The “Conveyor Belt” System That’ll Build You a BIG Portfolio

David:
This is the BiggerPockets Podcast show 632.

Gino:
It’s not when you start. The bottom line is you start. I think now is the perfect time to start because you’re going to need several months to have broker relationships, to start talking to investors, to start refining your business plan, to get into the market, and by the time you get into it, the cycle’s changed again. I mean, it’s changed so many times in the last two years that if you’re ready to start, just start today. Make a commitment. Figure out what your why is and start today. Whether it’s single family homes, whether it’s multi-family, whether its self storage, whether it’s mobile home parks, pick a niche, learn it really well, education times action equals results, and understand why you’re doing it.

David:
What is going on everyone? My name is David Greene, and I’m your host of the BiggerPockets Real Estate Podcast. Here today with my super uber talented co-host Rob Abasolo as we are interviewing Jake and Gino, multi-family specialists, fun guys, smart guys, and good guys. We had a great time on the show. Rob, what were some of your favorite parts?

Rob:
Well, these guys, they’ve been on the show a couple of times, actually. I believe they were on show 186 and 266. I didn’t have to look that up. I have every single episode memorized, just a fun fact about me. They’ve really had an insane career where, I think, I can’t remember off the top of my head, but I think the first time they were here was 300 units, then 600 units, and then this time around, they’re coming to us with around 1800 units. Check my math on that, but yeah, I mean, they really covered everything from their three-step framework to things like certain philosophies that they have like the conveyor belt theory, which I think we got really into the nitty gritty of that there for a second, too.

David:
Yeah. They had so much perspective on real estate investing in general and multi-family investing in specific because they’ve been doing it for so long and at a really high level. So I would definitely make sure you listen all the way to the end because we get into how to know if syndication is right for you or if you should keep things small, how to understand how market cycles and exit strategies relate to each other. I thought that that was really, really powerful.
A lot of people are worried about, “What market are we in? What should I do in this moment?” and they’ve found a way to combine exit strategies with where you are in the market to come up with something that will work no matter what the market does. So make sure you listen all the way to the end because we get into some really good stuff there.
Before we bring them in, today’s quick tip, brought to you by BiggerPockets and Rob Abasolo.

Rob:
Today’s quick tip is going to be, if you have not picked up your ticket to BP Con 2022, it is going to be super, super, super exciting. You’re going to hear keynotes from me and David. If you want to pick up your tickets, I think we are, so far, I think we just announced it and we’re already 25% at capacity for that event. So you’re definitely going to want to get a ticket before we sell out, and if you want to get your ticket, you can go over to www.biggerpockets.com/events.

David:
Yeah. This is going to be a blast. So I highly recommend. The tickets always sell out. There’s people that want to get in and can’t get in. So go there and get it now because it’s going to be a really, really good time.
All right. One last thing, if you are listening to this on YouTube, please go leave us a comment. Tell us what you think about the show, what you liked, what made you laugh, what you’d like to see more of. We read those and we do shape our shows based on the feedback you give us. So leave a comment on YouTube not when you’re driving.
All right. Without any further ado, let’s bring in Jake and Gino.
Jake and Gino, welcome to the BiggerPockets Podcast. How are you two doing today?

Gino:
We’re doing great. How you doing, Dave, Rob?

David:
Don’t fall for their names and the mafioso vibe that Jake and Gino bring. These are sweethearts of men who have been incredibly gracious. So I appreciate you guys. So this is what? Is this our third time having you on the show now?

Gino:
Yes. Let me go back and look at the notes. It was BP 186 and BP 266. The first show had 674 units. The second one, we had 900, and here’s the third one, third time’s a charm, my friend.

David:
You know you’re dealing with other podcast professionals when they do your job for you by providing that background. Thank you very much for that, Gino. So since we last talked to you guys, tell me what’s been going on in your world.

Jake:
Yeah, no, I think to the Gino’s point, we’ve continued to grow. We dabbled a little bit in syndication. Didn’t really turn out to be the tool in the toolbelt we were looking for. Since then, Gino, you said how many units were we at the last time we did the show?

Gino:
We had 900 at the last time.

Jake:
900? Yeah. So since, we’ve done up over 1900 units, multifamily apartments acquired. Currently hold about 175 million. We have 70 full-time team members within our organization, our family of companies, and we’re sitting on about 130 acres of land that we’re looking to development, to develop, excuse me. I’ll go back a little bit, though. We did three syndications, and it just wasn’t a good alignment of our values in terms of what we were looking to do.
Typically, it’s been Gino, myself, maybe his brothers invested or we’ve had a couple senior people on our team invest in the deals. We put a JV together, a partnership, and we go out and buy an apartment building. We said, “Hey, look, this syndication thing seems pretty interesting. A lot of people are doing it,” and it just seemed like it was incentivizing us to sell, and these deals are so hard to find, especially the really good ones.
Over time, because we’ve bought deals internally, we’ve built up this really nice cashflow snowball every month and it continues to grow. I mean, the inflation stuff has definitely spread that yield curve out a little bit more for us, but that’s really what we enjoyed doing, and we wanted to continue to build out a vertically integrated team.
So we sold two of the syndications off. We still hold one, but everything else is just owned internally, and it’s really what we like to do. We like to get the employees invested in the deals. Now, we’re looking at doing some build for rent developments in the future because we’ve built out our capex team is what I call them. It’s our renovations team that goes in and handles a lot of this stuff, and we have a great community behind us, too, that’s closed over 45,000 doors and about three billion in multifamily assets. So it’s been a really fun ride to say the least.

David:
Okay. So if I hear you right, it sounds like what I heard you saying is that it’s getting so difficult to buy, that there’s certain scenarios where you’re looking at selling and then there’s others where you’re looking at literally building and developing because that makes more sense than buying something.

Jake:
So no, not necessarily. So we’ve done, I think, six or seven deals in the last four months. What I really recommend everyone to do is to have multiple tools in their toolbelt. That’s why we added syndication. That’s why we’ve done creative financing. What it’s done is there’s been more competition at the larger deals because there’s more private equity coming into that space and those deals are getting more competitive. So we’ve actually downshifted a little bit to three, four, five million dollar deals. So we’ve been doing more of those in addition to we’ve been buying land because we have more resources, more skilled people on the team.
We started a development company. One of the guys on the team got his general contractors license so we can reduce the GC fees. So ultimately, yes, to a certain extent, the bigger deals have become more competitive and they’re less attractive to us, but we’ve just downshifted and pivoted to stuff that we started out with, but it still makes sense for us because we’re buying them internally.

Rob:
I actually wanted to touch on something you mentioned earlier because this is something that I’m really starting to get into myself. You said that you try to get your employees invested in your deals. Can you talk about what you mean on that, specifically? Are you paying them via equity or are you actually asking them to invest in the syndications that you’re putting together?

Jake:
So yeah, we’re actually not doing syndication. So it’s people on our property management team. You hear the term ESOP get thrown around, employee stock ownership program. Essentially, these are people that are participating on the deals on at the property management level, and once you’ve been with our organization for two years, we actually open it up after … You’re peer reviewed at that point, making sure that everyone on the team is in alignment. Then we’ll allow you to actually invest dollar for dollar into the deals that we’re putting together.
So those people are actively participating on those deals, and it’s worked out really well. I mean, we’ve had multiple refis with team members pulling out anywhere from $50,000 to $70,000 on these deals and then they continue to reinvest the funds into future acquisitions.
So really, it’s something that is a little bit unique to us. I’m sure other folks do it, but it’s worked really well because these people now are seeing the benefits of their work from an ownership perspective, and in a tight labor market, it’s done a great job of retaining folks because it’s not just a job because here’s the deal, as an entrepreneur, I don’t have a cap. I can make as much bleeping money as I freaking want to and as much money as my creativity and hard work will allow.
As a W-2 employee, you cannot realize the same thing that I can because we’re playing different games. Say, it’s not fair or whatever, that’s just the world we live in. So if you want to play in that different space, we’re trying to find opportunities to open it up for folks. I think that’s worked really well and we’ve seen some people make a good amount of money working with our team and they’re continuing to grow. With the development deals, it’s going to be the same thing. Once it’s stabilized and we have it up and running, we’ll allow those folks to invest at cost dollar for dollar.

