Episode 159: Buying Cash Flow Assets, with Joe Flanigan

episode 159

Greg: 00:02 – Welcome everyone to Two-Brain Radio. It is our mission at Two-Brain to provide 1 million entrepreneurs the freedom to live the life that they choose. Join us every week as we discover the very best practices to achieve Perfect Day and move you closer to wealth.

Chris: 00:26 – This episode is sponsored by Anvil Coffee, creators of the CEO brand coffee from Two-Brain. If you’ve ever been to a Two-Brain seminar or summit, you’ve heard me do a little segment called what is the value of a cup of coffee. And I shared four key points in my life where I’ve shared a cup of coffee with somebody really influential and it made a big deal. So in one circumstance, you know the coffee was worth a dollar 70, but it got me through this mountain pass in the dead of night in Utah while I was working on a story about polygamits. And there are three other even larger examples where coffee has been worth, you know, up to $100,000 with somebody. What does a great cup of coffee worth? Well, it can be almost priceless. And if you’ve met me, you know that I’m always either holding a cup of coffee, drinking a cup of coffee, or maybe even talking about a cup of coffee. If I’m not doing one of those three things, I need one.

Joe Flanigan: 01:14 – When I approached Brian, I approached him from the help first mentality. Hey man, I want to talk about your coffee on my show. It’s fantastic. And he turned right around and out-help firsted me. He said, yeah man, we are going to help. Every time somebody in the Two-Brain family orders some coffee from Anvil, we are going to make a little donation to the Special Olympics, which is a charity that is very near and dear to my heart. I can’t say enough about these guys. The coffee’s amazing, Brian’s an amazing person. He’s a valuable part of the Two-Brain family and he’s going to make a contribution to Special Olympics. Thank you Brian. I love you brother. I love your coffee. If you’re listening to this, give Anvil coffee a shot, you will not be disappointed. Except for this one little disappointing thing. You can’t buy CEO Coffee. The only way to get CEO Coffee and the coveted Two-Brain CEO Mug is to sign up for the Incubator. Details for that are on our website, twobrainbusiness.com.

Greg: 02:07 – On this episode of Two-Brain Radio, we talk to Joe Flanigan. This episode’s a little different because we talk about buying assets. Normally you hear us talking about gym ownership or something along the lines of that, but we kind of want to reach out a little bit more and show you guys that there’s other things besides just gym ownership that we talk about. And in this episode we kind of dig into that. Now Joe is a CrossFit box owner, but we talk about, hey, when we get to a point where we have enough money and we want to do something with it, what are those other options that are out there? And we kind of dig into buying assets. Now we don’t dive into buying a building, but this can relate just like as if you were trying to buy a building. This dives into buying a multifamily apartment complex that Joe is currently in the process of doing. And we get into the different things that you need to do, including due diligence, making sure you know the numbers and analyze the numbers correctly and just kind of get a better understanding of the risks and the rewards with buying assets and allowing you to figure out what is the best case for you. Enjoy.

Greg: 03:12 – All right, I’m here with Joe Flanigan. Joe, welcome to Two-Brain Radio.

Joe Flanigan: 03:16 – Thank you. Thanks for having me.

Greg: 03:18 – So I know a little bit of background about you, Joe. I know you own District H CrossFit in Houston and you also have kind of dabbled in a few other things to kind of build up you and your family’s, I wouldn’t say legacy, but more of your assets. So if you want to give us a little bit of background to anyone that’s listening about the businesses that you own, including the gym, and then kind of what started you out looking into other assets.

