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How to Buy Real Estate Big Funds Won't Touch w/ Nasir Ali · Real Estate Investing with RealDealCrew

0:01
Biggest real estate funds in the country won't touch a 50-unit mobile home park.
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And that gap is exactly where today's guest has built a business.
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In this episode you'll learn how to find deals institutional money is
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too big to bother with. Why selling the land under the homes,
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not just the homes themselves,
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can be a smarter exit than selling to a REIT.
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And the one rule this operator follows for the first ninety days after every
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acquisition that most investors ignore.
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That's Ali, an eighth generation commercial real estate operator who's
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run mobile home parks and manufactured housing communities for over forty five
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years. Stick around and if you want to build systems for your
0:45
own investing business, check out RealDealCrew dot com.
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Let's get started.
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Ali joins me here today and you can learn what his team can help you with
1:00
by heading over to Rise360 Ventures dot com.
1:04
I'm gonna have that as an easy clickable link in the show notes.
1:07
I really appreciate your time here tonight,
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Ali. This is gonna be really fun.
1:12
Thank you for having me, Jack.
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You know, I it's an honor to be with you.
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I know you've had hundreds of operators and other people on your show,
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and so thank you. Thank you for hosting me.
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Yeah, well, this is gonna be kind of interesting because i I don't know
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if you've looked into me much on on the back end,
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but I'm in operations myself to a certain extent,
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just not in the fund space. And you're kind of in a unique situation where
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you w started in the operations and then kind of grew into the funds.
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So it it's it's kind of a unique situation in that regard.
1:45
Can you talk a little bit about that?
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What caused you to do to move in that direction?
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sure. You know, I I I I think it gives us so much strength to actually come from
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fundamentals in operations and really understand the business.
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And and by the way, that's on the heels of being eighth generation
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in commercial real estate. and being in this asset class of mobile home parks
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manufactured housing communities for forty-five years now as an operator since July
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ninth, nineteen eighty one. And for most of that time I shied away from passive
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investors coming in
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kinda wanted even at the risk of kind of not being able to scale as much
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or staying small, just having full control and and and kind of keeping
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my risk to myself or ourselves as a family,
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as a family office, we did that.
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And we just kind of rolled up through ten thirty ones over the years with
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ten thirty one exchanges with largely debt versus investor funds and whatnot.
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And so what changed that to answer your question was,
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you know, I mean I'm into cigars,
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I enjoy cigars and I have a a
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one of my cigar buddies just after years of asking and whatnot he insisted
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on on participating as an LP on one of my projects and I I caved,
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let him in and then he said you have to be you just have to meet one
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of my best friends you're gonna love him.
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So the best friend comes to me and says hey you know we're we're frat brothers
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we we we're like minded you and I and you gotta give me a chance you know
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I'm I'm Kenny's brother
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and now I'm your brother thro you know,
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discovering we're in the same fraternity.
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You gotta give me a chance to join you as well.
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So we went to two investors. And as you w well know,
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once you have two investors, you might as well have
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thousands of investors because that process of setting up you
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all the infrastructure required of a syndication or a fund,
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it doesn't matter how many beyond that that you have.
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And so here we are now with a proper fund.
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and I've I'm basically taking that forty five years experience that we had
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as as a family operation and now the family's essentially retired,
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bringing that to passive investors through the fund.
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That's kind of interesting. You you make that analogy regarding
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Bringing that experience through yeah.
3:41
the number of investors because I hear I've heard f from quite a few people
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now as they're moving into multifamily commercial properties and what have you,
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that they kind of wish they would have gone into the multifamily commercial spaces
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sooner because in the end having w coming up with or working through
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the deals for multiple doors was just as
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as difficult as as d doing a single family home in some some cases.
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So it made a lot of sense to like they wish they would have scaled quicker.
4:15
You know, that's such a kr great point.
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I feel like people think they have to graduate from residential to commercial.
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And even within residential, maybe they have to graduate from,
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you know, a few deals in and I just from the beginning I and and
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and I'm fortunate to have the background that I did with my family being
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in the business, but I just never was of the mindset that that's a requirement.
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That you have to start with residential before you get to commercial.
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And by the way, in this particular asset class I feel like I have the best
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of both because technically anything over four units,
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as you know, is commercial. And yet I'm still
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in housing. I'm still in an essential,
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you know, a shelter and in the most for affordable form of housing.
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So we get the best of both. But yeah,
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I I I think boiling more eggs at the same time because the the the time duration
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to have a hundred units is this is the same whether you have ten units
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or or you know a few. So so being able to boil more eggs at the same time kind
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of and and scale in a a park for the same amount of investment
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investment that I might get, you know,
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I don't know, five industrial units or or twenty apartments,
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I can get a hundred pads and not only diversify
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Mm-hmm.
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my risk but but but also be able to scale that way.
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Yeah, it's it's kind of interesting.
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Like d what do you think it causes people to have that belief?
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It's it sounds like it's it's a kind of a myth that you kinda would like
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to bust here today in in that.
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Is it just a mindset? Are we kind of conditioned to believe that we need
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to set start in a single family house?
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Like, what do you think it's the cause of it?
