George Pino on Cash Flow, Carports, and Investing With a Conscience

Original automatic captions. Names, numbers, and punctuation may contain transcription errors.

0:00 Hello and welcome back to the Owner Meeting podcast. I'm Christian, your channel host and really excited to be
0:05 here with George today. George, welcome to the podcast. Thanks for having me, Christian. I'm excited to be here.
0:10 Absolutely. George has done some incredible stuff in real estate and he's done a lot in real estate. Funny enough, he accidentally found his way into real
0:17 estate. This was not originally intentional, but we're going to have a podcast today talking about actually
0:22 building equity in your company, starting real estate, and how you can go from being an average guy like George or
0:28 I to where we're at today. So, I'm extremely excited to have you on. A huge privilege. George, for those who don't
0:34 know you, give us a little bit of the backstory of where you started and how you accidentally fell into real estate. Well,
0:40 um, started off actually I had my own when in college I started a company where I of all things was designing
0:47 t-shirts and doing silk screening and selling them doing extremely well especially back in the day for where we
0:53 were. And I wanted to create that company and keep it going after college. But a lot of what we geared um was
1:00 geared specifically on the retail side towards schools and we had I had a lot of time off in the summer months and a
1:06 friend of mine that was working at a company needed some said you know our company's looking for some help. If you
1:12 want you can come on in here part-time and help us answer some phones, do some real estate stuff and things like that. And uh you know I've never been one to
1:19 just sit around doing nothing. You can only be stay so long at the beach or shop or watch TV. So I said absolutely.
1:25 you know, it's I'll do it for a couple months. I started there, was offered a full-time position in about 2 weeks and
1:32 then I thought about it and I said, you know what, this is pretty interesting and I think I could probably do better
1:37 at this than what I have already done. And so jumped right into it and it was
1:43 really interesting cuz we're doing of all things real estate auctions and these were not the online auctions cuz
1:48 to be frank with you I'm a little bit older than most people if you can't see the white in my [laughter]
1:54 but I remember when someone actually told me have you heard about this internet thing it's going to be here but
2:00 you know I was a computer science major in college originally and I remember programming in DOSs there was no
2:06 Microsoft there was no Windows there wasn't anything like that so you know We were doing things open outcry real
2:12 estate auctions kind of like what you see on TV where you're you see an auction for uh cattle but instead of
2:19 cattle we're doing real estate and we're auctioning off [clears throat] anywhere from a 50 to 400 properties at
2:26 one time. That is that is an incredible amount of volume. So you just all of a sudden are thrown into the real estate world doing
2:32 ludicrously high volume. Uh that had to be a lot of fun. How long did you do that? You know, it was extremely fun. A
2:40 lot of hard work. I mean, there were times where at that company, I was literally working seven days a week,
2:45 sometimes 12, 14 hours a day. Um, cuz we were traveling all around the country. I was assigned Texas as my territory,
2:52 which was their largest area. And I was part of the closing department. So, what I did was I wasn't on the sales side. I
2:58 was after they sold the properties, I actually followed through to make sure they closed escrow. So, I followed
3:05 through with all the lenders, all the attorneys, all the title, and made sure that all these closed. And these were
3:10 thousands of properties a year that I'm tracking and following. You know, one of the things I ended up doing was saying,
3:16 "We need software to do this." And I helped them custom design some software at that time because there was nothing that we could do to track it.
3:22 That was from my computer science background. But with that, you know, we had it was it was a lot of fun. It was
3:30 very exciting. It was different. It was unique. Um we it was a time where you
3:36 know it was as much work as we did we played just as hard and including with our clients. I mean I remember senior
3:43 VPs at client um at at some of the banks that we're working with to offload a lot of their reos during the RTC days. Uh,
3:50 you know, I'm some snot-nosed kid is probably how they saw me that was like 22, 23 years old coming out of college
3:57 and even with a ponytail back then. And you know, and I'm dealing with the senior VP of a bank on their closings
4:04 and I'm talking to them. They're like, so to get to know them, I did the only thing I knew how to do, which coming
4:09 from college, you make friends by drinking. So we'd go out and we'd just go to bars and drink and make those
4:15 connections. Luckily in Texas, that's a great way to start off getting to know someone. And uh I created some amazing
4:22 contacts, but I followed through with the business side. And you know, we made sure we had a 98% closing ratio, which
4:28 was huge, you know, so 98% of the deals that we actually sold, we actually closed those properties. So we had a
4:34 really super high closing ratio, very little fallouts, and you know, it was basically performing, but also having a
4:40 good time doing that. And with that, I was able to grow within that company organically to the point where I was
4:47 opening offices for them. I had opened up an office, closing department office in uh Houston, then one in Dallas. Uh
4:53 and then we ended up opening in Boston, New York, Chicago, and then uh Pleasanton in the norththeast Bay of
4:59 Northern California, which is where I met my wife. Wow. Speaking of speaking of New York, so you opened in New York, talk about a
5:05 interesting real estate market. Now, I I moved from Seattle to Texas, so I very much relate to Texas real estate. I've
5:11 bought hundreds and hundreds of rental units down here in Texas since I moved a couple years ago. New York. It's been a
5:16 long time since I've looked at a market and actually wondered is this completely uninvestable with their politics. What
5:22 are what are your thoughts on all the stuff that's going on in New York right now in the real estate space? Right now, the nice part is everything's
5:29 resilient. I mean, if you look at things at a very short window time frame, it may not be the best time because, you
5:35 know, there is that fog of war. No one knows what's going to happen. But at the same time, that breeds opportunity.
