Working Capital The Real Estate Podcast

Buying Apartments and Raising Capital for Real Estate with Matt Faircloth|EP9

Jun 30, 2020

In This Episode

Matt Faircloth, under Matt’s leadership, DeRosa has completed over 30 million in real estate transactions involving private capital including fix and flips, single-family home rentals, mixed-use buildings, apartment buildings, office buildings, and tax lien investments.  Matt has extensive expertise in connecting passive investors to lucrative investment opportunities through syndications, private loans and joint ventures. He is an active contributor to BiggerPockets.com through Facebook Live, teaching webinars, and blogging. He leads the Mentorship Mondays series on DeRosa’s YouTube channel where he answers weekly real estate investing questions.

In this episode, we talked about how he started in real estate, his company DeRosa, high-level deals, house hacking, his book Raising Private Capital: Build Your Real Estate Empire Using Other People’s Money and many more!

Quotes:

  • “I work with people that view the effort that my company puts in as a pair of pursue relationships.”
  • “Everything we bring to the table to make a deal possible is just as important as money.”

Resources and Links:

DeRosa Group

Connect with Matt

Matt’s Book: Raising Private Capital: Build Your Real Estate Empire Using Other People’s Money

 

 

Transcript

Jesse (1s):

Welcome to the working capital real estate podcast. My name is Jesse Fragale. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you’re looking at your first investment or Raising your first fund, join me. And let’s build that portfolio one square foot at a time. Ladies and gentlemen, I am pleased to have a special guest today. Matt Faircloth Matt is the co founder and president of the DeRosa Group. This is a seasoned real estate investor. The DeRosa group based in historic trend in New Jersey is a developer and owner of commercial and residential property with a mission to transform lives through real estate. Matt is an active contributor to the biggerpockets.com like myself through Facebook, through teaching webinars and blogging He leads the Mentorship Mondays series on DeRosa YouTube channel, where he answers his weekly real estate investing questions.

Jesse (54s):

Matt thanks for coming on.

Matt (55s):

Thank you for having me here. Jesse it’s an honor to be here.

Jesse (59s):

Absolutely. Well, listen to Matt would we like to do on the show here is, I mean, the first question we ask everybody is why real estate and how did you get in to the business?

Matt (1m 9s):

It’s been so long, brother. I don’t even remember, but now it’s not true. Why real estate? I was it’s funny. I actually, well, just like every other real estate investor, I read rich dad, poor dad. And that’s what turned my head to the possibility real estate. Initially, I’m not gonna lie. Initially. I was sold by some of the things that get painted out, enriched that board, add that a lot of people maybe got sold on is that like, I can work for a little while and then make passive income and then I can just travel and live life on the beach. And I can just, you know, like sit my ties and stuff like that, and just not have to, you know, not have to work, right, because rich dad, poor dad kind of paints that picture.

Matt (1m 52s):

I mean, I know now that picture is BS. It is not true. And I hopefully, hopefully people of C C through that now and get that there is no like point where you to get to where you gotta just get to sit. My ties in the beach is to write your entire life. You do have to do work or do something unless you get lucky, right? Yep. And there are people to get lucky, but they’re is not a path to zero effort. What real estate does give me now, which is perhaps a more mature view of, of what real estate gives me a maybe what Robert was really talking about without really, you know, without some of the, some of the sizzle in their is ownership in my time. And real estate gives me ownership in my time.

Matt (2m 32s):

I can work when I want to, and I do have to work sometimes, but I get to choose when it is. And, and that, and that’s what I love about real estate. So that’s my, my Y real estate now from when I got started and is likely a more mature view of what I thought it was going to be when I first got started 15 years ago.

Jesse (2m 48s):

Right on. So just geographically, where did, where did you actually start in real estate? Which area and which asset class did you originally get into?

Matt (2m 56s):

We’ve always been residential landlords. My very first rental was a home I lived in and then from, from their, and on their own lives. And I expanded into umm, where we bought a duplex in Philadelphia when we were first dating. And, and that’s what we started buying a property pretty soon after together, after he started out, pretty soon if we met each other, cause we realized that this was going to, ya know, we were going to work as a couple and we before to the same things. So to start buying real estate there, we have always been a residential landlord. I do own some other non-residential assets now, but for the most part, we’re a, we’re a residential, a landlord. And we start got started as you asked in Philly and transitioned over to Trenton, New Jersey soon after that.

Jesse (3m 37s):

So from your start in a, in Philly to where you guys are today, just from a market perspective is it’s always interesting seeing, you know, 10, 15 years ago where the market was then and where it is today and kinda how that strategy is evolved.

Matt (3m 50s):

Yeah, let’s see. I got started 15 years ago. So the market was in a big run-up 15 years ago, but it was like this unsustainable, you know, nobody could believe what was going on, kind of run up. But he was here is where people, Robin bank’s left and right was a really where it’s like, you know, you could just name your price on what you wanted for your real estate. Umm, you know, made for a lot of speculators in a lot of people are getting in just to just getting in touch and make a few bucks to get out. You know, is this where the market was 15 years ago? It started to feel a little bit like that recently. I’m a little bit like the, a lot of us not very thought Real very well thought out business plans, just people were getting in to get in.

Matt (4m 33s):

And honestly the last two years have felt like what it felt like then, but, but for different reasons and everything like that. But yeah, I kinda did a very interesting time. And then a couple of years after being in, we got through an interest if we got through the downturn, you know, and to watch

Jesse (4m 48s):

Is a lot of investors cant say that they they’ve actually gone through

Matt (4m 52s):

Most everybody I met got in after that. Yup. And the run-up that we’ve had since this has made everybody look brilliant, you know like, Oh this guy he’s doing so great. Yeah. He is. He’s probably making some good decisions, but he was also running up, you know, he’s he’s to anybody that got in after the downturn has had a lot of benefit from the up market we’ve had since then. And I sell both of them. So I’ve seen some how emotions can get away with you and the bicycle and you know, and, and, and that kind of thing.

