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Mark Shapiro: How He Went Viral and Built an Empire · The Hannah Hammond Show

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People felt that I could solve their problem in their life when
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they already know how to solve their own problems.
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They just need someone to push them.
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Piece of advice that you would give to your younger self.
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One piece of advice, go much bigger, push harder.
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I wish I went bigger and I have no idea where I'd be if I'd gone
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through here. Welcome back to the Hannah
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Hammond show. I'm sitting here with the Mark
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Shapiro in Miami, FL and it's so amazing to actually finally meet
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you in person. I know you've been on my friends
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shows and lots of, I mean, you're just so well known on
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social media and in the real estate space.
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And I'm just super excited to hear your story today and learn
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everything from the beginning to how you got to where you are
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doing billions of dollars in real estate transactions.
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So welcome to the show. Thank you.
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Thank you so much. Tell me about your show.
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So my show is a journey of self actualization.
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And I think as much like I love entrepreneurship, I love real
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estate. Real estate helped me come from
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nothing and coming from a family that had no money and just a kid
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with a dream. And then it allowed me to build
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a life of freedom and I don't know, infinite potential.
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I feel like in real estate. And so I'm super passionate
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about meeting other people who have done what I aspire to do
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and then being able to provide that education to others who
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aren't there yet who want to learn and grow and, and see
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what's really possible out there.
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So that's, I mean, I want to do billions of dollars in real
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estate transactions and I'm a merging fund manager myself in
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the debt space. So I would love to talk to you
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about private credit and your experience with that as well in
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your own real estate deals. So yeah, just want to help
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people elevate in business, but also in relationships, health,
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Wellness and all areas of life because I think it's, it's a,
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it's a pie, right? And business without the other
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aspects is never going to reach its highest potential.
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So. What was your first real estate
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vocation? Were you on the sales side?
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Yeah, I got my license at 18 tough and my first deal was a
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commercial deal. Really.
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Tell me about it. Yeah, what?
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I'm supposed to be interviewing you.
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I know, but you got a good story too, so well, thank you.
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I held an open house in my neighborhood and it was the
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middle of summer and offseason and one person showed up and he
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listed $1.1 million commercial property with me and I sold it,
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made $36,000, bought my first investment property, renovated
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it and rested. History super smart that's.
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Thank you, but it all started with rich dad, poor dad Robert
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Kiyosaki. Robert Kiyosaki.
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Yep. You know, we, we are doing an
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event and he was going to come and then he, you know, his
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health isn't that well, he's not that well.
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So he wanted to do the Zoom, but it's not for us.
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We want people in person. So we're doing that real estate
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event here. We just have found the venue.
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Now we're picking the date. It'll be in the summertime.
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Oh. Awesome.
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Yeah, they're all real estate. Only real estate.
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What's it called? We haven't come up with a
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catchy, but it is going to be like real estate con, something,
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you know, very simple and right to the point.
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It's got to be a one liner. So like Grant Cardone's on this
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wealth con and JT Fox does mega success and then I forgot what
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Andy Elliott's new deal with Goggins is, but it's something
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it's just one word. So that's that's what we'll do.
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Fun is this do you do a lot of live events or is this your
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first live? Event.
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This will be our first live event as a company, as Shapiro
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Capital I This is all very, very new.
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The social media space, we started doing it in late April
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of last year. No way.
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So we started in late April and my gosh, we did a video.
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Christian, who was the original person that convinced me to do
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this. He, I I don't know, Is he
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supposed to be here? Tanner.
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No. OK, so he's really a good
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videographer, but Tanner is a little better.
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But Chris is really good with still photos.
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So we filmed the video on a Friday.
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As you can see, I we're yarmulke, so I keep Shabbat.
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And I left about 45 minutes from where I was going.
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Filmed a video reaction video. He edited it and he put it up,
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called me about 15 minutes into my driving back here.
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And he said the video is getting traction.
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And then I said, OK, that's great, what does that mean?
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And he said it's going viral. And I said, OK, what does that
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mean? And he said, by the time you
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turn your phone on, it's going to have a million views.
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And the video was a gentleman that spoke about people who make
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$400,000 should be ashamed of themselves, Grant.
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Cardone. I didn't say his name.
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I did trying. I'm trying not to.
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I'm trying not to continually speak derogatory about him, but
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that. That's a famous video that.
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So that video did over 9 something and it just went
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crazy. And for me, you know, we have so
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many people that make our world work, nurses, firefighters,
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teachers and they don't make that kind of money, but they
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keep us safe. The police, you know, doctors
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that are coming right out of Med school, they're not making that.
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So it bothered me, so I reacted to it.
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Yeah, it's an interesting video and I was, I did see a video
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that you had posted responding to that and I couldn't agree
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more. And then, you know, there's
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this. I mean, what it what's your
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thoughts on the whole Gary Brecca Grant Cardone thing going
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on right now? Well.
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We're trying to tone it down, but we did a lot of videos
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reacting to a lot of unpleasant things that he said, and we have
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tried to be less obnoxious in the space.
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And because as you see, I don't swear.
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I only swear when I do the reaction videos.
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Well, I may sometimes swear, you know, to make a point, but when
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somebody is disrespectful to people that I think are need to
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be nurtured in our community, in our society, I get very
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passionate about it. And what started me doing this
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was what convinced me was the fake gurus out there.
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And the fake guru that I was offended by was a guy, he's on a
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show in New York City and his they were flipping houses in New
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Jersey, was called Flipping New Jersey.
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And I was watching and I said to myself, this is impossible.
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These returns are just not possible.
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And then and it's a big show, it's a morning show.
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It's like a morning drive show. I mean, super, this guy's a
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major guy, major radio host, and he partnered with this guy and
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none of it made any sense. Now, as a developer, you know,
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you buy a deal, that's when you make your money.
