Latest / Real Investor Radio Podcast / Ep 79 | Novation Agreements, Property Management, Technology & Real Estate with Frank Cava

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Ep 79 | Novation Agreements, Property Management, Technology & Real Estate with Frank Cava · Real Investor Radio Podcast

• Craig Fuhr (00:15) a welcome back to real investor radio with Jack BeVier and Craig Fuhr Jack's good to see this morning, sir. Jack BeVier (00:20) Absolutely. Good morning. Good morning. Craig Fuhr (00:22) let's jump in here with a couple of timely stories real estate wise that are in the news jack. Trump nominates Bill Pulte to lead the Federal Housing Finance Authority jack as the next director. They oversee Fannie and Freddie obviously. Polty is obviously a private equity executive and philanthropist and grandson of William Pulte, the founder of the home building giant, the Polty Group. What are your thoughts here, Jack? Set the Fox leading the hen house or what is this portend for Fannie and Freddie over the coming months? Jack BeVier (00:58) Yeah, it's kind of funny because like the first level, you know, analysis or like, you know, punchline is like, all right, great, the home the home builders are running the mortgage industry now. Like, you know, be the, you know, regulate the mortgage industry, like, let's go 2021, you know, let's bring these rates back down. These mortgage rates back down. But I think it probably has much less to do. He has much less to do with that. It does, however, I think, open the potential or the increase the probability of Fannie and Freddie being privatized. I'm that's, you know, though, like, you know, the free market in me likes the, you know, doesn't like the idea of this quasi governmental organization that like, this implicit guarantee, you know, government guarantee, but a full privatization would mean that the credit spread of Fannie and Freddie securities would probably widen out without that implicit government guarantee. And so that could be actually a negative thing from a mortgage rates perspective. Might be a good thing depending on your philosophy as a taxpayer as to whether the government should be subsidizing homeownership or not and by how much from the mortgage rates perspective though everyone does benefit from that implicit government guarantee as a borrower. Craig Fuhr (02:05) Yeah, Fannie and Freddie have both been obviously in conservatorship since 2008 supposed to be sort of a temporary backstop when the whole meltdown happened and we bailed them out to the tune of about 191 billion. That's been 15 years now. So might be time to take a look at privatizing them again. Jack BeVier (02:26) Yep. Frank, what do you think? You're, you were a former home builder. What's your take on Palti as head of the FHFA? Frank Cava (02:33) So I don't know specifically on what that's going to mean or what it's going to land to, right? But what I would say is this, is I feel like this version of the Trump administration is taking this a lot more seriously than last time. And they're actually looking at things from a very different perspective than they did in the past. Is it the right answer? I don't know. Is it going to work out? I can't tell you. Is it someone who clearly understands how to incentivize and make things move in product? The new home builders, I think, are the best in the space at figuring out how to get inventory to move despite interest rates, because they make their money because they're traded and they have to make money a quarter of a quarter on selling inventory. So to that end, what I think is critically important here is like when we sell things, because we have a similar business to you guys, when we sell things, it's very hard to advertise any type of financial incentive through the MLS to a buyer. But like what they do at like Pulte and the NBRs and big builders is they do all types of like three, two, one buy downs. They'll throw in like, you know, a basement. They make things more affordable or they figure out how to move inventory. So the home building sector is a big part of GDP and it's a big part of how they use for inflation measures. So if we can figure these things out and move some inventory and affect affordability, I think it's positive. And I think there's certainly somebody who's quite competent in the role. We'll see. Anybody in government, you kind of question what are their motives. But to my opinion, this is a competent player. Craig Fuhr (04:03) We'll see how it plays out. Jack's second news, news story that I thought was interesting was email that we received from our friend David Howard over at the National rental home council. had David on the show back in August, Frank, and we were talking about a multitude of things. But most importantly was a lot of the legislation that we were seeing at city, state and level as well as federal level on limiting the number of houses that any one entity can own. did a big write up on my LinkedIn page about it. You guys can check it out there. But David sent us over an announcement saying that the FTC announced a couple of weeks ago to launch a 60 day public comment period to collect submissions regarding the role of so called mega investors in the housing market. the FTC is proposing to conduct an in depth study of companies owning 1000 or more houses spread over at least three markets. The decision on whether to conduct this study will be made after the close of a 60 day comment period Jack. So obviously these issues of ownership and then and then and the number of houses one can own is not going away. And to that in Maryland, They just introduced Senate Bill 510, entitled the end hedge fund control of Maryland homes act of 2025 Jack, it's one they're looking to impose an excise tax on applicable entities that acquire or own single family residences beyond the specified limits, the tax rate is set to 50 % of fair market value of the acquired property. they're going to define applicable entities. They're going to establish ownership limitations, where it says the bill establishes a phased reduction in the number of single family residences an acceptable entity can own over a four year period, ultimately capping ownership at 25 properties. And then the entities exceeding ownership limits are subject to an excise tax calculated as $10,000 multiplied by the number of properties exceeding the limit. What are your thoughts there, Mr. Bevere? Jack BeVier (06:20) Yes. So I was not aware that the hedge funds had