Well, hello and welcome to our show today. I have a very special guest. I'm sure you
have heard about Matt Faircloth. Matt is the founder of the DeRosa Group, transforming
lives through real estate. He has also written the book on raising private capital, available
on biggerpockets.com and on Amazon. I personally have read that book and I will highly recommend
it.
Thank you. Thank you so much, Raj. It's such an honor to be here.
I don't know if you remember, but very beginning, you told me that, "Raj, if you want to grow
and scale and do it in a sustainable manner, what you got to do is you got to double the
size of your portfolio with every purchase."
Yeah.
And I've used that in the past, and I plan to use that in the future. That is solid advice.
Yeah. It's solid for everybody. And it's not as sexy to [inaudible 00:00:57] you want to
go out and buy a single family home. And then yeah. But look at how quickly things scale.
So you buy a one, then you buy a two, then you buy four, then you buy eight, then you
by 16, then you buy 32, and you're learning curve increases so quickly. That's what I
did. That's what you did. And I think you would testify that at the end of the day,
your learning curve and your exposure and your capacity to do the deal increases as
you go. And as I know from your story, you've been able to retain more equity for yourself
in increasing that way, versus someone, no offense, who took a run to the back of the
room guru class that taught him how to go out and buy a hundred unit apartment building
day one with no experience. They're going to have to sell their soul to their investors
on that first deal because they've got no experience. And that deal can eat them alive
five different ways.
Could you tell us a little bit about your journey? How did you get started in this business?
And tell us about your success along the way.
Sure. Well, there's a lot of successes, a lot of failures, a lot of roller coaster rides,
Raj. I've been doing this for 15 years straight, so I've learned a lot about real estate. It's
given me a lot of gray hairs and a few bags under my eyes, but at the end of the day,
it's been a phenomenal business that I'm grateful to be a part of.
I got started full time 15 years ago, but the really story goes back before that when
I met my wife, girlfriend at the time. She got me to read a little purple book by a guy
named Robert Kiyosaki called Rich Dad Poor Dad. And I was a traveling sales rep at the
time. Made a good living, made good money and everything like that, but I wanted something
more, but I wasn't sure what something more was. I was thinking about quitting my job
and becoming a teacher. Wanted to inspire other people, wanted to just make a difference
more than I was as just a sales rep. And so I was looking at other alternatives for life.
And she got me to read Rich Dad Poor Dad, and it was like I was a popcorn kernel unpopped,
and then I popped. Like, okay, I get it.
And so I bought a single family home, rented out two bedrooms to two of my buddies, lived
in the house myself, ended up making some money and living there for free. And then
really drank the Kool-Aid from there. My wife and I, still girlfriend, started buying rental
properties around Philadelphia. And then I quit and we took it from there and started
the DeRosa Group.
We did mostly small stuff for years, Raj. We did single family homes. We did duplexes,
triplexes quads, and then scaled up into office buildings and mixed use buildings and stuff
like that over time. But really didn't start raising capital until we were in the game
for about five or six years. Then we started raising private money and we were able to
build our portfolio very quickly. Once we had gotten the battle scars of doing it ourselves
with our own money, we grew quickly with other people's money once we had kind of proven
the concept.
I've been using other people's money for about nine years now. And I'm proud to say that
we manage somewhere in the neighborhood of about 15 million worth of other people's capital
spread out around say $40 million worth of real estate in four states of the Union right
now. And we just got approved to buy another 18.5 million in North Carolina, so that'll
take our portfolio holdings up just around 60 million, which is really exciting.
Sounds exciting. Could you tell us a little bit more about the North Carolina deal?
So this is my second deal in North Carolina. I love the state of North Carolina. Voted
by Forbes Magazine as the most business friendly state in the Union. North Carolina real estate
is on the rise. Because North Carolina is a friendly state to do business in, other
companies that employ people are moving there. Banks are moving there, manufacturing operations
are moving to both Carolinas. We love both Carolinas as places to invest. If you buy
into big cores like Raleigh and Charlotte, you may be late to the game because those
cities have already popped, per say, from price wise because they've already made the
radar.
We tend to not play in the A markets that have already popped. I don't want to pay somebody
else's appreciation. I want to have my own blood, sweat, and tears be what increases
the value of property. And so we play in B-level and tertiary markets in North Carolina because
we can buy it at discount. People still get employed. There are still jobs. There are
still opportunities to be made in B and C level markets.
