Building a Real Estate Portfolio with W-2 Income with Jay Helms

Building a Real Estate Portfolio with W-2 Income with Jay Helms

Jay Helms is a real estate investor and host of the W2 Capitalist Real Estate Podcast and popular Facebook Group. He’s built a 300 unit portfolio across 5 states as a side hustle while working a full-time job. His motto is Earn. Invest. Repeat.

Jay and his wife got into real estate investing during a chaotic corporate merger. Now, he’s passionate about helping other W2 earners build greater wealth through real estate investing.

What You’ll Learn In Today’s Episode:

  • Buying right is crucial to your investment. While financing and managing are also important, mistakes in those areas can be corrected. You can’t change the price you pay for a property. 
  • Jay developed his real estate portfolio to supplement his W-2 income due to uncertainty in the workplace. Having just lost his job due to coronavirus, the lesson here is poignant. Having a portfolio of cash flowing assets can help you survive during tough times and thrive in tough times.
  • As a passive investor, it’s can be tough to let go of control. We’ve said it before and we’ll likely say it again, you need to vet your sponsors and their deals thoroughly before investing, and you need to keep your finger on the pulse of the project.

Ideas Worth Sharing:

The markets at a tipping point.” – Jay Helms

“Between now and December, I’m really just stacking up dominoes and waiting for them to fall.” – Jay Helms

“Usually the path to success is where you don’t want to go…run towards pain.” – Jay Helms

Resources In Today’s Episode:

Books Mentioned In Today’s Podcast

Enjoy the show? Use the Links Below to Subscribe:


From 4500 Rejections to 1800 Units with Andrew Cushman

From 4500 Rejections to 1800 Units with Andrew Cushman

Andrew Cushman is a Chemical Engineer turned real estate investor who started flipping houses in Southern California during the Great Recession. He’s since moved on to multifamily syndication, acquiring B and C class value add properties throughout the South East United States. He’s since acquired and re-positioned over 1800 units to date.

It took Andrew 4576 calls before getting his first deal. He knew it was possible, and he had to do was develop the skillset and to put in the work. It’s the difference between being interested or committed, and it enabled him to leave his corporate position in 2007 to start a business in real estate investment.

What You’ll Learn In Today’s Episode:

  • Sometimes to be successful, you have to have faith in yourself, know that it can be done, and then possess the grit to push through it. It took Andrew 4576 calls before he got his first deal, over 6 months of effort, but he persisted. He knew it was achievable because others had done it, so he put in the work and developed the necessary skills.
  • Now is an excellent time to focus your energies on your current properties, and really hone your business processes and systems so you can hit the ground running when the market starts to turn.
  • When vetting a deal, the number one thing you are betting on is the sponsor. Look at their track record, and ask lots of questions. A good sponsor can fix a bad deal, but a bad sponsor can take a great deal and run it into the ground.
  • C (or D) class deals may look great on spreadsheets, but that rarely tells the full story. While there is opportunity, they often require more time and cause more headaches than B or A class assets.

Ideas Worth Sharing:

Nowadays, that vast majority of our portfolio is B class.” – Andrew Cushman

“We’re still looking at acquisitions, but really we’re trying to be patient and wait for what we expect to be better deals down the road.” – Andrew Cushman

“It took me 4,576 phone calls to get that first deal, which was six months of misery. But the things is, is I persisted, because I knew it worked.” – Andrew Cushman

Resources In Today’s Episode:

Books Mentioned In Today’s Podcast

Enjoy the show? Use the Links Below to Subscribe:


Upgrading Your Advisors, Tax Savings, and Short-Term Rentals with Brandon Hall

Upgrading Your Advisors, Tax Savings, and Short-Term Rentals with Brandon Hall

Brandon Hall is a national speaker and founder and CEO of The Real Estate CPA, a virtual full-service accounting firm that works exclusively with real estate investors and business owners. He’s also a multifamily investor and syndicator in his own right as a partner in Naked Capital. 

When it comes to investing and business Brandon lets his passion drive him, but doesn’t let it steer. He uses logic to elevate himself above the fray and make good, informed decisions, and it’s paid off.

What You’ll Learn In Today’s Episode:

  • Let passion drive you, but don’t let it steer. Make investment decisions with logic, not emotion.
  • People are your greatest assets, you’ve got to be able to hold them accountable. Create systems and KPI’s that measure your team’s progress, give them feedback, and hold them accountable.
  • If you’re looking for maximum tax benefits but don’t qualify as a real estate professional, you may want to look into operating short term rentals.
  • As you grow as a real estate investor, you may outgrow your current CPA. It pays to have an expert in that niche.

Ideas Worth Sharing:

“The core piece of their success is just repetitions. They’ve gotten so many more repetitions than anybody else.” – Brandon Hall

“The mistake the investors make is not knowing how to gut-check their advisors, and not knowing when it’s time to upgrade.” – Brandon Hall

“You never have to actually sell the property. You can always 1031, you can always cash-out refinance, so, investing in areas with high levels of appreciation can be a very sound strategy.” – Brandon Hall

Resources In Today’s Episode:

Books Mentioned In Today’s Podcast


Enjoy the show? Use the Links Below to Subscribe:




Mark:              Today’s guest is a national speaker and the founder and CEO Of the Real Estate CPA, a virtual full service accounting firm that works exclusively with real estate investors and business owners. He’s also a multifamily investor and syndicator in his own right. As a partner in Naked Capital. I’d like to welcome Brandon Hall.

Brandon:      Thanks, Mark for having me on. I appreciate it.

Mark:              Thanks for being here. You know, you’re a CPA, that’s your expertise. And I think it’s really cool that you not only started a completely virtual CPA firm back in, when did you start?

Brandon:      2015 officially.

Mark:              2015.

Brandon:      And added like $4,000. So sometimes I count it sometimes I don’t.

Mark:              Oh yeah.

Brandon:      That’s the way everybody starts. Nice. I love it.

Mark:              But not only did you start a virtual firm before everyone else got into that space, but I love that you are an exclusively real estate CPA. You want to tell me why you chose to be exclusively real estate, because I think there’s so much value to that distinction. And I never saw any other CPA firm that did that.

Brandon:      So I started my career at Pricewaterhouse Coopers and I was about three months into working there and just realized, man, I did not want to stick around for 15 years to make partner to make 300, 400 K. I thought that I could make a lot more, a lot faster and call my own shots. So I immediately started looking around for another way to earn income outside of a traditional W-2 corporate career, which is what I’ve been kind of trained to get into ever since I started learning about finance and how to earn money. It’s go get a job, but for me, it didn’t really resonate. And didn’t really resonate early on. I was only 23 or 22 at the time when I realized this was not for me. So I started looking for a way out and I ran across a few things.

                        The first that I found was real estate. So real estate offers a way to essentially create cash flow streams, income streams, and over time you can build it up and then you can leave your corporate job. That was really appealing. So I went in, I bought my first three unit property and it was a screaming deal, but it cash flows $700 a month. And I realized at that point, I’m going to have to do this for like a decade in order to really be able to quit my job. I mean, like 15 more of these properties to be comfortable. And I didn’t want to wait that long. So I started looking really for what can I do? And I didn’t really want to run a CPA firm at the beginning. Just kind of fell into it by answering questions on bigger pockets and decided from the get go with the CPA firm, that I was exclusively going to focus on real estate more so for selfish reasons.

                        The first one was, well, I think that a lot of rich people are in real estate. And the second was if there are a lot of rich people in real estate, this will prove to me that real estate is a good place to put your money. And it did prove that to me.

Mark:              And where was that first property that you bought.

Brandon:      Hickory, North Carolina tertiary market out in the mountains of North Carolina.

Mark:              Oh, nice. You know, real estate is touted as the most tax advantaged asset class there is. Do you want to give me your thoughts on whether that’s true or not? And if it is true, what makes it that way?

Brandon:      I think it is true. I think that if you invest in real estate the right way, you can definitely invest in real estate in a number of different ways. And if you are going for tax efficiency, you can get the tax efficiency. There’s ways to eliminate your income. There’s ways to reduce your effective tax rates as you are working a day job. That’s what a lot of our clients that are working full time jobs. We can’t go in with real estate and eliminate their taxable income unless they’re married.

And their spouses are managing this real estate portfolio full time. But what we can do is we can show you, hey, yeah, you’re earning $500,000 as a physician, but a lot of people at that point will say, well, I can’t take my losses from real estate. So it’s actually not providing any tax benefits. And we’ll say, well, that’s not totally true, because if you can positively cash flow, then you can earn $600,000 as a physician. You can earn $500,000 as a physician, a hundred thousand dollars of cash flow not paid tax on a hundred thousand dollars of cash flow.

                        So we tell the IRS that we only earn $500,000 from our physician income. We’re only taxed on $500,000, even though we earn $600,000, that’s where the efficiency piece comes in. So, so real estate can be tax efficient for anybody that’s investing in real estate. And if you are working a part time job or your spouse is working part time job, or one of you is not working at all, all of a sudden real estate becomes incredibly powerful because you can effectively eliminate your taxable income.

Mark:              Yeah. And it seems like there’s so many tools that you can use to improve and increase your tax efficiency. I have to say my first exposure to the tax benefits of real estate was with my first duplex and it hit me like a bolt of lightning. I got very lucky. I bought this property in LA and I paid $435,000 for it in 2000. And I sold it in 2005 for 1.27 million. And I had a gain of $835,000. And I had read about real estate taxation and I went to my accountant and I said, can my wife and I take our married couple primary residence exclusion on this duplex. And then also, could we 1031 exchange, the other unit that is being rented out and the accountant said, yes. And so we got $500,000 tax free. And then all the other gain was rolled into a 14 unit building.

Brandon:      And you know, I’ve been talking about cash flow, but you’re talking about some really solid appreciation, which you see a lot on the West Coast. And so, you can think about that. Let’s say that you weren’t living in the duplex. Let’s just assume that you weren’t. And it was just straight up a rental property. It’s appreciated the $1.2 million. You do a 1031 exchange. You buy a bigger building, but then you do a refinance on the bigger building, a cash-out refinance. And you’re able to pull that $800,000 out tax free. So you can most certainly build wealth, very tax efficiently. You never have to actually sell the property. You can always 1031; you can always cash out refinance. So investing in areas with high levels of appreciation can be a very sound strategy.

Mark:              And it’s taken me a long time to hone a long-term strategy. But at this point, my strategy is exactly that I’m never going to cash out. I’m going to 1031 exchange every property. And I have been doing that consistently and then ultimately pass them onto my heirs.

Brandon:      Exactly. You have your $1.2 million building. It’s got an $800,000 built-in gain. You pass away. Then your heirs inherit it. They get a stepped up basis, meaning that they get to inherit the property and the basis gets to equal the fair market value at the time of death. So their basis is 1.2 million, which means that they can start depreciating it at 1.2 million, which is great if you’ve been 1031, and you’re always carrying forward that old basis, right. You never really get to depreciate the new basis, but your heirs can step in. They can depreciate at the new basis or they can just sell it straight up. They don’t have to hold it. And then maybe they don’t want to deal with real estate. So they just sell it at 1.2 million. And it’s $1.2 Million of basis. There’s no gain to pay tax on.

Mark:              That’s pretty remarkable. I discovered cost segregation maybe three or four years ago. That’s a go-to. It’s automatic now with every new building and I became a real estate professional as well. What are your favorite tax benefits of real estate?

Brandon:      That’s the apex of tax planning for real estate is real estate professional status. If you can qualify as a real estate professional. And if you pair that with doing a caustic study and then claiming 100% bonus depreciation, that’s where we really get to being able to wipe out our taxable income and not pay tax. So real estate professional status. If we back up a little bit, section 469 of the tax code that defines rental real estate activities. It makes the default passive activity, meaning that passive losses can only offset passive income or gain from sales of other passive activities. So if I sell one rental at a gain, the losses from another rental can offset that gain. The problem though is that most real estate will produce a passive loss.

                        At the end of the day, we’ve got depreciation. We can accelerate it with cost segregation whenever we’re doing a big rehab. There are some things that we can do when we’re applying the 2013 tangible property regulations to accelerate losses. Most real estate at the end of the day is going to produce a taxable loss, not necessarily a cash loss. And that’s key to understand you can have positive cash flow, but tell the IRS that you actually lost money largely thanks to depreciation.

So if most real estate produces a loss and Section 469 of the tax code says that real estate is default a passive activity. Then that means our losses are passive losses and passive losses can only offset passive income. Or like I said, gain from the sale of other passive activities. There are two exceptions to the rule. One is if you earn less than $150,000, you can take up to a $25,000 passive loss allowance.

                        The other exception to the rule is to be qualified as a real estate professional and materially participate in the rental real estate activity. If you can do those two things, then your passive losses will switch to being non-passive losses and non-passive losses can offset business income and W-2 income, capital gain income, dividend income. It’s a non-passive loss, so it can be used in totality. There’s no limit really. So that’s the big one. So being a real estate professional, you have to spend 750 hours and more than half your time working in a real property trader business.

And that second piece, though, the more than half your time, that’s the piece that always tosses out to people that have full time jobs. You have a full time job. You’re working 40 hours a week. The tax court’s going to relatively routinely shoot you down in terms of being able to substantiate real estate professional status. There are people with full time jobs that can substantiate real estate professional status, working more in real estate than on their full time jobs, generally pilots, boat pilots, airline pilots, people in the creative industry, things like that.

Mark:              The big benefit of that is when you have that job, you have active income. And that typically can’t get offset by real estate losses, which tend to be more often passive. Is that correct?

Brandon:      Right. Right. So, so if I’m running a business or if I have a W-2 job, I have non-passive income and my passive losses for my rental real estate activities can not offset my non-passive income. So I have to switch it from passive losses to non- -passive losses. And one way to do that is to qualify as a real estate professional and then materially participate in my rental real estate activities.

Mark:              So the hundred percent depreciation, one of the, I think the three that you mentioned is fairly new, that came out of 2018. The tax reform act

Brandon:      Bonus depreciation has been around for a while. It’s always been at 50%, but the tax cuts and jobs act 2017, bumped it up to 100% bonus appreciation. So when you pair that with the real estate professional status, like if I qualify as a real estate professional, I buy a $1 million apartment complex. I run a cost segregation study on that. I’m going to be able to allocate about $300,000 worth of value to five, seven and 15 year property. And that’s what cost segregation does by the way. So when I buy property, it’s 27 1/2 year property, meaning that I have to depreciate the building value, not the land value.

                        So I buy a million dollar property, maybe $800,000 is allocated to building; $200,000 is allocated to land. I can’t depreciate land. So I just look at the $800,000 of building. And I depreciate that over 27 1/2 years, and depreciation is just an annual expense that I get to claim. I don’t have to pay for it annually. It’s a free expense. I get to claim and the purpose is to track the deterioration of my asset, but a cost segregation study says, well, in that apartment complex, though, not all the components are going to last 27 1/2 years. You have carpeting, you have cabinetry, you have appliances, you have the electrical and the plumbing that feeds the appliances. All of that is only going to last five years. Then you have land improvements. You have parking lots, you have shrubs. All that’s only going to last 15 years.