come to Maryland at all, actually. So it feels like certainly some political grandstanding. Who knows if the bill actually has any chance of passing, but certainly it reflects that continued apprehension and negative sentiment around institutional ownership of specifically single family homes. Something like if once you get over $50 million of real estate, you know, the, the, the excise tax makes it essentially like, that's like a hard ceiling. Like you're never going to pay the tax. You just stop there. So, you know, do you set up a new entity to get around this crap? Like, or, you know, you know, it's probably very difficult thing to enforce regardless. I doubt it stands up in the court system also. Uh, but, uh, you know, it's more of a reflection of sentiment than I think an actual viable business threat. Craig Fuhr (07:11) Yeah, I think that's been our discussion around these limitations all along is it, you know, do they have legs? And I guess I always thought that our common feeling was is that, you know, they take a big bite at the apple, but then they but if they don't get that, they don't get what they want, they just take keep taking smaller bites over time. And it doesn't feel like these these proposals are going away. Jack BeVier (07:32) Yeah, yeah, exactly. Craig Fuhr (07:33) In fact, it feels like, you know, they're gaining steam in other markets as well. So let's go ahead and bring in our awesome guest for today, Frank Cava, owner of the Cava companies in Richmond, Virginia. They are a real estate firm led by Frank and the company specializes in various aspects of real estate, including real estate development and renovation, turnkey investment opportunities and property management since its founding in 2007. Frank and his company have been involved in thousands of projects throughout Virginia, continually adapting to evolving in the real estate landscape. They bring over 100 years of collective experience to the table and have developed more than 3000 buildable home sites constructed over 2500 homes and upwards of 2000 residences. Frank, thank you for taking the time to be on the show today. We really appreciate it. Frank Cava (08:28) Gentlemen, it's a pleasure to be here. Craig Fuhr (08:30) Always good to see the ever dynamic and effervescent Mr. Kava. Frank Cava (08:35) Sadly, we don't have like a major clothing brand like Under Armour from Richmond, Virginia. So I've gone for the sport hoodies, the little transition gear. But I do love to see that you're rep in Baltimore. Craig Fuhr (08:47) We, we, we keep the, we, there's no, there's no, there's no dress code here on the podcast. So you're, you're, you're all fine. Yeah. So, man, we just wanted to have you on the show today because, it's been a while since I've talked to you. know Jack and you talk often, but, love to get your sort of the story of how things started for you. I met you many years ago at collective genius out in San Diego. Frank Cava (08:52) That's why I'm not wearing pants. Craig Fuhr (09:14) where I honestly, Frank, I've always, I don't ever think I had a chance to tell you this, but you know, in those forums and those mastermind forums, usually folks get a chance, everybody gets a chance to stand up, give a small presentation, talk about what their, what their needs and wants are. And I honestly thought that of all the folks that stood up during that particular meeting, yours was the most compelling presentation filled with great data. At the time you were talking about the real estate cycle and how you thought we were coming into a pretty good boom time. And frankly, you were exactly right. Wish I'd have believed you back then, but I was still still suffering the PTSD of of 2008. So man, talk about how you got into the business quickly and just bring people up to speed on on sort of how you got into the business. some of the hurdles that you've seen over time and where you are today. And then we'll just jump in. Frank Cava (10:10) give a pretty easy elevator pitch and the difference Jack is like very technical. I'm a little bit more of a feel guy. So and I think it comes from my upbringing. So I grew up in a construction family, my dad and my granddad were electricians. I started going to the job sites with them when I was old enough to basically eat lunch and hunt for frogs. And I would always be like in the backyard doing shit and they're like, Where is Frank? So but what? Yeah, but but lunch I never missed. But Craig Fuhr (10:32) Frank should be pulling wire. Frank Cava (10:36) I was thinking about like while I was in high school, I like, I'll just go work for my dad. My dad goes, the hell you're going to come work for me. You're to go to college. And he's like, you need to go do what they do to make money, which is, you know, be a doctor or a lawyer. So I went to the university of Florida. I grew up in Florida. I was going to get a degree in like, I don't remember medical or like pediatrics or something, but it turns out I'm terrible at chemistry and that's relatively important if you're going to become a doctor. So I went in thinking like I need to do what the masses do. Craig Fuhr (11:01) heavily. Frank Cava (11:04) And I left college with a degree in building construction and of my entire graduating class, I was the only one that went residential. So I came in doing what the masses did. And by the time I left, I found my voice and I wasn't able to articulate this then, but I found out that I actually wanted to chase something very different than what people thought I should chase. And it served me very well. So I moved to the DC Metro market after college. I worked for one of the largest publicly traded home builders in the U S. I started off one rung above the guy that cleans toilets. And in my 12 year run, I spent seven years as a vice president. So I left in 2009, perfectly miserable going to corporate America. And 2007, I actually bought my first house from the foreclosure steps. So I liked that business. But what brought me to Virginia was my ability to actually buy a home. I couldn't afford it, but mortgage rates were easy to get back then. I rented out all the rooms, including an unfinished basement to an intern. And that was the only way that I could afford my mortgage. But that's how I got into this business is literally hustling my way through it, but I always loved singles. But I also knew that the people that I knew in my life, and I didn't have a lot of really wealthy people around me, but the people that had the most money