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And when you buy a distress deal, you know what your list is
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going to be. Real estate's data-driven.
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It's all based on a metrics. So you're going to know what
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your return is, whether it's a 2XA3XA4X.
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Some people say how do you get a 4X?
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Well, you buy it at a 4X, OK, you know, and then you create
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the value or you bring the value back to the asset or you buy the
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dirt and then you entitle it and then you build it out.
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And that's where your your biggest lift is.
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So that's what got me doing this.
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That's what got me passionate. And then as we got some
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traction, we kind of stepped back to give more value on
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YouTube. So we're doing a long form and
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teaching more about real estate and giving people more.
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And then we, I think our first speaking engagement was when was
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the first speaking engagement in DC?
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Tanner? August, August, September.
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Yeah. And it was the first time I ever
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spoke in public. And there was about 500 people
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in the room. And amazingly enough, this young
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man who I did a reaction video, his name's Reed.
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We became friends, and he reached out to me.
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And my reaction video was that what he was saying was BS.
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And he reached out to me and he proved to me that I was wrong.
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So the first thing I did, he sat in the front seat.
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He flew out with his girlfriend and I apologize to him.
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And the weirdest thing was that all these people in the room,
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they literally attacked me when I got off the stage and they put
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me in a corner. It was a very uncomfortable
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situation. And then we moved and they kept
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on and people felt that I could solve their problem in their
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life when they already know how to solve their own problems.
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They just need someone to push them.
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So we started doing this and we decided that we're really trying
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to create an educational space that changes normal people or
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people that have never owned a piece of real estate that have
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no idea what they're doing. And it's become, I don't want to
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use the word a cult following, but it's changed a lot of
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people's lives. Since June 20th when we opened
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up our school and selling our programs, we have over 500
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people in our community. We've closed 64 deals.
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We literally have 16 deals under contract.
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And then yesterday we announced what's called the revenue share
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program where you don't need any experience, you don't have to
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put end down anything. We fund the deal, we do the deal
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and we share just the equity. You keep the cash flow and we're
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out when the deal is refinanced and we've taken back our equity
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and then we take a 50% share of the profit.
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Amazing. Yes, seven people, I think,
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signed up since then. Oh, that'll be huge, I'm sure.
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And it's, you know, it's providing a solution to people.
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And I know a lot of my friends who are in the education and
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community like Pace Morby and Jamil Domgi and these people out
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in my neck of the woods, all their, I mean, a lot of their
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deal flow comes from their communities.
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And then it gives these newer people who are learning an
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amazing competitive advantage because they actually get a
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partner in the deal that knows what they're doing and who can
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fund the deal, help them manage it.
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And I mean, cause the, it's terrifying as a new investor
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going after big deals or even your first deal, even if it's a
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small deal, it's terrifying to do that alone.
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So I love what you're doing there.
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And I think that's a really good strategy.
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So what's your origin story? Because I don't know too much
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about your background and kind of how you got into real estate.
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What was your background from, did you immediately jump into
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real estate And what was that journey look like for you and
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where are you at today? So I.
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Used to play for the Celtics. I was 69 and I had a terrible
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car accident. So they cut my leg.
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No. So that's the most.
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Interesting story, I've ever. Heard that's a great one, right?
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Yeah. But I am a Giannis fan just so
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you guys know. But I'm a Vikings fan so I hope
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you're not a cheese head. Sorry about that.
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But I am a Brett fan. My both my grandparents, my
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father's father and my mother's father, were real estate
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developers. My dad is from a small town in
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Connecticut called Winstead, Connecticut, and my mother is
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from a town about 15 minutes from here called Coral Gables.
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And my mom was engaged and my dad was in the army in the
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Korean War. He was a dentist so he was
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graduated University of Maryland dental school.
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So he went to Fort Meade, which was in Maryland and signed up
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during the Korean War and he had a two week pass.
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So he came down to Miami to just have fun.
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And a mutual friend of my both my grandmother's asked my mother
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to show my dad around. And after two weeks, my dad went
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back and my mother said, wow, I think I love this guy.
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So she broke off her engagement, called my father and he, she
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asked him what his intentions were.
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And he said, come up to the base, we'll get married.
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And my mother was very inspirational in my life.
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Plus my father, two really amazing people.
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My mother's name was Carolyn. My father's name was Paul, and
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my mom could do anything. There's nothing she couldn't do.
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And that's probably one of the reasons why I married Gabriella.
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Same person. Yeah.
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I don't remember my mother failing at anything but I
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remember her working super hard through things.
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So she was a designer tier designer at 1st and then when I
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was about 9 she decided to get her residential real estate
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license and she worked for a guy named Jerry Heyman.
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Pretty close. Jerry Heyman, yeah.
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And Jerry was the first guy that I met that let me drive in his
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Porsche, hit a Porsche convertible and or was it was
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the one with the top came off. And I remember sitting with my
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mother when I was a little kid when she would do floor time and
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I would look through the big MLS books and I was just looking at
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the pictures and she would take me with her all all over the
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place. And shortly after she had had
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her license for back then, it was three years, she decided to
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become a commercial agent and then a broker.
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So I always had real estate in the family.
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I didn't really know that my dad's dad was a developer and I
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really didn't know that my mom's dad was in the apartment space
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here. But when my dad would go and do
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something, he'd take me. I'd cut the grass and the day
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school was over, we would be on a plane and we'd fly here and
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spend the summer here. And then my grandfather had
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these little motels on Miami Beach and I would be the towel
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boys assistant and I would pick up the towels and he'd give me
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like a nickel. During my freshman year of
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college, I decided to take a year off.