Gino:
Hey, Rob. I’ll share a quick story with you. One of our maintenance techs, one puts $6,000 into a deal. His wife is telling, “Don’t. You can’t do it. You’re going to risk the money.” So he puts in at $6,000. A year later, he gets back, $18,000, goes to his wife, he’s all pumped. The wife says, “Why don’t you put more money in a deal?” I mean, you can’t have it either way.
The thing that I like about it more than anything else, you have property managers now going to us and saying, “Hey, Jake, Gino, we need to raise rents.” Whereas before, they weren’t invested in the deal, they’re like, “I don’t know if we should raise rents.” Now, it’s about NOI. It’s all about valuations, and it’s all about-

Jake:
Let’s be honest. They were resistant.

Gino:
Yes, yes. Well, and that’s what it is. Socialism doesn’t work from the perspective of owning real estate and when they’re part ownership, and it’s really the vision that we’re trying to create. That’s the vision that we want to have in our organization. We sell education and mentorship. So we want our team members to be bought into multifamily and to be bought into that vehicle, and the best way to do that is to have them allow us to invest side by side with us.

David:
There’s something powerful about aligning interests in that way. I’ll just say at a general level, the way most people try to change other people’s minds is by shouting at them, condemning them, making a big scene, being really emotional or pounding their point, and it never works. The second that you get somebody who’s invested in the thing the same way that you are, their mind just automatically changes on its own. I think that’s really smart of you guys where you will see property management that is adamantly opposing, “We don’t want to raise rents,” because that means more work for them. They got to go sell the tenants. Maybe some tenants leave, they got to fill the units. So it’s in their best interest. They’re looking at it to keep status quo.
Then they’ll find data to support that. The second that they got skin in the game, all of a sudden it’s, “Oh.” They’re looking at that P&L saying, “Hey, we can bump up our ROI by 4% if we just put rates to market level magically.”
I I think I’ve struggled personally in life where I’ve always looked for the cheapest option and I’ve sometimes missed what you guys are describing there, where sometimes paying someone more or aligning their interest with yours not only gets them to do a better job, but your bottom line works out better because they’re more invested. Is that just a principle that you two have figured out from all the deals you’ve done now?

Gino:
Well, David, you’ve really hit the nail in the head, and that’s what leaders are supposed to do. We’re supposed to have a vision and we’re supposed to align our vision and get the right people on the bus and having core values. We could talk about core values, having culture, having that mission statement is what we’ve worked on since our last BiggerPockets because listen, a lot of you listening haven’t bought a deal yet, but I want you all to think of what the end in mind is.
What do you want real estate to do for you? For me, I want a real estate to create a lifestyle and for it to be able to create the Jake and Gino community where I can go out there and help other people leave their W-2s, and how do I do that? You have to create the culture. You have to create your core values, your mission statement. It’s people first, extreme ownership, unwavering ethics, make it happen, growth mindset. That’s our core values and everything is around that vision.
We want to hire and fire our employees, our vendors, our Jake and Gino mentorship students that come onboard. We want to create that culture. Once you create that culture, the hardest thing to be an entrepreneur is to have that vision and to do what you said, David. Let’s hire that out. Let get rid of those tasks that we’re not supposed to do, and let’s really go towards that vision.
When you can get people going towards your vision and not pulling them, but allowing them to come, allowing them to be part of that vision, it’s not only more empowering, honestly, it’s so much more fun because you don’t have to go out and tell people what you’re doing. They want to follow you. They feel it. All of a sudden, we’re changing people’s lives and they want to be part of that.

Rob:
So I definitely am understanding here your philosophy and, obviously, to scale to the massive portfolio that you had, I think you mentioned somewhere in the neighborhood of 1800 units or something like that. I have to imagine that y’all have developed a certain framework for how you guys conduct business. Can you tell us a little bit about some of that framework?

Jake:
Yeah, I’ll hit it. I think early on, we saw real estate, and specifically multi-family investing, as a three-legged stool and we wrote about that in our first book, Wheelbarrow Profits, and it really comes down to buy right, manage right, and finance right. I think so many new investors struggle with not having what we call buy right criteria. So we’re very dialed in on what market we’re looking at, what median income we’re looking for out of the deal, the vintage, the age of the property.
Sometimes we’ll even buy a deal because maybe it has more three bedrooms and we know there’s not as many three bedrooms in that area. We love town homes. Okay? There are certain things that we look for, and we have a great advantage because we have a portfolio to scan, and this is what I challenge everyone out there to do.
Number one, so many investors I speak to don’t have a draw report. What do I mean by that? There’s a difference between cash accounting and accrual accounting. Okay? You’re going to have your software that you use and these systems. This is the first, okay? This is the first of the month. First thing I did, I went through all of our 30 entities this morning and I did a draw report with the income statement. We have a baseline. It’s usually mortgage, escrow plus 30%. That’s what we keep in there, and then the money that’s left over, we draw the rest of it, okay? Very important that you manage the cash very tightly because I think people get a little lost in, “Okay. This is accrual accounting versus cash.”
The other thing is I know the profit per unit of every entity every month, and that’s listed on the draw report. So you need to see what type of units are paying you and how much. Give you an example. We have, I’ll call it a quasi build for rent community. It’s some of these condo town homes that we bought, upstairs, downstairs with a garage. At the time, we paid more per unit for these things than we paid for any of other deals. We were worried about it.
After it’s been stabilized, now a profit per unit, a PPU every month, this is one of the best performing assets that we have, okay? So you can do your underwriting. You can do this. Once you own a deal, things change a lot, okay? So we have the buy right criteria. We looked to finance long term and take the rate risk, the interest rate risk off the table. That was a statement six months ago, and now everybody’s seeing this rise and deals are changing now.
Once you buy it, once you finance it long term, it really just comes down to management, and that’s where a lot of people either sink or swim because maybe it’s like, “Oh, I’m getting into multi-family. It’s a nice investment.” This is a business, and you need to treat it like one. That’s where a lot of people flounders because they don’t realize you’re an entrepreneur, now you own a multifamily asset. I don’t care if you have a third-party property management. You need to lead. You need to have a cadence of accountability with that group.
I would recommend everyone meeting with your property manager a minimum of once per week, and making sure they’re executing on what you, the leader, the visionary, the entrepreneur wants to see happen. Let’s be honest. In practice and in many instances, it’s not happening.

Gino:
So Rob, this is another thing that we talk about also. It’s called the three pillars of real estate. I love that everyone write this down. We’ve trademarked it, but the concepts are out there, but when you bring them all together, the three pillars are market cycle, number one, debt, number two, and exit strategy, number three. Now, one of the biggest mistakes that Jake and I made early on is we didn’t have an exit strategy for our deals. We’re going to buy our deals and hold them for the long term.
Most investors, when they get out there, they don’t think of what the exit strategy is. If you don’t know what your exit strategy is, how are you going to get whatever type of debt you’re getting? Are you going to get bridge debt? Are you going to get short-term debt? Are you going to get long-term debt? Whatever that looks like. So figure out what the exit strategy is.
You can also be flexible about it. That’s the important thing, but let’s get to the market cycle. In the market cycle, it’s really important to understand where you are in the market cycle. It’s truly, truly important because in 2013, Jake and I were buying different deals than we are now. In this part of the market cycle, the B and C properties, they’re pretty much the same cap rates. So why are we looking at C properties, unless we’re buying them at really good prices? When you buy in the market cycle, figure out the assets you’re buying in this part of the cycle. Jake had talked about that.
When you guys get off of this recording, sit down. Your buy right criteria, what are you buying? Jake and I in this part of the market cycle are buying newer assets, ’80s and newer. We like brick buildings. We like assets that don’t have a lot of capital expenditures. We like the value add component on those assets. Also, for some reason, residents love washer-dryer hookups. That’s in the menu that we’re looking for and we love town homes. So we’ve really dialed in. In this part of the market cycle, we know what kind of extra strategy we have. We like to buy these assets. We like to refi our assets. We refied over 25 million bucks out of our portfolio. That’s what our strategy is.
It’s not what I’m saying everyone else should do, but be clear on that because that exit strategy will allow you to buy the right deals in this part of the market. I think every savvy real estate investor, who knows what they’re doing, just like a stock market investor, they make money when the market goes up and they make money when the market goes down. Just utilizing all three of those pillars in conjunction with buy right, manage right, finance, right, you’re trying to mitigate your risk and you’re trying to buy these assets in decades.
I think investors come on there real quick. They have a niche. They jump in for a year. It doesn’t work. Stick into it. It takes a while. It took Jake and myself 18 months to buy that first deal, and after 18 months, three months later, we got into our second deal, and then six months later, we got into our third deal, but there was a lot of work on the front end. We didn’t even know any of these principles. We just got lucky. Fortune favors the bold. The harder you work, the lucky you get, but please, think about that already. Write that down, market cycle debt, and always think about when you’re underwriting a deal, looking at a deal, that plane’s coming off the ground, that’s optional. Landing that plane or getting out of that deal, that has to happen one way or the other. So figure out what you want to happen at the end of that deal.

