Schon Tepler Partner's PAUL SCHON discusses REAL ESTATE DEVELOPMENT strategies | The Signet Podcast

Join real estate expert Paul Schon as he shares his valuable insights on real estate development strategies on The Signet Podcast. Whether you're a seasoned investor or just starting out, this podcast will provide you with valuable information and tips to help you succeed in the real estate market. Don't miss out on this informative discussion with one of the top experts in the field of real estate investing. Tune in now!

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Transcript

SPEAKER_02 0:00

Hey, welcome to the Signat podcast. Do you want to start real estate investing? If so, you gotta check out this advice from my friend Paul Sean. Paul Sean is a real estate developer based out of Los Angeles. I call him the Joe Rogan of Real Estate because he's an amazing world title jujitsu artist. Take a look at these few clips of him doing stuff. Anyway, it's super interesting and you're sure to get a ton of value. Enjoy watching.

SPEAKER_03 0:48

Do you want to tell us a little bit about who you are and what you do?

SPEAKER_00 0:52

Yeah, yeah, happily. So, Paul Schoen, uh, my company's shown Tepler partners, me and my business partner Artem Tepler started in 2009. And I'm an immigrant from Mexico City. I moved, my whole family moved to San Diego when I was 14 years old. We moved, uh, went to high school college, and then moved to Los Angeles. I started my real estate career was I started brokering at Marcus Emilichap. And then while I was at Marcus Milichap brokering, I met Artem and he had just moved here from uh the East Coast. And we while I was brokering, we partnered, we did some house flips together, and we had we created a good partnership, and that was 2009, and so we started from there, and now 2022 we've flipped, built homes, and now built close to 30 apartment buildings.

SPEAKER_03 1:49

I mean, the stuff you do is absolutely beautiful. I mean, even the homes, uh everything, it's so it's so high-end, and it's it's really cool to see all that stuff. So you actually started flipping homes at the beginning. That's kind of, I mean, I was curious on how you got to where you are today.

SPEAKER_00 2:04

Yeah, so I was brokering. Artem had flipped a lot of homes in the East Coast, and he moved here, and it was a recession, and every a lot of stuff in California was for sale, the housing market was destroyed. So he he brought great expertise in the in this in this field. So we partnered up on a home in Compton, and then we did another one in Inglewood, and then we flipped homes all over South Central and Inglewood and Resita and Van Nice all over the place. And we flipped around 50 homes. We scaled that business. So we started with one, see there was a good partnership between us, and then we're like, all right, let's let's let's this works. So then we did two, and I'm like, all right, let's scale this business. This is a good business, there's a lot of opportunity, a lot of distressed properties, a lot of homes that just need upgrading. So we started uh that's how we started. We started flipping all over the place, and then from like $200,000 homes in in Compton, and then we built some like luxury mansions in like Hancock Park. Wow. Um, and then we started building homes ground up after while we were flipping, and then in 2012 is when we built our first apartment building, and that's when we pivoted completely out of home business and focused on apartment business.

SPEAKER_03 3:25

In 2009, there weren't it wasn't easy to get loans. Did you have to have cash ready to deploy at that time?

SPEAKER_00 3:32

Yeah, we used a lot of hard money loans and then just private loans from people we knew. Okay, we we we we would show them basically a business plan. It's like, look, we're buying the home for this, we're gonna put this much into it, and we're gonna sell it for this. There's our margin. Right. And we borrowed money from a lot of just people we knew and hard money loans. Okay, but yeah, there was no traditional financing for for flipping.

SPEAKER_03 3:58

So, where did you start buying apartment buildings?

SPEAKER_00 4:02

So while we were buying, doing like 10, 15 homes at a time, and then my business partner found a great lot in Westchester. Okay, and we were just initially looking at it like, oh, can we flip this duplex? Right. And and then um we're like, wait, maybe we can develop this into a multifamily apartment building because it was zoned for multifamily, and we were definitely concerned. It was like we we've built homes, but can we build the building? Yeah, and uh that was uh that was a journey of itself building our first one that we we were successful at it and we liked it and we never looked back, we stopped doing homes and just fully focused on the apartment business.

SPEAKER_03 4:49

So you're talking about ground up construction when you did that, yeah. Wow, so that's how you went from point A to point now, I guess.