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So I took a year off between my freshman and sophomore year and
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worked for my uncles here in Florida and learned a little bit
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about real estate. Also talked my way into
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bartending, getting a job at a cowboy bar called Bogey's Barn
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and even opened up a a stand at the Hialeah Flea Market.
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So I took all that money, bought myself a car here, drove back to
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Connecticut and went back to Central Connecticut State
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University. And going into my junior year,
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right before the end of the sophomore year, my mother gave
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me a book by my mentor, Robert G Allen, and it was called Nothing
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Down, and he had written it in 1980.
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And she gave me the book in 1982.
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And that summer going into my junior year, I told my mother I
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wanted to buy a piece of property.
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And she said, you have enough money.
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I said, yeah, I do. She says, how much do you have?
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She qualified me. I said, I have like $40,000 in
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my savings account. And she said, well, that's a
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stupid place for it to be, but do you want to put it all into a
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deal? I'm like, why not?
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And she said, I have the perfect deal for you and I'll tell you
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how to do it. So we went and looked at a piece
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of property near a college called Trinity College.
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So the property backed up to the school's athletic field and
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their field house. So the students would walk in
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and out of the right from the backyards.
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And she said, we're going to put it under contract.
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We put it under contract for $24,000 and then we did the
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renovation estimate and it needed about $16,000 of
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renovation. So she kept everything within my
19:04
budget and I went exhausted to 10 banks and they all turned me
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down. And they said you don't have any
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income. I said, but I want to use the
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income from the property to qualify.
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And back then, lending was very different than it is today.
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I mean, it was all done on a handshake.
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And so I was about ready to cancel the deal.
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And I told my mom. I called her and I said, mom, I
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can't get financing. And she's like, I'm making
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meatloaf. I'm like, mom, I can't get
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financing. What should I do?
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She said, you want meatloaf tonight.
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So school is about 45 minutes from from home.
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And I said, OK, And she said bring that whatever you were
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giving the banks and the contract and the construction
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estimate and bring it to dinner. So I'm like, OK, I'm not even
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thinking what she had in mind. I come over and she said dad
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will be home. And dinner was always at 5:30,
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always. And we always sat down at the
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dinner table. Obviously then you didn't have
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phone. We had a Rotary phone.
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I don't know if you ever saw the video and they showed a girl
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what, a Rotary phone. She didn't know what it was.
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It's the craziest thing, yeah. The the earliest phone I can
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remember was the the wall phone with the cord.
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Yes. Yeah, yeah, that's where the
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Princess phones, right? Or they were the yeah, they had
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the little thing where you could hook it on so and the long cord
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so you could walk all over the place.
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Yeah, So I ate dinner and my mom said to me, did you bring that
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stuff? I said sure.
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So she said, ask your dad. My dad had no idea.
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And I said, dad, you know, I'm trying to buy this property over
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by Trinity College, which was a College in in Hartford.
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And he said, yeah, mom told me about it.
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I said I can't get a loan. And he said OK, let me see what
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you have. He looked at it and he said let
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me make a call tomorrow and then call me tomorrow night and I'll
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tell you what to do. So I called him the next day at,
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you know, in the evening and he said meet me on LaSalle Rd. at
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such and such a bank. So I met him at 9:00 the next
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morning. I skipped class and I met him at
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United Bank and Trust and we walked in.
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But before we walked in and he said to me, what do I get out of
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this deal? And this is my, my dad.
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He was just back then. He, it was, he was a stand up
22:05
dentist. That's how they did it.
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And he said I want 60% of the deal.
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I said, dad, no way. Now I can't get a loan, but I'm
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still going to negotiate. That was my instinct.
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And I said no way, come on, dad. And I said I'll give you 40%.
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He goes, I'll take it. We walked in the bank.
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He walked back to the office of the president, and his name was
22:40
John Morris, and he asked John's assistant where the coffee is.
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My dad went and got a cup of coffee and I'm bewildered
22:49
because he's supposed to be there.
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And John Morris came out, shook my hand and he said come on
22:56
inside. And then he proceeded to ask me
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what do you have? I said I have a contract.
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Here's back then we used to call it a setup.
23:05
Today they called it OM or a deck.
23:07
I don't know why it changed. And I had had a one page setup
23:11
on the deal and then I had my two page construction estimate
23:16
for my contractor. And he looked at it and he said,
23:22
how much money do you have in your savings and where is it?
23:25
And it was at bank called Society for Savings, which was a
23:30
bank that when we were in elementary school, they used to
23:35
come with a passbook and you could put a nickel and every
23:38
week they would give you back your passbook and you could put
23:40
in whatever you saved in it. And it was the same passbook
23:44
that I had from from then. So he looked at the deal and he
23:50
said, looks like a good deal. We'll lend you the money.
23:57
No, anything, just we'll lend you the money.
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I said, OK, how much? He said all of it.
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I said all of the price and the renovations.
24:08
He said, yeah. He said, but you have to put
24:10
your money in my bank. I said, OK.
24:14
And he said, then you're going to pledge it, but two days
24:18
before the closing, you will call me, you will tell me what
24:22
you need to close. I'll need to see a copy of the
24:25
RESPA, which is the HUD one, the closing statement.
24:29
I said, OK. And he said I will give you a
24:34
bank check so you can bring it to the your attorney's trust
24:37
account and he can disperse from there.
24:40
And then I said, what about the construction draws?
24:42
He said, when you need money, just give me a lien waiver from
24:47
your contractor and I will, I'll fund it.
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He said, let's do it in four draws, like, OK.
24:53
And I said, why are you doing this?
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And he said, you don't know. I said, no, I don't know why
25:02
you're doing it. He said, and I told him that I'd
25:04
gone to 10 banks and I had to tell him each bank.