5:41 That's the one thing I've learned throughout my career is that uncertainty actually breeds opportunity. You just
5:47 have to be able to identify what is the most likely outcome. I think that this
5:52 is a city that is one of the greatest cities in the United States. It is uh a very resilient city. It's going to be
5:58 very hard for it to be to come down. It'll always be in demand. So, I think
6:03 that there are going to be opportunities to invest. It's a matter of where and especially if you play the longer term
6:10 and hold game, you know, that that's one of the things that one of the lessons I learned, you know, along the that way,
6:15 it's long-term plays tend to outperform the short-term
6:21 uh you know, buy and sell. So, think even with the politics as aggressive as they are, politics change,
6:26 buy and hold, a good deal is still a good deal in New York. This might just open up buying opportunities.
6:32 Exactly. Try to get out. If anything, I think it will open up buying opportunities. people are going to run scared. They're going to end up
6:37 selling. There's going to be a flood a little bit more on some of the market or the properties, but ultimately down the
6:42 road, it's a city that everybody that there is so much demand to be there that it's always going to continue growing in
6:49 that aspect. I and I think historically that's extremely true and you've seen that in most of the major cities regardless of
6:55 what happens politically, uh especially your large coastal cities, you know, your your Seattle, your
7:01 California, basically the state of California. Yeah. Yeah, you have all of these markets. They are really, really
7:07 difficult to get lending on, to be a landlord in regulation wise. And yet, we
7:12 see appreciation year over year over year over year over year, outpacing any other market just because there is
7:19 demand. And at the end of the day, real estate is supply and demand. It's housing for humans. When you get into
7:24 multif family, that's all it is. If more people are moving, push up. For me, it it depends on what you're looking for
7:30 because, you know, um are there better opportunities for cash flow outside of these markets? Absolutely 100%. But
7:37 you're trading cash flow for appreciation. And you know, I have properties in upstate New York that cash
7:43 flow like crazy. I mean, we're talking um 15 to 18% cash on cash. Um doing
7:51 really good cash flow, but I can tell you it hasn't appreciated at all or or very little. and uh you know that's fine
7:58 cuz I'm looking at that more for my cash flow plays versus my appreciation plays. Meanwhile, you have properties that are
8:05 in Los Angeles or some of these other markets like New York where because of the regulatory issues, the cost to
8:12 manage and the cost to run these properties is so much higher. So you're trading that cash flow off, but because
8:18 of the demand that people want to be there, the appreciation keeps going up and up and up. And you know, you offset
8:25 your lack of cash flow with much higher appreciation. And if you play the debt game correctly, you can really compound
8:32 that and do extremely well. Now, I've always geared my business based on cash flow because I found that
8:38 I can live on cash flow. It's really hard to lose a building. That's cash flowing. and you can wait for any market
8:44 cycle to change as long as you're getting paid to wait. I've always geared heavily towards that. I've seen people with different strategies. At some
8:50 point, you do want a portfolio that appreciates. That is how you build long-term wealth. How do you personally
8:55 strike the balance between these high cash flow, high upside, the riskreward ratio for your investment? How do you
9:02 strike the balance between both cash flow and appreciation in your portfolio? Great question. And if I'm in certain
9:08 subm markets that are more appreciation based, I actually don't take on as much debt, you know, so I'm still looking at
9:14 that cash flow. I'm still making sure my debt service coverage ratios are enough so that if I do have vacancies, I'm
9:21 going to still be able to maintain the property because I do agree with you. I am a cash flow buyer. And because of
9:27 that, I may have missed out on some big opportunities where people have, you know, that you read about like, oh, I
9:33 invested in Apple when it was only 50 cents a share. You know, you may, but
9:38 honestly, that's so rare. And you hear that in real estate where you have all these opportunities where someone's
9:45 invested into something and it's shot up and it's done extremely well. But the problem is that's extremely rare. And if
9:51 you're chasing that and if you're looking at that and you're hoping for appreciation really you're just you're
9:57 not an investor. What you are is you know if you don't have a you're a speculator. You're hoping for that
10:02 appreciation. You're hoping that the market's going to be timed right that nothing's going to happen that we're not going to have and especially in certain
10:09 subm markets. I mean, an earthquake tomorrow can drastically change the real estate landscape in California, just
10:16 like a hurricane in parts of, you know, Texas through Houston or what, whatever. It's those things that are out of your
10:22 control, but if you plan well, don't overleverage and you still maintain cash
10:27 flow, you're still going to be okay. Now, you may not have as much appreciation, but you're still going to
10:33 be able to play and get a lot more of that appreciation. The other way I do that, especially now, is I look for
10:39 properties that I can that are cash flowing very well, yet I can add value
10:44 to create that appreciation. So, you know, there's different ways that we do that. Like, for instance, when we were
10:50 in the multif family uh game a little bit more so, you know, we bought a property that was 192 units in Texas and
10:58 there were roughly 400 parking spaces, all of which were uncovered. Now, I
11:03 don't know about yourself, but Dallas heat gets pretty damn hot in the summer months and people like parking and they
11:09 at least carports. So, we looked at it and I quickly did a quick analysis and I
11:15 realized I can put in 100 car ports in and these were all steel construction. It's not like we have to build them like
11:21 for earthquake or to handle heavy snow and things like that like we do on the
11:27 in East Coast or up north. So, we were able to build it with steel construction with 10 roofs, corrugated 10 roofs and
11:33 things like that. So, it was relatively inexpensive. Actually, it came out to 700 carport. Oh, that's not bad at all. That's fantastic.
