self-storage, but it was enough to make sure that we weren't going to make living under the bridge type mistakes when we bought our first portfolio. Yeah, I noticed a lot of people, they want to know every step before they take the first one. Brandon, I see this constantly.

But the more people we talk to, the less we see that they actually had a blueprint that they followed completely. It's more like you started off growing just a little twig coming out of the ground like a tree and then things start branching off of it. And you don't know exactly where it's going to go, but you know, hey, I understand how to value this asset class. So I can value a similar thing, a car wash, a laundromat. It's similar to how your self-storage was going to work,

an RV park. There's a lot of similarities. It's like learning a language that you already speak at the base language for it. So that was the first thing I wanted to point out is that's what the listener should be expecting, is I'm going to pick an asset class, I'm going to chase it. And in that pursuit, more stuff's going to come. Another thing that you mentioned was that you like to chase down these deals, put them under contract, and move on. You're not the guy who's basically going to be maybe operating operations or managing the process.

Can you tell me why you like that part of real estate and then what you did with your partners so that your weaknesses were on somebody else's plate? Yeah. So why do I like that part of real estate? I just think it goes with how my brain works. I'm a numbers guy. I like to do math quick in my head. I have a gut instinct that is not typically matched by a lot of people that I interact with, but I'm also self-admittedly highly ADD.

Everybody's got something on the mental spectrum, right? So everybody's somewhere on the ADD spectrum. Everybody's somewhere on the narcissistic personality disorder spectrum. I'm just really high up on ADD. So like being organized, making sure I'm following up on things, having things slip through the cracks. If you don't do a deal, you will not lose other people's money. And so that is my cost of making a mistake. If I own something and I'm responsible for the management of it and I miss something,

I have lost somebody's money through negligence. And I'm just not okay with that. That does not feel like being an okay fiduciary. So it's a combination of doing what I'm good at, but also making sure that I'm being the best role that I can for our customers, which is our investors and our tenants. I love that you own that. I've noticed that we typically look at impatience as a flaw.

Most people would say, you have to learn patience, you've got to be patient. And there are times in life where patience is absolutely necessary. But I'm very impatient. And I found that a lot of other top producers are impatient people. Yeah. They are constantly like we need to get moving that. We're going to lose that deal. We're going to lose this opportunity.

We've got to push through this thing. Impatience is actually a virtue in certain situations, like the one where you're in, where speed is of the essence and the ability to be decisive and make a quick decision matters. So that's something else that listener. should think about is there are things where you work a certain way, your brain thinks a certain way, you enjoy things a certain way. That doesn't mean you can't get into real estate investing because you don't love spreadsheets or you don't love networking. You just got to align yourself with people that do and focus on the parts that you like. Absolutely. And I noticed like the more and more people

we talk to that are doing big deals, that's what they've done is they've just given up the fact that I'm never going to be good at this part. That's okay. Some other guy or a girl has got to be good at that. I need to focus on this part. I mean, all of my real estate heroes have done the exact same thing. I mean, they've all got partners or they've got teams around them. And they wouldn't be able to do the scale that they're doing now if they didn't have people that they could depend on to do other facets of the business that wasn't their best. Yeah. Yeah. People love to call real estate passive income, which is interesting because most of the investors I know are very busy. Busy finding deals, busy managing teams,

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And they're still the only lender with a DSCR price-beat guarantee. That means faster closing, the best terms, zero guesswork. That's Dominion Financial. Check them out at biggerpockets.com slash Dominion. Again, that's biggerpockets.com. dominion. So why self-storage? I really want to know. You're the second guy that I've talked to about this. What was so appealing about that? So I think self-storage, there's pros and cons of self-storage, but self-storage is you've got a low-tenant risk. You're not, you're not messing with somebody's

livelihood if you're, you know, 24 hours late to swap out, you know, the H-FAC or something. You've got very little risk legally on the actual contents of what's in the unit. So your interaction with clients is not as meaningful. I mean, our mission statement is to improve lives through real estate. If we're not on top of fixing somebody's air conditioning or something like that, we are not improving lives through real estate. We don't have those concerns in self-storage. Secondly, the maintenance on a metal building with doors in the middle and when you've got climate control, you've got some HVAC running through, is significantly easier than the maintenance, the capital expenditures on a multifamily building. And thirdly, the risk of what's going on

beneath the ground is much less because you don't have plumbing. You've got concrete pad and then you've got metal on top of it. There's nothing going on beneath the ground. So from a development perspective, it's a little bit more simpler. And it also makes the capital expenditure part a little bit easier as well. So those are the three things that we were looking at in addition to is this asset class becoming more institutionalized our cap rates compressing. And so self-storage met all of those things. There's other asset classes that meet those things as well. And what we're learning is, is what we've, what we learned years ago at this point, now we're just dealing with it, is that self-storage isn't any less competitive than, say, multifamily.

So we were looking to get out of a red ocean market. Self-storage is not really one that you jump out of a multifamily red ocean market or even a single-family red ocean market and say, oh, I'm in this brilliant landscape of blue oceans, and I can make all this money doing things easy like single family back in 2012, right? Like, I wish self-storage was single family back in 2012. So we're looking at other asset classes that meet all those other qualifications to add on to our repertoire now while not taking our eye off the ball of self storage. You know, it's funny is I've been thinking the same thing lately. People probably know if they listen to the show a lot that I'm getting more and more heavily into mobile home parks.

And originally what attracted to me them is like there wasn't a lot of competition for them, I thought. It was like, oh, these are not very competitive. But same thing, right? Like just because it's not as like popular as multifamily, there are, there is a hundred times less mobile home parks out. there. And so, like, they're just as competitive because there's 100 times less people looking for them, but 100 times less property. So it's the exact same competitive nature, like a competitiveness. It really is the exact same thing. I mean, I know multiple guys, I mean, Ryan Smith, the elevation cab, multiple guys who do mobile home parks and self-storage because they're complementary assets.