Joe Flanigan: 03:44 – Sure, sure. Well first of all, I am a part owner in District H CrossFit here in Houston and part owner being, you know, managing the staff and help manage the day-to-day operations, financials, all that stuff. And it frees me up and gives me a little bit more time to do my other passions and loves, which is really real estate. I came up and in the real estate industry straight out of school, straight out of college, doing customer service for a builder here in Houston. And from there I was able to kind of parlay the experience from customer service and move it into building, then move it into project management and then into operations, which then helped me to have enough competence to actually open up a gym because that was something that all the way through college I did personal training and I loved the physical and training side of helping people and I wanted to be able to continue to do that with, you used the word legacy, really continue to do that as a long term gift of skills and talents that I had to be able to give to others. So, I have, you know, two things that I love doing, and real estate was something that was always on my mind as a vehicle for wealth in the future. And by that I mean, you know, being able to invest in something that is going to appreciate in time is going to give me tax difference or tax depreciation, you know, and then also obviously the cash on cash return on a monthly basis is also helpful. It’s nice to be able to have that passive income on a monthly basis, on a regular basis, to be able to offset anything else income wise that I may be. I have a growing family, my wife and I have three kids. As of last week we had our third kid. So it is nice to be able to have the additional income to be able to put toward school, homes, education, whatever it is that we have to do in the future and still be able to create and build a nest egg for our future and for the legacy of our family.

Greg: 06:01 – First off, of course, congratulations. Got to say that with the newborn. Now you started down this path of real estate in the past and I mean, you know that, as you said, the real estate game is very—it’s very nice to have something that appreciates usually, I mean, of course we all know that markets do crash, but for the majority of the time they always do appreciate. So you kind of started going down that road along with being a co-owner in a gym. What kind of led you down the path to kind of what we’re going to get into a little bit more today of starting with compared to like maybe buying homes and renting them out, but more of like apartment complexes and the different types?

Joe Flanigan: 06:41 – Sure. The way I started in investing was investing in single-family homes. And the reason why we started in single family is because I was comfortable there. I knew all of that went into a home just from building them for about 15 years, being in the industry. I knew that that was kind of a safer bet for us. We’re pretty conservative when it comes to our money. You know, the money that you make, you obviously don’t just want to give away. You don’t want to just hand out to somebody and hope that it’s going to appreciate in the future or grow. So, you know, we were a little skeptical at first, but we bought our first rental home, made all the mistakes possible that I could make, but still turned out a monthly cash-on-cash return as well as a profit whenever we ended up disposing or selling the property.

Joe Flanigan: 07:37 – So that essentially got us hooked and it made us want to do more. It made us want to know how to do more. So it got us involved in a group called Lifestyles Unlimited, it’s actually been talked about before by one of the mentors. Actually Jeff Smith is involved here in Houston as well, but it got us involved there. And the education along with the experience doing it ourselves, really, it just kind of pushed the needle even further. It made us want to invest fully in this as a long-term approach. Once we got through with a few single-family homes and disposing single-family homes at to build up enough capital, we have since moved to more of the multifamily approach. And multifamily approach is very similar to that of single family, but it requires obviously more capital. It requires more of a network when it comes to real estate brokers and agents that are out there pounding the pavement, trying to find these deals along with you, trying to find the deals and then a whole other slew of people, just a team, that you have to build up with attorneys and with mortgage and commercial brokers and mentors and all of that stuff to be able to move into this multifamily realm, which is what we’ve pushed to now.

Greg: 09:05 – So the process is definitely not a short road whatsoever. So, if somebody had enough cash assets, so we’ll say liquid cash and they decided, hey, real estate is definitely the way I think I want to go long term and they’re listening to this podcast, what do you feel like is the first step that they need to do?

Joe Flanigan: 09:27 – I mean, I would say first step is figuring out what’s your comfort level, you know, again, handing out your money or giving your money to somebody or something in hopes that it’s going to appreciate, obviously hope is not a strategy. You got to have some sort of a game plan to get it there. So I would say know your comfort level first, then decide whether or not you want to go to the single-family route or the multifamily route/ with the multifamily, I mean there are plenty of programs out there, people out there that are already doing this type of thing. I would get educated first, though. It’s far more important to understand the inner workings of multifamily real estate than it is really to go on the single-family route. I think the single-family route is a little bit easier to grasp.

Joe Flanigan: 10:23 – It’s really one project is one dwelling, is one home. You know, it’s not much more in depth learning as opposed to finding the brokers to find the home, to know how to plan your rehab and know where to purchase. Know what your purchase price is, know what your sales price is and know how much you’re able to rehab the home in order to still make a profit whenever you’re refinancing or you’re selling the property. There are so many levels to it all. I mean, I apologize for, you know, possibly rambling at this point, but there really is so many levels when it comes to each avenue of investing in single family or investing in multifamily. But yeah, that choice has to be made first, obviously. And then educating yourself on whichever avenue you choose either single family or multifamily.

