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Syndication Series #5: Scaling A Multifamily Portfolio With Liz Faircloth

REW 87 | Scaling Multifamily

 

Multifamily is the ultimate goal of many real estate investors in America. Achieving the dream is possible, but how about scaling? That’s where Moneeka will help as she discusses scaling multifamily investments with the cofounder of the DeRosa Group and the Real Estate InvestHER community, Liz Faircloth. Liz talks about getting into real estate, how she and her husband pivoted into multifamily, and what you need to know about out of state investing. Learn more from Liz and Moneeka about the multifamily market by tuning in.

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Syndication Series #5: Scaling A Multifamily Portfolio With Liz Faircloth

Real Estate Investing for Women

In this episode, I am so excited to welcome to the show, Liz Faircloth. She Cofounded the DeRosa Group in 2005 with her husband, Matt. The DeRosa Group, based in Trenton, New Jersey, is an owner of commercial and residential property with a mission to transform lives through real estate. DeRosa has vast experience in bringing properties to their highest and best value, which includes repositioning single-family homes, multifamily, apartment buildings, mixed-use, retail and office space.

The company controls close to 1,000 units of residential and commercial assets throughout the East Coast. Liz is the Cofounder of The Real Estate InvestHER community, a platform to empower women to live a financially free and balanced life through over 25 Meetups across the US and Canada, an online community and membership that offers accountability and mentorship for women to take their businesses to the next level.

She is the co-host of The Real Estate InvestHER Show, which I will be on too. They published their first book, The Only Woman in the Room: Knowledge and Inspiration From 20 Women Real Estate Investors. Liz has been interviewed for many articles and top-rated podcasts, including mine, including being a two-time guest on the top-rated BiggerPockets Podcast and the Best Ever Show. On the personal side, Liz is an avid runner, has completed several triathlons and marathons, has two adorable children and is a New York Mets fan. Liz, welcome to the show.

Thank you so much for having me.

It’s nice to see you again. You and Andresa do so much cool stuff with the investor community. I love what you’re doing together, but I haven’t gotten to chat with you about what you’re doing. Why don’t you give us a high-level version of your story of how you got interested in real estate and what your path has been?

It wasn’t a linear path. My husband and I at the time had started dating. Before we started dating, I was in graduate school for Social Work. I got my Master’s in Social Work, wanted to open my practice and help people. That’s always been my passion. I grew up in a great family but middle-class family. My dad was a school teacher. I was never introduced to entrepreneurs or investors. That wasn’t in my sphere of any context growing up. Hard work ethic was there, but certainly the business piece of it, I was not familiar with or didn’t have a lot of exposure.

Until I met my brother-in-law, who was an entrepreneur, started a business and handed me Rich Dad Poor Dad. I’m 23 at the time. He’s like, “You got to read this.” I liked personal growth books. I started in college reading different books and always enjoyed them. I liked learning and growing. I’m a dork in college. I’m reading Awaken the Giant Within and everyone’s like, “What are you reading?” I’m like, “I don’t like fiction.” I still don’t like fiction. I have to learn something from it.

Long story short, I read that. My eyes were open to this idea of passive income. I honestly never heard of that before like, “I can have money working for me, not me working for money.” It was a whole new opened my eye concept, which I know a lot of people have said, but what got us involved, I then started dating my now-husband. We lived about two hours from each other. Every weekend we’d go to all the REIA meetings and start learning.

Make sure you’re mitigating risk for yourselves, but most importantly, your investors.

We’re in our twenties and didn’t know anything. We didn’t have any money to invest, but we said, “Let’s just give this a go.” We start taking courses. They told you to like the door knock. This was before Facebook Marketplace. It was literally opening the newspaper, go to the foreign ads and calling tired landlords. That was the million-dollar tip we got at one of the events. That’s what we did.

Every weekend, literally, we are knocking on doors, right outside of Philadelphia, where my husband lived when I visited him. One day, we got someone to say, “That’s interesting. Let me think about that.” We called them back and struck up a deal. A year into us taking courses, door knocking, cold calling and bootstrap whatever we could do, we struck up a deal and bought our first property. It was a duplex for $150,000. We learned everything on that property. We’d go with people.

When you buy a property, the tenants that are there may not be your tenants ongoing because of a new sheriff’s in town. We learned the whole multifamily. It opened our eyes. It was only multis in this neighborhood. It wasn’t like we chose a duplex. It just happened because it was older homes right outside of Philadelphia. There were only duplexes and small multis. Long story short, we got our start there, we moved to New Jersey and started our business. We focused on New Jersey in buying properties there.

We sold that property and did a 1031 into a four-unit and then that started our trajectory in New Jersey. Over many years I’ve been doing this, we had lots of twists and turns. I wished we focused on multi, but we didn’t. We got involved in a lot of different things early on, like people who get distracted as they do and people that are probably a little naive, little young as well, can do. We flipped houses.

We got into tax liens. We bought a commercial building. We bought raw land. Every random thing you could possibly think of, we probably have done it until we doubled down on multifamily. Our business is focused on multifamily. We went from a 2-duplex to a 10-unit. We grew very steadily. We didn’t go from a 2- to a 200-unit. We did, but over time and now we focus on larger multis and we’re starting a fund where we’re investing with other operators and things of that sort.

We’re diversifying a little bit outside of multi but more from a fund perspective. I’m involved in that, not day-to-day but more from like strategic level, helping build our team out and exciting to be able to invest in different sectors of real estate, not just multifamily, but we love multifamily. We have a letter of intent on a property in the Southeast, which is where we focused on.