SPEAKER_00 4:57

So I think that the to to simplify it, it's like from flip like changing cabinets and and and flooring and roofing to doing additions to homes, right? Then to building homes ground up, and then to building apartments ground up. Wow, so that was our our transition.

SPEAKER_03 5:13

That's crazy. One thing I'd love to point out, too, is that I love going on your website and seeing the cluster of all the properties you own in Southern California. I mean, it really does display how you're very in Southern California, the diversification of all the different areas in Southern California. Why Southern California of all markets?

SPEAKER_00 5:36

So we we're an vertically integrated company. So we do the construction, we do the development, we do the property management, we do the brokerage when we if we sell them, we sell them ourselves. So we wanted to be ultra focused in what we do. And development is a little different animal than value add. Development, knowing all the zoning in your city, knowing the right architects, the right engineers, the right subcontractors that work in this specific city, it is very specific to the city that you're at. So we picked City of LA, it's a big city, uh, there's a lot of opportunity here, and we know what areas get good rents to justify the construction costs. So we just pick this. Honestly, it's only a 20 square mile radius that we focus on.

SPEAKER_01 6:25

Wow.

SPEAKER_00 6:26

And then we just target sites that we like, and um but yeah, from basically from the west side of West LA from the ocean all the way to downtown, north of the 10 freeways, uh in some good parts of the valley, that's where we build. Wow.

SPEAKER_03 6:43

Okay, so we when did you start vertically integrating or you started construction in 2012? Was that when you started?

SPEAKER_00 6:51

Well, we we we started building homes before that. Right. And how we started and got into the construction business is we kept getting screwed over by contractors. Wow when we were doing homes. Yeah, so we kept getting screwed over, and we didn't know, we just would get a uh scope of work and an estimate, and sometimes they would just walk out of the sites and we're like, well, what's left to do? How much is left? So we kept getting screwed over and screwed over. So we're like, we're gonna be doing this in Los Angeles for the next 40-50 years. Why don't we just bring everything in house? Like we can run a uh have a good-sized business in it just developing in LA. So that's why we decided to literally bring everything in-house from property management to construction to uh just development and and brokerage.

SPEAKER_03 7:43

A lot of new people, and I see this in Colorado, they're starting to buy houses, they want to flip, they pull out equity, they do another house. And maybe it's it's a it depends kind of answer, but at what point do you have to hire a property manager, or do you recommend hiring a third party to sort or hiring people to help you property manage?

SPEAKER_00 8:03

That's a tough question to answer. Um philosophy was similar to construction. We were gonna run, do 40 years of business here from when we started to. We're gonna do a big career here. So we just wanted to bring everything in-house and control everything. And you hear nightmare stories about giving a great property to a bad property manager and doesn't work out so well. So we just decided we're gonna be here for a long time. Let's just bring everything in-house. Yeah, uh, if we do go out of state and we're we do plan on bringing a third-party property manager that already has scale in that city. But here we just figured we'd bring it in-house.

SPEAKER_03 8:51

You know, we haven't had a ton of apartments, but I remember just having at one point, I think we had 15 units. It started to get a little bit, you know, Friday nights, I'd have to drag my son out of bed at one o'clock in the morning and go check on a plumbing issue. Or you know, it would have been nice to start getting people. And some people have out-of-state properties and they're not there to, you know, take care of it. You know, you were planning on doing this for 40 years. How did you find new deals? Land deals aren't always the easiest to find, the easiest to sort of understand what you can build. Deal flow is a huge part of your business that you've been able to continue getting new deals and keep up the momentum.

SPEAKER_00 9:32

So that's probably the hardest thing in this business is to find good land that makes sense for development, especially in a city like Los Angeles, because everything's built out, there's no empty land. So literally, everything we've done is redevelopment. So we buy something that's existing and we knock it down and then and then build our buildings. So that that's the most challenging part. We have three full-time colt callers calling properties that we we target that we know we it makes sense based on the zoning, based on the lot size, uh, lot width, um, and in areas where the rents justify our construction costs. So we have three full-time cold callers. We also send direct mail to property owners that we're interested in buying their lot. And but but yeah, that's that's probably like in the 80-20 rule, that's part of the part of the 20% that creates 80% of the results.