                        So a cost segregation study says, let’s take some of that $800,000 and let’s reallocate to five, seven and 15 year depreciation buckets. And the 2017 tax cuts and jobs act says that any component with the useful life of less than 20 years, it can be 100% expense in the year of acquisition. So if I go buy a million dollar apartment complex, I can probably allocate 250 to $300,000 worth of value to five, seven, 15 year property. And then I can 100% write it off. And if I qualify as a real estate professional on top of that, now that’s a non-passive loss. I could get a $300,000 non-passive loss; go write it off my W-2 income, my business income, my spouse’s W-2 income, business income. So it could be really powerful.

Mark:              It’s pretty amazing. I know it’s sometimes hard to wrap your head around. I know it was for me the first couple times, I heard it, but once you understand that, initially we were given what, 27 1/2 years to depreciate most of a property. And that means you get a little amount of your original purchase price divided by 27 1/2. And now you could take all of that in year one, which is a huge increase in your depreciation.

Brandon:      Absolutely, absolutely. And so if you keep acquiring assets, you can always claim this bonus depreciation and it’s powerful. It’s incredibly powerful. It’s how a lot of our clients don’t pay tax on their taxable income and the first time, kind of like you’re saying like the first time you’re going through it, you’re trying to figure out like, what the heck this is. And a lot of our clients, and sometimes CPA’s even they’ll go, Oh, that’s way too risky. I can never get $150,000 refund.

Mark:              Yeah.

Brandon:      I’ve never seen that before. You get nervous. It’s totally legal, totally legit. And we just work with clients on helping them substantiate

Mark:              One thing that was interesting when I started to go through this, and you mentioned, I think you allocated maybe in a million dollar building, $800,000 will go towards the property, the building and 200,000 will go towards the land. I have noticed investing in Los Angeles and this last year where I think the tax rolls had valued a 24 unit building that I owned and may had allocated 90% of it towards the land 10% towards the property. And I’m like, this is a 24 unit building and you’re telling me that it’s only worth like $500,000. So in the discussions it’s like you have to contest that. And obviously the rationale behind that allocation was that the County wants to collect as much tax revenue as they can. And they can collect tax revenue by reducing the value of your property. And so we had to fight it.

Brandon:      How did that go for you?

Mark:              I consulted the cost segregation firm about coming up with an accurate and supportable allocation between land and improvements. And we submitted, and I have not had anything contested yet. Knock on wood.

Mark:              Now, if you’re enjoying the show, please do us an easy favor and hit the subscribe button. And if you like the show, please give us a five star review. As a listener I always wondered why podcast hosts are always begging me to subscribe and rate them. Well, now that I’m on the other side, I see why. It allows other listeners to find you.

So here I go. If you like the show, please subscribe and give us a five star review. I like doing it. And more importantly, in an era of unprecedented hype over real estate investing, my goal is to be a truth teller. Real estate is not as easy as it’s made out to be, but you can do it. If you can get past the hype and get to the truth. My aim is for this show to help with that. Anyway, let’s get back to the show.

Brandon:      So most of our clients live in San Francisco in New York City. And that’s the exact problem that they struggle with when they’re investing in their own neighborhoods is my land value is 80, 90% of the entire acquisition price. So if we’re looking at that same $100,000 property that I’m talking about or that same $1 million property you can’t depreciate land. So we have to do an allocation between land and building. First of all if you live in LA, San Francisco, New York City. You’re only on a million dollar property. You’re only getting $200,000 of building basis.

                        And you’re only going to be able to allocate $80,000 or so to five, seven or 15 year property. It significantly reduces your ability to maximize the strategy. So one thing that you can do is you can definitely challenge it. You can actually go to the assessor’s office and challenge it, and we’ve seen some mixed results with that. But another thing that you can do that with strategy that we often employ is we just kind of look at what would it cost to reconstruct this asset? Because that’s really a better indication of building value than whatever our County assessor is going to provide. But you have to be really careful because the tax courts have ruled in the past with the County assessor.

Mark:              Right. And I know when I was agonizing over how to proceed; the discussion became lean on the appraisal. So you don’t necessarily have to pay someone to go do all this stuff, look at your appraisal because an appraiser comes to your property and values it and values how much it will cost to reconstruct.

Brandon:      Insurance too sometimes they’ll put a replacement cost on your premiums that you’re purchasing.

Mark:              Sure. Yeah.

Brandon:      And that’s always.

Mark:              Yeah, that’s another great one. What do you think the biggest mistakes that investors make with their taxes? Are they missing glaring opportunities?

Brandon:      The biggest mistake outside of real estate professional status, it’s the 2013 tangible property regulations. Those regulations tell you how to treat expenditures. So if I make an improvement on my property, is it actually an improvement or is it considered a repair? We see a lot of mistakes there. And oftentimes, frankly, that’s where we make the most money. And that’s where at least first year of working with the client, that’s where we’re going to make the most money by correcting those mistakes. And that’s where we’re saving our clients the most money too. It’s just taking a look at that balance sheet and saying, hey; your prior preparer has not been following the 2013 tangible property regulations. Here’s what we can do to fix it. Here’s the cost, here’s the benefit. And they go; I didn’t even know that that was an issue.

Mark:              So it’s better to allocate them as capital improvements?

Brandon:      Well, not necessarily. So, the 2013 tangible property regulations. When you step through them, it’s going to tell you relatively clearly how to treat expenditures. So you have a 24 unit property, let’s say that you replace five HVAC units. When you replace five HVAC units. You’re probably going to pay $60,000 in materials and labor. Maybe a little bit more, maybe that’s a little bit high. That’s probably a little bit high. You’re probably going to be like 45, something around there. So $45,000, that’s your expenditure. Five HVAC units. A lot of CPA’s will say $45,000 is a lot of money and this was an improvement to the property. So we are going to capitalize this $45,000 and we are going to depreciate it over 27 1/2 years. And those CPA’s are likely and correct. When you look at the 2013 tangible property regulations, there’s a lot of tests, but one of the tests that you have to step through is called the Betterment Adaption Restoration tests, the BAR tests, and they focus on materiality.

                        So there’s a material improvement. What is the threshold for materiality? And there’s no bright line test. The threshold that they use in examples is 30%. So if I replace five out of 24, that is, what is that? 20% of my HVAC system, probably a little less. Once I factor in all the duct work and everything else that feeds that HVAC system. So if I’m replacing 20% of my system, that’s not a material improvement. Therefore under the 2013 tangible property regulations, I can very likely write that $45,000 expenditure off as a repair. I don’t necessarily always want to do that because I have to watch my NOI. Like if I’m going to go and sell the property, I want to boost my NOI. So putting it on the balance sheet at that point makes a lot more sense. But if I’m looking for tax efficiency, writing it off as a repair is going to make more sense because I get the expense today, meaning that I get my tax reduction today, meaning that my tax reduction now gets the time value of money of growing over time.

                        Also, when I sell the property at some later point, I have to pay what’s called Section 1250, Section 1245 recapture, depreciation recapture. I get taxed on all of the depreciation that I’ve ever taken or could have taken when I sell that property. So by writing these HVAC units off today as a repair, I avoid that future tax whenever I liquidate.

Mark:              Sure. That makes sense. I think a lot of investors are also, investing passively with syndicators or other deal sponsors and taxation is such an important part of the investment. What kind of questions do you think passive investors should ask of a deal sponsor before they jump on board?

Brandon:      The most important one, which is not a tax question, is what happens if you die. That one needs to be asked every single time, if you die, Mr. Sponsor, what is going to happen at that point? You don’t want to end up with a property that just tanks as a result. But in terms of tax questions. The first thing that I always encourage people to ask is just what sort of tax mitigation strategies, if any, are you going to be applying to the deal?

 Are we going to be cost sagging? Are we going to be claiming a hundred percent bonus? Are we going to be electing out of the business interest limitations? Tell me what the plan is from a tax perspective and what you will typically find is the sponsors that have it put really well together. Can either tell you right then and there, or they will pull their CPA on. Who’s been helping them pretty closely. And the CPA will be able to jump right into the conversation. The sponsors they take a couple of weeks to get back to you.

                        And they give you like high level, not really direct answers. Those are the folks that might not have a plan might not know, and it doesn’t make them a bad sponsor. It just means that if you’re going to invest in this and you’re hoping for any sort of tax mitigation to happen, you’re probably not going to be happy with the result.

Mark:              That’s great. So you have gotten into, you’re a partner on Naked Capital. Can you tell me a little bit about that? Do you guys do syndications?

Brandon:      Yeah. Yeah. So what we do is we work with syndicates. We consult with some syndicates on like tax and legal and planning stuff. And then we raise capital at the same time and help the syndicates out with investor relations and that type of thing. So we’ve been in a couple of deals, a couple multifamily deals, a couple of mobile home parks, but our primary asset class is a B-class multifamily. Our idea is, in down markets people move out of class-A and into class-B and in up markets people move out of class C and into class B. So we always felt that class B is a pretty safe place to be from a multifamily investment perspective.

Mark:              I agree. I experienced that in 2008. I had a class-E property and weather the storm very well. What’s the biggest mistake or the most common mistake most investors make from a tax perspective?

Brandon:      Well, the area that they mess up the most is real estate professional status. And like, I was just talking about the 2013 tangible property regulations.

Mark:              Sure.

Brandon:      The mistake that the investors make is not knowing how to gut check their advisors and not knowing when it’s time to upgrade. The majority of tax returns that I review on sales calls have errors in them. I think the statistic is around 86%. When you look at who prepared the tax returns, it’s typically your cheaper CPA’s, they’re charging 500 to $800 for a tax return. And there’s nothing wrong with that, except for the fact that they’re just not niche experts and you don’t need niche experts all the time. Like we get 30% of the people that fill out our web forms to try to become our clients.

                        I tell them, you don’t need us right now. You’ve got real estate, but you’re not at the level where you really need us. It’s just understanding at what point do you switch? And I think that you switch when you go to your tax advisor and you’re asking them questions about the 2013 tangible property regulations. You’re asking them questions about real estate professional status, cost segregation, a hundred percent bonus. And they kind of look at you with a blank stare and say, I’ll get back to you. That’s probably when you should start to think about switching.

Mark:              Yes. Going into, like you say, a niche CPA that exclusively works on real estate accounting because yeah, I think the scope of the accounting universe is so complex and I’ve found that some CPA’s that I thought would just have a great blanket view and understanding of everything. You start to bump up against their limitations. When I start asking them about specific, maybe a little more arcane, real estate related opportunities or regulations.

Brandon:      And it doesn’t make them bad CPA’s, they don’t have enough repetitions. And that’s what it really comes down to at the end of the day. All professional athletes. They’re all freakish. The result is freakish. But if you look at their life at the kind of the core piece of their success is just the repetitions. They’ve gotten so many more repetitions than anybody else.

Mark:              Right.

Brandon:      It’s the same thing with any sort of professional, like at our firm, we only do real estate. And as a result, we get thousands of repetitions a month of just real estate stuff. We’ve seen lots of crazy stuff that other CPA’s probably won’t see in their lifetime because this is all we do. But if you ask me about mergers and acquisitions, I’m not going to be able to help you. So you have to be able to pick a CPA that knows their stuff with whatever venture you’re going down at that time.

Mark:              There’s a cool Bruce Lee quote, that he says, I’m not afraid of a man who has practiced a thousand different kicks. I’m afraid of a man who’s practiced one kick a thousand times.

Brandon:      Exactly, exactly.

Mark:              Where do you see the best opportunity in real estate investing right now, either due to tax advantages or simply due to the unique economic situation we’re in?

Brandon:      Probably you’re going to see the best opportunity to come. Q3, Q4 2020 in short term rentals, I think multifamily is going to be fine. A lot of our clients have been collecting rents. Totally fine. You might see some opportunity in commercial, but short term rentals are going to offer a unique tax advantage that all of the real estate will not offer. And that is the whole Section 469 of the tax code that I was explaining earlier, where you have to qualify as a real estate professional to make it non passive.

                        Well, short term rentals are excluded from the definition of a rental activity per Section 469, meaning that in order to claim my losses from a short term rental activity, as non-passive, I do not have to qualify as a real estate professional. I just have to materially participate in the activity, meaning we can all work full time jobs and I can buy short term rentals, cost, segregate them and claim the losses as non-passive and offset my W-2 income. It’s not something that I can do with long-term rentals. I have to qualify as a real estate professional first.

Mark:              Well that sounds like a nice opportunity.

Brandon:      It is. And a lot of CPA’s don’t report it right. A lot of our tax returns, I don’t even think we’re a hundred percent accurate going into the end of 2019. And it really wasn’t until the cares act that we started producing a white paper on this. And we, we recognized, Oh, short term rentals fall outside of the scope of Section 469. And as a result, you just have to materially participate.

Mark:              I have one short term rental. It’s up on a Lake in Big Bear Lake in California. And I just have it for my own enjoyment, but we also rent it out and I’ve never seen it get booked more solidly. I can’t get up there because it’s fully booked and everybody’s cooped up and dying to get out and out of their quarantine.

Brandon:      So you might have the exact opportunity that I’m talking about other than here. Also invested heavily elsewhere, so it might not matter.

Mark:              What’s a trait you possess that serves you best both in real estate and in life?

Brandon:      I’m a very logical thinker. Much to the chagrin of my wife. I am not a very emotional person, which I think allows me to kind of elevate myself. There are pros and cons. On the pro side. It allows me to elevate myself above the fray and really look at things with a fine tooth comb, understand how everything works and make good logical decisions that have so far paid off pretty well. But obviously on the con side, you’ve got the empathy piece and my wife and many of my employees will tell you. Yeah. Brandon probably is a little bit more empathetic at times.

Mark:              That sounds familiar. I think I’m a little bit the same way, but yeah, I feel like it serves me as an investor is I can be very dispassionate and just play everything as a chess game. And you see in the real estate world, especially new comers trying to get in, there’s so much emotion tied to whether they’re going to buy this deal or not. And often it has nothing to do with the deal is good. It’s they have to get in and they have to keep their momentum or do it for an emotional reason, which seems crazy.

Brandon:      Yeah, exactly. You see it in business too. You see a lot of business owners making emotional decisions. We launched a new podcast called The Staying Power Podcast and we’re interviewing CPA firm owners and law firm owners, professionals, service providers, and just asking them about their pain points and what they struggle with. And a lot of these folks are like, Aw, people. I can’t fire people. I keep them on my team because they mean so much to me and just like, Hey man, look at the end of the day you are bill bell a check. He’s not going to keep C-player on his team for very long. And yeah. So it’s the same thing. Real estate, you have to think with logic, you have to put emotions aside and same thing with business. You have to be able to really do what’s best for the business. And sometimes that means making tough decisions.

Mark:              Absolutely. You’ve had a pretty good career and you’ve moved into this space that you’re in and you’re doing multiple things, but looking back. If you were to pass some advice onto your 20 year old self, what would it be?

Brandon:      Hmm, that’s a good question. Gosh, I don’t know, man. ‘Cause I think that I don’t know that I would do anything differently. You know what, here’s what I do. If I were to pass advice back to my 20 year old self, I would say, get a job where you’re managing people as quickly as you possibly can and learn on somebody else’s dime. Managing people has cost me a lot of money.

Mark:              Sure.