on real estate. So I always knew even from being a kid, I wanted to own it. So that's kind how I got here. We have a direct to seller business. We wholesale, we novate, we flip. I own a bunch of rentals. It's similar to what Jack and Fred do in their business. And they were really big helps for me to understand that I'm in a market where retail is harder to chase, but affordability is king, especially if you're willing to service a section eight renter base. 80, it varies somewhere between 80 and 85 % of our rentals are section eight or some type of government assistance. And we provide affordable, you know, working class type of housing. and it's been a really good business for us, but that's kind of in a nutshell what we do. Craig Fuhr (13:00) So after 2007, you get your first house, house hack it essentially. When do things really start taking off for you, Frank? Frank Cava (13:09) years later, it was so hard. like in the beginning, what they don't tell you. So like I was burring way before there was a cute acronym for burr. But what they don't tell you is it's going to be tight as shit for about 10 years until you pay down some principal and you get about five raises. And they don't talk to you about cap X and all these other things that come into play. So it's like, it's really tight. But for me, it was probably owning something in the neighborhood of 10 million plus in real estate, which was probably about 50 doors. It kind of felt like, is starting to get a little bit easier. And as you get from 50 to 100 to a couple of hundred doors, and I had as many as 350, I think I'm in the neighborhood of 250 now, it starts getting easier with time. But if you can figure out how to replace your income and do so in a way where you don't rob the piggy bank of all the future assets and earnings through keeping some of the properties, it starts to change over time. But it's not fast. This is not a get rich, quick business. Craig Fuhr (14:04) During the time that you were putting together the portfolio, you were also wholesaling and flipping houses as well. Frank Cava (14:11) Yeah. So the sweet spot for us had always been like right now, I don't think it's a great market to add your portfolio. It's hard to get anything to profit, right? But there's, there's, I said profit cashflow. It's just tight. And when you already own several hundred, why chase after 50 bucks a month? It doesn't make any sense. So in the beginning, what we did is we held about 33 % of our stuff every year and we use 67 % to live on and to feed the business. there was a year, 2021. Craig Fuhr (14:36) Mm-hmm. Frank Cava (14:39) I actually inverted that. added 67 % of the inventory that we touched to our rental portfolio and I almost ran out of money. So I realized the sweet spot is something in that 50 % to 33 % range, because you have to pay the bills one and then you have to acquire properties too. Now buying in 21 was, it worked out because we didn't run out of money, but we kind of learned some metrics along the way. yeah, dollars and cents are made through wholesales or listing agreements. bigger deals are through fix and flips. And then we've gotten creative over time where we offer the seller a little bit more money if they'll continue to own the home but give us a controlling interest in it. And then we do construction to those homes. We don't usually add more than about 150 grand, but I do a novation with a fix up. And so I saved myself the burden of closing on the deal, four or 5 % in acquisition of costs. Jack BeVier (15:27) Yeah. Frank Cava (15:31) and it changes your margins drastically. And immediately the house qualifies for FHA financing because you don't have seasoning. Craig Fuhr (15:38) So those who aren't familiar with novation, the way I hear it, you basically find a homeowner who has some distress and you're JVing the deal with it. They put up the house, you put up all the rehab, you take some sort of ownership interest in it, correct? Frank Cava (15:57) So there's a guy in Pennsylvania who likes to take credit, like he's the one who invented this. The US government invented this during the new deal with FDR. And the government owned all these really big assets. They owned lakes and rivers and roads. And they gave contractors controlling interests so they could do the work. Like the Hoover Dam was done through an ovation contract. So that's real complicated. In our instance, we say, hey, this is our cash price. I don't like that cash price. How about if I paid you 4 % more? I would like that. Well, it comes with a couple of strings and I don't want to just take your house and listen on the MLS the way it is. I'm not adding any value to your life, but if I take your home and I put my money into it, we've become partners. And if we become partners, I can look you in the eye and say, I'm bringing you a service because I'm going to unlock value that you can't get in this property, but I'm going to put some skin in and we're going to do a deal together. But you have to pick the right people. They got to be sane. They have to be, they shouldn't be in the house. Craig Fuhr (16:51) Right. Frank Cava (16:56) We have some rules and if it doesn't match those, we just buy it. Craig Fuhr (17:01) Interesting. Yeah. Frank Cava (17:03) Do you guys do that Jack? Do you guys do any of that stuff? Jack BeVier (17:07) We don't do as much of it. I mean, a lot of the stuff that we're trying to keep. Craig Fuhr (17:09) Well, we've lost Jack a little bit here. It does. Frank Cava (17:12) His hair looks terrific though. It really does. Jack BeVier (17:16) Can you guys hear me now? Frank Cava (17:17) It's not just the barbers that have stopped working in Baltimore, it's power and like the internet. You froze on us, Jack. It's cold out there. Did you like, did you go outside for a few minutes? you get the defrost? Jack BeVier (17:23) You No, no, you were asking about innovations. we, we have done them. We don't do them much though. no particular reason. Like, I, I completely, you know, subscribe to, you know, the, value proposition for the, for the homeowner. And yeah, like you said, if you can put some guardrails around it, like I think it's a, a really, you know, viable way of doing things saves on carry costs. and in, and in Maryland, we've got transfer recordation taxes on the way in and on the way out. And that's three points. That's three points each way. so that's, you know, that's brutal. no, I think it's a great strategy. Frank Cava (18:00) It's a training issue