80 Carolina Hard Money Roundtable Discussion

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80 Carolina Hard Money Roundtable Discussion

Austin Deraaff & Jake Deraaff

We are two twin brothers (22 years old) from the Big Apple
and start investing in RE deals at the age of 19 after dropping out
from school. Currently, we are doing 75-100 single family wholesale/wholetail and flips yearly and adding another 50-100 apartment units to our portfolio through bank financing, lines of credit and private capital.

Fernando Angelucci, The Storage Stud.

Wendy Sweet and Bill Fairman have been successfully lending money primarily in the Southeast to investors, rehabber’s and builders. They also manage a real estate fund for accredited investors, in addition to, brokering loans for those with money to invest.

Bill Fairman (00:03):
Okay. So not only do I have a little red button that says we’re live, Scott actually put something in the middle of the screen says, “You’re live!”

Wendy Sweet (00:13):
But are you?

Bill Fairman (00:13):
If you didn’t join us on our last show earlier, we’re just talking and,

Wendy Sweet (00:18):
No, Bill was. I was paying attention.

Bill Fairman (00:21):
Cause I couldn’t see the stupid red light. Anyway, welcome to another episode of what do we want to call it this time? “Bill and Wendy’s Excellent Adventure”

Wendy Sweet (00:35):
And Jonathan. “Bill, Wendy and Jonathan’s Excellent Adventure”. That’s not bad.

Bill Fairman (00:39):
So I’m Bill Fairman, Wendy Sweet, Jonathan Davis, Carolina Capital Management. Remember to like, share and subscribe. Our website is CarolinaHardMoney.com. If you’re an investor interested in passive income or returns, click on the investor tab. If you’re a borrower click on the borrower tab.

Wendy Sweet (01:00):
You kind of have a radio voice these days, Bill. Doesn’t he sound like?

Jonathan Davis (01:04):
I thought you we’re going to say he has a face for radio, but alright.

Wendy Sweet (01:10):
I can’t argue with that, I’m sorry.

Bill Fairman (01:11):
I’m not gonna have a radio voice, I have nothing to say about that.

Wendy Sweet (01:11):
You too can leave a comment or question in the chat box about Bill’s radio voice or radio face.

Jonathan Davis (01:20):
So whichever one you like, yeah.

Bill Fairman (01:23):
Alright, so we got, we have a great care on that. We have three excellent guests, we have a brother twin at the Hudson Valley.

Wendy Sweet (01:33):
Twin Brothers!

Bill Fairman (01:33):
Yeah, out of white Plains, New York. They have a fix flip, wholesale all kind of stuff.

Wendy Sweet (01:41):
And they’re young ends, they’re like 20 or something, ridiculous!

Bill Fairman (01:45):
You know what I was doing when I was their age?

Jonathan Davis (01:47):
A lot of stuff you shouldn’t be doing?

Wendy Sweet (01:48):
[Inaudible] so don’t even talk about it.

Bill Fairman (01:53):
What I was doing was trying figuring out what I was gonna do on the weekend.

Wendy Sweet (01:58):
Yeah, “What am I going to wear Wednesday nights?”

Bill Fairman (02:03):
That’s right, Fernando, why do I do this? Don’t tell me!

Jonathan Davis (02:07):

Bill Fairman (02:07):
Angelucci. I know that name, It’s so easy. I don’t know why, it’s just not coming out of my mouth.

Jonathan Davis (02:13):
He’s been on our show!

Bill Fairman (02:18):
[Inaudible] He’s awesome and he sell storage space.

Wendy Sweet (02:18):
And he still comes back after all that.

Bill Fairman (02:21):
And every time he leaves, he talks about how his jaw hurts from laughing. so welcome to the show!

Wendy Sweet (02:30):
And those were the guys everybody say, “Hey!”

Bill Fairman (02:35):
We got Fernando for a quick 15, 20 minutes because we had a conversation yesterday via email on a really nice fund structure for self storage but you can use this fund structure for any type of property that you want to raise capital and I loved it based on that structure, I want him to talk about that.

Wendy Sweet (03:01):
And self storage is a hot tamale.

Bill Fairman (03:04):

Wendy Sweet (03:04):
And you know, it fares well in the good, the bad and ugly, no matter what the economy is looking like these days. So it’s a great investment for people to be in, right?

Fernando Angelucci (03:16):

Bill Fairman (03:17):
Yeah. I always like to say that.

Jonathan Davis (03:18):
As part of that investment, yes. I would like to say that it’s [Inaudible].

Bill Fairman (03:21):
So we as Americans can’t turn loose of our crap.

Jonathan Davis (03:30):
Or the show to let it.

Bill Fairman (03:33):
Well, I mean, I’m willing, I have one.

Wendy Sweet (03:35):
He’s like hoarder King. He has to buy us a self storage building just to rent the others so that he can afford to keep his junk, he’s the King, I’m telling you!

Bill Fairman (03:49):
This really is the case. In most cases, people will get stuff that they were emotionally attached to, they don’t want to get rid of. They’ll end up spending, you know, they got $500 worth of stuff. No, keep it. I’m still hoarding stuff!

Wendy Sweet (04:02):
He’s got all the pens over there, everything on the table is sitting in front of him!

Bill Fairman (04:09):
And they’ll pay $150 a month for five years, for $500 worth of stuff they don’t want to get rid of it

Wendy Sweet (04:17):
I rented a place and there was a lady in there paying, she pays $50 a month and she had been running at that place for 17 years! 50 dollars a month! What could you have that would be worth paying $50 a month for 17 years, grandma’s furniture? What, you know, it’s crazy that she had done that 17 years, $50 a month. That’s big bucks!

Bill Fairman (04:44):
Okay. That said, I’m going to let somebody else talk now. So Fernando, I know you have a capital raise coming up, but let’s just talk about the structure of this one and the other ones that can be used. We’re not going to get into the rate details because you did an investor and you’ll have to go.