So we own 198 units in Fayetteville, North Carolina, which is the home of Fort Bragg,
the largest military installation in the world. And we're about to buy 336 units in Winston-Salem,
North Carolina, which is the home of all kinds of different companies like R.J. Reynolds,
tobacco manufacturer. I get it. Shame, shame, shame. But there's also lots of banks there.
There's also Wake Forest University. There's also many, many other corporations and entities
that are there in the Winston-Salem and what you would call the Piedmont Triad, which is
Greensboro, Winston-Salem and High Point. They're all commutable to each other in that.
So we're really excited about this deal just outside of downtown Winston-Salem. Going to
be a phenomenal opportunity for those that are accredited investors, are more than welcome
to join us on that deal.
That's fantastic. And if they want to look up this deal and look for ways to invest with
you, they just go to your website.
Sure. Just go to derosagroup.com. It all starts there. Just go to derosagroup.com. You want
to join our insiders community, which will cost you less than what you pay for coffee
each month. And you'll get tons of real estate inspiration and private brain picking sessions
with me. You can get to that by going to derosagroup.com/insiders, or you can go to derosagroup.com/invest to
hear more about investing with us and get vetted through the process that it takes to
become approved as one of our investors.
If you have to kind of distill your life lessons and say, "If there are three or four things
that I could tell you to become successful," what would that be?
I love that. It's a great question. These are the three things I've learned. And I was
sitting with another entrepreneur friend of mine over a beer one time and this just kind
of came out of our mouths. Successful entrepreneurs don't quit. There will be many opportunities
that this business will give you to quit. As you know already, you're a seasoned real
estate investor too now, this business can bite back and can push back and can hit back
very hard. It is a tough business. It's very rewarding, but it is tough.
There will be phenomenal opportunities to quit this business and to get out and to cut
bait and to get out and go do something else. You're not [inaudible 00:07:09] go back to
my job. Forget it. Don't quit. Successful people don't quit. Failure is just quitting.
Failure is just refusing to try again. That's what failure is. Many, many successful people,
including Abraham Lincoln. Look at Abraham Lincoln's life history. He lost his entire
life and then he got elected president. He tried and tried, tried, tried, tried, tried;
just kept going until he won. That's number one. Success is just not quitting.
Number two is, do not let your emotions get involved. And what I mean by that is, there's
lots of zeros and lots of dollars and cents involved in real estate and you can get your
emotions caught up in a deal. But if you are disciplined with your emotions and use them
as more of a guide in a course corrector, versus being controlled by them ... Getting
angry at a tenant that doesn't pay their rent, getting overly excited about a potential deal
that you have and maybe overpaying for it, getting upset when a business transaction
doesn't work out well. Your emotions will absolutely cause you to make the wrong decisions
in this business. And this business should be something that's very pragmatic, straightforward,
go, go, go, go, go if you do not let your emotions get involved. That's number two.
Your emotions can be toxic in real estate.
Number three, keep moving. Again, and I've made all three of these mistakes. That's why
I know that they work. The third thing is, like I said, keep moving. And momentum is
what really works in real estate. Real estate's actually a slow moving vehicle. It's not like
trading Microsoft stock. You can't day trade real estate. So to grow a real estate portfolio,
you've got to continually be moving, thinking about what's next, and constantly be solving
problems and putting in implementation systems to prevent those problems from happening again.
And take steps. If you get stagnant in real estate, it can really slow you down and you
will not keep up with the marketplace and you just won't keep up. So real estate is
something that you've got to continue to put one foot in front of the other and move into.
So those are my three, I think call them keys to success for real estate investing. And
if you could do all three of those, I think you're going to be successful. But most importantly,
above all of them is the first one. Don't quit.
All right. Don't quit, don't get emotional, and keep moving. Wonderful.
They sound basic. They're very easy to break. But if you live by those three rules, I think
that you'll do very well.
Question 101 about real estate syndication is, what is real estate syndication? How is
it different from buying investment properties on my own?
It's a good question. And you also deal with, why would I give Matt Faircloth and Raj the
money? Why wouldn't I just go and buy a duplex? Well, that's a good question. So let's answer
the first one, which is what is a syndication? The definition of the word syndication is
just a group of people doing something as a collective that will be hard or impossible
for one of those groups to do by themself. So that could mean, a syndication could be
a bunch of guys building a house. Well, one person can't do that. It's a bunch of people
doing something collectively, typically a financial activity. So that's all it is.
A syndication has evolved to mean a syndicator. You or me organizing a group of passive investors
to put up the money while you and I put up sweat. Again, my book Raising Private Capital,
I just have to mention it because it's a good transition point. My book explains a lot of
this. But there are two people in real estate investing. There are deal providers, that's
you and me, those that go out and leverage our contacts and leverage our people and leverage
our real estate knowledge and leverage everything that we know. And then there are cash providers.
