For many investors, the hardest part about getting to where you want is finding the best way to get there. Let’s find out how. Find out how to invest with us: 👉 www.theinvestormindset.com/invest 👈 In this episode, Steven is interviewed by Kirby Atwell from Living Off Rentals Podcast and go into how you can find out exactly where you want to be—and how you can get there while minimizing mistakes on the way. In this interview, I share stories about my journey going from management consultancy to real estate investing, my early realizations as I delve further into the industry, and a real-life experience that taught me more about myself and my risk appetite. We talk about the importance of diversifying your investments to reduce your overall risk, the differences between single-family homes and commercial units, and the value of trial and error in your journey as a real estate investor. Hopefully, these life lessons help you, as an investor or an entrepreneur, realize what you want early on, and what you need to do to achieve those goals. Whether your main target is to earn passive income from single-family units or rake in massive deals from multi-family units or commercials--this episode can help push you in the right direction.
For many investors, the hardest part about getting to where you want is finding the best way to get there. Let’s find out how. Find out how to invest with us: 👉 www.theinvestormindset.com/invest 👈
In this episode, Steven is interviewed by Kirby Atwell from Living Off Rentals Podcast and go into how you can find out exactly where you want to be—and how you can get there while minimizing mistakes on the way.
In this interview, I share stories about my journey going from management consultancy to real estate investing, my early realizations as I delve further into the industry, and a real-life experience that taught me more about myself and my risk appetite. We talk about the importance of diversifying your investments to reduce your overall risk, the differences between single-family homes and commercial units, and the value of trial and error in your journey as a real estate investor.
Hopefully, these life lessons help you, as an investor or an entrepreneur, realize what you want early on, and what you need to do to achieve those goals. Whether your main target is to earn passive income from single-family units or rake in massive deals from multi-family units or commercials--this episode can help push you in the right direction.
KEY TAKEAWAYS
1. Set clear goals to simplify the path towards them.
2. Don’t be afraid to try different things, especially in your early days of investing or entrepreneurship.
3. Mistakes provide lessons that can help you determine what you need to do moving forward.
4. Finding your ideal client can help set a clearer path for you.
5. Don’t put all your eggs into one basket—diversify and reduce your overall risk.
LINKS
Kirby Atwell on LinkedIn: https://www.linkedin.com/in/kirbyatwell/
Living Off Rentals Website: https://www.livingoffrentals.com/
Learn more about investing with Steven at http://theinvestormindset.com/invest
Join the MultiFamilyMBA and get exclusive free training: http://theinvestormindset.com/mfmba
Steven: [00:00:01] Investor Mindset community, I'm excited about this episode, I was a guest on a phenomenal show and I really think you're going to enjoy this one. Let's get right into it.
INTRO: [00:00:16] This is The Investor Mindset podcasts 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. It's wonderful that so many of you have stepped up and registered to partner in future multifamily opportunities. Together, we follow a very strict vetting process when selecting our operating partners, and all of which have a serious track record of at least five years of experience, at least 2500 doors that they've actually managed and owned at over $250,000 of assets under management. These kinds of guidelines help make sure that we are investing together in some phenomenal, phenomenal deals and you can learn more by registering at the Investor Mindset.com/invest. These institutional style investments bring benefits to busy professionals and real estate entrepreneurs looking to reduce their taxes and increase their returns. And you can join us by getting started at theinvestormindset.com/invest. I look forward to seeing you on the next deal.
Kirby: [00:01:33] And we are live. All right, Steven, welcome to living off rentals.
Steven: [00:01:39] Excited to be here, excited to be with you my friend.
Kirby: [00:01:41] I appreciate you taking the time, I'm excited to interview you. This month actually, living off rentals on the Facebook page, or the Facebook group is the theme is mindset. So the timing of having the host of the Investor Mindset podcast on the show is perfect and which also if you're listening to this, and you haven't checked out the Investor Mindset podcast, it's an awesome podcast, some really incredible guests on that show, so definitely check that out. But I want to dive right into the mindset, I know you're a big believer in the power of focus and with this being the year end and people are starting to plan out their goals for next year. I want to help real estate investors who want to get started, people who are aspiring and so you've had a ton of success over the past three years, you've done hundreds of deals. So what was your process like for landing on a strategy? And I guess, what is your strategy? What was it and what is it now? And then how does that tie in with your outcomes that you want for the future?