SPEAKER_03 10:31

Yeah, deal flow is so valuable. You know, it used to be that cash is king. I had somebody call me up the other day who was looking into real estate, and he was saying that deals are king now in a way, because just finding opportunities could be very it's very scarce. Yeah, 100%. With regard, you know, co-living is something that you kind of are on the beginning of that revolution. What is co-living? How do you do co-living?

SPEAKER_00 10:57

So co-living is a is a big uh everyone can define it in in many ways. So I like to talk about it's what LA needs is more affordable housing. But it's so hard to build affordable housing in LA because land is expensive, labor is expensive, commodities are expensive, so it's just hard to build affordable. The the appliances, the countertops, the the flooring, that's five percent, no maybe ten percent of the budget at the most. All the commodities, the lumber, the land, and the labor, uh and the commodities, that's the expensive part. Okay, so why we like co-living, it's it's affordable. It's an affordable product where someone who just graduated college or is getting their first-time job out of high school and they're making $30,000, $40,000 a year, it's it's it's unaffordable to live in LA in a nice new product. With the the design that we do, they get to live in a brand new new product, central air washer dryer. They just get a little less space, and and the design we like to do is is um basically micro suites.

SPEAKER_03 12:17

Okay.

SPEAKER_00 12:18

So everyone has their own bathroom and bedroom, and they just share um and they have a little kitchenette, and then they share a washer dryer with three other other uh roommates.

SPEAKER_03 12:29

Which totally makes sense because it's not like you're doing your washer dryer 24-7. Exactly. So it's these co-living units, they're within the apartment building. Yeah. Do you need different kinds of zoning approvals for that kind of use?

SPEAKER_00 12:42

Or no, no, the city's been okay with this as long as you do five bedrooms and under.

SPEAKER_03 12:47

Okay.

SPEAKER_00 12:48

They they've been okay with it. And honestly, the city needs it. This I my conversation with them is like we need more housing.

SPEAKER_03 12:55

Yeah.

SPEAKER_00 12:55

And we need more affordable housing.

SPEAKER_03 12:57

Right.

SPEAKER_00 12:57

And with this product, you're providing more affordable housing to the marketplace because everyone in LA is building luxury, right, high rises with pools and high-end amenities. And you have to be earning over $100,000 to live in one of those places. But with this, you can be earning $30,000, $40,000 and afford to live in one of these places. And it's nice. Right. Okay. And similar to our apartments, like with our co-living, it's more affordable. Our apartments, how we differentiate ourselves and what our niche is, we focus on more affordable than the luxury. So we don't have amenities in our buildings, we don't have pools, we don't have gyms, we don't have uh co-working areas that a lot of these newer buildings do. We just have a nice condo level finished apartment, but we can charge less because we don't have all these crazy amenities.

SPEAKER_03 13:54

Okay.

SPEAKER_00 13:54

So it's a price point uh less expensive than the luxury stuff.

SPEAKER_03 13:59

That totally makes sense. Yeah. How does co-living with returns to the investment returns and all that compare to apartments?

SPEAKER_00 14:08

It it the returns are much better. The returns are better because you're you're uh there's more people living in the same square footage, so your rent per square foot goes up.

SPEAKER_03 14:19

Right. Okay.

SPEAKER_00 14:20

Uh operationally, it's more work because now you're dealing with more people, but but that's what that's the demand. The demand wants affordable.

SPEAKER_03 14:30

Okay.

SPEAKER_00 14:31

So that's why we're we're very excited about this co-living product because it's like not that many people can afford over a hundred thousand dollar rents, but a lot of people can afford between the $30,000 and $80,000 rents.

SPEAKER_03 14:45

Right. Okay. So I saw somewhere, and maybe I'm wrong, but uh, were you did you are looking at a property in Austin, Texas? Yeah. Is that a new thing? Or yeah, we're going to have to date on the article, but I'm like, wow, that's a good place to go. And it's very similar in a lot of ways. What made you go out there and why'd you like that?