David:
So let’s talk about exit strategy and why of everything you mentioned I think the majority of investors understand debt and they understand the market cycle. That’s all the questions everyone asks, right? They tend to treat real estate like it’s stocks, “Are we up or are we down? Is this a buy or is this a sell?” Exit strategy is not discussed very often. Why is it you think that this is a underappreciated element of investing in real estate that especially newer investors don’t take serious enough?

Gino:
Because it’s so hard. Rich people sell, wealthy people hold, and it’s really long-term mindset. We created a hundred year real estate investor. It’s really hard. Our first deal in 2013, rents were 350 bucks for one bedroom. We still own that property nine years later. Rents are 995 plus rubs. The debt is still the same. We’ve generated so much wealth from that 125-unit little property. It’s amazing. I think for people to think about that, and we’re just so conditioned for transactions, transactions pay the bills, I think, and equity makes you rich.
I think for everyone just to slow down for a second and think what the end in mind is, for me, I love owning these assets long term as far as the tax benefits, as far as the appreciation, as far as the control, and as far as the legacy, being able to hand these down to my kids and to my grandkids. That’s what I’m thinking about, but sometimes it can get really hard thinking about the long term, but that’s where real estate you get the real huge compounding effect. Go ahead, Jake.

Jake:
Yeah. I just want to piggyback off what Gino said because I think that thinking in decades can make you very wealthy in multifamily, even the debt. If you’re looking Fanny, Freddie debt a lot of times, you have 10-year terms on these deals. I’ve seen it time and time again.
We’ve sold very little of our portfolio, very little. One of the deals that still pisses me off and it’s silly, so bought a deal, it was a nice 2000 build, bought it at the time for 40K a door back in 2015. Just got really lucky, whatever you want to say. Ran up. We sold it for 100K a door. Woohoo! Aren’t we bad asses? Man, we thought we were so cool. Today, very easily, that deal is worth 150K a door, and it pisses me off because we typically don’t sell. Could have very easily just taken our money back off it because here’s how our business works. It’s very simple, okay?
We get good long-term debt. We fix the rate. We then add a lot more units to the portfolio every year, whatever we can, 20% to 30% top line revenue growth. We get a huge swell of cost segregation to depreciate and the party keeps going on and the cashflow builds over time. It’s as simple as that, and that’s all I want to do is continue to duplicate that strategy in markets that I feel comfortable with.
Look, we’re in Knoxville, Tennessee. We have assets in Lexington. We’ve looked at Nashville a lot. Haven’t been able to make anything work. We’re looking east of us and south, Chattanooga, Johnson City. So we’ve vertically integrated, have a core management team there, and we’re growing from our nucleus, from our core. Man, let’s just add another one on. Just keep duplicating. We’ve got it figured out. Now, it’s just finding more. That’s why we wanted to add the development piece in because it’s just going to allow us to continue to hit that top line revenue growth.

David:
I’ve always looked at real estate from the perspective of the more options you have, the more ability you have to create wealth. The fear is you got one way in, one way out. If there’s any problem with this plan, you don’t have a contingency in place to shift, right? So when you first get started in something, you’re always thinking idealistically as a new investor, “I’m going to buy this duplex. I’m going to hold it for the rest of my life. I’m going to give it to my kids someday,” but those of us that have been doing this for a little bit of time, we recognize what stops people from getting involved is the fear of change, “What am I going to do if something happens?” The way you overcome that is you just have different ways. You play the cards that you’re dealt, and the better investors have those options.
So what I love about what you guys are saying is you’re actually going into it from the perspective of, “How do I account for all of the things that could happen?” What I believe is the longer of a timeline you give yourself, the harder it is for a deal to not work. Would you guys agree with that, and is that part of when you’re talking about market cycles and exit strategies?

Jake:
I agree with that. Gino, I know you got something to say there.

Gino:
Yeah, I agree 100% with that, but sometimes when you’re starting out, we don’t take enough time to think about what our business plan is going to be. I don’t want anyone to get on here and say, “I’m going to change up.” It’s taken Jake and I several years to come up with these thoughts and these business plans. Just start. Start buying these assets and let time take control.
What I mean by that is you give yourself enough of a runway. These assets will appreciate over time. The only two times you worry about the value of your real estate is when you buy your asset or when you sell your asset or you refi the asset. That’s really important. That’s why buy right is so crucial, but that’s what you’re focusing on.
For me, when we started out, I never thought I would’ve owned 1800 units. I just wanted to start and get out of my restaurant business. I wasn’t thinking about this huge growth. 25 units for me was massive. It was huge. It was life-changing to me. I just saw, “Hey, I’m making three grand a month in cashflow,” and then when I saw the ability to be able to refinance that property, pull that equity out, and repurpose that equity, I’m like, “This is how I grow,” and then I learned seller financing. That was another strategy that allowed me to scale.
Then I learned how to syndicate. That’s another strategy. I think people get on, like you said, the fear of change. There’s work in the front end. You need to be able to create value for yourself and for your partner and for your investors out there. Don’t worry about the money. If you are really skilled and you know what you’re doing, the money will be attracted to you.

Jake:
We talked about thinking in decades and how the debt is set up for a lot of these multifamily deals. You may see a couple years over a 10-year period where they’re not as good. For us historically, it’s been a property manager wasn’t aligned with our values and there might have been a six month or 12 month there where we had to figure it out, remove the person, and then fix what was wrong, okay? That’s what we’ve seen over periods of time working within our deals, but then you correct it and then you’re like, “Wow! We figured this out,” because we underwrote it correctly. We hit our buy right criteria.
So yes, there there can be a year or two in there where something goes wrong or something funny happens in the marketplace, but over that 10-year period in our experience, our deals have worked out really well. You made the point, David, about thinking about it over a longer period of time. In addition to that, I don’t know what the future holds, but it doesn’t seem like there’s a huge appetite for the government to stop printing money.
I know they’re talking like that maybe now a little bit, but if that continues to happen, the dollar continues to devalue over time, therefore, the real estate’s going to be ahead, it’s just going to be an asset that holds value over time. So you’re dealing with a few factors there. You’re saying, “Okay. This is what the government’s doing. How do I align myself and play the right game?” I think multifamily checks that box.
I think you want to be in a growth market. If people are moving into that market, that’s going to help with appreciation as well. Then if you can fine tune your management skills, there may be rough roads there, but ultimately, you got to fire the person if that needs to be the case and then improve upon it, and then over that 10-year period, I think you’re going to be ultimately happy.
I’ve never had a deal that we continue to hold now that I’m like, “I wish I would’ve held onto that.” We had one deal that we overestimated the quality of the area and the resident base, it didn’t work out. So let me say this. It didn’t work out the way we wanted it to, but we still, I think, made three million bucks in the deal. We’re fortunate. It was a growth phase in the market, yada, yada, yada. I think the market saved our ass on that. One, it wasn’t because we were such expert savvy investors, but besides that deal, everything else has, over a longer period of time, worked out really well.

David:
So let me ask you guys this question. One of the things that has concerned me with the freaking phenomenon of real estate influencer syndicators that have come into the game in the last three years and post it all over TikTok and they’re raising money and buying properties and they don’t have any experience managing them at all is the market has supported a lot of, I think, bad decisions. I don’t include you guys in this or I wouldn’t be mentioning this. I know you guys have learned the hard way managing these things is freaking hard.

Jake:
We’re not syndicating deals.

David:
Right. So the concern for me is the people who are syndicating these deals and they’re on a timeline, three years, five year exit, “That’s the only way. We have to give our investors back money.” As long as the market keeps going up, you’re fine, but the problem with real estate, like you said, is the value matters when you’re going to sell it or when you’re buying it, and if you have to exit in five years, you don’t know where the market’s going to be at that point in the cycle, and if you’ve got to get out, that creates a problem. Is that one of the reasons that you two never got deep into this syndication model or is there different concerns?