Greg: 11:18 – OK. So if somebody has the money or has the ability to purchase an asset, whether that’s a single-family home, multifamily home, I mean a building, like you said, the best bet is to really decide what your risk level is. Right? Like are you willing to risk more risk, less and really then due diligence it sounds like.

Greg: 11:40 – Really educating yourself on the ability to—what avenue you’re going to go down, be able to actually say, OK, this is the steps.

Joe Flanigan: 11:48 – Yeah, definitely. Yeah. I think that education piece is very, very important because if you don’t understand the investment you’re getting in, you’re essentially just, again, throwing money at something and wishing that it’s going to increase. I think that happens a lot with the stock market too, people don’t understand it, yet they’re willing to put money in a 401k or an IRA because that’s what we’re told to do. I think the education piece is far more important than just do, just do, just do, don’t worry. It’ll be, you know, you’ll be able to cash out when you’re 65 or cash out later in life. Educating yourself and then really trusting your education and the ability to do it yourself is another thing. And I’m not saying do the, you know, the whole rehab yourself, you know, get your hammer in your tool belt out and you do it all yourself.

Joe Flanigan: 12:47 – I am just saying, you know, know who to call, know who to talk to, know your dollars and cents because you know, if you do know all of that stuff and you know who to contact, it actually becomes a pretty easy investment to get in. At least an investment vehicle to get in. I think far easier than the market is. And I only say that because I’ve done day trading and I’ve done some of the trading piece too. And it’s not easy. I mean it does take a lot of education as well, but yeah. I hope I answered the question.

Greg: 13:23 – No, no, no, that’s perfect. I just want people to be aware of that. Especially because, like you said, every scenario is different. I mean, you’ve got to know your comfort level and then how much are you willing to invest? How much are you willing to put on the line for what you’re going towards or what you’re trying to achieve. So I definitely think that that answers the question. Now let’s go a little bit more specific with you. You went into the multifamily homes now, what does that process actually look like? So I mean, from the point of you trying to find where you’re at to kind of where you are and I know you’re still finishing up the process now, but kind of giving an overview each step of the way of what you’ve had to do.

Joe Flanigan: 14:02 – Sure, sure. Absolutely. At the risk of boring folks with terminology and verbiage and all that stuff. Absolutely. I will definitely tell because I feel it’s fascinating. I think it is something that, you know, being in real estate and in the industry for so long, I’ve been in it for about 18 years now on all facets and all sides of the industry. Then moving into a multifamily, I mean it’s like this is brand new. It’s completely different. But it’s exciting to me, you know, cause I love that challenge of learning something new and really trying to master it. And if I can forecast the future and see where this long-term road ends and the goal, you know, my long-term goal, I mean I just see it being so fruitful to learn this as well as I’m learning. So, at the risk of boring, yes, I will talk about the beginning to end.

Joe Flanigan: 15:08 – So the way I got started was obviously pulling together a personal financial statement. Really kind of going out there and meeting brokers, telling them what my net worth was in order to kind of figure out how much I could afford when it came to a multifamily project. And then from there honing my search to, you know, talking to these agents, talking to multiple agents, building relationships, something that everybody who’s listening to this podcast probably does very, very well if they own a box. It’s that personal connection that is going to get you the deal. It’s that personal relationship that is going to help you find that diamond in the rough, that you are then able to pursue or at least do due diligence on, at least doing some further analysis. So yeah, that’s what I think it takes anyway. The search starts, right, and the search is with an agent and you’re looking at a number of different properties in small pockets of town or all around Houston, all around the nation, whatever it is that you choose your search parameter is.

Joe Flanigan: 16:16 – And then obviously based upon your net worth. From there, once you find a property, you’re going to analyze it, you dig into the numbers. I use a spreadsheet that I actually got from the group that I am in,Lifestyles Unlimited. And I’ve tweaked it just a little bit in order to satisfy some of my ADD needsmand definitely something that I need to see on paper that otherwise they didn’t have. So, after the analysis, then I move into the LOI stage, which is a letter of intent. Draw up a letter and you send it to the owner or you send it to the owner’s agent saying how much you would have purchased the property for or how much you’d be willing to purchase the property for. And once they accept you go into a period of 60 to 75 days, and in that 60 to 75 days, you do a number of things.