But the landscape is basically the same from a buyer-seller marketplace. It's, so I feel, I feel your pain, Brandon. Yeah, yeah. So let's talk about that. How are you finding deals in today's market. How do you find self-storage? Working my tail off. So we're tacking everything. So I'm best friends with every broker out there, which there's a lot less than multifamily. I mean, you go to CBRE and there's there's one team nationwide. So there's a couple of guys on the team, but there's there's one guy. So it's a lot easier to become friends with every single self-storage broker in the nation than it is for multifamily. Secondly, we know, we're making phone calls. We've we've got somebody on our team, director of business intelligence. She spends all of her time,

researching what is exactly that we want, market reducing the entire country down into a list, getting all the contact information, and then we're just, we're blasting out letters, making phone calls, doing digital assessments with VAs and interns. So we've got both of those strategies. And in addition to that, just being open-minded to be as creative as possible. So we're looking at ground-up construction, you know, build it if you can't buy it, as well as conversion opportunities, taking Kmart's and Sears and just gutting them and putting in metal blocks for,

storage, which is probably the most lucrative strategy within self-storage, we think. That's the one strategy we haven't executed to complete term yet. Yeah, we had a guest on the podcast, AJ Osborne. Let me see, it was episode number, hold on, I'm pulling it up right now. And he was doing, he told this story about making millions of dollars in equity. I mean, it was like $10 million of equity. It was on episode 286 on the Bigger Pockets podcast. And this guy, like, bought an old Kmart and completely renovated the whole thing to be self-storage.

And I thought it was just a phenomenal strategy. And then just now out here in Maui where I live, there's an old Kmart. I saw it. It was sitting there when I moved here. And right now it is a full U-Haul self-storage facility now. And I'm like, dang it, I should have jumped on that. Probably gone by that point. So as of the start of 2019, so the other interesting thing about storage is there's all these data platforms,

kind of like multifamily. It's not like, I don't know, RV parks or restaurants. There's tons of data. And all these platforms just added, flags for like Kmart's and Sears and and it was the other shop co so now it's it that data is ubiquitously available to everyone so now the value of those buildings as of the start of this year is just as difficult to make work financially as anything else now we have to look at conversion opportunities that aren't a Kmart aren't a Sears they're an 80,000 square foot

furniture a shop is just local that's the only one they own and nobody else knows about it that's that's the kind of stuff we have to look for you know Ben, here's something I want to ask. That's a lot of opportunity that you're looking to take advantage of. We're talking about converting. We're seeing that like the market's a little frothier now than it was before. We all said we wish we could have bought like the market was in 2012. But the reason we say that is because it's been steadily getting better and better, right?

What are some metrics you look for to safeguard your investment to make sure that you're not over extended? You're not putting in self storage an area where there's not enough people to use it, stuff like that. Yeah. So the three things that we do to qualify a deal, which is, a little bit of a different answer than to the question of, you know, what do you do to make sure that you're mitigating your risk? So I'll answer both those questions. But the three things that we look for is, one, where is it? Isn't it in a market with positive population growth, positive income growth over a certain threshold, benchmarked across the nation? So what do the

demos look like, basically? Are there more people coming in? Are they making more money? Are there more houses coming up? So we have a map tool that we've created internally where I just put in an address and it's cross-referenced against ESRI census data that's been updated to 2019. And it says, this is a good market. This is a bad market. And so I just follow that like it's God. Number two is, does it have expansion potential? What we're finding is, is you've got cap rates compressing and interest rates slowly, but rising.

And so the spread between the cap rates and interest rates aren't very good. So you have to add value. And in multifamily, adding value could be adding amenities, doing all these things. And you can do the same thing in storage. It just doesn't have the same push. So we have a development core competency. We believe that we are exceptional at, I believe, that my team is exceptional at developing.

So expanding on an existing facility, if not building one from scratch. So all of the existing cash flowing storage that we're looking for has to have some type of expansion potential. That's how we're getting our large enough margins to make it worth our time. And if we expand,

so to answer your question directly, if we expand, but it doesn't pan out exactly like we wanted to, well, we packaged in a 30% margin. So now if we're off by 20%, which would be a massive swing, we still have 10% upside. Is it a home run for the investors?

Absolutely not, but they're getting their principal back, and they're definitely beating a mutual fund, a low-risk mutual fund on that. So it's really hard, I think, these days, if you're looking to do a flip in Seattle, Washington, or Atlanta, Georgia, and you want a 30% margin, it's a pretty tough time to do that. But we're maintaining that standard.

We're just taking on a little bit more development risk to get there. Interesting. Yeah, I think that's fascinating, the idea of you. So, like, are you buying them? let's see you buy a storage, you know, what do you call it, storage facility, and it's got 100 spaces, but got room for development. Are you buying them so that way it only makes sense, I guess if you were to expand that into 150, 200 spaces or units,

or like does it cash flow at the 100 or are you going negative until those are built? Would you take that risk? So let's take this last deal that we just did as an example. So we just bought an 81,000 square foot facility, 735 units. It was a $6 million deal. It's the one that came with a five-bay car wash. We just closed on it in April. So we kind of won on this deal because the appraiser said,

you're basically getting the car wash for free. We think that your purchase price is equal to the value of the storage. It's like, okay, great. But outside of that, so it cash flows right from the get-go. If we don't take debt out for the construction capital to expand it, it cash flows from the get-go. And so how we've structured the deal is we said, we're going to take a little bit less.

we're going to take on a little bit more equity as a percentage of our capital stack so that that equity can finance the expansion without stressing the existing P&L so that it continues to cash flow. The preferred return is less for our investors. And we can do this a little bit more slowly if you want me to break this down a second go around. Our preferred return is less, but our risk is also less so that we continue to cash flow during the expansion. So that when we get that CFO on that expansion, we start leasing up units. Now we're going to we're starting to hit our preferred return and eventually expand beyond it. But we've also created this 30% value spread.

And so when we go to either recapitalize it, refinance it, or sell it, we've got this large liquidity event for our investor base. You want me to cycle back on that one? I would love you. Yeah, let's go a little deeper in that because I think that's really, really good stuff. So yeah, let's go back through that again, kind of define some of these things like if people don't know what a preferred return is. Yeah.

So feel free because I love this stuff. Okay, awesome. So let's start with what is a preferred return? Preferred return says this is the return that I'm going to, going to offer my investors as a percentage of their contribution before money goes to anybody else, namely the sponsor, which would be myself. So if I'm offering an 8% preferred return, that means that on a $100,000 investment, you better be making $8,000 before I pay myself a dime in operating cash flow, distributions of any kind. And if I don't hit $8,000 in year one,

if it's a rolling preferred return, which is what we always do, that means in year two, I need to have a combined 16 grand in your pocket on your $100,000 investment before I pay myself a dime. So usually a lot of investors want to see something at 8%. They want to get to that kind of healthy 6, 7, 8, 9, 10% number. And we're not hitting that in the first year because we took on more capital. We said, okay, we might only need, let's say, $2 million, but we're going to raise $2.5 or $3 million. So there's more contribution, more equity in the deal, but the same exact.

amount of cash flow. So the return on that investment for all of our investors combined is a little bit lower, but we also have less risk so that we have a certainty of cash flow in those first two years. In addition to that, our debt capital, we made sure that we had an interest only period of two years. So we're not amortized during our construction and our lease up. So the combination of those two things on our capital stack ensures that we've got a lot of wiggle room on our operations before, you know, like something catastrophic might happen on our cash flow. Okay. Yeah, that makes sense.