11:38 Not at all. $75,000 for 100 car ports. Now, we put those all in the prime locations, but then we sold the
11:44 carports. If you wanted to park in a carport, it was $20 extra a month on your rent. That was $240 a year. On a
11:51 cap rate basis alone, that raised the value of the property almost $2,000 per
11:57 carport. and they rent it out immediately. So, I create that appreciation by figuring out ways that
12:04 we can actually create value, do things like that as opposed to hoping for appreciation in the market.
12:10 Well, and that's what I love about the the commercial. I always tell everyone to do their best to get out of single
12:15 family and and res like the small residential stuff as fast as possible. So, if if I tracked what you were saying
12:20 correctly, you have a 100 car ports cost you 75,000 to make them. You pretty much
12:28 immediately leased them. You said it was $20 uh a month per car month. So you created $24,000 a year of new
12:35 NOI. That's you know there's not a new I imagine there's not really much of an upkeep cost on a metal carport. So you
12:41 you added no new expenses. No new expenses. We put solar lights on them that were I mean we had no
12:47 expenses. So you added straight profits. You said that was Dallas. Yes. Okay. So let's go conservative. Dallas
12:54 is better than a six cap market at that time. But let's let's just say it's on a six cap valuation. You spend $75,000 to
12:59 add $400,000 of value instantly to your property. Yep. Bingo. I mean, that's that's an amazing return.
13:05 That's a ridiculous return on investment and it's done like that. Absolutely. Oh, that's amazing. So, you know, there's things like that
13:12 on this on the pure commercial side, like on retail and stuff. We look to, you know, we I'm very much location
13:17 driven as I say to uh anybody any agent that is trying to sell me a property. They ask me what I'm looking for. And
13:24 even what I'm looking for when I'm representing a client, I let them know that, you know, typically speaking, my
13:29 investment strategy is that I'm geographically agnostic, but I'm extremely locationdriven. And so I look
13:36 for the prime locations that I know I can reten. I mean, the win-win for me is
13:41 I got I buy a commercial property that's cash flowing very well. The worst case, the best case scenario is for the tenant
13:47 to go out of business so I can kick him out and bring in a better tenant at a higher rental rate. That's what I look
13:53 for. And so, you know, and I have a couple of those right now that we're waiting for either for the tenant to uh
13:58 for the lease to expire or for the um or for hopefully the tenant to go out of business.
14:04 Yeah. You know, that I'm not afraid of that then because I I go into it eyes wide
14:10 open with the understanding that here's my plan of action in case this happens. And if it does happen, that's actually a
14:17 good thing for me. Mhm. When you're building your portfolio and you, you know, you diversified across different
14:23 asset classes, you have multi family, you have retail, what goes into the decision-m of what you want to hold and in what quantities in your portfolio
14:29 when you're balancing a portfolio? Like myself, I'm a multif family guy. So like my business is all based around multif
14:35 family and property management. I'm vertically integrated in multif family. That's my target for
14:41 you where you are buying, you're buying large deals, you're buying different asset classes. What is the makeup of
14:48 your portfolio and how do you intentionally manage that? Well, right now we've actually repositioned out in multif family. We
14:54 got kind of tired of the management and the headaches and the regulatory issues. We sold everything that we had in California. Ended up selling everything
15:00 we had in Texas. Um. Wow. And ended up uh start transferring
15:06 everything into single tenant net lease assets, which is my specialty on the brokerage side. And as passive as you get in real
15:13 estate, as passive as you can get. And people always it's it's and and I love it because most people look at it and say
15:19 it's a declining value asset. You know, every year goes down in value and stuff. That's because they don't know what they're doing. I love and that allows me
15:26 opportunity. If I have a whole bunch of competitors that don't know what they're doing, they're not going to they're not going to necessarily offer the right
15:32 pricing or look at the right properties in the right way to be able to create that value. So, I look at that and as far as
15:39 properties I hold or sell, it's as simple as this. It's not my personal residence. I'll sell any property
15:45 tomorrow as long as I can replace it with a better investment. So, depending on where it is and what my offering,
15:52 great. There are properties I know I can't sell right now because of current market conditions and things I'm waiting
15:58 to reposition leases and whatnot. Um, but at the same time, if somebody came in and offered me a great price and I
16:04 can replicate the uh I can replace the rental rate at a higher rental rate and cash flow, I'll probably take that
16:11 offer. Yep. At the end of the day, real estate, and you you've kind of summarized this
16:16 uh to to put it simply, it sticks, bricks, and money. It's there's nothing emotional about a piece of real estate.
16:21 No. And I I think that's the biggest fault that a lot of uh investors make, especially the mom and pops, is they
16:27 don't look at it. They don't reanalyze it. They don't take a look at it. You know, cuz I'm looking at everything when
16:32 it comes to our investments. Everything from the cash flow to the depreciation. And if I've depreciate, why would I hold
16:37 on to an asset for 30 years and have zero depreciation when I can exchange it, increase the basis, and then even if
16:45 I have the same cash flow, I am by increasing the basis, I am getting a
16:50 much better tax break and benefit. So, I'm keeping more money in my pocket. That's the whole reason you bought real
16:56 estate in the first place and not stocks is to take advantage of the tax advantages that are offered. So, if
17:01 you're not going to do that, then you're not really investing. What you know, the the none of this is emotional to me.
17:07 It's I mean, obviously, personal residences a little different. My wife got upset with me on our first home
17:14 where someone came in and uh you know, they said, "Oh, I have a buyer." And I said, "Oh, you know what? I'm not going
17:19 to list it, but if you bring somebody at this price, I'll sell it." She did.
17:24 I was just a little upset because I'm a person where, you know, I'm I'm very old school. father was in the military, you
17:31 know, he was uh a military family. It was World War II, Korean, Vietnam warrior veteran, um all in service, but
17:38 we grew up essentially growing up in the military is like growing up in a small town and your handshake is your word.