SPEAKER_00 15:04

So 2020 happened, and some of our partners, investors, capital partners are like, guys, we don't know what's going to happen with big cities. There's a lot of regulation in LA to build. Right. And it's hard to scale in Los Angeles. That's why we stay in the boutique product in Los Angeles. It's hard to build 100, 200 plus unit buildings here. So some of our partners are like, start looking out of state. Like, where are the jobs going? Right. So we did a whole matrix of different cities that we like. And uh Austin was one of the top. We like Austin, we like Las Vegas. We like liked Phoenix, but um we one of our acquisition guys found a great site in uh in Austin, Texas, five minutes away from the Tesla, the newly built Tesla factory.

SPEAKER_03 15:55

Oh wow. Okay.

SPEAKER_00 15:56

Uh to build a 400-unit apartment building. So it'd be our biggest apartment building. Yeah, we're currently uh entitling it. We already own the land. That's great. And uh hope we're breaking ground uh probably summer next year.

SPEAKER_03 16:10

What's the key to raising money for your investors? You know, some people like to get 10,000 investors that don't invest very little. Some people have four family investors, family wealth, you know, high net worth families, and and they've done very well.

SPEAKER_00 16:25

What's your we mostly for for our capital partners, we mostly work with uh four or five high net worth families that that made a lot of money in real estate and now they're more want to be more passive and not uh do what we do, run around looking for deals and building deals all day. So, and they trust us, they like what we're doing, they love Los Angeles real estate, they know how hard it is to add supply. Yeah, so we we partner with them, and that most of our deals have been with them. We also have syndicated some deals, and we have friends all the time that are like, hey, how can I get in one of your deals? and we accept smaller checks. So on occasions we'll do some syndications, but mostly it's with four or five high-net ware families.

SPEAKER_03 17:15

Okay, so this is a this is uh sort of a question of that, you know, with real estate, there's so many complexities, just having properties and being a property owner. How do you like what similarities you do, jujitsu? Joe Rogan of real estate. I have to say that because that's how I see you. Real estate, I mean, you've been on like some serious competitions, but you know, what similarities do you find in jiu-jitsu and being this real estate guy that does uh construction, brokerage, property management, develop everything. And and stay so at peace with yourself.

SPEAKER_00 17:52

Yeah, I look, sports have been a huge uh just influence in my life. Um just from I was a pretty good wrestler. I wrestled in college, and then after wrestling, I got into Brazilian jiu-jitsu and I was obsessed with it. I basically did it as a almost another full-time job with my my real estate. Uh, there's a lot of similarities, a ton of similarities. I think that the main one that I like is uh when it comes to jujitsu, all my training partners or people I competed against know that I'm I'm pretty good at a very few moves.

SPEAKER_03 18:27

Okay.

SPEAKER_00 18:27

And with real estate, like we only focus on multifamily development in LA now. Yes, we're we're trying to expand another estate, but being, especially when you start, being ultra focused and knowing what you're good at and what you should focus on, I think is a key to success. Just knowing where to zone it, zoom in on.

SPEAKER_03 18:49

Right, your unique value proposition. Yes, okay, it's so interesting because you picked probably what I the way I see it is one of the most difficult, complicated ways to do it, from land all the way to ownership, and you do it really well, and you gotta be good at so many disciplines to do that.

SPEAKER_00 19:07

Yeah, well, but the there's a negative, which is there's a lot to learn, yeah, but the positive is there's a lot of barriers to entry, right? So which is gonna keep the supply low. So I feel very safe. I like I know if I can build it, it'll rent and it'll be a good deal. It just I have to jump through a lot of hoops to get it built.

SPEAKER_01 19:26

Yeah.

SPEAKER_00 19:27

But so yeah, when there's a business that there's not a lot of barriers to entry, you're gonna get oversaturated with development in Los Angeles, which is one of the hardest cities to develop in, there's not that there's a lot of barriers to entry, so you're not gonna see that much supply.

SPEAKER_03 19:42

That's kind of I always love going back to supply and demand because that's really what it comes down to. Yeah. Um, I remember we were look we were talking, me and my dad a little while ago about properties that we have in Santa Monica. And to get them to be built is so hard that you know you when you have it, it's you know, it's priceless. Yeah.

SPEAKER_00 20:03

I like almost cry every time we sell one of our buildings. I'm like, it was so hard to build this. I don't want to sell it.

SPEAKER_03 20:11

So that's another question. Are you a seller or do you like to hold on long term?

