#8 - Real Estate: How The Wassermans Do What They Do

the partnership was gonna dissolve and you guys were just not gonna do real estate anymore cool yeah because he was in big credit card debt and we weren't making much money the first few years so he was he was really ready to get a you know a g j b a job you know and he almost couldn't spell job at the even know what this is it's a go b literally i never out a job of my life yep that's my friend keith was and if you can't tell i think it's been a little while since he had a job keith and his wife galen atlanta are into real estate and i've been excited to do a real estate episode for a while real estate in ent me because instead of going to a desk and work on a job getting a salary people own real estate have properties out there that are working for them and that's true wealth to me when your assets earn you money pay you in cash flow every single month and so i wanted to find out how they got started in real estate how they make money in real estate and the difference between their two models because they're very different they are a husband and wife duo which is really cool but they actually do very different things galen started off as a broker on the commercial real estate science she was one of the few young female brokers doing commercial real estate in california and she since transitioned to doing her own real estate development projects where she buys building and fits it out to serve the purpose that she's looking for her company sky is really interesting she talks a little bit about that and keith talks about his company guilt what keith does is different keith is what we call a s indicator where he raises money from investors and he buys buildings that he thinks he can add value to increase the rents or cash flows and then sell it after some holding period of maybe five or seven years they got started back in o eight right after the real estate crash and owned at that time zero dollars of assets and knew nothing about real estate and if you fast forward were just about ten years together they've purchased over a billion dollars of real estate assets and done phenomenally well so i'm really glad that they flew up from la to do this interview and i hope you like it but as always you guys will let me know just feel free to leave a review i read every single review and so that's the best way to to send feedback alright time for the episode are we good to go yeah whenever says we're ready we're ready okay great we got a full house today so we have glenn and keith was this is the real estate episode i've been looking forward to doing a real estate episode for a while mostly because my strategy is just if i'm interested in it i just assume all the listeners will be interested in it and i'm interested in real estate so we've had a lot of tech people we've got some cool other people coming on like poker pros and people have made a million bucks in all different kinds of ways but real estate i think is probably the most common consistent way real estate is the sort of game of the rich and so i'm excited to have you guys on to break down what you do how you do it how others could do it that sort of thing so why don't you guys give me each just sort of a thirty second intro on each you and galen we're gonna start with you because so far over breakfast before the podcast i've realized that gil lane is the one i go to for the good stories so why don't we start why don't we start with you give quick little intro quicken intro is i started an office sales and leasing doing brokerage and i was a ten rep broker and i transitioned into buying single family spec homes building them ground up and renovating them and selling them and and from there i transitioned into purchasing land in angeles mainly urban infill locations and building ground up apartment buildings as well as purchasing older existing non rent control apartment buildings and extensively renovating them from top to bottom alright keith how about you yeah so beat that i saw i sort of tricked elena here to into coming really did she's the big boss but it was her birthday yesterday i said we're going to san francisco for twenty four hours and we slept her in here into the podcast room and but cheat she is my rock and really we really feed off each other i started in december of two thousand eight this was the depths of the recession my cousin damien came to me with the opportunity to buy a four unit building and a city called bakersfield california i said where the hell is bakersfield up it's around two hours north of los angeles he drove me out there and i'm like are we really gonna do this and he said yeah this is you know ground zero for where real estate prices tanked and we could buy this one little building for a hundred fifty thousand dollars it previously sold for five hundred thousand dollars i could get an fha loan only two and a half percent down living in one of the units rent out their rest and literally learn learned the local market and just got started you know plunge in head first with one little building and two and a half percent down we we we we borrowed five thousand dollars from a friend we got a cash advance of ten thousand dollars on our credit card which we used for the renovations and literally that's what got us into business december of two thousand eight and when you started were you like were you trying to get into real estate your cousin says hey check this out at that time was your plan to get into real estate and this was just a good opening so were you trying to do something else altogether yeah it's a good question sean i've always been very entrepreneurial i've never had a job with for anyone i've always worked for myself i always told myself i'd rather work for myself and do something very small and grow it over time than you know work for someone else and literally and why is that you just don't like being told what to do or you're too was it is it pride what what i think i just don't like being told what to do i i i like motivating others and empowering others at fifteen years old i went to downtown la and purchased a hundred of these leather jackets that were ten dollars a piece they were perry ellis retail for three hundred dollars and you know you you ask what how can buy them so cheap they they were irregular they had little tiny blemishes and i learned importance of making money on the buy and one of my mentors was like don't be afraid to negotiate they were asking maybe fifty dollars a piece and you know i paid them all cash i borrowed a thousand dollars when my i dad and i bought these jackets for ten dollars a piece and then i went and sold them of the trunk of my car to all the teachers the jan the parents of the students this was in high school and sold them for around a hundred dollars a piece so i met around ten grand and i love it so you said something in there that i wanna touch on you said i learned to make money on the buy mh i've heard other people in real estate say this i've never heard people not in real estate say this so explain what it means to make money on the buy yeah you you make money on your buy you you find value where others don't see value you know when people we're fearful and we're you know losing the real estate and dumping real estate that's when we got in and gotten started the business so you you wanna look for either distress or something that's the values off and we bought that for first four our mortgage payment was like seven hundred hundred dollars and each unit rented for six ninety five so you have two units rented you're you're cash flowing positively three or four you're cash flowing like a pig it was sort of like a no brainer and now you knew that going in you were able to look it when you were buying and say the mortgage is x the rent is gonna be why yeah i will make money today without doing anything special on this yeah i mean just like you know we were discussing when you bought a def website for pennies on the dollar you saw i had a big user base you saw you had a different idea for it you made money on the buy buying it cheaply adding value and and resell and that's what we do in real estate we look for value where other people don't see either through re renovation you know buying something that's mis manage managing it better or building from the ground up and creating something