And the rolling, the rolling preferred return is something I had not really ever heard of before. I think that's kind of a cool way to pull that off. Like, because yeah, I wonder too, when I'm looking at mobile home park deals or even multifamily deals and I'm like, well, the first year is only like, I'm only going to give a 5% return to investors. But later on, it gets so much better because, you know, it's a value at. That's the whole point.

You're buying a property that's underperform. Exactly. And so I think that's a really neat way to handle. that. So very cool. So what about like where do you see? I'm wondering like self storage in the future. Like is this a industry that's just going to be growing more and more and more because Americans are just buying more and more junk? Or are is this a boom and bust cycle that you're just kind of like trying to ride and fit in? I don't think it's a boom and bus cycle. So the last few recessions, if you if you look at the history, self storage hasn't really been impacted by it.

That being said, the last decade of self storage has seen an institutionalization of the asset class. like no other asset class is experienced in that kind of a period of time. So whereas 15 years ago, you might have had public and extra space and life storage, which are the big brand name, publicly traded companies that own these assets, they might have had, they definitely had assets. But it wasn't like they owned such a lion's share of the Class A facilities. And there was a lot of mom and pop ownership. The buyers were expecting 7, 8, 9, sometimes 10% cap rates.

Whereas now those same facilities would be expecting 4 or 5. I mean, there was a portfolio I saw six months ago in Kansas that sold for a 375 stabilized cap rate. So just for the listeners, cap rate is your unleveraged return on investment. So if there's no debt on it and you buy a million dollar facility, a 5% cap rate would be a $50,000 return on investment unleveraged, no debt in the mix. So to have a 375, I mean, that's less than what you can get on a CD, right? So it's a little bit ridiculous. And so the expectation is, well, rents are just skyrocketing, which has been true. I mean, rents have just been going crazy because there's been a massive increase in demand without a massive increase of supply,

but that changed over the last two or three years. So over the last four years, more self-storage square footage has been built than the previous 30 years combined. So just the amount of new supply that's in the market has overwhelmed quite a few months. So Denver as an example, I mean, rents have dropped 10%, I think, because there's just so much more supply than there was three years ago. But holistically, long term, I do not believe that self-storage is going to decrease in value. I think that the cap rates are here to stay. They'll move a little bit with interest rates. It's not going to become uninstitutionalized. And populations will fit into the supply at some point. So short term, there's a lot of risk. Long term, we're not assessing nearly as

much risk as there might be in other asset classes. So that's why folks are buying these things at ridiculously low cap rates, especially if they're coming from private equity groups because there's just a lot of money on the table. Now, that's, that's getting really sophisticated probably for a lot of your investors, you know, comparing self-storage on private equity. So, you know, if I'm a listener, I'm thinking, oh, wow, self-storage is really cool, really low maintenance, low turnover, you know, really easy to manage, all of which is true. How do I go out and buy these things? Well, nobody's out there buying less than 35,000 square foot facilities. So that's, that's really the game that can be won by a local kind of, I want to use my own

money. I don't want to syndicate. I don't, I don't want to raise any cash. If you want to go out and buy a or build a 10,000, 20,000, 30,000 square foot facility, you can absolutely do that with very limited competition because the efficiencies on the operations are much more difficult for a professional organization to make work from afar. So if you're going to be the one picking up the phone, because you're the one picking up the phone on your single families on a 20,000 square foot facility, you're going to be able to buy that for a really good deal. You can buy that. You can buy that. perhaps for an 8, 9, 10 cap and add a ton of value to it. So there's definitely a lot of opportunity there. The one thing to keep in mind, though, is at the end of your, if you're going to hold it for 30 years, great. But if you're going to try and add value and sell it five years later, who's your buyer at that point? So that's the thing to keep in mind.

So that's why we're looking for, you know, the 20,000 square foot facility that has expansion potential to add another 30,000 square feet to it. Okay. So you can buy it at the level that the institutions are not actually in their plane in that level yet, but you can push it up to institution level. so they're going to be your buy. That's so smart. So not only are we getting the extra square footage.

So we're getting the spread on that construction, but we're also decreasing the cap rate on the entire portfolio. So, you know, if we're buying it at a, let's say a seven, but we expand it so that it's now in the five ballpark, we've taken the existing cash flow and made it more valuable without doing anything to it. Yeah. Yeah, that's smart.

So what, can I break that down real fast? So I think compressing cap rates are something that we've mentioned before in a lot of our listeners, especially if they're single family people, won't quite understand that. So there's two ways that you can improve the value of multifamily property. One is you can increase the NOI, which is basically like the money that you make, it brings in minus your expenses that you have.

The other is for the cap rate to go lower because those are the two levers that are pulled. You basically take your NOI, you're dividing it by the cap rate. It's very similar to the Burr method where you can improve your ROI by either getting more rent or by leaving less money in the deal. There's two levers you can pull to improve your ROI. Well, it's very similar with the value of a multifamily property. And what Ben here is saying is that most of the time, your cap rate is completely dependent on market factors that you don't have any say in, right?

Like, it's just a whole bunch of money moves there. Cap rates go down because there's more competition. Your place becomes worth more money. It's harder for a buyer to make money with it. But you're actually putting a strategy in together that you can affect the cap rate so that you're making it worth more. And lowering your cap rate is like, I don't know what the right number, like 10 times more powerful than improving the NOI when it comes to your portfolio.

So that's why Brandon was over there drooling when you were talking like, oh, my God. That is genius. I was looking at the twinkle in his eyes. Good job. Yeah, that's a great summary, David. Well done. Yeah. Not to say that there's not other folks doing it.

I mean, it's still competitive there. But now we've eliminated the highly professional groups from trying to buy. And we've also eliminated the folks who aren't confident in their development expertise. So the buyer pool is smaller. So it's just, it's a little bit easier to get it, get it done. Yeah, and you also said something that I really liked about. If you're trying to be less than 35,000 square feet, maybe you're in the 20,000 square foot range, there's opportunity there.

But if you want to kind of, you said pick up the phone and make calls, what you're basically describing is if you want to be an owner operator. Exactly right. Exactly. Right. If it's not a completely passive investment where I'm going to go buy it and let other people take care of it because every time you leverage something to somebody else, you pay that money and it becomes a bigger expense.

