CW 637 – Sharran Srivatsaa – Upscale Properties Speculation vs Income, Teles Properties

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Welcome to the Creating wealth show with Jason Hartman. You're about to learn a new slant on investing, some exciting techniques and fresh new approaches to the world's most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine, self made multimillionaire who's actually been there and done it. He's a successful investor, lender, developer and entrepreneur who's owned properties in 11 states, had hundreds of tenants, and been involved in thousands of real estate transactions. This program will help you follow in Jason's footsteps on the road to your Financial Independence Day. You really can do it. And now, here's your host, Jason Hartman with the complete solution for real estate investors.

Welcome to the Creating Wealth show, episode number 637. 637. Thank you so much for joining me today. This is your host, Jason Hartman, and I am so grateful to be talking to all of you listeners from 164 countries worldwide. Thank you so much for sharing the show, reviewing the show and continuing to listen to the show. Today we will have an interesting perspective on real estate investing from a gentleman, a very successful gentleman who is the head of a high end Southern California real estate company. In fact, I guess you could say that this company was right in my marketplace back in the days when I was in traditional real estate. They are in that business now, very successful company and it's interesting to hear what they are looking at nationwide. And this is an indicator, a very good indicator, in fact, of how a California style investor thinks, how a cyclical market real estate investor thinks and what looks good to them, what is acceptable to them and what is unacceptable to them. I didn't go deep into this topic with her guests today, but you'll, you know, if you've been listening to the show for any length of time, you'll pick it up, okay? You'll, you'll, you'll read between the lines, so to speak. There are definitely some good hints here and it just, it's amazing to me, you know, how I used to think many years ago in terms of what was an acceptable or really a great real estate investment versus what today I now think is unacceptable or really just pretty lame. You know, we are spoiled as cash flow investors because we follow commandment number five of my ten commandments of successful investing. And what you ask is commandment number five? It is thou shalt not gamble Thou shalt not gamble. The rule being the property must make sense the day you buy it. You don't buy it because you are a conservative, prudent, wise investor who does not get taken with the sexy siren song of appreciation of capital gains. You invest for cash flow. You invest in properties that make sense the day you buy them or you don't buy them. And you know what? Appreciation and capital gains, they tend to come along too. I was just looking at one of my properties and I have decided to put it on the market because it has appreciated quite a bit. That property, by the way, is in Houston, Texas. The property went up for lease and the tenant moved out. I've been self managing that property. So I contacted the agent to handle just the lease up and started looking into the value and I was so pleasantly surprised. You know, this is the nice thing about income property too. When you have a nicely diversified portfolio of sensible properties that follow my ten commandments of successful investing, you know, after a while, sometimes you just don't pay real close attention to what they are in terms of value because you are not investing for appreciation. That is simply the icing on the cake. The frosting on the cake. You know, it's a treat, it's a nice surprise if it happens, but you certainly don't depend on it because as some of our Venture alliance members recently showed me, and that's Jeff and Shannon. Hi Jeff and Shannon. I'm sure you're listening. It was great hanging out with you guys in Dubai. You know, they started investing with us just over a year ago and Jeff recently sent me a spreadsheet with his portfolio. I think he was showing about a 22% or maybe slightly better than 22% annual return on investment. Now if you're getting 22% annually, which by the way, is about double what scam artist who modeled his scam off the United States Social Security system. You know who I'm going to say? Bernie Madoff. Who? Madoff. With billions and billions and billions of dollars of people's money in his Ponzi scheme, it's about double what he was promising. And investing in stocks. He was. Before the scam was uncovered. He was thought of to be this genius, right? If he could deliver between 9 and 12% annually on a consistent basis, he was. He was killing it, okay? He was killing it. Of course it was a fraud. It was a big scam, people later discovered. And by the way, one of our Venture alliance members recommended a. And that's Pat. Hi, Patrick. He recommended a fantastic documentary and I started watching it. I got about halfway through. It's called Chasing Madoff. Fascinating. And hopefully you've all seen the big short. And by the way, Chasing Madoff is on Netflix. You know, Netflix is great for documentaries. So go and watch some of the financial documentaries in there. I recently watched one on there. I think it was just entitled Goldman Sachs. Might have had a subtitle, but it's a, it's a blue cover and it just says Goldman Sachs. Yeah, that might have been on Apple tv. I don't know. It might have been on Amazon Prime. Sorry, listeners, I can't remember. But check out the Goldman Sachs documentary. There are many of them. It's amazing. These, this criminal cartel called Wall Street. It's just mind boggling what they do. But anyway, you know, if you're getting 22% like Jeff and Shannon are, you know, how much appreciation do you actually need? You are doing pretty darn well as a conservative, prudent cash flow investor. And that's what we do, that's what we invest for. If the appreciation comes, hey, frosting on the cake. So my Houston properties, one of them I discovered here, it's up to like $220,000. I was just about to lease it for about 1700 and I thought, you know what? I can sell that Houston property just like I did last year with one of my North Carolina properties. I sold it and I can buy two properties in a market like Memphis, and I can generously buy two, you know, if I wanted to squeeze it, maybe throw in, you know, a few extra bucks, I could buy three properties in Memphis, you know, but I'll probably just go with two and get the higher end for Memphis rental properties. And my cash flow will dramatically improve. Probably be getting $2,200 per month, maybe even a little better. So, you know, this is, this is the great thing. And of course, on a 1031 tax deferred exchange, one of the other tax benefits. We never realize how good it is until we actually sell a property. We can trade our properties all around our portfolio for our entire lives and defer the capital gains tax tax. It is a beautiful thing. No wonder it's the most historically proven asset class in all of world history. As our buddy Jason Hartman. Oh, wait, that's