Brandon:      Wasted a lot of money, as I’ve tried to figure out how do you balance being a great leader, a respectful boss, but also somebody that demands results and finding that balance has been incredibly painful. Also enjoyable for me. But I guess if I had to go back in time and say, you need to do this one thing aside from invest in Bitcoin, it’s going to be get management, training and experience on somebody else’s dime as quickly as possible.

Mark:              That’s a great answer because often people of high intellect, they know how to do it, but managing people is a whole different animal and it’s not easy to master.

Brandon:      It really is. And one of the things that has been my single biggest pain point with scaling the CPA firm, we are growing much faster than any other CPA firm that I know. And you spend a lot of time on technology, on marketing, on branding to make sure that the engine works. But then for the longest time, I neglected understanding that my people were literally, everybody always says it and I knew it, but I didn’t really pay attention to it. Your people are your biggest assets, especially in a service business.

                        The service business is live and dies with their people. And it took me a long time to figure out how to really hold people accountable to results. There are all sorts of KPI’s out there and all sorts of things that you can do, but it took me until the end of 2019 to really understand this is how we do it. This is how we become an accountable CPA firm. This is how I make sure that, hey, at the end of the day, Mr. Employee; you can do whatever you want. But if you don’t do these things, you’re not going to get a good score. And if you don’t get a good score, you’re not going to work here. Being able to have the confidence to lay that out and say, this is how you’re going to do it. And then stick to it. It’s been, been a real game changer for us.

Mark:              Yeah. You thought you didn’t have an answer. That’s a great answer. I love it.

Brandon:      Give me a second to think about it.

Mark:              So you ready to do our question round?

Brandon:      Yeah, definitely.





Parker Heights

Parker Heights

East Riverside SubmarketLocated just minutes from the Austin Central Business District, Oracle's new campus, and the...

From Sci-Fi Author to Apartment Syndicator with Anthony Vicino

From Sci-Fi Author to Apartment Syndicator with Anthony Vicino

Anthony Vicino is a serial entrepreneur who’s built multiple successful companies from the ground up. He’s also an author and investor who managed a personal portfolio of multifamily assets before launching Invictus Capital with his partner Dan Kreuger in 2019, jumping into apartment syndication.

For Anthony, finding success in life has been about creating systems around his daily routines that maximize his likelihood of hyper-focusing on tasks that are really important, rather than really meaningless. 

Anthony’s views on actionable goals, mindset, and turning a perceived weakness into a strength are lessons many of us need a refresher in.

What You’ll Learn In Today’s Episode:

  • Don’t play to lose just for the experience. The number one rule is to never lose money, and starting off with a loss can set you back years. Take action, but be patient and picky. Starting off with a win and build some momentum.

  • Have action-based goals, rather than focusing on results. It’s better to fall in love with the process, which is something you have control over, than the product.

  • Strategy is knowing what to do when there is nothing to do. Tactics is knowing what to do when there is something to do. Right now, we are in a very strategic time, and the perfect chance to position yourself to benefit from the deals to come.

  • Keep things simple, real estate investing doesn’t have to be overwhelming. It can be complex in moments, but the overall concepts are easy to grasp. 

Ideas Worth Sharing:

“Right now we’re in a very strategic time which is, maneuver your pieces to the best place possible so when opportunities do present, you can take advantage of those tactics.” – Anthony Vicino

“Mindset is the lens through which we see the world.” – Anthony Vicino

“Finding success in life has been about creating systems around my daily routine that I can maximize my likelihood of hyper-focusing on tasks that are really important, rather than really meaningless.” – Anthony Vicino

Resources In Today’s Episode:

Books Mentioned In Today’s Podcast

  • Meditations by Marcus Aurelius (Gregory Hays Version)


Enjoy the show? Use the Links Below to Subscribe:




Mark:              He’s also an author and investor who managed a personal portfolio of multifamily assets before launching Invictus Capital with his partner, Dan Krueger in 2019, jumping into apartment syndication. I’d like to welcome Anthony Vicino.

Anthony:       Hey Mark. Thanks for having me, man.

Mark:              Of course. Thanks for joining us. The first thing I learned about you is that you were a writer and not just an investor who cranked out a book to add it to your resume. You’ve been writing for a long time and you’re prolific. What do you write?

Anthony:       I started in science fiction and fantasy about 2013 or so. And did that full time for a while and then learned some interesting things about myself through that process, which is I don’t do well when the only person I’m accountable to is myself and sitting in a room all day and writing and kind of fantasizing about robots and lasers and things like that.

                        I branched out, got into some business opportunities with some friends and started working on building up those operations and discovered that I really, really like building businesses like building systems and really thinking about how to build systems at scale.

Mark:              You and I were talking before we started about sitting in a room by yourself for a couple of weeks working on a writing deadline. My experience is when I go down that hole, I don’t talk for a week or two and I come away try to re-enter the real world. And I got mush mouth and I have to re-learn how to speak.

Anthony:       Yeah, it is the same for me where I would go the entire day, not speaking to a single other human. And then I would see my girlfriend in the evening. She would be like; you’re a little off right now. Like your conversation skills aren’t there. I’m like; I’m not sure how to be in society at the moment. I’m sorry.

Mark:              Coming out of a cave.

Anthony:       Yep.

Mark:              And I do like shifting to the opposite side of your brain to do business and investing in the numbers. That’s all fun and stimulating and it’s a break it’s hard to try to be creative all the time.

Anthony:       It is. It definitely is. And when it’s your career, it’s become slightly different than just, I don’t know like when your passion becomes your job, if you’re not careful, it can rob a little bit of the passion if you don’t find the balance.

Mark:              Yeah. That was one of the things that I loved about real estate as a break from writing is that it’s concrete. ‘Cause you’re just in the world of abstract ideas and you’re inside your own head all the time as a writer, but real estate is real. You can touch it, feel it it’s concrete, palpable,

Anthony:       And it’s simple. Once you kind of understand the fundamentals of it, it’s fairly straight forward. Whereas contrasting that with trying to tell a creative story, that’s opening a whole can of worms. And so you can really get lost in the well of your subconscious trying to pull out stories and make them fit together and make sense. Whereas I really liked how concrete real estate is where it’s like, okay, if we do this, that if we do A and then follow that with B, we can expect the result of C

Mark:              And oh, over complicate real estate sometimes like when you’re listening to certain pundits or something, they try to make it more esoteric than it actually is. I found entering the real estate investing world that it’s very simple and I liked how simple it was. And I think that’s a virtue of writing too, is you got to keep things pretty simple in moments you can get complex, but the basics of it are fairly straightforward.

Anthony:       I definitely agree with the notion that there’s a movement, not just within real estate, but I would say within financial services in general, that push towards complexity. And I think, you know, so my partner, Dan and I, we have a podcast that’s called Multifamily Investing Made Simple. It’s all about taking the complexity out of real estate and showing people, hey, this is actually really simple and you can do it too. Because what ends up happening in those financial services is, or like the gurus and the pundits kind of dressing things up as being more complicated than they really are. Then it makes you go, well, maybe I don’t have the time and the energy to learn this as deeply as I should. And so I’ll pass and abdicate the responsibility to this guru.

Mark:              As somebody who knows what they’re doing. Yeah.

Anthony:       Exactly. Because it feels so overwhelming. And when we’re overwhelmed, we kind of take a step back and look for the expert and just say, oh, you take care of it. And I think that’s the wrong approach. I think definitely if you want to be passive, that’s great. And you should find some awesome operators to work with. But I think you have to know enough about the business to understand when you have a good deal when you have good operators or when you’re not treading too close to that line of going off the rails. So I think education is super key there, and it’s an easy education by and large.

Mark:              I’ve never thought of this, but I almost think it’s as hard to be a passive investor. At least in my experience, I just jumped in on my first investment property that I bought and figured it out as I went along. But if you’re investing with a syndicator who you don’t know, you really need to know how they’re underwriting the deal. And you need to probe beyond the surface and understand because they’ve got to pay themselves, they’ve got fees that make an average deal that you could buy yourself. It’s more challenging to make a syndication work. And so you’ve got to be able to discern how that operator is underwriting and are they being too aggressive or unrealistic on their projections?

Anthony:       Absolutely. Some of the most sophisticated real estate investors I know are passive and they have a deep knowledge and they know what they’re doing and they treat it like it’s a very serious business because it is which I think when people hear passive investor, passive income, the first thing that maybe comes to mind is, Oh, this is easy. And there’s not a lot of work involved, which isn’t really true. There is a lot of work and it’s usually on the front end for the passive investors, which is understanding how deals work, finding the operators and vetting those operators.

And once you have a good relationship, if you have a great relationship with an operator that you’ve done 10 deals with and they bring you another deal. Yeah. Maybe the amount of work that you’re putting into vetting that particular deal is going to be less than it was in the beginning. But that’s only because there was a lot of work that went up to getting that level of competence and trust.

Mark:              I think you’re absolutely right. So you started out writing. How did you meander into real estate?

Anthony:       My very first real estate experience was in college. I had a roommate that I lived with him and his dad were buying and flipping single family houses. And I was living with them and doing a little bit of work around the house to kind of live for cheap.

Mark:              And where was this?

Anthony:       This would have been, we did a one flip in Sioux Falls, South Dakota, and then one in Minneapolis, Minnesota. And all I remember from that time was I hate construction. I’m really bad at it. Like I can swing a hammer, but I can’t hit the nail. So from very beginning, I was like, I don’t like this. And so it kind of turned me off to real estate. Didn’t really even think about it as a viable track. And so about 2014, I was living in Oakland, California, and I met a guy who was a good friend at the time and he was buying up little triplexes and quads in that area. And he’s like, Hey, why don’t you just put some money? We go into this together, I’ll operate it. And I was like, yeah, that sounds great.

                        And so that was my first passive experience. And to this day, don’t do anything with those properties. And then fast forward to 2017, I’m living back in Minneapolis. And I don’t remember exactly what the impetus was that got me thinking about real estate. I think it was driving along the freeway one day and looking up at the city skyline at the skyscrapers, at least this is a story that I tell people and seeing the skyscrapers and thinking like, what would it take to acquire a skyscraper? And at that point, I had no context for what that even look like, could an individual even do that, but it seemed like a really intriguing question to try and answer.

                        And so I like to take these big audacious goals and then try to work backwards from them and say, how do we bring that to where I currently am as a complete idiot who knows nothing about real estate, what would be the very first step that I would need to take? And that was okay, go and educate yourself, go read some books, go listen to podcasts, go to some networking events and start to learn what it is that you don’t even know. So you can start asking the right questions. And so I did that for about a year. It got to the point where I was like, okay, now I understand the trajectory that I want to follow to get there.

                        Now it’s time to start executing. And I did that by just going and house hacking a triplex and did an FHA loan put like $7,000 into it. And right now, actually today, it went on the market. And so that property that was a really interesting experience because I always knew that I wanted to scale into the larger multifamily, but I wanted to start small and prove out the concepts and learn the systems, how to work with tenants, how to work with the city and then how to operate a functional business. Because that’s really at the end of the day, what these little properties are, they’re little mini businesses.

Mark:              Right.

Anthony:       And so I wanted to go and learn how to do that. Well, in the process, we experienced some really insane appreciation on this property within a very short period of time. So like within nine months it had appreciated 125,000. We refinanced it and pulled some money out. And you might hear that and think, oh, that’s pretty good for nine months. But what it did for me was reinforced the fact that I had no control or say over how that property was valued, because it was just off a comparables.

                        It just happened to be that some other houses in the area sold for more. And that generally the area got more desirable, but at the end of the day, it wasn’t based off of my work. I didn’t improve the property overly such. I didn’t run it really efficiently. And so I was like, okay, well, I don’t want to be in these small multi-families because there’s this aspect of lack and control and being rewarded for the merit of the work that I’m putting in. And so that was the point where I was like, okay, now we need to go a little bit larger.

                        And so I started to go to more networking events, met up with my eventual partner, Dan Krueger, we formed Invictus Capital and he had maybe 35 units under management at that point. So he was about two steps, three steps further along the path than I was which I think is maybe the best kind of partner to have or best kind of mentor. And so then we joined up late last year and we syndicated our first apartment complex and closed on that this January.

Mark:              So you started with a couple smaller deals, and then you recently jumped into syndication. What was your first syndication?

Anthony:       So that one’s in St. Paul. Right now.

Mark:              St. Paul?

Anthony:       Yeah. A lot of our properties are in St. Paul just happens to be where the numbers are penciling out at the moment. And that was a 32 unit in an area that we had a couple other properties in already. We handle our own property management in house.

Mark:              You do? Okay.

Anthony:       So it’s really nice to be able to have all these properties within close proximity so that our maintenance crew and our leasing agent, they can just, stay within a particular radius.

Mark:              Do you divide and conquer does one of the two of you handle property management and the other one do real estate?

Anthony:       At the moment, Dan is handling the property management and he’s overseeing that crew.

Mark:              Okay. And how did you guys come up with the money?

Anthony:       Yep. So we syndicated that we put in. I think we raised about a million dollars. We put it in 200 of our own and then raised the other 800. And that was, a good first learning opportunity for us because it was achievable. It was a nice first step. It wasn’t too ambitious, like a $10 million raise.

Mark:              Sure.

Anthony:       Or anything crazy like that. It was something we were like, okay, we’re reasonably confident we can do this. We can bring in some of our closest investors who will maybe give us a little bit of slack as we’re learning the ropes here because we want to be as forthright with them and saying, hey, this is our first indication. We’re going to make some mistakes here, but here’s how we’re going to fix that when we do make those mistakes. And here’s how we’re going to operate generally moving forward.

Mark:              That’s great. So you bought it a very interesting time in January. How are you fairing? How are things going? You went right into, you know, Armageddon.

Anthony:       Yeah. It was right into the jaws of the beast. Can’t predict that, but actually things have been working out really well. So the first couple months we were ticking along on the unit renovations cranking through, and we were planning on like, we don’t underwrite for refinance because we like to be as conservative as possible. But we were planning on a refinance in year two or three; we were actually ticking through the unit upgrades so quickly. We’re like, okay, actually, we’re going to be finished with this by June, July way ahead of schedule.

So we might be able to accelerate this timeline and then, you know, the world kind of ended. And that was fine. ‘Cause we actually raised all the CapEx funds beforehand. So we have that sitting in reserves we’re well capitalized and prepared to like sit on our hands and do nothing. I think Warren Buffet has a saying, he’s like, “The hardest thing to do is sitting on your hands and doing nothing.”

Mark:              This has been a strange, obviously. The understatement of the century. A strange economic shift it’s almost like, one of those supersonic planes that just zoom by overhead. And then you knew something that happened and you just wait for the after effects of it, the boom and the rumble that something very shocking just happened to our whole economy. And everyone just seems to be waiting to see, alright, well.

Anthony:       Are we okay?

Mark:              Are we okay? Or is the ground starts shaking?

Anthony:       It is such a strange situation. You can’t really predict we don’t have any case studies to kind of like point to and say like, last time this happened; this is how it affected everything. And so we had another deal that was just about to go under contract in March for a 92 unit portfolio here in the cities and COVID happened. And then everybody pumped the brakes simultaneously, both us and the seller. We said, let’s kind of wait and see what happens here, which was the right choice because the bank started to tighten up. The requirements started getting quite a bit more conservative.