Tell me a little bit more about this fund. Let’s dive a little deeper into that.

REW 87 | Scaling Multifamily

The Only Woman in the Room: Knowledge and Inspiration from 20 Women Real Estate Investors

With regards to the fund, we talk to people all the time. People are like, “This sounds like a great opportunity for a passive investor.” You’re like, “I don’t have a building. I don’t have anything under contract right now.” We refer them. We know a lot of people we like and respect in the business. We have no problem with that. There’s a lot of good syndicators out there.

We wanted to have another flavor of ice cream if you will. The fund will obviously be an ongoing rolling fund and it will give investors what we’re going to invest in and all things that we know and that we’ve vetted. We’re not going to start investing in a business that we have no idea about because that’s a whole other level. It’s like mitigating risk. We want to mitigate your risks. You want to make sure you’re mitigating risk for yourselves, but most importantly, your investors.

Hard money loans will be one. We’re going to start to work with hard money operators that we like and respect, that we know to do good business. We were not the hard money lenders. They are and we’re going to do that. Multifamily will be a piece of it. If we have a project that comes up, we’re going to almost invest in our own projects. That will be a piece of it. Those are the two main pieces.

I want to say, even self-storage, there have been operators. That might be another sector. It will be all related to investing in real estate on some level, but it will be in a way that we are not the sole operators of everything. That’s where, as we evolve, it’s like, you don’t want to do everything yourself. Once you figure that out, you got to focus on that. That’s what that looks like. We’re building out a team and that’s been in the making for some time, but that’s the goal.

I’m so fascinated by that idea because I feel like for me too, there’s something that I do well. I do executive homes in Silicon Valley. I’ve got my entire system. It’s all built out. It runs itself. I don’t worry too much about it. I was telling you before that I’m taking all of May off for my birth month because that’s where my birthday is. We’re traveling to Hawaii and going to a spa in Palm Springs with my sister.

I get to have that lifestyle. It is fantastic. I’m not particularly interested in working significantly more. I do get bored because we have construction projects. We have some other stuff going on so that my entrepreneurial mind doesn’t slow down or get bored. What is happening is I’ve found several different syndicators doing different things. I’ve invested in storage, multifamily and a variety of different things like what you were talking about.

I don’t know how this is going to work for you guys, but every single time I invest, it’s a minimum of $100,000. That’s great for us because we have that money. We’re looking to retire. We’re moving that way, but not everybody who’s reading to this show has access to $100,000 for this and that. They want to be able to diversify without spending that much money. What is that fund look like for you? Is there going to be a minimum investment? Have you worked that out? What does that look like?

One organization we’ve started working with is called Republic. Basically, what they do is, in essence, have a similar type of approach in that people could invest $10,000, even down to $1,000. Don’t quote me on that but I’m not familiar. What’s fascinating though if that for our last syndication, it was a 336-unit apartment building. To your point, our minimum was $50,000 on that project. Not everyone has that, but they want to invest in real estate.

Don’t do everything yourself. Do what you do and do it well.

We found this company and what basically they’re doing is they’re the investor in that project, but they’re the ones going out to the accredited investors because it was the accredited investors to then say, “We are all pooling all this money to gather,” then they are the investor in that project with us. Just so Jane Doe, who’s got a $1,000, they’re all pooled in this together in this company called Republic. Republic is ultimately the investor, if that makes sense. It was really cool because that was the first time we’d ever done that because we thought about it. We have a 336-unit apartment complex. We had close to 80 investors. It’s a lot of people and that’s even at a minimum of $50,000.

You had some people who put a $500,000 and some people put any amount. There’s a lot of money assigned. I’m the cheapest person. I would be putting $1,000 at anything. I’m like, “That’s me. I’m in that kind of money.” I know. I get it. That was interesting. We were pleased to see that. It’s a neat approach. That’s the future, to be honest, because I love that concept and I was intrigued by it. As we do other deals, we’re going to be working with them. I’m not sure the relationship exactly and how that’s going to play out in the fund, but those are the neat example for our last syndication that gave everyone the opportunity and that’s cool.

Are they more of crowd funders, syndicators or do you have any idea of their structure? I’m interested.

I’m not too sure which level they are. I heard about it conceptually and was intrigued, but I know that they’ve been around and they’re not just at the start of the company. There are a lot of different pieces around it to ensure how you do it because some funds are accredited and not accredited. There is an of legal stuff and a lot of money to the SEC attorneys and all that kind of stuff.

I know this is a project we advertised because we only accepted accredited. It’s a project that you can’t solicit. It’s illegal to do that. We have these other projects from friends and family, but I know with this particular project, we advertise because we only accepted accredited. It’s a neat approach, but I’m happy to get more info.

Let’s put our heads together. I’d love to know a little bit more about that because I’m always looking for ways. When I get phone calls from my ladies, when they say, “I’ve only got this much, what can we do to that, for that and with that to benefit them in the biggest way?” Another topic that I’m getting a lot for my ladies is this idea of out-of-state investing, especially here in California. There are a lot of markets where people feel like, “I can’t invest in my backyard.” They’re scared to go out of state. I know that you do a lot of multifamily out of state. Let’s talk a little bit about that, share your perspective and how to look for projects and stuff like that.