me. As Jason Hartman would say. Right. So that is great. Okay, couple things here I've been meaning to share with you. You know, when we were on our Venture Alliance Mastermind trip in Dubai, you know, of course I was staying in hotels. That's probably the only time I actually, actually read a physical newspaper, usually it's all digital content, but here I've got. Yep, that's it. You hear it? That's the Wall Street Journal. And on the front page here, what is the date for this one? Where do they put the date on this thing? February 2nd. Okay, so it says a crisis era mortgage makes a comeback. A crisis era mortgage makes a comeback. And this, this. Remember folks, you know, it's funny how Americans and the world in general has a really short memory. And I think that really goes to the reason you have some of these really popular left wing ideas coming out in the political spectrum all the time. Because people have a really short memory. You know, they either they either just forgot about history or they didn't study it in the first place and they didn't remember about all the time terrible things that have happened with big left socialist government. You know, remember the Nazis were the National Socialist Party. They weren't conservative, they weren't libertarian, they weren't anything like a Republican. They were to the left, they were the socialist party. And so when we look at history, there are so many examples of the terrible horrors of these big, big government ideas, yet people are still willing to entertain them, you know, because the new guy or gal will be different. You know, they'll do it well, they'll do it properly. Even though every example in history has been an epic disaster. Unless your goal is to reduce the number of humans on the planet, maybe for an environmental reason. That is another subject entirely that we have touched on and probably will touch on again. Okay, pardon my political commentaries. You know, it is an election year. We got to talk about this stuff. Okay, so a crisis era mortgage makes a comeback. Wall street wants to bring back the low doc loan. These mortgages, which are given to borrowers that can't fully document their income, helped fuel a tidal wave of defaults during the housing crisis and subsequently fell out of favor. Now big money managers, including Neuberger, Berman Pacific Investment Management company and an affiliate of Blackstone Group, a limited partnership, are lobbying lenders to make more of these alt a alt a loans or even buying loan origination companies to control more of the supply themselves. According to people familiar with matter years of easy money policies by central banks and alternative ultra low interest rates are pushing investors to seek out riskier assets with higher yields. See, this is part of the big global monetary conspiracy. This is financial repression. Okay, this is another example of it. See when you have this extremely low or really negative interest rate environment which by the way is real estate investors is a phenomenal opportunity for us. It's great for us, but most people are getting very hurt by it. And my heart goes out especially to older people who've done the right thing all their lives. You know, they delayed gratification. They were very conservative with their money. You know, they didn't buy that, that swanky new house or that swanky new car or take that swanky big vacation, you know, or buy all that nice clothing. They were conservative with their money. They delayed gratification and they did the right thing. They saved for their future. You know, they didn't ask for a handout from government. They didn't expect government to be there for them. You know, they just saved money and delayed gratification. And now you see these, these older people who should be able to invest very conservatively, they should literally be able to, to put their money in a cd, conservative bond funds, et cetera, or of course, income properties, the most conservative, most reliable, most historically proven asset class in the world. But you know, I'm talking about mainstream investors who don't think of this stuff. You know, they heard the one horror story of the bad tenant experience and that blew it for them. You know, it stupidly determined their whole investing life. Or maybe they had that experience themselves and they thought, ah, this isn't for me. Maybe they didn't know how to do the math because they didn't attend JHU Jason Hartman University, which by the way, is coming up in Salt Lake City on March 12th. We're gonna have a great event. And by the way, we have a hotel room block, great deal on a beautiful downtown hotel that we have $129 per night. If you've already registered for this, you should have received an email with the booking link and phone number for the hotel. But if not, just be in touch with your investment counselor, you know, that you're already talking to and of course through the website, Jason Hartman.com, where you can also register for the event and you can get the hotel information and the room block information there. Okay, so what was I saying? Was that another tangent? Yeah, I think it was. So you have all these people, these older people, especially older people who have saved money, done the right thing, and now what are they pushed into? They can't ladder CDs, they can't do simple things like this because we have a zero to negative interest rate environment. So they're pushed in to more speculative investments. Now this happens with the individual, as I just pointed out, but it also happens with the institution. Okay. And so here you have an example. They want to bring back these all day low doc and you know, it's a slippery slope. It'll ultimately lead to no doc or what they call liars loans. Okay. Because they're chasing higher yields because they can't get yields from the traditional sources. Okay. Anyway, it talks about that but let me just go to the follow on page 10. I will turn to here. And the caption even says it. There's a little illustration here in Wall Street Journal. Again it says who you calling a liar? Dubbed liar loans. Now I just said that. Right. Dubbed liar loans after they were abused during the housing crisis. Alt a mortgages are making a comeback at the behest of money managers. So just like the individuals I just talked about the money managers that they're chasing yield too. So conventional conforming loan average FICO score get this amazing 745. Wow. Okay. Alt a typical credit score 700 and subprime 660 and below. 660 and below. So again, they can charge more for these loans. So that's the push and that's why they want to get get into this riskier environment again already. It's amazing. And by the way. Well, you know, we don't have a lot of time to talk about this, but another Wall Street Journal article, really interesting. You know, we talk about how it's amazing that we have these low rates still, that the US is in this very, very enviable position, unique in all the world. The Federal Reserve and the U.S. government are in this very. And the U.S. economy in general and U.S. citizens or people that just live in the U.S. in a very enviable position. Because with the reserve currency status.