So you have to have a lot of meat on the bone to be able to cut off all those little chunks. But it's perfectly fine. If you don't want to be paying other people, if you want to do some of that work, you're basically buying yourself an opportunity to work a job that's really high paying and you're still owning the business. So I thought that's a great strategy for people that are like, I really want to do this, but I can't buy something that big. Well, consider being an owner operator and getting your foot in the door. And the tech landscape and storage over the last two years has been completely changed. So whereas two years ago, it might have been a lot of effort, a lot of time on the phone. There's just so many services out there now for storage. I mean,

I would never want to buy one unless it was like within 10 miles of me within the 20,000 level unless I had like a third party manager. But with all of the tech that's out there, I mean, there's ways to spend very little time owning it without even having to hire a third party manager. I was hoping we would get to that because like I've been thinking about Ashley lately, but just how like just things like apps and smart locks and all that are just making it more more like hands off to managers. You don't necessarily have to go meet a manager to unlock the cage.

to go open up the facility. Like a lot of that stuff can be automated. That's right. There's some guy that just built a, in Grace Harbor, Washington, where I lived before moving to Hawaii. There's this guy who built, there's a spot of land right on the highway

that it's just been undeveloped for, you know, ever. And I don't even know who it was, but they built like a 50, like, 50, like identical little like storage sheds or whatever, you know, like all one big row. And he built, there's 50 of them in this row. It's just like a straight, you know, one way, one way back.

So I got 50 of them. Anyway, he leased them all up a week, like 100% leased up a week after building them. And he's just like a local owner operator. Just built this. He probably put down a 20 or 30% down payment, went to probably a local community bank, built these 50 units, leased them up immediately. And now I just was back there a couple weeks ago. And there was a second one.

He put a second one in right behind it. So like clearly like it's working for him. And it's a cool little like he probably like was able to take some cash and turn it into a really, really good paying part time, essentially part time job for himself. If there is demand to be able to do it, and you've got a backyard and the city lets you do it, and you can throw some sheds up there or some metal up there for 40 bucks a foot, but you're getting rents. I mean, Gig Harbor, Washington, I mean, the rents there are going to be 16 bucks a foot.

And so especially if you are managing it yourself, you're probably netting 12. So 12 on 40, that's a pretty good deal. Yeah. Yeah, that's crazy. So, yeah, interesting strategies. What about the idea? Have you ever looked into, like, buying a multifamily that has room to add something? storage on their, Biden Mobile Home Park room to add storage. If you looked into that at all.

No, for a couple of reasons. One, I personally do not like multifamily. My partners haven't, haven't ever owned before, but they have zero interest in getting that same experience that I had, which is just not, we don't want to be in the residential game. We don't want to have to be responsible for the interior of a unit. I mean, we've got an RV park where people live, but we are only responsible for the dirt pads and utility hookups. It's a very, very different situation. So that's number one. Number two, typically multifamily parcels are not going to be, zoned to allow for additional storage. So we'd have to find something that's in unincorporated land where there isn't regulation for that. And that's a little bit rare to find a quality multifamily that

has that good cash flow that would allow for storage. And then third is, is it complimentary? I mean, who's your back-end buyer when you're adding storage to the multifamily? We're trying to play in the institutional space. So we're always thinking about who's our end buyer when we're building things. So we haven't done that. But for your listeners, if they've got a fourplex and there's like a half acre in the back or even even an extra 10,000 square feet and you want to add 5,000 square foot of storage. I mean, there are portable units where you could just, you could have them shipped and kind of laid down kind of like a mobile home. And you don't have to have city approval for that because it's not a permanent structure. It's personal property. So it is a way to add cash flow,

perhaps not add value, but it is a way to add cash flow to your like with a very good ROI on that investment. I mean, we just said maybe 40 bucks to invest at $12 net. If you're in the right market because rents do vary quite a bit market to market. But it would be a great way to add cash flow for your single family, multifamily listeners. Cool. Cool. Yeah, I've thought about that.

I've never actually done it, but I've always thought, what if I just add some storage? You know, sheds back here, get some more cash flow, but never done it. You know, there was an old episode of the podcast. And I'm like, I don't remember who it was. It might have been Sterling, or Al Williamson, maybe. But they were talking, he was saying he had the goal of buying a multifamily apartment and having it pay for itself without rent. You wanted to like add self storage and rent out bicycles to the tenants and have them pay for Wi-Fi.

And like that was like his vision was I'm going to buy an apartment complex that will sustain itself completely from non-rent. And the rent would all just be like bonus cash. That sounds like L. Yeah. I remember hearing that. But I think that that principle applies like, okay, I've got my meat and potatoes here. I'm collecting rent. Now how can I add in some potatoes or some rice?

Like, how can I make this a little bit better meal by throwing in self-storage or, or laundry or some of the other things that people do? And when you're analyzing deals, you should be looking for what opportunity is there to add something else here that I can use to increase my NOI. Yeah, for sure. Hey, Ben, I would not have to spend a lot of time in this because I think I know the answer and we've kind of touched on it. But how are you guys buying, like how Spartan paying for these investments? You're syndicating, right? Can you walk us through what that looks like? Yeah, so syndicating is just for the listeners.

I'm sure you guys have had people on here before we've talked about it. but syndicating is pooling a bunch of people's money together under a legal structure that gives them ownership in exchange for their investment. So we are acting as the general partners and we are syndicating capital from limited members. We are using 100% of the capital from other folks. And we are targeting high teens, sometimes low 20% internal rate of return. I can't talk about what we put out there for investing purposes, but I can talk about what I underwrite. So when I underwrite, I try to target for that, that kind of metric with an 8% preferred return that does not get diluted over time. So that has, I think the way that we go about doing our business, we have a strategic plan that is printed out and we can hand it over to people and they can look at it and say, oh, this is this guy's five-year plan.

This is what they're trying to do. This is their mission statement. This is their environmental scan of the marketplace and how they came upon this strategy and what they've done with this strategy. Oh, and here's another document with their portfolio of projects. And here's their track record. that combined with we're just a bunch of cool guys to hang out with. We like to ski, you like to scuba dive. We like to hang around and do conferences.

And I think we're a good time for people. And we've always done the right thing with investors. We have had a Ryan Gibson, my partner who's responsible for the investing, he's very, very good at building those relationships and building that equity stack. On the other side of the table, we're building debt relationships everywhere. Self storage and other commercial assets outside of residential don't qualify for the same kind of agency loans. as multifamily would. So by agency loans, I just mean that there's not some government entity that's supplying this

debt at a cheaper rate than private investors or private debt providers. So we're looking at commercial mortgage-backed securities. We're looking at debt funds. We're looking at local banks, regional banks. We have turned over every single rock to get the best deal. And we've done some pretty non-standard stuff for the size storage that we've looked at. So the combination of those two things is what's financing our deals. And we do look for on the debt.

side flexible debt that allows us to have interest only cash flow during our construction of the expansion on all of our deals until lease up and then converts over to a permanent amortized loan at a predetermined interest rate so that we're not exposed to interest rate risk two, three years down the line. We like lock it in today. It's almost like having two loans pre-negotiated. So yeah. That's cool. That's very cool. Yeah. My first apartment and my mobile home part that I just bought last year. Congrats. Both those I negotiated.