Joe Flanigan: 17:12 – You sign a purchase sale agreement, you create a PPM, which is a private placement memorandum for all of your investors or all of your potential investors to view the deal, understand the deal and decide whether or not they want to fund it. You go into feasibility, which is a period where you’re able to get on site and really do the hands-on due diligence. You get to see, you know, all of the units, get to look at the roof, the foundation, everything, all the bones. And then from there, get a term sheet from your lender, get the loan commitment, right to foreclose, finalize all these legal that both your FCC attorney and your real estate attorney create. Go into the settlement statement and then take it over. And from that point on, you’ll have to call me again for another podcast and I’ll tell you—after the takeover is complete, I’ll be able to give you a little bit more information after that.

Greg: 18:09 – It sounds like basically, you said you basically got to figure out your net worth first to be able to kind of network and build those relationships you kind of now you’ve got to know what you’re worth. Now if people are out there and they’re wondering how do I determine that, what would it be? What’s the best way to determine that?

Joe Flanigan: 18:26 – The best way to determine that is doing a personal financial statement. You can pull a personal financial statement, or at least a spreadsheet online. Or you can go to your bank and you can say, hey, this is what I’m thinking about doing. I’m thinking about getting into purchasing a building for my gym, purchasing a strip center for commercial use or I’m thinking about buying a multifamily property. What they’re going to say is, OK, we need to see a personal financial statement and they’ll give you a template, they’ll probably give you a spreadsheet for you to fill out. On that personal financial statement, it essentially is at the risk of sounding crude, a financial enema. I mean it goes through everything that you own that you know, the income that you make, the liabilities that you have just everything, and then at the end of it you’re able to find out what your actual net worth is. From there, I mean you actually, once you do own a property, you actually do have to have a certain number of, dollar amount of liquidity as well.

Joe Flanigan: 19:25 – But that comes a little bit later. Initially you just need to know what your net worth is because you are essentially, a lender will loan up to your net worth on a property. And that was just kind of a quick hack that I learned halfway through this process is, you know, I was reaching for a little bit larger piece of pie that I couldn’t necessarily go for without a key principal or without a guarantor on the loan. And then finally one of the lenders was like, you know, it’s because you’re reaching beyond your net worth and that’s what you need to kind of stay within those parameters.

Greg: 20:01 – So if somebody was, I mean, and we can put this into context, I mean for everyone else or easier context. I mean if somebody is buying their own building, I mean, you’re going to be kind of following the same steps or if they’re going to build a building, they’d have to find the property and stuff like that. So these steps are very similar. They’re not all the same, but they’re definitely similar.

Joe Flanigan: 20:23 – I would say yes for sure.

Greg: 20:26 – Now that somebody knows their net worth, they’ve built up relationships with different brokers, then they search for, or better yet they find an agent, and then start working their way out of of their search of what they’re going to be looking for.

Joe Flanigan: 20:40 – So the search itself, I have found, it is one of the most challenging parts, at least for the first deal. Once you have a name established in the industry, and really the shocking thing about this is there are really only five major brokerage houses throughout the nation that deal in multifamily purchases and acquisitions and dispositions. So really getting in with each of those brokerage houses, establishing a name that you’re somebody who can purchase, close, turn around a deal or operate a deal very well that you’re able to close with funding. You have a group of investors that want to invest with you as a person. Then it’s a lot easier to get the deal, but it’s establishing the first contact with all of the agents and then also establishing your name and your reputation after that first deal.

Greg: 21:43 – So it’s kind of like, what would you say, like by buying a car for the first time or something like that, you got to have that credit. You have to show that you’re worthy of it and kind of get your foot through the door. And sometimes some people just bite the bullet and get that super high interest rate on that first vehicle just to get that credit established if necessary. But it sounds like that’s what you kinda got to do. You have to get that first deal done. And then it seems like deals after that become easier and easier because you’ve created a reputation then.