though, and it's really hard to get your salespeople to understand how to do that deal. So in order for us to do it the right way, we have an analyst who looks at everything and he looks and presents options. It's our cash number, this is our innovation number, and we have a range. And then in between those things, if we can land there, we can figure out a deal, but it just opens up the aperture of what is and what is not a deal. So like as an example of this, this is the core part of our business. Do you have any sense of this Jack, like either what you guys do or what you guys think is good between conversion of appointment to close. So you go on an appointment, how often do you put that under contract? Jack BeVier (18:39) It's like 8 to 1. Frank Cava (18:41) Okay, we were as high as 40 % last year. So we were two and a half appointments to one contract. And we actually opened up who we were advertising to, spending a little bit more money. And that number dropped to about 35%. Significant, like people that are really good at this business are about one to five, around a 20%, 22 % average. But because we've opened up the, I've used the term twice on the aperture, we've been able to actually convert on more deals because same audience, but we can offer a slightly different product or a slightly different acquisition strategy and pay a little bit more and that matters. Jack BeVier (19:18) How do you, I'm curious, how do you guys structure it with the homeowner? it like, Hey, here's the higher price and you'll get that higher price when I sell the house or you pitch it as a JV where, Hey, I'm going to get, I mean, you're going to get this number and then I'm going to get my money out and then we're going to split the ups beyond that. Because you could, you could, you know, you could skin that cat a thousand different ways, right? Frank Cava (19:36) The answer to your question is yes, it depends. So what we typically will do is we'll just do a, this is our cash price, this is our innovation price. Our cash close is 60 days, our innovation close is 90 days. But I'm going to give you four or five extra percent in order to get that extra time. That's the easiest pitch. And then. Jack BeVier (19:55) Are they making payments along the way? Like they're continuing to carry it? Frank Cava (19:59) Most of the time the answer is yes. But sometimes like I have a house now that the lady is selling to us for like 850 grand and she's like, I'll let you do the work, but you've got to pay the mortgage. everything in life is a negotiation and so is this. And then what we do in some instances is, hey, I need to get this number, okay? I can't get you there, I can get you here. But if there's winning on the back end, we'll split that and we'll do that too. So it's deal by deal to just. Jack BeVier (20:01) Out of the price. Frank Cava (20:25) We have to figure out what the needs and the wants are of the seller. I've said this twice in the last couple of days, not to you guys, but I'll say it here. Let me ask this question generally. Clearly, American Airlines' customer service isn't great. They just smashed into a helicopter. But is there anything in the world where you're blown away with customer service right now? Anything? Craig Fuhr (20:37) you Jack BeVier (20:43) I mean, very rarely. Craig Fuhr (20:44) very rarely. Frank Cava (20:45) The two examples that I use are Chick-fil-A. I don't eat there very often, but every time I go there, it's freaking terrific. And then the other one is American Express. Everybody else that I interact with is let me down. And by all accounts, I'm rich. Our sellers aren't. If I have two examples, can you imagine how crappy the customer services that these people have? So what we do is we just treat them honestly and have a conversation and say, what is it that you need and want? Jack BeVier (20:51) I'll subscribe to that, Frank Cava (21:12) How do we make this deal work? Treat them like human beings and then we have to go above and beyond. just do what you say. And if we structure a deal that way, hey, in complete transparency, this is what we're gonna do. We do not run a not for profit. We have to be profitable. But if we get to this profit number, we're happy. So then we can work a deal out. And again, you have to have someone who is cogent to a fact of we can do a deal. How do we structure it? It's a lot of paperwork. They have to go physically meet with our attorneys. They have to sign a limited POA. We have protections because we're putting money in the house. So there's a whole bunch of things. Does it go sideways? Hell yeah, sometimes it does. But most of the time, we've put these pieces in place and there's enough failsafe to say, this is a deal we should just buy in cash and do it without them in place. Craig Fuhr (22:02) Frank, what's the conversation like when you get to the table and you're closing and they see the cash to Kava companies as 85 grand and now they're like, hey, wait a minute here. I didn't realize you were gonna make that much money. I mean, there has to be some unpleasantries at times. Frank Cava (22:17) So. So in many instances, it's more than 85, but I can look at them and say, I just put a hundred into your house. Yes, I got paid on it. So like, we did a deal. sold for $650,000. We bought the house for 352. We came out of pocket with a hundred and it was right around 150 grand. We just showed them the pictures and he goes, that's the same house. And it's like, Hey, you're going to see this on the HUD. He's like, I don't care. I'm getting my number on schedule, on time. So like that's how it starts. Like we're going to have a line item that's big, but you're going to see the difference between what the house looks like now and what the house looks like after. And you're going to see where we spent our money. And it's real. But if you don't, Craig, if you don't pick the right people, you have problems. And then I've had someone literally say, we're going to foreclose on you. like, okay, within 72 hours, we closed, we just bought the house midstream because we already have title. ready to go. I've got financing just in case I need it. Like we're ready. Craig Fuhr (22:59) Interesting. Yeah. Jack BeVier (23:17) The so the what does the documentation include the power of attorney D where are you recording? You recording a lien for the money that you're putting out? Frank Cava (23:25) Typically, we don't record a lien. Sometimes we do. Usually, it's through that POA and there's a lot of just