Jesse (5m 21s):

So how’s that impacted just the unique time that you enter the market? How has that impacted the philosophy you have when it comes to real estate, whether that’s, you know, underwriting Buying right. You know, find finding deals,

Matt (5m 36s):

The fundamentals and I’ve had deal ideals that should be sticking to fundamentals taking they’re just things on the cashflow and the signal, things like current property value compared to current rents, right. Parameters like that. And not really factoring in appreciation. I, the more the market runs up, the less I consider appreciation now in, in back then, it’s easy to get sucked into it. And as see a lot of people that are buying apartment buildings that are putting in their offering memorandums to their investors, you know, a continued value add, continue to, Oh yeah, it’s gonna go up. And with a couple million, you know, may not know just may not. So we’re, we’re factoring less and less of our salt on, on appreciation and more and more what we do on cash flow.

Matt (6m 24s):

During the last downturn, I found that assets, that cash flowed before the downturn cash flowed through the downturn, things that didn’t cashflow before the downturn were going to get slaughtered and things purchases that you make based on any change in value, likely we’re not going to make the, the numbers you wanted to make. But if you were just buying based on current, not value, add cashflow, current cashflow, right. Then, then you’ll do okay. I, that it’s easier said than done. It’s a tough issue in the marketplace, but uhm, but I find it deals that did get brought on those parameters.

Matt (7m 4s):

Got, do just fine. I mean my rents didn’t hiccup. My rents actually went up a little bit during the downturn because a lot more people came out of home ownership and got into the tenant pool. Yeah.

Jesse (7m 14s):

In the asset class that you were looking at from a residential point of view where you kind of like blue collar or in terms of rent where you kind of on the high side,

Matt (7m 21s):

We’ve always been a blue collar landlord. I’ve done a lot of high end flips and I’ve done high end deals. I got some high end rentals too. I got stuff with like granite and granite countertops and the spiral ducks and rooftop decks and cool stuff like that that are a lot of fun. And the rear those or more fun to develop because you can kinda put in some more wild factors and all of that. Yeah, yeah. Yeah. Well, and I have sexy part. What are you going to have? I’m like, I’m cool. Like look at this exposed brick, you know what? It costs me more money to do it. It costs me another, a couple of bucks to a new stainless steel appliances or whatever. And those are fun, but their not as lucrative as well as blue collar C class stuff is, that’s what our focus is.

Matt (8m 4s):

We have always been a C class landlord for providing affordable housing at market rates, you know, and ways that people get weird when you hear affordable housing, we’re not at subsidized landlord, but I do provide housing. That’s affordable to the media.

Jesse (8m 19s):

Yeah. Yeah. And that that’s been myself in and now my partner we’ve, we’re kind of write in that same a bracket. And I mean that, I mean, that’s the, the idea of going through those recessions or you have some macroeconomic event like, Oh, I don’t know today, Corona virus, you know, who knows that

Matt (8m 34s):

The implications we’ve been waiting on something moving, we went on something a lot of three or four years Matt was a guy is going on top of it. He’s in the top of it. Yeah,

Jesse (8m 44s):

No I’m saying, I was saying it. It’s so funny how you say we’re waiting for something. It’s almost like not a relief, but you’re just like, okay, something’s happening now? You know like they, you here the old a acronym for fear, false events appearing real. And it’s like, you’re just, it’s false until now. You’re actually experiencing something that, you know, who knows a few months from now, we don’t know where we’re going to be. But

Matt (9m 4s):

Yeah, I’m not a I’m, you know, sitting there waiting on the market to crash because it’s do, you might as well just go to Atlantic city and that on black and the roulette wheel, because it’s do, if black hasn’t hit in a while and Muslims do that. Cause it kind of sounds like you’re talking about the same thing. He the stock. Market’s not that, but it’s brought on a run for a very long time. I think a lot of people have been waiting for something to be afraid and there has been nothing. And so, you know, we’re not that there’s, this has been nothing to top of the first domino, not the coronavirus is not something we should be afraid of. And it’s a very real, it is for real man. And I meant things is that they’re killing people, not anywhere near the amount of people that are being afraid of it are, you know, not, I don’t think it’s as bad as people were making it out to be.

Matt (9m 51s):

I think we should accept everyone in our country is probably going to get it at some point is fine. Not fine. It’s not fine, but it’s true. It’s a manageable, it’s a manageable, it’s a way more manners is when people are making an out to me, but we now have something to be afraid of. And I think we’ve been waiting for that. And so, because we’re waiting for that and it hit, it’s like, Ooh, like things, things, or all of a sudden the, in the us, I mean it’s, I mean, I know today is March 13th that it’s down like 2000 points today and it’s been down, it’s like down almost 10,000 points since he started to crash just a couple weeks ago a bit. I think it was actually me a benefit real estate person.

Jesse (10m 28s):

Well, that’s, it’s funny, you know, when they, the feds cut rates, I was just actually with a couple of colleagues yesterday and they were, they were fine or not callings, a couple buddies of mine and their finance guys. And they’re all talking on the markets down this and that. And they’re like Jesse. And then one of my other buddies, like he doesn’t care he’s in real estate. And that was just like a part of, part of the reason I love real estate is the fact that I can’t press a button and sell five properties. You know, coolers, cooler heads prevail when you, you know, it’s not as liquid as that. At least I that

Matt (10m 56s):

I’ve heard. I’ve heard some, some people at respect on stage say things like that, that, that they’ve they’ve said things like, yeah, because it’s not liquid. That’s what makes it so stable that you can’t just put your pen, push the panic button on real estate. If you care to hear my 2 cents, here’s what I think is going to happen. I think rates are going to continue to go down as low as we can get them, you know, and that will benefit us on the finance side. What’s the benefit of what’s going to hurt us on the other side, unless there’s crazy inflation. If that happens, then that’s going to drive up that crazy inflation will drive up the rents, right? Whereas the government can’t do anything to keep inflation down by dropping, by dropping their rates further.