Wendy Sweet (05:04):
And if we tell you we’d have to kill you.

Bill Fairman (05:05):
You have to pass a test before you can get this detailed information.

Wendy Sweet (05:15):

Bill Fairman (05:15):
This particular structure is an equity structure and you have multiple tiers. Let’s talk about the multiple tiers.

Fernando Angelucci (05:26):
Right, so one of the things that we have learned pretty quickly is that, you know, self storage is pretty hot right now especially cause we’re going into a recessionary environment and has always performed well, at least over the last three recessions where we have data, pretty good data on it because of that, not only is that attracting, you know, your mom and pop investors that maybe have 50 or a 100 or $200,000 to invest, but it’s also attracting your institutional investors, your hedge funds, your private equity funds. The thing is for us as syndicators, the less cooks in the kitchen, the easier it is for us to manage that operation, right? If I have a hundred investors at $50,000 each column each week to figure out what’s going on and get updates, you know, that becomes a pretty tough management obstacle. Now instead of having that, I have one investor that comes in that wants to give me $5 million as opposed to $50,000. Not only does that increase my time value, cause not only have to operate with that one or those two institutional investors. So that actually gives me more money bac cause the way I’m looking at all of my investments is it’s not about how much you make, but how much do you make for the amount of time you put in to that investment. So the way that we do it is we will make two different tiers based off of those types of investments. So usually the first, tier one is going to be your minimum raise, whatever it is. We usually like to sit between 25 or $50,000 on as a minimum but if you have a larger guy that’s coming in and willing to take a lot of that headache off your plate and invest, you make your time value increased, it makes sense to give them a larger return or a higher return based off of offering a special share. So we’ll have a tier one share, which is going to be, you know, either if it’s a 506B, it can be unaccredited or if it’s a 506C can be only accredited investors and if an investor is willing to maybe pony up, maybe it’s an investor say that only wants to put 50,000 just to dip their toe in it, to test out the syndicator at first. And if everything goes right, then they’re willing to apply more later. If we can show that we have a track record and maybe nudge them a little bit to go up to the next tier or a tier two, which would be, you know, say 250 or $500,000 minimum on that tier, then we’re willing to offer either a higher preferred return or a higher total return or a combination of both by offering up additional owner shares. So for example, if you have a syndication where it’s a 50-50 split, let’s just say, we’re just talking hypothetical here. 50-50 split on the back end with a 6% preferred return to the investor. And then that investor decides, ‘Hey, you know, instead of the 50 grand, I’m willing to do $500,000 as an investment. I’m willing to give up some of my shares so that now, instead of it being 50-50, it’s maybe 55 to the investor, 45 to me, which then bumps up their total return. But then I’m also willing to bump up their preferred return because now I’m spending less time raising capital. I’m spending less time chasing wires to be funded on time to close. And in our business time is money. So I’m maybe willing to bump up the 6% return to our preferred return to maybe an eight or an eight and a half to entice these larger institutional investors to come in and fund the deal. This is something I actually learned from a mutual friend of ours, a big Mike Zlotnick over at tempo funding. He’s the very first one that said, ‘Hey, Fernando, you know, yes, your mom and pop investors are going to be the best capital you can get but if you just want to start doing larger projects where you’re doing maybe a 10 or a 20 or $25 million raise, you don’t want to be doing that in $50,000 increments. You want somebody that’s coming in with 1, 2, $3 million checks per you know, per submission, per subscription, and to do that, you need to entice them to do so.

Wendy Sweet (09:35):
What a great idea.

Jonathan Davis (09:36):

Bill Fairman (09:37):
So the other thing that caught my eye was the REIT quality investment. So I know as in multifamily properties, you have class A, class B, class C type properties. What makes a REIT quality self storage facility?

Fernando Angelucci (10:05):
Yeah, so let’s kind of step back and go through the history of self storage. Okay, so in the mid to late eighties, there was a big boom in self storage and where the, these are what we call our “first-generation facilities”. These were the facilities where someone had some agriculture land and they realized that now there’s a town kind of growing around them or near them and these townie folks that don’t have all the acreage to store all their fun toys and their goods, their ATVs, all that stuff. They needed a place to put that because they had a small lot in town. So these, usually they were farmers. They would section off maybe three to 10 acres from their, you know, hundred or 500 acre farm and they’d put up these storage facilities that were non climate control. There was no security, there was no electrical. You just drive up to your door, you unlock it, you put your stuff and you put it down and you lock, you go away, right? So that’s a tier one or a generation one facility, a first generation facility. Because those first generation facilities were primarily built 20, 30 years ago, these are what we are considered a class C and our class D facilities. Cause they’re old, they’re usually in areas that don’t have large population centers, the demographics of the area may not be that great so maybe there’s not a lot of traffic counts, cause now all of the traffic moved from route 66 to the new highway, right? Or maybe all the jobs moved away from agricultural jobs to working in a city and factories are working in these population centers. So that’s going to be your generation one facility. REITs don’t usually like buying those because it’s easier to manage one, 1000 unit facility than it is to manage 10, 100 unit facilities.

Bill Fairman (11:49):

Fernando Angelucci (11:50):
Now that doesn’t mean it’s not a bad investment or it’s a bad investment. It’s actually quite the opposite. These first generation facilities class, these facilities are usually where you can get the highest cap rates upon acquisition. I’ve bought classy facilities where day one walking in, I was at a 13% cap rate and then I would value add to a 15 or an 18%.

Wendy Sweet (12:11):

Fernando Angelucci (12:14):
Now then you have the second generation facilities that came in. The second generation facilities are the ones that started realizing that there were a need for climate control. So for those of you that live in the South or live in, let’s say Arizona, you know, it can get up to 110 degrees and that can destroy electronics that can destroy certain type of fabrics. And then vice versa for someone like me that I live in the city of Chicago, you know, in the winter, during the polar vortex, it was negative 47 degrees. And certain things can really, especially if you have humidity coming in, that humidity can freeze and ruin fabrics ruined electronics, those types of things. So the second generation facilities, what they started doing is blending climate control and non climate control. They would have, you know, their drive up units outdoors, but then they’d maybe have like one internal area that was maybe 10 to 30% of their units that would have climate control or air condition control units. Usually these are all single story facilities, they’re only one story, it’s like a ranch hall, right?