Yeah. Yeah, it's fun. Both of those, we did a year of no, just interest only the first year. And it worked out. Like, at the time, I didn't really, like, I don't know. I didn't really know, like, why I was doing that other than I just thought, like, well, it'd be nice to have less payments. But like, I mean, that's really what it is.

I was like, because I, in the beginning, you don't have a lot of cash flow because they're fixer uppers. Like they, they're below rent or whatever. So anyway, that's a cool strategy. Oftentimes, especially if you're, if you're listening to this and you're doing a single family or multi, especially if you're dealing with like seller financing. If you're like trying to get a seller finance deal at the very end in negotiation, like when you get to the very end and you're both like, okay, this is the price we're going to pay.

Toss in, hey, can you also throw in a year of interest only payments? And like it's, most people are like, yeah, that's fine because it doesn't really make a difference to them because they're getting the same amount of money, you know, more or less at the end of the day anyway. But it reduces your payment the first year a little bit. All right. So here's a nice little nugget for your listeners. This is the coolest, coolest negotiating strategy I've had for.

seller financing is explaining to sellers the difference between taxes on interest and taxes on principal. And this conversation has helped me lower interest rates on seller financing down to virtually zero sometimes in conversations. Really? Explain this. Yeah. So there's principle and there's interest. Well, when you're paying principal, let's say they've got it entirely paid off. The tax rate on the principal portion of what they're receiving every year is going to be 25%. That is the constant standard never changing tax rate on recaptured depreciation. So you're paying 25% on the principal portion of the payments that you are receiving as a seller finance. On the income side, or on the interest side,

excuse me, when you're receiving interest on the principal, you have to pay income level taxes on that. So I'll say, hey, let me increase the price, but decrease the interest rate, and you hold this note for a very long time. So that way, you've got this really awesome vanity metric on price. I'm benefiting from saving, let's say, a million and a half dollars on interest compared to a bank, but I've paid you $600,000 more on the price. And now you are paying 25% tax on everything instead of 25% tax on the principal side of your payments versus, and then, you know, 30, 35, 40% effective tax rate on your interest portion of the payments. So like, let's, let's redistribute, you know, how you're getting paid. I'm saving money along the way.

but you are, you know, getting more cash in your pocket because you're saving on the taxes. That's phenomenal. That's really. I've never thought of that in my life, but it makes complete sense. And if people are listening to it doesn't make sense to them, just go rewind that and listen to that again. Because like, that's exactly, I mean, I don't know, that's a really good point because they are text differently. And, uh, yeah. That's when we sell people, you need to have more tools in your tool belt.

You could take down more deals. Yeah. That's a really good tool. That's a really good tool. Yeah. I do the same thing when I'm talking to buyers who are considering buying. a house, but they're renting and they tell me, well, my rent's cheaper than if I was to buy. And then the minutes you factor in, like, well, the taxes, the tax savings you're going to get

on your mortgage interest deduction completely changes that. And they go, oh. So it would be cheaper for me to own a house. And the rent's not going to go up every year. All of a sudden, it makes a good argument. I just think in general, we tend to not think about taxes. And there's such a huge, huge piece of your expenses that you can literally make a deal work that wouldn't have worked if you didn't account for a difference in tax rate. Yeah. There you go. Hey, Ben, if, like, I've grabbed a couple questions here that aren't specific, like how-to questions,

but more like, kind of your journey. If you were to look back in the last few years of your real estate investing, what memory or what example that just makes you smile and be like, man, that was great or that was an awesome, like, awesome day. Like, that was the best day. Anything you can come up with? I know, I'm throwing that on. No, no, it's okay.

So I feel like that best feeling. came when I just drove down to Richmond one day because there was a bunch of just properties that looked really good. And I was like, crap, I can't take all these down by myself. I just bought my first two. I called up my boss's boss who'd become a good friend because he had started a business in college. And he's like, you know nothing about this business, but I'm going to hire you. I'm going to have my employee hire you because you started a business in college and that's all I need to know. So we became really good friends. I was like, hey man, I just found these three houses and they're brilliant. They're great. They're going to cash for like 22 percent plus, you know,

three, three, four percent principal reduction. He's like, I'll buy them all. And that's, I didn't even think of that strategy. So the strategy of like, you know, people throwing cash at me and I get to keep 25 percent, I didn't come up with it. He did. And so, you know, he heard about it. Or he said, I called him.

I was like, how do I do this? And he's like, I'll just buy them for you and keep 25%. You found the deal you'll manage it. I don't have to think about it. Just send me checks. And then he started telling other VPs about it. And just like when I got off the phone, I was completely, I was just driving back from Richmond. So that was a cool feeling.

that was a that was a catalyst like a kind of a derailing moment to be like oh i i without that call i might not be a full-time real estate investor now that call kind of pushed me towards oh there's there's more i can do with this other than just taking my money that i'm earning on my w-2 and putting it to work there's there's a there's a way to do this full-time and and and really prosper here that's cool i give a second example please when we when we stumbled across this RV park by accident and it was being marketed to 17% cap rate and you're like, that's not real. There's no way that's real. There was a mistake in here.

And there was a mistake in there. It was actually a 27% cap rate. It went the other way. And now it's performing at like a 36% cap rate, however many months later after us purchasing it. And so we bought it a year ago for $1.7 million. And we now have an indication through paperwork that suggests that it's worth $5.5 million a year later.

Wow. Yeah. That's, so getting that piece of paper saying, hey, you have more than doubled, almost tripled the value of this business with, you know, I think our total cash into it is less than $2 million. That's that's another game changing moment. Yeah. Those are great examples. I'm going to start asking that question, I think, more often during these podcasts. You want to ask me the reverse one?

I've got plenty of like, this is how I lost hundreds of thousands of dollars. Well, let's go to. Let's the related one and maybe I'll come in there. Like, what's been your biggest challenge so far in real estate? What's been something that's just like, yeah, and how did you overcome it? I think bridging the gap. You know, I've been really aggressive in my professional life and I've been as aggressive in my personal life.