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Well, don't get me too far deep in that that on that end because I'll say that even,
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you know, our society and and globally I think we're conditioned in many ways,
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right? Even the the school system,
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if you would, we're decid we're we're we're trained from the start
6:00
to follow a certain path of when we wake up and who we listen to and what we say,
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from the Pledge of Allegiance to to how we handle every subject where
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and to report to an authority and then to go continue to do that
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on further education.
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and
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and get the job and so on. And so so we're I think the mindset,
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and then when you apply that to real estate,
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you know, the I think the the the teachings have been,
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okay, you know, you you start as a as an agent or in sales and and and maybe
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as an appraiser or what and not and then you graduate to being an investor
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and you get and you go from residential and you graduate to commercial.
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It just seems like all the education platforms and and the industry seems
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to kind of lend itself to that that philosophy.
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And and I I I think as we understand from from leaders in any investment space,
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it's the disruptors, it's the people who don't follow the herd and kind
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of build out their own path who seem to be the most successful.
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And for me, early on, I knew, and again,
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much blessings, you know, much largely probably credit to my father,
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who's just a serial entrepreneur.
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I just knew and and and a real estate investor,
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I just knew early on that that was not.
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the traditional path was not for me.
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I needed to even in and I say this even for people who don't necessarily have
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a lot of resources or capital to get started.
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Like, you know, you don't you can still get started in commercial.
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You may have to go into sales,
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agent be an agent or a broker for some time to kind of be able to
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to build some capital. but you could go right into commercial.
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You don't necessarily have to go through residential.
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Mm-hmm. You know, one of the things I saw about you,
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you've you mentioned somewhere where you build wealth where big funds won't bother
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to look. What does that mean in practice?
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Is is that associated with the mobile home parks and the manufactured housing?
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Yes, it is and thank you for asking.
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I think the what we're talking about there specifically is and it's
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not that they don't wanna look there or or
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Or don't understand the business model,
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of course, but I think there's some restrictions that they face.
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where we as a smaller group have some some flexibility.
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And specifically, what as an example,
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what I'm talking about is we're we're vertically integrated in our business model
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so that we have the real estate asset under one entity.
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and then we have in our manufactured housing community industry space
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we have a dealer arm, so under a separate entity that's arm's length from
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the real property ownership. Right?
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So we will buy homes and sell homes.
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We'll buy them wholesale and we'll sell them retail.
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And turn that otherwise that lemon of of trying to get a home in for
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a real estate owner, you know,
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it's really just lemons having vacancies and and the challenge of getting homes
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in there. We'll turn that into lemonade because now we are licensed as
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a dealer and we're buying and sell buying homes wholesale,
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often distressed, and and selling them retail.
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So that we monetize that and we
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We help increase our occupancy in the community as a result.
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It's because we're buying and placing them in in our own communities.
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And I add to that layer where it's legal,
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where it's possible. I'm not a this is not legal advice of course.
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but we also where you can we provide retail financing for our resident to
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be able to not only just purchase the home,
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but more importantly, the other costs associated,
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like the transportation and the installation of that home.
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So Jack, that's usually the barrier.
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Barrier. We all know there's this huge demand for affordable housing.
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And so why do these communities,
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many of them sit half full? It's not due to lack of demand,
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it's just those barriers up front for a resident who can't afford necessarily
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all that upfront cost that isn't financed.
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And so we we crack those codes,
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we we crack those barriers by by making it turnkey where you have a three bedroom,
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two bath already on site, readily available.
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That's that's bought by us under our,
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you know, affiliated with us under our
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separate
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entity and then even financing available.
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And so we can that allows us to scale from fifty percent occupancy
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or sixty percent to ninety or ninety five,
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you know, relatively quickly. And now I think some of the larger groups
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are starting to to structure things this way or have have started doing this,
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but it's it's not as easy for them going back to the original question because
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generally it's frowned upon, and this is why we keep everything separated,
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one of the reasons, it's frowned upon to mix income
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From with from real property, the land,
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the lot rent, with personal property,
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which is the home. You know, that home would typically it's it depreciates like your
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car. And it and it doesn't last as long,
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right? So the income and and the asset value are valued and measured differently
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as compared to the real estate.
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But when investors start mixing those two things,
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you become unbankable essentially.
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It's oftentimes even difficult.
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to sell an asset that has mixed and skewed income because now you've skewed
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the value. And so that's one of the reasons the institutional players that
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historically would shy away from this kind of stuff.
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But being lean and smaller and and flexible and and coming from the industry,
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we're able to adapt.
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Mm-hmm. Well, I really like what you talked about there regarding you're really
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removing a lot of friction. I I was involved in a in a trailer park at
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one at one point and one of the biggest thing the problems that we were having
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is is that nobody would voluntarily move in a trailer house or
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a manufactured home themselves.
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I mean, i you would almost have to find a way to finance,
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get some of that newer product
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on the pads for people to even consider it.
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I mean, if you weren't doing it,
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the residents sure weren't.
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That's right. And not only doing it,
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not only would you have to do all that,
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but you'd have to be at least ten to fifteen percent below the total cost
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of what it would cost that resident to live in a in a r in a rental outside
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or even you know, apartment or home or otherwise.
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So you have to you'd have to provide all that and still make it very competitive.
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And then it became like a no brainer.