For our first seven years, we invested locally. We don’t invest more than 30 minutes away. We had a team. We had a leasing agent. We had our bookkeeper who did all the accounting. We have a tenant relations person and a maintenance person. We had literally four people on our staff besides my husband and me, helping us manage our local properties. We bought a property in Philadelphia, which was an 18-unit and now it was 35 units. It’s like, “We can still do it.” The market shifted. I’m in the Northeast and New Jersey is not the most favorable state on taxes in this country. Even in Philadelphia, the projects that we were looking at were getting outbid.

REW 87 | Scaling Multifamily

Scaling Multifamily: We’re not going to start investing in a business that we have no idea, because that’s a whole another level.

 

It was getting more expensive and we raised money. We work with investors. The returns are important to ensure that we’re going to get into the right project. We’re not just parking millions of dollars from a relative. we’re constantly looking at, “How are we going to get into the right area for our investment goals and our investors?” A broker had brought the same broker. That’s the first thing I’d say as a good tip is to start building relationships with commercial brokers.

Sometimes it’s tough, especially now. You think about a hot market. Everyone’s calling commercial brokers saying, “I invest in multifamily. Do you have anything for me? You and 90 million other people.” You got to like differentiate. Keep that in mind too. We had closed that eighteen-unit with the same broker who called us about a property in Lancaster, Pennsylvania, which is about an hour and a half from where we were living at the time.

He said, “Are you interested?” We like, “One hour and a half, we’re not going to send our leasing agent there. We’re not sending our maintenance person there. We need to look into property management companies.” After betting the deal and that’s a great story in and of itself. The first domino always is a good property management company. You’re going to need that. Some people successfully invest in properties and they self-manage the properties. I’ve heard of it. I know a lot of women who do it successfully.

We knew at a 49-unit, it wasn’t going to be our best strategy. We knew it was going to be important to have a local property management company. Why I say that’s a great person to have on your team? Let’s say your sourcing an area in Alabama or wherever you’re sourcing deals. Before even looking for property, start getting to know the property management companies there because that’s going to follow.

If you cannot find a property management company in a geographical area, that might be a sign for a lot of reasons that something is off. Even with Airbnb, I know that’s very hot vacation rentals and luxury vacation rentals or whatever the people are interested in. If it’s a hot area, there are people managing in that hot area. That’s a great source and a great team member to start to talk to. Number one, they know the area, what streets are good or aren’t good? What areas are up and coming? What areas are just too hot and too expensive because we know that’s the case.

In it exuberant, everywhere is like, “Hold on. What do you want?” On my way to Target, at the end of the day, you’re a real estate investor. You never turn it off. I saw a lot for sale. I’m tangent. I saw a sign that said For Sale and a handwritten phone number. I’m like, “That’s a good sign.” It’s a great area and what county where I live. I’m like, “That’s an interesting area.” I texted the person. I said, “How much is the lot? What’s the size?” All the things you ask. “We’ve done a bit of new construction a time, but we could probably pull it off $250,000.” I’m like, “I don’t even know if you’d get $500,000 for the property. That’s just for the lot.”

People are not even with their prices. Going back to out of state, property management companies are helpful to have on your team. What commercial brokers care about is if you’ve closed deals. They do not want to work with people who are going to get to the finish line and not be able to pull the money together because they want their commission. That’s what they care about.

Beyond everything else you want to talk about with them, they care about if you’ve closed with them or with anyone of them. If you or someone on your core team has closed deals that you’re looking for. If you’re looking at 100-unit, you better have someone that you’re bringing to the table that, “This is the kind of team we have and we’ve done. This is what we’ve closed.”

The idea of the diversity of jobs is even more important than job growth.

That is what they’re thinking right now when you call them. This broker brought us this project and we started to talk to property management companies in the area. What helped and I’d always say this, is if you have somebody in your family or network who lives in the area, it is helpful. You don’t need to have a degree in real estate. They don’t have to have ten years of investing.

If you have some boots on the ground and feet on the street, people that aren’t just property management because our property management company is a vendor, we always like to offer our property management companies potential ownership in the building. Every time we buy a building and we say, “We’re syndicating this. Would you like to own part of it as well?”

It’s not the best sign if they’re like, “No.” Even if they put $25,000 and maybe they think that’s chump change. Most of all the property management companies we’ve worked with have invested in our deals. That’s a good sign. That’s skin in the game, so to speak. I would say the second, start to look at, “Is this an up-and-coming area? Do I know anyone in my network that can help me? Is there a reason to go there? Do I want to go there?” If you’re going to invest in an area that those are questions to ask. If I have to now get on a plane, is that on the way to my aunt or my parents? Is this an area where my kid’s going to college for the next four years?

I don’t know, but make it make sense versus an area that literally you know no one. That can work, but if you can blend a few things in there and it is an up-and-coming area, you’re going to want somebody that’s 10 to 15 minutes from the property, whether it’s a realtor, you got to pay them hourly. If you can’t get there, someone needs to get there because fires happen. Things happen. We have a cousin in this area, Lancaster.

When we’re looking at it, we’re like, “What do you think?” He’s an investor, which was even better, but he was able to be our boots on the ground. He’s part of our general partner. It has been huge. We had a fire there years ago. We want to be to make sure everyone’s okay. We couldn’t be in one hour and a half. The fire is probably going to throw a little more damage than ten minutes.

You said so much there, but a couple of things that I want to highlight is I think that people think that you hear about an amazing market and you should just invest in there. I remember before 2008, in the mid-2000s, everybody was in Henderson, Nevada, outside Las Vegas. I have close friends who are all invested. There was also Florida and Chicago.