I'm 29 years old. I'm married. I've got a kid. And I lived in New York City, you know, not not the cheapest way to go about life. And so I decided I want to be a full-time real estate investor. You know, when I sold my business, it was game-changing money for me then. And it's pennies to me now. It's like, like, that would not support my family at all for like,

a year. So not having the W-2 and bridging the gap to support my entire family, that's been the most challenging thing, especially conflating that with my first real estate mistake. I mean, I'd never lost a dime on over 35 transactions, some commercial, some residential. And then all of a sudden, poof, 120 grand just disappeared on a deal, on a house of all places. So the combination of trying to bridge the gap at the same time as having that event occur, that's been the most challenging thing. All right. That's a good answer. All right. What about what's something that you enjoy doing that you never get tired of, like in your real estate? Negotiating. Underwriting deals and negotiating. I know people hate underwriting deals, but I built my own platform. I plug all my numbers in. I do it all myself. I can just sit there for hours and play with it and be like, oh, what if I do it this way? What if I structure it that way? You know, never get tired of that.

Were you a puzzle guy as a kid like, you know, doing little like word games and a number games. Number games. Always number puzzles. Yeah. always number of puzzles, playing with the abacus. That's funny because that's that kind of, I mean, that's what you're into now, right? Like when you're telling us, hey, this is the part of the deals that I like. I'm just becoming a really big advocate of that. It's quit trying to do everything because then you get overwhelmed and you don't take action. Narrow it down to what you are actually going to do and then focus on crushing that and you'll

start to see progress gets made. I really like that. And I think it's important to distinguish between that and some of the advice that I've heard of like focus on an asset class, which I hear a lot. like focus on an asset class, don't go do everything. And while that's true, I think you should have like a primary asset class to focus on trying to avoid all asset classes because you're not an expert in everything. I think you can have a generalist mentality on asset classes, but have a specialist mentality on the function within real estate investing. So I just wanted to point that out.

But I completely agree with you, David, I would not want to do everything ever again. You said that a lot fancier than I did, though. I mean, I was like, well, not not all assets are good set. So then you came in very eloquently. I got a question for you. In your opinion, and this is actually Brandon's question, I'm just taking it because he took one of mine. What's the one thing that should be taught in school that isn't?

Oh, wow. That's great. Asset versus liability. Well, okay, hold on. Are we talking about in like real estate investing specifically or just in general? That could be anything. You could say like that one thing, how to love. How to love.

How to love. What do you mean? Explain. I think it should be, I don't know what I'm talking about. So let's start with that benchmark. I don't know what I'm talking about. But I think it'd be pretty cool if every 16-year-old had an international experience. I think that there is a lot of separation between domestic and international humanity. And that's not just America.

That's everywhere. I think that there is a lot of disconnects between. family life and the rest of the world. You know, if you're 16 years old and you're raised a certain way, sometimes a crazy way, I've had a little bit of that myself. And you kind of go into the world thinking that this is how the world works and like, no, you're just, you're coming from a weird place. So I think having kind of college level psychology or philosophy conversations around

how to love and like the meaning of existence to a small degree, I think a little bit of that could go a long way in the adolescent years. of one's life. Combine that with interactions of international interactions, and I think we'd be all better off. I think that's much more important than being financially literate. But I also think financial literacy is heavily important. I just don't, I mean, if you've asked that question other people,

I'm sure that's what everybody else has said. So I want to go with the How to Love. I don't think I've ever actually asked that question before. I found that on the Internet earlier. I was like, oh, that's a good one. Actually, you didn't ask that question. I asked that question. And Ben came back with,

I'm bad at love. And it was like, I should have learned how to do this in high school. I thought that was awesome. Oh, that's funny. All right. Good answer, though. That's really good. All right.

So that was kind of, that was fun. I just, yeah, earlier today, I was looking at this list of, like, just like good, like, questions to, you know, go deep on. And that was, that was definitely deep. So thank you for indulging me. I like that one. So good. All right. So let's go back to real estate here specifically.

And we're going to dive into one particular deal because it's, time for the deal deep dive. Deep dive. All right, this is the part of the show where we dive deep into one of your deals and go kind of specific. So you got a deal in mind that we can really pick apart? Yeah, let's do it. All right.

So first of all, what kind of deal is this that we're going to be talking about today? What kind of property? Single family flip. Ooh, single family flip. All right. And how did you find this single family flip? found this by way of connecting with a broker. I think I mentioned it earlier.

No, I didn't. This was Kevin. Connecting with a broker who does 1,400 investor properties a year in Chicago land. And he lists them for free because he gets 6% when he sells them to you. So he only wants to work with investors. He's got three contractor teams. It was supposed to be a very turnkey experience. And I had never done a flip before.

Oh, okay. When was this, by the way? That's not one of my questions. This was 2017. Okay. All right. So how much was the property? How much did you pay for it? I paid $155,000 from memory. Right. $150,000. How did you negotiate that price? I did not. So this turnkey experience was zero negotiation. It's I've got this under contract

because I am the broker for HUD or the broker for this foreclosure at the bank. So I just tied it up in-house and for the best price that I could. And you can either take it in the next 60 minutes or it's going to one of my other investors. So was it kind of like a wholesaler essentially? like they put it under contract, they're just like flipping it to you? It was a wholesaler with 30 years of investment brokerage experience. So not kind of like your bandit sign wholesaler, but more of like I do this a thousand times a year wholesaler. But he didn't like get under contract for 140 and then sell to you for 155, right? No, he gets 6% commission on the listing.

So I got it for the price that he negotiates it. Yeah. That's a really interesting model. Yeah. I never heard of that. I mean, if the numbers work for him, that's really smart. he's basically finding his own listing without having to put his money into it. That's exactly right.

And that's why he lists it for free on the back end. So when you're done flipping it, he'll list it for free. You save your 3%. And he knows that he's got a repeat customer coming back to buy more of his deals to get 6%. So he wants the deals to work out so that he can deal with fewer and fewer people to get the same volume done. That's cool. All right. How did you fund this deal?

Oh, I thought you say how I was going to find this deal. And I was going to say bigger pockets because I connected with him on bigger pockets. Oh, did you work? Yeah, I connected with them on bigger pockets. awesome. I funded it. Yeah, so I put a flip fund together, just a really, really small flip fund, 100 grand from a couple other people had done some of the single families with me.

And I did the rest hard money. Okay. Cool. And a half percent hard money. That's a good rate for hard money. Yeah, 85% LTV on total project cost. Yeah, that's amazed me, by the way. I noticed that both when I was at the best ever conference that you run and also when I was

at the Tarle Yarbris conference out in Seattle, both of them like the hardman landers that are there. and like talking people. Hard money rates have come down so much. So much. Yeah. Like four or five points. Like over the last four or five years.

Yeah. Yeah. I mean, it was minimum, but like years ago it was like minimum 12, 13, 14 percent interest and four or five points. Like now it's like two points. Sometimes one point.