Gino:
David, I think that’s one of the big issues for us. We read a book called Small Giants by Bo Burlingham. I would recommend everyone to read the book. Jake and I did not want to be the next Airbnb, the next Facebook. We wanted to have a really nice small portfolio. We wanted have a family company. We wanted to be able to control it. We wanted to be able to control our destinies. I think if you’re going to be in this syndication model, you’re beholden to your investors. There’s nothing wrong with that. I mean, we can start out that way, but after three to five years, a lot of syndicators make money on the backend.
How can you get away from that? Put a lot of money yourself on the LP side. Become a limited partner in your own deals. Have more capital invested there so you can tell your investors, “Hey, you know what? We’re going to hold onto this deal,” or better yet, look at a deal that you think you don’t have to exit within the next five to seven years and talk to your investors and say to the investors, “Hey, I would like to hold this on a longer time horizon. How do you think about that?”
If your investor says, “You know what? I want my voting back in three years,” then like values-based decision making, maybe that investor doesn’t go into this deal. So I think you can syndicate and hold these deals longer term, especially if there’s a refi component to it or if your investors are onboard. Continuing to coupon clip as long as you’re managing this deal properly. I just think the allure of getting that acquisition fee upfront, and then on the backend, you have no money in the deal, and you’re getting 50% of the profits. That lends to people wanting to sell, but I don’t think they have to sell their syndication if they position themselves correctly with their investors, and if they’re really aligned with their investors, I don’t want to kill the golden goose.
I’ve done so much work to find this goose. It’s printing me money right now. It’s making my investors wealthy. Why would I sell after three to five years? I’ve done that two times. It’s great. You got a great check. You got a capital gains to pay, but I’d rather hold onto that asset. Go ahead, Jake.

Jake:
Yeah, no, I think that the syndication model lends itself to selling, and as the GP, you get compensated when the deal sells. So where we messed up on the syndications is we’re used to owning the deal and we didn’t put enough to make it like, “Okay. We can refi this now and it’s going to make sense for us.” So it literally forced us to sell, and I hate that. I want to hold these deals. I enjoy it. Again, I like adding more deals in the cost segregation, but our syndications have done great. We have one left. It’s probably doubled in value since the time we’ve purchased it, but the thing that scares me about newer syndicators, to your point, is that they’re getting in, they’re running up these syndications on bridge debt, okay?
So a lot of these folks were buying bridge debt because the numbers weren’t supported by Fannie and Freddie. So okay, now, when that bridge debt comes due or you’re going to see a rate spike, there’s one major risk right there. The second thing that I think happens, and I haven’t seen the books on these other syndicators, but that makes me extremely nervous. I say this as a cautionary tale for folks that are investing with syndicators. Try to find out where the draw payments are coming from every month.
What do I mean by that? Did they raise a large capex budget, and are they potentially pulling from that capex budget every month to make sure they’re hitting their 8% preferred return? That’s where I think it gets a little dicey in some of these folks, and I would bet money on it that’s happening today where there’s capex funds that have been raised that are now supplementing a draw payment or an 8% pref that probably hasn’t been really earned.
So I would watch out for that and try to, if I’m in a syndication as an LP, make sure that that’s not the case because I probably don’t want to put money in with that person again if they’re not able to actually make the deal performed the way they presented it. So I think that’s a huge risk.
In addition to that, I don’t know that it’s super smart to start placing large amounts of money with a new syndicator. Maybe you’re going to get some more GP. Maybe there’s a benefit to you there, but there’s guys that have been doing this for years with a really strong track record. I would probably, if I was going to invest on the LP side, lean to those folks more than somebody that may be just getting started in the last couple years or doing more riskier investments like mobile homes and some of these things. That would make me a little nervous if I were to be placing my hard earned capital at risk.

David:
Gino, did you have a comment there?

Gino:
No. I love what Jake said. Big fan of Brian Burke, spoke at MM, Multifamily Mastery, before at our event. I think he’s a fantastic syndicator. Go out there and find the Brian Burke’s of the world and place your capital with them. They’ve been through multiple market cycles. They’ve been through deals that they’ve bought and sold. They have a really viable, strong business plan. I think there are people that do what they say. You look at Brian, he performs. He’s going to make you whole if he doesn’t. That’s just the kind of person that I know that he is. So go out there and find those people if you want to syndicate with others.

Rob:
Yeah. So I guess I want to move the conversation a little bit to specifically hone in on this market cycle and the economy. Is it all over? Are we done for? Is the gig up or how are you guys feeling about how everything is actually happening, playing out today? Because if you go onto YouTube, which is where I’m at most of the time, everyone’s thumbnails are red, guilty over here, and everyone, they show the graph declining and then the interest rates are rising. Just your take on what we’re seeing today.

Jake:
Makes me want to jump in when you’re saying it like that. If everyone’s getting out, I’m getting in, right? So no, but seriously, I think that, yes, okay, rates have moved, okay, but what does your underwriting tell you? Because I know for a fact that a lot of pricing has moved downward as well. So I think you just got to be a rational human and continue to just dial in that buy right criteria.
So for us, we’re still actively looking at deals in our market. The thing that makes me sleep well at night is I know that I’m in a growth market, there’s population growth, there’s demand for these rental units, and we have a great data set in front of us every month, which is our portfolio in our market, which has some of the highest demand that we’ve ever seen historically.
So I think the thing that saves you right now is making sure that you get into a market that has legs to it because, ultimately, are we going to be in a recession next quarter? By definition, it’s two months of negative GDP or, excuse me, two quarters back to back of negative GDP. Do we end up there next quarter? Probably. Is it then a “recession”? Okay. Yeah. Has the economy sucked for the last six months in certain ways? Yes, it has. Am I going to stop being active or am I going to find opportunities? This is the thing I’m just trying to stress guys.
Have multiple tools in your toolbelt. That’s why we learned syndication. It’s not necessarily something we actively want to do, but that’s why we went out and we learned it. We’ve done owner finance deals, okay? We’ve done lease options. We want to have great exposure. Now, we’re getting to development. So in any part of the market cycle, we’re going to be relevant and active.
So am I slowing down or taking my foot off the gas right now? Not at all because I’m clear on what I want and what I’m going after, and I don’t believe that multifamily housing, especially in the markets that we’re buying and is not going to be relevant because there’s a recession.
This is the beautiful thing about the business that we’re in. People need a place to live. If there’s jobs, if there’s population growth, they’re going to need you. This is not a commodity that you buy in Amazon yet. I think that I’m very comfortable in our position, and if anybody in Eastern Tennessee wants to sell something, look us up and shoot it over. I’ll be more than happy to underwrite it kind of thing.

Gino:
Rob, I think real important. Let me share a quick story with you. I’m a big fan of J Scott, BiggerPockets. I had the privilege to interview him a couple times. His books are fantastic. When did he start flipping homes? He started flipping homes back in 2008. Probably not the best time to start flipping homes, right? He learned the business. It’s not when you start. The bottom line is you start. You’re only able to start when you’re ready to start. He was sick of his corporate life. He wanted to get started on, and it’s the same thing with Jake and myself. We started looking at assets in 2011. There was no GDP in 2011. There was no money. There was deals on LoopNet, but there was no sentiment, and it was a lot of risk.
So for us, I was ready. I was fed up with my restaurant job. Jake was fed up as being a pharmaceutical rep. That’s when we started. I think now is the perfect time to start because you’re going to need several months to have broker relationships, to start talking to investors, to start refining your business plan, to get into the market, and by the time you get into it, the cycle’s changed again. I mean, this changed so many times in the last two years that if you’re ready to start, just start today. Make a commitment. Figure out what your why is and start today. Whether it’s single family homes, whether it’s multi-family, whether it’s self-storage, whether it’s mobile home parks, pick a niche, learn it really well, education times action equals results, and understand why you’re doing it and start.
Six months from now, you’re going to look back and go, “I made a lot of progress. I may not have bought a deal, but I’ve selected my market. I know a few brokers. I’ve gone to several meetups. I’ve gone to the BiggerPockets in October. I’ve done a lot of things that I wouldn’t have done. I’m starting to position myself,” and before 12 months goes by, you’re like, “I bought the first deal,” and then two years goes by and your friend’s going to be like, “Man, you were lucky you started real estate. Man, you’re lucky.” Lucky? No. You took the opportunity to start when the market was “falling apart” because we can pick narratives to any part of the cycle that we want to.
We’ve been doing internal bootcamps for the last four years with our Jake and Gino community, and for the last four years, all I’ve been hearing is that the real estate market, the multifamily is at a high. How many out there have heard that? 2018 was at a high, 2019 high, 2020 high? Well, there’s a lot of people that have bought and they’ve gotten “lucky” the last four years. So my whole, I guess, rant here is if you’re ready to start, it’s all about you. Just start right now, and before you know it, you’ll be off to the races.