We are able to defy gravity and have low inflation at the same time that we have massive, massive debt and we can still have low interest rates. It's a very odd combo. It shouldn't be this way. It's illogical. We've talked about this on many prior episodes. But it is what it is because the game is rigged in favor of the country with the reserve currency. So this article says, it says Egypt is hit by dollar shortage. And the article goes on to say Egypt. So Egypt is hit by dollar shortage. So, so what does that mean? See, dollars just like any other thing, just like coffee beans or you know, pork bellies or oranges or you know, precious metals, they're a commodity, right? Dollars are a commodity just like any other commodity. So Egypt has this dollar shortage. They have a shortage of the commodity called The US Dollar visitors aren't showing up as before to Egypt's beaches and pyramids. Political unrest and a string of terror attacks have given investors pause. Okay, so people aren't coming there. And guess what? They're not bringing, they're not bringing their dollars. So the whole country is reacting with ways to try and bring in dollars. Well, why, why is this so important to Egypt and every other country for that matter? Because the, the dollar is the reserve currency of the world. And as such, if they want to buy anything on international markets, they have to use dollars. And if they don't have enough dollars, they can't buy enough stuff. Right. Just a really simplistic view of things. So, you know, the almighty dollar is unfair. As illogical, as ridiculous as it is. This is the way the world world is and you and I are not going to do much to change it. We can complain about it, write your congressman. It's not going to matter. These entities are so powerful. They're the most powerful entities that have ever existed in human history. Governments, central banks. Okay? So my philosophy, as you regular listeners well know, alignment your interest with these entities. And that is exactly how we invest in income, property. We take the most historically proven asset class. We structure the deals when we buy and finance these properties in a way that aligns our interest with the most powerful entities ever known in human history. While the other people are out there thinking, oh, well, you know, this is just so illogical. It's so wrong. It can't be. It cannot be. Wine, wine, wine. Complain, complain, complain. You know, they're, they're digging survival ditches and buying gold and they're getting killed because they don't, they don't get it. They don't get that this is not just about math. It's about so much more than math. It's about the dynamics of monetary policy, fiscal policy, international trade, and the geopolitical situation around the world. And so I don't need to go into that a lot. You regular listeners already get it. If you're new to the show, go back and listen to 636 episodes. You'll pick it up. Okay. Anyway, hey, go to jason hartman.com Register for our March 12th Jason Hartman University event. It's going to be awesome. I can't wait to see all of you there. And of course, for Venture alliance members, that event is free. Let me just tell you real quickly a little bit about Jason Hartman University. This is only our second time. We have made that event a lot more challenging. You know, we kind of felt like some of the math was a little too easy when we talked about market analysis of different real estate markets, about property analysis, about property acquisition, about managing your manager versus self management, and about planning and building an entire real estate portfolio. So we made this quite a bit more challenging. We're still doing a little tweaks to it as we've got time for March 12, but we're really excited about it. So I hope you'll join us in Salt Lake City, Utah. We have never had an event here. It's going to be great. So go to jasonhartman.com click on events and register and I look forward to seeing you there. Let's get to our guests. We've got a great guest today. This is a lively discussion. I think you'll enjoy it.