Matt (11m 37s):

Cause the rates are already that as low as their going to get, right. If they can’t do that, then inflation may start taking off. It hasn’t really yet, but the, you know, gallon of Mo might cost $8. You know, if that happens, that will forcibly increase wages and that will forcibly increase rents. So our rent could go way up perhaps over like a three, four year period. Again, my crystal ball is broken. So I don’t know, it seemed to get it to work against a lot of no one’s going to happen. But that is a possibility. The other thing is a long it’s a big possibility is if the stock market stays down for awhile companies that are, that their, their financial wherewithal is based on the stock market will have to start firing, laying off people.

Matt (12m 21s):

And if this grow the virus thing like does, is it just blow over in a week? Which between you and me, I don’t think it’s gonna

Jesse (12m 28s):

Just to get to know what just between us, between you and they don’t tell anybody

Matt (12m 33s):

You’re not going to broadcast this you right. So if, if, if this grow to a virus thing sticks around, a lot of people are saying that it will like, you know, three to six months, then that will affect the economy on a major basis. And I’m talking about people’s buying habits and things like that. That will cause people to start getting laid off, which will increase our, which will, which will affect our vacancies.

Jesse (12m 57s):

Yeah. That’s interesting. It’s just my 2 cents. Yeah. A super nerdy 40 to about two Petty’s with inflation who knows that, right?

Matt (13m 7s):

It the 4%.

Jesse (13m 9s):

Yeah. Well that’s, it’s funny too. Like we were just talking a little sentence. I just started saying that you got to get the Real and then nominal, but yeah. You know what I mean? At the end of the date for us, that was real estate investors. I think to your point before it really comes down to fundamentals and I don’t know how you’re market is right now. I’m in, I’m in downtown Toronto looking on my window right now. We are, we are an a 3% cap rate environment for, for the class properties there. And then, you know, you know, one thing we have to wait

Matt (13m 39s):

Personally, I think I know where eight glasses going to go. This is going to go up

Jesse (13m 43s):

Great. But yeah, I mean for us, but to your point we’re, if a, if you’re in kind of that blue collar market and you do see a, an expectation of rental growth, you know, hopefully that is, you know, that just goes again to, to buttress this idea of having blue collar rents and supporting that through a recession there through a downturn. And at the end of the day,

Matt (14m 1s):

It goes back to buying deals that make sense today. Yeah. If the market goes up, if rates go down, if rents increase, those are all gravy pieces. And we have been banking on those things happening up until now. Underwriting has been, has been, people have been saying, you know, well, if I increase Ryan’s and cap rates is the same and this and that, my property value is going to go way up. If anybody’s looking at to passively invest into a deal, they should be leery of any syndicator that’s putting any more than 20 to 30% of the value they’re giving you a, any more of your return on investment. Let’s say, they’re telling me you’re going to get a 15% return. If their, if any more than 20% of that is coming on the backend, be leery because there’s no talent where we’re in a very, very strange environment right now.

Matt (14m 48s):

And there’s no telling what’s going to happen. I would want to see the most money going to give you company cashflow. Yeah. On the, on like what, on a monthly basis or in the beginning.

Jesse (14m 56s):

Yeah. And that’s why syndications are just not a thing in my market right now, if in the The basically they are like, you just described, they’re basically development deals. So it’s like, you know, we’ll, we’ll give you that pref it’ll recruit. You’ll get it in the backend.

Matt (15m 8s):

Yeah. I’ll get it to you. Yeah. I owe you. Could I read for that prep?

Jesse (15m 11s):

Yeah. So you know what we talked a little bit about before the show, normally we’ll do kind of a, your first deal, but an ordeal of substance, but it sounds like you have a pretty, a pretty unique deal. I’m not sure if you, when we spoke at the conference, if you mentioned it there it’s kinda sounded familiar, but why don’t you take us through a, the deal that you’re talking about and maybe give us kind of the high level, you know, what the title of this of this deal would be?

Matt (15m 36s):

Well, we’ve done a few trade ups in our and our career. I said, before you and I have recorded here, you asked me for something that was Other my first and my unique deal. I’ve talked to my first deal a lot on, on, in public forums like this, which was a house hack, which I firmly recommend that that should be everyone’s first deal. Unless there is some enormous and limiting factor that you can’t work around. If that’s, if that, if there is an enormously that a big factor, you can’t work around for doing a house hack, then don’t do it. But you’ve got to ask like, how can I, so betting 90% of new investors should be doing a house actually here for us.

Jesse (16m 8s):

Why don’t Matt? Why don’t you define that just for listeners, if they don’t know what, sorry. Yeah, no worries.

Matt (16m 12s):

Right? How’s that I, I, I, I speak in tongues a lot of the time and don’t

Jesse (16m 17s):

The one thing I’ve found, you know, we both have videos with, with bigger pockets on their own. What I find is one thing I’ve, it’s taught me the most is sometimes like, I, I think that my audience is one way and their not. And sometimes I, you know, I feel like maybe I’m speaking too plainly and the, and then people are like, no, that’s great.

Matt (16m 36s):

Do you think there’s always new people? And I don’t mind, like I listen to BiggerPockets podcast regularly and Brandon’s always, somebody will say, Oh, a cap rate, whatever. They’re just throw out terms in Brandon. Always. I love the city does this. And again, I know it, all that stuff is to do, but he stops those people always it’s just, Hey, wait a minute. And it’s sometimes he pretends, he doesn’t know, but I get you just hooking us up our people that we really don’t know. But also he’s a King for listeners that don’t know what that is. Can you, you know, which is great. Anyway, a house hack is a rental that you live in. Mine was a single family. Home is a three bedroom, two bath. I lived in one bedroom and rented out the other two bedrooms of two buddies of mine. I get, if you’re married with kids, that probably is probably not happening, but you can still house.