David:
Yeah. You guys also have a theory I really like where you talk about the conveyor belt theory with real estate. I’m in the middle of a 1031 right now. So there’s urgency. I have to be looking at investment property, right? I’m not a full-time investor. I run a mortgage company. I run a real estate team. I do other things. So I tend to bounce from business to business depending on where the line is thinnest that I need to run in for reinforcements, but when I’m buying, what I find is there’s this lie that tells me, “I’m just going to go look up properties, find what I like, write a couple offers, get the deal, I’m done,” and it never works that way.
What happens is I quickly become overwhelmed with realtors asking questions, needing to analyze properties, a lot of stuff, I got to go figure out if I’m going to do this questions, I need to answer to even know if this is going to work. So the way we have to actually work it is we create a spreadsheet and there’s a column for properties I’m interested in, offers that we’ve written, houses that are in escrow, and we just have to start with that list and systematically go through it, ask what questions needed, give assignment, “You’re going to call the realtor. You’re going to look this up on AirDNA, and then move through the columns. It’s almost creating a process that will end in a result that you can’t control. You’re not just going to go out there and find the property and buy it, which is how I think a lot of investors assume it’s going to work.
Can you two speak on the way you’ve built a system that you don’t know exactly how it’s going to work out, but you just keep turning that little jack in the box thing and eventually it’s going to pop?

Gino:
I think the most important thing, David, for the beginning investor to understand is their question is, “I need deals. I need a deal. I need a deal.” Let’s take a step back. What is a deal for you? A deal for you is not the same thing as a deal for Jake and Gino. So you have to understand what the deal parameters are for you. When we started out, it was very simple. We didn’t want to get into the single family space because we both had full-time jobs. So that’s why we chose multi-family.
So the first thing is figure out what space or what niche you’re going to get into. I think the next thing is figure out what market you’re going to get into. Those two things are very difficult. It’s a lot of introspection, and then from there, what are your resources? Number three. Do you have capital? Do you have a balance sheet? If you don’t, well, then you can’t look for $15 million deals. So scratch that off. Start out with a duplex or a quad. I think that’s really important.
I think it’s number four, what time commitment do you have? If you’re working 80 hours a week as an attorney or as a doctor, you’re not going out and doing this thing full-time. You may find a Jake or Gino to hit yourself along with because you have a strong balance sheet. So understand what your goals are with this. That’s, I think, the most important thing, and then from there, start looking at the deals that you want to look at. Like I said, Jake and I, our first deal, anything from 10 to 50 units we were able to take down in that first deal.
We chose Knoxville, Tennessee. We knew what our cash flow parameters were and we knew what time commitments we could make to the deal. Then as we started growing along, that’s why you talked about the conveyor belt. That conveyor belt is really just to get deals on this imaginary belt. Year one, you get your first deal. You may not be doing so well on that deal on year one, but by year three, “Hey, David’s got a 1031.” That deal is going to come off the conveyor belt, whether it’s cashflow, it’s equity, and you can matriculate it, and get it to another deal. The goal is to get as many deals as you can on the conveyor belt that start working for you and then they start coming off that belt and you start buying other deals, whether it’s a refi, whether it’s a sale and you start replacing and repurposing that equity back into other deals.

David:
So what you’re describing there is why exit strategy becomes so important because that becomes a piece in how you took what you built and turned it into something more. It’s actually a beautiful thing when you think about the tools of real estate, the ways it makes you money is it turns into this, I don’t know, this might sound cheesy, but almost like a symphony of music where you’re using all the pieces and they’re working together to create this result. It’s not get in, get cashflow, quit my job, live on the beach. That’s how it appears to sound, but you’re making money through equity and loan pay down and tax strategy.
Then sometimes that opens up doors to make some money through other businesses, and then you’re moving equity from here to here. When you ran to the top and then you buy in an emerging market with value add, boom, you get a ton of equity, but your cashflow doesn’t keep up. So you move it into a cashflow market. Then you’re saving cash flow and using that as a down payment on your next maybe value add. It gets to be fun when you start to get the vision of looking at a property and seeing this is the plan for this one and how does it fit in. To me, it’s a lot like a coach of a team, where you’ve got these players and they all have different skills and you’re looking at how they would work together. Would you guys agree or am I just being a little overly romantic about real estate right now?

Gino:
Dude, I love that analogy. We actually call it multifaceted multifamily. You start out with that investment, that 125 unit little crackdown that we bought. All of a sudden, we have a couple hundred units. Our first revenue was the investment property, but then Jake created a property management company. So there’s your second business. Then from there, we create the education company. That’s the next layer of business right there, and then all of a sudden, we start the development company and we have a hundred year real estate investor that we’re doing whole life insurance. So you have all these multiple businesses spawning off of this one, but what makes it work is that Jake and Gino are working together. He’s doing the property management day to day. I’m doing the education day to day.
The great thing about it is it’s such a beautiful symbiotic relationship that we’re able to cross over and use each other’s resources. Our students are going to bootcamps that are owned by our company, and we’re able to learn and get on podcasts and actually make our property managers much better. So thinking about it that way, that’s really a long term approach. I think we wrote the book, The Honey Bee. It’s all about multifaceted multifamily, but the way you’ve described it, David, is exactly what we’ve stumbled into.
You don’t know what you don’t know until you start. Then you start seeing these things work together and you get that whole, like you said, that symphony where things start working. It’s like, “Man, this is fricking awesome. I just raised capital from students, right? I never thought I could do that,” or “I just wrote a book and all of a sudden brokers think I’m credible,” and all of a sudden you get on podcasts and brokers are starting to call you back and you throw live event and you have people come through your live event, and all of a sudden, it’s just much easier to get deals sent your way. I mean, it works so well together what you’ve described.

Jake:
I think the key to it, though, is systematizing the acquisition process because you’d never want to turn the beacon or the magnet off, and I think that’s the key because you never know when the deals are going to come. Earlier this year, we had a swell of deals come through. Traditionally, for us, those were smaller deals. I mentioned before three to five million. It was processing all those deals at one time because we’re usually maybe trying to do 150 units at one time, but you have to take what the defense gives you.
I think the key is that if all the deals come in one month, if you want to grow, you got to take those deals because you may go another six, eight, 12 months until something fits your criteria, and that’s okay when you’re buying larger deals. So I think making sure that beacon is never turned off and you’re getting your broker calls in, you’re maybe networking with your deal dogs.
So we have something we call deal dogs, and they’re our direct to seller crew that calls all the owners in the markets that we’re in to try to drum up business where we buy direct from. So you have these different avenues that you systematize. Look, you might be on vacation, you might be at Disney, you got to run into the Grand Floridian and use the little office there where they have the computer areas set up with faxes because you got to get with the title company. That’s that’s real life, okay? That’s what happens as a real estate investor. You just got to find those avenues to work that, but you can’t turn that beacon off because, to David’s point, you may be, “Okay. Well, 1031 comes up. Got to go find something.” That ain’t working. You got to have it on and turned on all the time and always be looking for it because, otherwise, you’re going to force yourself into a bad deal, and I think that’s what you got to really watch out for.

David:
That’s exactly right.

Gino:
… or you’re riding bikes with Gino on the beach and you got to say, “Hey, Gino, we got a deal going on. Let’s go back to the …” Wives may be arguing a little bit saying, “I thought you’re on vacation, Jake.”
“Well, you know what? We’ve got a deal. We got a 40 we got close. So let’s get back. Let’s go to the bar, have a couple beers, and let’s get back to the house, and do what we got to do.”

Rob:
Let’s go return our tandem bike.”

Gino:
No, not tandem, not yet.

Rob:
“This tandem bike was expensive. Dang it.”

Jake:
She goes steering. He’s got me pedal in the prick.

David:
That’s funny. Yeah. That’s exactly what you described. It’s like, “I’m going to educate, y’all. I’ll tell you where we’re going. Manage this bike. I need you to handle all the problems that pop up.” As soon as, Jake, when you mentioned you handle the management I’m like, “Oh, you’re the salt of the earth, my brother.” It’s the hardest part of real estate, and it’s also, I think, the most undervalued. Everyone talks about finding a deal, getting a deal, structuring a deal, and then we just stop.
It’s like, “I want to have a baby,” then you have the kid. Actually, dealing with kid, Gino, you got several of them, it’s different, right? So any last words before we move on, Jake, about just advice for people that maybe are underestimating the work that managing a property is going to take or how to do it well.