Steven: [00:02:42] Yeah, so I'm probably like a lot of your guests where I started my career as a busy professional, I was in management consulting, graduated from a really great school and went into the prestigious route, when you're in business, being a management consultant is like you're a hired gun coming in to solve problems and fix things and move on to go solve bigger problems at some bigger organization and that was amazing. But what I found was, it was missing something and I wasn't sure at the time what that was, but it felt like passion was the thing. So I moved on from management, consulting into tech, a lot more passion, a lot more belief that something's bigger, people reaching for something and trying to create essentially a new idea, a new company out of nothing. And that's--what led me into real estate was, I had always had this vision and dream of being a real estate investor because of what it could create. But it was through this process of going from a very rigid, we're going to solve problems in a corporate environment, using a specific formula to a, we're going to create things out of thin air in the technology space with a little bit of digital marketing in there, too. I'm going to go and create something that I've never done without having any experience in real estate. And when I started, I didn't believe that I could do it necessarily. I didn't believe that I had enough experience, that I had enough capital, that I had the right kind of connections or network, none of those things and those beliefs were really what held me back. But it was in a moment of real clarity and confidence that I decided, without a doubt 100% fully committed that I was going to push 100% into real estate. And fast forward as a result of that decision, the next week I was at a real estate event and had secured myself a mentor by trading my skills for theirs. And fast forward a year I had flipped or sold over 75 properties, flipped or purchased over 75 properties. And so, where I'm getting to and where I'm coming from is that I understand what it's like to be in that w two position and then to go and figure out well what is the direction that I want to go and for many people, to be honest, most people are not really set up or don't really want to be active operators, to be flippers, to be having everything about their business be real estate. I recognize and I acknowledge that, I think a lot of people who are consuming information want to create some kind of flexibility and financial independence, they usually think they have to go the entrepreneurship route. Now, if you're there, there's so much opportunity to really be able to support you, I'm here, obviously Kirby's here. But I think there's a lot of different directions people can go, where once they get really, really clear on what they want, and why they want it. And they get really clear on their goals and what outcome they're really looking for. And why it's important for them to create this flexibility and financial independence that you can end up finding some really great ways where if you love your job, if you're absolutely in love with what you do every day or you don't, you can figure out the exact path to get there. And so when I got started, I got really, really clear because I made a lot of decisions along the way where I made a decision, I thought I was going for one thing, ended up getting there and then realize, well, this isn't actually what I was going for. So over time, I ended up being able to more effectively and better understand what it is that I was actually going for and therefore, when you have that type of clarity, actually achieving that outcome, finding a way to get there ends up becoming fairly simple. Not necessarily easy, but simple because there's so many resources out there to help be the vehicle to get from here to where you want to go.
Kirby: [00:06:26] That’s interesting. And can you talk about the evolution or some of the realizations that you had, maybe early on that night you decided that this is what you're going to do. So you jumped in with both feet and then you started to flesh out your process or the path within real estate investing that you wanted to pursue. And you mentioned that there were some maybe dead ends or some brick walls that you might have had or realizations that you had. So can you kind of talk through some of those that came early on?
Steven: [00:06:53] Yeah, I think it's kind of similar to the same experience that I described in management consulting, to technology, to marketing, to real estate. It's through this process of trying different things, through this process of experimentation, and trial and error, that you end up being able to get much clearer on what it is that you actually want. And I was fairly young, I started real estate at 27. I'd flipped over 200 houses by age 29 and a half 30 and so in those three years I was able to experiment a lot, but even leading up to that, it was a lot of trial and error. But the key was, before getting into that position of deciding what that trial is going to be if you spend a little bit of time communicating, talking with other people in the space, interviewing and understanding what are the things they like, what do they not like and then reflecting internally on what is it that you're the best at? What is it that you're good at? What kind of life do you want to design? And what would that illustration look like? When you can get that vision in mind, it makes it much easier to more effectively choose the experiments, the trials that you're going to execute. Because it's a mindset shift from thinking that it's possible to fail to shifting that to it's impossible for me to fail unless I don't learn something. And last, I don't give 100% or go into it from a perspective of, well, if I do try this, or if I do give my all and I put 100% into this venture, I go and buy my first rental property