25:08
And they all gave me the same reason.
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And he said, well #1 your family is a very good customer of the
25:15
bank and #2 we bought your grandfather's bank.
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I said, aha, which was called Riverside Trust Company.
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And the other day I was actually showing Gabriella old mortgages
25:30
from it because I had some things sent that were my
25:33
father's to our our home here in Miami Beach.
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And I proceeded to do a bunch of deals with them.
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I bought those 3 units. It was a three family house with
25:46
asbestos. And we did the demolition, we
25:50
did the asbestos removal. We used garbage bags instead of
25:55
jumpsuits and then we put them in garbage bags and we had them
26:01
taken away by a regular carting company.
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The property within six months we sold it for $108,000 profit.
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My mother found me two sixes side by side brick that were
26:17
underperforming that were a bank deal.
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She even showed me how through our accountant to do my first
26:25
like kind exchange 1031 and by the time I graduated, I had 8058
26:34
units. And The funny thing is I took a
26:39
job as a commercial loan officer.
26:41
I actually took a job in the securitization department and I
26:44
was forced to get my series 7 license.
26:46
So I understand it the C MB S MB RBS business.
26:51
And I hated it after a few months and I was able to get a
26:54
job with that same bank in their commercial loan department and
27:01
they were one of the banks that turned me down Suffield savings.
27:06
But once I got my job and I got my own pen back then you had a
27:11
lending limit and as long as it fit in the box of the bank, you
27:14
could write a commitment letter and close a deal.
27:19
And then I realized the bank had a pretty hefty REO department
27:25
and I started picking off their deals once we found out it
27:30
wasn't a an issue with the board.
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And once we hit 400 units, I I quit.
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Why? I resigned because they were
27:42
good to me and started a a real estate company.
27:47
Not not for sales, just for, you know, for ownership and
27:51
management. We did do some third party
27:54
management but not for long because we just kept on growing
28:01
super fast. So is that when you started a
28:03
fund and started raising capital or you were syndicating deals or
28:07
what was your structure? So we were typically we got
28:12
really lucky with a deal in 85183 units.
28:20
It's called Taft Apartments on West Middle Turnpike in town
28:23
called Manchester. And I didn't have enough money
28:27
to close the deal and I went to the closing 40K short and I had
28:32
no idea what to do. So the night before I called my
28:35
attorney Robert Cone, who I still use today.
28:41
And Bob said just go to the closing and sit with the seller
28:48
and tell him the truth. And we sat down and I told him I
28:54
was short and I needed his help and I didn't present it that
29:00
way. I said I need your help.
29:03
And he said what's the issue? I said I'm $40,000 short.
29:07
I said I went everywhere I possibly can from family and
29:13
friends. And he said OK, I'll hold the
29:17
money for. And I asked him to hold it for
29:19
60 days. He said I'll hold it for six
29:20
months. And he did.
29:23
We paid him off pretty rapidly and unbelievable out of nowhere
29:29
I get a letter from this guy named Peter Hicks Hicks property
29:35
in Milton, MA and he wants to have me come up to his home
29:42
because he wants to buy this brick.
29:45
One story walk up in a very I'll call.
29:51
I don't want to use the word workforce, but I'll call it high
29:54
end, high level blue collar town.
29:58
And he wanted to do a conversion and he made me an insane offer
30:08
and the offer was contingent upon him teaching me the condo
30:13
conversion business. I didn't want to come away with
30:17
it with just the profits. And that kind of catapulted us
30:22
into buying a bunch. And when we started buying
30:28
distress deals out of pure luck, we partnered with an advisor
30:35
called Hunter and Hastings and they were the manager for Ohio
30:38
Retirement Teachers Pension Fund, and they created a program
30:43
with us. We'd bought 23 deals with them
30:46
in the course of about 18 months.
30:48
And a lot of our equity was institutional.
30:53
We have, we have syndicated deals, we just recently are
30:57
using the social media platform to syndicate.
31:03
And our next, this last one was a Reg D, which if you know the,
31:10
the suitability requirements for a Reg D, you've got to be an
31:13
accredited investor 200 K two years in a row, million net
31:17
worth without your home equity. Or if you're a trust or an LLC,
31:22
it's got to be 302 years consecutive.
31:25
So this next one, we're going to do a reggae and get it approved
31:30
by the SEC and FINRA. And that's the that's the path.
31:36
So what's happened is the education has overwhelmed us and
31:44
the changing people's lives have become for me more of a passion
31:52
than the ownership side. So, you know, without, you know,
32:00
I would say this if she wasn't here, but without my wife being
32:07
able to help. A lot of these people borrow
32:10
money because she handles all the, the debt side of things or
32:15
most of it. You know, some of them come with
32:16
financing, some of them come with their own equity, but most
32:21
of them come with bad credit, no credit, 0 experience and some
32:27
even come without a job. And we find a way to get it
32:33
done. She finds a way to get it done
32:36
with them. So and it's become passionate.
32:41
Yeah. And and that's a newer thing
32:42
over the past year, right? Just started, yeah.
32:46
OK. That's so cool.
32:47
That's such a great story. And what, so she's handling the
32:50
debt side are you guys do you don't have a debt fund though.
32:54
She just helps coordinate financing.
32:56
I guess I was going to ask what's your advice to somebody
32:59
who's doesn't have the track record in real estate
33:02
development or maybe even real estate transactions at all, but
33:04
they're looking to go get financing.
33:07
You know, what advice do you have to give them to go to the
33:09
banks to use private credit? Where would you what direction
33:13
would you point them in? So give me well, I'll give you
33:18
one scenario. Our first student, her name's
33:23
Lydia Walker, she's from Denton, TX, and she signed up for our
33:30
program. We used to charge $27.00 per
33:33
month. We have full access to
33:36
everything. Zoom calls twice a week, and
33:41
Lydia and I spent two weeks on the phone getting to know each
33:45
other, excuse me on the Zoom because there was nobody else.