17:44 So, when she came with that offer, I was like, damn, I guess we're selling our house, huh?
17:50 That's I've seen some of that in my life as well. I'm less I think it's because the amount of transactions we've done.
17:55 Just even the house, I I love the house. I loved my old house when it was it made
18:01 business sense to buy a bigger house and just to cash out the equity of my other
18:06 house. I had a loan secured by the house that I used on a real estate transaction. Being able to wipe both of
18:12 those by just offing the assets, it made my capital stack better on both
18:17 business and personal. It gave me a better house and more cash when I wanted more cash. It was it was the right
18:23 transaction. That was the same conversation. It's like, well, unfortunately, we love this house. Uh, we're moving to Texas and uh, we're
18:28 selling our Seattle house. We have the right price, right time. Adios. I tend to be a little bit more
18:34 like you and I'm a little bit more pragmatic with housing, but everything with real estate, I really like the the
18:40 model there. And one thing that I hear this again and again for people getting stuck trying to scale, they worry, okay,
18:47 what happens if a project goes wrong? And if you do enough projects, not every single project goes right. And I think
18:52 you actually phrase this perfectly. There's some properties you can't sell right now because you're repositioning. Sometimes there's a project that doesn't
18:58 go exactly to plan. It doesn't even mean that it's going to lose money or it's a bad deal, but sometimes you're halfway through a project and your entire plan
19:04 changes. Are there any examples of deals where like, "Wow, this got really hard and then we made it through by either
19:10 repositioning or giving it more time." I think it's just encouraging for people to get to hear like, "Hey, it real
19:15 estate is not going to go exactly as you write it out on a piece of paper, but you can still make it. It's not going to
19:21 ruin you on one deal unless you really screw up. Agreed. And you know, I think the biggest mistake people make is
19:27 overleveraging. They just keep taking money out, money out, money out, and they overlever. And they forget that
19:32 real estate is cyclical. So, you know, there are going to be ups, there are going to be downs if you try. And
19:38 unfortunately, there's no way to necessarily, it's not like it's a firm cycle like, oh, we're going to have
19:44 three years of up and then it's going to be flat for two years and then it's going to fall for two years, then we're going to have three more years of up.
19:50 No, there's no way to predict that. It is a little bit off. I mean, there are certain market indicators that you can
19:55 take a look at and follow that help you see a little bit more and what may or
20:01 may not be happening in the marketplace, but it's hard to predict what you're going to do. So, you know what? We we
20:08 went and we did some syndications uh in 2004 2005
20:14 with the expectations of selling around 2008 and N. Oh, good luck.
20:19 Right. So, but by just extending a couple years going back out to the investors because what we did was we bought for we always
20:26 make sure the properties can cash flow. So, even in a down market, I'm still making even if the value I haven't lost
20:33 anything until I've sold the property. So, if I don't sell the property, I haven't lost my equity. So, we ended up,
20:39 you know, as long as we're cash flowing, I'm not worried about it. So, we were still cash flowing. We're still bringing
20:44 in a decent cash flow return. and we went back out to the investors and said, "You know what? We can sell right now,
20:50 but ultimately we're going to take a hit on our equity." However, if we wait a few years, I think we're going to have a
20:57 big bump and push up. Now, I mean, I wish I could have waited an extra year and a half, but we waited a couple
21:03 years. We ended up selling at a profit and doing very well on our returns. Our yields in Los Angeles at that time were
21:11 around 15 to 18% depending on the building. Um, so we did very well overall. I mean I think if we had held
21:18 that's when and then in 2011 12 is when the market really shot up and
21:23 if we had been able to hold for a couple extra years um unfortunately some of our
21:28 investors needed to get out and we ended up uh getting out for that reason but if
21:33 we had been able to hold for those extra couple years our yields would have been into the mid20s. How does communication
21:39 work with the investors when you have a major plan change like that? We want to exit. We our original game plan. We're
21:45 exiting around 2008. This is the worst time to sell. Obviously, we can't do that right now. That everything's on
21:51 fire. No, there's there's no buyers at the moment for this and the pricing is terrible. How do you have the
21:57 communication with them to where they have the comfort and confidence to allow you to do a a change
22:04 of game plan and to write out and sell at a later date? How does that communication happen? And how do you keep that communication going prior to
22:11 having a problem? Okay. Well, with our investors, we've always communicated uh and done good communications. Like, we gave them
22:17 quarterly updates that were not just your typical quarterly updates of here's what we're doing financially, but we
22:23 told them what's going on with the building. We told them what we were doing, what how we were working it, and what we did with that. So, when it came
22:29 time, you know, a lot of that we had already built a good cash flow stream. We were already doing well. They
22:35 understood that with the market that the market changed that the market crashed because of the stocks going down and
22:40 everything else and debt was disappeared and with debt disappearing there were no buyers of course because most buyers are
22:46 not going to pay c all cash for a property especially in Los Angeles and with lenders tightening up and no debt
22:53 out there. They understood that and most of these were also they had other real estate investments. They realized what
22:59 was happening. All of the investors that we used because we were syndication, they were qualified investors, meaning
23:06 that they were a little bit more suited than somebody who's doing a crowdfunding platform
23:11 and putting $50 or a thousand, you know, hey, here's my life savings of $10,000,
23:17 but we wouldn't take that money. You know, our our investors had to have a certain net worth. They had to have a
23:22 certain amount of income that they were generating to be a qualified investor under the government rules and
23:29 regulations. Mhm. And as such, they were a little bit more astute and they understood. So when we went out and said, you know, here's
23:36 what we see and here's how we see it. We can continue. We're still cash flows positive. We're still doing well.