Bill Fairman (13:17):

Fernando Angelucci (13:17):
Then all of a sudden once, you know, some of the big guys, the pioneers that in the industry like public and extra space and life storage came in, they realized that it was a lot easier in the revenue numbers were a lot higher when they would build closer to population centers like building a downtown Chicago or building in Greensboro or building in Atlanta. The problem is once you start moving to the population centers, the dirt costs so much more money that you can’t build out, right? You have to build up and when you build up, everything’s going to be in encapsulated in the shell of the building anyway. So why not do climate control for the entire building? So what a regrade facility, where a third generation facility, or we also we’ll call it a class A facility. These are usually multistory. When you look at them, they don’t even look like self storage anymore. They actually look more like luxury office space or luxury industrial space because they’re large, they have nice facades, you know, brick and mortar, very ornate. They have huge windows to show you these, you know, these super vibrant colored loading doors. Those are the facilities that the REITs really like. Now the thing with REITs though is because they’re publicly traded companies, they are all about stability, they’re all about cashflow. So a lot of these REITs they don’t like to build their own. There is a ton of exceptions to this but primarily what the REITS like to do is let an investor like me take the risk of building the facility it up to 90%. And then coming to me in the backend, say, Fernando, you did a great job. Let us buy this off of you for some unreasonable cap rate. So let’s use the example is earlier I bought a class C facility or a first generation facility for about a 13% cap rate. My class A regrade facilities, they’re buying those off of me at four and a half to 6% cap rates. But you know, we’re sitting on so much cash that to them, they would rather place their cash into an appreciating asset. You know, that hedges against inflation as opposed to every month losing cash to inflation, right? All this funny money that the fed is printing right now, that’s going to lead to a lot of inflation down the line and what would you rather be holding an inflationary environment? Would you rather be holding cash, physical cash that is depreciating or is losing its value over time? Or would you be rather holding a cash flowing asset? That’s going to appreciate our time, especially if it’s in an area like a population center because there’s no infill locations anymore, you can’t build anymore, unless you tear something down to build and that usually costs a lot of money. So now on the ranges, you know, I like the classy facilities because it allows new investors that are maybe familiar with single family or small multifamily to enter. I recently, maybe a couple of weeks ago I was going to do a quick flip. I bought a hundred thousand dollars facility in Illinois, I paid cash and I’m flipping it in 60 days to another investor for 130,000. Okay, so that’s the price of a single family home. Now my regrade facilities that I’m building, those are $13 million projects with the goal to sell to a read at 17 to $20 million in four years. So it’s not a 60 day turn. It’s a four year turn. So it’s a slow flip, but you have way more appreciation on that. And you also have a buyer pool that is sophisticated and have a ton of money sitting so you don’t have to worry, are they going to qualify? Are they going to be able to come with a down payment? They’re usually coming cash and they’re saying, ‘Hey, we’ll close 60 days as long as all your numbers are right. Here’s the cash, let’s go.

Wendy Sweet (16:55):

Bill Fairman (16:55):
And so if the REIT doesn’t want to buy it, you can always refinance it and cash out your investors.

Fernando Angelucci (17:03):
Like, I mean, let’s say, let’s use those numbers again, you know?

Bill Fairman (17:08):
Yeah, and then hopefully their equity now is not taxable.

Fernando Angelucci (17:12):
Right. And so that’s one of the things that we really like about self storage is there’s a lot of really great tax strategies, tax advantage strategies in self-storage one of the things that I love to do is what’s called a cost segregation study.

Wendy Sweet (17:23):

Fernando Angelucci (17:23):
A cost segregation study what it i`s, is you hire a civil engineer and he will actually challenge the IRS depreciation schedule. So with the IRS, I think it’s like 29 and a half years that you can depreciate a residential property and then 37 years that you can depreciate a commercial property. For those that don’t understand how depreciation works, let’s say that you have a million dollar asset and that that asset is depreciable, let’s say over 10 years. That means every year you get the write off of one tenth of the value on your taxes against your cashflow. Now but because with commercial property, it’s so long, 37 years, that depreciation is not really great but what the cost segregation study does is the civil engineer comes in and says, ‘Whoa, Whoa, Whoa, Whoa, 37 years? How about these roll up doors? These roll up doors need to be changed every seven years.” So let’s assign seven year depreciation guys. “Those doors and those springs, those need to be changed every four and a half years”, so we assigned four and a half years. “These sliding metal walls over here, that’s every 10 years easily replaced”, so then they take this blended depreciation schedule. They submit it to the IRS for approval and then all of a sudden our write offs are massive. So just as a middle of the road example, we bought an $800,000 facility in central Illinois. I paid $6,500 for the cost segregation study, it was actually a couple friends of ours from collective genius as well, Joe Vinery and Yon Regan.

Wendy Sweet (18:51):

Fernando Angelucci (18:51):
I paid him $6,500. The depreciation I got to take year one, which included bonus depreciation was $183,000.

Wendy Sweet (19:00):

Fernando Angelucci (19:00):
I was able to write off all of my income for the next three and a half year without paying a penny in taxes. That’s fantastic, right? So now let’s scale that up to a 12 and a half million dollar project. Imagine how much depreciation you can take on that, right? So not only are you taking the depreciation against your income, you’re also taking, when you do the refinance that is considered a return of equity, not a capital gain so that’s also not taxed and then if you ever want to go and dispose of it, you can do a 10 31. I actually don’t like 10 31’s I prefer even more advanced strategies in that and I can hook you guys up with my buddy Bruce Jones at tax wealth, where you can actually sell a property to another investor, a hundred percent tax free and set it up using a charitable remainder trust where you get paid five payments over a four and a quarter years and none of it, you almost get a hundred percent of the value of your property without having to find another property to change until you actually get cash in hand. That’s why I like that as opposed to taking a 10 31 specialty environments where

Wendy Sweet (20:04):
What’s his name again?