                        And so the deal wouldn’t have made much sense at those rates. And so it was good to kind of pump the brakes, see what happens now that deals kind of come back onto our table in the last week or so as the banks are starting to maybe get their feet underneath them and feel maybe a little bit more confident moving forward, but there’s just still so much gray area. Anybody that has a strong opinion one way or the other about how any of this plays out.

Mark:              Is most likely wrong.

Anthony:       Most likely wrong. But it’s like Darwin, Darwin’s falsely attributed with a quote, which is something like, “It’s not the strong that survive. It’s not the fittest that survive. It’s the species that’s most able to adapt.

Mark:              Adapt.

Anthony:       And I think that’s pertinent in this situation and business in general is like, you have to be able to pivot and you have to be able to adapt to whatever comes down the pipeline.

Mark:              Now, if you’re enjoying the show, please do us an easy favor and hit the subscribe button. And if you liked the show, please give us a five star review. As a listener I always wondered why podcast hosts are always begging me to subscribe and rate them. Well, now that I’m on the other side, I see why it allows other listeners to find you.

So here I go. If you liked the show, please subscribe and give us a five star review. I like doing it. And more importantly, in an era of unprecedented hype over real estate investing, my goal is to be a truth teller. Real estate is not as easy as it’s made out to be, but you can do it. If you can get past the hype and get to the truth. My aim is for this show to help with that. Anyway, let’s get back to the show.

Mark:              Similarly, we were in escrow on a similar size building, a 90 unit, right as COVID hit. And yeah, like you’re describing, we had a loan lined up and then none of the lenders knew how to react to this. And a lot of them just kind of froze up and they wanted principal and interest for six months and then it became 12 months. And then some lenders just for canceling loans because they were fearful of the future. So we backed out similar to you. And we parted ways with the seller and thinking that we’ll come back to this if things settle down a bit and now we’re doing the same thing that you’re doing.

Anthony:       It’s super hard because I think if you’re in real estate investing, you probably have a little bit of an entrepreneurial streak. And by and large destiny favors the bold where having a bias to action can be really advantageous. One of the hardest things to do is just to take a step back and do nothing.

Mark:              The whole investment community is having that struggle right now is how to restrain yourself. And should you restrain yourself? I’ve told this story on a couple occasions, but when I went through 2008, the mistake that I made was when I saw prices slide by 15% in a market like LA that had just been going up charging upwards for as long as I could remember, I was elated. And I thought now is the time to jump in. And I jumped in.

Anthony:       And you caught the falling knife.

Mark:              I caught the falling knife. Yeah. They called it, I think a dead cat bounce is what economists call this phenomenon that happens in every recession is that there’s a bunch of people who are well capitalized. They’re waiting for an adjustment. And when it goes down by like 15%, they jump in and that causes the trends to go back upwards. And then that causes a whole other group of investors to see that it’s going up and they think a recession is over and they jump in, but the economy hasn’t worked through all its problems and it’s catching that falling knife, like you’re saying.

Anthony:       Humans have a bias towards optimism. It’s going to be okay.

Mark:              Especially investors and entrepreneurs are optimistic.

Anthony:       Definitely. Definitely I think as humans, we don’t think that bad times are going to last, like we always think the future is going to be a little bit better than it currently is. And I think that’s the best way to live life in general.

Mark:              I always think like at times, like these it’s really important to take away all emotion. And I think I hear emotion in every investor. Most of the investors I’ve talked to, especially newer ones, kind of justifying that now is the time to get in because if they don’t get in now they’ll lose their momentum in my thought, when I hear that as well, that’s emotion and emotion is not your friend. So you got to like, yeah. Reign yourself to step back from this and analyze it.

Anthony:       We had a conversation the other day with a potential passive investor who reached out and was expressing, I think, I missed out on 2008 and I don’t want to miss it again. And I am, well-capitalized I’m ready to move right now. I don’t want to miss out on this opportunity like, Hey, just pump the brakes. It’s not like a once in a lifetime, if 2008, any indication it’s once every decade or so. And so it’s not going to be the last time there’s going to be an opportunity. And this is going to stretch a little bit longer than we think it’s going to.

                        And so my partner, Dan, he’s a bit more of a machine and he looks at investing from a very pragmatic numbers basis. And it’s like; you have to remove the emotion. You have to have your rules of engagement that you’ve set up before you ideally got into an investment, which says like, these are my parameters. These are the situations under which I would sell or which I would keep. But also recognizing that right now that playbook’s maybe been thrown out the window a little bit. So you have to just kind of pivot and try to look at it as objectively as possible.

Mark:              The last five or six years, it seemed to be the sort of ethic that investors, especially newer investors embraced was the idea of like go big or go home, like 10 X, like go scale up as fast as you can. And I always thought like, no, it’s not a macho thing. It’s a chess game. You’ve got to not be emotional. You know, it’s not a testosterone driven practice investing. It’s calculated. You got to be you’re playing chess and trying to read that market

Anthony:       In chess there’s strategy. And there’s tactics. Anatoly Karpov was a former world champion back in the eighties and nineties, one of the best chess players of all time. And when people asked him like, what’s the difference between strategy and tactics? Because he was well renowned as a very strategic player. Whereas his primary rival at the time was Gary Kasparov, who was a very tactical player. And his response was, “Being strategic is knowing what to do when there is nothing to do. And tactics is knowing what to do when there is something to do.” Like how to take advantage of the opportunity. But right now we’re in a very strategic time, which is maneuver your pieces to the best place possible so that when opportunities do present, you can take advantage of those tactics. And so again, it’s hard to sit on your hands and do nothing, but right now the situation kind of calls for, take a step back and look at the long-term.

Mark:              That’s a great distinction. I’ve never heard that. Yeah. Keep thinking of that truth that during recessions there’s massive shifts of wealth. And basically what that means is that, some people make a fortune during a recession and other people lose a fortune. And so there’s a massive exchange of, who are the wealthy by who plays it accurately plays it correctly.

Anthony:       Yeah. And I think if you keep that long-term horizon and I’m by nature, fairly conservative. And I subscribed to the school of investing where rule number one is don’t lose money. And rule number two is don’t forget rule number one, principle preservation is everything. Because if you can make it through an investing career, never having lost your principal, like you’re probably doing pretty well. So you want to make sure that when you are taking risks and opportunities, that it’s like a risk one to make five scenarios, but you’re not overstepping your bounds at all.

Mark:              Right. That’s another pet peeve of mine. I don’t want to just be a cranky person. I’ll go for it. But the notion that, just jump into real estate, even if it goes terribly, the education will have been worth it. And I don’t know, just to be a smart ass. No, I don’t think the education is going to be worth it. Yeah. This is investing. Listen to your rule. Rule number one; don’t lose money because if you lose, if you start off with a loss, you’re going to spend 10 years trying to recover that loss. So start off with a win.

Anthony:       Definitely. And I would say so like new investors, how you make your money really matters. And that’s kind of like a multifaceted statement and that, one don’t make money by doing shady things, but then, two making your money and really stressful ways where you’re losing huge chunks of money and hoping for the black Swan event like Nassim Taleb, and then you make millions, that’s an ulcer, inducing, stressful place to live.

And you have to be kind of a freak of human nature to be able to function in that way. And for me, that’s not how I want to make my money. I don’t want to live my life and stress and like gambling big and winning big. I want to win consistently and measurably day after day. And I don’t need to get rich quickly. Like it’s a slow process. And if you can find enjoyment in that process then even the better

Mark:              It’s just a practice; it’s devotion, something you do every day.

Anthony:       Yeah.

Mark:              And don’t necessarily watch for the results. Just the practice itself is the reason to do it.

Anthony:       Yeah. And this is something that we talk about a lot with in our businesses is focus on the process, not the outcome because the outcome you only ever get to measure at the end and it’s either it’s binary. You either accomplished it or you didn’t, it’s a one off thing, but in the moment that’s nothing to re-adjust your sales based off of. It’s just, did we do it or did we not do it? So if you want to lose weight, that’s saying, I want to lose 10 pounds. Isn’t a great goal. Because at the end of the year, let’s say you got to weigh yourself.

You either did it, or you didn’t. But if you focus on the process and say like, my goal is every day to go run for 10 minutes. Well, that’s something that you can every single day go in and get a win, and so you can get 365 wins and maybe you don’t hit that goal of the weight at the end, but that’s okay because you’re focused on that process. And you know, if you do those lead measures long enough, they’re going to lead you to the desired location.

Mark:              I heard a great commentary interview about that principle on a podcast called Finding Mastery with Michael Gervais. I don’t know. It’s not huge, but it’s a great podcast. If anybody wants to listen to it. So Michael Gervais is the psychologist for the Seattle Seahawks.

Anthony:       Sounds good.

Mark:              He had on the coach of the Seattle Seahawks. He’s not currently, but he was back maybe 10 years ago. And he said that his number one thing for his team, his players was to focus on the process, not the outcome. And he said, the reason was if they were focused on outcomes and they had a loss, what he found in his career is that that loss would rattle them for like the next two or three games. And when they shifted their total focus to just the process and forget the outcome, it becomes do each play correctly. And who cares if we won or who cares if we lost and their team improved. And I think they went to a Super Bowl with that philosophy.

Anthony:       This is something that Charlie Munger, Warren Buffett’s partner talks about a lot, which is, the universe is a really complex place and you can’t predict what’s going to happen in a really complicated system like we live in. And so you might make all the right decisions and have the best judgment in the world, but the cookie might just crumble the other way and you might lose.

And so measuring based off of that outcome of did we win or did we lose is actually the wrong thing because you might win based entirely off of luck. The other team might just have played poorly. So really the meaningful question there is, was our decision making process sound, did we play well? Did we fundamentally play as well as we could have? And then regardless of whether or not you won or you lost, you’ve controlled the thing that’s within your control and that’s your performance.

Mark:              That’s an amazing illustration of that. So back to your syndication that was like a workforce housing, did you say?

Anthony:       Yeah, so that was, I would say a class-C property in a class-B neighborhood. I would say it’s the ugly pig on the street. It’s the last little bit on that street. That’s holding that neighborhood back from being really, really great. And that building was in really good shape. It’s just more a rough tenant base. So a lot of the work that we’ve had to do is just going in there and cycling out a lot of those troublemakers, then doing the unit upgrades and bringing the units up to market standard, and then just adding a higher level of quality overall to that neighborhood.

Mark:              Sure. So you did a value add with that.

Anthony:       Yep. And that’s everything that we look for is how can we add value to this? And we try to go in to these properties and we do, I’d say light value, add we’re not looking for really heavy repositions. We don’t want to re-gut the plumbing and electrical. Like we don’t want to spend money on invisible fixes that you don’t get credit for.

Mark:              Yeah. Similar to me, I try to do the light renovations and become more fixated on not just to increase the income, but even more importantly, the expenses focus on the expenses and how to reduce them. The recent podcast guest was talking about that. And when you reduce expenses that are pure profit. When you increase the income that’s taxable. And so you’re only getting part of that. Your best value add is reducing expenses.

Anthony:       That’s the single best piece of business advice I ever got. And this was before I ever even got into real estate, because on the light manufacturing side, there are so many expenses. And if you can reduce those expenses and your margins just increase through the roof, and it makes a lot of sense when somebody finally says it to you, but until you actively think about it, like every dollar earned, you’re earning on a margin.

So if you’re operating a business on a 50% margin, let’s say then for every dollar you earn, you only get to keep 50 cents, but every dollar saved you get that full dollar. And so you really got to be tactical and go in there and look surgically at the expenses and say, where can we cut these expenses, not cut corners because you cut enough corners and you get buried under an avalanche of sawdust, but you go in there and you say, where can we improve efficiencies and build systems that scale ultimately, so that we can run this as a well tuned engine.

Mark:              It’s almost like there’s a bias, a natural bias towards increasing the income. It’s almost sexier. It’s more glamorous.

Anthony:       It’s sexy. Yeah.

Mark:              To raise the income from nothing instead of like, Oh, I got to reduce our utility bills.

Anthony:       And it’s the same in every aspect of our life. If you think about your general income people who are like, Oh, I made a million dollars last year. Like that sounds really good. So you ask them like, how much of that did you keep? And they’re like, Oh, I spent 950. So I kept 50,000. You’re like, that’s not so good, but its way less sexy to be like, I made a hundred thousand last year, but I kept 80 of it. It was like, well, one of those is demonstrably better, but the other is way sexier.

Mark:              So that kind of wrap up your syndication deal, which is exciting. And it’s kind of interesting that you jumped in when you jumped in, what are your thoughts on the market? What are you planning to do?

Anthony:       I think there’s going to be a lot of opportunities. I think everybody realizes that whenever there’s a lot of turmoil and things change from the status quo, there’s always a lot of opportunity. And so it’s just about being well, poised and well positioned to take advantage of those opportunities. But then I think the real important thing is to be able to recognize the opportunity when it does present itself. Because to your point back in 2008, when you bought, after the 15% drop, you saw you were able to take advantage of it, but you didn’t quite have the full picture. Right. And if you had that full picture, you might’ve been able to wait until it dropped even further. Actually I don’t remember. I wasn’t involved in real estate back in 2008. So I don’t know like, did it drop further for you?

Mark:              It did. It went down; I think a total of about 25%, maybe 30%. And then it kind of snapped back and we ultimately did, well, I had maybe six investors with me, but we waited until 2015 and did really well, at least by comparison to the stock market. But yeah, I got in too soon and if I had to do it again, I would be more patient, you know, it seems like, yeah, we haven’t seen the end of this thing yet. And it’s just trying to understand it. A lot of people are trying to understand it.

Anthony:       Yes.

Mark:              Now is the time to learn how to read the economy and understand how recessions work, how they play out, what triggers the next thing to fall.

Anthony:       Definitely. And I would say reading the economy is one of those fundamental skills that can serve you in any business. But in the last, however many years, it hasn’t been a fundamentally necessary skill to have because the markets have been doing really well. And so it didn’t matter.

Mark:              Yeah. We had one economy.

Anthony:       But moving forward, it’s like, well, this is a really actually important skill to have. And so now’s the time to, if you don’t have it to start brushing up and start looking at it because to tell you, like, you think you’ll recognize the opportunity when it presents itself. But by and large, my experience in life has been that we tend to gloss right over the obvious opportunities until it’s too late. And then we see it in hindsight, we go, Oh yeah, I kicked myself because I got in too soon. I should have waited a little bit longer. So for me, its education, stay apprised and starts to let go. Maybe of some of your old firmly held beliefs and strategies and recognize those might not be effective moving forward. Like the man with a hammer sees every problem, like a nail.

Mark:              I feel like we were in a boom market paradigm for the last 10 years. And that’s largely what most new investors, that’s all they know. And now we’ve shifted into a recession paradigm and it’s completely different. And people are going to have to adjust and try to start learning what the rules of that paradigm are.

Anthony:       And I’ll be completely honest. I was getting out of college at the time that 2008 was really happening. And so I didn’t live through it in a personally meaningful way. Like I was a poor college student who went off to rock climb professionally. I traveled the world and live in a tent. So yeah, from 2008 to 2012, like it all kind of flew over my head. Didn’t really matter.

Mark:              Now I want to do a podcast about your rock climbing. That sounds cool.