23:42 There's still going to be demand for the rentals. So we're not going to hurt in cash flow. Our loans aren't coming due.
23:49 We are ready to, you know, we can continue like this if need be forever and still get a decent cash flow return.
23:56 However, if we sell right now, we're looking at potentially cutting into our profits heavily because of the loss that
24:02 we're going to take on the equity. And then we projected well based upon past market trends. And the nice part is if
24:09 you choose the right market such as we talked about Los Angeles, we
24:14 talked about New York and especially in the right neighborhoods, these markets are typically the last to fall in
24:20 downturns and the first to come up. So, you know, cuz they're in the high demand areas. And so, looking at that, we
24:27 thought, okay, here's our projections. Here's looking at past history and track records of different market downturns.
24:34 Here's what we expect. We'd like to hold for about two extra years, preferably three. Everyone agreed to at least two.
24:40 And that's what we ended up doing. We were able to manage and weather through it and maintain and actually increase
24:46 our equity overall on the properties and sell for profits. That's perfect. So, it's it's little changes. It's the
24:51 great communication that keeps investors from getting too spooked or too, you know. Yeah. And
24:57 and during that time, we still kept up with uh different communications like here's where we are, here's where our estimate of value is, here's what's
25:03 happening in the marketplace, here's what we think we should do, and we just kept going. Yeah, I absolutely love that. And it's
25:09 the simple communication throughout. And it's not just when you have a problem. It's just consistent communication and
25:15 then full transparency. if they know it's really hard for someone to be upset about a problem that they've been a part of and see the actual development of
25:21 like, hey, or if you're saying this, this may be a problem. Here's our plan for this. By the time they get there, you're not blindsiding anyone, which is
25:28 where I see the largest mistake from newer investors is something goes wrong and they try to solve it without
25:34 bringing awareness to the rest of the team. You just let everyone know what's going on. Uh, and of course on larger
25:39 deals, I'm assuming these are mostly done either as a a fund or just a 506c. If you're doing the syndication, you're
25:45 working with accredited investors. You're not working with, you know, mom and pop investors. They're not brand new
25:51 to this. These are higher net worth individuals who have likely also invested in other deals and they've seen the same market trends that you're
25:57 dealing with. Absolutely. And almost all of them are real estate professionals. So, they had other investments in real estate. They
26:03 understood what was going on. They had done this before. They just liked our investment strategy and model, so they
26:08 invested alongside us. I absolutely love it. What a what a great structure. How do you attract that
26:14 right investor for your deal? People who like your model. Awareness is obviously a huge piece. Like they they have to
26:20 know that you exist and know your model to actually invest with you. How do you attract the right people to the right
26:26 deals? Awareness, talking about it, getting out there. I mean we have a lot of people that come to us now and you know cuz
26:33 just because they understand our investment strategy what we look at how we go about it. So, you know, in in this
26:41 area itself, you know, yeah, when we first started off, there was the dog and pony show. You know, we had personal
26:47 contacts. We'd run out and say, "Here's what we're going to do. Here's our past track record on our personal
26:53 investments. Here's what the plan is, and here's our, you know, here's the upside, here's the downside, and where
26:59 we're at." We actually, for at that time, we had a investment model that was
27:05 pretty unique. Mhm. It was a socially responsible real estate investment model that most people
27:12 had never even heard that term before. And because of that, we were actually invited to speak at different
27:18 conferences, talk about the model. We were written up in the Wall Street Journal, LA Business Journal, New York
27:25 Times, Dallas Business Journal. Wherever we went to do this model, we got written
27:30 up with because it was such a unique investment strategy and model that we did. And that allowed for people to come
27:36 in. What made it so unique? Well, um, we've always believed in giving back to the community. The way we
27:41 look at it is if we can increase and better the community, then it's a win-win for everybody. Cuz, you know, if
27:48 I'm investing in real estate in a community and I'm making the community better, guess what? There's going to be
27:53 more demand and therefore I'm going to get better rents or therefore I'm going to get higher appreciation. So, it works
27:59 for me as an investor. At the same time, it works for the people that live in the community as opposed to the take take
28:06 mentality. I'm going to invest. I'm going to not invest reinvest into the community and I'm going to take away. So, what we did was um my business
28:13 partner at the time and still is my business partner. Um but he comes from a
28:18 very small town in Nebraska. And when I say town, it's actually I think it was legally classified as a village. 281
28:25 people. [laughter] and going to school, as you can tell, is probably different and unique than most
28:30 other people in the United States, their experience. And what whenever he had a problem or an issue with schoolwork,
28:38 specifically math, he would literally after school just go over to his teacher's house, knock on the door, and
28:44 say, "Hey, you know what? I didn't get this. Can you help me out?" And he thought, "You know what? Can we replicate this?" And we thought I looked
28:51 at it and I said I was looking at our properties that we owned and at the time most of the properties weren't quite
28:57 large enough to replicate that model. So we started selling that and looking to buy larger properties. We figured out uh
29:03 I ran business models and ran uh numbers on it to figure out there's a certain density we needed and what we did was we
29:10 took a unit off the market. We converted it was typically a studio or onebedroom and you know a smaller unit but what we
29:16 did was we converted it into what we call resource center and these were all low-income neighborhoods very low-income
29:21 neighborhoods in some cases and we would put in and especially at that time there wasn't as much of an internet uh like
29:29 and especially in these low-income neighborhoods people couldn't afford having home internet and computers. So
29:34 we would put internet, computers, mini library with books and game, but then we'd also discount the rent of a
29:40 percentage of the units. We'd bring in accredited school teachers in exchange for the discount in rent. They would
29:46 tutor the children that and the teachers actually typically lived in the area. So it was a win-win for them because a lot
29:51 of them were taking jobs just to survive, especially in the LA submarket. They take after work jobs, drive an hour
29:58 into a better neighborhood that could afford tutoring and then drive back home. And so instead they would just
30:05 come here and then they would tutor or mentor the kids four days a week for two and a half hours a day. What we did
30:11 initially we did this just to try and give back to the community. We didn't think that there was going to be a financial benefit for us. What we didn't
30:18 realize was typically speaking low-income well we did know this part but low-income neighborhoods have a very
30:26 high turnover rate. you know, people tend to move. And in fact, the elementary school in the area had a 60%
30:33 attrition rate. So 60% of the students that started the year didn't end the year. That meant that, you know, if it
30:39 was high school, yeah, there's dropouts, but elementary there's not really dropouts. What that meant was the people
30:44 the the the families were moving out of the neighborhood. So that neighborhood was having over a 60% attrition rate.