Matt (17m 21s):

And if you’re married with kids, because you can, by a small multi, a duplex triplex, even a quadroplex and Live in there are multis out there and you can say, I can’t. And you know, Henry Ford said, whether you think you can, or you can’t you’re right. So if you decide that you’re right and you wanna, and you wanna find something, then you’re probably will find a duplex or triplex that has a multiple bedroom unit Live in that way. If you got kids, if he got a family and live in that one and you can buy it for 3% down anyway, that my first deal, the deal I want to talk to you about was when Liz and I were dating, we started buying real estate. And I don’t recommend you buy a real estate with your girlfriend or boyfriend, but Liz and I had it worked out.

Matt (18m 2s):

So we, and even further, we borrowed a, our, our initial deposit or initial loan to buy that property was from my girlfriend’s father. That was going to say from, from the parent, for sure, right. For my girlfriend’s dad and his first name was Salvador. Okay.

Jesse (18m 21s):

The Salvatore, he wants his money back. I went to Salvador

Matt (18m 25s):

The money, right. You know, My a hundred percent Italian wives, a hundred percent of Italian father. He was six foot three went to, went to Salvador to go borrow $30,000. And so that we call that a hard money loan now like that he wasn’t a no, but I mean, I, you know, you worry about like, am I going to end up like in a field, like an in the New Jersey Pinelands out of the woods, if we don’t pay this guy back or whatever,

Jesse (18m 49s):

The Jersey portion too, you got The, everything’s lined up here.

Matt (18m 53s):

I know, right. It could be a movie, but know, and all joking aside Salvatore is, is about the sweetest guy you’ve ever met in your entire life. And he believed in his daughter. And I, I, it just sounds funny to say like that, but he believed in his daughter and I, and his daughter, and I in our capacity to buy real estate and the capacity to follow our dreams. So we bought a duplex in Philadelphia immediately after buying it. The, we li it was one year, it was occupied there. That was vacant. The occupied unit we had to, we immediately had to evict the tenant cause she was literally insane and just started limping off and cursing is out on the phone. And, you know, I had been dealing with a lot of problems on the property and just brief a bunch of fire on us.

Matt (19m 35s):

As soon as we got In, it’s like, okay, this is going to work out. You also haven’t paid your rent. So he made it easier on us. So we evicted her and then we renovated her a unit renovated it, the other unit. So he did a big, you know, lots of repairs got rents up, had new people move in, everybody’s happy. And then Liz and I got married and we moved from Pennsylvania to New Jersey where her, where she had a job as we needed to move a little bit further away from the property. So we sold it and it was a M we, we sold it very first, very first on sale, have a rental, fairly lucrative, bought it for 150 K sold it for two 19. And so we didn’t, we didn’t make that. That was not our profits spread because we had done some construction work to the property in their two, but we still had a nice of like, you know, 40 to 50 grand in, in a spread that we had made.

Matt (20m 24s):

And we were smart enough that, OK, we don’t have to pay tax on that. We can do a 10 31 exchange. So the 10 31 exchanges were, you take the proceeds from a sale and you hold it with a third party custodian and they hold the money until you buy the next property. Then you roll all the proceeds into that. So we did it, fend it in 31 exchange company that we liked, they facilitated the whole thing. And we ended up buying two for families in Using New Jersey, about 10 minutes away from where I lived. And so we transferred from a duplex into two to four families. And in that, so that this was back in the day, pre-crash where you could buy for super low Money Matt.

Matt (21m 5s):

So I bought two duplexes, jute quads didn’t live in either one of them for 5% down a piece.

Jesse (21m 11s):

Yeah. That’s interesting. You know, we’re, we’re going to get to the point where we start saying like, pre-recession like it’s before Christ and after Christ. So

Matt (21m 20s):

I hope not. I hope we don’t get to those, those out those loan programs don’t come back. It was a first and a second first mortgage, a second mortgage in the first mortgage is, is something called a negative amortization, meaning you didn’t have to make your full payment. You could make a partial payment and then keep the rest in cash cashflow for yourself. And your principal would go up the mountain, the amount of money you owed the bank would go up each month. A beta crazy should be illegal, probably is now like, you know, I absolutely should not ever, ever, ever, ever get brought back, but we were young and stupid. So we financed it on one of those realize that we add about a year or two later and refinanced it to get rid of that and that, but slowly but surely Jesse we bought several other properties on this.

Matt (22m 2s):

This was a string of, for families. There’s a whole roll of amongst some, a developer came in and it probably took a cornfield and the forties and just build a bunch it’s just a whole row with these quads. Right? And so we slowly overtime, it just started consuming more the sort of Buying and then the crash happened. And so we were buying, we bought the first two for $319,000 a piece, right. But another one across the street for the same price, then the crash happened. We bought another one on the block that was slightly more rundown for $140,000. Fixed it up. We set out that we bought another one on the block for $80,000, right.

Matt (22m 42s):

Fix that one up. Right. And yet this is, these are properties that were worth three 19, if they were fixed up. So we were getting a big spread. Now I had five of these four unit buildings are in essence of 20 in your apartment complex. So we sold that a couple of years ago. I shot a video in my YouTube channel on this, on the video is called how I turned a duplex into a 20 unit apartment building. Cause I kinda sort of did through 10 32 exchanges and through the buying of the properties, right? So we ended up selling that whole complex by then. We were able to sell it based on a cap rate, based on performance of the properties in a bigger owner, came in and bought them and viewed them as a 20 unit apartment building. And so we got a big, multiple on selling them.

Matt (23m 24s):

We make, we did a really good job on renovating them in all that. So the guy that he was happy as he made a good return on his investment viewing as an apartment building, but we were able to take them out of the small multifamily asset class and the, and got them not viewed as a bunch of for families. We got them as a 20 unit. Yeah, that was interesting.

Jesse (23m 41s):

Yeah. Yeah. Yeah. So, so did you on that sale, did you differ again with the 10 31 or did you catch it

Matt (23m 47s):

Is there? So when we started absorbing other properties on the block, we brought in a few investors with us to, to come in with us and be hard money. And we also a few investors coming in and be equity and stuff like that. So it just, it was a, we didn’t own all that ourselves. And so it made more sense to just cash everybody out. So we just, we took it, we took our cash that the investor’s took their cash everybody’s house and we moved on from there.