that people really wanna need and so for me that like make money on the buy is counterintuitive because i typically think okay i'm gonna buy it for whatever the price is and i just try to think what am gonna sell this for and that's like kinda dangerous because i'm forecasting i'm guessing i focus on making money on the sale because that's typically when you make money is when you sell it but what you're saying is that you wanna go in and know that when you're buying it you're buying such an opportunity or you're buying it on the cheap you're buying something that other people aren't seeing so you're so confident at your buy price that this thing is gonna make money you're not guessing about a future potential sale someday down the road is that is that the best way to think about totally totally correct so after bakersfield we bought three hundred fifty units in bakersfield two thousand nine ten we moved into phoenix and phoenix was decimated really blood was in the street they had a hundred thousand people leave when they pass that immigration bill phoenix was epicenter for the housing boom and sub subsequent bust and we always knew in our hearts phoenix would rebound i didn't know it be that quickly but it was the fifth largest city in the united states you know it was very affordable for people to live and we came in there also when people were fleeing the other way at breakfast we were talking my wife here glenn literally i we got into phoenix two thousand ten and we went walked into the brokers offices and no one was there it was ghost town and galen do you remember this yes yeah what was the what was the vibe like from your your point of view well when we actually toured the first property that gal bought in phoenix the broker who was touring us was incredibly rude and we were very young i we were held twenty three twenty four keep was asking us questions like where's is your money coming from do you even have any money and how what do you guys own and he thought we were a joke i mean right a bunch of twenty something year old kids walking in touring this fairly large building and that that got ke blood boiling so he was determined to buy that building and and that particular broker actually had no sales for that year i mean the the market was dead and it was really really hard to make a living in real estate and that broker actually came came out to be a long trusted friend and actually investor of gil so you you sort of had a revenge buy and and turned it around turned the relationship around with that guy look i've learned in life it's all about your reputation you you wanna treat people honestly in unfairly did all the brokers in phoenix during that two thousand eight nine had a really hard time they weren't making sales and we had one of our best buys when we went in there in two thousand ten and we bought four hundred and fifteen unit apartment community on the main drag on camel road right by the be hotel we paid sixteen million dollars for it and that was a big buy for us i mean this was we had a race five and a half million dollars of equity the previous biggest raise for us was maybe half that size maybe two and a half million and literally we had you know to close on it with our personal lines of credit we had to borrow money from friends it took us six more months to actually raise the money after we closed the deal to pay off the people we borrow the money from but looking back that was one of our best deals we we probably invested around a million dollars into the property and renovations and we sold it a few years later for twenty seven million and then there's an old adage in real estate you know you never wanna sell actually if you if you if you don't have to sell the best thing to do is over time just refinance be able to pull out all your money and it's like a slot machine it just keeps paying off so if you have a piece of property in a good location that's improving and you take good care of it you never wanna sell because you know over time one of my biggest mentors at time and inflation are real estate best friends and literally that same building rest sold for forty five million dollars a few years later this is true heath actually told me that he would divorce me if i sold one of the sky buildings that had tremendous upside after we completed the renovations after two years so he he definitely preach what he it's very tempting to be able to sell a building and make a big pop but in the long run it's like a good stock you know i i had netflix in in two thousand two two thousand three all my barb some money in there and you know i sold it when i doubled or tripled now it's gone up a hundred fold so i'd say you know if you believe in something it's a good company a good piece of real estate you know a a good friend or it's a relationship you you wanna hold it hold it hold on to it for dear life and right let her you know ride no love it i wanna start with the the basics because i'll just put my hand up and say okay i'm a real estate owner but i own my own condo which i actually don't consider to really be like a real estate investor right because i'm not cash flowing out of this i buy a place because sort of the emotional draw of owning your own home and really maintaining it and that sort of thing but i'm interested in real estate right we just sold a company i'd love to get in the real estate game and i don't know how and i think there's a lot of people who are on the fence not on the fence in terms of their decision making they kinda know yeah i wanna do this they just don't know the exact pathway in and so we're gonna talk about a couple different ways that people can get in one is through investing in other people's projects and the other way is doing your own projects and you're on both sides of right you do your projects but plus you have investors so let's break it down into really really simple terms there's a amazing subreddit which is like a little community called el five which is explained like on i'm five so somebody will go post something like you know the recession and then everybody at the game is everybody else trying to explain as simply as they can like they're explaining it to a five year old what is that thing and so we're gonna play el five we're gonna have you guys explain in very very simple terms how the game works so let's first take it from the point of view of i'm an investor right i have a hundred bucks and i wanna work with guilt i say wow you guys are amazing you guys have a billion dollars in property under management you've been doing this for ten plus years i'd like to put my money into you guys because i think that that would mean that i will make more money in the future so let's walk through it i give you a hundred bucks do i just give it to you blindly or do you come to me with a property real estate is a very ill asset class it's not like a stock where you can just click a button and sell it and get your money out which is what i actually like it and you don't see the the fluctuations every minute every hour every day like i check my stock portfolio too much just because it's a a habit and you know you people act on emotion if they see something going off down real estate i'd like the ill liquid nature of it it's sort of like you're more stuck into it so we tell in our investors only invest money that is just sitting in an investment that you don't need to tap and you have no plans to tap it alright ladies and gentlemen if you want to make your first million you gotta be open to feedback our sponsor monday dot com is back to help you reach your goals with another weekly dose of the monday dot com motivation okay here's the thing about feedback you wanna ditch the compliment sandwiches when it comes to feedback make it honest the best big ideas benefit from constructive conversation so you gotta think it through talk it out or type it out visit monday dot com slash pod slash million to get ten percent off and hear how they're fully transparent platform can help you exchange ideas increase workflow manage workloads and get one step closer to making that money that's right when dot com that's who we use to organize the pod it is an awesome platform just to put a project together share ideas and like i said get feedback very very quickly alright back to the show right so my hundred dollars should be a hundred