or I go invest passively in a commercial real estate deal. What's the worst that could happen? Okay, the worst that could happen is I could lose my money. The worst that could happen is I could go totally bankrupt. Well, what happens after that? Once I get through all of that distress, what happens after that? Well, I probably need to go back and become a management consultant or go back to my job or worst case scenario, I got to go take up some type of job that isn't in alignment with my skill set to make income until I get back to that place. And maybe that's one or two a year total timeline of learning. But what's the best thing that could happen? Well, as a result of me going out and giving my all at something that I could learn a new skill, I could learn something that I don't like, which is as valuable in my opinion as what you do like because it's going to give you the information to figure out how you're going to navigate forward to what that vision is actually going to be. But the other upside is, well, if I do really well at this, if I invest in this deal, and I end up having a great return and I end up building confidence, and I end up creating the financial flexibility, independence for me and my family. Well, what does that compound or how does that compound over the next five years, 10 years, and 20 years. And if you think out on a long term perspective, the mistakes that you make early on as long as you're continuing to make them quickly and you make the lessons that you learn implemented quickly, then you can come from a perspective of being able to quickly determine where you're best in alignment. And so kind of just to underline this, in my real estate business, I had a high volume fix and flip company working in two different states with two different business partners. One of them was an experienced operator, somebody who had over 15 years, nearly 20 years of experience flipping houses, he knew that business in and out, which is a reason I partnered with him, because I knew that I didn't know that part of the business, I could excel in other parts. But I didn't know that part. And then I had another business partner who aligned on all these values and was able to bring so much incredible value. And so together, we built this amazing company, we made over a million dollars in revenue, our first year, I made more money that first year than ever made my life. And we continue that progress. But as a result of that, because I took that action, because I put myself out there, because I took all of these little actions that built up and took some risk, I was able to learn that my ideal client is other people who are like me, other people who are driven to have the vision of a better life, people who are looking to attract abundance into their life, they believe that they can have the amazing career and the amazing wealth and the amazing family. And they're determined on finding a way to learn how they can do this, and the thoughts and beliefs that are going to be the fuel to get them there. Those kind of people, they fill me up. The people I was serving in my fix and flip business, people that were buying houses from at 60 cents on the dollar, the people who were grateful that we were able to help them in their situation and solve their problem, yet, we're not at the same mindset level or even interested or believing that it was possible, I wasn't able to make as much impact and it wasn't filling me up. So even though I was making a lot of money, I realized that it was going to be critical for me to think from a 30 year perspective, who are the ideal clients, the people that I want to serve, and how can I serve them. And that's really what made the pivot to focusing on building a private equity company for real estate investors being able to go out and raise capital and work with best in class sponsors, and be able to vet these deals for the hard driving entrepreneurs and executives that are out there that are busy doing what they do best busy making money in their life and they want to find a way that they can build more flexibility and freedom. Now, I've actually been able to do even more. And it's like leaving one thing that is ultimately successful and making a ton of money to take the risk in order to serve somebody and make a bigger impact and have the opportunity to make even more money, which in my eyes, money is just a catalyst for impact is really exciting. And I would have never been able to have that distinction and I definitely would have never taken the risk to leave something that was making me so much in order to be able to deliver so much more if I wouldn't have taken those steps over and over again to learn.
Kirby: [00:13:05] That’s so critical. That vision that you talk about, I’ve been talking a lot about that on this channel and on this podcast a lot lately because I think that's the critical piece that people overlook. They want to know all the tactics around like, "what do I do right now?" but they don't have that vision, especially the long term vision, like you talked about 10, 20, 30 years down the road. And so how are you making decisions, what are they based off of, if you don't have that. So I love that you brought that up and I want to get into Vonfinch and hear more about your private equity company and how you made that transition. But before we leave Mindset, we built our businesses for you and I, I think differently. And I think that what I love about real estate is that for me, it was one or two deals at a time, very low leverage, it was a much slower process. I've been investing since 2011 and it matched my personality and it's worked for me, and it's tied into my long term vision for you scaled extremely quickly. I think your risk tolerance is higher than mine. But it's worked for you. And so both methods can work. But how? How can someone who's listening to this decide what makes the most sense for them?