30:52 Once we started this program, what we didn't realize was it would stabilize that community. People now saw a value
30:58 that we actually cared about them. That even though it was a low-income neighborhood and a rough neighborhood,
31:04 this was something that their kids could go to. We actually even created uh ended up creating a foundation that we funded
31:10 to give scholarships out to the kids to because you know, one of the biggest complaints that we got initially was,
31:15 well, you know what? Why should I study after school? I'm never going to college. My parents can't afford it. We said, "We'll figure out a way. If we
31:21 need to give you that scholarship, we'll we'll work on that. We'll figure out different scholarships that are out there." We brought in people that could
31:27 help them with grants and everything else and and writers that would get them going. And so we created this whole
31:34 foundation of that as well to support. What was the most interesting part is
31:39 our make ready cross dropped by 50%. Because nobody
31:44 on top of that, our maintenance cost. when I when I realized that we were actually making a difference in the
31:49 community was the [clears throat] second building we purchased. I walked in and I was walking in and I'm I never hide who
31:58 I am. Meaning I don't sit there like, "Oh, I'm a maintenance guy that's on the property management." Like if they want
32:04 to know, I'm the owner and I'll talk to anybody there. And as I walk in, I had one of the tenants come up to me and she
32:10 starts in a very angry tone, "I need to talk to you." I was like, "Oh gosh, what's going on?" And you know, head
32:17 down. I'm like, "Okay, what can I do to help you?" And she goes, "You need to talk to your gardener." I'm like,
32:23 "What's the gardener doing?" She goes, "Well, he's not doing a good enough job weeding and doing this and that and
32:28 whatever else, right?" And I'm like, "Oh, this is just a lady that's just complaining for the sake of complaining." Cuz I'm looking at it and
32:34 it's like, not bad. It's not necessarily great, but not bad at all. And then I
32:40 turned the corner and she was outside because she had organized a group of other women to go out. And these were
32:46 all women, older women that were on section 8 subsistence housing that
32:51 deserve to be on it cuz they were either handicapped or they were retired and they were just didn't have the income.
32:57 They pulled their money together, what little money they had, and went to Home Depot and bought flowers and they were
33:02 planting them themselves and putting it in the common areas. And this was an
33:08 area that was when we bought the building was full of wheats and we cleaned it up and everything but it wasn't the greatest obviously but it was
33:15 still nicer and nice. And we looked at this and thought here's a group of tenants that is surviving month by month
33:22 paycheck by ch pay paycheck. They took their time and their money to improve
33:28 the common area of an apartment building and I immediately said you know what I'll talk to the gardener. I'll make
33:33 sure that he does it and I'll see about getting you some fertilizer and everything else, whatever you need. Um, and that's when we realized that we were
33:40 making a difference that that was actually and that's it worked out. You know, we our buildings became in demand.
33:46 We were never without a vacancy and to the point where it actually ended up hurting us in the program because we ran
33:54 out of kids. Nobody moved. As the kids metriculated out and they graduated, we
33:59 had no more kids to tutor. Yeah. So that's I found that that's some of the best stuff that you can possibly do in a
34:04 building. We have I so I do a lot of section 8 as well and uh I purchased some some of them are on still in the
34:10 litec program. You just have to buy them at a phenomenal price where they cash flow heavily. Yeah. But it's adding the
34:16 services if you're under 100% on occupancy on those which you shouldn't be because they're very affordable.
34:21 It's adding the services like hey we do movies on the lawn, we have child care services available. We have bookable
34:28 space. We'll occasionally just host an event or an ice cream social. We network
34:34 with local churches who want to do Bible studies there. So, you just have all of these different services and community
34:39 activities, but it costs next to nothing. It really does to coordinate a
34:44 movie night in the summer on the lawn with a big blowup screen. You're talking hundreds, not thousands of dollars. You
34:50 know, popcorn for everyone, drinks, sub,000 investment, and you offer an
34:55 amenity that no one else is doing. You just become that. you're already affordable. People love living there.