dollars that i'm not trying to use for groceries the next week correct so let's say i got my hundred bucks i i don't need it i'd like to put my money to work for me i want my money to go earn me some money so i give you the hundred bucks what's the expectation on that hundred bucks is it that i'm gonna get two hundred bucks out of it like what is a normal return for somebody who puts a hundred dollars into a project of yours yes so when we're underwriting our deals we try to find properties that throw off at least in the range of six to eight percent cash on cash return meaning i i think in a hundred thousand so if you put in a hundred thousand dollars so i never explain like five i five years old i don't even know what a high hundred dollars okay so hundred dollars you get back six to eight dollars per year okay and that's in cash flow and the beautiful thing about that cash flow is there's a a phantom expense that you're not actually spending called depreciation that you could write off it's as if you're were spending it and so that cash flow you're not gonna be paying taxes on it for many many years because of the depreciation and we do something called the oh this is this is not for the five year but accelerated depreciation so it sort of front loads that depreciation but basically you know if you're earning income from your job you're gonna be paying uncle sam yeah if you're earning income from cash flowing property most of it if not all of it in the beginning years is sheltered and you're not gonna be paying taxes on that so six to eight dollars on your hundred back to your question on the investor for five year old runaway away five year old random so you guys have two kids right i'm gonna break it down real quick thank you joe gives me a hundred dollars but before he gives me a hundred dollars joe here is about a property that i'm buying in phoenix and let's say it cost a million dollars mh and i said joe i'm buying this property for a million dollars i'm gonna put another five hundred thousand dollars into this property and with that five hundred thousand we are gonna renovate the property meaning we're gonna put a new kitchen cabinets its new paint and do a whole package and if you give me this hundred dollars we're gonna put it in with the other investors for a total equity raise of let's say two hundred thousand and once we complete the renovations the property is gonna give you a cash on cash return meaning your hundred dollars is gonna earn you sixty eight dollars every year and that sixty eight dollars is gonna be distributed to you every quarter so every three months throughout the year and every three months throughout the year you're also gonna receive newsletters that will tell you what it is that we're doing with the property if we hit our returns what the pro performer a looks like with where the cash flows are today what the operating expenses are of the property meaning the cost of the property management company anyone that we hire utilities any capital expenses we need to pay so let's say for example the roof is now all of a sudden needs replacements so we'll do that and so you just sit back and you collect check let's it and we didn't mention our fourth member of the booth today of the podcast which is i think one of your investors also guess number one of my podcast so easier here so is this true can you just verify are you getting a check every quarter for for these investments yeah absolutely love it i put in a little bit more than a hundred dollars but i love getting six dollars every six eight dollars every year on the property that i invested in and you told me because when i sold the company i was like what i with my money and you were like you have all these options but your favorite one was real estate you got you said you and her family you kinda had bunch of duplex in florida that you know you're like this is one of the best investments i ever made talk about how you've invested real what do what you think about so in two thousand eight you guys invested in in bakersfield in phoenix those are some of the places that were hit hardest by the financial collapse of the system my parents were living in florida in this county called lea county home to fort myers and that was actually the fastest growing county in florida during the entire real estate boom and so therefore it was the hardest hit in san francisco where we're filming this it costs about a thousand to fifteen hundred dollars per square foot to buy a piece of real estate in florida at the time in two thousand eight it would cost thirty to forty dollars per square foot to buy a piece of property so what they would do is an my parents would go and buy a property for sixty thousand dollars rent it the next week for six hundred dollars and over time what's happened is that property is worth two hundred and fifty thousand dollars and just like you were saying time and inflation are real estate best friend now that property rents for fifteen hundred dollars or sixteen hundred dollars so all of the money that was put into the property has been paid back four or five times on every month my parents i own about ninety properties single family homes in duplex in florida so they'll generate about a hundred and fifty to two hundred thousand dollars of just rent every month and since they never took a loan on the property all of that just gets paid to them every month that's really friendly from a a tax perspective so when you sold the company sean i recommended you invest in real estate because i think that's the best way to get rich slowly and the most reliable way without getting lucky to get rich is real estate i like it i think the way you said that to get rich slowly which is not usually advertised so you know the the name of the podcast is my first million and i think we kinda get the general idea of how you made your first million which is you started buying a property started with the four p and went up from there but i wanna know about the time so he said get rich slowly how long from the day you started doing real estate when were you when did you get to the point where you were a millionaire you had a million bucks from from doing this how many months years how long did it take definitely definitely slowly you know the first year we bought fifteen of these little four p with a few family friends we didn't start making bigger money until we started generating larger acquisition fees and asset management fees and when we started dealing with bigger properties the four places were just a great way to cut our teeth and really learn the business i'd say you know and when we started buying the bigger properties all the acquisition fees we made we actually reinvest in the property so we even went you know even slower we didn't actually put our pocket which is good because that property you know went up tremendously value so our you know acquisition fee doubled or triple over over the years and that became a lot more so i'd say the first you know three four years it just took you know a lot of time and energy i was i was my personal burn rate was pretty low i was living at home for the first few years and you know i i'd say once we started buying the larger properties and once we started selling them then you know i hit that million dollar mark so that might've been next five years yeah seven years maybe fa we bought our first bigger property you know full year later and but we didn't start selling them you know for at least three years so i'd say maybe four or five years it took yeah and glen were you guys together during this whole time or when did you guys we we were so keith and i met right as the market had tanked it was in two thousand and eight and tell the story because you would tell me this right before we started it and i was pretty funny how did you guys meet so cold calling believe it or not so i was a a tenant rep broker and i had a client and they were looking for it was a physical therapy tenant they were looking for a ground floor space they could put a pool in and keith family owns a property in tarzan and it's a office retail property cold called his father who literally would not take my calls but it was persistent when he finally picked up he goes what do you want and told them him have this client and goes how old are you oh go i've got got asked that a lot as a female