33:49
It was just me and Lydia and it's.
33:52
A nice value for her. Yes, excuse me.
33:56
She came to our wedding, she flew in and we became friends.
34:02
We became friendly and then over the last since June, because she
34:08
was the first student on June 20th, we become friends.
34:12
I've gotten to know her story and she comes from like we all
34:18
do. You know, everybody has a story,
34:20
everybody has challenges. She bought her first deal.
34:24
We tried to buy her first deal from a wholesaler.
34:26
It was in Montgomery, AL and he only had a 2 day window so we
34:32
couldn't get the deal done. And we went on to another deal
34:37
in St. Louis, MO and Saint Louis has
34:42
been we think a really undiscovered gem in certain
34:48
markets, sub markets there. So she found a A31 and we did
34:56
the deal for 34,000. She put in 35.
35:01
She decided to buy tools, which I tell her you can't capitalize
35:06
the tools, but she did Windows. So she was all in at 85
35:14
recently. It just appraised at 150.
35:19
She borrowed $106,000 that Gabriella facilitated.
35:23
From private money. Hard money?
35:25
No, no. Conventional loan.
35:28
Oh, conventional, conventional refi, cash out refi.
35:32
And at the same time, during this whole escapade, she got
35:38
engaged, bought a house in Denton using our same concepts
35:44
under FHA first time home buyers program.
35:47
And then she went back to Saint Louis, put a turnkey fourplex
35:53
under contract and she used the cash out refi to buy the
35:58
fourplex. The fourplex was so under rented
36:02
using the Section 8 voucher program in Saint Louis, it gives
36:08
her a little over a $51,000 net operating income.
36:13
Now during the next process, we're not sure where our refund
36:18
numbers will come at because our comps won't come at the value
36:22
based on the St. Louis, MO cap rate.
36:25
But on a cap rate, it's an $880,000 lift, and she paid 360
36:31
for it. Amazing.
36:33
So she wants to take that, do the same thing and then buy some
36:39
others. And we've had a lot of success.
36:42
We've also had another student buy a fourplex there, which
36:46
Gabrielle did finance with the same lender.
36:49
And that's a uncharted market because there's the sub market.
36:57
And then within the sub market are the tertiary markets where
37:00
there are pockets of 0 crime and you have to be able to pick and
37:05
choose and navigate them. So we're, we're doing well
37:10
there. We're doing well in Florence,
37:12
Montgomery, Mobile, Lubbock, Jacksonville, Jacksonville,
37:18
their deals. There's actually deals here in
37:20
Miami. How do you underwrite deals and
37:23
determine what is a good market to be in, especially if you're
37:25
not like boots on the ground in those markets?
37:28
So we typically will help a student introduce them to a real
37:33
estate agent. The real estate agent will be
37:36
their eyes and ears. Sometimes the first agent is not
37:40
willing to work under their scenario because they tell them
37:43
this is our program, this is what we're doing, this is how we
37:46
do it. It's not for every agent.
37:49
Most agents are. I'm going to show you 3
37:52
properties. If you don't buy one, I'm gone.
37:55
That's not the agent we want. We want the agent that is been
37:59
in the business 6 to 30 months that has had some success but is
38:05
on the cusp and needs a repeat buyer because all of our
38:10
students are repeat buyers. So Lydia's she's done three.
38:15
We have a young kid, Raymond Gonzalez, he's in over by
38:20
University of Oklahoma where he is a college student.
38:23
Enus I think it is and he's done 5 deals.
38:28
This young man now his dad is his bank but he's done 5 deals
38:34
and now he's in the process of doing the the refi.
38:39
How do you guys like in this market?
38:41
I know in my market in Scottsdale, it's very hard to
38:43
make numbers work right now and it has been for years.
38:46
So how what is your rule for underwriting deals?
38:50
How are you determining if it's a good deal for somebody to buy?
38:53
And then are you doing, are you teaching or you personally, are
38:58
you doing buy and hold strategies or are you buying and
39:01
selling? So my biggest regret is selling.
39:06
So you should really never sell anything.
39:12
You should be able to use it to take the equity out and continue
39:19
to generate cash flow and continue to generate
39:22
appreciation because we have this this great thing here in
39:25
this country. It's called inflation.
39:27
So every year your property is going to have a little more
39:30
value. Yes, we're going to have
39:34
expenses go up. So we have CPI.
39:37
So we know we can tie what it what it is.
39:39
But you're always going to have some appreciation if you buy the
39:44
deal right now. What we noticed is and you, I,
39:50
you may or may not have noticed it.
39:53
I read an article in the Wall Street Journal about two weeks
39:56
ago and I started doing some investigation on the first time
40:04
homebuyers their balance sheet FHA balance sheet and there was
40:09
an anomaly in their balance sheet from. 20 went from when
40:16
the Biden administration came into office, there was a spike
40:23
in delinquencies but the mortgage amounts instead of
40:29
contracting mortgage value, mortgage value went up
40:33
substantially and there net capital that they have on their
40:40
balance sheet which is what they used to borrow from the Fed just
40:45
like a bank that was constricting.
40:49
So it tells you two things. First time homebuyers are
40:56
defaulting. Then you look at their 90 day
41:00
delinquent, which is over 400,000 homes, but their sixty
41:07
day delinquent is almost at 590,000.
41:12
So what they were doing is they're taking the interest
41:16
where the first time home buyers are not making the payment and
41:19
they're putting it on to the back end.
41:22
So what is that mortgage crisis? 2 point O.