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So
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you you mentioned that you you're kind of vertically aligned,
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you know, whether it's I'm guessing you got property management arm,
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they got the financing, you're doing the the retail sales.
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Like what was the when you when you were getting into this product class,
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what was the first thing you added as you scaled?
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it was the the the dealer arm because we knew you know,
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we started actually I started in the R V park business,
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Jack. And and so I think we're experiencing a little bit of technical difficulty
12:26
but hopefully we're gonna be okay.
12:29
Yeah, we will be.
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And and s and and so you the the when we started in the R V park business
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You know, and that was seasonal and we quickly learned that we don't like
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the seasonality, we don't like the the hospitality nature of it,
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that's management intensive and and all of it although the rewards were higher,
12:49
the income was probably more lucrative,
12:52
the you know, th there was some risk there and there was some cash flow volatility.
12:56
And so so that's where we even in that first R V park,
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we started buying trailers, Jack,
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and put in and and
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leased them out long term. And I think so that's the to answer the question,
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that's the first component we added was okay,
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we understood that we need to buy homes,
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you know, and this was in the 80s,
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right? So this is before tiny homes and ADUs and all the stuff became popular.
13:18
but it worked back then even. And and then so that's the first that's
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the first arm we added.
13:23
Yeah, that's that's probably different than a lot of people would have done too,
13:27
right? I typically hear more times than not that the first thing added
13:31
is property management.
13:32
Yeah, you know, for us, I guess I d that doesn't come to mind right away because
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I I I I mean I think we d that was just a given for us.
13:40
So we had property management,
13:42
we had asset management. I don't even think of those as a as a negotiable option.
13:47
Jack. you know, it's just as we know in this industry,
13:50
it's just so too costly and too management intensive to to outsource that kind
13:56
of thing. You end up you really end up spending a lot of time anyway and
13:59
a lot more money typically than you want to in most of these asset classes within
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C R E to to outsource that. So that and especially as a family operation,
14:08
that never even came to mind as as really kind of something that we would question.
14:13
So I correct myself, property management,
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asset management were already baked in.
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But in terms of any external profit centers,
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I would say adding adding homes was the main the big one that actually
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was a revenue generator, a significant revenue generator.
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So
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y you know, we we just talked about that you build wealth where
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big funds won't bother to look.
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Is it because you're in in that kind of middle ground where you know,
14:37
a hundred pads is not something that the big funds are even interested in?
14:42
Are you kind of finding that middle space where there's a sweet spot?
14:46
Yes, absolutely. I'm so glad you brought that up.
14:49
That's the other aspect is, you know,
14:51
before the the big boys wouldn't look anything you know,
14:54
they wanted hundred million dollar deals.
14:56
Then they came down to fifty million dollar deals.
14:58
They're they're playing now even in the twenty-five million dollar range
15:02
in terms of assets. And you know,
15:04
maybe they're still doing a hundred million dollar deal,
15:06
but it's four assets of twenty-five million because they're having to
15:09
get you know more and more competitive and and come down.
15:11
And then you have your mom and pops or your main street operators who are,
15:15
you know, maybe going up to five million.
15:16
And so you're absolutely right.
15:18
We try to be in our sweet spot below,
15:20
you know, below the big players and above them.
15:22
the main street players. and so five to fifteen,
15:25
maybe five to twenty-five million.
15:27
you know, ideally at least a hundred plus units,
15:29
but we'll go as low as fifty units.
15:31
We won't be in primary markets.
15:33
that's where, you know, we we just don't want to compete with the REITs
15:36
and and and the larger groups.
15:37
but we you know and and we'll we'll be in some secondary markets,
15:41
but we like to kind of be in between tertiary and secondary.
15:45
that's kind of our sweet spot.
15:48
And then and then one to five star,
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one being the least compelling,
15:51
although probably the most lucrative,
15:53
but the least compelling in terms of curb appeal and desirability of a community.
15:56
and five being the best as as your previous guests have talked about.
16:00
you know, I we we also like to be kind of in the middle in that area too.
16:04
So again being in that just just below secondary market,
16:07
fifty plus units, two to three star,
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w we have less competition there.
16:12
Okay.
16:13
Sure. Just to remind everybody,
16:15
we're talking to Ali, and you can learn more by heading over to Rise360Ventures.com.
16:22
I'm going to have that as a clickable link in the show notes.
16:25
If you found some value in what we're chatting about so far,
16:27
do us a favor, share this with one of your friends.
16:30
If you're watching us on YouTube,
16:31
give us a like and subscribe. Well,
16:35
let's build upon your buy box there,
16:37
Ali, if you wouldn't mind. You you kind of gave everybody a pretty good rundown,
16:41
but are you primarily
16:43
In certain parts of the country at the moment?
16:45
Yes. you know, I and and on the buy box comment so yes,
16:49
the let me answer your question for
16:51
We're right now we're and and historically we've been mostly active in California.
16:55
Right now we're only in California.
16:57
I have done deals elsewhere, like Texas and and upstate New York and elsewhere.
17:01
But we're currently we you know,
17:04
I've I grew up in California, Jack.
17:05
And and so this is home. we have assets as far down south,
17:10
like in the San Diego market and up up north by Mount Shasta.