in commercial real estate there weren't too many of us so i told them i'm twenty three he goes i have a son he's twenty four he's buying properties in bakersfield and i was i was pretty much who cares and can i see the builder or not so i get to the property and keith apparently is there his father had asked him to show the building which was very unusual because keith keith had no involvement in the family real estate so he was match making for sure yeah definitely a hundred percent and he's still looking for his commission fee by the way and had you just like not had a girlfriend in a while or why was dad why was dad so into this i think he likely heard you know ambitious girl not many women in real estate you know about the same age and a real persistent hungry hustle you know i think he said why why not give it a try he never even saw he he didn't tell like he didn't tell you at the time oh no absolutely not show this property he said yeah he could do me a favor i mean and my dad's my role model and you know we worked together and he said could do do me favor open the space for you know this this in this person of this day and i said yeah and when glenn walked up i said are you with the the real estate brokers you she said i i am the real estate broker you're looking at it the broker so okay so take it from there so you guys meet yeah and keith was really in i mean he was a lot to handle so he started asking what do you do what do your parents do you know where did you go to school do you have a boyfriend and i was like jesus back off you i just wanna see the building and and i was pre touring the space for my client and he then asked me if i wanted to go to yogurt and it was three o'clock in the afternoon and y white yogurt and not ice cream because the tenant that was in the in the property at the time was a yogurt tenant and i said no i have to get back to work and really honestly wanted nothing to do with him and that was how we met if that was two thousand and eight okay and and well now we gotta know how did he turn it around oh consistent persistent i mean in real estate you have to be persistent and keith was definitely persistent when it came to trying to chase me down and so he'd call me every friday and mean and i was now engaged with his family to try to do this deal and so i couldn't exactly write him off so trying to keep it respectful and professional and so he showed up i was out with of my girlfriends friends at palo camino and he showed up with his friends that one night and our friends hit off and we started hanging out we became really close friends and keith and i were friends for nine months before we actually started dating so i just gave in alright love it persistence pays okay great so you you were describing you know how long it took to sort of get that breakthrough of making your first million bucks but you liked playing the game why do you guys like real estate because you won't do something for five years sort of waiting for that payday if you don't enjoy i can believe that this is gonna work what do what do you guys like about it keith didn't mention the hardships though so going back to that real quick we keith had just purchased a home i was doing office sales and leasing i was making money i finally started making some significant money i was waiting tables at night at one point because the market had tanked and it was just very difficult to make a living and i was paying the the the mortgage and actually keith was not making any money we he had the four p but they weren't they weren't exactly profitable in fact i think he mentioned he sold them at a loss one of them one of us sold one for a loss of like thirty grand and actually reached into our pocket and made that one investor hold so we could continue to say we've never lost an investor any money which is pretty cool yeah and i remember i made my first big big sale it was a office building on wi boulevard and i think i made a commission it was like six figures that money never hit my account it went into keith to pay off his line of credit and so i want the listeners to know it may appear from a distance that you know you make a million dollars and it's an overnight success and it it really isn't there's is a really long trajectory of of just doing the same thing over and over and over again every day until you finally get to where you wanna be do you remember what sort of the low point felt like like i think yeah on sol episode he talked about you know he gotten at the end of the road raised a bunch of money tried something had to lay off people tried to raise money again couldn't do it took out his personal money they finally shipped the app this is my favorite part of the podcast he goes you know didn't even wait to see what happened he just sort of knew like this is not gonna work so he just like left work early went home watch netflix ate had a much ice cream went to sleep i love it and was just mentally preparing himself like okay this chapter of my life is over i need to move on this this thing totally failed and so like that i loved hearing that you know what the low point felt like yeah do you remember any stories about that yeah keith why don't you mention of how damian and your partner basically was ready to walk away and quit and the partnership was gonna dissolve and you guys were just not gonna do real estate anymore yeah because he was in big credit card debt and literally we weren't making much money the first few so he was he was really ready to get a you know a g j o b a job you know and he almost could spell job yeah like i don't even know what this is it's a go literally i never had a job of my life and my director of county was telling me you know about hiring and they're like she's like yeah well you know when you fill in you know your what do you call it application like i've never filled a job application i've never had a job i mean i've always done my own thing but nick keith came home real feeling really defeated and he said i don't know what i'm gonna do and damien he's ready to quit and he's ready to leave and he's not making any money and these guys are now and they're early thirties damien a little bit older is in mid thirties and they restructured yep so basically when we started doing our deals we had a different deal structure where every dollar of cash flow went to the investors we did not as a company gal and not splitting that and one of my mentors is like what are doing you're gonna be really cash poor but real estate rich you gotta you know have some money to to live off so one of the best things we did is we have something called a preferred rate of return and generally it's seven percent so the first seven percent of cash flow from the property goes to the investor anything above that we split fifty fifty so if the property throws off let's say nine percent cash flow the investor gets that first seven and we split that next two percent one point each so that starts really really adding up for these large apartment communities that we're buying and as we buy more and more of them and it really aligns our interest better with our investors because we real estate it's a game to you know for a long term game to you know play and and hold on to real estate long term and this way we're we're not you know we're aligned to hold it long term and not sell when we have a big gain in equity because we weren't really seeing any money when the property went up in value tremendously and the incomes went up tremendously we weren't really seeing any of that so anything above a certain preferred return we split with investors and it's really helped us start bringing in significant cash flow and you're saying at the beginning you didn't have it set up like that at the beginning we didn't have a set up that yet that way we had a and that was because you just didn't know didn't know yeah didn't know i didn't i even know there's a you know real estate s indication that's what we do real estate s indication i didn't know that was real really a business i thought just in the individuals you know bought little properties here and there and own them and but you know sold them and you know i don't really didn't understand it until i you know i read my mentor book it's called a principles of real estate s indication sam freshman has been a long term partner and friend and