Those were some big hubs where they were marketing to investors from out of state, especially California, because California had a bunch of equity and wasn’t working for us. Everybody could get loans by just stating things, so there were these pockets that were trending. People were making money hand over fist.

REW 87 | Scaling Multifamily

Scaling Multifamily: You’re going to need a good property management company if you’re investing out of state.

 

I thought I always play the longer trend. I don’t play the short short-term trends. I will admit I would probably be a lot richer if I got that right more often, but there are so many people that get that wrong. Part of it is they didn’t do some of the things that you talk about. It wasn’t a place that I would ever want to visit. It wasn’t a place on the way to anything Las Vegas, Chicago or Florida. A lot of people didn’t have that mentality of, “Would I want to go there? Would I vacation there? Would I want to live there? Would I want my kids to go to college there? Is there any reason for me to go there?”

Even in Henderson, it’s not like people were like, “I’d like to have something in Henderson because I like to go to Las Vegas.” It was, “I’m investing in Henderson because everybody else is investing in Henderson.” I love how you talk about this, especially in your first few deals. This is hugely important is as you’re getting to know what this is like, the very first time you step out of state, you don’t want it to be in a market that you completely don’t understand that you get a bunch of numbers from someone that’s a vendor. They’re interested in selling these properties.

They’re not going to lie to you, but they’re definitely going to paint a very pretty picture. If you don’t know the market and you don’t know anybody who’s there. We had a friend that moved to Henderson and we went to visit them one time when we went on a trip to Las Vegas. He was like, “There are all these crazy investors coming in here.” All around town, people are like, “This bubble’s going to blow,” because there weren’t as many people in the restaurants anymore and there were things that were closing down.

We’re like, “How is it possible that all his expansion is happening, but the Asheville economy is shrinking?” There’s no way to have known that if we hadn’t had this conversation with our friends that had just moved there. There’s all this hype about Henderson, but they just closed down the local, Whole Foods or whatever market it was. I love what you talk about as we don’t have to have boots on the ground all the time, every time. Eventually, you do develop a skill and get to know markets or you focus on certain markets.

Especially in those first few deals that you’re going out. That is all such good advice. Make sure that it’s someplace you would want to go. It’s like basic, intuitive, common sense stuff that we don’t think about because we get whisked away in the excitement of what’s possible. That basic comments and stuff, I like to go there. Is there anything there that I appreciate? Do I have someone that’s relatively close by maybe within a half-hour that they’re not going to be boots on the ground? Just have the conversation once in a while, see how things are going in that market or whatever.

Thank you so much for that because normally, people are like, “You need to look at the colleges, employers or the average income rate.” You do need to do all those things, but it’s not the end of the story. Especially when you’re starting, it’s not necessarily going to give you the comfort that you need to get out there and do it because nothing happens for you until you take action. If it’s just the numbers and that’s not inspiring you to take action, then nothing is happening for you.

Many people do get caught up. There are so many important numbers as you analyze markets and deals, but even just the idea of what COVID brought is the importance of diversity of jobs. Are there different jobs that people can be employed by? They’re literally all in on the tech, government or in whatever industry. The idea of the diversity of jobs is, to me, even more important than job growth.

They’re both important, but just to know that people can get different jobs. These are positive things. There are many markets that don’t have that. Even high-priced areas don’t have that. We probably invest more in the workforce housing, more up-and-coming areas, not areas that are on any hot market list. If those are the two expensive areas, we’re like, “No. We don’t want to invest in an area that’s on any list.”

Your mistakes are going to just make you propel you forward and you’re going to learn from it and you’re going to grow from it.

It’s much more practical advice. My ladies learn a lot of good advice here from very smart people because sometimes we got to ground it. This is how you make yourself comfortable with that. Ask yourself some real common sense questions because so much of building a real business is common sense. There’s a lot of fancy languaging. There’s a lot of people that say things that sound smart, but in the end, it’s a common-sense business. Thank you so much for grounding that for us. That was helpful.

Ladies, we are going to do EXTRA. Liz and I are going to be talking more about building your team. Finding partners, building teams, when you’re in-state or out of state. She likes to say, “Who’s on the bus,” and then team-building with all those people that are on the bus. I love that picture because you’re all going out on a field trip and you’re all on this bus. Where are you going to go? How are you going to get there? Is it going to be fun? Is it going to be profitable? That to look forward to. Before we move to our three rapid-fire questions, could you tell everybody how they can get in touch with you?

In terms of some of the active multifamily projects or funds or to learn more about some of the day-to-day real estate projects, you can go over to my DeRosaGroup.com. My husband got a lot of teaching as well. We’re both love teaching and helping. You’ll see a lot of YouTube content and things of that sort from him. In terms of women who are interested in getting more support from women and getting connected, check us out, TheRealEstateInvestHer.com. From there, you can learn all about our meetups that are across the country and our Facebook Community, membership and things we got going on with helping women.

Are you ready for three Rapid-fire questions?

Yes, definitely.

What’s one super tip on getting started investing in real estate?

Don’t get distracted. Focus on a niche and go all-in on one thing.

What’s one strategy to be successful as a real estate investor?

REW 87 | Scaling Multifamily

Scaling Multifamily: Everyone gets stopped after they lose money and something bad happens, but don’t give up.