Fernando Angelucci (20:08):
I could connect it, his name is Bruce Jones. He’s been suing the IRS for about 40 years now. He loves it.

Bill Fairman (20:15):
Wow. That’s a friend I’d like to have.

Wendy Sweet (20:18):

Fernando Angelucci (20:19):
I’ll connect you guys, yeah. I’ll connect you guys.

Bill Fairman (20:22):
I hope I’m not afraid to sue the IRS.

Wendy Sweet (20:22):
So Fernando, how can people get in touch with you? What’s the best way for them to do that?

Fernando Angelucci (20:26):
Yeah, absolutely. So you can check us out on social media at The Storage Stud, you can also go to our website, TheStorageStud.com. There should be a contact form there to find me and then anytime you guys have any questions, you can also come through Bill and Wendy and John, you can come through, you know, anybody that the other people that we’ve had our shows that have referenced me in past, I’m always available. I love teaching people about self storage. It’s one of the things that I think everybody, if you’re not going to do what I did, which is, I completely traded out of all my assets into self storage only, you know, at least add one or two facilities to diversify our portfolios, maybe have a couple of hard money loans. I have a couple of fund investments, have a couple of single family. I have a couple of multifamily because then you can really, regardless of what the market’s doing, the average of your investments are going to kind of keep going like this.

Wendy Sweet (21:14):
Right, right, right, right. Awesome, good stuff.

Bill Fairman (21:17):
So you’re in the middle of a capital raise for a project coming up.

Fernando Angelucci (21:22):

Bill Fairman (21:23):
So under the website, get some details.

Fernando Angelucci (21:26):

Bill Fairman (21:27):
Actually talk to Fernando to get the actual details.

Fernando Angelucci (21:34):

Wendy Sweet (21:34):
Awesome, thank you so much.

Jonathan Davis (21:34):
Thank you very much.

Fernando Angelucci (21:34):
Thanks guys, I really appreciate it.

Bill Fairman (21:35):
We’ll talk soon, Have fun when you’re in your meeting, see you later. Okay, that was awesome.

Wendy Sweet (21:43):
It was really good. I think we’re gonna get Jake and Austin to sell all their stuff and become self storage brokers

Bill Fairman (21:52):
So coming up now we have a Jake and Austin.

Wendy Sweet (21:55):

Bill Fairman (21:55):
Not giraffe, Deraaff

Jonathan Davis (21:58):

Bill Fairman (21:59):
And they are with Raven three home buyers. They are up in the,

Wendy Sweet (22:05):
Hudson Valley.

Bill Fairman (22:06):
Hudson Vall, let me finish!

Wendy Sweet (22:11):
Well you take so long!

Bill Fairman (22:12):
She is so impatient. I’m sitting in her little cubicle back there trying to explain something to her. She didn’t want, come on, come on, get it there!

Wendy Sweet (22:17):
I got stuff to do!

Bill Fairman (22:21):
I like, I’m like one of those politicians do a 25 minute press conference and I answer one question.

Wendy Sweet (22:28):
See? and we still haven’t gotten Jake and Austin. See what I mean?

Bill Fairman (22:37):
Anyway, thanks guys for joining us.

Wendy Sweet (22:39):
My first question is how old are y’all?

Austin Deraaff (22:42):
I’m 23 years old.

Wendy Sweet (22:44):
23 years old and you’re twins, right?

Jake Deraaff (22:47):

Austin Deraaff (22:48):
Yep. We are. So Austin, you’re the one with the hat?

Austin Deraaff (22:52):

Wendy Sweet (22:56):
So that would leave Jake as the other guy

Bill Fairman (23:05):
So how long have you guys been doing this?

Austin Deraaff (23:08):
So good question. So first, thank you so much for having us in the show, it really means a lot to us and our goal for this next 30 minutes is to bring as much value as possible to your listeners. To answer your question, we dropped out of school three years ago and so actually on August 1st, three years ago, we started our business. So then three years, we dropped out and how did we dropped out? We just, you know, we didn’t see any value in an education program and it was three years ago, Jake, you know, dropped a course in my desk and it said “How to buy real estate with no money, no credit, no income, no license.” I said, I have no money in my bank, I have no credit and I don’t have a real estate license, let me check this out. I was yelling, we took full flash, full commitment dropped out of school, moved out of our parent’s house and went full force in it. It did take us a while to get a paycheck, exactly seven months but it was the most rewarding thing ever so we’ve been here for about three years.

Bill Fairman (24:04):
Well, you say you don’t see the value in education, but you’re talking about the formal education part because you’re always getting an education.

Austin Deraaff (24:13):
Yeah. Specialized knowledge is very critical.

Bill Fairman (24:15):
So you took a course, was it like an online course or?

Jake Deraaff (24:24):
Yeah, there was just an intro to wholesale in course by actually Cody Sperber out in Phoenix, Arizona.

Bill Fairman (24:33):
Excellent. So what are you guys doing mostly now? I know you, in 2019 did like 35 deals. That’s killer.

Wendy Sweet (24:41):
It’s amazing!

Austin Deraaff (24:43):
Yeah. So our business model is pretty simple. We love to buy houses. We have a lot of different strategies when we do buy them. We wholesale, we hotel, we fix and flip. We’d like to buy apartments. We’re actually closing on a building today and we have a realtor division and a short sale division as well.

Jonathan Davis (25:00):
Gotcha. Wow.

Bill Fairman (25:02):
Yeah, that is awesome. So what’s the economy like up in the Hudson Valley area right now?