Steven: [00:14:21] Yeah, I think that's a really, really good question is what is going to fit you and your personality the best? And everybody thinks that they have the ability to handle risk and to make those decisions in their investment portfolio, whether you're talking real estate, or traditional assets. Everyone thinks that they can handle a lot of risk. But it's once you have a loss, that you really understand what that risk profile is. So it's interesting to think about this idea of risk tolerance and try to be able to share a formula for understanding it, but I'll share a story and maybe through that story people will be able to understand how they might relate to it. And so what's interesting is that yes, I definitely think that I'm a person who's willing to take risks. As long as I believe that the upside is dramatically higher asymmetric risk to reward meaning, the risk is low in comparison with the enormous upside potential. And so that's what I always look for in any investment opportunity that I make. And even more so now than four or five years ago, I look at risk from a much different perspective. That's why I'm a big believer in diversification, meaning, you have small amounts of your wealth in multiple different buckets across different asset classes, and specifically, different properties. So if you, for example, I'm going to get back to my story here in a second. But if you go out, and you buy a 100 unit apartment complex, in, say, Columbus, Ohio, and you're going to spend $10 million on purchasing that, well, if you're going to put the capital down to buy it, and to renovate it, maybe we're talking about three or 4 million that you're going to actually have to put down. Now, some of you guys may be listening, you're thinking, I don't have three or 4 million, I could never do that on my own. Well, there's ways that you can invest with other people to do that. But if you're going to go buy that asset as one person, you had $4 million, and you're going to go make that investment, all of your money's in that one deal. So as long as the deal goes well, things are looking up. But if you took that same amount of money, that $4 million, and you spread it out a million dollars in four different deals, as long as three out of the four do well, you're going to be great, as long as two of the four do well, you're going to be pretty good. But if only one out of the four do well, you're probably going to end up losing some money, it's not going to be exactly what you like. But think about if you double that, and you get that same $4 million in eight properties, or 10 or 12 or 15 or 20 across a couple different operators, or even yourself as the operator couples different properties in different segments, you end up creating diversification. So it ends up lowering the risk profile, because you're not all of your eggs are not in one basket. So the experience that I ended up having was, I want to say it was in 2018, give or take. But I remember there was a point in the real estate market, we had about 15 houses that we owned directly. And because we were a high volume flipping shop, high volume, and medium to low margin, that was the name of the game, and we were doing it very well. But the key to that is that your product needs to move, I need to be selling these houses and be finishing them, I need to continue to move that money because I am paying my investors a significantly high interest rate and opportunity for them to earn really well in a loan and a debt position. However, for me, that's really great. Because if I succeed here, I'm going to win all the reward, I'm going to pay my investors what our predetermined rate was, maybe that's 8%, maybe that's 6%, maybe that's 12%, who knows, different projects have different percentages. But if I don't win, I'm still going to pay my investors that exact amount, because they're not along for the risk ride they're expecting their return. And so what ended up happening was back in 2018, we were heading into the holiday market and interest rates went up. We hadn't seen interest rates go up in a really long time. And what ended up happening was interest rates going up wasn't the end of the world. But what made it feel like the end of the world was the market paused. And when you've got 15 houses on the market, and you're buying new houses every month and you're frankly expecting properties to close on a certain schedule in order to continue to move money around the company, to continue to pay debts and expenses. Well, that can create a little bit of stress and anxiety. And so in that moment, we had probably 60 to $80,000 a month in interest charges. We had a company where we're spending a significant amount of money on marketing because we are buying so many houses and we're operating. And we're at a point where because of my partnership with my partner who had been through this before and who had personally lost 10s of millions of dollars and been through really deep loss, frankly, post-traumatic stress from that loss. And because of the way that I went into that, even though I hadn't gone through it personally, when we first started working together, I interviewed him and really got deep into the emotions of what it felt like to have to chase the market down, what it felt like emotionally to lose that money, the fear that went into it, so that when this trigger happened, it triggered both for him and for me. Oh, this feels like another one of those. It feels a lot like what had happened for him back in 2008. And because of where his houses were, they were in two different markets within California. One market got hit first, and he had enough time to sell off everything else in the other market to survive. But the thing that he did wrong before we made sure we were going to do right was he chased the market down, dropping the price too late and would have been in a much better position if you would have just quickly adapted. So the long point of my story is that, in this point in time, all of a sudden, I experienced what that risk was really like having that much leverage, having properties with short term payment schedules on our books. And I quickly realized that as much as this business is serving us, it's also not serving us in so many ways, because there's so much risk that could be there. And for him, and for me, we both made the decision, we're going to cut the price in order to make sure that they move. Now could have we waited? We probably could have. But we got out in a position where we were whole. And we still made money. We didn't make as much as we were expecting. But we moved with the market. And as a result of that experience is when I started moving a lot of my money into single family holds. And then I experienced what that was like I could touch on that as well. But that's what ended up leading me down the path to focusing on longer term commercial real estate was because at that point in time, after losing money in deals, not from the story that I'm sharing, but of course when you do 200 deals, you're going to lose some money. And when that experience happened, it reminded me that oh, my risk tolerance isn't quite as high as I thought it was. And so by experiencing that, some of you as listeners, you might think to yourself, I've had an experience like that as well. Maybe that experience was back in March, when the market tanked and you had a lot of money in the stock market, you might think to yourself, well shoot, I don't know what I'm going to do, should I be selling now, Should I not be selling? How am I going to handle this? And for you in that situation, when the money's in the stock market is probably not a good idea to sell. Some of you may have, and so that's going to tell you a little bit about yourself, and what kind of risk profile you should be taking. And if some of you thought, hey, the markets down, great, I'm going to pump even more money into it, then you might be somebody who's a little bit more comfortable with risk or at least knows enough about how market dynamics happen, that you're willing to ride out whatever wave comes. So I just encourage you guys to think about that for yourself and maybe relate and try to feel what it feels like and get out of your head. Because logically you can think, of course, I want a bigger return. But you want to think logically, what is your risk profile? And then you can figure out how you can get the highest return with the lowest amount of risk that fits your risk profile and set yourself up really to have investing success.