41:27
OK. Yeah.
41:28
I would love to hear your opinion on the state of the
41:30
economy and when do you think that?
41:31
Is happening this and and guess where the biggest concentration
41:36
are because if you drill down into the balance sheet, you can
41:39
see where the concentration is. It's in Fort Worth, Orlando and
41:45
Vegas and it's not older gentrified product.
41:51
It's all the new product because it there, it's all that's come
41:57
on in the last 60 months. Because people are overextended
42:02
and they don't have equity in the houses because if they paid.
42:06
Well, DH Horton, OK, OK, All the major home builders, Lennar
42:14
Toll, every single major home builder built those homes and
42:22
funded them under the FHA program and even gave them when
42:29
they couldn't afford the 3 1/2% down, they funded it by giving
42:33
them a discount on closing costs.
42:36
Yes, they have no skin in the game, but what about?
42:39
I don't know the percentage because I'm in the private
42:41
credit space, so I don't keep too much on the FHA stuff.
42:44
But what about the lending market at large?
42:48
Do you think like we're on the brink of another economic
42:52
collapse or do you think that there's going to be a a, you
42:56
know, kind of collapse or recession in that FHA space?
42:59
Or what is your outlook on the overall economy at large both in
43:03
the residential and the commercial market in the
43:05
timeline? So you roughly have about $3
43:08
trillion in toxic assets on. Right now, yeah. 3 trillion out
43:13
of what amount? In what's out there that's
43:18
current? Right.
43:19
So three what percentage of assets are underwater?
43:23
About a little under 30%. 30% of residential.
43:28
Yes, residential, residential multi for sale product
43:33
development so. What do you think's going to
43:37
happen? I think we're going to see a
43:39
nice correction and I think the banks will.
43:44
You're familiar with Dodd Frank, OK.
43:46
So when Chris Dodd and Barry Frank created Dodd Frank after
43:52
the great financial crisis, the banks prior to that used to have
43:57
to take their assets and mark them to market.
44:01
So that forced them to reserve against the net capital.
44:04
Therefore, if their net capital is reserved, you can only lend
44:09
against your net capital. So it constricts the bank's
44:11
ability to lend. Therefore they it constricts
44:15
their ability to earn income. Banks live on a spread.
44:18
They're bookies. OK, so when this happens, you
44:24
get that anomalistic movement. But when the crisis happened and
44:30
these guys came up with this idea of, well, guess what, we're
44:34
no longer going to make you mark to market and we're going to
44:38
allow you to run your bank as if you're not having any issues.
44:44
So you can't see a bank's net capital, but you can see their
44:49
default rate grow. So when Silicon Valley Bank
44:52
failed and First Citizens bought them, they bought all their
44:56
crap. But the way they bought it is
44:59
they couldn't pay the loans off, so they have to recast the
45:03
loans. So they're selling their deals
45:07
at roughly about $0.40 on the dollar.
45:10
And you walk into a deal like this, our deals like an 11 cap
45:14
out the door, they won and you can't buy those.
45:19
So it's happening now. We're very big.
45:24
We're very bullish on Houston, Harris County because we've had,
45:29
we had our hub office there for years.
45:32
We had about 10,000 units in the state of Texas and we did very,
45:35
very well because Texas is kind of like Arizona, a giddy
45:41
upstate. It's like let's get it done, OK.
45:45
And if you can think it, you could do it.
45:48
You know, very creative things here.
45:51
It's you got too many New Yorkers here and there is so
45:56
much capital on the sidelines, patient money just waiting.
46:00
And then the private funds like yours are much more
46:06
sophisticated than a banks buy box.
46:09
So you're not going to fit a square peg in a round hole on
46:14
one of your deals. You're going to fit your square
46:17
peg in your square hole. Your LTV or LTC is going to be
46:22
no greater than 70% OK. Your, your spread based on if
46:29
you're giving a return or if you're using a line is at least
46:32
going to be 300 to 400 bips over sulfur.
46:38
So I'm assuming you borrow on sulfur.
46:41
So there's a change that's going to come now.
46:47
I think it will be dealt with in a much more orderly fashion than
46:52
the last one. Yeah, a lot of banks are, you
46:55
know, renegotiating. We were talking about that as
46:59
renegotiating notes or kicking the can down the road or
47:02
because. And that's the thing that I
47:05
struggle with is everybody still is terrified of 2008.
47:09
And of course history can always repeat itself and it will,
47:12
right? And but it's like, how do you
47:15
really have calculated action and mitigated risk versus
47:23
analysis paralysis? And we don't do anything because
47:26
anything could happen and the market could collapse, right?
47:28
So I guess for instance, you, you guys are still doing deals,
47:32
you are doing huge deals and you're also coaching students on
47:38
how to do deals and actively doing them.
47:39
So like how do you help for your own portfolio and your students?
47:47
How do you get them over that fear?
47:48
And like what are what is that criteria for underwriting if
47:52
you're anticipating that the market could come down quite a
47:56
bit because you can only get it so far below current market
47:59
value and especially if you're doing big development projects
48:03
or heavy lifts that could take years.
48:05
So in the one to four program, which is our major program, we
48:13
typically do not go after a deal has been underwrite.
48:18
We do not put it under LOI or under contract unless out the
48:22
door that day. It's a 14 cap because it's going
48:29
to get compressed during the course of the deal.
48:32
Construction estimates going to be lower.
48:34
I mean, it can be higher. It's going to take a little bit
48:37
longer to stabilize it because they're new investors, which is
48:39
why we came up with this. We'll do it with you.