35:01 And what you start finding is that your people who love living there, they start actually helping out places that have
35:06 trash everywhere, tenants start picking up their trash. They care about and I agree with you 100%. You know, it it uh
35:13 and it's just bring that human element back to the investing side. It's not all about the money. You know, we had uh we
35:20 had one situation where a tenant, her son passed away, unfortunately, and it
35:25 was due to gang violence. And she was worried about getting evicted cuz she couldn't afford the rent cuz she had to pay for the funeral. And our manager
35:33 told us this and I said, "Tell her not to worry about rent, not to pay rent for as long as she needs." She didn't pay rent for 4 months. We didn't give her a
35:39 notice. We didn't talk to her. And and I said, you know, just don't worry about it. You know, we'll work it out. We'll
35:45 figure it out. that lady came back to us and it took her two years but she paid all the back rent back but such goodwill
35:52 within that community and understanding that you know it was more of a payoff but we didn't look at it that way we
35:58 were just trying to do the right thing I mean I'm putting myself in her shoes if I was in her shoes and my child passed
36:03 away last thing I'm thinking about is how I'm going to you know okay I got to pay rent
36:08 you know I don't want that extra burden on me so you know we're like take it off
36:15 that That is the right that is the right way to do it. And in business I found this doing this over the years. You
36:20 definitely will get take advantage of if you're too nice. Uh and your tenants will start to do that. So we we've come
36:25 with a policy of always be kind, never be nice. Nice is bad. Nice is where you're like no matter
36:31 what they ask, yeah, of course we'll do that. We're not trying to just be accommodating. We're trying to be kind
36:37 and do the right thing. And that is a perfect example. Yeah. No, absolutely. I mean, it's funny
36:43 that same building. I had a tenant come up to me one time and yell at me about how my manager wouldn't replace her
36:48 carpet. And I said, "Why do your your carpet need to be replaced?" She goes, "I got a big hole in my carpet." You have a hole in your carpet. We should
36:54 replace that. She goes, "That's what I've been telling her." Okay, let me see that hole. Let me take a look at it. I walk in, I look, I'm like, first thing I
37:01 say is, you know, you're right. There's a big hole in the carpet. And I said, we'll get it replaced tomorrow, this
37:08 room. And she looked smugly at the manager like, "Aha." And then I said, "I do have a couple
37:13 questions for you, though." She goes, "What's that?" I go, "Well, that hole is remarkably shaped like an iron. How'd it
37:20 get there?" She goes, "Well, I left my iron on there and it burned through." I go, "Great. Okay. Well, we're still
37:25 going to replace that carpet, but I'm going to tell you what. You're going to pay an extra $25 a month until it's paid
37:31 off." And so, it was being kind, but firm and fair. So, you know, and she did, but you
37:39 know, it it's you can't get taken advantage of because they will take advantage. You're absolutely 100% right on that. But people will still be
37:46 people. But when you can manage kindly correctly, yes, you do build community. You have better
37:52 tenants. They take better care of your property. Ultimately, you get to feel better about your investment. Just as a as an investor, you're bettering a
37:58 community. I have found that spending the little bit of extra time and money on that actually does make more money.
38:04 you actually end up with higher returns. You end up with a better money model when you do the right thing.
38:10 Which is which I just think is a beautiful thing. So the fact that you were doing this I agree early on because for for us that's the
38:15 only way that some of these properties this is the only way that you can actually make the deal like this is why the deal works is because it's managed
38:22 at a really high level. I can see why people wanted to invest in that especially when that was less popular to
38:27 be socially aware as a landlord. You know what I think was interesting though is what you said is it has to do with
38:33 coming in with that mentality though too. It's not just offering the services. The residents that are living
38:40 there has to they have to understand that you actually mean to do good that you're doing it for them as well. And
38:46 what I mean by that is part of our model was that we were very interactive from
38:51 our property management to our, you know, all of our maintenance guys would get to know the tenants by name and say
38:57 hello to them every time they saw them. That was part of the rules that we had with them. It was building that whole
39:02 community and that trust network. And it was interesting in that when we were taking off and we got written up in the
39:08 Dallas Business Journal, a very large investment company came and they said, "Oh, we'd like to invest with you." And
39:14 we showed up at their offices to talk about the investment. And it was interesting in that, you know, within
39:19 about 5 10 minutes, we realized they weren't going to invest with us. They were here to pick our brains. And
39:25 because they had their marketing team there, they had their property management team. They had they had every
39:31 I had about 10 people inside with my business partner and I sitting there going, "Okay." And we told them exactly
39:38 what to do and how to do it. We didn't care because the way we look at it, if we all do this, it's going to better the
39:44 whole community, not just our building. Correct. We're like, we told them everything, but we also told them that the key component
39:50 was the human aspect of it. Making sure that your managers are in tune with the
39:56 residents, making sure that you're in tune with the residents, making sure that you're just not putting it out there. The next thing you know, about
40:03 two months later, we get some calls from other investors and friends of ours in the Dallas market, and they're like,
40:08 "Hey, did you see so and so is doing your kind of concept and replicating it?" Like, more power to them. I hope
40:14 they do it right. Yep. No, that's exactly right. And nine months later, they all closed down and gotten forclosed on.
40:20 No, don't. [laughter] They didn't do it right. They just put they just built a center thinking that,
40:27 you know, field of dreams. I'm going to build it. people are going to come and we're going to get that value. That's not how it works. You got to put
40:33 the investment of the time and energy into it yourself with whatever investment that you're doing with
40:38 whatever aspect of it. If you think you're just going to do it and hope for the benefit, that's never going to work.
40:44 And it doesn't matter whether it's a socially responsible aspect of it or whether it's just a regular investment
40:49 side. You can't just make that investment. You have to be proactive and be involved throughout the whole thing. I absolutely agree. Final question. We
40:56 ask this every podcast. We call it the stupid tax because the earlier you are in your investing is the dumbest you're ever going to be. And so all of us have
41:03 made some decisions that cost a lot of money. It could be time, money, friendships, but we've made decisions
41:08 that we would go back in time and have made differently. Is there something that stands out throughout your real
41:14 estate career where you're like, man, this was a really high stupid tax to pay. I because of what I didn't know, I
41:19 didn't know. I made a set of decisions that cost X or Y. Is there is there any stories that immediately come to mind?