17:14
And so I've lived so to speak on h I
17:17
five and highway 99 if people are fo are familiar with California two
17:20
of the main arteries going up and down the state and just doing deals
17:24
up and down those those arteries and so that's that's our our
17:28
our our breadbasket because that's where we built our network of
17:32
you know brokers lenders appraisers professional advisors you name
17:35
it owners where we have that Rolodeck so to speak which serves
17:39
us well and especially I think on top of that the reason we we we thrive here
17:44
is I just think that there's so many
17:46
people afraid of blue states and regulation and rightfully so I might add,
17:51
where most people most Californians don't even want to invest
17:54
in California anymore it seems,
17:56
let alone let alone out of state folks not coming in.
17:59
And and I think that just leaves,
18:01
you know, more opportunity for us who've been around and really understand
18:04
the landscape here.
18:05
Well, you kinda beat me to the punch on that.
18:07
I was gonna say that makes you unique
18:08
Hehehehehe
18:09
yet again in the fact that you're doing this and making it profitable in California.
18:14
I like you said, east and west coasts,
18:16
a lot of people just seem to avoid that any way possible and and I
18:22
I consistently am getting various investors on the show that find some very unique
18:29
ways in which to make it work.
18:30
Yeah, I mean just a quick example,
18:32
you know, people are afraid of rent control as as as they should be,
18:35
but you know, they won't even the the notion of c extracting any any content,
18:41
any value out of an an existing rent control that would favor a landlord
18:45
is just not even
18:47
not even considered as a possibility,
18:49
that there may be some language that actually favors you.
18:51
and the terms that are explicitly stated in a particular ordinance
18:55
are are assumed that they're that's just you know gospel.
18:58
that they can't be challenged.
19:00
And that's just an example of where we might explore just even that
19:04
and and see where the opportunity lies to leverage a rent control ordinance
19:07
in our favor. As crazy as that sounds
19:10
Yeah. Yeah, I I understand what you mean.
19:12
you know, we got some properties in Minnesota and there's there's rent control
19:17
situations there as well and there's just some th things that you
19:21
can levers that you can pull that actually make it a little easier
19:25
to increase the the profits on the place because of them.
19:30
Absolutely.
19:32
So
19:33
I was hoping you could spend a little time on a recent acquisition.
19:37
what was the mispricing, what was the plan and what created the return?
19:41
Okay. so you know, we we did a small acquisition just recently,
19:46
relatively recently in Northern California.
19:49
and we and and small by our typical buy box standards.
19:53
this was only thirty units and I think we got a
19:57
On paper we got a great price and I and I d it is a good price.
20:00
It's you know, it was a one point one million,
20:03
frankly, on on on thirty units up in Northern California.
20:07
And you know, we also got seller financing on most of that as debt.
20:12
and and with
20:14
a a six month runway of no payments and interest only structure.
20:18
And so so all of that made a lot of sense and it was a highly distressed situation.
20:23
And we bought it because frankly we're actually looking at exploring additional
20:27
new just to your your earlier question and and comments about,
20:30
you know, different profit centers and ideas.
20:32
And here one of the strategies we're considering,
20:34
which is kind of also frowned upon s by some industry players,
20:38
most industry players actually,
20:40
at every level, at any capacity,
20:42
the idea our exit strategy there,
20:44
Jack, is is one that is we're ex you know still fine-tuning,
20:49
but looking at
20:51
Exiting by selling the lots, not just the homes that we put in place,
20:55
but the also the lots underneath to the residents.
20:58
and so under under you know, and some of these are called rocks or
21:02
or resident owned communities,
21:03
you know, in the industry loosely.
21:05
And so that's not very common and it's not something we've done before
21:10
and that's one of the reasons we bought a small park in this in this environment
21:14
in this kind of capacity to kind of test this out.
21:16
We have our
21:17
We have our existing model, of course,
21:19
that we're still gonna execute.
21:20
We're still gonna fill the vacancies with infill.
21:22
We're still gonna sell homes, we're still gonna provide the financing
21:25
if we can there. We're gonna do all of those things,
21:27
and then we're also gonna look at this option as an ad as a supplemental
21:31
way of an egg another option as an exit strategy.
21:34
So we're not dependent on it, but we are excited about that possibility
21:38
in this case. And you know, I think for those who are interested in that
21:42
or or even just the basic fundamental,
21:45
you know, play there.
21:45
on a smaller scale because this is a small deal.
21:47
this would be exciting to join us on and see how it works out.
21:52
Yeah, that's kind of interesting.
21:53
It's kind of like a version of a condo or or something,
21:57
right? Like you're you're kind of breaking up the lots and it makes a
22:00
lot of sense because I I would imagine that there would be some way in which
22:04
to have some longer term returns as well if you're able to provide
22:09
the necessary financing to to the land and the and the and the house.
22:14
I'm so glad you said that. That's exactly right.
22:16
That's part of our p part of our business model there,
22:18
our strategy. And you know, what a what a great
22:22
story. you know, it's easy to sell it's easy to exit by selling
22:25
to an institutional player. But but the I the notion or the idea
22:29
of actually being able to give back to the community that's living there
22:34
and be able to work with them in a positive way so that they
22:37
can actually realize the the dream of not only owning the home but also
22:40
the land underneath. w and we're not a non profit by any means doing this.