mentor and really opened my eyes to there's a real business of being in the real estate business rather than just being a investment broker or doing investments on the side which you know people could do you can have a job and then invest slowly biz but this is our full time business owning and operating these these buildings yeah and so you when you syndicate indicate you're saying you find a building great you go to phoenix you go a bakersfield field you go to one of these markets that you believe in you say this is great property and we think it's a goodbye we think we can renovate it we think that we can raise the rents and this will be a good project over time and you go to investors and you say hey would you like to invest in this real estate project i'll do the work you put in the cash and then i'll go from there who did you go to initially and just give us a sense of like how many investors are in the s authentication pool right now yeah so i'll start from the beginning that you know that first deal we got an fha loan you know owner occupied so you only have put two and half percent down it was only five grand and we didn't even have that so we borrowed that from a friend the second building now what's fha stand for federal housing authority believe it's your first time home buyer as long as you you live it could be from a one to four unit place so it doesn't have to be a single family home it could be up to a four p so and this still exist somebody could go to stay where they put two percent down i think it's like three point a half maybe but definitely and it has i don't know if you could do it in certain market like here in san francisco or la it has be in certain price points i think it caps at a certain dollar amount but definitely that's a one program and how did you find out about that just google i've read about it someone told me why don't you get an fha loan and you don't need twenty five percent down and you know and you're like yeah cool and then you like google later what put it like fha yeah and literally you know the the second building we bought the first building no investors you just did the fha yourself yeah second building i put my savings for my other business thirty five thousand dollars down as the down payment third building my dad put the thirty to forty thousand dollars down for the third building and then what we did is we sold forty nine percent of the llc that owned those three little four p to one of my dad's previous lawyers that used to work for him and was calling him and asking him about just he he lived in israel and saw the real estate market was crashing in the us and he wanted to deploy i think like two hundred thousand dollars which was like huge for us at the time so we sold forty nine percent of that entity we marked it up because we brought these four places that were boarded up and for lauren and forgotten and and we made them into cash flowing assets and we marked that up and then we used that two hundred grand to buy as the down payment for another three or four buildings so and when i when i go into like projects like this or when i've i've looked at a couple of duplex or four duplex the one thing that i was thinking about is i don't know how to do a renovation i'm not a contractor i don't wanna get ripped off i'm assuming there's more people go out there who are also similarly scared were you guys scared about this you know you're glenn you're of developer actually as you're kinda of full time thing now so how did you so i'll tell figure out how to do that you know what i literally just did it and we i we talked about earlier i bought my first single family home in west tu lake i purchased it for four hundred thousand dollars the seller who sold it to me carried a hundred thousand meaning he gave me a loan and i got a loan for another three hundred thousand so essentially i went into the property with zero of my of my own money in and i had no idea what i was doing i i didn't even know how to put a nail you know nail it you use a hammer put in a nail not change a light bulb nothing i partnered with a general contractor that i had met for a client of mine that was using him to to rent an industrial complex in burbank and what i did was i partnered with him but and this is very critical i did not let him touch a penny of the money because most gcs especially the smaller scale ones are unable to manage a business and manage money and so i paid all the subcontractors direct which was critical because twelve months later he felt bankruptcy and had he touched the money i would been in big trouble but i relied on him a lot and everything that could go wrong went wrong so we purchased this home in west to look lake it had immense termite damage which we did not know when we originally bought it because we we hadn't opened up the walls and so we ended up having to take it down to the sticks and i was scared this is my nightmare right my nightmare is i buy this property the contractor goes bankrupt of twelve months later and by the way the property has termites and we have to rebuild it right we basically that's exactly what happened but luckily timing was on my side and so the longer it took the property value went up and i was scared every single night of that project i mean i months and it was all my own money we had no investors keith and i did did that together i don't even think we were married we were maybe engaged and the property ended ended up getting completed it ended up in the la times as home of the week how i don't know it sold for one point four million i think we netted a hundred k on that on that project over maybe twelve months and that's essentially how i did it i mean keith had google i had general contractor that i partnered with that was very difficult to work with but by golly we did it so knowing what you know now i'm gonna ask both of you questions i'm gonna ask you a question of knowing what you know now if you're going to a project and you don't have that contractor experience you know you just did it but what what what advice would would you have for you know the next sort of twenty four year old version of you who's like i'm gonna get my first property try to do a renovation and add value knowing what you know today so what advice would you give as far as the renovation component you will never know everything that you need to know in order to do any project whether that's real estate or something else and really honestly the only advice i could say is do it you will learn from doing it whatever hurdles you come across you will figure them out and if you can't then perhaps maybe real estate is not the business for you to be in right and then on your end i'd say you started with a four p and it seems like the money is really made in the much bigger properties yeah so if somebody was getting started today they don't have a ton of resources the way you did right it sounded like you did three four p probably for a total cash in of like seventy five grand or something you said thirty grand and one thirty grand and the other and the other one you put two percent down so not much money so if somebody was in the same boat where they don't have a ton of resources would you recommend also starting with something like a four or a single family home or would you recommend just finding a way to get to a bigger i depends if do you wanna make real estate your career or you wanna do something else so if you're if you wanna make real real estate your career yes start small and and grow you know one we start with little four places then we bought a ten unit that a twenty unit and just now we're buying four hundred unit complexes so i'd say if you want it to be clear you start small and grow it over time or or you you go work for for a real estate company so you could learn that way i mean there's a lot of different paths you could work in brokerage that's a great way to learn and and make money at the same time or you know you could which i i like you know we have around seven hundred you know accredited investors from all walks of life people that own their own businesses people that are retired people that are younger older as long as you're accredited and they work and make their money and then every deal we have they plow a few bucks into it and over time they have enough assets with us where if they didn't wanna work