Jake:
Well, it’s the classic thing. If you do well in property management, typically, they sell the deal, and if you suck, they fire you. So it is really hard to find that sweet spot for people, but ultimately, gang, I said this before, if you’re following the framework, once you buy it right, okay, that’s done. Once you finance it, that’s over. The only lever you have left to pull is good property management.
I can tell you from my experience, good property management can make or break the deal over time. You can really see a huge spread if you can fix those costs and get those costs beat down. What we see every month? The same thing, paint, flooring, and supplies, paint, flooring, and supplies. It’s the same over and over again. So if you can dial in your management and find ways to purchase better or like us, we’re putting all 20-year luxury vinyl plank in all of our units. So in the next three years, everything’s going to have 20-year flooring in it. That cost is coming off. So now, it’s going to be paint and supplies, okay?
So it’s finding ways to really navigate those waters in addition to we’ve created a capex team. So a lot of this stuff that would be traditionally subbed out, we’re handling it in-house, getting better efficiencies and economies at scale. So it’s a long game. Wouldn’t have it any other way. I think it’s really the difference maker in why we’ve been so successful, and we don’t do third party. Just focus on it. That’s it.

David:
Your own stuff. You’re not out there contracting your skills out to other people. You’re not a merchant Marine.

Jake:
That’s right.

David:
All right. I’m going to move us on to the next segment of our show. It is the Deal Deep Dive. In this segment of the show, we are going to ask you details about a particular deal that you’ve done and we will fire them at you between Rob and I. I’ll let you guys decide which of you would like to answer, but the first question is, what kind of property is it?

Jake:
Literally, just go off the deal we just closed on. It was a 40-unit mom and pop with garden style, built in 2005 in Knoxville, median income of $80,000. So what I just do right there? I gave you my buy right criteria, right? That’s the buy right criteria on a deal we just closed on. Checked all the boxes. Loving this deal, and it has storage, little car wash, washer-dryer hookups throughout, mostly two bedrooms. Whew. I’m sweating it right now. That sounds sexy to me. Okay. That’s what gets me excited. Sorry, guys.

Gino:
Bro, you are sexy, bro. That’s why I’m riding the bike upfront. You know what I’m saying?

Rob:
Okay. Question number two, how did you find the deal?

Jake:
Yup, and this goes back to what we were talking about before. So we have our team of mercenaries. We have our deal dogs out there hauling at the moon, calling, calling, calling. Had this guy in the hook for probably three months, and we kept trying to set up a meeting with him, “Can we get onsite with you? Can we meet you?” because the deal dogs really just need to get my foot in the door and then they’re sending me in to close it out. So that’s how we found it and eventually, we got our foot in the door with those guys.

David:
All right. How much was it?

Jake:
So it was 80,000 per door. I think that comes out to 3.2 million roughly. So the guys, they finally got me on site, met with the guy. It felt like a drug deal. He had this white van. He had an HVAC company. Sometimes you got to take on the role of a sales rep when you’re trying to acquire things. I think so many times people look at the broker or the person selling and think, “Well, they’re trying to sell me,” and that’s the complete incorrect mentality and the opposite thought process.
So I got onsite with the guy. He’s complaining, “Oh, look at these gas prices.” He’s like, “Damn. Screw this Biden guy,” and all this stuff. I’m going apolitical, but when you hear this kind of stuff, what you do is you start to see, “Okay. This is where this guy’s coming from.” I’m like, “Just cost me 100 bucks to fill out my truck.” So we’re building rapport at that point, and we’re finding common ground on something, regardless of what it is. Totally apolitical conversation, my point, but I’m just saying that’s the kind of things. You find areas where you can align yourself.
I let him talk and I was like, “Wow, you did such a good job over here with the brick. It looks so clean. Sidewalks are good.” He had a lot of pride of ownership because he built the complex himself. So I’m letting him talk to me about the things that he did. He was really proud of it.
Then finally, we got back in the white van and we started hashing it out. Deal dogs had a number in mind that he talked about, but I could see he was angling for some more. I said, “So what’s going on? What’s holding you up with this deal?”
He’s like, “The bank.”
I’m like, “Well, tell me about that. What’s the bank?”
He said, “They’re trying to charge me a prepayment penalty of $40,000,” or $30,000 or something like that.
Guys, this was what was holding this guy up from selling because it was a prepayment penalty, okay? I’m going to get to the meat of this in a second. So I said, “Look, don’t worry about it. I’m going to give you $50,000 more today. I’m going to give you $50,000 more. Take the rest, take your wife on vacation, take an extra 50 on top of the 3.2, and we’ll call it a deal. Happy to do it. Closed over 1900 units in the Southeast. We’re the real deal. We get it done.”
He’s thinking, “This is too good to be true.” He goes back. We send him the contract literally the next day because that’s how we operate because we don’t want to lose these things. His attorney is asking my attorney, “What’s going on with this? Is this guy the real deal?” because he literally thought we were nuts or something because I offered him the extra $50,000.
Guys, when this thing appraised, it was over $4 million, literally a million dollars more than what we got the thing under contract for, and this is the mentality of these mom and pops. They’re not always easy to find. Find some common ground. Maybe you fulfill their need. We got the deal. Now, we got a great asset, okay? We’re going to absolutely crush it with this thing, and it’s a newer vintage. So it’s checking all the boxes for us and all we had to do.
I probably could have got it for 3.2, but what if I didn’t? It wasn’t worth losing this deal over that 50 grand. So we hashed it out in the back of his van, got the contract over, closed quickly, and the rest is history. We got a great deal, and he was thrilled because he built it himself and his basis was much lower. So it worked out pretty well for everybody there.

Rob:
Great. So that gives us an idea of how you negotiated it, but how did you actually fund this deal?

Jake:
Yeah. So just like we fund all our other deals. We take cash out of our own pocket and we put it down and we do loan-to-cost, typically. So what we did on this deal? We got a couple employees on it like we talked about before. Gino and I brought the rest of the table. What we like to do, especially a deal this size, is we do loan-to-cost, which I’m sure many of the listeners are familiar with. We’ll do 80% loan-to-cost. So we’ll have a renovation budget. We’re going in. There’s little things here. It’s cosmetic. We’re new countertops. We’re painting the walls because of that old, that beige that so many people saw in Florida in the ’90s, right? So we’re getting that stuff out, modernizing it a little bit, stripe and seal in the parking lot.
There’s a little bit of gutter work and stuff like that, but very minimal. So we’ll go in, knock that stuff out, and then we’ll send it off to pasture. What do I mean by that? When we feel like it’s a good time to strike, we got two years IO right now, we got the loan-to-cost five years fixed 25 year am, we’ll send it out to Fanny or Freddie. Probably this will be a Freddie SPL deal long term and we’ll sit there and hold it, get our money back off the table.

David:
All right. That describes what you’re doing with it as well. So what’s the outcome been so far?

Jake:
We’ve been in this thing for a little over a month now. So I mean, we’ve done a little bit of work. We got them and turned the unit, but yeah, literally just went off the last one, but I think personally, I value this thing at 120 a door, if I’m putting on my personal financial statement. Rents were right around 900 by the time we got it, but we’re taking them to 1200. So yeah, I think short term just thrilled because, look, these things are hard to find. This is a long term brick, nice complex for us. I’m just thrilled.
I got excited. I was able to get on site and negotiated directly with the guy that’s my highest and best use. That’s why when the guys get something on the hook, I go. It’s not like, “Well, look, this is the time you can meet, I’m dropping everything else and I’m going,” because these deals, literally, for the average person, if they went in and bought this deal, could potentially retire them and change their life forever.

Gino:
Dave, the important thing about this deal, too, was Jake said it was a 2005 build. We can comfortably hold this deal for the next 20 to 30 years and it’ll still be pretty brand new. There won’t be that much capex requirements. That’s why we like this deal and to hold it long term. Now, if it was an older deal, some people would say, “It’s a 1970s build. I’m going to go in. I’m going to put some lipstick on a pig and maybe flip it out,” that’s not this deal. This deal 10 years from now, the median income is going to continue to grow in that part of the market. Rents are going to continue to rise and the guy built it so well. He’s got concrete in between the first and second level. He really built it really well to last for a long time. So it really did check off a lot of the buy right criteria, and that’s why-

Jake:
PBC on all the decks.