22:44
We're you know this is a for profit venture and so
22:47
So if I can get one and a half X jack by exiting to the community or maybe even
22:53
two X and and and yet make it in a a way that it's attractive and
22:57
and affordable for each resident,
22:59
that's beautiful.
23:02
Mm-hmm. Well, you you're going back to being in California,
23:06
you're probably talking about a price point that actually makes this these
23:10
achievable for a lot of people.
23:12
You're actually giving them an option here that they just frankly wouldn't have
23:16
otherwise.
23:18
That's right. That's exactly right.
23:19
I mean, just up there in that tur and that's a tertiary market.
23:23
but just to put a number to that,
23:25
I mean we're looking at a range of a hundred and fifty thousand
23:27
to two hundred thousand dollars.
23:28
which is maybe high in some parts of of the of the country,
23:32
you know, for a home and and and pad.
23:35
But in a that's that's a very affordable range in California,
23:39
in a terti even in a tertiary market.
23:41
So and then again
23:42
Mm-hmm.
23:42
to have that be able to be done in it with financing available and whatnot
23:46
is is really a big plus point as well.
23:49
You
23:50
on your site you mention a repeatable system focused on cash flow over hype.
23:54
What are the four or five steps in that system?
23:58
you know, thank you. the the f the v the main steps basically if you're looking at,
24:03
you know, increasing your income
24:06
in we're we're we're looking at mostly at the real estate.
24:09
That's the the real estate, the community is the fundamental and primary asset.
24:13
It's the most important asset here.
24:15
And so we can increase the income there,
24:18
of course, by the sc rent increases annual rent increases,
24:22
you know, reduction of expenses that might that might that could
24:25
be eliminated that that that maybe the previous operator wasn't doing efficiently,
24:30
pass through
24:31
like your previous people and other people would men know about the industry,
24:35
passing through utility expenses or other such things,
24:37
adding additional profit centers like you know,
24:40
maybe revenue off the personal property insurance that's marketed
24:44
in the community or or the cable service.
24:46
All these kinds of things that are additional you know,
24:48
maybe additional parking. where if you can't expand the property with for lots,
24:52
additional lots, maybe you can expand it as if we did it recently
24:55
in another community. We couldn't expand
24:58
to add more homes because we c that they the city wouldn't allow the permit
25:01
for that or the state wouldn't.
25:03
And so but we but we were allowed to add a parking lot.
25:06
And so additional revenue through that parking for for residents and
25:09
for others who wanted that. or storage may be another option.
25:13
So different profit centers there,
25:15
but on top of that now you're also layering the income essentially through
25:19
the other entity of of the profit from from selling the home,
25:23
like we talked about. And and
25:25
you know, and and then the financing.
25:27
So those are at least a half a dozen different profit centers right there.
25:30
all of which serve your kind of a like an inverted funnel,
25:33
if you would, Jack, where you know the financing is facilitating the sale
25:37
of the homes. The homes is facilitating the the the rental income on the lot,
25:42
which is really the main goal to get from fifty percent or sixty percent occupancy
25:46
and value, essentially, as a former real estate appraiser who specialized mostly
25:51
in mobile home parks, certainly not for the money by
25:53
The way the money wasn't great doing evaluations,
25:55
but I wanted to make sure I understood the fundamentals of the business.
25:59
And and of course, in just simple terms for easy math,
26:02
I mean, I think basically 50% occupancy translated to roughly 50% of asset value,
26:07
you know, in asset value of the potential.
26:09
And so if I'm a hundred percent full and I've increased my income and bottom line,
26:14
now I'm at a hundred percent stabilized asset value,
26:16
right? And so so having that ability.
26:19
to to have these different profit centers and for lack of a better word manipulate
26:25
or control. I'm not dependent on like you would be in residential real estate.
26:29
I'm not dependent on what's happening with the neighbor's yard.
26:31
I'm able to control my destiny to most to some degree by by building this income
26:36
stream one home at a time, one brick at a time,
26:39
so to speak, and and get to my full occupancy,
26:42
full income stream, stabilized,
26:45
and then exit if I wish.
26:46
Mm-hmm.
26:48
You know, when you're taking over a pro property,
26:50
could you lay out the operational priorities at like the thirty day,
26:56
sixty day, ninety day marks? Like what are you guys focused on typically when you're
27:02
when you're after acquisition?
27:04
Thank you. Yeah, you know, the rule number one I learned from my father,
27:08
Jack, which I think I don't know how many people I I I I would suspect most people
27:13
wouldn't agree with this or don't do this,
27:15
even if they agree with it. But rule number one for me is
27:19
You don't change anything for 90 days,
27:21
maybe six months. You know, you go in and you even when you're just when
27:26
you witness the deficiencies, when you see the shortcomings of your existing team,
27:30
you see all the opportunities where you can change things up,
27:33
you don't go in and start changing things overnight.
27:35
You soak it in. You learn,
27:39
you ex go and study and examine w w what the ch how the changes would
27:43
and and and gradually phase in your changes.
27:47
so that's that's rule number one.
27:48
And then the other two two I would say a couple of more you know immediate steps.