It's my pleasure to welcome Sharon Srivatsa to the show. He is the president and Chief Innovation officer of Telus Properties. And Telus Properties is a very successful traditional real estate brokerage firm located in the high end Southern California areas, I believe from Beverly Hills to all Orange County. This used to be my world 10 years ago where my company, Platinum Properties International would compete in the upscale market in areas like Newport Beach, Newport Coast, Laguna, et cetera and Irvine. He also has an investment fund and they look for opportunistic properties for development and also income properties for long term hold. In fact, they have a 25 year charter. So I'm anxious to dive in and hear more about it. Sharon, welcome. How are you?

Jason, thank you for having me. Your show is fantastic. It's an inspiration and I was listening to several episodes the other day and when I heard that you hit the over 600 mark, I think your listeners need to believe that you've done just a phenomenal job of providing great content for everybody. So I'm honored to be here and thank you for having me.

Well, it's great to have you and thank you for the compliment. Yeah, we've got over 600 on one of the shows, the Creating wealth show, but overall We've got over 3,000 episodes out there now and people constantly say we're you find the time to do these interviews? Well, you know, we've been doing this 10 years. Okay. So it didn't happen overnight. Also my record, just so you know, is 11 interviews in one day and that's too many. I don't want to, I don't want to do that again. It's just too many. But yeah, I just, I love learning from people like yourself and you know, it's a pleasure to be able to talk to so many different people from all over the world on the show and you know, get their firsthand insights. You know, it's really been a great honor. So, you know, Telus is a tremendously successful company. You've got 19 offices, 400 agents, and you really play in the upscale, very, very uber competitive upscale real estate market in Southern California. And I know how competitive that is. I mean those advertising budgets that the competitors have in that market are ginormous. You know, first of all, tell us a little bit about your entrepreneurial story so we can, can get a little bit of a background. You're a young guy. How did you happen to start this company and grow it so quickly? And then let's talk about investing in your fund and so forth.