limitations on what can happen through that. And then the POA isn't signed by us, it's signed by an attorney. like in the attorney actually, if we go to sell it, I don't sign the listing agreement the attorney does. So there's arm's length ability. Like that's the reason why it's not a... Jack BeVier (23:37) Yeah. Frank Cava (23:47) Net listing, it's not a net listing because there's a third party involved. So there's a lot of those protections, but like if you sense something's going sideways, that's when it's like, let's get ready to close on this side. Jack BeVier (23:58) So like how many deals did you guys do last year and what's the split between Novations, Flip, or Novations, Standard, Flips, Wholesales, Rentals? Frank Cava (24:07) I should have this come into memory. got ballparks. We did roughly 250 transactions on the acquisition side, but like all the stuff we touched was probably 450 deals. But if you look at just direct to seller and we put it under contract and we did a novation exit or we did a wholesale exit, what was it is right around 250. What's that? Yeah. Jack BeVier (24:09) Yay, whatever. And that's all innovations in wholesales. Frank Cava (24:30) And then our fall through our fall. Jack BeVier (24:31) Google Inc. Standard Flare. Frank Cava (24:32) So we put 250 on their contract. Our fall through rate was like 18%. So I think we closed something around 215 215 and we are right about a 50 50 split. Jack BeVier (24:41) between wholesales and novations? How much, and so is novations really taken over and like in lieu of standard flips cash purchases? is it, novation just usually winning? Craig Fuhr (24:44) Wow. Frank Cava (24:50) We still do cash purchases, but you're a lender. It's not, it's, it's, it's a pain in the ass to get funding. So there's a couple of people in the space who give you a hundred hundred. Um, but it's expensive. And right now there's a premium on all the little fees add up. Like we're not as egregious as Maryland on our fees, but we, ain't cheap. So that adds a couple of points on each end of the deal. The, you know, to get the capital is roughly a point. So I usually have somewhere between two and 3 million of my own money in my innovations. Jack BeVier (25:20) Mm-hmm. Frank Cava (25:21) and then I still do flips, but I usually do flips on the bigger things or the larger projects for the tear downs. And there's some lipstick on a pig type of flips, but there, if we can novate it, the buyer typically dictates how I try to acquire it. If it's an FHA loan and I know I can be in and out in under 90 days, I would really, really rather not have to deal with the seasoning requirements. So I'm incentivized on the front end, but to answer your question specifically. Yeah, we do a lot more of this now than just straight up flips. Jack BeVier (25:50) That's really interesting. I Richmond's a pretty, you know, it's a competitive market, right? Like you're not getting the only look at an appointment. You're there competing, Craig Fuhr (25:51) That is. Frank Cava (26:01) So was having a conversation with a friend of ours yesterday, Chris Richter, and I always. Craig Fuhr (26:04) We've been meaning to hear from Chris but little tough to get a hold of. Frank Cava (26:08) Good luck with that. So Chris and I, we were doing a product with him where he's charging me a sizable amount of money, but we're really starting to kind of hammer into our market. And I'm sure you guys don't follow Facebook. I show the slide that he provided to me. was, titled it, who's got their straw in your milkshake. And I always think that like San Diego is one of the most, why are you making that face? Cause you know where it's from, Jack BeVier (26:30) That's a great reference, because I love that movie. because Frank Cava (26:33) That's from there will be blood. Yeah. So, Jack BeVier (26:33) I love that movie. Frank Cava (26:37) but, but Richter and I were talking about this and I always think San Diego is one of the toughest markets and it's a tough market. It's sophisticated sellers, California. It's hard market. His argument to me was this Richmond's harder. There's more competition and he showed me it. So the, because it's a, it's a low cost entry into this type of real estate. And because, know, that's a lot of aging and those types of things and kind of like what you guys deal with there, there's a ton of competitors. There's actually four time more PPC buyers in Richmond than there is in San Diego. So it's tough. It like, this is no longer a secret. So people know that this is a viable market. And because this is a viable market, people would rather do this than, you know, change oil for a living. that's everybody tries to get into the space. What I think distinguishes us is a few things. We sell from credibility. If we offer you a number, we're gonna close. Our cancellation rate from under contract to close is infinitesimal. Like if we put it under contract, it's the right number. This guy's paying me more. He isn't gonna close and when they don't call us, we'll buy it. We do a price match guarantee. So we'll give you a thousand dollar price match guarantee. If somebody comes in with a higher offer, call us and we'll give you a thousand bucks. In our market, thousand bucks is a meaningful number because most of our acquisitions are like 150 grand. So we don't have to give you the money. If we think somebody like they got a better offer, take it. So those are the things that we work on in our market, but we really sell from, we have an office. We get to try and give ourselves a last look, but we come from a place that we've been doing this for like 16 years. We're the largest one in the space and we really self kind of like you guys do not kind of like you do. Jack BeVier (28:09) just to try to get yourself a last look. Frank Cava (28:23) You're credible and we sell from credibility. So I think that's what distinguishes us in our market. Craig Fuhr (28:28) You know, it's so funny, Frank, if we'd have asked you eight years ago, do you lead as a as the big company with the with the logo and the letterhead and the and the you know, your guy walking out with a Kava companies on his shirt? Or do you want to see mom and pop and I really feel like there's a transition or there's been a definite transition to, you know, bigger operators like you and Jack and Fred. guys around the country that they're not they're not leading as mom and pop. You know, they're definitely coming out as, we are the we're the leader in the space, you