Joe Flanigan: 22:11 – Or at least find the first deal. Yeah. The analogy is good until you get to the, you know, accepting the higher interest rate or a higher expense to get in the deal. Because a lot of these deals are so thin that you can’t. You can’t accept a higher interest rate. You can’t put any more of your own personal dollars in because it won’t yield a return. So it’s really dependent on, you know, it’s all about the market, right? It’s does somebody need to sell and is there a buyer? And a lot of these are either they’re owners that have owned the property for a very long time that no longer live in state, that are having a third-party property-management company running the deal and they’re just pulling a piece of the pie off every month.

Joe Flanigan: 23:04 – And so if you can come in with a number that is enticing enough for them to essentially get rid of their monthly cash flow, but they receive a huge nut in order to do that, then you know, you’ve found yourself a seller. And so I have found a couple of different ways or I’ve kind of created a couple of different ways in order to do that, that I’m sure other people have done as well. But it was one of those things where it was a trial and error thing, I was just really searching for a deal. And so I went to H cat and pulled up some of the properties that are really liked in the area that I liked and found that some of these owners lived out of state. And I started calling them and I had my agents start to call them and tell them that we were willing to purchase their property for X amount of dollars. And at that point it created a conversation, and after the conversation was created, then we really dug into the numbers. So some of them didn’t work. But the one that we are on right now, that is exactly how we got it.

Greg: 24:08 – Wow. So basically figuring out what properties are available and then like you said, trying to figure out, usually the ones that kind of have moved away maybe, are out of state, have a little bit better yield of a possibility than ones that are still active in theirs because they’re probably still trying to grow it. And the other ones are more of, hey, I’ve kind of moved on and started other things and they still own it, but yeah. OK.

Greg: 24:34 – So now that you’ve, I mean, you found the property, what’s the next step that you had to take? I know we kind of talked about it of the analyzing the numbers, but what numbers specifically are we looking at, like what are the things that we need to make sure to do due diligence on?

Joe Flanigan: 24:50 – So it’s pretty in depth because—and there’s a couple of different layers. So there is a quick form that I use initially whenever I go in on a deal and essentially I’m looking at their rent, I pull their rent roll or ask them to give me the rent roll. And then I ask for a T12 financials. Majority of the time, they don’t have T12 financials. They have like a T3 that boosts up their revenue, their income. And so it’s showing you a much better light than a T12 would. So anyway, you take those initial numbers, you put those in, you know, I have a spreadsheet that essentially shows me what the gross rental income is, what the offer and asking price is, and then I kind of pencil in what my closing costs would be, what my operating capital for the first few months would end up being.

Joe Flanigan: 25:43 – Put that in there as well. And then any rehab that’s going into the loan. You also have to put in down payment, you know, loan amount, interest rate, terms and years, which you get that from your mortgage broker. All of that is, you know, you’ve built this team of people already. You just ask them, they give you those numbers for what the going rate is or what the current rate is. And then I plugged that into my equation and then kind of figure out what my yield will end up being after expenses are put in. So I use a very generic dollar amount for expenses per unit at first. And then whenever I started digging into that T12 or T6 or T3 financials then I actually know what their actual expenses are. And then, you know, it’s an easy equation which every gym owner has done before.

Joe Flanigan: 26:39 – It’s that net income minus total expenses equals their net operating income. And then you kind of add in whatever your potential debt service would be and you figure out what your cash flow, your annual cash flow is going to be. It’s essentially exactly what Greg and I had just gone through with last year’s financials. So, yeah, if they’re with Two-Brain, you know, any gym owner actually knows exactly what we’re talking about here. It’s, you’re just really trying to forecast what they are currently doing and then you look at the market rate for rents and see what you could be doing, perform it out. You perform it out and see what your return would be on a cash on cash basis, annualized basis, put in whatever my compensation would be as a lead investor and what my net to the passage would be. And then that’s essentially what it’s a go or no go. And then from there you’ll get more information after an LOI is given, a letter of intent is given, and then you’ll get even more information from the seller if you do have a purchase sale agreement signed.

Greg: 27:47 – That’s a lot of different things very quickly, but I like it.

Joe Flanigan: 27:53 – Sorry.

Greg: 27:53 – No it’s perfect because you, you brought up a really good fact that if people are working with Two-Brain, we definitely go through those things.