Like it's crazy. Yeah. I think we're going to look back at these days someday and be like, back at my day, it's for four percent. Yeah. Like, whatever are we thinking?

Just like we look back at 2010 and like those houses were $14. Why didn't I buy them? All right. So what did you do with this property? I mean, you flipped it, right? It was a flip. So we had a $45,000 construction budget on $155,000. We purchased price with an ARV after repair value of $300,000, $200,000, $290 to $300.

So a decent spread. Okay. So what was the outcome then? Outcome was I spent close to $85,000 on construction. I held it for twice as long as I needed to. so my carry costs were twice what I wanted to. And I sold it for $230,000. Really?

Yep. Whoa. So I mean, I'm doing the math in my head, where it doesn't look how you made much money on that. Oh, no, that's the deal that I lost 120 grand on. So I take that deal to be a deep dialogue. Yeah. Yeah, that's good.

Okay. So then the big question is, what lessons did you learn? Yeah, why? What happened? Yeah, so a bunch of things happened. But they all kind of stem from this place of hubris where I had done, I think over 30 deals at this point, close to three dozen deals, single family, never lost a buck.

Even on the deals that didn't go well, I still made money. Not a lot, but some. And so I had this experience having only ever done cash flowing assets, never having done a flip. So when you're buying a cash flow asset, I mean, you can flip it. I mean, you can do a lease option. You've got all these strategies. But when you're buying something specifically to flip and you're not looking at those other strategies, you've got this one outcome that you're looking for.

this thought of I can automate flipping the same way that I have automated this management of my rentals. You know, I was getting 25% ownership to manage it, but I more or less had outsourced it at that point. So I started from this place of hubris and trusting. And I had done two deals with this group and I'd made, you know, 20, 25 grand on each one. So it worked out. But then I just bought the wrong deal with them. I bought the wrong one because I did, I don't know Chicago land. I mean, each borough there, and I guess not borough, but municipality there is completely,

different from the next. No one has called it the least corrupt place in America. The relationship with the permitting office was awful. I mean, I went through 12, 13 certificate of occupancy inspections. I never ended up getting my certificate of occupancy. Never ended up getting it after doubling my budget. There was a little bit of negligence on my contractor's part that I believe. But I think the biggest thing was that if I was one block over, I would. have been in that 300 plus price range. But I was not one block over. I was exactly where I was and there was some socioeconomic history that I was unaware of, that my broker was unaware of, that my contractor was unaware of, that my lender was unaware of. And it made all the difference.

So I ended up having to sell this in a different neighborhood than I thought without a certificate of occupancy. And when I went to go visit the property, a year after I had bought it, I realized that my, that the work was just, it wasn't brand new. It was definitely, a cheaply done flip, which I suppose the last two had been done the same way. They had worked out, but this one was not. So, you know, the other mistake that I made was that I had a nine-month term on my loan and I ended up holding this thing for 13, 14 months. So I had to re- I had to get refinance it. So I, not only did I have to pay extension points, but I also had to pay more points when I refinanced it. So I had heavy carry costs. I had heavy permitting costs. I paid

more than double on my budget and then I ended up losing 70 grand on my ARV. So yeah, it was the opposite of a slam dock. Yeah, I'm so glad you said all that stuff. I mean, like, it seems so fun to hear stories of people making $100, $200,000 on a flip. And it's like, oh, awesome, especially when it's from a distance, but you just brought up so many good points on why, like, it can be dangerous. And, you know, if you don't understand the market well enough and you don't have that solid core for, as David says, like, like, yeah, it's not as easy as it looks. Anyway, thank you for sharing that. Yeah, and I look at it as a plus for two reasons.

One, I lost that $100,000 flip fund. I didn't put that money in. Somebody else did. I lost all that money that was theirs. But I still paid them $100,000 plus 8%. So that was number one was I had an opportunity to do the right thing all my own. And I think it made all the difference with those relationships and the story of myself that I get to tell. And number two, I was able to, to David's point, you know, really concretely,

know about myself what I'm good at and what I freaking suck at. And so when I was, you know, partnering up with these with the gentleman that I work with now, you know, they're looking at my underwriting file and they're like, holy shit, that's impressive. And I'm, I'm looking at their, you know, 310 point due diligence list for, for doing condo conversions with DC row homes in a very highly litigated, you know, neighborhood. And I'm like, oh, wow, that's incredibly impressive. This would be a good marriage. Yeah. So. That's cool, man. Yeah.

Yeah, that's really. And I love that integrity there. You didn't have to necessarily pay everyone back. That's the risk that they made, you know, when they invest with somebody. But the fact that you did, you're like, hey, I'm going to make this right anyway. I think that's phenomenal. So, good on you. And now I get to brag about losing money, right?

Yeah, exactly. Awesome. That's how you know somebody's really doing well because they're not afraid to tell you about the time they lost because they're like, right? I did so good on all the others. Very, very clever, Ben. All right. Well, all right. So let's move on from the deal deep dive and head over to the next segment of the show, which we call the fire round.

It's time for the fire round. All right, time for the fire round. These questions come direct out of the Bigger Pockets forums, which, of course, everyone can go to participate in by going to biggerpockets.com slash forums. Let's see. We're going to throw a few of Matt Gia here, Ben. And number one, from Keith from Camp Hill, Pennsylvania. It seems like there's plenty of good deals for single family homes, but I'm having trouble finding multifamily.

You know, the MLS has some deals, but all I found is retail prices. How are good multifamily deals found today? They're not. They're created. So multifamily deals and all commercial deals are not found. Good ones are not found. I mean, if you can figure out how to make that deal perform in a way that's different from everybody else, if you have a niche strategy that separates you from the pack,

that's how you're going to make the deal work because otherwise you're competing with New York money that's using life insurance debt financing at 2, 3, 4%, which you can't compete with that even with an agency loan. Or you're competing with 1031 money who it doesn't really care what the cap rate is. There's so much 1031 money out there right now. So if you're not able to create the value in multifamily or any commercial asset, either look in another asset class, just get out because you don't want to lose your shirt or find a partner who can help. you who can compliment you in creating that value. So for example, for us, having that, this is not lightning around. So never mind. Yeah, we'll just cut it off there. No, that was a good answer. That was really good. All right. Next question from Jared and Raleigh. I consider myself a numbers person my look at a deal,

which in turn makes me seem not so warm. I'm trying to approach a park owner about lowering his price and working on my negotiation skills. Do you have any advice for me? Yeah, that's definitely hard is to be a numbers guy and an interpersonal guy. We look for that a lot when we're hiring at Spartan because it's so unique. One is date. Just go on dates. So if you're single, go on dates with somebody that you would want to just have an interaction with.