Austin Deraaff (25:11):
Good question. We actually were really nervous once Corona hit, we’re like, you know, shit it would go down and sink like the Titanic but actually the complete opposite. For like maybe 30 days was on pause but now so many people want to leave Manhattan, which is we’re about 45 minutes from Manhattan, as people know what that is, that people are just coming into our markets and they just want to buy homes to live in because they don’t wanna be stuck in an apartment if this ever happens again. So where we are, 45 minutes North of the city is completely hot. You can’t even buy your deal right now on the market so that’s why we do a lot of marketing to find off market properties.

Bill Fairman (25:44):

Wendy Sweet (25:45):
And so what kind of marketing are you doing?

Jake Deraaff (25:48):
I would do a variety of different things, but our bread and butter is direct mail. They added signs, cold calling. We have a door knocking campaign, we network a lot. We love networking with people as well as, do we get anything else? Oh, PPC and some Facebook.

Austin Deraaff (26:02):

Wendy Sweet (26:04):
So how do you handle it when you’re sitting in front of somebody and they look at you and say, did your mother know you’re out here doing this? I mean, how can this young gun know what they’re talking about? How do you handle that?

Austin Deraaff (26:20):
It’s actually funny question. So the way we position ourselves is kind of like, again, we get that, we used to get that a lot but I’ve noticed the more experienced you sound with it, the way you can’t handle yourself is where people see you. So at the beginning, we didn’t really know about the business, it came up more. So now when we actually have a conversation, we positioned ourselves as the experts, we don’t get too much pushback. What we do a lot is when we negotiate, we kind of say, we work for the partners or investors. So then no one gets mad at us. I mean, we offer a lower price and they might want for their property. So we use that partners, ambassadors that’s kind of like a third person, a third party. I kind of would’ve gotten making offers, yeah.

Bill Fairman (26:56):
We’ll see that. That’s great. I know people that own rental property that’ll do the same thing. I’m just here collecting the payment. That’s an awesome way to do it.

Wendy Sweet (27:12):
So what area are you really concentrating in and do you see yourself expanding outside of it?

Austin Deraaff (27:19):
So right now we’re located, we do a lot of business in four counties, Westchester County, where we’re located here in white Plains, Orange County, Dutchess County, and Putnam County. We do anticipate expanding in the future but we just love New York and we’re going to continue to build a brand here and then maybe move out to Connecticut or New Jersey.

Wendy Sweet (27:38):

Bill Fairman (27:39):
So you’re doing what you can understand those high tax areas

Austin Deraaff (27:47):
We tryna [Inaudible] as fast as possible.

Bill Fairman (27:50):
Listen, the Hudson Valley is a beautiful area. I used to drive up there once a week from Charlotte, and it was just awesome going up through there and you get a little further North into the Catskills and it’s just a beautiful place, not in February. But I do see the trend for people moving out of the larger cities and trying to get into the suburbs. So are you seeing an issue with having a hard time finding enough inventory?

Austin Deraaff (28:30):
We actually have, good question, so we kind of ramped up our marketing. So you know, we always have deals coming in but when there’s deals, you have to move on quickly because obviously a lot of investors that want to pick up these deals. So right now the homeowners, I’ll have a lot of options so we try to position ourself as the best option for them. We offer a couple of services that make it stand out so we actually have a whole relocation program. So like we go buy a single family home, the seller we’ve been there for 40 years, a lot of their concerns are where do I go? So we offer a whole program where we part of a couple of local realtors and we actually helped them move out, move to a new place. So tradition period, so that sets us apart. We actually help people put up advanced deposit on new houses. We physically give them money up front before we close to do that as well. We’ve put different services, we provide that really make it stand out from the other, you know, 10 companies that they’ve offers.

Bill Fairman (29:18):
Nice. So how do you make sure that they actually close after you up front money? That’s what I always be concerned about that my documentation is proper, so they just ‘hey I change my mind.

Austin Deraaff (29:31):
They only do it specifically, got out a couple of, you know, salaries that we really have a good relationship with. We won’t just throw money around, but yeah, just like to give a couple of incentives just to have them come in our direction.

Bill Fairman (29:42):

Jonathan Davis (29:43):

Bill Fairman (29:44):
Do you want to?

Wendy Sweet (29:44):
You have a question?

Bill Fairman (29:44):
You were asking like, you were looking like you wanted to ask a question and I kept cutting you off.

Wendy Sweet (29:50):
That’s so unlike you.

Jonathan Davis (29:50):
I know, it’s unlike me, you know, it’s been so long since you’ve,

Wendy Sweet (29:55):
He’s forgotten it.

Jonathan Davis (29:55):
I’ve forgotten it.

Bill Fairman (30:00):
Listen, you guys have a great story. So tell us about some weird things or some things that have happened to you since you’ve started this business.

Wendy Sweet (30:13):
Other than being on this show.

Jake Deraaff (30:18):
Our whole goal is to fix and flip. So what we started was our wholesaling business to create enough cash flow so we can start actually doing that. So I’ll tell you a quick little story, our first fix and flip was a quick little deal. We bought it for like 190 grand. We only wanted to put 15,000 bucks into it, just clean it up and get a retail buyer and we’ve actually lived about 40 minutes away from the property so I would actually drive there every single day just to make sure that the contractors were working about, no, I’d probably say second or third weekend, I get to the job one of the days going through the house and it’s empty. There’s no music playing, nobody’s working and we’re paying them a week by week basis, which is of course we made the mistake in the beginning of doing that and then run. And so I see the cars in the back of the truck so I go over to the truck, my GCs fully asleep in the car, completely knocked out. So I’m banging on the window and he gets up and he say, ‘Oh, I was on my lunch break and you know, we might not move on, but we failed forward. We failed a lot and we’ve just learned what not to do. And I think that’s what separates us is we just, we feel forward.

Wendy Sweet (31:22):
And that’s awesome, I think that’s the biggest mistake that investors make is they don’t allow mistakes. They don’t welcome them because that’s really how you learn. Isn’t it? You have to miss that to really carry that with you.