they don't have to be because there's enough cash flow coming from all those those properties and you know i even talk about like when you refinance the building and the that's tax deferred money you get you're not paying taxes on that and when you sell a building you could do a ten thirty one exchange and essentially roll all that money to another building without paying taxes so definitely over time you're gonna build wealth in real estate and but do you wanna do it as a business like like myself or do you wanna do it as like our seven one of our seven hundred investors that they're they're doing other ways to make money and this is just one of assets in their portfolio they might own stocks they might own some bonds and mutual funds and keith give them the example of our friends who put in twenty five k yeah i mean i so literally our our minimum our stated minimum is a hundred thousand dollars however if someone wants started with fifty thousand and that's more comfortable fine if someone's younger and as long as they're accredited twenty five thousand even and yeah glenn you know one of our friends came in with twenty five thousand on a building we boxed we paid twenty five million for it in salt lake city around two hundred twenty units four years ago so we raised maybe around six million of equity we sold it recently for forty million dollars it was a huge windfall you know they they doubled or triple their money but along the way they were making around ten percent annual cash on cash or more so you know that was a big windfall for someone like themselves but it was they got a taste of you know real estate and you know i even talk about every month you're paying down your mortgage so you're building up equity that way so over the long run you're gonna make money through the building appreciating you're gonna make money through paying down your mortgage slowly month my month you're gonna make money through the cash flow appreciating and the beautiful thing about real estate is there's enough of it for everyone it's not like a winner takes all in the you know the uber and lyft world world where maybe there's one or two guys that that defeat the whole market it's like there's enough real estate for everyone you right you know i come from the startup world and i almost feel like i gotta take one chip out of my brain and put a different chip in if i wanted to do real estate because you know in real estate or the stock market i think warren buffett rule is like rule number one of investing don't lose money you know like in startups is the opposite it's like rule number one expect to lose you know on nine out of ten investments or like twenty eight out of thirty investments you're not gonna make money but on those ones you do you get this huge return so i i literally think i would have to rewire my brain to like fully understand the real estate game and and play dev played both games at once so i'm interesting i play both games i think i i i might be missing chips in my brain or something because i play the angel investing side i started doing angel investing you know small checks into the people we knew and then they started telling me about other people and and so forth but it's i angel investing is just another asset class where you know we we started a small fund we put together four and a half million bucks we had you know these seven hundred investors that just didn't have access to these kind of investments so we brought on a partner who's based here in bay area who who works with entrepreneurs and other people in ecosystem and you know we were the main lp we put in around thirty three percent of that equity my partners and i and it's just another nice alternative asset class and yeah we we've made twenty investments and you know knock gonna what none of them are to zero yeah but we're expecting you know a bunch of them to go to zero and a few of them to maybe make even money a few of them to make you know two to five x and god willing we have one or two that make a hundred a thousand x and we have a few at least three that are on the right path so it's just another alternative investment real estate is a great you know safe long term play to make good cash flow and you have all those things i said whereas on the company side you're investing in companies you know really early you just need one or two to really hit to make up for all the failure so right totally different kind of system for sure yeah when you go through you know your real estate projects and you're looking for multi family units my understanding is that a lot of people are sort of in this multi family game now has it changed since you know when you started ten years ago is the is it like super saturated now do you think that oh now it's time to go look at some alternative assets or do you still think multi family is the way to go tremendously i mean we had like very little competition when we got started people were running for the exits and that's when we got started and the way we get deals and now is it's all relationship you know broker relationships seller relationships these a lot of smaller deals maybe you could buy principal principal or off market but large these large you know two hundred unit and up complexes are all widely marketed and literally it's it's you know you either got a bid the highest or have the relationship with the broker and the seller to really get awarded of the deal but we're definitely being way more picky nowadays than than we were got started to give you guys some perspective there were four forty six offers forty six offers on a ninety two apartment building that sky bought in pasadena forty six and how much was that billing what do you pay for it twenty three and a half million i got awarded a deal by the same seller that was only twenty six units across the street and i was told i got it and then all of a sudden over the weekend something changed there was another buyer that was in contract with the seller and they said that they were gonna pull the deal from them if they didn't give them the deal so anyways i spent ten thousand dollars doing my due diligence and now all of a sudden that money was gone because i the building was no longer mine so i wrote the seller think you card with some guilt chocolates that we mailed over to them and it worked out for the better because then we ended up getting the ninety two unit apartment building instead of the twenty six unit one and so how did you end up being the highest bidder for that ninety two apartment or ninety two unit deal it's a great question so i it's about seeing value where others do not and so when we looked at the apartment building the floor plates were really odd it was occupied by a college and they had three bedroom one bath floor plates that's not very rent so we looked at the layouts and we realized okay if we did some recon we changed all the three bedrooms to be two bedrooms one bath on one side and one bedroom one bath on the other side we would yield a higher rent for those units and they also had units that were tiny i'm talking a hundred square feet micro really small and most of the people that walked through the building didn't see value in those units whereas i looked at it and thought this is great can i get more of these these rent i furnished them through resource furniture who it's a modular furniture company that specializes in micro units and those are some of our best seller we have a waning list for those units and then the other key to that was i've done big renovations like this before i knew the building had tremendous problems and so i knew what my numbers were really well and then in addition to that i do this little trick and maybe i shouldn't share this but i will where i will post on craigslist with a picture that looks a little bit different of the interior units to see what the feedback is in terms of what kind how many calls can i feel your ab b testing the design that you should have for the apartment using craigslist branches wow and i talk to those tenants and i say hey would you pay this amount is this too high as this not and they'll tell you which is incredible and so i know where my market rates will be so ab test pricing as well using craigslist in asking people yes will you pay this so you pay that exactly and and that's how i i know not only do i know my cost on the