 

Don’t give up. I hope you don’t lose money, but you may lose money, like many of us. You’re going to see it potentially. In many years, I can tell you a lot of interesting stories. It had money like the mini Bernie Madoff situation where literally hundreds of thousands of dollars were stolen from us. We don’t give up. That makes anyone that’s successful in any line of business or anything in life, don’t give up. Know that your mistakes are going to make you propel you forward. You’re going to learn and grow from it. If you don’t have that attitude, then everyone gets stopped after they lose money and something bad happens. Don’t give up. That’s the key.

What would you say is one daily practice that you do that contributes to your personal success?

It’s something I’ve always done, then go back and forth and don’t do it consistently. I do daily prayer. I read a little spiritual and think about it. I’ve been doing like ten-minute meditation. I’d like to increase that eventually. For me, it’s been super helpful. I focus on whatever I learned in that prayer. I focus on that in my meditation. If I miss a day, it’s rare, but I have maybe missed 1 or 2 days for four months. Every day, I get that in.

My meditation practice has gently worked its way into my life, to where I don’t even think about it. It started just to happen, then I missed three days. My husband and I were on edge. I lost my temper at a restaurant. I didn’t yell at anybody, but I didn’t have the patience to wait. Nobody saw it, but I felt it. I’m like, “What is going on with me? Who is this person?” My husband was like, “Are you stressed out?” I was like, “I haven’t been meditating. I haven’t been taking Moneeka time.” I have been taking Moneeka time. I got a pedicure. I still do, but that piece that starts my day has been so important. I’m glad you mentioned that.

It’s constant. It’s like going to the gym. You can’t do it once and you’re good.

I always say about bliss, like all of our bliss practices. You can’t just brush your teeth once in your lifetime and hope your teeth are going to be good. You got to brush it every day. You got to keep doing those little things. Liz, as always, I’ve loved our conversation. Thank you for everything you shared in the show.

Thank you so much for having me. This is amazing. I hope I was helpful and gave some content that your audience will help them with.

Liz and I have more to talk about. We’re going to be talking about building teams, who are on the bus, and all of that good stuff. Stay tuned for EXTRA. If you’re not subscribed, go to RealEstateInvestingForWomenEXTRA.com. You get the first seven days for free. Check it out, see if you love it, and if you don’t, that’s totally fine. For those of you that are leaving Liz and I, thank you so much for joining us for this portion of the show. I look forward to seeing you next time. Until then, remember, goals without action are just dreams. Get out there, take action and create the life your heart deeply desires. I’ll see you soon. Bye.

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About Liz Faircloth

REW 87 | Scaling MultifamilyLiz Faircloth co-founded the DeRosa Group in 2005 with her husband, Matt. The DeRosa Group, based in Trenton, NJ, is an owner of commercial and residential property with a mission to “transform lives through real estate.” Liz is the co-founder of The Real Estate InvestHER® community, a platform to empower women to live a financially free and balanced life on their own terms through over 40 Meetups across the US and Canada and an on-line community and membership that offers accountability and mentorship for women to take their business to the next level!

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How Anyone Can Create Stress-Free Passive Income Through Real Estate With Laurence Jankelow

REW 20 | Stress-Free Passive Income

 

What comes after property acquisition is management, and it’s a whole different ball game that can be frustrating for some. Providing a solution on how to create a stress-free passive income is Laurence Jankelow, co-founder of Avail. Being a landlord himself, he realized the cost that accompanies outsourcing property managers, so Laurence and his partner created a tool and system that can automate most of your responsibilities as a landlord. He also explains the importance of having a defined system and process in place as a landlord and shares some strategies on how you can achieve it.

Listen to the podcast here

How Anyone Can Create Stress-Free Passive Income Through Real Estate with Laurence Jankelow

I am excited to welcome to our show Laurence Jankelow. Laurence is the Cofounder of Avail, an all in one software solution designed for do-it-yourself landlords that are used by more than 600,000 landlords and tenants across the United States. Prior to launching Avail, Laurence spent seven years in data analytics first as a consultant at Protiviti Chicago and then at Goldman Sachs. Originally from South Africa, Laurence has a heartbreaking spirit, and together with his Cofounder Ryan Coon, they developed the idea of their company on a napkin that solves the needs of thousands of landlords. I love that, the napkin business plan that launches something that changes the world. Laurence is also a long-term real estate investor with a passion for three-unit multifamily properties. Laurence, welcome to the show. How are you?  

I’m doing well. Thank you for having me.

I’m excited about this topic because few people talk about tools that can systematize the do-it-yourself landlord process and systems is what I call the key to bliss. I only work in my business and I manage all my properties. I only work about 5 to 10 hours a month and it’s because of my systems. Systems equal bliss. You are our bliss guy. I’m excited.  

I’m happy to be that person.

Could you tell us a little bit more about who you are and what brought you to this?  

I’m a landlord myself. I’ve got six units in Chicago. I started my first foray into real estate buying a three-flat from a friend who I worked with at Goldman. When I was there, you’re a full-time employee. You’d imagine that a company like that you’re putting in some hard hours and I had these properties on the side and it’s tough doing both. My buddy and I, we constantly stay in contact about real estate investments. He was doing the exact same thing. He was at a different bank and we got together and saying, “What are you using?” We would share stuff with each other. I would send him Excel spreadsheets of what I was using for a rental application where I’d merge cells together and make it look pretty, print it out, and give it to a tenant to fill out. He’d have his rent roll in Excel. He would show me like, “These rows are highlighted in green because I received the rents.” We realized that’s not how professionals would manage their property. We went looking for software tools and systems as you’re saying to help us and automate it. What we were seeing were only things available for someone if they had 1,000 plus units at least back then.