Jesse (24m 13s):

Yeah. So you had an exit with, with other investors in terms of the purchasing, you know, one thing I I was listening probably probably to audio burger or a podcast to this week. And it was talking about, you know, different structures for ownership. Do you have a particular philosophy when it comes to ownership structure? I know a lot of guys and gals when they start out, they, you know, it’s, it’s just too early to look at, you know, structuring for the longterm. And then they realize, you know, that you have some properties that are personally owned. You have some incorporation, some in LLCs, if you do it a particular way there, or do you have a way that you do it now?

Matt (24m 46s):

We, I mean, when Liz and I first bought that duplex, you know, like I said, we were young and stupid, so we bought it in our own personal name. Oh, you know what we had to, because back then to get the crazy financing you could get, we had to buy it it in a row name right now. And so he bought in their own name for, for, you know, low, low money down, all this other kind of stuff. And then we 10 31 out a duplex. We had to keep it in the same name that the duplex was owned it. Right. So we had to go by these two, four family apartment buildings in our own name, which has a little scary, a little scary. We eventually refinanced them in, did a quick claim deed to move them out of our own name and do an LLC. Right. Okay. So I am, I’m trying to, over the last time I bought and aside from my primary residence, I’m trying to remember the last time I bought something, not with an LLC.

Matt (25m 34s):

I mean, I can’t remember, we’ve used a route of derivatives of LLCs, like LPs LLPs, things like that, but those are all pretty much derivatives of LLCs and that I’m not, I’ve never used a corporate structure or anything like that or corporation we’ve always just been an LLC.

Jesse (25m 49s):

Yeah. Well, it’s funny, just kind of a nerdy and probably not really relevant to most people here, but just on the Canadian end, just cause I’m in Toronto. Unfortunately we don’t have LLCs. So really yes, we hold Everything in either a corporations or a limited partnerships. So it’s, it’s a little bit more challenging because I think our corporations you’re a, you’re a C Corp S Corp are like, The the one that would be just an actual corporation. That would be, it would be a C Corp, right.

Matt (26m 18s):

Is simply an LLC. That’s filed the, a certain way.

Jesse (26m 21s):

The IRS. Yeah. So it, and it’s funny. I don’t know if this is true and obviously, you know, we don’t give legal advice here, but I remember

Matt (26m 27s):

Right. Oh, this is not, I’m not giving them a lawyer here is not legal advice. Either.

Jesse (26m 32s):

One thing I thought was interesting is I had a Canadian lawyer that is based out of New York and he was saying that for most Canadians, because we don’t have that LLC pastor entity. He was saying that, you know, a lot of just holding them personally, as opposed to the Corp is can be, can be just as beneficial as long as you have an umbrella insurance policy in Canada. And his argument was, if you look at cases between Canada and the States in terms of actual liability cases, like we’re like peanuts compared to the amount of the amount of a actual claims that you guys get an, the dollar value of those claims you guys don’t Sue People. We do not a Sufi to a, not a suit

Matt (27m 9s):

Just to us for wearing that shirt in the U S we Sue way to much down here. But I mean, there’s a lot of money in lawsuits for lawyers, I guess. So the, the LLC here, it’s not really a tax vehicle. It’s a, it’s a pass through write. So the LLC makes a hundred grand. So did you, you know, and, and

Jesse (27m 30s):

Last is through to your, to you’re a tax return. Right? Right.

Matt (27m 34s):

Live Matt, you’re going to write offs, go through LLCs, just pass it right through. Yeah. I mean, LLCs give mostly liability protection. People could argue about some other protections that LLC give and I LLC is give, and I would go head to head with them because I don’t think that the LLC is really too much aside from created an entity that I can blow up and dissolve that’s in between me in the property. So LLC has given me bankrupt ability and, and, and, you know, not that I got forbid, whoever need to use that, but in case you get into a bind, you can dissolve and destroy an LLC to protect yourself, which in Canada, you really can’t do not that barrier or in between.

Jesse (28m 13s):

Yeah, there, there is an and, and so he would actually hold title to the property. If you have an LLC for a, for one, for a property, when the LLC beyond title, it would be okay because for us, because a LPs are a function of statute that we need a corporation or a human being to actually own the property. Like we need the, we need them on title. Technically

Matt (28m 34s):

There’s their state’s in the us that, that don’t report back who the ownership structures are, which a lot of people like, cause they feel like they can hide behind that corporate veil. The bottom line here though, is man, listen, if you get sued and guy, I hate to say this, but I’ve been sued a few times. You know? I mean, I’m talking about like for slip and falls and stuff like that. If you get sued, a good lawyer will find out who very quickly who’s behind the LLC. Regardless if you’re in Nevada, Wyoming, doesn’t matter. They’re going to find you. So I don’t go through all that. We just set up the LLC in the state that it was formed in. And as you said, originally, we get a really good liability. Insurance had a really good umbrella policy that sits over all over top of it so I can sleep at night, you know?

Jesse (29m 15s):

So, so you take those $150,000 original property that you bought when you were young with your future to be wife, a, from a loan from her father. And you’d take that turned that effectively into a 20 unit, you basically gets to the point where that 20 unit is now being viewed as a commercial asset because of the, kind of the value, a couple of partners along the way. And then you, you sold it off in. And when did, how long was that period from one 50 to the 20 unit,

Matt (29m 43s):

Let’s see bought the duplex when we were dating. So that was probably 2000 for we sold. It is about 10 years is about a 10 year window, but we tend to exit it, right. So it was 10 years of 10 X like that yet. And so we’d love to do both the duplex for a 150 <inaudible>. We sold that. We sold the string of multi-families for 1.5 million and we about 10 X, my father-in-law’s Salvador’s. We were about 10 X, his, his, his 30 K with about a $300,000 equity piece when it was sold.

Jesse (30m 19s):

Okay. So Sally stayed with you the whole time.