renovation side i also know what the market will be and it's not just based on lease comps which is important to do as well but it's actually talking to your renters and knowing what it is that they want amazing so i i wanted to ask a couple of questions about the gal playbook so the way i often think about businesses is there's sort of a playbook that you develop over time and that playbook is sort of a repeatable model that you can use to compound the value of your business over time talk a little bit about the get playbook and let's do it in in a lot of different pieces so let's first just talk about acquisition how do you find properties to buy what geographies do you look in do you avoid markets like san francisco new york la what sort of cap rate what year of construction what level of value add talk a lot about those pieces yeah so if you look at our portfolio recently we've been buying a lot in salt lake city seattle reno portland we stay colorado and west denver is our biggest market we started buying there maybe three or four years ago it's been booming we've been seeing double digit rent growth every year it's finally slowing down a little bit because they've been building a tremendous amount i would love to buy in in the bay area it just i can't generate any real cash on cash return and our investors love getting that mailbox money that cash flow that just those quarterly distributions if i bought in the bay area here i'd have to buy something with little to no cash flow immediately that being said areas like the bay area or la where there's big supply constraints over time generally have done better because it's so supply constraint either geographically or because of housing policy however i mean a a lot of businesses are leaving these kind of areas because people really can't afford to live here and especially the people at service you know the jobs and how are they gonna afford i mean they're paying fifty to sixty percent of their their income for rent so we typically like markets you know people are maybe spending twenty to twenty five percent of their income on rents like san antonio has been booming it's it's the i think eighth largest city in the us it's not sexy like austin or dallas but definitely we see some great opportunity to buy there so you avoid major cities where properties own cash flow you look at sort of secondary cities where the properties are gonna cash flow what about year of construction yes costs generally we're buying seventies through nineties built buildings i typically like those buildings they're lower density they're larger units and they're older so they need you know renovation and you know to take you better care of them that being said we've made a lot of equity gain on a lot these buildings and some of them are sort of like money pits and we we did budget a good amount of money but maybe you know there there's issues with you know billings are like people they break down over time right for you guys now what's the tip typical deal size how much equity do you guys raise how many investors does that come from sold what's the average you know the last deal we bought was sixty three million dollars in denver it was around four hundred units we raised typical around twenty five million dollars of equity from around two hundred investors so you could say the average investor put in you know around a hundred thousand dollars but we had a whole bunch that were fifty thousand some twenty five thousands and that's you know then we have some larger ones that put in a quarter million up to a million dollars so always tell our investors put a little bit whatever a little bit means to you you know a little bit it could be twenty five thousand it could be a million dollars it depends on who the person is and put a little bit into a lot of deals because you never know which ones are gonna actually perform better than others and glenn to you see yourselves doing this for like twenty more years or forty more years is this the is this the game or is this kinda get in get rich get out no i i i love real estate i love what i do i think keith does as well although keith has a lot of other passions and interests such as investing in early seed startup companies but know the game plan is on the sky side at least one to two properties every year on the acquisitions buy and hold and create tremendous value and i'm particularly also interested in creating housing that looks a little bit different than what the traditional model is today talk a little bit about that what do you mean so on the sky side what i'm noticing is the renters that we have are freelancers they don't work for any they're not they're not grounded in any particular company they're the travel they move around they could work from home one day from somewhere else another day and i think that's gonna impact what kind of living we're providing so flexibility is key and so we're trying to provide that in in the sky built projects short shorter term rentals micro units furnished units is there working space too because they're working from home our freelancing yes great question so in the sky ninety two unit ground up apartment that we're doing in east hollywood there will be a fairly large we workspace and there will also be a coffee shop on the ground floor and people want design centric apartments they don't wanna live in vanilla you know shell you know ugly kitchen cabinets they want to feel like it's their home and so that's what we're we're essentially providing it will not look like any typical apartment building sky projects almost look like a hotel and have the amenities and services of of a hotel and we we still are able to keep our pricing you know slightly above what the traditional apartment unit runs for gotcha and so with this let's say this trend i've also seen airbnb get into the apartment game we work in the apartment game is this something that you are a part of like you're like yeah let's partner with these companies is this something like you compete with them or you just think they're a joke how do you think about airbnb and we work getting into the game of building these multi unit built i think the more the mer i think the more options that renters have even better and it will it will force developers such as myself to think more creatively and provide housing that is perhaps maybe more affordable or at least if not affordable flexible so to answer your question on the sky side i'm actually doing partnerships and collaborations where i'm in talks with common on a property right now for covid living i'm in talks with sandra right now on another project in hollywood i've been talking with star city and you know avon day and so various other companies who are providing this living you're gonna see more and more partnerships like that and and sky is definitely interested in those partnerships and what's been like for you as a female in a pretty male dominated industry what have you experienced and then what would you advisors for you know the next field who's was coming behind you so i'll tell you guys a story when i purchased my first multi family land that i was gonna build multi family there i was a little nine unit department building no one wanted talk to me about a loan there i couldn't get anyone who return my calls finally i found one lender and i happened to have been pregnant at the time and i was really scared to disclose that information because i was afraid that people would think i wouldn't work anymore and what does that mean for their investment and to the lender and so forth and so the lender that was giving me the loan says look you have the loan but can we talk about the elephant in the room i said what elephant and it goes well i heard you know you're you're you're pregnant like who's gonna take care of the child and what do you mean like wolves are gonna take care it but what do you like who do you think is gonna be i'm like i have it handled you know i i i have help but it was a really awkward conversation and it's certainly not a question that keith gets asked but i do and we did the loan and that particular lender ended up lending on fourteen million dollar acquisition that we did on another land deal that we did and a twenty million dollar property that we bought so the the relationship with stood the question but i gotta asked that a lot and