And if you're not, if you're married, go on friendship dates. Tell your wife or your kids or whatever that you've got work to do and go practice by going on dates. Grab a cocktail with somebody. Read the book, Click by Ori Brothman, read, you know, never split the difference by Chris Voss. And then just go on dates and practice interaction. practice connecting with people, clicking with people,

and then take that into your business life or partner with somebody who's good at it. Like I do. Yeah, there you go. Well, and it's funny how many people will say things like, I'm just, I'm an introvert. I'm not going to head talking with people. And then like when you ask them,

well, what do you do to improve that? They're like, what? Yeah. Like nobody wants to like, so either you got to find a way to get around your weaknesses by partnering with somebody who doesn't have them or work on your weaknesses and fix them. and fix them.

Yeah. But instead people are just like, well, it's, it is who I am. So I guess I can't invest. You know, we're, yeah. And I bet you're probably the same as I am, brain. Because I saw you at the conference, like chilling in a corner, you know, like that's what I do.

I like my corner. I'm an introvert too. Like, I do not love networking. One-on-one interactions is my thing. Yes. Yep. Exactly the same thing. So I actually, I'm similar.

Like, I'll find people to partner with who are better at that. Like, I'm not going to deal with contractors. I typically don't. I hire people or I work with people or partner people who do that because I just I'm just, I'm just not good at that. Exactly. So like I'm not going to sit on the couch and watch my, you know, the bachelor every night because I can't do it.

I'm just going to find somebody else who is good at it. So yeah, there you go. All right. Number, let's do this one. We'll call it the last one. Greg from Southern Maine said, what is what are some of your favorite motivational quotes? Like is there any quote that like just like gets you going or you, you, you look at? Oh, God, I'm awful with regurgitating, like, quotes from, like, TVs, movies and stuff like that.

I'll tell you, I don't know if it's the motivation. You could do what Brandon does, and you could just take the smartest thing you've ever said and then say it. And it was like, a wise man once said, you can do that if you can't think of anything. Yeah, let that die, David Green. Let it die. It's one time. This two shall pass. That's the one I always go back to.

This two shall pass. When I lose 120 grand, and I'm like, shoot. I have to like answer to my wife. I have to answer all these people, these investors. This two shall pass. You'll get through. And when I'm riding on a high and I think I can take it easy or I think I'm like the man, this two shall pass and I'll have my lows again.

So I don't know if that's if that lifts me up every day, but that's probably my favorite quote to keep me level headed. That's perfect. That's perfect. I actually say it to myself too whenever something goes wrong. Like this two shall pass. This two shall pass. Yep.

Not to be confused with you shall not pass. Which? You shall. Brandon should totally dress up as Gandalf for Hawaii. I mean, not for Hawaii, for Halloween. He's halfway there. And if you started yelling this, thou shalt not pass. I will work on that.

All right. That was good. That was good. All right. End of the fire round. Let's head to the last large segment of the show. And that is our famous four. All right.

This is the last segment of the show. It's the part that we ask you the same four questions we ask every guest. every week. All right, before we get to the famous four, let's hear what's going on this week over on the Bigger Pockets Business Podcast. Hey there, Brandon. This week's guest on the Bigger Pockets Business Podcast

is Christina Gillick. She's going to teach us about what is possibly the most important skill for any aspiring entrepreneur. But the thing I love about this episode is that for all the real estate investors in your audience who rely on buying and selling deals, this skill is extremely important.

important for them as well. So for all you listeners out there who want to tune into the show, you can find the Bigger Pockets Business Podcast on your favorite podcast app and subscribe today. You don't want to miss this episode. Now, go enjoy the famous four. All right. And now let's get to these famous four questions. Number one, Ben, do you have favorite real estate related book? Here's what I'm jamming on right now. Am I Being Too Sottle? I read this last year by Sam Zell. It is not a how-to as much as it is an awesome story of of a self-made billionaire that is still alive today in real estate. All right.

Cool. I had not read that one. What is your favorite business book? Well, that would, yeah, a business book. All right. Shoot, Chris Voss never split the difference. That's a good one. I see you also on over your shoulder down the left.

You have the book traction. Is that right? Is that what I'm seeing over there? Check out the office library. Yeah. Yeah. Oh, yeah. You got a lot of books over there.

Yeah. nice. Traction. I'm not read, but I can pull Scott into this room. You can talk about it. That's all right.

I was going to say it's on my list. That's why I saw it there. I was like, oh yeah, I got to finish that. I started it once. I just don't finish it. Yeah.

I'm working on that one next. That's the man who knows his weakness is I hire people to read books for me and tell me what they said. I'm a numbers guy, not a letters guy. All right. What are some of your hobbies? skiing, hiking. You can see probably in the reflection in the backgrounds.

Our office is right. outside the Rockies. So I'm within biking, hiking, skiing distance of like a walking distance of biking, hiking, skiing, big sports guy. Where is your office? Is that outside Denver? Golden, Colorado. Yeah, 30 minutes west.

Oh, golden. Okay. Nice. Yeah, I love golden. That's a great area. Yeah. Very cool. All right.

Last question for me. What do you believe sets apart successful real estate investors from those who give up, fail, or never get started? Doing, just doing. Acting, doing, being active. Just taking steps, making action. And I don't know if there's anything simpler than that. Awesome.

You can fail 999 times and a thousandth time to be what makes the difference. So if you're not continuing to take steps, you're not going to learn. And if you're not learning, you're not going to feel comfortable. And if you're not comfortable, you're never going to go anywhere. Wise or words have never been said. That was awesome. That was a quote by Ben Lapidus. A wise man was.

Ben. See, Brandon's rubbing off on you. You spend time with him. I never said a wise man once said that. That was Tyrion Lannister from Game of Thrones said that. David gets me confused with Tyrion. Obviously, why we both look pretty similar. It's okay. So ambitious.

Anyway, all right. All right. So for people that are fascinated by your story, Ben, tell us where can people find out more about you? You can either check me out at the best ever conference, best ever conference.com, or you can hit me up on email, Ben, at Spartan-investers.com. Awesome. All right, dude.

Well, thank you very, very much. And, you know, I'm sure I'll be seeing you around probably at next year's best ever, if not before that. But don't take all my fancy like that. You put on a good conference. So, yeah, everyone should definitely check it out next year. All right. Thank you so much, Ben.

And with that, we'll just take this show out. This has been awesome. So I really, really appreciate it. David Green, I'll let you actually say the final words and get a time here. Sounds great for Ben Lapidus. This is David Green for Brandon. Knows What Makes You Smile, Turner. Signing off.

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