41:25 If I had known better, I probably wouldn't have sold as many properties early on.
41:30 Okay. Are any particular properties coming to mind that you should have? Oh, absolutely. I mean, because when when we first got started, right, you
41:37 know, we had a very interesting investment start. I mean, and the nice part is we've done well because the only
41:43 amount of capital I've ever put into investments is $25,000 total. And we've
41:48 reinvested everything back into it. My business partner and I, we started off with $25,000 each on the investment.
41:54 We've just what we did was to reinvest everything at the time. We're very young. We didn't have any money. We didn't come from money. We came and
42:01 realized, you know, we were buying properties and we were flipping homes. You know, we were buying a lot of REO
42:08 properties sometimes in bulk and ending up buying them, flipping them, thinking we're doing well. We saw all the people
42:13 that we were selling properties to at auctions kind of doing similar things, but we didn't have the capital to hold.
42:20 Now, if I had taken a little bit more risk on and realized that I could, you know, maybe we should have instead of
42:27 buying it to flip, buy it to rent and hold and then refinance out and take that capital out that way. Um, a little
42:34 bit more risky, not as fast potentially on growth, but the equity growth that we
42:39 would have seen, like for instance, you know, I bought a house in Silverlake that was on the hill, Silver Lake in
42:45 California and Los Angeles, which is a very hot market. M I we bought that
42:50 house for $60,000. It was an old Victorian two-bedroom, one bath house,
42:56 but it was on a like 12,000 ft lot, which you don't find in California very often. We ended up putting in about
43:03 $40,000 into the repairs cuz we had to redo the foundation and come some other
43:08 stuff, some cosmetic stuff, and update a couple the wiring and things like that. We put about $40,000 in repairs, and we
43:14 turned around, we flipped it for 170,000. decent return all within six months.
43:19 Now, if I had held on to it for two years longer, I would have sold it for $500,000. If I had held on to it for uh
43:27 five years, it would have been about five, six years, about a million. If I had it right now, it's over 3 million.
43:34 Yeah. Yeah. You know, it it's so holding on to that that equity play, we weren't looking at
43:39 it. Part of it was necessity, but also, you know, patience, I think. And, you
43:45 know, patience is something that when you're younger, you don't learn how important it can be.
43:51 Mhm. And, you know, I think that's the lesson that that taught a little bit that you don't have to rush into doing something
43:57 so quickly. And also, sometimes the best deal that you have are the ones that you pass up.
44:02 Oh my gosh. Yes. That is that was I've shared this so many times on the podcast I won't go into it but the biggest
44:08 stupid tax that I paid was that we were buying so much multif family and when I
44:13 started I started with no money in my 20s I it was all creative finance like the first 17 deals were multif family
44:19 seller finance slow down small capital raises I mean that's that's how we got started there's a resort that came up
44:25 $4.5 million I had no idea how to underwrite it we just thought me and my business partner at the time all of the
44:31 deals worked I had 17 deals A couple of them were home runs, a few of them just worked. But like I did 17 successful
44:37 multif family transactions that were all cash flowing, all making money. And we went, we're good at creative finance
44:42 real estate, which has nothing to do with running a resort. That is way too broad. I made decisions where I had to
44:48 spend the next three years earning my way through paying it down to, you mentioned this in the very beginning.
44:54 You do not want to overlever. And if you do, you have to delever it. That is the the way to solve uh too much leverage.
45:00 Have less debt. I spent three years taking all of my proceeds, rolling down that debt to get our DSCR into a place
45:07 where the I basically paid until it was a good investment. Again, that was the way out on overpaying for a deal. One
45:14 deal after two years of success, one deal cost me three years of successful
45:19 business decisions just to pay for the one bad decision. Yeah.
45:24 One out of 18 deals cost that happened to be the biggest deal I'd ever done. So many reasons not to do that. Don't
45:31 change business model. Don't when you do it, don't do it for $4.5 million uh when you're in your 20s. Just not a
45:37 good idea. That biggest stupid tax, but ties right into that. It's the deals you don't do that saves so much money. And
45:45 then when you buy them and they make money, the longer you hold them, the better they will do. Like if you have
45:50 something that is making money, unless again, as you said earlier, unless you have something to trade it to right now
45:56 that makes more money, don't get rid of it. You do not need to cash out. You get paid to hold. You don't need the sports
46:02 car. You don't need the super house. Exactly. Hold the You just need time. Give it time. You will never regret it.
46:09 Absolutely awesome, dude. I loved having you on the pod. If people have more questions for you, if people want to follow more of
46:15 the awesome adventure that you've been on, where do people find you online? Online? Uh I do I have a fairly decent
46:22 LinkedIn profile that they can reach out to or they can always reach out uh just I mean I get a lot of direct reachouts.
46:28 I'm happy to talk to anybody just to give advice and help out because I think you have to give back from you know that
46:34 was the one thing I didn't have was a good oh actually one thing I did have early on in the business side was good
46:40 mentors but not necessarily in the investment side so I don't mind giving advice out to people and so they can
46:46 always reach out directly to me on email gpino gp Icbic commercial.com
46:52 there we go well thank you so much for joining there'll be a link to that below in the show notes everyone thanks for
46:57 watching and Again, this is the owner meeting. If you don't have time to go out and go meet all the owners, we do it here for you. Absolutely follow the
47:03 podcast. We're going to have a whole bunch of more awesome guests on. But this has been an absolutely amazing experience. Thank you so much for your
47:08 time. Everyone else, we'll see you on the next