Jonathan Davis (31:39):
The first lone I ever did, I lost money on. It didn’t stop then.

Wendy Sweet (31:46):
Now he loses on all this. I think the key is to understand that that mistakes are really your friend, especially the smaller ones because they’re going to keep you from getting into the bigger ones. And there’s, you know, even, you know, I’ve been doing this for 20 years and I still make mistakes, we all do. We learn from, every single thing that we do. Did I hear you say earlier that you bought a commercial building today? Tell me about that.

Austin Deraaff (32:20):
So it was after the abandoned sign. I don’t know if you guys know, but those, “We buy house” signs called in and the seven family building in a really good area in New York and I’m proposing today. We’ve got a good price and good numbers. So the purchase price was 490 we’re having offered 590 on it, buy in the local area. We didn’t already declined it but we’re probably gonna, you know, hold six month loan refinance, downtown, very fixed. And it will be over a nice time because that area where its in is really high demand for New Yorkers in Brooklyn cause there’s, you just want to move up there.

Jake Deraaff (32:54):
It’s up in orange County, up in Portland, New York.

Austin Deraaff (32:56):
Yeah. It’s about an hour from the city so people love it and yes, it’s seven apartments so we’re going to probably go watch it for quite some time.

Wendy Sweet (33:03):
And you got that from a bandit sign.

Jonathan Davis (33:05):
That’s awesome.

Wendy Sweet (33:07):
That’s amazing. How many units is it?

Jonathan Davis (33:09):

Wendy Sweet (33:11):
So you’ve got an opportunity to make a hundred thousand dollars and not touch it.

Austin Deraaff (33:16):
Yep, we said no. Cause we see the cash flow, the value and if we are refinancing which will pull our equity out and put into someone else.

Wendy Sweet (33:23):
So both your exit strategies don’t suck, that’s amazing!

Jonathan Davis (33:31):
What percentage are you, cause I know you started out wholesaling, how much wholesaling are you still doing or are you just focusing on the fix and flip and kind of like the wealth building asset building?

Jake Deraaff (33:45):
I’d say about every 10 deals we do we’ll probably close on three. What’s the wholesale seven out of them and then we’ll either fix and flip or hotel the other three. So 30% fixing flip 70% wholesale.

Jonathan Davis (33:57):
Gotcha. How much, cause I know you said that you had to wait seven months to get paid on your first wholesale deal. Can you kind of tell people? Cause you know, that’s typically where a lot to do with regard into real estate is on the wholesale side. How much work, I think a lot of people don’t understand how much, like what kind of work has aligned to wholesaling. Can you kind of tell us, like, I know you said you went seven months, but kind of what that first seven months look like for you guys.

Austin Deraaff (34:21):
That’s a great question. I actually love answering this question. So the first seven months were crazy but I think the biggest issue we had was we weren’t consistently marketing. We tried everything door knocking, walk into an attorney’s office with note, with no appointment, just walking in and saying you have deals but we got flyers talking to local agents, every marketing strategy but the problem why it took so long was first, we didn’t want to invest in the company. We didn’t actually want to put our money out, you know, to work in terms of marketing you have to do and we just weren’t consistent on one strategy, but we know every, you probably could ask him 30 times during the seven months, he probably wanted to quit but we just knew when we get that first deal, we’ll mention would kick in it and it really did, but it was tough. It was just, we were doing so many things and nothing was working, we we’re getting frustrated like God it’s probably doesn’t work and we just kept pushing. And then finally you got a call from a seller. It’s actually an abandoned sign, which we love. And she was in pre foreclosure. She has gone through divorce and she already moved out of the house. It was actually in our hometown. So I knew the street, I knew the house where everything went out to the property, we picked it up from one 85 and made $15,000 30 days later and that’s really where the business started.

Jonathan Davis (35:26):
That’s awesome, yeah, wow, that’s pretty cool.

Wendy Sweet (35:30):
It is. That’s a great story, I’m sorry?

Austin Deraaff (35:34):
It’s a crazy ride, but no, most people, I think 95% of people would quit and I think that’s what helps people stand out as really going through the adversity, really not pushing through the bad times.

Jonathan Davis (35:46):
Well, I mean, if nothing else wholesaling will teach you work ethic and not giving up that is, I feel like that’s what it teaches. You develops strong work ethic. I don’t think you work more hours wholesaling than you ever do, pretty much like any other aspect of real estate.

Wendy Sweet (36:03):
And the other thing too, I think that’s important for wholesalers to understand is you really need to be more of a question asker when you’re a wholesale, you need to understand that person’s pain point because your goal is to fix that for them, whatever that pain point. Is that what you’re finding?

Austin Deraaff (36:24):
A hundred percent and well actually, quick little story. We locked them a deal last week at $50,000 lower than another investor. So it was between us and another company. And the other company went to the house made him an offer, giving him any business cards, just kind of like a fly by night and didn’t ask the guy the right questions. Like you said, they didn’t have a conversation with them and our guys went into the property, sat down and the guy grabbed some lunch, have them there for three, four hours, build report. And it wasn’t about the money to them. It was about making sure that it was going to happen, making sure nobody was having to move as well. So doing these extra things for him find what is actually what his goal was. And it wasn’t all about the money, it was about finding a place to go. I’m doing it after a timely fashion and we got like $45,000 less than the other team so I think you’re completely right. People don’t, if you’re wholesaling and really have to just, you’re really in a marketing and sales business and you have to have the right conversation with the people that, you know, get the ideals.

Jake Deraaff (37:17):
And listen, you have to listen.

Wendy Sweet (37:19):

Bill Fairman (37:20):
Yeah. Your job is to solve a problem and you can’t solve the problem unless you know what the problem is. And it can be difficult trying to get what their actual pain point or problem that they’re having, because they’re still gonna be defensive to some of it’s, you know, dirty laundry they don’t want to talk about, you know. It’s interesting, but you have to have those conversations. You can’t just go in and, and make offers, if you do, you know, that’s the shotgun approach. You’re eventually going to get somebody to say yes but you’re just lucked into it, right?