Anthony:       It was a good time, but you know, like it didn’t really give me a lot of meaningful data points to point to during that period of time. And so like for me, this is all very new to, this is like my first legitimate recession. And so I think one of the things to really keep in mind is if you have been living through this really boom time period, and you’ve never experienced the rough times is to be honest with yourself about that and saying, and just owning that and be like, okay, I don’t know. Let me go and talk to some other people maybe who know more who’ve been there before and like try to take a level of humility towards the monumental seismic shifts that are occurring and recognize, like my perspective might be skewed because I’ve been spoiled in the previous whatever 10 years.

Mark:              It’s a great time to sit back for a moment. You’ve got a front row seat for one of the great learning opportunities of your investing life is to watch recession and see how it plays out.

Anthony:       Yeah, definitely. And, and to that, like again, it goes back to Darwin, just try and adapt and find those opportunities. Don’t be too rigid.

Mark:              Right. Well, great. There’s this something I call multifamily psychotherapy. What’s a trait you possess that has served you best both in real estate and in life.

Anthony:       So I have ADHD, which is attention deficit hyperactivity disorder. And I think everybody’s generally familiar with ADD and ADHD, but they maybe not familiar with how it actually works. And so most people think that I can’t focus or that I don’t have any focus. What actually occurs is I go into hyper-focused states where I can’t control what I’m focused on, but when I’m in that focus state, I’m very, very focused.

                        So if I’m watching the paint dry, I’m really focused on that paint dry. If I’m focused on writing a book, I’m really focused on writing that book. So for me, like finding success in life has been about creating systems around my daily routine that I can maximize my likelihood of hyper focusing on tasks that are really important rather than really meaningless. And as I get older, I get better and better at that because I’m just kind of a creature of habit and routine as much as possible because if I’m too spontaneous, then my flight of attention just kind of goes wherever.

Mark:              Sure. Is there a trait that holds you back that you’d like to work on?

Anthony:       Ooh, that’s a good one. So every couple of years I’d like to ask my closest friends just kind of audit and ask them like, Hey, what do you see as my biggest strengths and my biggest weaknesses. And a couple of years ago, my friend Christina told me that the only person who can convince me to do something is myself. And I think that’s both a good thing and a bad thing in the sense that I’m very self reliant. And I had a lot of confidence in my own judgment, but at the same time, it can get in my way of like really listening and being open to other people’s opinions and allowing that to affect me and allowing it to change, maybe my opinions. So that’s something I’m trying actively to try to disassociate myself with.

Mark:              That’s good. Yeah. You’re like a closed system that debate will go on, but it’ll all go on in your head.

Anthony:       Yeah. And that’s the interesting thing is like a lot of times I will ultimately have my decision swayed but it wasn’t in the moment of the conversation. It’s very much after I’ve had time to really digest it and go through it, which is good. But it’s also bad in the moment to the friends who maybe don’t feel like they’ve been heard in that moment.

Mark:              Sure. How important is mindset to your success?

Anthony:       Mindset is everything. I have a blog called The Hyper Focused Mind that’s 90% about mindset. I think it’s the lens through which we see the world. And if your lens is mucky has some insects kind of smeared across it, then it’s going to affect how you see the world. And so I think, step one is getting your mind crystal clear and right. And pointed in the right direction. Because until you do that, it doesn’t matter what your actions are. They’re going to be misaligned with your deepest sense of purpose. So yeah. Mindsets everything.

Mark:              In tune with your thoughts, start listening to the way your subconscious mind is thinking and what are those thoughts? And if they’re negative, you have to train yourself to change those.

Anthony:       Yeah. Just taking that time, like the observer position, I’m a big fan of meditation these days. I meditate every morning, but it’s less meditation these days as it is just sitting in silence and having a conversation in my mind with myself, just kind of seeing what comes up. And I find just like observing my thoughts and saying, well, why is that thing keep recurring? What do I need to work through there? And if it’s a negative thought, negativity is infectious. It spreads to other people it’s going to spiral in your own mind. So really trying to operate from a position of positivity as much as possible.

Mark:              I agree. Well, great. Well, this has been awesome. Are you ready for our question round?

Anthony:       Oh yeah. I’m super ready.

Mark:              Alright. Let’s jump in.

Anthony:       Let’s do it.

Mark:              And now our question round.

Investing in Coastal Markets, Taking the Path Less Traveled, and a Positive Mindset with Cliff Cheung and Joyce Shangkuan

Investing in Coastal Markets, Taking the Path Less Traveled, and a Positive Mindset with Cliff Cheung and Joyce Shangkuan

Cliff Cheung is a CPA formerly with PricewaterhouseCoopers who shifted to help smaller businesses with strategy and tax planning. Joyce Shangkuan is CPA turned realtor and real estate investor. 

Together they’ve made real estate investing a core part of their long-term strategy and have succeeded in two intimidating major coastal cities, San Francisco and Los Angeles.

What You’ll Learn In Today’s Episode:

  • Cliff and Joyce questioned the wisdom of the traditional retirement path and chose to take a different direction. After looking around at what other successful people were doing, they started to pursue financial independence through real estate investing. It’s your life, make it count!
  • Be deliberate in what you want to do, and how you want to achieve.
  • They invest in two of the most competitive markets in the country, San Francisco and Los Angeles. It’s the oldest rule in real estate, “Location, location, location.”
  • Anything is possible in this country, take ownership of your life.

Ideas Worth Sharing:

“We work really hard, and we try our best, but I think mindset is kind of the secret sauce if you will, that can really can help leapfrog you in the face of adversity and challenges.” – Cliff Cheung

“We both think that financial freedom is more important than having a house.” – Joyce Shangkuan

“Take inventory of what you have, and be grateful for what you have.” – Joyce Shangkuan

Resources In Today’s Episode:


    Enjoy the show? Use the Links Below to Subscribe:




    Cliff:               Hey Mark. How’s it going?

    Mark:              Great.

    Joyce:           Hey Mark, thanks for having us.

    Mark:              Thanks for joining me. So let’s jump in. I like your story. How did you ultimately end up in real estate investing?

    Cliff:               I was born and raised in San Francisco. My mom grew up in San Francisco, but my dad grew up in Hong Kong. I grew up very much having the default American dream ingrained in my head. I became a CPA primarily because my dad and my aunt who’s my current boss. And I always thought that my route in life would be to climb the corporate ladder, get a high paying job, buy a big house, start a family, and then sail off into the sunset once I retire. And I always had this thought in my head like, Oh, well, once I retire, those are my golden years. And that’s when I’d finally get to enjoy everything.

    Mark:              You called that the 40, 40, 40?

    Cliff:               Yes. So it’s the 40, 40, 40 plan. So work at least 40 hours a week for 40 years, at least. And then retiring on and living off of 40% less income than when you were working.

    Mark:              Oh. Okay.

    Cliff:               So 40 years, 40 hours, 40 years and potentially 40% less income.

    Mark:              I’d never heard that.

    Cliff:               So I have really observed this from a lot of people that I’ve worked with. Some family friends. I’ve been in San Francisco now for almost 30 something years. So I’ve seen the passing of generations and seeing this plan play out for a lot of people, it really made me reconsiders and thinks how to reframe and shape our goals.

    Mark:              Yes. Do something different.

    Cliff:               Yes. As you had alluded to earlier, I did work with PWC and I studied accounting to become a CPA. And I worked with many clients in the real estate industry, aircraft, leasing banking, and FinTech. And this really gave me the opportunity to work with a lot of great clients. And it taught me to think very critically and to see things in ways that I might not have otherwise had I not had the experience. And it also taught me to work really long hours.

    Mark:              Discipline.

    Cliff:               Yes. And then after working at PWC for several years, I really thought is this all that life could be, I was getting a little burned out and I felt like everyone was repeating max out your 401k, stay here for partner track, wait until promotion day. It’s going to be great. All you have to worry about is busy season. Things will be better after busy season and as each year progressed for me personally, things always got busier and I always felt like something was still missing.

    Mark:              Sure. Squeezing out your life little by little.

    Cliff:               Yes. So during that time, I was slowly beginning to work with my aunt. Who’s had a tax practice in San Francisco for the last few decades and some of her clients were actually in real estate working with her and seeing not only the benefits of having your own business, but also investing in real estate. It really made me begin to second guess, particularly with the 401k maxing out, just to get the employer contribution. I was like, hmm, well, it doesn’t really make sense to put money that I can’t touch until I’m 59 1/2 because that’s quite a ways away. I saw a lot of clients and a lot of friends that we knew that had invested in San Francisco had invested in LA or other very high cost cities. And some people were able to retire at a very young age, some as young as 46 to 50. And they were able to really live lives that I thought was the American dream.

    Mark:              Sure. The envy of you working 60 hours a week.

    Cliff:               I saw that and I was like, man, it doesn’t really make sense. I’m working so hard. I’m paying a lot of taxes and one perspective that I couldn’t really appreciate; at least working in a corporate environment was that if as a business owner or as a real estate investor, I did have certain expenses. I was able to deduct that against my income. So not only am I making decent money as potentially an investor or a business owner. I’m also able to build connections with people and also write off some of those expenses versus in a corporate setting where if I wanted to start a business, I would need to save after tax money and pay lots of taxes first.

    Mark:              I had the same realization being in the entertainment business and then getting into real estate, the vast difference in taxation on the entertainment side, that’s 50% tax. And then beyond tax, we have agents and managers and lawyers. So your ultimate take home is like 40% of what your gross income is.

    Cliff:               Yes. And having that perspective and having that insight really made me re-evaluate the 40, 40, 40 plan because I was like, do I really want to pay this much taxes for the next 40 years? It really made me evaluate what I was doing not only from my corporate background; do I just want to help corporations? Like why not help individuals with their businesses through working with my aunt? It really has given me a greater appreciation for helping people because I can see how we are very tangibly helping our clients.

    Mark:              And so how did you get into real estate?

    Cliff:               So our first deal in real estate was in May of 2012. I had never owned a house to today. I was maxing out my 401k and my aunt had a client who due to some financial issues wanted to involve us into his investment property. And the investment property was in Los Feliz in LA. And it was a 12 unit apartment building. And prior to that, I really had no experience in investing. Again, my only form of investing was in my 401k and my IRA. So I considered myself a moderate investor. And after investing, I slowly began to learn about rent rolls, occupancy rates, and some construction. And it gave me insight into how the industry worked and also how challenging it was, but how beneficial potentially that it was.

    Mark:              So you partnered with a client of yours in the Los Feliz Los Angeles property?

    Cliff:               Correct. Correct. So we bought in to become partners and I feel like we were very lucky in that project, but at the same time, I think it was because we had such an open heart and open mind that when the opportunity arose, we were really able to take advantage of it.

    Mark:              That’s somewhat of a unique situation where someone who has owned the building for a long time invites you to be a partner in that. Hopefully it was a good opportunity.

    Cliff:               Yes. Yes. It was a great opportunity. He was very familiar with some of the management and construction and that were areas that we did not have as much experience in, but because we are CPAs, we do tax returns and we do books. We were able to bring value to his operations from that standpoint. And it made for a very great partnership.

    Mark:              Do you guys have a joint plan to grow your assets, which include what real estate sounds like?

    Cliff:               Yes. We really took the time to sit down and evaluate again the course of our lives and how going the traditional 40, 40, 40 route, what that would look like from a lifestyle perspective, from raising a family and being able to achieve and do the things that we wanted to do together.

    Joyce:           And we constantly talk about what our goals are. We often talked about what we want to do with our life, and we took stock of what our advantages are and what we have in our life that we can take advantage of. So I think that constant conversation between the two of us was really helpful.

    Mark:              That’s impressive to me. I’ve had the benefit of knowing you both and you are very proactive and you’re planners.

    Cliff:               We were thinking about potentially buying a house in San Francisco, which we barely might have been able to afford with a complete white picket fence. Although it would have been a small white picket fence, but we realized that that would only have tied us down more potentially. And in order to do some of the things that we wanted to do, we weren’t necessarily sure if that was the best route.

    Mark:              So you decided not to buy a house, you went straight into investing in multi-family, right?

    Cliff:               Correct.

    Joyce:           We both think that financial freedom was more important than having a house we were willing to wait until later in our years, when we do have some more financial freedom and have more disposable income to really buy maybe our dream house, a bigger white picket fence.

    Mark:              Right. You communicate about finances, which a lot of people don’t, a lot of couples don’t and having that open conversation and being able to make adjustments along the way is pretty amazing.

    Joyce:           Yes. San Francisco is a very expensive rental market and we’re very fortunate because Cliff grew up in San Francisco. We actually live in the house that he grew up in. It’s a two story house and we live in the bottom floor and his mom lives upstairs. So she’s basically our landlord. So that’s kind of our way of house hacking. We do see a lot of our friends trying to move out of the house that they grew up in because they simply just don’t want to live with their parents anymore. But although there are pros and there are cons of living with his mom, I think the long-term benefit totally outweighs the limitations that we have to endure right now.

    Mark:              Sure. I love living at home. I lived at home until I was like 24, 25 and my wife Lynn; I was dating her at the time. She made me move out and get an apartment,

    Joyce:           But that’s kind of our way of house hacking and save money that way.

    Mark:              So what have you done since that Los Feliz property?

    Joyce:           After the Los Feliz property Cliff was, or we were very eager to find our next deal. And we wanted to mingle with different investors and find someone who is years ahead of us, who can probably share more of a knowledge and experience. And so we were going to networking events in San Francisco pretty aggressively, but we were never meeting anyone. So one day I was telling Cliff, I was like, Hey, I think we should maybe change our strategy our networking strategy a little bit. At the time we had already been listening to bigger pockets for a while now. So we were pretty familiar with how the pockets work but we haven’t signed up on the forum where a lot of investor mingles.

    Cliff:               So just echoing Joyce’s sentiment. I was becoming increasingly frustrated because I did see how after we invested in the 12 unit building, how we were able to reap the benefits of not only providing a safe and thoughtfully designed place for tenants to live, we were really able to benefit financially and have some money coming in some cash flow as a result of properly managing the property. So after I discovered this, I was like, Oh my God, I want to share this with the world. And I wanted to try to find other people that were interested in a similar investment. And I was talking to current clients, people I saw at the gym, some of my friends, even about real estate and real estate investing, but I was so disappointed because every time I would bring this conversation up to people, everyone was either disinterested or they would say something along the lines of, well, that sounds great, but I need to buy my primary residence and pay it off first. Then I can think about investing.

    Mark:              I have the exact same experience.

    Cliff:               Oh really?

    Mark:              After my first half dozen multi-family properties, I was an evangelist preaching real estate investing to everybody that I knew, everybody that I worked with in the entertainment business. And none of them would do it. I was shocked. It was a head scratcher why wouldn’t anybody else do this? It’s such a great thing. And then eventually they were like, well, you won’t stop talking about this. So why don’t you find something? And we’ll give you some investment dollars. You had the same experience?

    Cliff:               Yes. I guess we had the same exact experience. So Joyce had suggested, “Oh, why don’t you go on bigger pockets and try to network more intentionally with people who are in this space.” And I was listening to a podcast and it was about some guy in LA who is a writer for Family Guy. And during that time I was like, oh, this guy sounds really nice and knowledgeable. And at the time we were looking for a new management company, so she encouraged me to, to reach out and I did

    Mark:              That’s right. I forgot about that. So that’s how we first connected is you guys were looking for a management company in LA.