48:44
Besides the social media side of our business, every person that
48:48
is in our coaching space did my program and did it successfully
48:53
and then I offered him a job. So we built that out from an
48:59
organizational standpoint. So people get a very intensified
49:06
program and somebody is on top of them and forcing them to get
49:11
uncomfortable and forcing them to be accountable for their
49:14
actions. On the other side where we
49:19
created this was our original program, it was called Protege
49:26
multifamily. Protege partnership, a true
49:29
partnership where you pay for access to me and then we go and
49:37
find a deal and we do the deal together.
49:41
Now they're required to have the equity to do the deal in
49:46
multifamily. We have about 40 people and
49:52
we're doing extremely well in New Jersey.
49:56
Of all the crazy places where Tanner's family's from and one
50:02
of the students, I won't say his last name is, his first name is
50:05
Jonathan, and he's doing very, very well.
50:09
His first deal is he's building 40 units.
50:12
They're building. Building brand new 40 units.
50:14
Are you guys doing more development or value add or
50:17
conversions? Right now we're doing more value
50:19
add. OK, we're doing more value add.
50:21
And how, how, what's your advice for people who are looking for
50:24
deals in a market that's really hard to find deals?
50:28
There's there's two ways to find a deal.
50:30
One, have an inside relationship or two, partner with somebody
50:37
who has an inside relationship because you're never going to
50:40
see the deals I see. And we see a lot of deals.
50:45
So we see a lot of deals for the family office and then we see a
50:49
lot of deals through our relationships.
50:51
And after a number of years in the business, over 4 decades,
50:56
you get the ability and you get the reputation that's able to
51:01
close. And when you're able to close on
51:04
a deal, it says a lot. Yeah.
51:07
So we bought a deal in Malibu. OK.
51:11
I don't like blue states. I especially don't like
51:14
California that much. But we bought a deal off the
51:18
Pacific Coast Highway in Malibu, 68 apartments.
51:23
It was the last asset that a fund in Hong Kong had.
51:27
Pacific Eagle. And their US base is Great
51:32
Eagle, and they were selling the deal for $75 million.
51:41
And we looked at the deal and they picked somebody else out of
51:48
San Francisco. I'm like, OK, we made a bid on
51:52
it. They picked somebody out of San
51:55
Francisco. They underwrote it as an
51:58
apartment deal. It's not an apartment deal.
52:00
It's a condo conversion because it was gut renovated in 2019.
52:07
It's got magnificent finishes. So the appliances are gagging
52:13
out. Cymatic are the kitchens.
52:16
I mean, it's just nice, nice, really nice product.
52:19
And it there are views of of the ocean of the Pacific.
52:25
It's on the Pacific Coast Highway.
52:26
It's a half a mile from Nobu. So it's right in that Malibu
52:30
market. And it was a bear of a deal to
52:35
get closed and they were a great seller.
52:41
And when their deal, the first contract didn't go through, they
52:45
came back to us. But they went and took it out to
52:49
bid. And then we found out a week
52:51
before the bids were out and we said we'd like to bid.
52:55
And they said, well, you can submit your bid.
52:58
We actually won the bid at about 5 million less than they people
53:04
that were put on the original contract.
53:07
And we're doing our due diligence.
53:11
We had a famous tenant, Charlie Sheen, and we paid for this
53:18
piece. What you couldn't buy the dirt
53:21
for because you can't find 10 acres in Malibu that's already
53:27
improved. So we ended up paying with our,
53:31
our full in cost is 725 a foot that's with our our package and
53:38
it's more like an FF and E package and not a major rehab
53:42
because it's already been renovated.
53:45
And our price without our interest reserve without our $9
53:49
million FF and E package was 522 a foot twice that.
53:55
You can't even buy the dirt for that.
53:57
And after the catastrophic events in Malibu, we're 68 units
54:06
that people are clamoring for in the market.
54:10
So our original seller price point was 1175.
54:16
We're just touching 1400 a foot. Jeez.
54:20
So. How'd you find that one?
54:23
That came from a broker. Really.
54:25
And it was just a pocket listing or.
54:27
Was it? Actually it was.
54:29
It wasn't even a pocket listing. It was brought to a broker and
54:34
eventually our partner that's here in Aventura.
54:40
His name is Mark Portis. And Mark Portis's was married to
54:45
Jerry Kaufman's daughter. Jerry Kaufman built half of
54:47
Aventura, Hidden Bay, Mystic Point, and Jerry was one of my
54:51
mentors when I did my first big condo conversion in Hallandale.
54:56
Jerry's company, ISG, did the sales for me.
55:02
And I've had some amazing people in my life that have taught me.
55:08
I've had some amazing partners and friends.
55:12
I've had a couple of bad partners that that's the worst
55:14
thing to get in bed with a bad partner and you never know until
55:21
until deal goes sideways. You don't know if a partner's
55:23
good until everything goes wrong.
55:26
And in real estate, when everything goes wrong, you can
55:31
literally still figure it out. You just have to main come first
55:36
person calls your lender, tell them I've got some issues.
55:40
I'd love to come and have coffee with you and I have some
55:44
solutions, but you're going to have to work with me.
55:47
And they're grateful for that. Most people, they hide, they put
55:54
their head under their pillow or they stick their head in the
55:57
ground in the sand and they give up before they've even come up
56:03
with a solution. And solution driven business.
56:07
Solve one thing, find a way, you move forward, solve another
56:13
thing, you move forward. Solve enough issues, you get to
56:17
go home and make make the right deal.
56:22
So. So I, I, I could talk to you
56:25
forever of course, but I know we have to wrap up here in a couple
56:27
minutes. But couple last questions.
56:31
What I know we went over the economic state of the market and
56:35
things like that. So what is your current economic
56:39
outlook and what do you predict will happen in the residential
56:42
and commercial real estate space over the next 12/24/30 six
56:46
months? I think we're going to see a
56:47
nice correction. I think we need to have, if you
56:51
have your powder, I think you need to be ready.