SPEAKER_00 20:15

We mostly like to hold on long term. Most of our partners like to hold on long term, but sometimes if our capital partners want to say, hey, let's sell this one, we we sell because they put up most of the capital. We understand uh that that was the business plan, right? We we sell. Uh or another thing that we do is we partner up with land landowners. Okay, so landowners will contact us and say, Hey, I have this site, I'm not a developer. Can we do a joint venture together? You guys bring in the expertise and help me develop it. So it's not its highest and best use. Let's say it's a fourplex on a site we can build 30 units. Right. It's like, okay, well, I get it. Now you get the property's worth a lot more. That's its highest and best use, and but they don't have the expertise or the know-how. So we come in and we do a joint venture and develop it together, and if they want to sell it, we sell it.

SPEAKER_03 21:11

Well, that's kind of what I heard from you from my friend, that you guys were a sophisticated operation. I don't know, I'm sure you know that, but what's that mean to be sophisticated?

SPEAKER_00 21:22

I think we have a lot of experience. So we we we've learned a lot, we've developed 30 buildings in this city. So there's a lot to learn from uh what to look for in land, good architects versus bad architects, good subcontractors versus bad subcontractors. So and every time in every building after we complete it, we walk in and we're like, what can we improve? What could we have done better? So you just keep learning as you go.

SPEAKER_03 21:51

I'm just curious because picking partners is a tricky thing. You and Artem have done, you know, you've grown greatly. How do you guys complement each other and why why do you work so well together? What's the secret to a good partnership?

SPEAKER_00 22:07

Look, we we have our disagreements, but I think um it's not that we don't fight, it's that we know how to make up after we fight. Right. So there's always there's always gonna be disagreements with your partners, but the key is no, you guys shouldn't fight. No, the key is but learn how to make up after there's a disagreement or there's a fight. And we also separate roles and responsibilities. Okay. So uh I handle more of the pre-development and the financing, he handles more of the construction, and then he hands it back to me for the property management. So we just have separate roles and responsibilities.

SPEAKER_03 22:49

Interesting, yeah. Partnerships, I think, could be a complicated thing. Um, but yeah, you got to find the right people. Some people, you know, they have too many similar uh skill sets, and they might have fun being together, but you're missing the partner that might not have that, like operations or financial spreadsheets or investor relations. Uh so do you plan, do you plan long term what your future plans are, you know, in 20, 30 years? How do you plan?

SPEAKER_00 23:19

Well, well, before I answer that, one thing that I thought of going back to partnerships, I think the first thing you got to look at is values. It's like, do you do we have similar values and similar goals? If the values and the goals are there, then we can figure out, okay, what's your what are you competent at and what am I competent at? What am I not competent at? And and then we we allocate roles and responsibilities. But I think if the values and the goals align, it could be a great partnership. And and right from the beginning, when Artem and I started, we I knew that we have very similar values and goals. And and the guy is an incredibly smart guy. So I'm uh honestly lucky to be in partnership with a guy. So, but most importantly, when looking at part if values and goals align, I think you're you're on the right track.

SPEAKER_03 24:12

I think that's huge. And I think a lot of people want to be in real estate, but they don't really know what it means to be in real estate or how they're gonna be in real estate. Um, you know, it's like people argue about different things, but they have similar values. I think it's also the process of how to get to those things. Like your portfolio, your strategies seem to be they're aligned. All your products seem to be very high-end, very I mean, I went on your website, everything is beautiful. I mean, the decoration, you know, the designs of all your buildings are really they're they're very attractive. So that's maybe part of the plan to, you know, I think to be together on the same page.

SPEAKER_00 24:53

Yeah, well, we're building something new, and it takes a long time to build. So if we build it, we're gonna make it look really nice.

SPEAKER_03 25:00

Yeah, what uh what do you think is the hardest part about what you do?

SPEAKER_00 25:04

Uh finding the land. Okay. Like like we were talking about earlier. Finding the land is is probably the most difficult part.

SPEAKER_03 25:11

So speaking of finding land, how does intuition play into that?

SPEAKER_00 25:15

I I'm more of a numbers guy, I'm not an intuition guy.

SPEAKER_03 25:18

So it's crazy though, because then that really makes a lot more sense. That's logical. I wish, you know, sometimes it's easier to justify it that way.

SPEAKER_00 25:27

Yeah.

