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Global Investors Podcast
GI30: Raising Private Capital For Your Real Estate Deals with Matt Faircloth
January 15, 2020
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GI30: Raising Private Capital For Your Real Estate Deals with Matt Faircloth

Matt Faircloth has been a full-time investor for 15 years.  In that time, he has successfully completed projects involving dozens of fix and flips, office buildings, single family homes, and apartment buildings.

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Announcer
Welcome to the Global Investors Podcast, a show that focuses on helping foreign investors enter the lucrative US real estate market. Host, Charles Carillo, combined decades of real estate investing experience with a professional background in international banking to interview experts in all areas of US real estate investing. Now here’s your host, Charles Carillo.

Charles
Welcome to another episode of the Global Investors Podcast. I’m your host Charles Carillo. Today we have Matt Faircloth. He is the co-founder of the DeRosa Group, a real estate investment firm, which has closed over $40 million in transactions involving private money and currently control 700 units. He writes extensively for BiggerPockets, hosts a YouTube show and the author of the Amazon bestseller Raising Private Capital”. So thanks for being on the show, Matt.

Matt
Awesome. Awesome to be here, Charles. Thanks for having me.

Charles
So I touched a little bit on what you’ve what you’ve done over the last 15 years, but can you give us a little bit of your background prior to starting your current Real Estate Investment Company DeRosa Group.

Matt
Sure. Wait, I went to college at Virginia Tech. And I got my degree in engineering because people told me I should be an engineer because I was good at math and science, you know? And even though I said yes, as an any good young 17 year old did so I got my degree there. And by the time I figured out what an engineer did, it was too late. I already had my degree, and I realized, geez, I actually don’t want to do this. I think it’s so true of so many college students that they just get into something and realize, Hey, you know, actually, this is what I want to do. So I made the best of it, and I got a I got a job in sales that it was kind of sort of related to my degree. And had a good, made a good living, made plenty of money as a sales rep. And, and then, but just knew, I felt like it wasn’t it wasn’t my calling, but I was just kind of doing it as a job. You know, just a cog in the wheel and a cog in the system and fine, but then I read Rich Dad, Poor Dad, and it opened up my eyes. As you know, I think that many most real estate investors I know read Rich Dad Poor Dad and completely changed her life and made them realize, hey, oh, hey, wait a minute, there’s a whole nother way to live life in a whole nother way to to look at making money and things like that. So, but fast forward to my wife and I were girlfriend at the time. And I got married, then got married, and decided that we would that we would live below our means and allow me to quit my job and start investing full time.

Charles
Wow. Why did you choose real estate as your investment vehicle when you’re doing them?

Matt
I chose real estate as my investment vehicle because at the end of the day, it was it was something that I mean, I knew I could figure out I had already owned a house hack, you know, using bigger pockets terms. I would I had I bought a single family home, lived in one bedroom and rented out the other two to two friends of mine right? So I had that I had that arrangement going on, and I realized, Hey, this is actually pretty cool. And I can handle landlording and I’m kind of handy but not really but I just know the financial side of it and the selling side of it and stuff. So just there’s certain parts of myself that really spoke to to real estate that I decided to heal. This is something I want to run with. So that I just saw a bit of myself in real estate now. So I wanted the lifestyle real estate can create for me.

Charles
Yeah, no, it’s pretty powerful. And so where do you now with you’ve invested in like single family mixed use retail office space? In all of those different properties? Now you focus in on mainly on multifamily? Is that where your company focuses on?

Matt
Yes, well, yes and no, I mean, but that’s that our current holdings are not just multifamily. And so I’ve gotten a lot of exposure to other different types of real estate as we’ve grown into the business and tried a few different sectors and and found a few things that worked And we’re primarily residential property owners that that is our that’s like 90% of our portfolio we do I own an office building that I’m sitting in today that’s a small business center called the hive like a beehive and it’s sitting in Trenton New Jersey and that so that’s where that’s our one commercial asset. I do own some buildings with storefronts and stuff like that, but our growth has been in multifamily because I find it’s a good way to scale it’s become really hot and competitive and and that lately and that’s not why we’re into it because we were in we were in residential real estate before it was cool. So I but that’s just where what we’ve learned how to do and that’s what I know how to landlord and I know how to create value in residential real estate because of our 14 years of 14 year track record.

Charles
What markets are you guys mostly invested in for multifamily?

