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In a recent trip to Miami, Steven had the opportunity to sit with many investors and really discuss how the market is affecting them and their agencies. In that, he discovered 3 pieces of wisdom that seemed to be a common theme amongst them all. In this episode Steven shares what he learned and how they can help you in this uncertain economy.
- Surround yourself with those experienced investors that have gained their experience by understanding what’s happening in the market, by losing, by winning, and by taking that wisdom to share with others.
- Plan for the worst and hope for the best.
- Project low and over deliver – you’re going to be able to stand by it if things don’t go well.
- Relationships are the most important currency in your business.
Interested in connecting with other like-minded individuals? Then join our VonFinch Private Capital Network. Learn more at http://www.vonfinch.com/invest.
Steven Pesavento 00:00
Welcome back to the Investor Mindset podcast. I'm your host, Stephen Pesavento. Each week we share mindset tips and real estate investing strategies to help you take your business and your investment portfolio to the next level. And I just got back from Miami was out enjoying a phenomenal industry conference was sitting down with different professionals from the industry was talking with some young blood, some people are up and coming, they got that energy, they got that passion, but they lacked that experience. And I was talking with some highly experienced gray hairs, some of my favorite people to spend time with my mentors and advisors and friends, people have been in the business for decades and decades, and was really getting into it with them understanding, well, hey, what's happening within your market, what strategies are working there, what strategies are not working. And I wanted to share some takeaways today about what type of opportunities we see happening in the market, and, most importantly, what you can do and how you can actually use this to be making your own investment decisions to grow your business, grow your investment portfolio, all of the above. So let's get into that and more in this week's episode.
Steven Pesavento 01:20
This is the Investor Mindset podcast and I'm Steven Pesavento. For as long as I can remember, I've been obsessed with understanding how we can think better, how we can be better, and how we can do better. And each episode we explore lessons on motivation and mindset for the most successful real estate investors and entrepreneurs in the nation.
Steven Pesavento 01:45
So sitting down in Miami, first time ever been to Miami, I've traveled all over the country, but have yet to really spend time in this in the city. And what I can tell you is it's it's a Party City, people are going out all night long. All day long. It's it's a wild place. I was there for business. So I was doing business. And I was getting down to business talking shop and getting into what's happening within the market. So as I was mentioning, you know, talking with some young people, they're they're driven, they're excited, their eyes are focused on growth and possibility and opportunity. And I love being around that energy. If you don't have some of that you need some of that, because what it does is it reinvigorates you, it reminds you about what's possible, and about that feeling that you had when you first got started. So if you are a professional, you're, you're an executive, you're a CEO, you're an entrepreneur, and you're not around that young belief, I highly encourage you bringing some of that into your world. But more importantly, for this time in the market, the people I like spending time with are those people who've got that experience, they've got those gray hairs. And they've gained those gray hairs by experience by understanding what's happening in the market by losing by winning by taking that wisdom being able to share with others.
Steven Pesavento 03:10
And one of the big takeaways that I have had after that conversation was really reinforcing this set of beliefs that I have about how to operate in this type of a market. Because that first piece really comes down to plan for the worst hope for the best plan for the worst hope for the best. Super simple. We've all heard it. But what does it really mean? What it means is that when you're going in to buy a new property, when Vaughan Finch is going and underwriting new investment, real estate, whether that be a land play, whether it be a multifamily play, whether that be industrial, whether it be some type of minerals, whatever it is that we're looking at, when we're looking at it, it's critical that we're looking at it from what's the worst case scenario? And how do we cover that worst case scenario, so that we can get our principal back and also be able to gain a return. So personally, what I've been seeing in the market, we've been looking at deals in Denver and Dallas, in central Florida and North Carolina, we look at deals and some of the markets where we currently have property. But maybe we're not as excited about because some of the demographics have changed. So we feel confident about what we're invested in. But we don't necessarily see the opportunity. from a price perspective today. We're looking across the board. And what I'll tell you is that only recently, only in the last two to maybe six weeks, have we actually started to see from a multifamily perspective, some of those numbers starting to change some of those sellers starting to say, Hey, I see where we're at. I understand that I need to sell, I have a motivation and we're starting to actually see that gap starting to come much closer together, that is really, really important. Because one of the mistakes that a lot of these Youngbloodz that are super gung ho, they're looking forward, they've got that excitement. I love it. But where they're making the mistake is they're saying, Hey, let me get a deal done today doesn't matter what it looks like, I am going to operate as if we're going to have the same kind of market we've had for the last few years, and they're doing deals that don't make sense. Now, what's different over here is, VonFinch, when we're underwriting a deal, when when I'm looking at the numbers in our teams, looking at the numbers, I'm looking, well, interest rates are going to be higher in the future. Okay, so I'm going to project that, based on what our assumptions are on interest rates, rent growth is high right now. But is it going to be higher in the future? Or could it be flat, we believe that we're seeing I rent growth right now because of inflation. But we're projecting moderate, you know, a couple percentage points per year or less, in future years to come. And we're looking at things from a long term perspective, it's, it's critical today to be expecting to need to hold on to that asset for three to five years, at minimum in order to hit the kind of returns, because we want to be locking in that long term debt.