    Cliff:               Correct. Correct. And right after that, we switched to this management company, they’ve been very helpful since, and around the same time this writer for Family Guy was putting together a deal and he asked us if we wanted to participate. And we were trying to go through the motion of refinancing our property at the time and looking at new properties. But we realized just how difficult it was partially because of money and the high cost per door. But because we didn’t have as much scale and distance really wasn’t an issue, but it was not having as much volume from like a deal standpoint and a construction standpoint. It made things less economically viable. And after looking at the deal from the syndicator, we were like, wow, this really makes sense. And we thought of it as being on a great team. We wanted to find a good team and be a good team player.

    Mark:              Sure. And it could be a good way to learn riding along with someone else. And I don’t want to advertise, but yes. syndications is a way to invest passively.

    Cliff:               Yes. And I think just taking responsibility and being open to different potential investment opportunities, I think that’s really what benefited us for our second deal. When I was working with this syndicator, I made it known like, Hey, if there are any opportunities for me to utilize some of my skills that I’ve acquired professionally, I would really like to take the initiative to help not only the syndicator, but help my investment. And I think by taking ownership that can really provide any, anyone looking for opportunities through skillsets that they’ve built to get more involved in real estate investing.

    Mark:              When you were down in LA, we would have breakfast or lunch and could see how disciplined you were, how organized you were and savvy you were in finances. And I eventually was like, I would love to have you look at how we’re running our accounting and help us because there are a lot of facets to what I was doing as an operator. And it was a big relief for me to bring in someone who’s a professional.

    Joyce:           I know Cliff has been very disciplined before we connected with you. And while we were aggressively networking, he’s always on LoopNet. He’s always in the gym. When he has a downtime, he’ll check on LoopNet and see whether there’s a deal. He created his own deal analyzer. So it’s basically what people on bigger pockets tell you. You have to do your homework; you have to do your own due diligence. You have to be constantly looking and analyzing to equip yourself with the knowledge. So when you do see a deal comes across then you know it’s a deal.

    Mark:              Now, if you’re enjoying the show, please do us an easy favor and hit the subscribe button. And if you like the show, please give us a five star review. As a listener I always wondered why podcast hosts are always begging me to subscribe and rate them. Well, now that I’m on the other side, I see why. It allows other listeners to find you. So here I go. If you like the show, please subscribe and give us a five star review. I like doing it. And more importantly, in an era of unprecedented hype over real estate investing, my goal is to be a truth teller. Real estate is not as easy as it’s made out to be, but you can do it. If you can get past the hype and get to the truth. My aim is for this show to help with that. Anyway, let’s get back to the show

    Joyce:           A little bit about myself. I was born in Taipei, Taiwan and grew up there until I was 10. And then my whole family moved to Shanghai and I finished the remainder of my schooling there. And when we moved to Shanghai in 2002, I was born in 1992. It was just beginning to turn into a bustling city that it is now. And my parents’ goal of moving there was mainly to broaden our worldview, which it definitely did. It allows me to see so many different things that I probably wouldn’t have seen being able to see if I were to stay in Taipei, going to a local school, because I was enrolled into a semi international school in Shanghai where I can practice English, learn English and was getting all the education that gears towards a Western education, which eventually led me to attending University of Washington.

                            So I kind of have a similar ish route as Cliff that I also study in accounting at UDaB. And I actually also landed a job at PricewaterhouseCoopers. Since we started dating, we’ve always talked about the different investment that we wanted to do. And ever since he was involved in the Los Feliz deals, we started talking about real estate a lot more. And since then, once we’ve started to get to know the business partner that was involved in that deal, he is about 30, 40 years senior than us. So he has a lot of life stories and he’s also from Hong Kong and he will always tell us about the different people that came into his life. That kind of changed his life trajectory, which was really interesting to me because in the term that he use, it’s called quarian which in Chinese culture, where there’s a lot of emphasis on symbolism, fade and sometimes superstitious belief the word literally means expensive person or someone who brings a lot of value or more eloquently a noble man.

                            So it means someone who enters your life at a pivotal moment and helps to propel you in a positive direction by sharing their wisdom experience and advice. And so I guess the closest English term would be a mentor, but a nobleman can actually be anyone. They don’t have to be someone who is more senior or experienced than you. Just someone who says, or does something that sparks a change in your mind that results in a different life trajectory.

    Mark:              I like that.

    Joyce:           So when we have more interactions with him, he would tell us about his life story, there are so many noble men in his life, because he was a hairstylist. He was a pretty new immigrant, became a hairstylist. It’s something that’s so far away that you think he’d become a real estate investor. And he now has how many units?

    Cliff:               20, 24. At one point to put it in perspective, when he was growing up in Hong Kong, he lived in an apartment with eight different family members that were probably no more than 600 square feet. And they didn’t even have a refrigerator. He would always tell me stories. He would see cockroaches just running across his food because they didn’t really have much opportunity that they would still eat the food. That really sparked a change in my perception because this quarian, this noble man. He actually played a pivotal role alongside with my aunt in helping us to reframe the way we saw things and to really rethink like, oh, well, if I’m maxing out my 401k, is that really the best possible investment option? Or did someone tell me that? And then I thought that that was my own thinking.

    Mark:              So he helped you question that 40, 40, 40 path and not doing it a different direction to try something that might be more effective.

    Joyce:           Yes. Totally. I don’t think we would happen as open to it if it weren’t for him because he basically presented an opportunity and it started to prompt us the question, the 40, 40, 40 that we’ve been educated to think in that box.

    Mark:              Awesome. That’s great. So a lot of people who listen and the perception in much of the podcast world is that investing in cities like San Francisco in Los Angeles are impossible or undoable. What do you guys see as the benefits and the challenges of trying to invest in these coastal cities?

    Joyce:           First of all, it’s very straightforward. Land is very valuable because the location is very desirable and plus the job market, usually a lot more desirable as well, the geo-economy. And then the second thing is it’s high barrier to entry. So your investment is generally very well protected because building costs are extremely high. So it’s very expensive to build something. So it would take a very experienced and very qualified investor to jump in.

    Mark:              Right and navigate the permit and all those regulations.

    Joyce:           Right. And just to go off on that too. Yes. Coastal cities tend to have stricter and more regulations as well. There are always opportunities in those details. And the third thing is that there’s super strong demand if you’re in a good location. So for example, in San Francisco and in the pockets in LA that we invest in the vacancy rates are usually very low. The occupancy rates, usually in the mid 90% pre COVID that is, I’m not too sure how this whole pandemic will effect, although I think it should be quite inelastic, but we shall see. And then the last one is just, the appreciation can be realized upon sale because in coastal city, because of all the aforementioned characteristic that makes the property appreciates quite significantly in five to seven years.

    Mark:              And I was surprised, I didn’t hear a podcast about real estate until maybe after 10 years into my multi-family investing career. And I started listening to these podcasts and everybody said, you can’t invest in major cities, go for cash flow. You never buy a product older than 80’s construction. And I was like, Oh my God, that’s exactly what I’ve been doing. All those things. I was always confused. It’s like, why wouldn’t you invest in a city where there is huge demand and your dollars are protected. The oldest rule of real estate that’s a thousand years old is location, location, location.

    Cliff:               Yes. And I think that’s only half the battle cash flow obviously is very important, but also knowing your current market and how the different areas around you, such as in LA there’s so many different pockets, just like San Francisco as well. But I also think that there’s tremendous opportunity kind of like Joyce just touched on some of the benefits. There are challenges, but there are also huge opportunities. A few challenges first are high cost per unit and high costs per square foot. If you are just starting out in your investing career, say you just graduated. You might have a little bit of student debt. This can be very prohibitive, but it also means that if you do get in that your investment is generally well-protected. And as long as you are prudent with your management style, you can hold onto the property.

                            Another challenge is tenant friendly rules such as rent control. So Mark like you said, yes, it’s very difficult in California, particularly when there are such strict tenant friendly rules. However, upon moving out, there is a possibility that you can increase your rent to market, which I’m sure a lot of your listeners understand cap rates. If you can increase your rent by a 1000 or $2,000 a month upon a tenant, moving out at a 3% cap rate or a 4% cap rate that can add hundreds of thousands of dollars of value to a property,

    Mark:              Right. The GRMS, the fact that the multiple is as high as it is. And given that the cap rates are as compressed as they are every hundred dollars that you increase in NOI has a significant impact on the value.

    Cliff:               Correct? Correct. And another opportunity is also a value adding to some of the properties or to some of the units that we’ve purchased by improving the units. We’ve been able to increase our rents quite significantly, such as adding a washer, dryer, adding garbage disposals, adding things that in some more expensive markets are generally more cost prohibitive. I think that in some of the markets where 100 to 200 unit apartment buildings are very common, a lot of these amenities come standard, but in some older inventory, that’s on the market in California, in San Francisco and LA, some of these amenities are really not standard. And if you can add modern amenities to older style buildings, I think that’s a really nice niche that a lot of people have not really discovered and riches are in the niches.

    Mark:              So maybe we could move on to something I call multi-family psychotherapy. What’s a trait you possess that has served you best both in real estate and in life.

    Cliff:               One of the major traits that has served us, or I’ll just say me is really being open minded, having an open heart and knowing that my investment style and even my life, it’s really an iterative process where I constantly need to challenge what I know and to try to obtain new information and meet different people.

    Mark:              I love that.

    Joyce:           I can speak for the both of us. Another aspect that we really want to emphasize on and try to practice every day is just to take responsibility because everything in your life is a direct result of the decision that you make. So there’s a quote that we really like. It’s from Spiderman. It goes as “With power comes great responsibility”, but the more and more we realize that opposite is also true too. It’s because when you have more responsibility, you also get more power.

    Mark:              That’s awesome. I love that. How about, are there any traits that hold you back that you feel like you still need to work on?

    Joyce:           For me? I know that everything is a result of my decision, but then in the process of getting to that result, I need to make sure. I can’t just tell myself like, Oh, if I fail, it’s my fault, but then how can I do it next time when I have more accountability, when I say I’m going to do something I’m seeing it through so that I actually make it and not just fail on it and say that, Oh, it’s actually my fault.

    Cliff:               And I would say for me, responsibility is also a double sided sword. I think anyone in life can become very steadfast and very fixed mind-set with regards to information that they either have recently acquired, or that they have known for a long period of time. And being able to incorporate new information as it becomes available or seeing how maybe some old information that you’ve learned is no longer relevant. I would say it’s a very difficult process. It requires you to acknowledge that maybe you aren’t always right. And that maybe some information that you thought was right from someone else that you admire maybe is not right for this particular thing such as real estate. So one might be a very successful accountant or a very successful actor or actress, but sometimes advice that you might receive from an accountant actor actress might not be as beneficial to you as say a real estate investor.

    Mark:              I like it. I like it. How big of a role do you think mind-set plays in your success?

    Cliff:               Well, I think mind-set really is everything. Mind-set is kind of the least stress thing. I think it wasn’t until we kind of got into entrepreneurial ventures that we realized success is predicated on you having a solid foundation. For Joyce and myself, we actually really do consider ourselves to be very average. We work really hard and we try our best, but I think mind-set is kind of the secret sauce. If you will, that really can help leapfrog you in the face of adversity and challenges.

    Joyce:           Part of mind-set is also to take an inventory of what you have and be grateful for what you have. Growing up in Asia I always feel like people that grew up in America, I always envy them so much because they already know the language that I was learning. They already live in the country that I wanted to live in. But I think right now, thinking back about my journey, I’m really grateful that I actually don’t come from America because I have a more diverse background. I know another language, I have a different worldview and it really hit home when we actually went to Senegal to build a primary school. And we just see how little they have and all they want is just to live, to have a little something that we have. It just puts everything into perspective that we’re so fortunate that we live in a first world country. And a lot of our problem is just first world problem.

    Cliff:               And also kind of circling back to what Joyce said. It’s really just taking inventory of what opportunities you have so that you can be responsible for your future. Our story’s going to be different from Mark’s story is or what any of the listeners, what their story is, but it doesn’t preclude you from writing your own story just because of whatever you’ve gone through in the past. Hopefully you can use that as a springboard to really get to where you want to be.

    Mark:              And now our question round.

    The book you’ve recommended most over the past year.

    Joyce:           I would say it’s, Can’t Hurt Me by David Goggins.

    Cliff:               And for me, I would say it’s Finding Ultra by Rich Roll.

    Mark:              That’s right. Do you have a favorite quote?

    Joyce:           Mine would be “With great power comes great responsibility” in Spiderman.

    Cliff:               Mine is not from like a film or both, but it’s kind of just referencing life. The quote goes “If an egg is broken by an outside force, life ends. But if egg is broken by an inside force, life begins”, that’s kind of the quote of our lives. And we want our transformation to happen from internally versus external factors.

    Mark:              I’ve never heard that, profound. What was your favorite movie when you were 15?

    Joyce:           Mine is a Ratatouille. I watched it on my birthday and cried.

    Cliff:               Mine was 8 Mile. I didn’t cry, but I was like, Oh man, I might become a rapper one day

    Mark:              I met Eminem.

    Cliff:               You did?

    Joyce:           What?

    Mark:              He did a voice for Family Guy on a Sunday morning and I had to meet him at the studio. He was really nice. I expected him to be mean, but he was a polite young gentleman. He took a bunch of posters home with him.

                            An online tool or app that brings you the most value.

    Joyce:           Mine would be Sweat it’s a workout app. It got me into strength training and being more tone.

    Cliff:               And mine would be my Fitness Pal by Under Armour. It has helped us a lot in our fitness and nutrition journey,

    Mark:              Belly button, innie or outie?

    Joyce:           Innie.

    Cliff:               I’m in an innie as well.

    Mark:              Double innie. Your most impressive, totally useless skill.

    Joyce:           I guess it would be my OCD to clean the house. It’s a total time sucker just to make myself feel good.

    Cliff:               I used to play a lot of basketball when I was younger. I actually wanted to become an NBA player, but then I stopped growing. So that kind of stunted my aspirations, but I can actually spin a basketball on all 10 fingers. Probably. I think my record is like 10, 15 minutes and I can spin it on like cell phones, pencils, scissors, and like all sorts of random objects.

    Mark:              That is a totally useless skill. Aside from real estate. The one thing you could spend all day talking about.

    Joyce:           Healthy eating and lifestyle.

    Cliff:               Mine would be as well. I think for us, we’ve just found health and lifestyle well-being and balance to be so profound.

    Joyce:           And we’re both plant-based.

    Mark:              Plant-based. What decade created the greatest music?

    Joyce:           I like jazz. So jazz created in any decade, as long as it’s not too avant-garde, I would like it.

    Cliff:               For me. I would say it’s probably like the 90’s boy bands; actually I wanted to be a singer like a boy band singer.

    Mark:              What about your basketball career? What high school friend do you want to say hi to right now?

    Joyce:           I want to say hi to Becky. She’s my high school, best friend. She was going to have her honeymoon in Sicily this May and I’m glad she did it and went to Hawaii last December instead.

    Cliff:               And my BFF Josh he got married last year and he’s going to have a baby or not him, but his wife’s going to have a baby in a month. So we’re waiting. And hopefully we get out of this shelter and place soon.