For us, we could do those, but the costs would be more than the rents we were making combined. Not feasible. It was then that we decided we’re going to quit our jobs and start a business that helps solve this problem. We realized it wasn’t just us. It was other landlords of our size and nature. What we didn’t know then was how many of them there are and there are eight million do-it-yourself landlords with less than ten units out there. A large audience we set out to build it. We couldn’t get an engineer to come and do it for us. We didn’t have the money. We rolled up our sleeves and taught ourselves to code and built the website completely ourselves and then it took off from there.

We started thinking about, what are the things that we need to do to manage this property that a professional already has access to? We thought if you need to find tenants, you would normally go to the MLS. We couldn’t do that so we started thinking, “Where else can you put listings?” We built a tool that syndicates the listing to Zillow, Trulia, HotPads, PadMapper, Lovely, all the places that tenants look for houses. We hooked into TransUnion to get criminal credits and eviction background reports. We hooked into a payment system to allow tenants to pay their rent online. We provided state and city-specific lease agreements that could be signed online. We took all of the operational stuff of being a landlord and moved it online and automated 90% of it. You could flow through it quickly and get back to either your life or your other full-time job.

[bctt tweet=”Property managers definitely provide a lot of value, but they also come at a huge cost. ” via=”no”]

This is the thing and ladies that are reading, understand that the large investors are such a small percentage. It’s a large business in the United States. The biggest percentages of businesses are small businesses. What makes the world go round there? They’re what makes our economy go round. It’s also true for landlords. Most of us are the little guys. You can be a multimillionaire and be a little guy but setting up these processes is going to be key to keeping it easier for you. 

The average number of units that our customers have is three units. Most of them only have one unit. You can see it’s skewed towards more if you don’t mind the term mom-and-pop landlords, it’s the small business landlord.

A lot of people talk about the way to keep it blissful is to get a manager. I have never gotten a property manager. It’s not my way, but I will say that I have all my properties close to home. Mine are all within a 50-mile radius. Talk to me about do-it-yourself versus a manager and let’s talk about distance. If I were to invest outside of California, which I’m looking at doing because of the way prices are and lending mostly is what I’m thinking about, could you talk a little bit about that, Laurence? 

Property managers provide a lot of value but they also come at a huge cost. For most landlords out there, that cost is going to take you from being profitable to potentially breaking even, and more often than not, not making money on that property. Typical fees to find you a tenant can be something a half month’s rent or full month’s rent. If you want the manager to help you with handling maintenance and collecting the rent, then you’re paying 10% of the rent. On $1,000 rent on one unit, you might be paying $2,400 for the year and that might be the entirety of your profit. If that’s you and you’re using a property manager, your best bet is probably to sell the property because it’s not worth it. If you’re not making the money, then you shouldn’t necessarily be in it. The alternative is to try to figure out what is that property manager doing? How can I do that myself, affordably, and not do it wrong? The value that a property manager is going to do is they know what they’re supposed to do and they have access to tools. If you can get access to tools and you can get access to a process when you’re not going to make mistakes, that’s your better path.

Is the cost of the software significantly less? It’s going to be less than 10%, but it’s another one of those things that I think about that’s going to be another cost involved. You don’t need to give us numbers, but could you give us an idea of what that looks like?  

I don’t mind giving real numbers. When we set out to create Avail, we did it with the purpose of reaching everybody who needs that assistance. It’s free. If you want to use us to list your property and find tenants or collect rental line, all of that’s free for an unlimited number of units. We do have a premium version of it. If you wanted to, for instance, have late fees be automatic, you might want to upgrade for that but by no means, do you have to do that? We’re trying to put it out in front of everybody, make the process seamless and easy. If you put any price point on this, especially because most people aren’t making that much money on the rental, that’s probably a misconception that people have out there that small landlords are rich but they’re not. The average person, maybe they’re making $100, $200 a month on a single unit. It has to be affordable for them. When you compare that then to a property manager, it’s night and day difference.

Thank you for that. Talk to me a little bit more about the process of instituting this into your business.  

That’s critical even if you don’t use Avail or software, you should have a process at the very least. The process is always better supported by some system or software, but your process should always be the same. You want to go through a standard way that you screen tenants, find them and you’re describing the property. Those things help you avoid violations of fair housing laws. You want a lease agreement that you know is going to work for you, state and city. You need all those things and you need to create a process around those things. Similar to rent payments, you have to decide upfront, what are you going to do when a tenant doesn’t pay? Do you charge a late fee? How many days, grace period do you want to give? Also, the law dictates some of that too. You want to know those things and set up that process. If you’re trying to save time and money, you might want to also then supplement that with a software solution that’s going to fit your process. The process is first and foremost, the most important thing that you should try to do and set up when you’re becoming a landlord or if you’re already one and you can’t describe your process in those areas I mentioned, it’s a good time to take a look at that.

REW 20 | Stress-Free Passive Income

Stress-Free Passive Income: In real estate, in general, you do want to be educated in what you’re doing and understand your legal requirements and your obligations.