Jonathan Davis (38:01):
Yeah, I was telling Bill earlier, I just closed on a house the other day and I mean, I’m telling you wholesalers, they have to work. The wholesaler had to track down 27 errors to get this house closed.

Jake Deraaff (38:14):

Bill Fairman (38:16):
Oh and he’s not finished. Two of them died before he could get to them.

Jonathan Davis (38:20):
Well, that’s about, they had track down 27, there was originally less. They are what they think.

Bill Fairman (38:33):
So I know you like to using bandit signs, everybody loves the bandit signs exert except for the municipalities.

Wendy Sweet (38:43):

Bill Fairman (38:43):
Have you run into, you know, too many issues with the putting the signs out or you just put new ones out when they take them away?

Austin Deraaff (38:52):
Yeah. Our team, we have like five drivers. They just know every weekend they put them out in whatever stays up, stays up but they don’t stay out. They just, they put them up every week but invisible valleys and some parts that are little strict but we have to just keep putting them up, it’s a consistent effort.

Bill Fairman (39:07):
But I mean, you haven’t had any issues where they can, instead of just picking them up, they’ve come after you for putting them out in the first place.

Austin Deraaff (39:14):
Yeah. We got mine, you got to find a couple of bucks, yeah. But it’s part of the game so,

Bill Fairman (39:19):
Out to doing business.

Wendy Sweet (39:22):
I can tell you one time when I was in business with Larry Goings, we put up a sign out and the code enforcement called our number on the sign to complain about the sign being there and we ended up buying a house from the guy. So it worked out pretty good, you just have to be really careful but those signs are really, really important. And I think a lot of people don’t understand just how well they really do work. And they go back, you know, years and years in time that they’ve been working all along. You know, people tend to go off in different directions of how they’re going to market things, you know, postcards get really popular then they die out. Then a pink letter will get really popular, then it’ll die out and then, you know, texting got really popular now it’s kinda backing off a little bit but bandit signs remain strong and have never ended, wouldn’t you agree?

Jake Deraaff (40:25):
We agree.

Bill Fairman (40:28):
Well, the truth is,

Wendy Sweet (40:31):
I’m lying.

Bill Fairman (40:31):
No, that is correct. The truth is that all these marketing pieces are a spoke in the wheel and you need to utilize all of them because everybody is a little bit different and you’re going to get their attention in different ways and you have to utilize all the spokes so the wheel won’t get wobbly.

Wendy Sweet (40:53):
Yeah and I think you guys brought up a really good point, too. In the beginning, you were talking about how long it took you the seven months in that first house that you were working on, the first deal that you were working on and you were talking about all the different marketing tools you were trying to use. There were a multitude, you said you had a lot that you were using and I find that if you really focus, pick two or three, that you really just hammer that particular marketing arm, that’s the consistency that will end up coming back with you. Is that what you guys have found?

Austin Deraaff (41:28):
A hundred percent, yeah. That was the problem is we just weren’t consistent with it and we weren’t scaling it. Like you put out 10 signs, can’t expect yet, you know, 10 deal. You have to put out a lot of signs or make a lot of calls or knock a lot of doors so that’s what we consistently do. We don’t move on to another strategy until that private prior ones completed for like tailbone.

Wendy Sweet (41:49):
Right. You’ve been in business long enough to collect enough leads. Have you gone back to the leads that were basically trash at one point and tried to bring them back to the front to see if they’re ready to sell. Do you go back to your old leads?

Austin Deraaff (42:07):
Yeah. We actually were doing a couple of followups from people that we knocked on their door two years ago, we’re closing in the next 30 days. So I’ll leave managers and understand that it’s just a numbers game and if they’re not ready now they might have read for six more months or a year but if you build a relationship when they’re ready, their goals that they give us when they go to South. So we always try to build a relationship, obviously there’s times that they sell before we know we’re going to happen, but we always stay filed with the leads.

Wendy Sweet (42:32):
Yeah, you don’t throw them away, right?

Austin Deraaff (42:36):

Wendy Sweet (42:36):
I know, even in the lending business, we, we have leads from, you know, seven, eight, nine years ago and you know, we still hang on to them and send them reminders and our newsletters and things like that just to keep them in the mix and we’ve got borrowers that we’ve had for that long or longer, even. So definitely, it’s worth it.

Bill Fairman (43:00):
Yeah. I would also encourage you to do a short five minute videos of, and we do this every week. We answer questions people have posed to us.

Jonathan Davis (43:12):
Well, there’s five minute videos for everyone except Bill, there’s 12 minutes video for Bill.

Wendy Sweet (43:17):

Bill Fairman (43:17):
We turned them into an hour. But my point is that if you do videos where you’re just explaining scenarios, not putting any particular person out there, but different scenarios and why you would do something,

Wendy Sweet (43:32):
How you’ve been able to help, you know, pick a pain point that you were able to solve, do a different video on a pain point that you were able to solve.

Bill Fairman (43:39):
And then just post those on your website but also on YouTube and Facebook and all that and have it all brought back to your website. Eventually you’re going to start getting some really good eyeballs on your website because you’re going to have the keywords in there that people are looking for. So each video is entitled that particular pain point and those are your key words that people are going to be typing in. So, you know, just like when you started off that first seven months, it’s probably going to take that long to start getting your SEO up based on those but the more you put in there, the more the search engines like it and you’ll continue to, the ball will start rolling.

Wendy Sweet (44:22):
Yeah. You guys doing a lot of social marketing now?

Austin Deraaff (44:26):
Socializing like online, like Facebook and stuff?

Wendy Sweet (44:28):

Austin Deraaff (44:28):
Yeah, we run Facebook ads.

Wendy Sweet (44:32):
Oh, you run the ads.