    Mark:              What country has the best accent?

    Joyce:           British accent. Because they just sound so proper. Although I don’t really understand what they say.

    Cliff:               I grew up around a lot of people from Singapore that speak English. Have you ever heard the Singlish accent? It’s like rhythmic and upbeat and I can’t even imitate it.

    Mark:              If you had to make a spy, alias, what would you go by?

    Joyce:           I want to go by Neo, like in the Matrix, we recently just watched the movie and I just thought it was so awesome and so relatable

    Mark:              You’ve been in the Matrix.

    Cliff:               Mine would probably be James Bond. Then if I introduce myself to people, the last thing they would probably ask me is, are you a spy? But come on. Do you think I’m really a spy with the name James Bond? We actually met a James Bond in San Francisco. He’s a realtor.

    Mark:              What a great name for a realtor. What movie can you quote the most from?

    Joyce:           Mine would be old gambling movies from Hong Kong in the 80’s.

    Mark:              Sure. The gambling genre.

    Joyce:           Because I watched so much of those growing up, but they’re in Mandarin though. Mandarin Chinese

    Cliff:               Mine would probably be Pineapple Express with James Franco and Seth Rogen. I really liked kind of how goofy those two guys are.

    Mark:              I’m embarrassed to say, but I’ve never seen that.

    Cliff:               Oh really? Oh.

    Mark:              I’ll have to watch it.

    Cliff:               Yes.

    Mark:              What’s about to get much better.

    Joyce:           I think everything in the world is about to get much better. If you think it’s going to go worse than you’re going to head into that direction.

    Cliff:               And along those lines, I would say kind of your attitude and perspective. If you are working on improving that in a positive manner. It’ll improve what you appreciates, appreciate.

    Mark:              A childhood cartoon character you had a crush on. Now I don’t want this to cause some marital strain.

    Joyce:           It’s okay. Because mine is not really a human mine is Totoro Miyazaki’s, My Neighbor Totoro. Because my mom’s successfully talked me out of wearing diapers when I was three, because she was like, Oh look, Totoro, he’s not wearing anything and so I stopped wearing diapers.

    Cliff:               And mine. It’s not really a cartoon character. Harriet, the Spy, Michelle Trachtenberg. I thought she was cute when I was younger.

    Mark:              Was she like a Nickelodeon actor?

    Cliff:               Yes.

    Mark:              A kid actor.

    Cliff:               Yes. That.

    Mark:              She was cute.

    Cliff:               Yes. She was really cute. And I was like, Oh, this is a cool movie. And I actually wanted to be a spy when I was younger too.

    Mark:              If you could have the answer to one question, what would it be?

    Joyce:           Why are we here?

    Mark:              Hey, I know it’s not a big podcast, but at least I’m trying.

    Cliff:               I think for me, it’s what comes after this?

    Mark:              And finally, when are you happiest?

    Joyce:           I’m the happiest when I can eat good foods and spend time with loved ones

    Cliff:               And I would say along those lines as well, but also share it with people because I think there’s really nothing that can replace feeling good about yourself and, and about being able to help people around you.

    Mark:              Awesome. Last of all, how can listeners reach out to you?

    Joyce:           For me. They can find me on Instagram. It’s just my first name and last name. Joyce Shangkuan. S-H-A-N-G-K-U-A-N. LinkedIn is the same. First name and last name. Email is L dot my last

    Cliff:               And for me I’m on Instagram as well. My name is it’s always foggy in San Francisco and my LinkedIn is Clifford Cheung, C-H-E-U-N-G. And my email is Clifford at Cheung, C-H-E-U-N-G and associates plurals dot com.

    Mark:              Well thank you guys so much for joining me.

    Joyce:           Thank you so much for having us.

    Cliff:               Thank you.





    Parker Heights

    Parker Heights

    East Riverside SubmarketLocated just minutes from the Austin Central Business District, Oracle's new campus, and the...

    First Syndication During COVID Chaos with Vince Gethings

    First Syndication During COVID Chaos with Vince Gethings

    Vince Gethings is an active duty real estate investor in Honolulu Hawaii, who’s been building a massive real estate portfolio for the past seven years. He holds a green belt LEAN Six Sigma Process Improvement, and specializes in market research, due diligence, strategic planning, project oversight, and execution.

    Vince and his team also recently closed on their first syndication, during the chaos of the coronavirus!

    Find out how Vince overcame volatile market conditions to wind up in a much better position at the closing table.


    What You’ll Learn In Today’s Episode:


    • Starting out small and putting your own capital at risk is a great way to build systems and learn your strengths and weaknesses in a “sandbox” environment.

    • No plan is 100% perfect. After you’ve done your due diligence, commit, start taking action, and course-correct as needed.

    • Stress-test your deals. No one predicted the coronavirus, but those who ran their deals through different doomsday scenarios and prepared for the worst will likely fare better. 

    • Value-add isn’t only about increasing the gross income. Looking for opportunities to reduce expenses can be as profitable and perhaps more dependable than rental increases. Just be sure you’re not looking with rose-colored glasses, sometimes expenses are higher for a reason. 

    Ideas Worth Sharing:


    “The uncertainty of it was hard to wrestle with. We had to go back and completely redo our underwriting.” – Vince Gethings

    “I focus on finding properties where there is very inexperienced property management, where they have inefficient systems and bloated expenses.” – Vince Gethings 

    “Use the smaller properties kind of like a sandbox to build your systems, and more importantly to find out what your strengths and weaknesses are.” – Vince Gethings 

    Resources In Today’s Episode:



    Enjoy the show? Use the Links Below to Subscribe:



    Host:              Today’s guest serves in the US Air Force on active duty in Honolulu, Hawaii. While building a multifamily portfolio on the side, it’s been a seven year side hustle and he’s built a $5 million portfolio with 120 units under management. He also just closed on his first syndication during the Coronavirus pandemic. I’d like to welcome Vince Gethings.

    Vince:            Hey Mark.

    Mark:              That’s quite a bio you got. You just closed on your first syndication during Coronavirus. I got to hear about this. So maybe we jump into that first. So when did you close, what was your closing date?

    Vince:            April 15th.

    Mark:              So right in the thick of the panic, where was this property?

    Vince:            This was located in El Paso, Texas.

    Mark:              El Paso. Okay. And how many units?

    Vince:            It was three properties that were all adjacent to each other. That made up a 96 unit community. And we ended up carving out all but 48 of them. We kept the 48 best properties.

    Mark:              Do you remember when you entered contract pre all of this I would assume, right?

    Vince:            It was back when it was like an over there problem. Not here. It’s not going to happen here. And so I think like early February is when we got into contract. So it wasn’t really that serious in the USA yet.

    Mark:              Interesting. And how did you pick El Paso? Had you bought there previously or what was appealing about this market?

    Vince:            So I’m not the primary push to go to El Paso. So my main market was Michigan. We had closed on 52 units there with some partners in Michigan, and two of my partners had ties to El Paso. So after we closed that deal, got to stabilize they came to the group and say, “Hey, we should look at El Paso.”‘ One of them he’s an LP on a syndication in El Paso on like a 300 something unit deal. And then another partner is in the army and he was stationed at Fort Bliss. So both of them had like really good things to say on El Paso. We started doing our market research. It didn’t take long to come around to them.

    Mark:              And by the way, where do you invest in Michigan?

    Vince:            It’s going to be, what’s called the Tri-City area. So Midland, Bay City, Saginaw.

    Mark:              So that’s up North, right?

    Vince:            Yes.

    Mark:              Oh, nice. I’m from the Midwest. I’m From Cleveland and I have cousins and been to Michigan a lot. Michigan’s a cool State, especially up North.

    Vince:            I think it would be mid Michigan is the middle of the State, I guess, would be geographically more accurate.

    Mark:              So you must have been in your contingency period as the pandemic just started to unfold and enter the US and was that nerve wracking?

    Vince:            Absolutely. So it was crazy you never want anything crazy to go market swings while you do due diligence. But the hard part about this one was nobody knew what was on the other end of this. We started looking at some of the best operators in the country, what were they doing? What were their forecasts? And it was ranging everything from the world’s ending. Go cash out and buried in the yard to this will blow over the whole V balance, analogy of, yeah, we’re going to hit really sharp down and then we’re going to have a really sharp up. And then everywhere in between. So the uncertainty of it was really tough to wrestle with. And we just had to go back and completely redo our underwriting. We listened to some of our mentors, our advisors and got new advisement from them on how to stress test our deals. And as far as our proforma

    Mark:              Like you said, this is so unprecedented, there was no model of a past pandemic to look at to see how multifamily weathered. So what were their advice?

    Vince:            So the way we did it was we had about four or five people that we value their insight a lot. And we just put them in an Excel sheet, like almost like rows or columns, like advisor one says this, advisor two said this, and we kind of asked them the same question. What would you put your economic vacancy at, during this period over the next six months to a year and ask them all the same question and then rent growth or additional income lost lease, things like that. And we built it into an Excel sheet and we just average them out. And the average came to a 30% economic vacancy for the next six to nine months was the average for their 0% rent growth all the way to a 10% negative rent growth, no additional income over the next year. And I think those are the big ones. The big levers

    Mark:              Did you ask for a big concession?

    Vince:            We did. We ended up putting those numbers in to our model and it didn’t kill the deal, just the return wasn’t worth the risk. So we had to go back and ask for a concession and what we did was super transparent, super empathetic to the broker and the seller like, Hey nobody could have predicted this, but this is where we’re at now. Everything we’ve done up to this point, doesn’t matter it’s not applicable all the underwriting, all the negotiating, this entirely, completely new deal and a new market, we need to start over is kind of how we approach that conversation. And actually it ended up to where we voted to get out of the deal first. So it was like on a Friday, we voted to, Hey, let’s back out of the deal.

                            And if it’s still available, come July, August we’ll re-engage. So I’d called the broker, gave him the bad news. And then we spent pretty much all weekend from Friday night to Sunday no sleeping, just lots of coffee, lots of time on Excel sheets to figure out how we can make this deal still work. Like what would we need to still preserve our investor’s capital, give them a decent return and just limit our downside as much as possible. What would that look like? And we draw out some models, some financial models, some proformas and different scenarios. And then by Monday we had about 11 pages worth of notes that we went back to the broker with and like, okay just so you know, we’re out of the deal, but this is what would make it work for us.

                            And then, kind of just throwing a hail Mary to see, if they would go forward or not. And they ended up giving us a cash credit at closing, plus all of April’s rents, as a credit, as closing where normally it would be like a pro rata rent for the month. We ended up getting full rent rolls worth of rent for April. So regardless of what April’s collections were, we got a hundred percent is basically what happened. So I ended up being about 90 grand seller credit at closing. And then when we modeled that into the thing that gave us about 14 months of mortgage payments upfront at closing. So we felt pretty confident after that.

    Mark:              That sounds like a pretty good concession. What was the total purchase price?

    Vince:            Purchase price was around 1.5.

    Mark:              1.5. And you got a $90,000 credit?

    Vince:            Yes.

    Mark:              When you had your Friday call, how did the broker react? I’m sure they could foresee this coming. I mean, every broker was getting the same call.

    Vince:            I didn’t want to come across like, hey, we’re just using this crisis as a way to squeeze more stuff out of the seller and just come across like that.

    Mark:              Taking advantage.

    Vince:            Taking opportunity from the crisis, so I didn’t want to come across like that. So I thought it was just preserve the relationship with the broker first and just sorry this happened we’ll get the next one. Is kind of how that call went. And then we spent all weekend trying to just remodel like a month’s worth of underwriting.

    Mark:              What happened with the loan basically along your journey I would imagine your lenders were reacting to the pandemic as well as everyone else. And a lot of things were changing on the loan side. So what was your experience with that?

    Vince:            So, going into it, we had three lenders lined up. One of them backed out completely. “Hey, we’re done, we’re putting a moratorium on all lending for the next 60, 90 days.” The second lender who was actually our lead lender came back to us and said, they dropped the LTV from 75 to 65. And then the last lender who we ended up going with didn’t move on any of their terms. They gave us incredible terms. And any day of the week, not just for the Coronavirus or anything, if we got these terms in December, they would have been phenomenal.

    Mark:              Who was the lender?

    Vince:            FirstLight out of El Paso. A local credit union out of El Paso.

    Mark:              And what were your terms? What did your terms look like?

    Vince:            So we got a 75% LTV they did not move on that. Interest rate was a 3.625, 25 year and I think 20 year term with no yield maintenance.

    Mark:              Nice. That’s amazing, that’s a really good loan.

    Vince:            Yes. And so the only curve ball they threw us was after we got back into the deal. So we got the seller credit, the $90,000 seller credit at closing to help cushion what’s going to happen over the next few months. The lender called and while they were doing their committee. And they wanted 12 months of PI upfront. And because we talked to a lot of smart people and our advisors and mentors. We saw this coming. So we had already earmarked whatever that credit was that we were going to get was going to be for mortgage payments that were for PI debt service for at least a year. So we modeled for a year up to 18 months of PI or PITI in an escrow account. And that’s what happened was we ended up having to do 12 months of mortgage payments, but we had modeled all the way up to 18 months and the deal still works.

    Mark:              And that’s not a bad thing to give up, especially during this kind of situation you’re getting it back. It’s not an additional cost that leverage will come back to you after 12 months, it gives the lender comfort. The challenge is just coming up with the money, especially when you’re syndicating. How did you raise your funds? Did you have a challenge finding investors?

    Vince:            Not really, no for this deal, the raise wasn’t that high it was only 650,000. And between the four of us, we were able to leverage our existing relationships. And we had credibility from the 52 units that we just closed last year. So we had the proof of concept. We already had the systems in place. We were just rolling them into a new market, into a new deal. That’s almost identical business plan. So we didn’t have a whole lot of struggle getting the confidence of investors or the bank to buy into our business plan. But yeah, the raise wasn’t too hard on this one. We didn’t really have any newer relationships that weren’t already cultivated over the last few years.

    Mark:              Got it.

    Vince:            Who knows that we’ll actually have to go out and raise some funds.

    Mark:              What was your strategy on this one? Is this a value add or stabilized?

    Vince:            No. Its value adds C-class. In 1984, build C-class, C-neighborhood. My value add is a little bit different than most people’s. So I, as an operator, I do mainly the execution of the business plan and the rollout of the different phases. And I focus a lot on management systems, so inefficient management systems and expenses, that’s my bread and butter. So when I look for value add, I don’t necessarily look for properties that are 100 to $200 under market rent.

    And the goal is to go in there and raise the rents $200. And that’s what will make the deal work. I focus on finding properties where it’s very inexperienced property management, where they have inefficient systems, bloated expenses, when you get their T12 and they’re operating at 60% or sometimes higher OPEX ratios. That’s what I focus on because I know I can come in there and just with my knowledge of running programs and experience with that, and just run more efficient systems and reduce expenses. So that’s my main, business model.

    Mark:              That’s smart.

    Vince:            And then we usually raise rents anywhere from like 10 to 15% it’s usually what we look for.