Gino:
Yeah. That’s why that’s the exit strategy. The exit strategy is to hold this thing, to refinance this thing, and hold this thing for the long term because it’s going to continue to pay us for the next 15, 20 years.

Rob:
Would you say that there is a particular lesson that you learned from this deal?

Gino:
Yes. Don’t quibble over 50 grand.

Jake:
Yeah. Don’t squabble over 50 grand.

Rob:
I like it.

Gino:
I think, honestly, David said before that he was a real cheapo, and I think Jake and I can really raise our hands and say that we’re just as cheap as David, probably cheaper, but when you’re an investor, it’s price versus value. Consumers look at price. I think investors look at value. I’m willing to give a 50 grand today knowing that my asset’s going to be worth $2 million more three years from now.
I mean, if you can do that and delay that gratification, you will become wealthy, but it’s just so hard as a consumer. You have that consumer mindset. You’re worrying about every penny, every nickel, and I applaud Jake. He didn’t even tell me that. He’s like, “You know what, dude? I’m going to give this guy another 50 grand.” Once he told me he did that, I’m like, “Dude, power to you.”
Five years ago, Jake would not have done that. Jake would’ve quibbled and fought with the guy and said, “I ain’t paying nothing. You owe the bank,” and would’ve lost a deal, but five years later, Jake is actually thinking, “You know what? It’s 50 grand, but I’m going to make us a couple million dollars off this transaction.” So don’t be pennywise and poundfoolish, whatever that is. Think long term. Think price versus value. You all listening to this right now are investors. Stop being consumers. Start being investors and start thinking about having that long-term mindset.

Jake:
You hear that right, guys? He said I’m actually thinking.

Gino:
It can be done.

Jake:
He was actually thinking. Guys, the other thing on this deal, though, and honestly, is just you got to go in hard on the close. I sold our credibility. There was no retrade. I was very clear with him, “We’re going to close this thing probably in about 45, 50 days, but give us 60, okay? There’s no retrading going on. We’re closing this thing with our own cash. We’re going to move quick. We’re not going to bust your chops.” We had to send our team in with accounting to go through his books that were just, God, awful, handwritten chicken scratch. So we did everything we could to secure the bag, right? I’m getting cool hip there, secure the bag dog kind of thing.
Anyways, but we got it done. We got it done. We secured it and the rest is history. So it worked out well, but you got to be at close. You can’t, “Oh, do I want to do the 50? Do I want to not? Do I got to retrade this, that, and the other thing?” You got to go hard on these deals and it’s well worth it when you find the one.

Gino:
As you would say, you got to stick it. Just stick it.

Jake:
You got to stick it, man.

Gino:
Just say what you’re going to do, and you have to move. In this part of the cycle, you got to move fast. This is part of the market cycle where you have a deal, you may not be able to get on site. You need to really move fast in this part of the cycle. It will change, but that’s where we are right now.

David:
Rob, did you have something you were going to ask?

Rob:
I guess last question here on our Deal Deep Dive. Who was the hero on the team for this deal?

Jake:
Man, I would have to say it was our accounting folks because, literally, they were going in with handwritten ledgers on the rent rule. They did not have a P&L, and we had to basically take all this stuff and package it for our bank to get. Here’s the good thing. We have a great rapport with our community bank. They’re pretty much just giving us money when we say, “Hey, we need money for this deal,” but if we didn’t have that, having to create this stuff to get them confident, and the appraisal help, too, but there’s a lot of heavy lifts because, look, this was the most mom and pop you could ever imagine, no financial records basically, whatsoever.
So my whole thing was, are there human bodies in there? Yes, we inspected them. Okay. They look like they’re clean. They’re taking care of the units, and these are the rents. We’ll manufacture the rest of it not in a deceiving way, but we’ll manufacture what we think this will look like and what we can do with it because, ultimately, in this part of the market cycle, I joke about this, but many times we’re buying boxes, okay?
We’re going in, we’re buying boxes, we’re using loan-to-cost, and we’re buying on where we’re going to take this in the next two years. It wasn’t always like that. 2015, I’m like, “I’m getting cash on cash, actual cash on cash from day one.” This is not this deal, necessarily. It’s still cash flows, but there’s many other times we’re buying deals that are this is going to be a one to two year before we see any gratification out of it, and that’s okay, too, because we’re in it for the long haul.

David:
Awesome. Well, that was very informational. I love the detail that you guys gave us on this deal, as well as how you got to the point you got there. What I was thinking about is what’s the ROI on $50,000 turning into a billion. I mean, that’s not bad at all because you had the right perspective when you were going and it’s so easy to miss the forest for the trees when you get into real estate, especially when ego and emotion and everything gets involved. So thank you guys for your transparency there.
All right. Well, that was the Deal Deep Dive. Remember, you can do more deals with the help of BiggerPockets tools and resources. Now, let’s head over to the last segment of the show. It is the world famous Famous Four. In this segment of the show, we ask every guest the same four questions every single episode, and we’re going to do the same with you guys. Question number one, you guys can each take turns answering here, what is your favorite real estate book?

Jake:
Ooh. I got to go with the systems book here. I’m going to say Scaling Up, not necessarily a real estate book, but I think the thing most people need and what they lack is creating a business. This is through colleges. This is through high school. This is through general society. You need to operationalize, systematize your business, and I think that’s what most real estate people are lacking, not necessarily the deal stuff. It’s like once they get it, what do I do with the management component? I think Scaling Up really applies itself well to real estate.

Gino:
For me, understanding the numbers when I started out was challenging, that service coverage ratio, cash on cash, cap rates. I was a big fan of Frank Gallinelli. He’s written several books on all of these different metrics, and for me starting out, understanding the numbers. I would fall in love with the deal. I ultimately understood that I need to fall in love with the numbers alongside with falling in love with the deal, and Frank’s books really helped me out by doing that.

Rob:
Awesome. Question number two, favorite business book.

Jake:
I think the Small Giants book that Gino just mentioned earlier on has been really important to us because I read it earlier this year and I was like, “Wow. It’s okay not to force yourself to do deals, just to post it on Instagram,” or “Oh, we just closed a thousand units this year. Look at we. We’re so badass,” because that’s what happens. We get out there. We get on the social media and we see what everyone else is doing. It starts to put us in a weird head space.
We’re going to grow 20% to 30% on our top line this year, and I’m thrilled with that, and that’s okay. The Small Giants book basically talks about companies like Cliff Bar that didn’t take the money. What do I mean by that? They didn’t take the private equity money. They didn’t take money from outside sources. We control everything that happens within our business because it’s our funds, okay?
We’re the majority shareholders. We’re driving the ship. I think the thing that scares me most in this world is just someone telling me what to do. So that doesn’t align with my values, and having those investors on there, you got to really sit and think, “Do you want to create that business?” Ultimately for us, it was a no. We did a few of them and it just wasn’t a great fit for us.
So I think that Small giants book really resonated with me. Now, we have people on our team getting into deals. They’re growing their wealth. We have this family attacking everything multi-family that they care about. We have guys on the capex team, guys on the maintenance team now that, “Wow, we’re watching costs a little bit closer because it’s our dollars in that deal as well.” So that book probably hit me the hardest most recently.

Gino:
I got two books that really affected me. The first one is T. Harv Eker’s Secrets of the Millionaire Mind. Back in 2008 when I read it, I was in victimhood. I was blaming everybody. I was blaming the economy. I was blaming the president. I was blaming the restaurant. I was blaming the industry. When I figured out that Eker’s really talking about responsibility, your fruits are your roots, I didn’t have the skillset to earn money. For me, once I understood that responsibility is about myself, about becoming a better person, about learning the skill sets, everything changed for me, my mindset. All of a sudden, I didn’t blame anybody else. I blamed myself for not learning the skill. So what did I do? I hired coaches, hired mentors, listening to podcasts. Doing all that was truly important.
I think the second book, I think everyone should read Stephen Covey’s book, Seven Habits. I read it back 15 years ago, didn’t have much of an impact. I read it a couple years ago. I mean, start with the end in mind. People see the world as they are, not as it is. All of these things that he talks about, it’s so revolutionary. It’s so changing. Really, I mean, one of the best, for me, personal development books ever out there. I love the Seven Habits, and I recommend that to everybody.