Joe Flanigan: 28:02 – Business is business, and you know, it all does revolve around financials. Obviously there are certain things that we can do in order to better our business, which is creating those personal interactions and high touch and great experience for people. The whole reason, and I’ll actually clue you into what my business is called, but my business is called Worthwhile Capital. And the reason why I called it Worthwhile Capital is because I wanted it to be more than just, you know, dollars and cents and me making you know, a ton of money. I wanted to make it more of that legacy type of business to where I felt good about taking a product that was a C class property, a run-down property that has seen better days, you know, long ago and renovate it and make it better. Not just for dollars and cents, the end product, but for the people who were living there.

Joe Flanigan: 29:01 – You know, people in a C class property, everybody knows what an A class property, right? The brand-new luxury apartment complex that is, you know, everybody wants to live in but nobody can afford. You know, that’s the property that, you know, most people think of when they think of very nice apartment living. But the truth of it is there are so many people in this working class that can’t afford much more than that, you know, but there is a big disparity in price point from class A to class B or C, and if we can invest in class C properties, reposition them to make them more of a B minus or B, of course bringing up income because you know, people are willing to spend a little bit more money in that price point to have a better feel whenever they’re going home, you know, a better feeling of safety and security and possibly community, if it’s a small community or a large community. So that’s the intent. And that was the hope whenever we started this venture, my wife and I and hopefully we’re able to continue that.

Greg: 30:07 – That’s amazing. And it’s something that I think a lot of people, again, would want to hear is the process and kind of what it takes. So that’s why I wanted to bring you on here. There’s one thing that you mentioned and well of course many things that you mentioned, but the one that I want to point out, you mentioned investors and getting investors, it’s that 60, 75 days out, going through everything and then eventually talking to the investors, but how did you actually go about finding investors or finding the right fit of investors so that they could help make this a possibility?

Joe Flanigan: 30:43 – That’s a great question. I felt I had a pretty good network and my wife has a pretty good network. She has her own business and has a probably a little larger network than I do, that we could have tapped into to fund these deals potentially. But our concern was not everybody knowing the same information going into the deal. So knowing what questions to ask and knowing how much the potential risk that their money could, we might not be able to return, or have a return for a few years or ever. That’s the reason why we went with one of these investment groups and Lifestyles Unloaded in particular, because it’s all like-minded people. Everybody has the same education going in, everybody understands the risks and the reward when it comes to investing in multifamily or single-family investments. And so I felt a lot more comfortable being able to reach out to that group, the group of passive investors and investors on my distribution list from Lifestyles Unlimited, a list that I’ve created, but still it’s of members of Lifestyles Unlimited. And you know, it just brings more—like I know in the future there’s still maybe people who are like, if stuff goes wrong or the economy tanks and we’re not able to get the returns that we project in our PPM, or private placement memorandum to them, they’ll at least know that they had the education saying that, hey, you know what, there is a risk, there’s a risk in everything, any investment, any investment vehicle or business that you create. And so that’s why we went through that channel.

Greg: 32:26 – Gotcha. And with that, I like that you definitely hit on, I mean, understanding risk and reward, right? Like there’s so many things out there when people open up a gym, they have to understand that—or open up any business. There’s risks to it, but there’s also definitely rewards to it. So it’s kinda cool that you were able to find those investors that are very like-minded, that are part of a group that you’re part of, that can kind of help facilitate your dreams of what you’re trying to do. Now I guess my next question would be when it comes to having these investors buy in, because you kind of talked about you being lead investor and I mean this is like if you went into a partnership, into buying a business, I mean, except investors are definitely different than partners. How does that distribution of profit get to everyone else? Is there a certain amount? If they invest a certain percentage in, they get a lot more out of it then?

Joe Flanigan: 33:20 – So there’s a whole white paper that’s created through Lifestyles that actually does protect the passive investor. The lead investor has a very strong fiduciary responsibility to his investors, right? To the people that are relying on him or really investing in him in order to make a return. So I have to create an operating agreement. I have to create stipulations on voting rights, every month receiving financial statements, a balance sheet and income statement, rent roll, just a proper look at the property on a monthly basis. And then a quarterly basis, they’re getting a little bit more of financial reporting. And then annual basis, of course they’re getting financials. So there’s a whole, yeah, it’s all listed in my operating agreement what they’re getting. Now when it comes to compensation, a lead investor, through Lifestyles can only take compensation one way and a first-time lead investor gets paid 5%.