Steven Pesavento 06:23
So as I'm talking to this old timer, you know, what we're really taking away from that conversation is, you know, plan for the worst hope for the best. And so, plan for the worst hope for the best. If we plan for the worst and hope for the best, then we know that when we get into a property that we can make a minimal return. But if it gets better, if interest rates don't go up, if the Fed takes a 180, like the UK Government, if the Fed takes 180 like they've done every other time they've raised interest rates in the past 20 years, at some point, it's going to turn, if that turns sooner than we're projecting that turn sooner than we're projecting, we're going to be in an even stronger spot, more upside more opportunity.
Steven Pesavento 07:14
So the second piece that I took away from these experienced conversations with some of my advisors, was really coming down to project low and over deliver, Project low and over deliver, it's under promise over deliver under promise over deliver, we all have heard it. And we all hear people say that they do it. Now VonFinch has a track record of doing it, we bought 200 properties. We've cycled through all of those, we've created great returns, we bought another 10 commercial properties, we've cycled through two of those we've created great returns, we're still seeing good returns on our properties consistently, it's easier to sell a bigger number, but it's harder to stand by it. So the big takeaway right now is that it might be harder to grow your business. Today, if you're going to project less, if you're going to look at things from that worst case scenario, you might pass up on some deals, if things are better than they look, then you're going to end up missing out on something. But more importantly, you're gonna be able to stand by it if things don't go well. And so what I'll tell you is back in 2018, you know, we were buying lots and lots of properties, we had a few properties that were listed for sale, and interest rates went up for the first time, and the whole market froze. And it was at that time where we had such big volume, we were spending 10s, if not $100,000 a month on marketing, we were doing very scaled volume based business. And all of a sudden, no transactions are happening. There was a stop. So interest rates went up, there is kind of a freeze in the market. And all of a sudden, we're sitting there with inventory. And we were operating on a very short timeframe. So because of operating on that short timeframe, we could wait it out and see if the market is going to shift, we could dump everything we have at a slight reduction in what our projected value was and we could feel safe. Or we could convert these over to rentals and put long term financing on it. There's a few different options. It's good to have options. But at this point in time, from a cash flow perspective, this is back in 2018. We were operating from a volume play. So not selling through our inventory puts us in a cash crunch. And so at that point in time, what we decided to do was one went to one of our mentors, one of my mentors, somebody that I had looked up to and really learned a lot from and said hey this see seems like another one of those. It seems like that scenario that you talked about that happened 10 years ago in 2008. And I remember you telling me you chase the market down. And that was one of your biggest regrets. And he said, That's exactly it. This is another one of those. If it's not, we'd be better off taking a small hit now and selling. So what did we do, we took a small hit, we sold, investors still got great returns, but we were in a better position. Fast forward COVID, March of 2020, we end up seeing the market shift, and we immediately get a couple of our properties ready to sell in order to create some cash from an operating standpoint, so we can make sure the business has cash to operate. And we can pounce on that next opportunity that's available. As a result, market went up went a different direction, but we were happier to be more conservative, because that's how you last through the longest of days. So as an investor, when you're looking at today's opportunities, you might see opportunities that have very high returns. And those returns could be very realistic. It depends on the strategy, it depends on what your risk profile is, and how it matches up. But when you have somebody that you know, like and trust, you understand how they build their business, you understand their book of business, you understand their values, when they're projecting a lower range, know that you have to go to them and ask them key questions. How are you thinking about this? What is the scenario where we hit the lowest end of that range? What's the scenario? Or at the highest end of that range? What's the scenario where we break even? And how do you know that and specifically, what ways have you stress tested the model, when you as an investor can go to your partner, to have that conversation and to be able to bring that information out of them, maybe they're talking about it in the presentation, maybe they talk about in the deck, maybe you talk about it on a phone call, but you need to understand that that way, you can either agree or disagree with their philosophy, and then make your decision to invest from there.