Those are folks that don't want to put in the time, that want to be passive, but wanting
to have their money go to work for them. The deal provider and the cash provider bring
equal value pieces to the table and they go off and do a deal. That's a syndication.
Now, why would someone invest in a syndication? I kind of highlighted it right there. And
that is that what they're foregoing is the obligation for them to put their time into
the project. At the end of the day, there is one limited resource in the world. I'm
a prosperous, abundant mentality person. I believe that there is unlimited amount of
money for me to have access to, there's unlimited amount of resources and deals and people and
contacts and stuff that I can use. It's an unlimited well of opportunity for me.
The one limited resource in the entire world is time. The one thing that there's only been
so much of. And so if I'm an investor and I want to make money, I either have to put
my time up to make my returns. So I want to make 18% on my money, I want to make 15%,
10%, whatever it is, I have to put my time in to manifest that return for myself, or
I have to leverage someone else's time and be okay with them taking some ownership and
some compensation for their time. If I don't want to pay syndicator a slice of the deal,
a slice of the project and profit or fees or whatever it is, then I should just go do
it myself.
And I think that that is one of the things that you got to have the courage to do as
someone who's organizing these types of deals is, when investors start pushing back and
saying, "Well, why are you taking this fee? How much is your [inaudible 00:12:26]? How
much is your equity split? How much is this? How much is that?" You might be better off
going and buying a duplex. Or going and taking your 50 grand and going and investing in something
that you can control, because you're going to make a higher return. But what you are
going to have to do is you're going to have to inject your time, even if you hire a property
manager. Because as you and I know, Raj, property managers do but so much, but you have to manage
them. You have to manage the manager. And those that buy real estate thinking that they
can just hire a property manager and go like this and go sip Mai Tais on the beach, are
going to have a rude awakening at some point and realize that, "Hey, that property manager
didn't do everything. They only did this much. They didn't do everything that needs to happen."
Am I right?
Yeah, absolutely. And there's a huge learning curve in the beginning. Could you tell us
a little bit about the risks associated for the LPs? Is it a hundred percent safe? Will
it definitely make money? Will it never go [inaudible 00:13:20]?
No. You hear lots of stories of LPs that lose their money. I mean, Bernie Madoff had LPs.
Those were his limited partner investors, man. I mean, it's really all about the operator
you invest with as an LP. That's the biggest risk you take as the operator, either being
truly being a bad actor or the operator just not being able to prop the property up and
squeeze profit out of it over time. That's the biggest risk you take, is the operator
either doesn't know what you're doing, or makes mistakes with your money.
The second risk that an LP takes is that, I mean, and this is kind of in line with the
first one, but you're out of control. So yes, you give up time, but because you give up
time, you give up control. And so, an LP can't call the property manager and say, "Hey, how
come collections are low?" Or, "Why haven't you leased out that apartment in three months?"
It's the syndicator's job to do that. And the LP, although they have very little risk
exposure, they had extremely low control on the deal. So that's the risk reward thing
fo LPs. Yeah.
And then obviously market related risk too, in that at the end of the day, maybe properties
may go down in value because the market may change, or you might invest in Houston, Texas,
and then a hurricane comes through or something like that. Or you might invest in areas that
are prone to whatever natural disasters, or invest in a small town and the local employer
pulls out and the whole town economic structure drops or something like that. These are risks
that happen too. But those aren't limited to LPs. That could happen to any real estate
investor. But the biggest thing for LPs is control.
The other questions that we all sort of see is, what are my exit options? So when I invest
with you, is my money illiquid? Can I pull out if I need money through the course of
the investment?
You can. It's complicated. We're working on a diversified fund right now, as the DeRosa
Group that has liquidity in that, but we don't have it up yet. And most real estate syndications
are somewhat or semi illiquid. But at the end of the day, can get out. You just have
to sell your shares to somebody else. Person A that is an LP owner needs to sell their
shares to person B who either is in the fund and wants to buy it or someone who's outside
the fund and wants to buy into that. So that's typically how shares get sold. Or you got
to wait until the property sells or until the syndicator has an event to get you out
of the deal.
All right. Matt, this was wonderful for me and my listeners. I appreciated the opportunity
for your time and tapping into your wealth of experience. I wish you the best of luck
in the North Carolina deal.
Thank you.
And if history is any indication, it will be just as successful for you and for your
investors. So thank you very much for your time, and good luck.
Thank you, Raj. Look forward to doing it again soon.