    Mark:              Now, if you’re enjoying the show, please do us an easy favor and hit the subscribe button. And if you like the show, please give us a five star review. As a listener I always wondered why podcast hosts are always begging me to subscribe and rate them. Well, now that I’m on the other side, I see why it allows other listeners to find you. So here I go, if you like the show, please subscribe and give us a five star review. I like doing it. And more importantly, in an era of unprecedented hype over real estate investing, my goal is to be a truth teller. Real estate is not as easy as it’s made out to be, but you can do it. If you can get past the hype and get to the truth. My aim is for this show to help with that. Anyway, let’s get back to the show.

    Mark:              It’s smart to try to focus on expenses. As long as I often see buyers that are a little too optimistic on what they can like, Oh, we could do better than what the sellers are doing with their expenses. But I always think it’s better to improve the property on the expense side than depend on improving the income side.

    Vince:            Yes. Absolutely. You can do your research and figure out what the expense per door cost is for your market. And you can get pretty dialed in if it’s $3,800 a year, if it’s $4,200 a year, whatever it is, but for income to me, it’s harder to dial in what the rent premium is for that market. Like if your entire business plan is we’re going to go in there and we’re going to raise rent $150. Because based off your Rentometer report. And it says that average rents are $150 higher. There’s so much goes into that, that people don’t realize what amenities are those $150, higher units offering. It’s not just apples to apples. To me I think I can control expenses a lot more than I can anticipate a rent bump.

    Mark:              I never trust the Rentometer. Is that how it’s pronounced, Rentometer?

    Vince:            I don’t know.

    Mark:              I look at it a lot and I’ve noticed that it doesn’t reflect what I experience on my own buildings on what the rents are.

    Vince:            Exactly.

    Mark:              So that’s cool. Let’s step back because you have a fascinating story. You were in the military and you’ve been doing this for a while seven years. So you must’ve jumped in 2013. How did you get into it?

    Vince:            So, I bought into, it was Bay Area, California, where I was stationed and I was into like the bigger pockets, live in flipper strategy thing. So I was using it’s called the VA, the VA home loan house hack which is pretty much you just buy a house and live in it and flip it while you’re living there using VA zero down loan. So that was my strategy. So I bought that in 2013, sold it in 2016 and had a pretty good amount of capital from that. And then from there, I didn’t want to flip anymore. So I was looking into small multifamily, so reading the Brandon Turner books, and I got into buying duplexes and fourplexes in Michigan, because my wife was from there and I bought 20 units in around 18 months. So that was my initial jump into multifamily was all duplexes and fourplexes in Michigan.

    Mark:              And were you using proceeds from your sales in the Bay area or was this re-raising capital for these deals in Michigan?

    Vince:            No, that was using the proceeds. So I cashed out of that house in the Bay Area, California, and I think it was like 130,000. So that was my seed money to start buying property in Michigan. And at the time I was just doing your conventional 20% down, get a house 20% down and get a house and then I liked it. So I ended up cashing out of my 401k, my IRAs and my brokerage accounts and stuff like that and going full into real estate. And that’s where we got the 20 units from. And that was by mid-2018 is kind of where I hit that plateau in my investing

    Mark:              The plateau. What was the plateau that you were hitting? Was it just limited cash?

    Vince:            It was couple things. So the plateau, I shopped 20 units pretty fast and I thought I was doing good. And then I ran out a lot of that capital. And then my systems reached their bandwidth capacity too at the time. And I don’t know how to explain it, but it was like, I know there was something that I didn’t know, I was able to identify like, there’s more to this than what I know than just the knowledge of my time. So I had to go out and go get a coach, a mentor, somebody to help me break through that plateau to the next level. And that’s when I went out and researched a bunch of programs, jumped into one and then ended up getting 52 units within six months. Actually, I think I was under contract for four or five months after starting the program and getting some mentorship from really smart people.

    Mark:              Was that Jake and Gino.

    Vince:            Yes. The Jake and Gino Wheelbarrow Profits Academies was what I jumped into.

    Mark:              Nice. Those guys are great.

    Vince:            Yes. Absolutely. So with Gino’s mentorship, definitely I just blew through that plateau. And I think it was like put on a timeline. I think it was like October, 2018. I started the program and I was in contract on a 52 unit by like January 2019.

    Mark:              And where was that 52? Was it in Michigan as well?

    Vince:            Yes. That was the same market Michigan. And we closed out as a JV. So our partnerships it was me. I found three people through networking and meetups. We all put 25% down and we close on that 52 unit and started scaling up our businesses and knowing where we lacked and what parts of our businesses needed the most attention.

    Mark:              I love that. I really like your process of step laddering. I like that you used your own money for the first few years and did multiple deals that’s admirable because you risk your own money at the outset before you start risking other people’s money. And then you got a mentor and partnered with likeminded people and went in and got bigger and you were growing all along and learning, learning a ton. I’m sure. And then you did your first syndication during a disastrous pandemic.

    Vince:            There’s always a kind of a question of when should people get coaches and to me it’s definitely up to your personality, but for me, I think most people would benefit from doing a couple of deals. Even if they’re small, just to figure out like one day they can go through an entire transaction, start to finish and understand the basics of real estate. But more importantly, kind of use that as like a sandbox. It’s very hard to go bankrupt losing everything on a duplex. So use the smaller property like a sandbox to build your systems. And for me more importantly to figure out what your strengths and weaknesses are, if you’re very cognizant of your performance over those early transactions.

    And you’re honest with yourself you can annotate what areas you’re strong at and what areas you are weak at. So you could either spend time increasing your strengths, increasing your weaknesses, or go find partners that compliment your weaknesses, which is what I did.

    Mark:              Right. Divide and conquer by getting someone else who’s good at what you’re weak at. And then you have a frame of reference from your own experience. When you get into coaching, you probably understand their lessons at a deeper level as a result. Is there a failure or mistake that you made early on that later, you found key to your success?

    Vince:            Early on over renovating units. I think was one of the first things I’ve done. And then so couple properties with that, or couple of mistakes big on that sandbox property, the first fourplex I bought. So one, I over renovated the unit and wasn’t really conscious of my budget, I was renovating, like I was going to live there, not what the market was going to support. So I learned a lot from that and lost money from that. So to speak it just means I have to hang on the property longer than I planned to recoup that in cash flow that the extra CapEx that I put into it. So there’s over renovating units, not sticking through with multiple bids from contractors.

    Mark:              Sure. A lot of people.

    Vince:            Everybody says that, Oh, go multiple bids. And then they just fail in actual practice of following through the bids and slowing down, getting bids, vetting them, sitting down, looking all apples to apples as follow up questions. And not just going with the first person that you like.

    Mark:              Do you use third party property management or do you manage it yourself?

    Vince:            I do. So being in the military, I built my entire company, which are three, companies now all with me not being there. So all out of state, all third parties managed.

    Mark:              Managed by a third party operator and you just monitor them what they’re doing.

    Vince:            Exactly. So manage the managers is what I do.

    Mark:              Exactly. What do you think? What do you consider investment Kryptonite’s the biggest thing that kills an investment?

    Vince:            Cash flow is probably the biggest one. If it doesn’t cash flow, then you’re taking on a considerable amount of risk for that property.

    Mark:              Right. And you need to verify and look skeptically at the advertised cash flow. I don’t know, after 20 years of buying multifamily buildings, myself often, what is advertised as cash flow, mysteriously evaporates sometimes when you take over the building.

    Vince:            Yes. Absolutely. I do a full on financial audit when we go into due diligence. It’s kind of like this whole circle thing. We started the rent roll. So it’s okay, let’s get the rent roll and then get the leases and then bump the rent roll against the leases. And then I asked for the bank statements, I’m like, okay, well now I want the P and L so I get the T12 and bumped the T12 against the rent roll against the bank statements to make sure that they’re getting the rent they say they were getting.

    They’re reporting the rent, they’re say they’re getting. And then the amount that’s actually getting deposit in the bank matches the rent roll and the T12. And then I go one step further of getting last X amount of years of taxes or K1’s or whatever they have to show that, okay, this is what they’re saying on the T12. They collected, what they’re actually reporting as their gross revenue on their tax returns. So I take all those documents and I just create like a storyboard or a storyline and just audit all of them across each other and find discrepancies that way. And I found that to be pretty effective.

    Mark:              That’s great. Verifying the deposits in the bank is smart. Sellers are incentivized to get the maximum price for their building. So they will often inflate the cash flow that is really there.

    Vince:            And a lot of the time it’s not give them the benefit of the doubt. It’s not them inflating it, or just trying to misrepresent. A lot of times I find out that it’s just bad bookkeeping. They’re just trying to like, yeah, I taught myself how to bookkeep and all this stuff. And I’m like, you’re giving me like, scan copies of like yellow tablet, paper. I’m like, what? So, there’s a kind of a mix between both, but yeah.

    Mark:              What do you think the biggest myth or misperception being perpetuated in real estate investing is nowadays?

    Vince:            I don’t know, for me, syndication’s easy. I got a dozen deals under my belt before this last one. And I still had a pretty high level of stress and learned a ton of stuff. So I think that would be the thing for me. Also, I’m not that smart, so I’m sure there are guys out there right out of college, they got MBA and they’re just super sharp and their MBA or finance degrees that can probably crush syndication out the gate. But I think for most people, they try to make syndication a lot easier than it actually is.

    Mark:              Right. I think it’s more challenging than is advertised. And you know, what is nowadays the current economic environment is going to be a great school for syndicators. It’s going to be a challenge. It’s easy to be successful when the wind is at your back when the market is charging upward. But when it’s going through some rocky terrain, that’s when you’ll have to hone your systems and prove yourself. What’s a trait that you possess that has served you best both in real estate and in life?

    Vince:            Kind of a trait and a good and a bad is the ADD kind of personality or affliction I have. I just have to keep moving and I have to just jump in. For real estate, you see a lot of people that get analysis paralysis, where everything has to be perfect. Every plan has to be perfect. Everything has to be in its place before they can take one baby step forward. And what happens is they just don’t do anything for years and years and years, and they just never get into it. For me I can’t sit still long enough to have plans 100% perfect. So I get to a point where it’s viable with a good probability of success. It’s going to be 90% successful let’s just jump in and take action. We’ll figure out the other 10% as we go. It gets a little bit better when you get experienced. But I think if you’re just early on, don’t wait until the plan is a hundred percent perfect to jump in because it’s never going to be

    Mark:              Right. You’ll never know everything. There will always be unknowns. And you just got to act, you may have just answered this with that response, but is there a trait that you feel that holds you back that you still need to work on?

    Vince:            Probably being more extroverted is a trait that I think I need to get better at. Being able to just talk to people, go, network more and be more outgoing, more enthusiastic, where it doesn’t just drain my energy. Because normally I can go out there and I can work a room. I can go teach a class, but then I have to go sleep for like 20 hours after because I’m drained. So hopefully I get better at that. The more I get used to networking more and being in groups more but that’s probably the biggest one.

    Mark:              I’m a complete introvert by nature. And so I’m always trying to force myself to be more extroverted. That’s why I’m doing a podcast, gets me out of my shell. If you were to pass on some advice to your younger self, what would it be?

    Vince:            Partner sooner and go buy commercial property sooner.

    Mark:              So are you ready for our question round?

    Vince:            Yes.

    Mark:              And now our question round.

    The book you’ve recommended most over the past year.

    Vince:            Never Split the Difference by Chris Voss.

    Mark:              Good book. Favorite quote.

    Vince:            “Set goals to match your potential, not your ability.”

    Mark:              Nice. An online tool or app that brings you the most value.

    Vince:            Asana.

    Mark:              Do you eat food past its expiration date if it looks fine?

    Vince:            Yes. Probably.

    Mark:              A bad or cheesy movie that you love.

    Vince:            Pop Star with the guy from Brooklyn 99.

    Mark:              Yes. Andy Samberg.

    Vince:            Andy Samberg.

    Mark:              I never saw that.

    Vince:            That’s my like mindless, just crack a couple of beers and sit on the couch and just laugh for dumb jokes.

    Mark:              I have about five of those movies. Your most impressive, totally useless skill.

    Vince:            I can hacky sack pretty well. It’s pretty useless.

    Mark:              That’s great. Which decade created the greatest music?

    Vince:            The 90’s.

    Mark:              Any bands,?

    Vince:            Man, for me, it’d be Sublime, they’re all punk rock type.

    Mark:              Oh yeah.

    Vince:            Music genre.

    Mark:              We got real in the 90’s. Grunge was a rebuttal to pop rock of the late 80’s.

    Vince:            Like every genre music exploded in the 90’s was great.

    Mark:              I agree. What was your most awkward year?

    Vince:            I don’t know. It got to be some kind of freshman sophomore year shenanigans.

    Mark:              Aside from real estate. One thing you could spend all day talking about.

    Vince:            Flying planes.

    Mark:              Yes. You’re in the Air Force. Do you fly?

    Vince:            Yes and no, I am in the Air Force, but I’m enlisted. So I do not fly planes for the Air Force, but I am a private pilot and I have a small Piper warrior out here in Hawaii that I fly on my personal time.

    Mark:              Oh, nice. Your favorite sound in the world?

    Vince:            Silence. I got three little kids. So is that an acceptable answer? The sound of silence.

    Mark:              And the answer is acceptable. Have you ever had a paranormal experience?

    Vince:            I think I have, but it’s one of those things where you’re asleep, but you’re kind of conscious like that weird state of like in between. And like you see something and then you don’t know if you were dreaming it or not.

    Mark:              I just saw a weird article and I don’t know if it was fake news, but in the Air Force, do you ever hear about pilot encounters with strange unidentified objects?

    Vince:            I’ve read a lot of reports that probably same as you have, but then there’s like some of those like weird audios from the voice recorders or it’s like the pilots kind of narrating what they’re seeing. Those are pretty weird, but I’ve had more experience more of like a haunted plane than I have with some like UFO type stuff.

    Mark:              Cool. Weirdly like a couple days ago it was published by CBS news saying that the government was acknowledging that they have all these photos and they showed the photos of these strange objects taken by pilots. And I think it was Air Force.

    Vince:            I have to check it out. That’s cool. I’ve seen some recorders where you’re talking like a fighter pilot going mock two and something passes them going faster just blows past them in the sky. And for that to happen, they got to be going mock three, mock four. And it was like, it wasn’t anybody from us, but they’re all on YouTube and stuff like that. So who knows if they’re real or not.

    Mark:              Right. Right. The most amazing place in nature you’ve ever been.

    Vince:            By living in Hawaii. So there’s that, but other than that, I really like Tahoe.

    Mark:              Yes. Tahoe is great.

    Vince:            It’s a pretty cool spot.

    Mark:              I love it. Yosemite. You’re not far from Yosemite as well. What movie can you quote from the most?

    Vince:            Stepbrothers is pretty quotable.

    Mark:              I love Stepbrothers. When are you happiest?

    Vince:            That’s a trick question. Obviously when I’m with my family.

    Mark:              That’s a trick question. You have to say that?

    Vince:            Yes. I think you have to, if my wife’s going to ever hear this.

    Mark:              Finally, where can listeners reach out to you.

    Vince:            If you want to reach out to me, or on Facebook, we run a meetup group, the Honolulu Chapter of Multifamily and More so you can find us on there. Honolulu Multifamily and More. Our Facebook group meet up and can come chat with us and join our virtual meetups now is what we have.

    Mark:              Awesome. Well, thank you so much for doing this.

    Pin It on Pinterest