SPEAKER_03 25:28

Because, you know, sometimes you look, let's say you look at a value add, and it's like, it's like, well, I bet it could do this much, but your intuition tells you the market might tell you a little bit, but some of it is still guesswork.

SPEAKER_00 25:39

Yeah.

SPEAKER_03 25:39

The less intuition, the more market knowledge you can use to justify an investment, it makes a lot more sense to do. A hundred percent.

SPEAKER_00 25:47

Like, yeah, we like the the main thing that drives property values is rents. Right. So we're just touring buildings right and left on in the areas that we like to build on, and and really see what effective rents are getting, not what they're advertising on Zillow or Apartments.com. What real rents are they getting? And so we tour so many of these buildings and the areas we want to build on just to see if it justifies the the construction or not, or the development or not, because we're gonna spend two to four years in this process. So, and that initial rent study is so important for every developer.

SPEAKER_03 26:31

Yeah. Well, um one thing that I was talking to a buddy about was just getting started in the due diligence, you gotta have money to do your research and you know all that. If somebody wanted to get started in real estate, what kind of money would it take? I mean, you do bigger projects, but would you recommend somebody sort of keep in the piggy bank to put out a deal that they might not do just to learn about the market?

SPEAKER_00 26:57

Yeah, so a lot of my uh friends asked me this, or people that want to get into the business ask me this. And I think the best way to answer is like, okay, what's your network and what's your competitive advantage if you want to get started? So if you want to just let's say you have a limited network, which I think is BS, I think everyone has a great network, they just don't go out and and and see who really is in their network because everyone has either a wealthy relative or a friend who has a wealthy relative or a friend of a friend who has a wealthy relative. Like three three degrees of separation is is real. So what I say is look at your competitive advantage, what you bring to the table, and you can either start with a smaller deal, how we did flipping homes, or you can partner up with a developer. I think, like I said, the hardest part to do is find a good piece of land. So if you go out there and you hustle and you find a good piece of property, you can call the developers in the area and say, hey, I have this site locked up. Let's let's partner. Like give me a percentage of uh the carry or the promote uh or I'll wholesale it to you. But I want to be involved and learn all the steps from A to Z. We we partner up with young guys, they bring us a good piece of dirt, we give them uh a 10% promote on our deal, and we teach them from A to Z because maybe they do one or two deals with us, which is great because we get we we do more deals and then they can go off on their own and we're happy for them. There's 10,000 units being built in LA. We want to build two to three hundred a year, so there's plenty of uh apartments to be built.

SPEAKER_03 28:43

That's the whole like scarcity mentality, you know. I just I remember reading somewhere that you can look at the world as a place of scarcity, as abundance, and when you look at it from abundance, you know, opportunity comes, you know, you don't feel like you're under the gun with everything. It's a much more peaceful way to have a life. Absolutely. How are you preparing? You know, everybody's talking about a recession or you know, the market's slowing down and interest rates are going up. I mean, usually I don't ask common uh current event type questions, but how are you? There's always cycles. How do you prepare for something that can be negative?

SPEAKER_00 29:17

We put good fundamentals in our business where we don't try to over-leverage. I think that's the key. If you don't over-leverage, uh, that's a good way to protect ourselves. So we try to stay 65% uh leveraged at the most across our portfolio. Also, um, you you gotta have liquidity, you gotta have the staying power to to survive a little bit 12 to 24 months of what what happens because we get construction loans from banks, they require us to keep liquidity in the bank. So we we feel safe in the position where we're at. And for people out there, it's it's like don't don't over-leverage yourself and don't uh and keep some liquidity.

SPEAKER_03 30:04

Yeah, yeah, I think that's huge. And also what I love about apartment buildings is that you know when you have one commercial tenant and they go out of, you know, go out of business or they want to, you know, negotiate hard and you have to find somebody else, you could get stuck with a huge, you know, a huge cash flow hole in your cash flow. When you have multiple units rented or multiple streams of income, it's not like you're gonna lose 35% of the building for a long period of time. Yeah. So I mean you can maybe in certain areas, not in Los Angeles, probably, but um but that's kind of a stretch. If like that's happening, then you got bigger problems to worry about.