can trust us. We do this for a living and have for a long time. And it sounds like you've embraced that. Frank Cava (29:09) We started there because this wasn't my first job because I wasn't broke out of like, a lot of people get into this business because the cost of entry is really low. And because of it, they have to utilize desperation and their pitch. I was in my mid thirties. I had left the company as a vice president. I never want it. You go to these groups and like, I do unbranded. We never did that. Like our brand wasn't as popular or wasn't as strong or wasn't as great, but I always wanted to lean into transparency because I think this is a scuzzy industry to start with. And if you don't do it with a higher level of integrity, you can very easily get pulled back in. like, again, I think our brand has evolved, but we've always been like, this is what we're trying to do. And we've tried to be forthright and almost form partnerships with our sellers. Craig Fuhr (29:55) Why do you feel like it's a SCSI industry? Frank Cava (29:57) I think it's the Scuzzy industry because of who it attracts. who it attracts, it's... Jack, let me ask you a question. If I say it's Scuzzy industry, do you tend to... Are you empathetic to that? Jack BeVier (30:12) Me? Yeah. Frank Cava (30:13) You do? Like, why would you say it? Jack BeVier (30:16) yeah, same thing. Low barriers to entry. The, you know, the whole concept of wholesaling is based off of asymmetries of information, right? or can be, can be off of asymmetries of information. That's not a great place to start from a business model perspective. You know, you're supposed to like do business because you're adding value to society and, know, like, you know, scraping off the top because of asymmetries of information, you know, kind of feels like the day trip, you know, the Frank Cava (30:25) Yeah. Jack BeVier (30:39) the high velocity day traders who were just like skimming basis points, but it added up to, you know, lots of money. Like no one thought that that made society better, you know, like you're not adding value there. So, it's easy or, know, there's hard, it's hard to distinguish between those who are sitting across you at the kitchen table because they add value and they're going to fix up the house and, know, and, and, you know, re re, you know, put this property back into productive use versus those who were just there to like, you know, with the silver tongue to skim off the top and, you know, exploit your, exploit your situation and asymmetries of information. Frank Cava (31:13) So you must have a very, very sophisticated audience because you use asymmetry a lot. That would confuse most of the people I interact with on a regular basis. But the way that I would summarize it is this. I'm not a new car dealer. We're similar to that car dealership that's on the country road that's about four miles, five miles outside of the city center. Anywhere I go, I see them. Now, I've never stopped or looked at purchasing a car there, but they exist everywhere I go. So the way that I look at it is there is a need for what we do here. And we are responsible for how we hold ourselves to what standards. And I think there is a way to hold yourself to higher standards. Like there is going to be a profit made. There is a service to be had. Like people will look at my commercials and go, why the hell would someone sell to you? like, you're not my seller, but someone who is in a situation where they need to have. cash in a relatively quick timeframe or they've inherited or they don't want to deal with it. There's plenty of people who want to do a disposition that way. But I think because people are sometimes vulnerable, because of low cost of entry and because of wholesale, basically for 50 bucks, a contract is valid at $1. If you literally make a $1 deposit, that is why so many people flock to this. And I think that's why many people fall out of contract. And although I'm not going to offer you the most money, my close rate is incredibly high because what we offer is real. I don't know. think Jack and I both summarize why it's SCSI, but that's up to you to rise above it. And I think you can. Jack BeVier (32:46) So what's the team look like? You're managing a couple hundred rentals. Are you managing a couple hundred rentals yourself and then buying a couple hundred houses a year? How many of those end up being renovations and what's the whole team look like? Craig Fuhr (32:46) Yeah, I'm with you. Frank Cava (32:58) Yeah, sure. So this changes over time and there's periods of efficiency and periods of lack of. So over time we've grown, right? So like what I would say, and I think I may have showed this to you last time I saw you, Jack, I kind of have what I look at as a hub and spoke. The hub and spoke, thing in the middle of the hub that starts the whole thing off is our direct to seller marketing and advertising. We use upwards of 15 channels. to drive leads. So television, PPC, SEO, Google, Bing, like you name it, we try it. And that's the center. We have a team of people who answer the phones. We call those lead gens. So we have a group of them. We have a series of VAs who pick up the phone after hours and that type of stuff. Before we started recording, you guys had mentioned Salesforce. All of our stuff lives in a CRM. on the acquisition side and we use Salesforce. We have a group of, we've been using it for probably five years. Now we built it ourselves. They weren't an option. It was grueling and expensive, but it's great. Andre, the guy that was in here earlier that you met, he literally is all thing Salesforce for us now. He understands that. So we have two, we have one lead. We have someone who does all of our core. Jack BeVier (33:49) You're using Salesforce? Left main. nice. Yeah, nice. Nice. Frank Cava (34:12) Closing coordinations, she has someone who works with her. We have three full-time acquisition managers. We have three full-time lead gen people. That's what it looks like. So that team is roughly 14 people. And that business generates roughly 5 million bucks a year. So that's what it did last year with 14 people. That's one side of the business. We have an admin staff of four that touch everything, billing, bookkeeping, checks, and all that. We have a construction department who does all of our innovation construction and they do all of our new builds and renovations. That department is roughly six people. We have a property management division that's broken into two components. Property