Kirby: [00:22:38] Yeah, I had a similar situation to that as well. I used to do a lot of flipping in. We had a lot of leverage and there were a few projects that kind of sat there, and it made me realize the same thing. My risk tolerance isn't as high as the amount of leverage that we had and the possibility of the outcome if there was a market tank. So I think it's great to be able to have those tests along the way and help you sort of identify what your risk tolerance is. So you mentioned that kind of drove you into longer term, single family buying holds and then after you did that for a while, it seems like your, I guess focus has shifted to now the private equity company. So can you talk about those transitions? And I guess, you talked about what drove you into the single family rentals but what is it that you discovered once you started doing that? I think that's where a lot of this audience is. And what do you like about your current strategy that wasn't there before?
Steven: [00:23:44] Yeah. So I think that's a really, really good question. So the takeaway that I had from that experience, the story that I told myself, and the beliefs that I adapted from that experience was leverage is great and less things don't go as planned unless we don't have a contingency plan and we're not able to extend out these payment schedules. So nothing wrong with leverage but when all of a sudden market dynamics change, and we can't change quickly enough because we have so many properties, or maybe operations aren't quite as tight as we would need them to be to be able to navigate the unknown in the market. The story that I told myself was, well, let's look at holding things from a longer term perspective because I want to get back to the original purpose, the original outcome that I set out to invest in real estate to begin with, which was more flexibility, more financial independence, the ability to do what I want, what I want and build a life by my design. And interestingly enough because I love business, I love entrepreneurship, and I love growth, I had been consumed in my business creating this magical machine that was creating income, but I wasn't as close to that flexibility and financial independence that I was looking for because I wasn't--If my business stopped operating, then the income would slowly trickle and stop coming in. And so that's the reason why I was pushed towards holding on to some of these units but it was very hard because when you can flip something and make 15, or 25, or 50,000, it's hard to hold on to something knowing you're only going to make 100, $200 a month. But I believed in the purpose behind it and I believed that because we had the number of rentals because we have access to great deals because of our pipeline that this was the direction to go. And so I started looking at things from a longer term perspective because if the market was to go down, but I'm thinking about things on a five year time horizon, or a 10 year time horizon, it'll smooth itself out in the long run. And so as long as I have long term debt, which all of the projects that we buy all have longer term debt, for this exact reason because we're not going to end up getting to the end of our 12 month or nine month or six month short term debt window and be stuck in a bad place. So I started buying single family houses, started having some of the great benefits of it, holding on to that wealth, watching these properties go up, being able to have tenants pay in. But I also started dealing with some of the downsides, some of the reasons why I think for a lot of people owning rentals directly is not the right choice. But that's where you have to go back to the goals and your purpose, and why are you doing all this stuff because it's going to help you understand through that experience, which is going to be the right fit. So sometimes you gotta try it, sometimes you gotta go buy a rental and experience it and then decide, hey, not so bad, I was building this up or maybe Hey, not so good, I'm going to sell this, I'm going to move my money into something a little bit more passive. But for me, what I realized was, I started dealing with some of the traditional challenges, the things that typically scare people off, the having to deal with tenant issues, having to deal with property management issues, having to deal with contractor issues, having to deal with unexpected problems coming out the property, unexpected costs, vacancies, all the things that we know about as a real estate investor and operator, I knew quite well and I had the team and the relationships and the scale to be able to attract high quality talent. But one of the challenges that I found with single family that I really experienced in my portfolio was that I was owning 100 to $150,000 property and I was renting that property for, let's say, roughly 1000 bucks a month, maybe a little bit more. But at 1000 bucks a month, my property manager is only making $60 a month to manage that unit. So their incentives are not in alignment with me as an owner wanting to save every dollar, if they spend an