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This 30 Year Old Bought a $6.2m Apartment Complex And Makes How Much Cash Flow? With Joe Fairless Episode 239
15 Apr 2016
Chapter 1: How did Joe Fairless transition from advertising to real estate?
This is The Top, where I interview entrepreneurs who are number one or number two in their industry in terms of revenue or customer base. You'll learn how much revenue they're making, what their marketing funnel looks like, and how many customers they have. I'm now at $20,000 per top. Five and six million.
Chapter 2: What lessons did Joe learn from his failed business launch?
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Chapter 3: What was Joe's first real estate deal and how did it go?
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I hope you are sweating if you're jogging or hopefully if you're driving, you're not stuck in traffic. Regardless, you're going to love our guest today. His name is Joe Fairless and he transitioned from being the youngest vice president of a New York City ad agency to creating a company that in six months controlled over $7 million worth of property.
He's also a host of a very popular podcast on real estate investing, which we'll dive into. So Joe, are you ready to take us to the top? I'm ready, Nathan. Let's go. Let's do this. So first things first, New York City ad agency, you were the youngest vice president. How old were you when you became vice president? And help us understand what you gave up to then launch your own thing.
Chapter 4: How did Joe raise funds for his first multifamily property?
I was 29 years old and what I gave up was a base salary of, I know how you love the numbers, by the way.
I love it when I can tell when a guest comes on and they listen because I don't have to ask. They just say it.
Yeah. So base salary of $150,000, not including bonus, which probably would have been, I don't know, 10 to 20,000. And I mean, but more important than that, I mean, as you know, and any entrepreneur knows, it's the certainty and the security of a W2 job is what I left and got into the entrepreneurial world. And what year was that? That was in January of 2013.
Okay. So what did you leave for? Help us understand how you got into real estate.
Well, I left for a business that flopped, which is a learning. And I know we have a lot of maybe college students or aspiring entrepreneurs listening. And this is a good lesson that I learned the hard way. It is a lesson I should have learned or should have known already, but perhaps it will be new to someone as it was me.
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Chapter 5: What strategies does Joe use for apartment investing?
And that is that I did not have clients before I had a product. And instead, I decided to launch a product without clients and the business flopped. And what happened is, you know, I had risen through the ranks as a marketing advertising professional in New York City relatively quickly. So I thought it would be good to consult college students, young professionals,
and teaching them basically the same thing, how to do what I did. But what I failed to realize is that college students and young professionals don't have the money to invest in a consultant to help them along the path. And so I created, before I realized that, I created a website, had a developer, paid him about $3,000.
And then very quickly in January of 2013, so it took me 30 days to realize that it was just crickets whenever I launched.
What was it called again?
I don't know. It was like Joe Fairless Consulting or something.
Oh, like a personal website.
Yeah. It was just like a personal thing that I was creating.
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Chapter 6: How does Joe's podcast contribute to his real estate business?
Great. And so that flopped. You shut that down. Well, first off, how did you... I think this is important. A lot of people don't... They raise a bunch of $10 million. And the question I always ask is, how do you know when you failed? So you know when to move on.
Because the danger of raising capital is you get stuck in something you're just treading water on because there's a lot of money there and it pays you a check. So how did you know when that failed so that you had the conviction to move on?
I didn't have any interest of people actually paying me money. There's all sorts of different ways to test to see if your business is gonna be successful that you can do much more inexpensively than I did for the 3K. But once I didn't have any clients, I knew I didn't have a business. And to overlay that with- How long did you stick with it though before you left it?
A month. A month, okay, 30 days.
Chapter 7: What are the financial details of Joe's first multifamily deal?
Yeah, one month. Okay. All right, and then what? Well, and then as I was actually already investing in real estate on the side, I had purchased my first house in 2009 and then my second one, third, fourth. So I ended up having four houses at that point between 2009 and like 2012 or so.
And what I realized by purchasing the houses is that I was making like, you know, 200 bucks a month on average off each of them. And I realized I was going to have to make a whole lot of or buy a whole lot of them in order to really achieve some, you know, financial wealth. And I just wanted to scale quicker. So I started studying apartment buying and investing. And that's what I do now.
I raise money from investors and buy apartment communities. Um, and I, uh, so, so the last year of my advertising gig, um, about October of 2012. Um, so I was still having, I still had my advertising gig. I started studying apartment investing.
And so while I was transitioning, what books did you buy books, follow a blog? What'd you do?
All the above. Okay. Blog was bigger pockets, books, the complete guide to buying and selling apartment buildings, as well as commercial real estate investing for dummies, multifamily million. I mean, I've read pretty much a lot of them. Okay. A lot of them.
I want to link, if you'll Skype me after this, those, some of those, uh, there'll be like your top five. We'll link to those in the show notes at Nathan, like a.com forward slash the top two, three, nine. And then additionally, Joe, you mentioned bigger pockets. You know, we had, uh, we had Josh Dworkin on an episode one Oh nine who runs bigger pockets.
He broke down how he's got 10,000 people paying $9 a month for his real estate membership site. That's Nathan, like a.com forward slash the top one Oh nine. If you folks want to listen to it. So Joe, you studied this up. When did you do your first deal?
And I'm one of those 10,000 paying $9 a month, by the way. It's worth it. Yeah, it is. I did my first, well, I did my first multifamily deal in July of 2013. And how many units? 168. Wow. So I, you know, I had bought four single family homes. And then my first deal was my first multifamily deal was 168 unit in Cincinnati, Ohio, while I was living in New York city.
And how much money did you have to raise to buy it? 1.3 million. Wow.
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Chapter 8: What advice does Joe have for aspiring entrepreneurs?
And, and, uh, and then help me understand your whole point in doing this was you realized that I could either do this myself with, I assume you were using your own money on the four single family ones or multifamily. That's correct. Okay. So, and you were, so you put in your own money for those four, they reach entering 200 grand a month, 200, sorry, 200 bucks per month.
So you did about a grand per month doing it yourself. Once you raised the 1.3 million, bought the 168 unit in Chicago apartment complex. What did that spit out for you personally per month?
Yeah, personally, you know, you make money in three ways. Generally speaking, when you do, it's called multifamily syndication. And, you know, there's multiple ways to do it, but generally the three main ways are one is acquisition fee. And I'll get specific in a second. I just want to stay at high level. One is acquisition fee.
Two, and that's usually about two to three, one to 3% of the purchase price. Two is the asset management fee. So overseeing the property management company and just the overall business model. That can be anywhere between half a percent to 2% of the income that's generated on a monthly basis.
and then to be clear that's top line or cash flow uh top line okay yeah and then three is um you know the the equity ownership that you have in the deal and that varies greatly depending on how you structure it so for the first deal i did the 168 units um i got a check for 20 $2,000 or $23,000 at closing, which is, if you're doing the math, the purchase price was $6.35 million.
So if you're doing the math, it was much less than 1%. And that was just to get things going. It was my first deal.
Did you use that? I mean, did you have to use that hard when you're pitching investors? Say, hey, I know it's my first deal, so you might worry about getting in, but I'm only going to take $23K out of a $6.3 million deal.
No, not really. And in fact, I didn't realize that there was such a thing called an acquisition fee until after I'd spoken to a couple of investors. And so really I had to kind of- And they said, Joe, what's your acquisition fee? You're like, oh shit, okay. Yeah. So yeah, it really was the thing that sold it.
Well, there are many things, but I'd say to answer that point was the alignment of interest. with, um, with the other team members or other people who are, who are investing alongside. So I got the brokers who shared, who showed me the deal to investor commission in it.
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