27:53
I don't remember exactly how many you asked me for,
27:54
but I think another key couple of steps are you know,
27:57
immediately look at what what CapEx improvements can be done,
28:00
what renovations can be done to to improve the overall curb appeal
28:05
so that ultimately you're delivering value to your residents and
28:08
and can justify rent increases,
28:10
you know, and people feel better about it.
28:11
So CapEx
28:12
would be second. you know, and then and then we start looking at
28:15
the other profit centers. If we've addressed CapEx and rent increases are set,
28:21
then we can start looking at some of the other ways to increase income.
28:25
Well you've probably evaluated a number of these now,
28:28
whether it was being, you know,
28:30
a property inspector or now through acquisitions.
28:33
Wha what's the what's the top couple mistakes that you've seen repeatedly made
28:40
with with operators?
28:42
number one is they don't do what I call the the smell test because you know,
28:48
it's easy and we should do all the research and the analysis,
28:52
the due diligence that we do sitting behind a desk.
28:55
One of the first things you should do,
28:58
and I think many people don't ever do it,
28:59
is go walk the property.
29:02
Like physically, one of the first things we do I just did it last week
29:05
at a couple of deals we're looking at.
29:06
I was going visiting one of our existing assets along the way,
29:10
I had ac my acquisitions team tell me which ones we're looking at and
29:13
I went and walked the properties.
29:15
you know, while I was passing through because that smell test,
29:18
understanding the layout of the lot,
29:21
understanding any environmental concerns you might discover,
29:24
understanding CapEx things that could be done,
29:27
understanding the neighborhood and the
29:29
the the surrounding adjacent just the adjacent lots and the neighborhood.
29:33
All those things you can look at you know Google Earth and you can
29:37
get all the information. But walking through the lot and maybe meeting
29:41
a resident or two, maybe meeting a flipper that's working on a home,
29:45
the gardener, the pool man, or
29:47
Or the office manager, n a neighbor from a a adjacent adjacent property.
29:52
All these kinds of things really feed in.
29:55
And and I think even more so in a tertiary market,
29:58
by the way, where you can actually get more information from locals,
30:01
just at the supermarket, you know,
30:03
or at the bank, so to speak, and and as cr as bizarre and and and simple
30:07
as that sounds. But that smell test is important and I
30:11
think overlooked. the other is just understanding,
30:14
you know, I think the other major mistake we do is everybody looks gets kind
30:18
of caught up in the sexy metrics and and performers that underwriting might do.
30:22
But I mean we just really have to understand that we're buying it right because,
30:26
you know, selling is is easier if you get there.
30:29
But you gotta buy it right in the first place.
30:31
And by buying it right you better truly have a fundamental understanding
30:35
of the cost of improvements, the timeline of improvements.
30:38
the scale of how you can rent you do your increase in rents and and
30:42
how all that ties back and how you kind of in real time in
30:45
net present values determine what you really should pay.
30:48
Because even just take a single family home like these these shows you see
30:53
on TV and and often times more often than not the biggest problem
30:58
is that people overpay because they don't understand you know that the
31:01
the time that it takes to renovate is usually three times longer than they than they
31:05
Forecasted. And the expense might be three times or more.
31:09
Right. And so that's not built in when they think they've bought it at
31:13
a low price and now suddenly they're breaking even or losing money
31:18
by the time they're at the finish line and that's not a good feeling.
31:21
So so buying right is ninety percent of it.
31:25
And and we can talk about more of that maybe in another session if
31:28
you invite me back or anybody can reach out,
31:30
but but you know, in terms of techniques on that.
31:32
I don't wanna take your the whole show for that,
31:34
but I I think that's th that's probably the second most after the smell test,
31:38
you know, you're not you gotta smell it out first and then
31:40
you gotta actually understand the fundamentals to buy it right.
31:45
Sure.
31:46
Well, let's let's change direction just slightly to talk a little
31:50
bit about what what it's like as an investor working with your team.
31:55
Like what would they expect? Let's set the stage a little bit as to how that works,
32:01
who you're looking for, what's your avatar,
32:03
if you will, and and just making sure it's a good fit.
32:07
Sure. so you know
32:09
We are accepting investors and we do welcome that and I don't mean
32:13
to sound snooty when I say this,
32:15
but we're we're selective, Jack to some degree.
32:17
We want it to be, you know, and a and I'm sure the investors are just we're we're
32:22
as selective as investors are and they as they should be too,
32:24
right? So it's not about just capital for us or it just investment,
32:28
frankly. there you know, w this asset class went from being trailer trash
32:33
to becoming the darling asset class that everybody wants to seems to want
32:37
to get into now.
32:38
So there's a frenzy and everybody and a lot of people want to invest.
32:41
And so we're fortunate to be able to have that mutual exchange where,
32:46
you know, just like an investor's gonna vet us,
32:48
we also like to vet an investor.
32:50
And and so number one for us, and I think it should be for an investor,
32:53
is the no like and trust factor,
32:55
understanding that that there's a like minded philosophy,
32:59
that we agree on on the philosophy and that we are comfortable with each other
33:03
in terms of the business strategy.
33:04
That's number one.
33:05
Number two, you know, even though you're passive,
33:08
there may be some expertise you have,
33:09
a skill set, a network, some value that you can actually still bring beyond being
33:15
a passive investor without actually having to get involved because you
33:18
may have your day job or you may have your passion,
33:20
whatever else that you're tied up with,
33:22
and that's why you've come to us,
33:23
which is fine. But we do like to kind of leverage that that network
33:28
and that knowledge base and that expertise if if somebody has that.