Matt
I’m in Kentucky, North Carolina, Pennsylvania, New Jersey today. We have tried to get into a few other markets we’ve been trying to get into Alabama. We’ve been sniffing around Tennessee as a few other markets to get ourselves and I but I don’t view estate as a market by the way if there’s cities in that in those states that I really like so I think it’s actually a mistake to say I’m in Florida. Well, okay, I’m kind of broad brushing it but there’s a few specific city wide markets that we like in each of those states that list it, we’re not just in the whole state. We’re in specific MSA is inside them.

Charles
What What do you guys look for for property? So neighborhoods are you guys more of B investors? So B class investors are you like C class investors? What is your business plan really, when you go in what you’re looking for, and what makes the decision what what’s the deciding factor for you purchasing a property?

Matt
We do? So um, I gotta find some way that I can add value to it and that’s just and it’s not because it’s just a value add just the way to go. I mean, back in the I remember back in the day when you can actually buy a property and just like, like a miracle would actually cash flow right when you buy it. You know, be The prices were reasonable compared to what the rents the property got. These days the only real way to make money in real estate that I see is through value add value adds where you buy a property, you do rent Oh increase rents and stuff like that and you know, turn up the turn up the income turn down the expenses and trying to find a way to open up that net operating income line item and you know, get the property making more money so that you can monetize that through a refinance or a sale but we bought many properties that just magically cash flow right when we bought them so we didn’t have to do much aside from just get behind the wheel and drive it and bring in better landlording skills and better property management skills and stuff like that. But that’s that’s a unfortunately not something that happens as much these days. So our business plan is value add and we’ve always been workforce housing landlords, I don’t do I’ve done a few luxury deals on the fringe, build some luxury houses, and sold them and in that but why are familiar Morning perspective, we’re typically workforce housing. So you would call that C class real estate people that earn around the median income, a general market. Those are my typical tenants, you know. And I’ll do what I call workforce luxury of getting a new workforce housing model. And then we’ll go and put in, you know, workforce housing tenant will pay you more rent for things that an A class tenant might take as a given like as a necessity, but central air like a dishwasher, like a washer dryer connection, or even a physical washer dryer in their apartment. These are all big upgrades to workforce housing tenants, and they’ll pay you more money for those things. And that so that that’s what I go for is and that’s why I like C for like C class housing because I’ve I had been through one recession already. And so I think C class housing is destruction is recession proof because that’s what I saw when I was invested in C class housing. So that’s number one. And number two, it’s very easy to do. I think it’s easy to do value add on that level of real.

Charles
Yes. Yeah, now, I started purchasing real estate, o-six, and it was all see majority of what I own is C class properties. And like you said, it’s much easier to weather the recession, we didn’t really decrease rents at all, we weren’t jacking them up. I mean, we were keeping them pretty consistent through 70809 with expenses. But the thing is that you have a lot of people that come on, especially with the value added stuff that’s going on. Now they owe the B classes the best and you’ll make less money, it’s more expensive. But I think C class especially if you can manage it, and you have the profit if you have the team in place, which is the next question, I want to ask you, how you manage your properties. But if you have that in place, and you have the right handyman and the right people, I mean it can definitely be very profitable.

Matt
It can be so we used to manage ourselves, we managed 115 doors on our own. I mean that we like me and my wife, we I had a we have as a point in our business. We had a 13 person team. We got out of that. We were Got an outsourcing everything and just I found that it was better to hire companies that that didn’t manage 115 units and manage, you know, thousands of units because there’s a lot of levels of hierarchy and resources that they could bring in that I was nowhere near being able to swing at 115 units. So there’s an economy of scale there. Right. So, that’s, that’s I’ve learned a lot through self managing. And we managed a couple hundred, you know, 115 units with one maintenance tech, one property manager that did all tenant interaction, I called him a tenant relations manager. So any anybody that any tenant issue be that, you know, one of our issues which is Hey, you tenant, you haven’t paid your rent, that’s, that’s my problem. That’s, you know, that’s their problem, but really my problem and their problem, that’s also my problem is that their heat doesn’t work or something like that. Those have all been two sided, you know, issues that the tenant relations manager dealt with an office manager who paid all of our bill about bills and you know, pay the books it did the books and stuff like that, and then I Had a leasing agent, there’s really a third party. It was really a realtor that showed all the units for us. So,