Steven Pesavento 12:16
The third, and not final but big piece of wisdom that I took away from talking with some of these very experienced investors was that relationships are the most important currency that you ever could think of having relationships are the most important currency in your business. And what did he mean by that? What he meant by that was that during times of uncertainty during times of change, it's those relationships with your closest clients. It's those relationships with those closest brokers, it's those relationships with the mortgage brokers, with the banks with the the equity providers, these are what needs to be focused on, these are what need to be nurtured. And the example that he shared was that he himself was having some trouble getting financing for a property, that was just a banger of a deal. It was a super exciting opportunity. And it made so much sense. And they had a term sheet, it was signed, boom, and that bank back down. There went to another bank term sheet signed, bank backed out. So even somebody who had been in the space for 20 years was still having trouble getting terms over the finish line. So what did he do? Well, he spent hours and hours over the next coming weeks calling through every contact that he had, talking to those contacts to connect him directly to investors in the bank, who originally wrote that offer, who originally wrote that term sheet and was able to then have a conversation and get them back to the table. And sometimes that's what it takes. That's why it's so critical to work with folks who have a deep bench of advisors who have a deep bench of contacts and clients and relationships, who have notoriety and their name is well respected within the industry. Because when things go south, it's that relationship that ends up carrying those projects forward, even when things aren't quite as good as anyone would hope they are. So it's with those three things that I take away from the conversation at this industry event is if I summarize it down into, you know, a nugget for each of you guys security away and for for me to remember internally is that, you know, relationships are key that we need to look at things from a worst case scenario that we need to understand what that worst case scenario is we need to ask those key questions we need to understand how our partners have operated during time. As of uncertainty and economic change, we need to understand who's around them and who are giving them advice. And we need to take that. And we need to then move forward into those that uncertainty, and still make great decisions. That during times like today, he said, he said, We've never seen inflation like this, since very early in his career. And times inflation can be a great opportunity, when you own assets can be a beautiful opportunity, when you own assets can be a terrible opportunity when you're sitting on cash. So although he's sitting on cash, in a very small percentage, he's a very wealthy individual. He's sitting on some cash looking for opportunities he's still buying today. He's still investing in those properties in those partnerships. And it's exactly what we plan to continue doing, continue to look up the change to those advisors, those mentors, those friends, continue to pay for the consulting, pay for the mentorship, and continue to pay to have great people on the team who can really help support bringing things forward. Because not everything is going to go well, we're going to hire people, they're not going to work out, you're gonna buy a property and there's going to be new problems, you're gonna bring out a vendor, and you're gonna have to replace them. These things happen. And at the end of the day, what's most important is that you're investing with a decisive leader, and that you're following the wisdom of people have already been down that path. And I feel fortunate that I'm able to make decisions based on my own experience, but I'm grateful to be able to learn from others. So hopefully, this was valuable. I appreciate each and every one of you guys joining us for another episode. And I hope you guys have a beautiful week.
Steven Pesavento 16:49
Today's episode is sponsored by von Finch capital. If you're interested in investing alongside me in the same type of real estate opportunities that I personally invest in, then head over to VonFinch capital and join their private investor network. You can do so at Vonfinch.com/invest. Join me on that next deal. I look forward to seeing you on the inside.
Steven Pesavento 17:13
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The Investor Mindset Podcast & President VonFinch Capital
Steven Pesavento has always been obsessed with understanding how we can think better, how we can be better and how we can do better. He is an active real estate investor who curates Commercial Real Estate Investments for clients.
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