management itself, there's three people in that role and they manage just under 500 doors because we do some third party property management as well. A lot of the stuff that we've sold turnkey or people that we're friends with, my mom, like we manage their stuff, right? And then... But we don't really advertise it. It's all kind of warm handoff. And then we have a service department of, right now I think it's four. We're looking for a fifth. That's it. That grand total is roughly 30 people, 32. What we have done in the last several years is we got as high as 52, 53 employees and we pulled back into the high 20s, low 30s. We just went to a flight of quality. Everybody here gets 60 hours worth of work done in about 40, 45. And we pay you for it. That's what our team looks like. Jack BeVier (35:35) You mentioned Salesforce on the CRM side. What are you using to manage construction management and property management? What softwares do you like? Frank Cava (35:43) So we use Yardy Voyager, which is, think what you guys use, very expensive. We do all of our billing and everything throughout the company inside of Yardy. But everything property management, all of it, we used to use QuickBooks, but we moved over four or five years ago to Yardy for all of that. So, so Salesforce kind of is everything acquisition and sales side. Yardy is anything that touches property management and billing. And then we use Builder Trend and honestly a bunch of just like Microsoft products. I don't think there's one elegant solution on the construction side. We try and force some of that stuff in the Salesforce and some of that stuff into Yardi because we're already there. But there's integrations between the Microsoft Suite and Builder Trend, but that's what we use. Craig Fuhr (36:25) Jack, I think you mentioned on a company call a month or so ago that Dominion was getting away from QuickBooks as well. Was there a reason and what did you guys wind up choosing there? Jack BeVier (36:35) Well, yeah, the lending company we migrated from QuickBooks to Sage earlier in the year, about a year ago, I'm thinking about doing the same on the real estate and property management side. Have it just haven't pulled the trigger on it yet, but it's it's climbing in terms of the as you grow QuickBooks isn't great because there's a it can't do portfolio reporting, you can't do roll ups within it. So there's literally one QuickBooks file per company. And so if you're setting up a different LLC, because you bought a multifamily property, like doing a roll up on that to the rest of the portfolio is a little was laborious on the the property management, sorry, accounting side property accounting side of things. Craig Fuhr (37:08) What's the undertaking to have to switch from something like that that you've been using for years over to a new platform? It's got to be pretty, pretty intense. Jack BeVier (37:16) It'll take a couple months. Frank Cava (37:16) I don't know how you guys embrace, I don't know how you embrace swearing on this, but I'll go ahead and tell you, it's a motherfucker. You want to be very, very, very careful if you move. if you go from podio to like any of those things, they are real serious undertakings. like, sorry to jump back in Jack, but like we've thought about like, like Salesforce is expensive. It's a six figure a year thing. But it's going to take six to 12 months of drag. Craig Fuhr (37:21) Yeah Frank Cava (37:40) and people's time and redoing it all. So it's just like, are you better off just finding four deals and just keeping it? And I can tell you if I was to change from yardie to a different software program for my bills, I'd probably turn over my entire staff in the billing department. Like they like they were pissed that we did it in the first place. And if we went to something else like it would have to like there would have to be like unicorns and rainbows on the other end of that. It's it's a it's an MF. Do you agree with that, Jack? Jack BeVier (38:04) Mm-hmm. Yeah. Yeah. yeah. Dude, the, especially as you get bigger, like the, inertia of, of just being within a system and having stuff set up the same way, even if it's inefficient, like, you know, there's, there's a double, know, aspect of it. I am as AI is becoming more and more of a topic. I've become like obsessed with that over the past, like three months. and we're trying to push a lot of that stuff forward right now. I think a lot of people are struggling with like, Frank Cava (38:13) man. Jack BeVier (38:31) how to actually operationalize AI. And I think that that is a real struggle. And it's easier said than done, but it definitely can't be done if your data is not in a standardized format and connecting and kind of like the lowest hanging fruit is just connecting databases together, connecting these different things together. So. That'll be my 2020, a lot of my 2025 is gonna be trying to connect systems together and get data in a standardized format such that we can apply these new toys to the system. Frank Cava (39:00) One of the things that I think about, and I'm curious what you think of this, Jack, but what I think about in a lot of instances, it's the forbidden fruit, right? If you only had this. But it's what America's great at. We're great at selling you something in a consumerism society of you need something else. Like, do you need a new pair of shoes? Are they really worn out or did it just look different? And it's really that way inside of these programs. I think, I think if you're going to make a real switch to something, you have to think about what does your five to 10 year arc look like and is it worthwhile? Because there is significant drag in doing it. Like, Podio to me is something that was not, never really built for our business. And we all tried to make it work because Sean Terry said it worked. Although he didn't really run this kind of a business. He was more of a salesman. but we all listened to him. We ran into it and was crap. Craig Fuhr (39:45) Hahaha Frank Cava (39:52) and you're constantly trying to use the, basically trying to use the wrong tool to run your business. But if you go into Salesforce, like you've got to have the infrastructure and then know that it's going to take a lot. It can break real easy, but there's a lot of done for you solutions that are probably better than Podio. There's another side of it. And Jack, you've seen this, especially as a lender, our business has grown up. Like I don't, I don't think I know I'm not smart enough