Matt (30m 21s):

He didn’t know he got out, we paid him back. He is still with us like that. And they still, my father and I love them to death, but we got them out, you know, no, I didn’t, I didn’t make Salvador or a $300,000. He made that for R for the owner’s of the properties and for us. So, yeah.

Jesse (30m 37s):

Okay. So, no, that’s, that’s great. It’s definitely a unique one. So just on that, on that note there, in terms of your view of, of partnerships partnering with People, I want to get in, we’ve got about say 15, 20 minutes, or as I told you earlier, I was, I was kind of halfway through you’re a book, and maybe you could, maybe you could kind of give a high level of, of, of what you wrote and a kind of the journey in writing that I know you’ve mentioned earlier, it’s it’s not a simple process, but you’re happy it’s behind you, but you’re happy he did it.

Matt (31m 8s):

I everybody, everybody should to write a book and everybody’s should know, that’s gotta write a book. It’s probably one of the hardest things you’ve ever done in your life. Its fun for me, it was, I don’t know. I’ve heard people on a brand and talk about it’s easy for him now, but he also has written like eight books. Maybe the first one was harder. I don’t know. It was very hard for me to write the book, but it has been a lot of fun and has been great that I’ve already written it, that I can now, you know, reference it and, and refer people to it when they want to learn. Right. And so the book is about the fact and I believe this is a fact and people tell me it’s not, I think they’re fully, you know what, that everybody who knows people with money write and people that want to grow and expand their real estate business should likely do it on their own or likely do it without other people’s money as far as long as they can.

Matt (31m 56s):

But when you hit a break point and we all will, that it’s going to be hard to do it with your own money. A you know, after a certain point and you’re going to want to raise other people’s money. My Book tells you where to look for it and your own network, because I don’t believe that you should just be going to Private money.com and you know, there’s not such a thing. And there really isn’t a website for just a place. You can go to get unlimited amounts of private money and all that. It’s all got strings attached to it. You’re going to get way better money out of your own network. My Book tells you where to look for it, how to find it, how to structure it, how to set it up. Should you do loans or investible equity with you debt or equity? My book talks about both of those things and how to, which one you should pick and which one works in different circumstances.

Matt (32m 39s):

Even a hybrid of those two things called a joint venture. It’s a hybrid of dead end equity together. My book talks about that. Matt book talks about the most important thing, which has had an exit from these arrangements. So once you’re in a debt arrangement where the private lender, a private equity investor, how do you unwind it? Well, I tell you how to do that. So my book has a, how to weather. You’re a small investor to just getting going and, and you one, you’re just learning how to borrow money from other people, how to work on other people’s money or whether or not you’re a seasoned investor. That’s done millions already in transactions. I believe in my book has value for both people. And it’s called Raising Private. Capital how to build your real estate empire with other people’s money.

Jesse (33m 18s):

What was the impetus for you to write a note, to write the book originally?

Matt (33m 23s):

I a lot of people were, we had, we kind of honestly stumbled into doing private money, but we weren’t like, okay, we’re out of money. Now we need to go find another Money that we were started to hit the glass ceiling. I starting to feel it after the downturn, I started to feel that we had already bought more properties after the downturn and stuff like that. But I felt like we were starting to get to the max of what we could do with our, with our Money in somebody who went to school with my wife, I’m married to a smart girl. My wife went to Penn, U Penn and, and met some, met a, a colleague of hers through Wharton school of business. You know, God bless her. Like whoever else was in that classroom, you know, to hear what their up to now, but what are her Wharton colleagues she was getting reconnected to and having a coffee with and mentioned that her and I were the mentioned to this person that Liz and I were doing some real estate investments.

Matt (34m 15s):

And this guy said the magic words, which is Jesus sure. I sure wish I could invest in real estate too, but I just don’t have the time that’s time. And it’s the magic words. Ooh. Well guess who does have time? I got time. And so we I’d met with them. We had coffee and where in the Northeast. So we all kind of live on coffee and everything’s kinda discussed over coffee up here. Right? So we had a coffee and we worked with a deal for him to put, you know, like I think it was 50 K into our next deal and it just kinda got that way. And so I started to figure out how to structure these deals. And a lot of people were coming to me saying, Hey, Matt how are you doing these Private Money deals? How are we doing these Private Money deals?

Matt (34m 56s):

Cause they started doing a lot of them. And a lot of people are a lot of my real estate colleagues saw that we went from like, you know, 20 units to 30 to 60 and like a six month timeframe look, and then you guys are growing.

Jesse (35m 9s):

People are like, what’s what’s going on here?

Matt (35m 11s):

Where was I? Was that over there? I wish to do it. You know? And so we’re in a private money. It’s amazing. You should learn about it too. And so we should have teaching about it and all that. And then eventually fast forward to the point where we’d done it, just like you we’ve done a ton of work with bigger pockets and developed a really, really phenomenal relationship with them, which we just love those guys to death. And they came to us and said, and we went to them like, Hey, we wanna write a book. We loved that you guys or a great book publishing in a lot of that, want a reading the books. And we have some book ideas. We pitched them on three books and that was the one that jumped on. And I’m so grateful they did because I think it’s such a valuable book. Yeah.

Jesse (35m 49s):

That’s actually a, a question I have. Cause I see it over your shoulder. They’re the bigger pockets. That’s the Book right there. Beautiful. And I was always curious what the relationship was with BiggerPockets in the book. They like, did they, did they self publish or did they help you publish it?

Matt (36m 5s):

They have a publishing arm of they’re a bigger, it’s called bigger pockets. Publishing is a very successful publishing company in that. And so they, they, if you read a book, when you read the book with bigger pockets, they become your partner on that. Book and they mentored me through writing the book. They reviewed my, you know, some of my chapters as they were done to, to spot check my, you know, like make a tremor. He knew what I was talking about and I oversee the shining I have. Yeah. That it wasn’t just writing like all work and no play Nick Matt a goal boy. Right, right. So they, they were double checking Everything and then once it was released, they put it to editing and copywriting and a cover design and all that.