Joe Flanigan: 34:28 – And then I hope I’m not really giving too much information about Lifestyles because it is a company that it’s like a paid-for membership. Right. And so, you know, I don’t want to divulge too much I guess of that information but there is a compensation plan and in the PPM and which private placement memorandum essentially lays out, gives you the whole entire investment summary and how people are—what the voting rights are and what the percentage of ownership is. And all of that is laid out in this. And what I did and what most will do is work with an SEC attorney in order to come up with this private placement memorandum. The reason why I would use a private placement memorandum is it is a requirement. It’s a necessity. It’s an SEC-regulated event, right?

Joe Flanigan: 35:27 – Because we have investors that are coming in to essentially create a fund and invest in a property. So the SEC does regulate that even if you have one sophisticated investor, you’re legally required to have a PPM. Now if everybody was an accredited investor, which accredited has three criteria, you know if you have over a million-dollar net worth, if you make over I believe 300 or 250 as an individual and as a married couple, 300, if it’s 200 and 300, then you’re considered an accredited investor. And if you have all accredited investors in a deal, then the SEC regulates or does not require that you have a PPM, but it is just a great vehicle to be able to give to investors and say, hey, here’s my deal. It has everything from an operating agreement to your investment summary to what we call a BPO, which is essentially the opinion of my opinion of my analysis of the deal in number form. It just has everything for them in order to view in one package and tell you whether or not they want to invest. And then from there, they fill out a subscription agreement and send it in saying they want to invest, and then from there I give them wiring instructions or a way to fund the deal.

Greg: 36:51 – And does funding the deal basically then just their funds would go into the loan are basically or kind of like minimize the loan of whatever you’re going to need to—

Joe Flanigan: 37:02 – It goes into the equity ownership of the property. So it may include the rehab that we were not able to get into the loan or may just be the down payment and operating capital for the first few months. Just depending on how the deal is structured and what you’re able to get into the loan when it comes to dollars. Otherwise the loan proceeds, yeah, it goes to closing costs. It goes to operating capital. It goes to essentially equity ownership in the company.

Greg: 37:37 – Gotcha. So, With this, I mean, this is definitely a long process, right? It’s not something that’s short that people are gonna be able to do over a weekend. I mean, unless they are very, very talented, but even then, I don’t think there’s enough time no matter what. But what does the overall timeline look like if somebody is buying piece of property, whether it’s, I mean a multifamily or a rental property like this that’s multifamily or single family. I mean that’s a house, or even like they’re building for their business. What does that timeline usually look like?

Joe Flanigan: 38:03 – So I’ll speak to multifamily first just because that’s fresh on my mind. I know exactly how long it took me to do the whole process in getting to a deal. But so roughly first three stages of search, analyze, LOI, letter of intent, generally takes most people anywhere around, I’d say six months to 18 months. Just depending on how you’re able to network and build relationships with folks, really get your name out there and hit the ground. If you’re hitting the ground running and trying to find the property yourself, you know, I would say that timeframe is pretty good. I ended up writing, to be honest, I would say—oh, well it was 11. Eleven LOIs before I got one deal. So it took it took a lot of hitting the pavement and just, is this a good deal?

Joe Flanigan: 38:57 – I’m gonna write a letter of intent. Oh, it’s not a great deal. You know, and trying to just go through the process and learning it and learning it as you go. And I think that was—it gets a little bit stressful and a little disheartening at times just because you’re like, man, I want this to happen. I want it to be yesterday that I have a property. But you know, you just keep doing it. You just keep doing it until, you know, you see fruit from it. And I mean, I knew I would see fruit from it. I just knew it. I’d seen so many people that have gone through the process and it took them two years or a year to find their first deal. And once they got their first deal, you know, they’re moving two, three, four deals, you know, in the next few years.