extra $300 on a maintenance request, no big deal to them, they're passing along to me. But if that's something that could have cost $25, that's going to make a big difference at the end of the year, if those continue to add up so I started seeing a little bit of a challenge there. I also started seeing that the property manager was kind of in a place of fear around regulations, and they really wanted to protect the tenant over the landlord. And now it might have been the state, it might have been the property manager, but I was experiencing some things around the property manager actually wanted to let these people stay in the unit, even though they weren't paying and didn't want to evict them because they just weren't comfortable making those hard decisions. So obviously, as the operator and the owner, I knew that I had to make that decision, and I had to go over top of them. But it's like you hire smart people, and you expect them to do the job but it's not always going to be the case when you're the person who is going to be the final person to make that decision. So there's a few other challenges that came up but at the end of the day, what really did it for me and it was specifically because of my personal outcomes and goals, and the kind of people that I wanted to work with, the kind of ideal clients that I wanted to serve; hard driving executives and business owners who are looking to grow wealth that I decided for me to be able to scale quickly, which is one of my core values, something that I am a big believer in and do it in a way that I am not the person in the seat making those decisions day to day on exactly how that asset is going to be run. I'm going to be relying on people who are much smarter than me, hiring them partnering them, finding a way to get within their sphere, which is what led me to commercial is because when you're looking at 100 units, and all of those units or 200 units, and all of those units are in one place, and they all have the exact same doorknobs, the exact same countertops, the exact same cupboard doors, you're going to end up getting an economies of scale not only on the materials, not only on the management by having one operator, one manager or a handful of managers at that specific building, but you're going to be able to more predictably expect what the outcome is going to be because you've got 100 people paying the rent versus one person paying in one property. It goes back to the earlier example about diversification. So what really attracted to me about moving away from single family it was that I wanted the economies of scale and I knew that was super important to me, I knew that with the economies of scale, I could afford to buy assets in other markets where I personally wasn't living on the ground and wouldn't have to go out there every month to go check on the property, but that I could afford to go fly out there because there's enough margin to check on these properties to do real deep due diligence on everything. And then the final one was really that ability to diversify and work with other experts because there's just a different level of professionalism when we're talking about things at a 10 or 20, or 30, or $40 million level. Now, if problems happen at a big level and you don't have good management, those problems are compounded but the upside is also compounded. So those are a couple of things that really drew me in and really had me focus on how can I de risk while increasing diversification, while increasing leverage, while increasing leverage of other people's time, experience and access to capital, and then allow me to work with my ideal client by doing the thing that I absolutely love doing and it ended up becoming a no brainer. Now the big thing for me was just making that decision to trust myself that it was the right choice. And so I took a little bit of time, I slowed myself down intentionally because I knew that I was a person who likes to just blow through the door and just make things happen. I intentionally created space, and slowly cycled out of what I was currently doing by going out of my nature, so that I knew for sure when I came out to that other side that I was making a choice that was really going to support me and my clients for the long term.
Kirby: [00:31:41] that’s a really great thing to highlight in terms of not just jumping in with both feet immediately. I think a lot of people have a tendency, that shiny object syndrome where this week it's single family homes, next week it's commercial, next week it's flips, it's always trying different strategies. So for you, when you switch, I think a lot of people have the desire to get out of single family homes, I think maybe they've had bad experiences, or they can see that the economies of scale are much better at the commercial level. So what is your day to day look like as an investor, what's the difference between when you were investing as a single family investor and now you're putting together these larger deals? Where is your focus now and what are your day to day actions, like the difference between the two?