Charles
yeah, it’s usually the best way. That’s how we have it set up now with some of our management where we pay them just a straight fee. This is obviously less than what they’ll get if you just came off the street to have them rent your condo, but the thing is that, you know, they’re getting so many units that they’re able to rent regularly. And if they’re the only person that’s quite profitable for them, yeah. What I want to talk about raising money now you you you raise a lot of money for a lot of properties for what you do. You’ve closed over $40 million in transactions and 700 units. And you have an Amazon bestseller on raising private capital. And that’s been the name of it. Can you explain a little bit about starting to raise capital for someone that is new to this whole raising capital, let’s just say for real estate, cuz that’s what we’re talking about?

Matt
Sure, um, well, I mean, how I did, it’s a whole I mean, it’s in the book, you know, not to like, you know, go there, but it isn’t the book. A lot of my personal story is there, but I think that in talking to somebody who’s just getting started Maybe hasn’t raised any money yet. I think there’s a few things they need to do to get there to get their like wheels underneath them before they really start moving for number one would be to get clear on your goals because that’s one thing I didn’t get a lot of the advice I give people are things I didn’t do. And the reason why I give it as advice because hey, I knew this slowed me down because they do that. So I don’t want you to do what I did and want you to do what I wished I would have done when I got started. Because when I first got started, I didn’t have a clear set of goals. And so day, you know, when I first got going, I was looking at a land deal on day one. And I was looking at an apartment complex on day two, and I was looking at a strip center on day three, and I was like a single family home that I was going to fix the flip one day for. But I had a lot of fun and met a lot of people but I really get much done the first year of business. So I recommend that anybody looking to get going on raising money, get clear on their goals and what kind of what, you know what kind of real estate business they want to build over the next five years. The reason why that’s important is that you need to be able to convey those goals to your investors. To say, this is where I want to go. And if you hit your wagon to me, this is where you’re going to go. Sis number one number two, I do not believe that your first deal should be raised with private cash should be funded with private capital. I think that you should do something you know completely outside of the box thinking and maybe use your own money for a deal for your first you know, for some people don’t think about that, but actually, yeah, he maybe if you have money, maybe you should use that on your first deal. You know, novel concept, but if you don’t have your own money, that’s okay. either find somebody that you like and trust and make it like an inside partnership like a family member or somebody is super inner circle close to you. And there’s also even further creative ways to fund your own deal without raising private capital likes your person interest, credit cards, hard money, it can be expensive, so be careful with those kinds of things. But at the end of the day, it’s a good way to fund your own deal and build a track record because I don’t believe that people should go out and pitch their network on investing with them if they have zero experience in real estate. You’re all in real estate investing. So I am I think it’s I think that it’s imperative to build a track record.

Charles
That’s a lot of stuff that’s going on right now too. I go to different conferences and we were talking about before and it’s you have people that are raising money for deals not just $50,000 you know, collectively it’s a millions of dollars that they’re trying to raise for properties and they’ve never even purchased a three unit property or something like

Matt
that or even didn’t own their own home All right, it’s funny I was talking to a buddy of mine on the drive to my office today that you know, he was freaking out because one of his friends that it’s a private that’s a private money investor like you know, pretty much in the AI quadrant of life that all they do is they make their living investing their money god bless that they’re just researching their their wealth over into the market. This high net worth individual let’s call them was was called by someone to pitch them on a deal, and the person that called them Yes, his first time in real estate never owned anything was trying to pitch him on investing in a 200 unit apart. Building deal. And the private investor sort of asked a few questions to the person that called them up. Personally the person, you know, so had a job, which is fine, totally okay? And didn’t even own their own home. Right, never invest in real estate, went to one seminar, didn’t own a home, and was now out pitching themselves as an apartment building syndicator and trying to pound their chests and buying apartment buildings and stuff like that. It’s scary, man. It’s scary that these people are getting this license to run around, you know, are getting the license to run out there and bang on bang your head on doors and stuff like that and say, Hey, you should buy an apartment building with me. When really you might not even have your financial house in order to the point where, you know, right, I’d probably run around with a bunch of credit card debt and everything else that you get your own personal financial house in order before you get involved in this game. Because there’s a lot of lessons you’ll learn in the small stuff as you quickly expand. You know, and I’m not one that believes that you could go to a weekend course and then go bought in by 100 unit apartment complex the next week and I’m sorry but the folks that tell you that are probably selling something

Charles
Yeah for sure it’s something it’s funny how you say that about telling people what they should do but you what you haven’t done and I was talking to someone previously about I have a list of stuff I’ve mistakes over the last two decades in business in real estate that I’ll never repeat again. And you know what I’m going to buy what I won’t buy, you know, issues you’ve had as you didn’t stuff and you know, like, you can just pass this to someone like just use this as kind of like, these bullet points as a guide of stuff that I did, which I highly suggest you you avoid. You know what I mean?