Joe Flanigan: 39:38 – So, I’m very hopeful on that. Now, everything on the backend when it comes to, you know, purchase sale agreement, PPM, the feasibility side, the loan side, takeover, that’s anywhere between 60 and 75 days. Just depends on what you’re able to put into your contract, your purchase sale agreement. Some sellers will say I want it as fast as possible and you know your money is going to go hard right away. Whereas—and they want the 60-day process, whereas others are like, OK, we understand that you need more time. Seventy-five days is fine. So, but it’s generally 60, 75 days from there.

Greg: 40:15 – OK. So there’s definitely, depending on the dealer or better yet, how much things that go into it is really going to determine how long it’s going to take. The complications of having a much bigger property and then if it’s costing more and then all the other paperwork with the due diligence that’s necessary. It’s just going to take a longer time. So overall, I mean, what’s the end goal for you? What does that long-term goal look like?

Joe Flanigan: 40:42 – Long-term goal is really to build a sustainable business in multifamily and hospitality-type industry where my wife and I can utilize our talents and our education and background in real estate as well as she’s an interior designer. So utilizing her business and my business together to be able to grow our wealth long term for our family’s legacy or our children, for their children. And yeah, I think that really motivates us to grow something big. And I mean, it doesn’t necessarily have to be huge, but just something that is of worth for not only ourselves, but we’re also creating spaces for people to live. I mean, there’s not too many people that can do that. And with the box, we’ve been able to touch a lot of lives and build community and help people get out of despair of, you know, just weight gain and not being active and sickness and illness and all of that.

Joe Flanigan: 41:52 – We’ve been able to do that there. Now I want to be able to do that with another side of our life that we’ve spent a lot of time, you know, both educating ourselves and working in this space, you know, why not be able to do that there, too. So, that’s the long-term goal. And we’re on our way, man, taking steps. And I want to make it clear that I’m not a pro at this. I don’t, you know, I haven’t done a million deals or anything like that and this is all education that I’m learning as I’m going, and really anybody, I think, especially those of us who own gyms and who are business owners can do this type of thing because we understand the operational side, we understand the acquisition of bringing people in. It’s kind of the same thing as finding the deal, you know, and then marketing that after you have the property already under your belt is really bettering the operations and bettering the experience for the people who live there. So they have long-term residents and you don’t have a ton of turnover. So, yeah, I think this group, the Two-Brain group, really would understand and grasp this pretty well.

Greg: 43:04 – And that’s my main focus for having you on definitely today is to get it so that people understand if they built up their business and they’ve done a great job with it and they want to know what’s next, what can they do next? They have enough money in the bank and they want to do something with it. Like you said, build a legacy, do something that is meaningful for their children or their children’s children or continue on. What are some of the things out there? Because I think too many of us will say, OK, I have this cash, I got to put it in the stock market. Or like you said, I got to put it in a 401k because that’s what I’m always told to do. But there’s other avenues out there.

Greg: 43:41 – So I understand, like you said, you haven’t done a ton of deals, but that’s OK. It was more of getting you on and kind of explaining the process so that some people can say, OK, hey, you know what, this is something I definitely want to do and I want to do it long term and I’m really interested in real estate or I really like it. So let me start down that path, and this definitely gives them the idea. So I really appreciate you, Joe, for being able to spend this time with us and jump on here and kind of talk about the process you’ve gone through and you’re currently still gone through. I know, like you said, you’re still in the process. We’re almost done. But I want people to be able to listen and have the understanding that they can—there are other opportunities out there if their business is very successful or even mildly successful, that if they have cash in the bank and they want to put it towards something, that this is a avenue. It’s not the only avenue. It may not be the best avenue for some, it may be the best for some. But it’s something that they can do to grow their wealth and grow their assets.

Joe Flanigan: 44:37 – Fantastic.

Greg: 44:39 – So again, thank you Joe. I greatly appreciate your time for being able to share that with us and share your experiences and can’t wait to hear more from you and can’t wait to hear about the baby and all the things growing up with the family and growing your assets, so thank you.

Joe Flanigan: 44:53 – Thank you for having me on.

Greg: 45:00 – As always, thank you so much for listening to this podcast. We greatly appreciate you and everyone that has subscribed to us. If you haven’t done that, please make sure you do. Drop a like to that episode. Share with a friend, and if you haven’t already, please write us a review and rate us on what you think. If you hated it, let us know. If you loved it, even better. See you guys later.

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