Matt (36m 46s):

And then they ran with launching it. They got it on the shelves of Barnes and noble. They put it on Amazon and of course they got of their big megaphone and, and help me promote it to their audiences and things like that.

Jesse (36m 56s):

Yeah. That’s fantastic. I was always a, you know, I always am curious about how, cause you know, I was actually talking to a friend of mine as a copywriter yesterday and it just came up cause we were talking about your book and you know, you’re amazed at how many people out there are not writing the books that they put out. You know, either a ghost writing are there’s this year.

Matt (37m 15s):

I don’t believe in that. And then I think that, that I I’m and listen, if that’s what you’ve done or if that’s what, you know, when your listeners have done, forgive me for what I’m about to say, but I discount books like that drastically because I think it’s, I think it’s like, it takes a lot of courage to read book think, and I think that everybody’s gotta book in them. So I think you’re kind of selling out if you’re hiring someone to write a book for you, because you could have written that book it’s possible, it would have taken you a ton more work, but I’ll bet you, it would have been a way better book. It just would have had you written that book yourself. And so I’ve written books that were written by third party people. And you can just tell me as a good, as a tiny it’s just too perfect. Oh, this is like Frank and Stephen King wrote a book.

Matt (37m 56s):

It’s a really good, real well written book, but this is not this raw voice of you in there. So I’m a big fan of writing our own book. And it’s also extremely easy to publish a book these days. Thanks to Amazon, you know?

Jesse (38m 10s):

Well, it’s, it’s interesting too, when you get somebody that you’d like reading now with Podcast and audio books being, being kinda the big thing. I still, I don’t, I know other people are similar cause I’ve, I’ve heard people say this, but when I really liked the person that has written the book, when they’re actually doing the audio for the audio book to me, that’s that’s phenomenal. You’re you’re getting it from the horse’s mouth.

Matt (38m 30s):

Yeah. I sold out and didn’t do it on that one on my Book Raising Private Capital I wish I had just, you’re a busy guy, man. Well, I didn’t, here’s the thing. I’m a, I’m a pretty good speaker. And I’m just, I’m here on you just chatting like a, like just talking.

Jesse (38m 46s):

Yeah. I, I can go it a test. I first saw you talking Nashville. You were fantastic.

Matt (38m 52s):

Thank you. And if you guys were in Nashville, that wasn’t a script man. That was just like, that is my PowerPoint. But that was the time with my wife, you know, like reached a fire capacity of, for the room she was supposed to speak in. And I took about 150 people at, in this courtyard and just talked about whatever they wanted to talk about. Right? Yeah. I love that kinda stuff. My that’s my problem. No Jesse is I’m feuding that which is just talking on the fly or whatever, not so good of a reader. So, you know, I can read don’t get me wrong. I’m not alliterating like that, but I, if you put, like, it seemed undaunting to take 180 page book and put it in front of me and give me a microphone and expect me to just go read it to everybody.

Matt (39m 35s):

Yeah. So I think, I feel like I should have done it. Yeah. I’m sad that I didn’t. And the next book that I write, I will, but I chickened out about the, about the level of work that it would have taken to sit and read the book,

Jesse (39m 46s):

Actually do it. Yeah. Well, well we have a few minutes left here. I kind of wanted to get into some of the, kind of the themes of the Book. And I know at the beginning you talked a little bit about the, you know, the deal provider and the cash provider when, when you have somebody come up to you and they are at that point, that inflection point where they have, you know, they’ve taken as far as they can go with their own Capital and maybe partner what’s the next step for that person in your opinion?

Matt (40m 13s):

Well, the, my book talks about prerequisites right? In that if you’re going to go on the path of Raising other people working with other people’s money to benefit your business, you know, and create that when, when that, that it is, then you’ve got it. Number one, create a track record for yourself that when you go and talk to your uncle, Charlie, or your aunt, Sally, Your the guy you went to high school with as a woman that’s in your church group or whatever, that, the way that meets the parameters I’ve talked about in the book that that looks the way they look like they could be a good cash provider. According to what I described in the book, right. Then they’re going to say, well, what else have you done? And, and, and say, just be like nothing. I just went to a weekend course and took one webinar.

Matt (40m 54s):

Now what to invest in real estate with a hundred grand a year Money that might not go very far, very well. Right. But if you’re like, well, I brought some hard money. I put my own cash in, I’ve done these fix and flips. I got these rentals and I, or, you know, if he’s really don’t have any money or anywhere with all that, you can say, I’ve gotten my real estate license and I’ve transacted a bunch of stuff for other people. You know, I’ve been around real estate and have gone to a bunch of courses and I’ve gone to a bunch of REIA groups and I’ve learned a ton and the du and I got a bigger pockets, pro membership, whatever it is, you can, you can really discuss why you are a good investment for them. Right. And what you’ve learned through it. I think that that is the first thing you got to do is to create that story on why they should work with you.

Matt (41m 38s):

That’s number one, number two, have a good set of goals so that we can go sit down with uncle Charlie. You’re not like, Hey, try to give me a hundred grand, because guess what? I either want to go buy an apartment building like that guy Matt’s doing, or I want to go and buy strip centers, or I also might want to do some wholesales. And I also do some fix and flips like that guy, Jay Scott’s doing. And I also guess what I also want to do birth strategy stuff like David Greene is doing right. Oh. And all that stuff. They’re gonna run for the Hills, man. Yeah.

Jesse (42m 5s):

You also, we also have just lost an investor.

Matt (42m 7s):

Yeah. Right. That sounds like fun. So it sounds like you’re going to have a ball, but we also saw that you guys will just go to a casino, you know, if you want, if you want to try the different angles out. So I think it is good to have a business plan, sorry. A track record, a business plan with some goals to it, and then you can have a real conversation.