Steven: [00:32:33] Well, here's what's really amazing about the commercial real estate and the larger project perspective, or our industry is that it requires a lot of different skill sets in order to succeed. And there's a lot of opportunity for people with really, really distinct sets of skills, superpowers if you will, to be able to come together and make an asset happen. So for me and my business, my core focus is directly on educating and serving my investors. So finding a way to be able to help people have that realization of this is possible for me, this is exactly what I'm going after and this is what I'm looking for, and being able to clearly make that decision cutting themselves off from all the other options and flavors that they might be looking at in this specific chunk of their portfolio, and then be able to present them with these different opportunities. So my business is really built around relationships. And so we've got really, really tight knit relationships with institutional level sponsors, people who have hundreds of millions of assets under management, they are operating 1000s of units, they already have the economies of scale, they are already experts, they learned on their own dime, not my investors. And by being able to partner with those people, they have been able to build that relationship up over the years, by being able to really get to know them, and be able to invest significant amounts of capital with them. They open up the kimono per se, they open up their books, they open up everything for us to really dive deep on due diligence, which is something that somebody investing 50,000 or maybe even 250,000 doesn't quite have the same ability to do. And so we vet these operators and we vet these opportunities and then our business is really around bringing together and pooling our investors’ capital into a single entity that invests directly in these opportunities. And the benefit of that is it ends up lowering the minimum investment oftentimes that institutional style investments. A minimum might be a million might be 250,000 might be 100,000 and it gives people the opportunity to invest a much smaller amount of money, sometimes 25, sometimes 50, sometimes it is as high as 100 but it gives them an opportunity to invest a smaller amount in many different deals that are being vetted. They have the option to invest, they don't have an obligation, but they get to see a lot of different opportunities and by investing in those different opportunities, they're able to be more diverse in their portfolio. So even if they're an operator, even if they have been flipping houses, even if they have 50 rentals that they personally own and manage, they may see a benefit of investing in commercial because they're a real estate professional, and they're able to write off, if not tax advice, but from experience, real estate professionals can often write off 60 to 100% of their initial investment, you're one because of something called bonus depreciation and depreciation regarding the asset itself. So there's a lot of advantages that come in this space and so my focus is really on the relationship side. So getting an opportunity to really get to know what somebody is looking for and oftentimes, I talked to a lot of people and they're not a good fit, they don't have the access to capital, they're not heavy income earners, or they haven't been saving, or they aren't really clear on what they want and no problem I'm happy to serve and happy to direct people in the right direction. But for the people that are, it ends up being a really valuable service because it's hard to find access to these operators because it's private deals, first and foremost. But second, it's hard to really vet all these different opportunities, when you don't have the experience. And so what you don't know, you don't know can hurt you. And so by kind of having a partner that's co investing, we kind of alleviate some of those challenges for our clients.
Kirby: [00:36:31] And what's the ideal opportunity that you pursue now in your current business?
Steven: [00:36:36] Yeah, typically, what we're looking at is 100 to 200 unit multifamily properties, they're typically in that B, B-minus asset class, meaning they're properties that serve kind of a middle income earner. They typically are assets that have an opportunity to add some value but are typically stabilized, meaning a stabilized asset, they already have tenants in place, the business plan is already proven, we're not making guesstimates about what's going to be earned. We're actually buying an existing business, we're looking at that business, we're understanding how can we add some efficiencies, maybe raise rent, maybe we can reduce expenses, maybe we can find some additional income opportunities, maybe we can renovate some of these units, and be able to earn more or have longer term leases and cut down on turnover costs. But the end of the day on those kind of value add opportunities, we're able to get cash flow coming in from day one, and be able to pay out to investors who are desiring that cash flow, as well as be able to add value to the property so that in a three to five to 10 year window, every property is different, every specific project has a timeline that we're targeting, we're able to then sell and increase the value of that product. Because here's the other thing about commercial real estate that I failed to mention earlier, but it was one of the most attractive things to me about it was that when you're looking at a single family house, I look at the property that sold next door, around the corner, the one down the street that is a mirror match or similar the comparable property. Well, no matter what I do to this property it's only going to sell to what someone else is willing to buy it at and typically that's going to be based on what other properties have sold for. But on the commercial real estate side, we still look at comparables and that still makes a difference. But it's sold and traded based on something called a cap rate or based on, really it's based on what the income is. So the cap rate is a tool used for valuation and typically, it roughly equates to what property would return if you paid 100% cash for it roughly. And so what we're able to do on the commercial side is that if you add, for every dollar you add in value, or dollar you save in expenses on running that business of this multifamily property at a five cap, at a 5% cap rate, you're able to add $20 roughly a value. And so you can see that if you can add $1,000 and that turns into $20,000. If you can add $100,000 that turns into--it continues to grow from there and so that's really the thing that we're looking to do. We're looking to buy things that are already there and find a way to make them more valuable which is how we get that return now, sure we do some heavy value add, full-blown hardcore renovation on some smaller units with an operating partner that has extreme market control here in Denver Colorado where I personally live. We have some other operator partners that will bring deals that are much less value-add focused and much more focused on just continuing to earn cash flow. But that's where it comes down to knowing what you're going for and what's important to you and what you want and why you want it because then you're going to be able to easily decide, oh well, I'm looking to grow my portfolio as high as I can as quickly as I can. I don't mind taking risks because I've got a long window, well, cool, and then you're going to probably make choices in a diversified way that is going to have a little bit more risk. And if you're somebody who's like, I just need cash flow and I don't care about long term upside, just need something to live on, then we're going to be able to point you to opportunities that are going to fit there.