33:31
So we're looking for those kind of things.
33:32
And as far as how what they could expect,
33:34
you know, we we typically so the the goal has been to take
33:38
my forty-five years experience and bring it to the avatar,
33:42
so to speak, is you know, bring it to somebody who really doesn't want
33:45
to reinvent the wheel and spend forty-five years trying to learn this business
33:48
and learn this asset class, who wants to stay engaged in their pr
33:52
in their full-time ex experience or effort and and and be passive and get
33:57
a we look for ideally, you know,
34:00
although
34:00
Although not year one or two because it is a heavy lift up front,
34:03
but we're looking for a twelve percent cash on cash return or better.
34:06
I used to say twelve to eighteen percent.
34:08
We used to be able to get as much as eighteen decades ago.
34:11
I'm reluctant to say eighteen cash on cash now,
34:14
but still like to get way over the twelve percent mark if we can,
34:18
just on the cash on cash return.
34:19
and then you know, but in terms of passive and that's for for the the fund
34:23
and for the investment, which translates of course to passive investors that that
34:27
should be able to see over.
34:28
overall I would say with with with distributions and with the exit with
34:34
the you know including the appreciation that if we're we we're looking
34:37
for deals to land twenty to twenty two percent overall for the fund
34:41
and that's what they should expect.
34:42
Sometimes we can exceed that, sometimes we may be a little bit below that,
34:46
but that's if we're not if we can't buy it right to get to that,
34:50
we're probably gonna pass on the deal.
34:51
Well, I appreciate you sharing that insight.
34:53
It it's it's always a good to to paint that picture as to your working
34:59
the way you you way you have it.
35:00
And I think you're you're right in the concept of being selective because
35:05
I mean not only regarding the asset class,
35:09
but sometimes things just isn't a good fit and it it's good to just have
35:14
or work with people who are honest about that.
35:16
Well,
35:16
Ali, we're gonna drive into the rapid fire and start closing out this episode,
35:20
but before we do, is there anything else we should have tried to hit on?
35:23
you know, I I'm gonna maybe jump into something that isn't just about
35:28
real estate or this asset class or let me let me use real estate I think this
35:32
is an analogy. Let me just throw this out there.
35:34
I think people don't take advantage of the real estate asset they already
35:40
own outright with no debt. they don't take advantage of it as much as they should.
35:44
that they already own outright,
35:46
that they could do a value add strategy and realize some gains relatively quickly
35:51
without any further investment other than
35:53
stopping, pausing, and understanding that the most valuable real estate
35:59
is what's in here.
36:01
and and you know, in your mind and that you control that and that nobody
36:05
has control over that other than you.
36:08
So if if that's the real estate that you own outright,
36:11
you know, how can you actually control it and invest in it and va and do
36:15
an ad value add strategy in that environment so that that you actually then
36:20
can go ac execute in the external world.
36:22
So without getting too and so that's one aspect I would love to expand
36:26
on it sometime.
36:27
about that real estate that's owned and controlled only by you.
36:30
And then secondly, I would say the the geopolitical and macro economics,
36:35
especially in this current environment,
36:36
how that's impacts CRE and our asset class,
36:40
you know, there's a lot going on and and and everybody talks about,
36:44
for example, I don't know when this is gonna air,
36:46
but ever right now we're in the midst of this this crisis i with Iran.
36:50
We had that crisis also back in the late seventies when it pushed
36:54
mortgage rates to twenty percent and and and made you know conventional lending
36:59
sources really difficult. And by the way,
37:01
there weren't any conventional lenders in my asset class then.
37:05
but any lending source became you know really difficult when interest rates went
37:08
to something like twenty percent in nineteen eighty eighty one or so.
37:13
And so, you know, we may see trying times like that again.
37:16
And I think what we didn't cover is
37:19
Is, you know, today many operators,
37:22
many sponsors, many funds follow the playbook that's been established
37:26
by someone else. And frankly, people like my father for this asset class.
37:29
you know, what do you do tomorrow when that playbook doesn't work?
37:32
Are you with an operator and have you thought about how you can I mean
37:36
are you really gonna be able to come up with a new playbook?
37:38
That's what I wanna say. And so I think we need to pe have people think about that,
37:42
especially in these kinds of times where when it comes time
37:46
to rewriting the playbook
37:47
Are are are you prepared? And and so that's that's where I'd like to leave it.
37:55
great. Well, if you're ready, we'll dive into the rapid fire and close
37:58
out this episode. Just to remind everybody one more time,
38:01
Rise360 Ventures dot com.
38:04
That's gonna be a clickable link in the show notes,
38:06
but if you're ready, Ollie, we'll close out this episode.
38:09
Let's go. I love the whole rapid fire session.
38:12
What lie do real estate investors often tell themselves?
38:15
wow. I just said I love this, and now you already threw me for the challenge
38:18
on the first one, Jack. ~
38:19
Yeah.
38:20
I think the lie the the I think the lie is,
38:24
you know, in in in in coming up with,
38:27
you know, and falling in love with performers,
38:29
right? Because at the end of the day,
38:30
that's exactly what it is. It's a performa.