Jesse (42m 26s):

Okay. And from there, I think that that was kind of a portion where you talked about kind of putting the business plan together in the book and then moving on. I think it was, I think it was chapter three where you start talking about the deal provider and I believe the next chapter is the cash provider. So just N high level for people, you know, when you are looking at a deal, you know, a lot of people will say, you know, I’m not bringing something to the deal or what do I bring to the deal if we don’t have cash, what do I do bring to the deal? You know, if I don’t have one aspect of what you think you need to, to kind of build the Build the investment.

Matt (42m 59s):

Well, a lot of people kinda put the money up on a pedestal, right in, and people with a lot of people with money can tend to do that to and say, well, without my money, you’re just gonna, would be nothing. And you need me. Right. Well, guess what they need you, they need you and you need them. And so I work with people that view the effort that my company puts in as a para pursue relationship. Like, you know, my values, they’re their values right here, even with us. Right. I don’t work with Money people that think that their money is more important than my ideal in my contacts and my relationships are I work with what win-win right. So our work with people that want win-win relationships that, you know, they’re that, that, that wanna give and take and that see it.

Matt (43m 45s):

Cause I see the deal is just as important as the money is. Not that I’m discounting the money, but the work that I’m doing should not get minimalized. That means the work, the contact, the Resources, the knowhow Everything we bring to the table, they make the deal possible is just as important as the money.

Jesse (43m 60s):

Yeah. I like that. Use peri Pepsi where it’s, you know, I you have that equal footing, but I agree like a it’s funny, I was just, I think it’s Steven, Kovey the win win for seven habits of highly effective people. But it’s, I mean, it’s so much, especially in JBS and partnerships it’s so it’s so critical to have both parties kinda thinking that way. So I guess lastly, just on the Book one of the areas that maybe you could just briefly talk to was sure. The section you have chapter five, where it is were to actually find those cash providers if you’re starting out. Oh sure. So

Matt (44m 33s):

The book talks about the there’s three different vehicles of, of cash that people can bring to your deal are sources of cash. Let’s say, I’m sorry of the vehicles of the deals. The sources are where they’re going to get it from. Right? The three sources are just, you know, cash, like not like not like bags of the dollar bills, but you know, just money sitting in their checking account. Yeah. That’s number one. The book talks about how to identify that and were to look for it because people with a lot of cash tend to exhibit certain behaviors. And my book talks about how to identify those behaviors in your network. So you know where to find it. The second thing is I’m real estate like free and clear real estate.

Matt (45m 14s):

So, so if your uncle Charlie owns is home free and clear, you can show him, you can educate him how he can unlock that free and clear real estate and put that capital to work in your business and, and reach his wealth goals. The third thing is retirement accounts. And I knew in Canada, it’s a little different, but in America is called a self directed IRA. And I am an enormous believer that America should be and candidates who in all the countries and people should be investing their retirement accounts in things outside of wall street as a blender and today’s stock market prices or a good indicator of why that is, you know, and everything like that. So I believe that that it is your duty to show uncle Charlie, how he can reach his wealth goals through putting his retirement account in your business versus a book

Jesse (45m 59s):

Wall street. Yeah. It’s funny. You mentioned that that’s an area. I feel that there’s a lot of listeners are people in general that, you know, at my father, his generation, it was very old school pay off your mortgage is really, you know, the check Mark. And so the idea is that correct?

Matt (46m 13s):

Yeah. How’s the paid off. That’s awesome. You got this big old piggybank munch to get at the hammer and break it open. Yeah.

Jesse (46m 18s):

Where is it investors we’re constantly looking at, you know, that return on equity technically goes down year after year. The more and more equity they’re is in the house. So for us, we’re always looking at right now, can I Connect 10 31 out of this or can I get a home equity line of credit? Can I get out of this and move it? So I thought that was a really good,

Matt (46m 36s):

You commend them for paying off their house because reduction is a great reduction of expenses is a great way to financial freedom. It’s just brutal need to make a million a year in income. If you can live like a King on 200,000 a year in income, because your house is paid off, God bless. You’re able to reach financial freedom much faster with reduced expenses. Right. But now that you paid your house off, why don’t you take that as you said, that equity vehicle that you have and put it to work. So I think that’s step one, paying off your home, congrats. Then there’s steps to, of taking that and creating a bank out of it that you can, you know, double up, triple up the equity you’ve paid off, paid it off.

Jesse (47m 15s):

Yep. Okay. A Matt no ones take up too much more of your time, but I’m just for listeners out there. If, if they were to find what you do online a little bit more in the DeRosa Group Group or some of your, somebody, they actual videos you’ve done, where can they, you sure.

Matt (47m 30s):

We’ll it just about everything in the, everything that they need to know? As on my website@derosagroup.com, D E R O S a N G R O U P DeRosa group.com. You can link over to my website there. He can actually buy a copy in my book off of that website was just, it just is going to take you a little bigger pockets, which has where you want to get to Book. Cause the bigger pockets gives a ton of free bonuses. When you buy the book and bigger pockets, you can buy it for like a couple of dollars cheaper on Amazon, but buying on a bigger pocket’s creates a ton more, uhm, there’s a ton more freebies there. You can find out more about working with us. You can find out more about our YouTube channel backlinks and all that or all on the website.

Matt (48m 11s):

Whenever I’m speaking publicly, there’s a lot of that on the website. In my wife’s Podcast I may mention it called the real estate investor. Her show is also mentioned on that one greatly on a website as well.

2 (48m 24s):

I guess today’s has been Matt Faircloth Matt thanks for coming on. This

Matt (48m 28s):

Is he. Thank you so much for having me. I love the conversation. I appreciate it.

2 (48m 35s):

Thank you for listening to the Working Capital podcast. My goal is to help individuals break into real estate investing as well as educate experience investors. If you enjoyed the show, please share with a friend subscribe and give us a rating on iTunes. It really helps us. If you have any questions, want to learn more or likely to cover a specific topic on the show, please reach out to me via instagram@jforgalsorheadtowwwdotjessefragale.com. My name is Jesse Fragale and I’ll see you back here for the next episode of the Working Capital The Real Estate Podcast.