 

One of the things that I tell people through my coursework is the best way to start setting up a process when you’re going through it the first time is to take notes on what you’re doing because the smaller landlord isn’t usually doing this on a daily or monthly basis, they get rents once a month. They might buy a house once a year. If you have to reinvent the wheel every single time, that takes a huge amount of emotional and mental energy and time. Many of us are busy. A lot of the ladies that are reading this are executive women with high power jobs that are already working 60, 70, 80 hours a week. They don’t have the time to reinvent the wheel and then it hinders them from taking their business to the next level buying that next property when they’re ready. I love this idea of having that process set that is all automated. For me, what I have often said is take notes the first time you’re doing it so that you’ve got those notes and you know what you’re doing the next time. Talk to me a little bit more about if you’re a first-time homeowner landlord and you’re setting up your process for the first house, what is it that you go through to do that? I know that I beat the bush around that but this is what I’m thinking about, Laurence. As a busy woman, do I need to learn a bunch more software and spend a huge amount of time setting up processes that I’m not going to understand is going to cause me frustration? That’s the real question.  

With Avail, you don’t have to learn much. Although we take significant pride in teaching people, we try to do it as they’re going through it in a way where it doesn’t feel like you’re having to sit down and study for a course. In real estate in general, you do want to be educated in what you’re doing and understand your legal requirements and your obligations. It’s time-consuming and hard to go and teach yourself those things and curate that stuff. That’s where I feel like Avail is super helpful in curating a lot of that content for our customers. If you’re a first-time landlord, depending on if the property you bought already has tenants or not, there’s a different path you would take. If it doesn’t have tenants, then you’re going to need to find your first tenants.

Our system is essentially going to ask you to add your units. It’s going to guide you through how to create a listing step-by-step the entire way through. It’s going to tell you where the listing is going to go, why it’s going to those places, what you should do when a lead responds to your listing, how you should screen them. It’s going to give you canned messages to use. A lot of it’s designed to keep you from being in legal trouble. You don’t want to put in your listing something perfect for families or young couples because you’re going to get sued for housing violations. We provide a lot of that material and then next to it, we’ll explain why it’s written such a way. It’s up to each individual how deep they want to go into the learning or if they want to adopt the process we’ve created for them.

Ladies, this is a thing, no matter where you get started, you’re going to have a learning curve. If you can get some tools that are going to help with the learning curve, even if there is learning there is going to be, how long is that going to take you? This sounds like a tool that will speed up that process, right?  

Yeah. If someone’s getting started and they don’t know what they’re doing, let the system do it for you and you can learn as you’re going. If you want to change what the system is recommending, you can, but by no means, do you have to?

Could you tell us about how to find a good real estate deal?  

Good real estate deals are everywhere and hard to identify. I’ve always thought when you make your money as a real estate investor is at the beginning when you buy it. You have to buy it at the right price. I don’t know that I can specifically say, “Go to this website and you’ll find good deals.” When you’re looking for a good deal, there are some things you want to look at. I’ll throw out some terms that are relevant. I don’t want to term wash people here, but for me personally, I look at what the gross rent multiplier is a lot. Each city or part of the city will have a multiple on the rental income that you’d expect to pay. If you can get under that multiple, then you’re essentially getting a good deal. It’s a quick way to assess if it’s a good value or not. It’s a twelve times rent in Chicago standard rent multiplier, where I buy my properties. If I can find a deal that’s less than that, I feel like I’m getting something of value there.

Give us the formula for that because people throw around that term a lot.

[bctt tweet=”A process is, first and foremost, the most important thing that you should try to do and set up when you’re becoming a landlord.” via=”no”]

The gross rent multiplier is you take the purchase price and you divide into that, the annual gross rental income, and that will give you a multiple. If you make $10,000 a year on gross rent and the place costs $1,000 then that’s ten times multiple. If you can get what the average is for your area and you get under it, then you know you’ve at least got a good deal for the area. You can’t stop with that though. That’s a quick weed out. You didn’t have to look at the rest of the numbers and how they fall out and what’s it going to cost you to run the place versus what you’ll pull in. Are you expecting vacancies? All those things you should try to use some tool to calculate out a net operating income for the property. What a cash-on-cash return might be for the property and is that better than your next best alternative? For me, I look at properties that have a minimum of 10% cash-on-cash. If I’m buying $100,000 property and I’m putting $20,000 down, I want to make sure I’m getting at least $2,000 a year in net income out of it, or it doesn’t meet my cash-on-cash requirements.

Let’s slow down with that, Laurence. That was good. I want to highlight it. Ladies, we talk a lot about leverage. You buy $100,000 home, but you only put $20,000 down. How much money have you put in? Your cash investment is $20,000. When we’re talking about cash-on-cash, we’re not talking about how much you are making on $100,000. We’re talking about how much we’re making on the money that you put in. It’s so you ladies know, I account for the entire amount of money that I put in. Let’s say, for instance, I put $20,000 in and I had $5,000 in closing costs, my cash-on-cash is on $25,000. I do it a little bit differently than others do it but you should have that number. What does that look like for you each year? What’s important to you? 

I couldn’t say how important that is. It’s critical. You’re going to make all your money by buying correctly. It’s not one of the easier steps to do. There are a lot of online tools that will help you calculate that out. Avail has one as well that people can find, we call it our rental property calculator. It’s something that’s valuable. When you calculate that cash-on-cash return, that’s the thing you should potentially look at, what other investments are out there? No one’s got unlimited money. You want to take what your best option is. If you can get more than that rate somewhere else, by investing in your friend’s hair salon, in the stock market, or in something else, then you potentially should be doing that instead. Real estate generally is a good investment cash-on-cash that doesn’t have the full picture either though, because there is appreciation in a property. You can start to calculate out an ROI or an internal rate of return that runs the gambit of things, but the point is no matter what those terms are, those are easy to google and look up and then try to plug in the numbers and see what you get.