Rob:
Awesome. So when you guys aren’t off on nice strolls on your tandem bikes, what are some of your hobbies?

Jake:
This is going to sound so freaking corny. So I don’t know. A couple. I guess it was 2017 we bought this lake house that needed a lot of renovations. Its a mid ’90s. So I put a ton of time into that and I just cleared three acres and we’ve gone just balls the wall on renovations. Then I added 17 acres down the road and I put a shooting range and this whole ATV course and all this stuff.
Then I just closed on a penthouse in downtown Knoxville that we’re doing some renovations, too, and adding a rooftop to it. So I enjoy real estate like on the personal side of things as well just to transform it and do fun things and create these different opportunities for my family. So doing that kind of stuff in my free time and then hitting the gym. Keep it pretty simple around here for the most part.

Rob:
I’m not sure anyone can say building gun ranges and ATV courses is cheesy.

Jake:
Dude, it’s great, though, because I can go out, I can whip out the chainsaw on the weekends. It’s pretty fun. So we enjoy that. Yeah.

Rob:
“This is going to sound so cheesy, but just being the most awesome man on the planet.”

Jake:
Thank you, man. I love that.

Gino:
That’s who I have to contend with. So my hobbies are fishing with my kids. I live in St. Augustine. I go fishing off the shore. Recently, about a year and a half ago, I started singing opera because the kids all start singing opera and I’m like, “Well, they’re going to church on Sunday. I’m not singing with them. They’re going to choir Wednesday nights. I’m not going with them.” So I got into singing opera. That’s my hobbies.

Rob:
So we need to get you to record our intro and song.

Gino:
I mean, I could sing for you guys right now if you love it. I love ripping it.

Jake:
He’s like Will Ferrell from Stepbrothers. It’s beautiful.

David:
That’s exactly right. I did notice your voice sounded like a combination of Fergie and Jesus in that brief little example we got. I need to see a video of you two on a tandem bike in St. Augustine riding together with Gino singing and I’ll figure out what Jake could be doing. Probably we shouldn’t involve you.

Rob:
He’s going to be pumping a dumbbell.

David:
Yeah. That’s exactly right. He’s got no hands on the bars. He’s doing-

Gino:
With the chainsaw, bro, with the chainsaw. That’s all I’m saying.

David:
All right. In each of your opinions, what separates successful investors from those who give up, fail or never get started?

Gino:
To me, we don’t lack motivation, we lack clarity, and I was a shiny example of that for years before I got partnered up with Jake. I did a mobile home deal that went really bad. I did a couple of mixed use deals in New York that went really bad. Once I became clear about the vehicle that I wanted, which was multifamily, and I started getting educated, I find the mentors, I found Jake, and I focused solely on multifamily. It took a little bit of time to get that traction, to get that going.
Once I became clear what my goals were and what my end game was, I think that changed everything for me. Then having an amazing spouse, having an amazing partner, that really helped, that accountability piece. If you’re trying to do it by yourself, sometimes it’s hard. Sometimes you’re all by yourself. You don’t have a different perspective. You don’t have somebody to bounce ideas off of. I mean, that’s what really saved me and Jake. We had that mastermind when we started. We were both really hungry. We both work really hard, but we were both clear on our goals and we both had our values that were really in alignment.
10 years later, we’re still doing deals together. We’re still partnering up. We still spend a lot of time together. We go on vacations together. That for us, for me especially, that accountability piece and having somebody to enjoy the ride with is what has helped me. I think a lot of people, they lack that. They really think of not having that accountability piece and think of doing it by themselves. It can get challenging sometimes and not having a partner can be challenging.

Jake:
Yeah. I’ll piggyback off that a little bit. I think the biggest thing with folks is that they have yet to submit to being 100% responsible for their outcomes. The opposite to that is when victimhood creeps in. Ultimately, if you want to be successful in this space, I think it’s very hard when those two things start to blur. You’re not a union worker. You’re an entrepreneur when you’re in this space. You don’t get the weekends and this, that when you want it.
So if you’re going to feel sorry for yourself because you don’t get to watch Netflix for six hours and you got to do something on the weekends, man, my kitchen table looked, and I had nothing to do with it, I should never touch accounting, but my kitchen table early on, it looked like some accounting mess because we were trying to figure this out early on. I was watching football games and doing all this stuff.
So I think that until you realize that everything that comes into your life you’re responsible for it, you’re going to struggle a lot of times with mindset. Look, we were joking about it before. I think there’s 40% of the folks that tune in haven’t done a deal yet. Gang, this is very simple. The biggest difference between the folks out there that have and started getting into this game, the folks that haven’t is going to come down to your mindset. Are you responsible for all your outcomes? Are you doing everything in your power to see it through? Then are you looking in the mirror saying, “This is my fault when it doesn’t work out for me”? If you’re not, you’re going to continue to suffer in life until you figure that out.
It may be a little rough, a little aggressive, but I think it’s as simple as that. Then when you start to let that victimhood creep in, all you’re doing is ultimately hurting yourself because you’re giving yourself a pass. So hopefully, that impacts someone in a positive way and they can see through it that I’m not just trying to be a (censored) but that’s the areas that a lot of us struggle with. I think if you can get past that and just humble yourself and say, “Look, if it’s meant to be, it’s up to me,” kind of thing, it’s going to take you farther in this life than most things.

Rob:
Very, very great, very wise. Our very last thing here is, could you tell us where people can find out more about Gino and Jake on the interwebs?

Jake:
Not sure what an interweb is, but yeah, on that www dot thing. Hit us up at jakeandgino.com. You can find out about our conference. Multifamily Master 5 is the only event that we do. It’s November 5th and 6th that we open to the general public. Everything else is Jake and Gino community only. So going to have some amazing people there. Gino’s going to be singing opera like Will Ferrell in Stepbrother. So I mean, that alone, you should probably get a ticket. It’s a financial vacation for smart people.

Rob:
David, what about you, man? Where can people find you on the internet?

David:
Oh, you can find me at DavidGreene24 because there was 23 other David Greenes and I had to get in line. Again, I got to catch Brandon Turner because even though he’s not hosting of the podcast, he still has way more followers than me and he lets me know it every single time he sees me. So I’ll say I’m not too proud for a pity follow. Please feel free. Rob?

Rob:
Just follow me if you want to. I don’t want the pity follow. I want you to like my content and be all in, but you can find me on YouTube at Robuilt or on Instagram at Robuilt or on TikTok if you’d like at Robuilto.

David:
That’s a total flex. I’ve got so many followers already. Really, I don’t need a pity follow.

Rob:
No, that’s not true. You have three times the amount of followers as me on Instagram.

David:
Jake, Gino, I really appreciate you guys being here. There’s very few people that have as much experience as you do. When you’ve walked through the fires of whatever it is that you’re going through for us real estate, you come out with this perspective on the right way to handle things. It’s very different than the people that are first getting started. So I want to thank you guys for your time that you’ve given us. Do you have any last words before we let you get out of here?

Gino:
For me, just want to thank BiggerPockets and the community for the privilege of speaking to them and just for their time because you guys can be doing something else out there. So just thanks for taking the time out to listen to Jake, Gino, Rob, and Dave.

Jake:
Likewise. Thank you, guys.

David:
All right. I’ll let you guys go.

Rob:
David, before you ask, I’ve got no final words, no profound statements.

David:
I figured at this point that you’ve already shot your entire shot throughout episode. You’re done. I always ask Rob what his last words are right after a guest drops the mic and gives this amazing thing. I’m like, “Rob, you want to follow that?” and he’s always like, “Oh, why do you put me in this position?”

Rob:
People will end with tears and they’re like, “If you believe in yourself, you can do this,” and it’s this very just profound and emotional moment. He’s like, “What about you, man?” I’m like, “Buy houses.”

David:
Like this three-legged dog that’s made it through life and an inspirational music. All right. Well, thank you, guys. This is David Greene for Rob the three-legged dog Abasolo signing off.

Rob:
No. I brought my camera. I brought my mic. This was my old YouTube. Oh, (censored) I just realized I didn’t fluff those pillows. Well, regardless, hopefully no one noticed that. Usually, I chop the pillows and I’m like, “Ah, we’re good to go.” I’m going to do that real fast for the intro.

David:
Oh, I wish we could include this. This is so funny.

Rob:
No.

David:
So authentic. All right. Okay.

Rob:
My wife’s taught me well. One must fluff the pillows.