if you ask me the balance question i will kill you i wanna ask you the balance question i don't even believe in balance good but my question is more like how did you handle it when you sort of get these questions like like were you like do you react do you get up do you sort of you know call out how how inappropriate question is or do you just sort of you know sort of like spin it or handle it with grace in a different way i think i kind of make fun of it a little bit but in truth i don't have time to react to it i have to keep going i have to keep moving forward i have time to get angry over it it is what it is hopefully in the time that we exist in today you're starting to see a movement of you know we're we're going down a different path in terms of you know equality and providing the same pay to both men and female i never really had time to get angry over that and never really bothered me but i am liking the the the transition that i'm seeing i'm okay with it at the end of the day my head is down i'm focused on what it is that i'm doing and i'm gonna keep going and if there's roadblocks in the way whether they be questions such as can we talk about the elephant in the room or you know doubting me because now i'm starting a family and i'm i am i gonna be able to maintain everything that i'm doing you know i'm happy to answer the questions and it's hard having a family and working full time it it's really hard to when we had our first child i had her on a wednesday and i went back to work monday wow i have so i'm expecting our first child in september and congrats i feel like i'll be hitting you up for tips on how how to night nurse automatic night nurse okay night okay so how if i'm somebody who's listening to this and i'm feeling you know pretty inspired by this well would you give give us a couple of you mentioned a book give us a couple of resources that people could start using to educate them because i know in this we threw a lot of terms out there there isn't really time to sort of break them all down what's a good starting point for somebody to to start dipping their toes in the water yeah i mean i learned a lot via twitter actually i i follow people that are you know in the real estate business or i'm interested in technology in the technology business i i learned how they think i think super active on twitter yeah i i just i love it i mean i i've met so many amazing people on twitter and it's led for me to make some amazing investments and get some amazing tours and it's just a great way to meet people and talk with people in in today's age i think i'm real big advocate of what's your twitter handle it's keith underscore was just search my name keith was and you you can follow me on twitter i'm very active on instagram also just search keith was on facebook also so i'm a big believer in social media and really showing you know what what we're up to and you know just spreading the message and i'd say on the real estate front yeah definitely my mentor books principles of real estate s indication it was a great one i read a ton of other real estate books and just there's tons of information out there you just you know you could feel free to you know message me key at gal inc dot com you can email me you know i'm i'm always trying to help out you know younger people and people that are trying to get into the business yeah i who should be reaching out and i guess this is your opportunity to sort of plug anything that you're working on or interested in what's a way that they could you know stay engaged with with you guys besides that i i think if we wanna help people i i'm not opposed to people sending us a deal and saying like here's a deal we wanna do it what do you think you know here's here's our business plan for this we get approached oftentimes like hey how do we break into real estate and that's a rather bland question i mean i could give you a million different answers on that but if you have a specific project and you need help on the underwriting or you need help on like how where do i go to raise money for this or what lenders do i talk to i think that's a better start if if you're really serious about getting into list you've done some of the work yeah you're on your way right and i think to answer your question i i don't i don't tweet but i think meeting as many people as you possibly can who are in real estate is very helpful so i would suggest joining urban land institute at they have a young leaders group they also have a you know over thirty five an older group and it's great you'll meet a ton of people that way who are in real estate doing different things in real estate and i was active when i first started and was super helpful love it yeah that's great advice glenn elena i mean i i get specific questions i think the best thing yeah if if you're you're looking at an opportunity and ask specific questions is is definitely the best thing and tell everyone about the the charity that you guys have and what that does so in case people wanna get involved yeah yeah so we started a five zero one c three called resident relief foundation and we helped renters that are at risk of being evicted due to financial crisis so we've helped around seventy individuals and families that were unable to you know make make the rent and the average grant has has been around one point six months i thought it we're gonna have to help people a lot longer but people are very resilient and the most common thing is being a job loss but we've helped a lot of people that are on you know different social security and different programs that had a temporary lapse in their payment that we had to bridge the gap for that and you know due to fair housing these these large management companies they have to treat everyone the saying they can't say oh this person gets to you know pay their string their rent along and be a little late and this person they have to treat everyone the same so we we come in and we work with management companies we literally whoever they they target that that's been a responsible renter for at least nine months no previous eviction maybe only i think one late payment will accept now could apply to our program and it's been funded by ourselves we we find a hundred percent of all the overhead and we raise money from the outside so different brokers we do business with different investors of ours anyone that know wants to give back in in the ethos of the real estate and apartment business because without renters we wouldn't even have a business so we're we're really doing a lot of homelessness prevention here around a third of our residents didn't have any other place to go they they would have been on the streets and we need really focus on the homelessness issue a multi pronged approach we're just one aspect of it you know obviously building more housing obviously the mental health issue but definitely the prevention piece is what we're trying to tackle and it's a a real startup up i mean we're it's we're a grassroots you know we've helped seventy families hopefully next year you know be a hundred seventy families and eventually we wanna get you know government money involved in in addition to large family foundations and show that you know we have a heart for renters and we've kept this many people in their homes and it's a win win win scenario it's a win for the landlord because they get to keep a responsible resident that eventually goes back to paying rent on it in a timely manner they don't have to worry about turn cost on the unit you know renovating the unit they don't have to worry about eviction costs it's a win obviously for society you gotta keep someone off the streets it's a win for the resident because you know we you really it's a support system for the person we provide financial you know literacy through a partner and we provide my sister's a phd psychology so she's worked with a lot of the different vets that have applied to the program she works with veterans in her day job so we we have a lot of volunteers and that are part this program and we're trying to really expand that so that's definitely something i'm i'm passionate about awesome well keith carolina elena i i appreciate you guys coming in i appreciate you flying up to san francisco for the podcast it's been amazing thank yeah thank you guys yeah thanks for having us and it's a pleasure