I remember the first time I heard all these terms, I thought, “You’ve got eyes to all these numbers. This is confusing.” I’m good at math. I was a loan officer so it’s not that I’m afraid of numbers, but it gets a little confusing. Understand that all of those terms are out there. If you hear a term that someone says on this show when you’re reading a book or you’re studying and you’re like, “I don’t know what that means,” look it up on YouTube. If you’re more visual, you can look it up on Google, they’re all there. It’s all self-explanatory. Don’t get intimidated by that. As you’re doing your process, do start to learn what those numbers are and why they’re important for you. 

I hope your audience doesn’t take it the wrong way. I feel silly for trying to plug our website, but if you do a Google search for Avail Rental Property Calculator, they can use that calculator. You don’t have to sign up. It’s free. It will explain all the terms as you go. It’s good especially if it’s the first time you’re buying a rental property.

Thank you for plugging your software. I’m excited about looking at it.  

I’ll try not to plug it too much.

One of the things that I’m excited about is, we’re going to be talking more in EXTRA about how to run your real estate investing as a business. We’re going to move into that but before we do that, Laurence, could you tell people where they can reach you?  

REW 20 | Stress-Free Passive Income

Stress-Free Passive Income: In rental properties, it’s important to realize this is a business. If you don’t think of it as a business, you’re never going to think in terms of how to grow the revenue, minimize expenses, and treat customers well.

 

If they want to reach out to me personally, I’m happy to do that. My personal email is Laurence@Avail.co. We couldn’t afford the dot-com. They can reach me there or they can go to our website Avail.co. They’ll see it as a live chat widget. They’ll see a lot of different ways to reach out to us or they can sign up for a free account and check it out. I’d love to give people a discount on the price, but that’s hard to do. What I can do is if you sign up and reach out to our service team, we can go ahead and give you a free rental analysis report. You type in the address of a property that you may be buying or listing, and this will return what the fair market rent price would be for that property.

Are you ready for our three rapid-fire questions? 

Yeah, absolutely.

Laurence, tell us one super tip on how to get started in real estate investing.  

It will be tough if your audience will think of this as a super tip, but it’s essentially doing it. I know when I was thinking about it, I hummed and hawed for years about it. I was nervous about it. I didn’t feel like I knew what I was doing. It’s easier when I started because on Google, there’s so much information out there. Maybe that makes it harder to waste because there’s so much to look at and you don’t know where to go. My super tip is, get started now if you’re nervous about it, go in with a friend, co-investing is good. You de-risk it a little bit. You have someone to help motivate you and guide you along. If that’s what it’s going to take for you to get started, get a friend in and do it now.

Give us one strategy on being successful in real estate investing. 

For me, I’m lucky that I was a Finance Major. I’ve always had this mindset because it got drilled into me in college. If you’re going to buy a rental property, it’s important that you realize this is a business that you run. Even if you only spend a couple of hours on it a month, it’s still a business, it has revenue, expenses and some liabilities. If you don’t think of it, a business, you’re never going to be thinking in terms of, “How do I grow the revenue? How do I minimize my expenses? How do I treat my customers well? Tenants, or customers, we want to treat them well.” That’s where you get into where slumlords may come in. They don’t view their tenants as customers. They don’t necessarily view it as that business where you want to reward your retention of customers. Treating it as a business is critical if you’re going to be successful.

What would you say is one daily practice that you do, Laurence, that contributes to your personal success?  

[bctt tweet=”No one’s got unlimited money, so you want to take what your best options are.  ” via=”no”]

I like to end the day knowing that I’ve accomplished stuff, even if it’s potentially the wrong stuff. I want to know that I’ve moved a needle forward. Every single day I make a to-do list. Sometimes I’ll do it the night before, especially if I feel like I won’t be able to sleep. I’ll have a to-do list of 10, 12 items. I won’t end my day until my to-do list is done. That way I know I’ve accomplished stuff and I can keep going. That provides me the motivation to keep things headed in a direction that’s going to be successful.

Thank you. That was such great information. I can’t wait for more in EXTRA but thank you for what you’ve shared so far. 

You’re welcome.

Ladies, in EXTRA, Laurence is going to talk some more of the specifics about how to think of it as a business. I do a lot of mindset stuff around that, like the employee mindset versus the business mindset, but Laurence has specific keys to what makes it a business. It’s not your mindset, it’s the things that you do. How do you structure? How do you look at the numbers? All of those pieces are what he is going to share with us on EXTRA. This is going to be juicy and valuable. If you’re already subscribed to EXTRA, please stay tuned. This is going to be amazing. If you’re not subscribed to EXTRA, but would like to be, go to RealEstateInvestingForWomenEXTRA.com. You get your first seven days for free. We’ve got about 50 EXTRAs up there, so you can binge on them and you can get this one too. You decide after that if it makes sense for you to stay subscribed or not. If you’re leaving us, thank you for joining Laurence and I for this portion of the show. I look forward to seeing you next time and I appreciate you, but until then, remember goals without action are just dreams. Get out there, take action, and create the life your heart deeply desires. I’ll see you next time.

Important Links:

On this episode, we talk about:

  • How to handle issues as a DIY Landlord
  • What tools and resources are there for you
  • Should you use a rental manager?
  • How to evaluate real estate deals
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