Matt
I like to say I’ve made it I’ve made all the mistakes so you don’t need to make them you know, like I probably just just just like I do is I it’s not just do as I say not as I do kind of thing. But it is one of those things where it’s like, you know, I promise you I know it doesn’t work to do what I did because I tried it and now I did that and then I change course and I do but did work and then that was then that created success for me. So it does pay to listen to people that are not selling anything that are just out there to give you advice to that are really just want to see you be successful not because you will not because you’re willing to pay them $15,000 for advice, but because they just want to see be successful. And that’s me. That’s, that’s what you’ll see on my YouTube channel and stuff like that. You know, we take very little money for the advice that we give just because we want to see success out of people.

Charles
Yeah, that’s very, you know, that’s, that’s a great model and with all the education that you put out there, one last thing with your book I want to touch on which is very interesting. Can you explain the air you you? You explained deal providers and cash providers and the roles of each and how they can coincide and work together? Can you touch on that briefly?

Matt
Certainly. So a deal provider is someone perhaps like you and I that go out and find an opportunity that leverage resources lever. We leverage our network, we leverage our experience that we have in deals we leverage the knowledge that we picked up through organizations like bigger pockets, were through You know, yes, the weekends and stuff like that the weekend courses and the analysis tools to analyze deals, and we produce something that you know was produced the right network was was vetted through our background experience was bedded through the skills we have on underwriting deals that we provide, okay here with this is an opportunity and I put my stamp on it. And I say, this is something that I think is a good deal. And I’m willing to stand behind it, and I’ll run it and operate it, given my experience and my network, I’ll run it and bring it to fruition. And that’s my and that’s my warranty that I’m putting on it that I’m vouching for this deal that I found that I’m willing to run and make it profitable. That’s what the deal provider does is that side of it. The cash provider is someone that says, Listen, I’ve got some extra cash, I don’t have money, I don’t have time and the deal provider has time. So the cash provider is really in a great position. It’s double edged sword isn’t a great position because they’re able to really leverage the deal providers, knowledge and know how and skills and their willingness to rise. The deal to fruition, they’re leveraging all that, in exchange for them just putting capital into the deal and making a really great return on their money in exchange for putting it to work. The other side of it is there’s a lot of, you know, shysters out there that are out there presenting something or trying to force a square peg into a round hole. Because the multifamily markets very competitive right now. And so they’re out finding a deal that’s already overbid at the tippy top of the market and they’re still trying to say, Hey, listen, this is a good deal, when really all it is is just a deal they found it’s not really something that’s vetted or cooked or anything like that. It’s not It’s not something that’s that’s really going to work. It’s just an apartment building deal, you know, and it’s not something that’s really been vetted and doesn’t really have a stamp on it that it’s going to work it’s just Hey, you should invest in this deal because this is what I found.

Charles
Something I found out Luke that and now you should invest in.

Matt
Right, I found a deal. You should invest in with me Give me lots of money and and try it and trust me with your fortunes and stuff like that, but it’s not. That’s the bads. The downside that the The risk the cash providers taking is choosing the wrong syndicator. The upside that the if the cash provider chooses the right syndicator, then they can really do extremely well and benefit from the efforts of that syndicator that has integrity to choose the right one. I’ve had people I’ve had people retire through working with me, and I don’t I don’t attribute all that Success to me. I think they set up their lives in the right way that it didn’t take much to get him to retire. But I had a guy that had moved to America from Argentina, worked his way up through corporate and was investing his money that he made in corporate in some real estate stuff, mostly with me. And he was able to make enough money that he was able to retire at 34 years old. And move back to Argentina.

Charles
That’s pretty sweet.

Matt
Yeah.

Charles
Yeah. And what was his role? He was more of a cash provider on that.

Matt
Passive investor,

Charles
Passive investor. Even better, no phone calls. No, God bless no one A month when you’re all set?