SPEAKER_00 30:41

Yeah. Well, when COVID first happened, we we we've doubled down on operations on our property management because a lot of people were leaving LA. A lot of people were saying, I lost my job, I'm moving out. Right. So we we really doubled down our efforts and just keeping good operations and keeping the buildings full. So Right. Okay. But generally, yes, multifamily, it's easy to lease up the buildings, it's easy to keep them occupied. Um so we're we're fortunate in in that aspect.

SPEAKER_03 31:15

That's very interesting. Well, I think last year, a couple years ago, I wrote literally to 2,500 brokers. Like I wanted to cast a wide net, you know? Some brokers want to be your only your only so you know their only client. They don't want you going after other brokers. So I was wondering, would you shoot yourself in the foot by spreading a wide net to multiple brokers, or is it better to just find a few brokers that are gonna be your bird doggers and they're gonna be the main brokers that represent you?

SPEAKER_00 31:49

I I think it's a it's a combination of both. Okay. And if if uh your your go-to guys get offended that um that you're go you're casting a wide net, yeah, then they're not bringing enough deal flow. Right. Because if they're bringing enough deal flow, then you wouldn't have to cast a wide net. Right. So we what we do is we cast a wide net, yeah, and then we build relationships with the guys who are are really hustling for us and really bringing us deals. Yeah. Um and and and off-market deals. And actually what we do is we after they bring us three deals and we buy through deals with them, we give them a percentage of our of our of our ownership.

SPEAKER_03 32:36

Wow.

SPEAKER_00 32:37

Yeah.

SPEAKER_03 32:37

I mean, that's very motivated. Honestly, when I looked at your website, I'm like, this sounds very tempting. I mean, a lot of the things you make it good, and it is a partnership, and these are long-term relationships.

SPEAKER_00 32:48

Yeah, correct. Because like, we're not gonna get wealthy out of building one building, right? We want to build multiple buildings, and we're gonna be in this city for for decades. So why not uh build those relationships where these guys win with us, they bring us deals, we're the first ones to look at it, and we they're they become our partners. They win, we win, and they keep we're we're their first call, right?

SPEAKER_03 33:14

Okay, yeah, that makes a ton of sense. I the way I see it also is it's not like you're um you know mom and pop or trying to buy a house and that's gonna be your house, and then there's no more business with you. You know, if you can find new deals, you find new capital. So it just you scale yourself that way, and the it shouldn't be a competition in a sense. I mean, maybe it's a competition in a uh in a timely kind of way because you don't want two different brokers sending you the same deal because that could be a conflict, but I don't know. I I feel like it shouldn't matter. Yeah, you know, if I found uh more deals, my investors would invest in both. You know, it's not a if or a then. So do you feel real estate as an investor, it's passive investing, is for anybody or a specific kind of person?

SPEAKER_00 34:06

Yeah, I think everyone should definitely allocate a percentage of their wealth into real estate. It's it's tangible. Actually, let me let me clarify into cash flowing real estate. Okay. I think a home, yeah, buy your home, but it's not the best investment because if you leave homes in Los Angeles do not cash flow if you have a mortgage in it. But uh uh income properties, they do cash flow. So what I always recommend my friends, I'm like, yeah, if you have your home fine, but other than that, buy cash flowing real estate. Right. So yeah, I think it's it's a great investment, it's there, it's not gonna go anywhere. Right. There's always, especially housing, there's always gonna be a demand for housing, especially in uh in a it's like in Los Angeles. Yeah, there's no it's like so hard to build here.

SPEAKER_03 34:59

And what's cool about your product is that even if the market changed a little bit, you're still offering prime stuff. So people are still gonna want that over something else. Yeah, that's kind of the product. We have a project in Carmel by the Sea, and the office market is very strong there. But let's say it was less strong, are our products still the best on the market? So people are gonna still want to come to that. Yeah. Uh so all right. Well, let's do some uh the wrap-up questions I ask everybody. Okay, I kind of already asked some. Um it's basically three questions. So, what are the hardest lessons you've learned in doing real estate? You've loved it for a long time, so yeah.