38:32
It's a projection. And we can fool ourselves into anything looking at numbers that,
38:37
you know, that seem to make sense,
38:40
right? We want to believe it.
38:42
And and I think that's probably one of the biggest lies that I would say exists.
38:46
whereas opposed to what I said earlier about really buying right,
38:49
so adjusting those numbers downwards would be key.
38:52
If you could go back in time and give your
38:53
younger self a piece of advice,
38:55
what would it be?
38:55
I it would be listening to that gut instinct,
38:59
listening to yourself. You know,
39:00
for example, I I I had a number of ideas thinking creatively about finance
39:05
and about real estate, thinking outside of the box.
39:07
And I did do some of those things and I also held back on a lot of them.
39:12
Because I was told, that isn't the way.
39:15
This is not right. What are you thinking?
39:17
And and and and you know, twenty,
39:20
thirty years, forty years later,
39:21
I'm now seeing that that's those things have become mainstream,
39:24
you know, techniques and strategies.
39:26
And so if had I followed my gut the whole way through,
39:30
I think I would have been much better off.
39:32
What currently keeps you up at night?
39:34
The the global environment, the the risk of you know,
39:40
nobody would have if if any if anyone told the British that the the
39:44
the sun would set on the Empire and that the pound could be dethroned
39:49
as the global currency reserve less than a hundred years ago,
39:52
I think th no no one there would have believed it.
39:56
And I'm not saying
39:57
that we're in trouble. I'm not saying this is not a skies falling doom,
40:00
you know, doom loop or or any of that stuff.
40:03
I just think that the and it may even be deliberate deliberate on our part
40:07
as a nation, as a federal government,
40:08
to maybe see the dollar decline,
40:10
which is a whole nother debate.
40:11
But I think that's that's what we need to understand is,
40:15
you know, are you prepared for the what's happening globally
40:19
and even domestically with the changes that the Fed
40:22
and whatnot. are you prepared for the what is that what is the
40:25
the landscape look like in a few years from now that you're operating in?
40:29
Are you preparing for that? And are are are you are you following that,
40:33
understanding that? Because if you don't understand,
40:35
you know, people talk about thinking outside of the box all the time.
40:38
Well you can't think outside of the box in my mind.
40:40
And yeah, I say this a lot. You can't think outside of the box
40:42
if you don't understand the box.
40:44
If you don't understand what happened to Jekyll Island,
40:46
you know, in nineteen ten, if you don't understand how the Fed and
40:49
why the Fed Reserve was formed and how the
40:51
regional banks that participate in that or if you don't understand a
40:54
lot of these things, whether it's the basel
40:56
one, two, and three, or I could just keep going keep going,
40:58
you know, the the the the accords,
41:01
the Bretton Woods Accords and I mean there's just a number of things from from early
41:05
on to now. And even if you look at previous empires,
41:09
if you just don't follow that and and understand it,
41:12
then it's c I think that history helps you really kinda prepare for what might
41:15
be coming next. And and I I I went probably farther away from the question than
41:19
I should have, but I think that's what keeps me up at night is trying
41:22
to really encompass all of this in a simple way as a layman that
41:27
I need to understand that I can understand and prepare accordingly.
41:31
I actually it doesn't keep me aw up at night by the way in a stressful way.
41:35
I thrive on that. I enjoy it. So that's when I have my cigars at night.
41:40
I geek out on this stuff and I I try to incorporate it into our philosophy
41:45
and our our our strategies.
41:47
And
41:47
finally, what single tool or process have you implemented that has
41:51
had the biggest time saving impact?
41:53
You know, back in the day I would have said just well it's it's still technology
41:56
related. You know, back in the day it was,
41:58
you know, just basic things like in in i originally quicken and then quickbooks
42:02
and then POS systems and whatnot.
42:04
So that technology has saved us a lot of time with boots on the ground,
42:08
up, you know, processes on the ground,
42:10
you know, at the communities.
42:12
And it's still technology. And but today it's it's it's Claude.
42:15
You know, we've migrated and I don't mean to market a particular
42:18
AI platform or anything, but we've migrated to Claude recently as a team and
42:24
we we try to embrace it. I think rather than having this fear that we
42:28
any of our people maybe our team members could be replaced by by AI,
42:33
we actually have them use it to the fullest capacity so that it frees
42:37
up their time and and and and creativity to to be visionaries,
42:42
to inc to to be a part of the visionary and mission stra you know,
42:45
objectives that that that it the executive team is trying to implement.
42:48
And so
42:50
AI is is is the one that's saving us a lot of time today.
42:54
Well, I really appreciate your time,
42:56
Ali. This was fantastic. Next time I'm Cal California,
43:00
you might have to educate me on the cigar thing.
43:03
I'm not quite sure if I quite understand that yet.
43:06
So it usually just means I just don't know enough.
43:09
So maybe you'll can teach me that on some time.
43:12
But again it is Rise360 Ventures dot com.
43:17
Clickable link in the show notes.
43:18
Hope you'll consider coming back again real soon.
43:20
This was awesome.
43:21
Thank you so much, Jack. I'd love to have you become a brother of the leaf,
43:24
in the
43:24
Mm-hmm.
43:25
cigar world. So look me up anytime.