Matt
Yeah, it’s it. You know, you do the count, you count your money email, you know, see how we did today and but yeah, I’m I’m happy to say that I was able to provide that 10

Charles
So Matt, you you write for BiggerPockets pretty intensively you do webinars for them. You hosted DeRosa Group, the YouTube channel, and you have a number of different video series on that. Can you can you touch on your different education that you that you partake in?

Matt
Sure. Um, I yeah, it’s good. We could call it education really, it’s like, my youtube channel currently is called the landlord Chronicles because it’s just, it’s a chronicle that I started when I first got going and on YouTube when I was self managing. So we put a lot of our day to day experience in self managing property, and I still put some of that out there like just a couple months ago, we had a tenant completely wreck one of our units. And so I just walked it with the cows like okay, let’s turn the cameras on go see it, you know, and, and this, this is landlording This is what it really looks like. Just so you know, as a tenant completely trashed my apartment. Let’s go see it. This is what can happen, you’re probably not going to be count your money on a beach in Tahiti sipping my ties anytime soon, you’re going to be dealing with this. This is what it looks like. So we try and put not a rosy colored glasses spotlight on real estate, a real spotlight because it’s a very rewarding and can be lucrative business. But I think there is a misnomer on how it gets painted by a lot of the folks that are out there. So my goal is to tell people the true story of what it is to invest in real estate and prepare them to be successful in investing in real estate. So that’s what the YouTube channel is all about. That’s really what’s behind a lot of what I do for BiggerPockets and what I do for the end, the book that I wrote, raising private capital, was really not like a story of Hey, look at me, look how I raised millions I did, but it’s how I did it and how they can do it too. Because that’s what I truly believe is a lot of people can do what I did. You know, there’s really nothing special about me, the only person that thinks I’m special as my mother, you know, and that’s it. Yeah, but I really hope that other people that I hope I inspire other people to do what I did in a practical manner too.

Charles
Yeah, that’s awesome. So, so then how can more people get in touch with you how they learn more about your real estate company and I’ll put all the links below for YouTube and for your BiggerPockets

Matt
So we’ve been at Weaver I guess call it smarter just maybe even maybe even it’s lazy enough to put everything on my on my websites is only one place to go which is derosagroup.com and on that website on derosa d e r o s a group.com they can check out you know that my youtube channel there’s a link over there to that there’s a link to my wife’s podcast called the real estate invest her show which is investigated the travel of the female real estate investing real estate investor. There is a there is links to the work that we do for BP. You can buy the book off the website, which you can also get it on Amazon and bigger pockets. So there’s a lot there is a link through to everything you can also learn about if you’re interested in hearing more About what we offered investors. That’s all there to on at derosa. derosagroup.com

Charles
Yeah, that’s awesome. I really suggest the book. It’s great. And now like we were talking earlier, the forwards written by Joe fairless, who has raised 100 million dollars plus for real estate. So a great person to have to write your foreword for your book. So that’s awesome. But yeah, I really appreciate thank you very much for being on the show today. And I’ll put all those links in the bottom of the podcast and of the bottom of the YouTube video. And I look forward to touching base with you in the near future.

Matt
Thanks, Charles. It’s been great being here. Thank you so much for having me.

Charles
Thank you. I’ll talk to you soon.

Charles
Hi guys, this is Charles from the Global Investors Podcast. I hope you enjoyed the show. If you’re interested in investing in real estate and you don’t know where to begin, set up a free 15 minute strategy call with me at schedulecharles.com. That’s schedulecharles.com.

Announcer
Thank you for listening to the Global Investors Podcast. If you’d like to show, be sure to subscribe on iTunes or Google play to get new weekly episodes. For more resources and to receive our newsletter, please visit global investor podcast.com and don’t forget to join us next week for another episode.

Announcer
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of harborside partners incorporated exclusively.

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About Matt Faircloth

Matt Faircloth has been a full-time investor for 15 years.  In that time, he has successfully completed projects involving dozens of fix and flips, office buildings, single family homes, and apartment buildings.  He started with a $30,000 private loan and has now completed over $40,000,000 in transactions involving private money.  He is a regular contributor to Bigger Pockets.com, has an active YouTube Channel dedicated to educating investors, and the author of the Amazon Bestseller, Raising Private Capital: How to Build your Real Estate Empire with Other People’s Money published by BiggerPockets.

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