56:53
I think if you're lending freely, I think you need to be
56:59
very cautious about each deal you're lending on your a
57:04
borrower's history. Does you know their experience?
57:09
Not their history. Their experience should be #1
57:15
but I don't know much about your fund, so tell me about your
57:18
fund. So it's a brand new debt fund,
57:22
but the goal is to be more of a commercial lender and do bigger
57:26
deals, developments and things like that.
57:28
But right now it's the one stop funding shop for real estate
57:30
investors. So whether it's a fix and flip,
57:32
cash out, bridge loan development, any type of loan
57:36
that you could possibly ask for private money.
57:38
So we work the model is we'll be both a brokerage and a direct
57:42
lender. So we can just be the one stop
57:44
solution for all investors so they don't need to go find all
57:47
these different lenders that all have their different boxes of
57:50
underwriting criteria. So that's where we're at right
57:52
now. It's an 8020 split for
57:55
investors. But right now I'm really focused
57:57
on building out the consistent lead flow of qualified
58:02
experienced borrowers that are really our dream clients.
58:05
And then I can go focus on raising the capital to feed
58:09
those loans and basically fund those loans.
58:13
But yeah, you know, as an emerging fund manager,
58:16
especially in the private credit space and in the real estate
58:19
space, it's always that you know what, what are those risks in
58:22
the market and how do we make great safe underwriting
58:29
decisions while still being competitive and not not being
58:35
able to close any loans? Right.
58:37
So what's your pricing? It it, it ranges on the product,
58:41
but as far as the fund itself and what we would lend on and
58:44
actually balance sheet, 'cause there's a couple different
58:46
methods. We can originate the loan to
58:48
somebody else's guidelines and sell the note off and then
58:52
recycle the capital, just take a small margin and then maximize
58:56
returns. Or we could fund the loan and
58:58
keep it on our balance sheet. Anything that we're keeping on
59:01
our balance sheet would generally be that 6 to 12 month
59:04
12% interest. So you.
59:07
So you seasoned it and then sell it?
59:11
Do you get a bigger, bigger spread?
59:13
Yeah, yeah, we could do that too.
59:15
So the nice thing is there's lots of institutional capital in
59:17
the space now that are coming in 'cause now bridge debt can be
59:21
rated and sold, which is a new thing that's happening in the
59:25
private credit space. So good and bad, right?
59:28
Good is there's more competition.
59:31
I mean, bad, there's more competition, but good, there's
59:33
more capital and there's more ability to move paper and move
59:36
money. Is your are you staying 4 units
59:39
or under or you're going on the commercial side above?
59:42
Commercial side and above yeah, so we'll do single family, but
59:46
it's so I'm a commercial broker and I love commercial and that's
59:50
where I want to be. I want to have a higher loan
59:52
volume. I think I believe in commercial
59:54
it's lower LTVI know the industry and the residential
59:58
space is very saturated and it's just like a race to the bottom.
1:00:01
I feel like just like the house flipping space, it's still a
1:00:05
great model and you can still do it really well, but it's.
1:00:07
Much more saturated I feel like than that mid size commercial
1:00:10
deal, you know and same on the commercial debt side, there's
1:00:14
lenders, the institutional lenders that they'll do deals
1:00:17
over 20304050 million, but they won't, there's not really a
1:00:21
bunch of lenders in that one to 20 million space in the
1:00:24
commercial. They're either residential one
1:00:26
to four or over 20 million. So I would like to kind of be in
1:00:29
that niche. Did you go to multifamily in
1:00:33
Vegas at Aria? That what, in January were you
1:00:37
there? I wasn't.
1:00:38
I got to go. Which one?
1:00:40
National Multi Housing Council, No, I didn't must be a member,
1:00:44
you need to join. So every year it's typically at
1:00:49
Aria. This year there was 11,000
1:00:52
developers, lenders, brokers there, title companies, owners.
1:01:00
And we hosted a dinner, dinner for Lumen because I'm very
1:01:05
friendly with the guys at Lumen. And if you know the bridge
1:01:09
space, I think they might be the largest bridge lender in in this
1:01:12
space and they're aggressively looking for business.
1:01:19
And then we had a very serendipitous gentleman come,
1:01:23
he's on the board of directors of Home Depot.
1:01:26
And were you aware that Home Depot actually is a lender?
1:01:30
No. They will lend you all the
1:01:35
construction material, the appliances, the fixtures, the
1:01:38
fittings, everything for your project.
1:01:40
Wow. You just need the site.
1:01:46
I didn't know that. And you'd pay for the labor?
1:01:48
Yeah, it was pretty eye opening. That is wild, yeah.
1:01:51
Yeah, yeah. Well, cool.
1:01:52
I will be going to that conference in January.
1:01:55
Yeah, no, I brought, I brought Gabriella.
1:01:57
Actually. I think Tanner was there too.
1:01:59
Cool. I think we brought maybe 6
1:02:03
people on our team. How long have you been going to
1:02:06
that? Forever.
1:02:08
Yeah. Forever so.
1:02:10
Well, cool, I we, we have to wrap up here.
1:02:13
We'll definitely have to have you on the show again 'cause we
1:02:16
have a lot more to get into. But I guess I always like to
1:02:19
wrap up with what's one piece of advice that you would give to
1:02:21
your younger self? One piece of advice, go much
1:02:28
bigger. Push harder.
1:02:31
I wish I went bigger and I have no idea where I'd be if I'd gone
1:02:38
bigger. I think you're pretty big.
1:02:41
I would have gone bigger so. Thank you, I love that there's
1:02:46
always new levels to the game. Yep.