Kirby: [00:40:19] That makes total sense and this has just been super valuable. I know, we're getting close on time here so I'll get to my last question for you. I really appreciate the deconstruction of the difference between the single-family and the commercial because I think that's super important for people to understand. But the last question, so as we're going in 2021, you've worked with a lot of people, you've coached a lot of people over the years, I'm sure, what is the biggest thing that you think somebody needs to do, or maybe change in their mindset or the most impactful thing that somebody could do as they look at their goals for 2021? One thing that you would suggest for people as we cross into the New Year.
Steven: [00:41:04] You know, I think at the end of the day, I really believe that mindset really sums up the thoughts and beliefs that end up leading to the action that you take or don't take in your business in your life, in the experience that you're having. And that comes from a place that comes from the way that you were brought up, the experiences that you had, the things that went well, the things that didn't, the people that you saw that felt good versus didn't feel good. And the cool thing, the biggest reminder to everybody is that it's possible to change those things. And so whenever you're in a place where you're thinking, I don't think I can do that, it's not possible for me, I'm not one of those people, it all comes down to identity. And that identity is I am "X", I am a person, I am an investor, and I am a person of influence. You can quickly change how you're going to show up in that situation by adopting the identity of that person and owning it truly. I'm a big believer you can borrow people's beliefs so I love that if you're listening to this, you're probably the kind of person who surrounds yourself with other people or looking to surround yourself with people who are doing what you want to do. And so that you can start borrowing those beliefs and start seeing them and trying those on for yourself and feeling what it feels like to have that belief and maybe walk around the house or walk up to your spouse or partner and say, You know what, I'm an investor, I'm an investor, I'm going to do this and start putting on that identity of somebody who can take these kind of actions and start asking yourself "what would that kind of person do"? And then soon enough, by asking that question enough, you are that person. And so that's my biggest recommendation. That's my biggest thing. Now, there's a lot of ways that you can go about learning more about this, I highly encourage you to go to the Investor Mindset and check out the podcast. I've got a great tool if you're looking at diving more into the Mindset Piece at theinvestormindset.com/principles. And we put this thing together because we'd interviewed hundreds of investors and high-level people from Chris Voss to Mark Manson to Joe Fairless, to everyone in between, and some great guests that I know have been on your show and we distilled some of those lessons down into the things that we heard the most often into essentially a hit list, a playbook per se, on some of those thoughts and beliefs that end up really being empowering. So if you want that it's totally free at no cost, we put it together because we knew it would be valuable for our community. It's at theinvestormindset.com/principles. But at the end of the day, it's all about getting in community and getting surrounded by other people, you don't have to do the crazy stuff that I do, I just got done with 95 hours over six days working at a Tony Robbins event just so I could suck in more of that information and learn more of those lessons and be able to continue to change myself. You don't have to do things that are crazy. You can if you want, I encourage you if you're drawn to it to go dive into the deep end and see what it feels like to swim around but you can just start out just by getting around people who are living the kind of life that you want to live.
Kirby: [00:44:01] I can hear some similarities between you and Tony Robbins actually, so that must be where that's coming from that 95 hours. That's awesome. Awesome advice Steven, really appreciate you taking the time. I know this has been super valuable for a lot of this community.
Steven: [00:44:17] Hey, absolutely. Thank you for having me and thank you guys for listening and committing to yourself that you're going to find a way to continue to get better and to continue to grow. And so I encourage you to not just listen passively, to choose something from this interview and apply in your life. Take some action, reach out to me on LinkedIn or Facebook, @ Steven.Pesavento on Instagram, and let me know what action you took or what thing that you did take away and how that worked.
Kirby: [00:44:44] Awesome. Thanks again, we'll talk soon.
Steven: [00:44:47] Thanks, brother.
OUTRO: [00:44:51] Thank you for listening to The Investor Mindset Podcast. If you like what you heard, make sure to rate, review, subscribe and share with a friend. Head over to theinvestormindset.com to join the insider club, where we share tools and strategies from the top investors and entrepreneurs and how to take it to the next level.