SPEAKER_00 35:40

I'll go back to our first deal. Our first deal to get the financing was 2012. Yeah. The economy was picking up, but they the banks just went through uh the great financial recession. It was terrible for the banks, and getting our first construction loan. So getting our first construction loan, I called 39 banks and I got 39 notes. Wow. No, no, we're not doing construction loans. No, you guys have no experience. I'm like, guys, but I've bit we built homes. Yeah, and they're like, no, apartments is a different animal. You guys have never managed properties, and they just kept rejecting us and rejecting us and rejecting us. And I just said, I'm I'm not quitting. Like, we're gonna get this construction loan because we have 35% of the capital staff, which is the equity, we're missing the other 65%, and we were we needed a loan to build it. We had the permits, we were ready to go, and banks just kept rejecting us. And finally, uh the 37th bank came back to us and said, Okay, we'll give you guys a shot. Wow, yeah. So that was that was uh that's why I say if you're gonna do a development, maybe for your first or first two deals, partner up with a developer who has experience because getting the financing, banks don't want to get burnt like they did in 2008. Yeah. So for the first one, it's tough to get the construction financing.

SPEAKER_03 37:06

My buddy asked me, you know, why don't we go look at properties when prices are more affordable? I'm like, what's affordable? Uh like the definition of affordable. I'm like, affordable is relative to your purchasing power. If you think you can go just raise cash when cash is scarce or when banks aren't lending, your affordability becomes harder to buy stuff. Yeah. So that's why it's kind of interesting. 2012 trying to get loans, it was not easy. No. Banks were super tight. I mean, I think in 2007 and eight they were already freezing a lot of loans, and that's kind of the problem. You know, a lot of people had balloon payments on loans that they had to pay, and they weren't able to uh to pay them off. So, okay, question number two, and I sort of saw this somewhere in another interview. You said something about uh visualization. But anyway, what are your three uh daily habits for success?

SPEAKER_00 38:06

Uh so I do have a morning routine. The morning routine is I wake up and uh so I as you we talked about earlier, I do a lot of Brazilian Jitsu, and a Brazilian jutsu, you have to be flexible. So I kind of get into my stretching positions just to work loosen up the body. Yeah. And uh I do three things I'm grateful for, three things that uh that I visualize in the future. Okay, and then I and uh I do some affirmations. So every morning I and I try to switch them up all the time, so it's not the same ones over and over.

SPEAKER_03 38:40

How long does the like when you say three things you're grateful for, you just think of them or write them down?

SPEAKER_00 38:45

I used to write them down now. I I got a little lazier, so I just think about it. But I try to do it at least all every day during the weekdays.

SPEAKER_03 38:53

They say that gratitude, I had a gratitude journal, it's five percent of your happiness, or it changes. It was like 90% when I started doing that. I mean, it changed my whole paradigm of the way I viewed the world. Yeah.

SPEAKER_00 39:05

Uh 100%. If you live in gratitude, it's hard to live be sad.

SPEAKER_03 39:09

Yeah, for sure. And that's just what you focus on.

SPEAKER_00 39:13

Um and it could always be worse. Like, I love this the stoic philosophy of like, if uh you're going through a tough time, it it's a little morbid, but you can always think about uh worse things that you can that that could happen to you. Yeah, and then you go back to gratitude.

SPEAKER_03 39:32

So that works for me. Yeah, no, for sure. Uh and then the third question: what advice would you have to a new investor or someone who wants to get into real estate?

SPEAKER_00 39:44

I would say, yeah, as we spoke earlier, focus, like figure out what your competitive advantage is, whether it's it's market knowledge in a certain asset class or in a certain geography, and uh figure out who your your contacts are, your network is, and and put that together and then come up with a business plan. Because look, there's a ton of opportunity in real estate from from houses to apartments to even office. I think there's opportunity in office if you if if you have the knowledge to to retail what you guys what you do. So I think there's a lot of uh opportunity, just have to have a know-how. And and so first figure out your competitive advantages, figure out your resources, and come up with a good business plan and educate yourself and never stop educating yourself on it.

SPEAKER_03 40:35

Okay, all right. Well, Paul, it's been awesome. That's it. I really appreciate it. Uh yeah, hopefully we'll uh we'll have a lot more conversations these absolutely.

SPEAKER_02 40:47

Hey guys, thanks for watching my video. I really like making these. If this video added value to your real estate thinking, forward it to somebody who you think it could help. I have a newsletter that goes out about once a month. Come to my website, signetinvestments.com, S-I-G-N-E-T Investments.com.