Austin Deraaff (44:34):
Yeah, we don’t do too much SEO but to your point, what you mentioned, we’re trying to, well actually every deal now, we try to get a testimonial, like you said, from the sellers. So we’re gonna start making money then in the next three to six months but that’s it, that’s a great tip.

Wendy Sweet (44:46):
That’s awesome!

Bill Fairman (44:47):
The one thing it helps is that you’re constantly updating your website and the search engines, when they see there’s a lot of activity updating on the website, they just automatically kind of lift you up to the top. Our website, if you’re searching for hard money in North or South Carolina, we’re always at the top of the Google page and part of that is because our URL is what we do and where we do it. So those are definitely key search terms but we’re constantly, you know, we have a podcast that we’re canceling adding recordings too, we’re always doing extra videos and the site itself is constantly being updated and that’s what they look for. So anyway, hope that’ll help a little bit.

Wendy Sweet (45:37):
And question for you guys, are you, I know you are siblings. Do you have other siblings?

Austin Deraaff (45:42):
Double trouble.

Jake Deraaff (45:42):
It’s us.

Wendy Sweet (45:42):
Y’all are the only ones. So what do your parents think about what you’re doing?

Austin Deraaff (45:51):
So originally when we got into the business, they kind of told us to like, you know, be careful, you know, real estate, this and real estate that, and they didn’t really know what real estate was. So we actually left the house and we started the business, we ended up pulling back and then going, moving into another apartment, long story short, they tell us, they told us to go back to school. Well now our dad actually works for us, he’s our project manager, yeah. After we needed some money.

Wendy Sweet (46:20):
That is, that is awesome and you’re so right. You know, in today’s world, everybody, you know, expects for their kid to graduate from high school and move, go on to college and there’s a lot of people who just aren’t college material and really do you need to take a major in psychology to become a real estate agent? Because you knoe, It’s whatever we went to school for, you never end up doing it anyway unless you’re in a profession that needs some sort of license for that. So I always, my kids are 17, 18 and 19 and I have been encouraging all three of my kids to come to the mastermind groups, you know, go to the events that I’m going to. That’s the best education that you can get, you know, unless you want to be a teacher, you know, you gotta have a degree for that. You want to be a doctor. Of course, you got to go to school for that but for most of the things that we do out there, you don’t have to have the college education to be successful, right?

Jonathan Davis (47:21):
Especially in real estate, I mean it’s not something that’s taught in school. I went to college and I wish I didn’t have the bill that I have right now for it.

Wendy Sweet (47:36):
Are you’re still paying student loans?

Jonathan Davis (47:38):

Wendy Sweet (47:39):

Jonathan Davis (47:40):
I refuse to pay them more.

Wendy Sweet (47:43):
I don’t blame you.

Jonathan Davis (47:43):
I wait for somebody to just forgive it.

Bill Fairman (47:45):
So college does a great job of teaching you how to get a job.

Wendy Sweet (47:50):
And indoctrinate in.

Bill Fairman (47:52):
Well, yeah, but think about it is, if you want to,

Wendy Sweet (47:55):
It’s a whole other show.

Bill Fairman (47:55):
If you want to have a job, go to college. If you want to own a business, do it on your own.

Wendy Sweet (48:00):

Bill Fairman (48:02):
There’s nothing wrong with taking courses, you still need an education but make it specific to a business, understanding how to run a business.

Jonathan Davis (48:11):
And to their point, half of my family thinks I’m a real estate agent. They won’t understand what you do. I mean, that’s fine. So what’s your all, big plan? Like, are you all wanting to do a brokerage firm? You just kind of played it by year or, what’s your role?

Wendy Sweet (48:33):
What do you want to be when you grow up?

Jonathan Davis (48:36):
Bill wants to be you all when he grows u

Austin Deraaff (48:40):
So great question. So obviously our goal, we want to shift more towards the commercial side because we asked to see the long term potential. So our goal is by age 20 year plan is in a billion dollars with a real estate and in the next five to 10 years grow as the wholesale companies wide as possible and do as many deals as possible and while we build up that out the passive income side.

Bill Fairman (49:03):
Yeah because you’ll find that what you’re doing now is great eat money, as they say but you need to build the passive returns that you don’t have to necessarily own properties you can and what we do, we would much rather control the asset without being responsible for it. So that’s why we’re in lending, but there’s great opportunity for, for long term passive revenue streams and that’s what, really your goal is to do that. Done a great job, we appreciate you coming on. How can folks get in touch with you if they want to either sell you a house or learn a little bit from you?

Jake Deraaff (49:50):
You could follow me on Instagram at my full name @jake.deraaff and that’s on Instagram.

Austin Deraaff (49:57):
@austinderaaff on Instagram or you can email me at Austin@raven3.com. And if you have any questions, concerns want to get real estate or wholesaling, feel free to reach out to us.

Jake Deraaff (50:07):
We love when people reach out why to create as much value for your listeners and anybody that’s looking to get into real estate as possible.

Wendy Sweet (50:15):
Awesome, thank you.

Bill Fairman (50:16):
We appreciate you guys and can tell we’re old because we put your URL there and,

Wendy Sweet (50:19):
And we don’t do that Tweet-face-a-gram, we got people that do that for us.

Bill Fairman (50:35):
And it was a pleasure, all right folks don’t forget. Our website is CarolinaHardMoney.com. If you’re interested in passive returns to the investor tab, if you’re interested in the loan, click on the borrower tab. Don’t forget to like, share, subscribe, all that good stuff. It’s been an awesome day.

Wendy Sweet (50:53):
And it was a pleasure, Jake and Austin. We’ll see you at CG, the next meeting I hope, right?

Austin Deraaff (51:03):
I’ll ring the light for you guys.

Wendy Sweet (51:03):

Bill Fairman (51:04):
One o’clock mandatory call, Friday.

Wendy Sweet (51:07):
Don’t forget!

Bill Fairman (51:09):
All right guys, take care, thanks again for joining us.

Austin Deraaff (51:09):
Thank you guys, appreciate it.

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