to be the one who's going to incorporate AI. Someone like Jack will probably figure it out and turn it into a product. And then I will be his client because he'll solve it, but I'm not going to solve it. What I'm going to solve is how to solve that problem with your house so I can buy it. And then I'll find an elegant solution two years down the road. I'll be a late adapter because someone else will do all the brain damage. And if you understand that about yourself and I do like, I'm not an early technology adapter. I'm not, because you don't need to be. Like as long as what you're doing works, like good enough. I don't know where your thoughts are on that. Jack BeVier (40:53) Oh no, I totally agree. And I think that there are, and frankly, the people who are, uh, who get obsessed with building the machine and as opposed to getting obsessed with how to execute the machine. Well, like are a lot of the, like fail, you know, you know, lots, lots of talk, lots of activity, and then just like quietly disappears because they never actually like rolled up their sleeve and, you know, crawled through the basement and, um, you know, stuck their hand in the bottom of the sub pump and Frank Cava (41:04) Yes. Jack BeVier (41:20) you know, and they don't know how to know how to operate the business. so like you, like the, the, technology stuff is, I would have characterized myself as a late adopter as well. made a strategic decision five years ago to get onto Salesforce because we wanted to scale that business. And I knew that, and there's no loan, loan origination software. That's like, it's all crap, frankly, it's all crap. And, and as a result, I was like, Frank Cava (41:41) Yeah. Jack BeVier (41:45) I'm going to scale to the point where I'm going to literally break Excel. Like, you know, we were, were, we were opening up spreadsheets and they immediately crashed because they were just humongous. And, and so that was just not an option. And the decision between being on a loan, a crappy loan origination software that made me change my operations to fit the software just never made any sense to me. I'm like my whole, my, whole shtick is that we think we've got some secret sauce in our process that like either Frank Cava (41:52) Yeah. Jack BeVier (42:11) you know, exploits opportunities or manages risk better than somebody else does. So I don't want my software telling me how to run my business. and the thought was that, if we're on Salesforce or some other scalable platform like that, that whatever technology is coming down the pipe, there'll be, there'll be a, an app for that in the, in the, in Salesforce. And so that was the strategic institution we make there on the real estate side. I didn't do that because I was like, we're going to buy a hundred houses a year. That's all I'm going to do. Like, and it ain't broke. So I've got Frank Cava (42:27) Yep. Jack BeVier (42:40) builder trend, podio and up folio. They don't talk to each other. And it, and by the way, and, so is it elegant? No. Does it work? Yes. It's, it's fine. And like the energy that I would spend to connect those three would save, I don't know, you know, a hundred man hours a year and it would cost me a thousand man hours to do it. And I'm like, you know what, just ain't worth it. So, you know, depending on, you know, depending on the nature of the business, there's a different, I think, you know, it's not a one size fits all approach to technology. Like Frank Cava (42:47) Now, yeah. Jack BeVier (43:10) By the way, Excel and whiteboards work, right? If you're buying 10 houses a year, Excel and whiteboards are just fine. Ain't nothing wrong with that. So I'm not a like, you need to be on this. Otherwise you're just, you're not gonna be able to run with the big dogs. Like, fuck that. Like that's bullshit. Frank Cava (43:24) mean, whiteboards and Excel inside of caves were cave drawings. They're still around and they still work. So one of the things that I think is critical, right? Like, I don't know who your listeners are on this. My guess is it's more of a sophisticated crowd, but there comes a moment in business where if you really kind of look at yourself, you're a little bit arrogant and the arrogance comes from, no, that's not right. And what people try and push on you is often that theme of no, I know what's best and that's an arrogant statement. Like it requires mastery. But what I will tell you is it's a lot sexier to put a new bolt or a new app or new this on, right? Like there's a guy, I'm not gonna say his name, but if I said his name, you both know him. And he just talks nothing but pardon me, effing Bitcoin. It's all he talks about. And at one point I was like, how many coins do you own? He's like 28. So you're fucking dominating every conversation for $2.8 million. Like, are you kidding? Like if you had bought 20 rentals, we'd be talking about 4X that at this point. so like the shiny thing isn't always the best thing. And especially if you have a long-term strategy, you stick with it. You have self-belief, which comes down to a little bit of arrogance or confidence. And it's like, this is going to work. And I was made fun of for years. I run a ton of stuff off of Excel and I've had project managers and people who run our construction department who are like basically my best sales guy has been with me for almost nine years. He does everything in a manila folder. He's 63 years old. He puts up a million five a year in sales every freaking year going back to the Jimmy Carter administration. So like he's great and he uses that and like the millennials like you could do it on a phone. He goes, I don't care. And he just looks at it. So Like you gotta, as a business owner, you have to understand this. He's got great results. It's a little hard for him to put some stuff in. I can find an admin a lot easier than I can find somebody who can get me a million five and under contracts. Craig Fuhr (45:26) Hey, why don't we end this episode and come back with Frank and Frank, I love to talk about your mining operation, especially in an environment where, you know, transaction volume is low, interest rates are a little high and Frank Cava (45:42) You don't want to talk about Bitcoin mining? You want to talk about like lead mining? When we stop recording, I'll tell you. Craig Fuhr (45:47) Only if you mentioned the name. That's so. So let's end this episode with Frank Kava, the Kava companies right here, Jack, and we'll come back for Episode two. We'll see you guys on the next one.