Sure. So I actually didn't start this company. So I'll give you a very quick history. I was a, I went to business school. I was fortunate to be in the technology world. Out of college, built and sold a company along with a few others. Then I took about five to seven years off building tennis programs in different resorts around the world. And then I said, hey, it's time to go back and do something, get back in the business world. So my, the one thing that I've always kind of been interested in is how the ultra high net worth, how people invested well. And the only way to get there was to go to business school. So I went to business school of Vanderbilt and went to Wall Street. So I was on the investment management side at Goldman Sachs and then at Credit Suisse. And one of my clients actually who was, who was my mentor for the last 15 years, had invested in this little company called Telus out in California. And he, hey Sharon, the next time you are out here, I'd love for you to meet the principals because they might need a little guidance on how to grow. So when I came out, I visited with the principals and said, wow, there's such a great opportunity here.

I made a recommendation to the team on how the firm can grow. I think that created a fracture in.

What their existing business plan was. So I actually had the opportunity to come in, put the money on the line, buy out a couple of partners and get, come, come in as a principal and turn the company around. So when I started there were 45 agents at Telus with about, with three offices. And today we have, you know, over 400 with 19 offices.

And what, what year was that when, when you started?

This is about five years ago. So this was a, in around 2010, 2011.

Okay. So the market's just, you know, coming back by then and it's starting to its turnaround phase. Okay. And so you bought out a couple people, partners, put some capital in. I'm assuming you don't want to share how much, but feel free to. I mean, our listeners would love to hear it if you'd like, and then just talk about the growth plan after that.

Yeah, so it was less about the capital and more about the strategy. And so.

I'll tell you how that is structured. So essentially when I came, I have no real estate experience. I've spent all this time just being an investor and advising investors. And when I had the opportunity to see what the agents are doing at Telus and the Southern California, as you said, in the Southern California, really competitive marketplace, I wanted to get to the sense of what everybody does. And I said, wow, Agents want to do three things. Essentially, they get in the business to do three things. One, they're outgoing, so they're like, wow, I'm outgoing, I can sell real estate. Two, they feel like they're problem solvers so they can negotiate, put deals together. And three, they want flexibility in their schedules. But what was happening was those three things were the least amount of time being spent on doing those and time being spent on doing everything else, which is what we call the non revenue generating activity. So I tell our agents, hey, you should be doing only one of three things. You should either be prospecting because you are outgoing, you should be either negotiating and putting deals together, or you should be chilling out. And those are the only three things you should be doing and everything else you should not be doing because it is non revenue generating. So we built a platform, so we call it our agent service platform. We build a platform that takes away every single non revenue generating activity that an agent does. So right from the time they get a listing to the time it goes into escrow, to all the marketing, we completely automate for the agents. We completely do it in house so that they go out and they can do what they do to be productive. And that, Jason, as you know, is when you get the right model match, as we call when you get the right DNA, it really starts to impact agents. And we realize that when you do that, you can actually have a good process that can drive good results. So for the last five years running, in every single marketplace that we are in, we have the highest sales price to list price ratio and the lowest days on market in every single marketplace, which is pretty amazing for just a 400 person firm.

Did you build a software platform from scratch or did you adopt another platform that was out there? I mean, certainly there is a lot of, I mean, there's almost no shortage of real estate automation platforms out there nowadays for the traditional real estate world and cloud based systems and so forth. What did you do exactly?

Yeah, great question. We actually built it in house and we realized that there were three components that were really important to how this worked because off the shelf stuff is really hard because they're generally not built with the actual mechanics of an agent in mind. So we call it the people process platform theory. So you need to have good people, you need the right people in the right seats because agents, agents like talking to people. So when you are marketing a $5 million home, an agent wants to talk to a marketing person. So you can't completely automate that process. But the second is if you have good process, it actually makes sure there are fewer errors. So we have good process around everything and then a platform to support that. So we built the platform in house. It's actually cloud based, of course, but our entire firm runs on it. And it's interesting, recently we've been so focused on building this platform that I didn't really step back to see what else existed. And we shared it with our friend at the California association of Realtors who run the Ziplogic platform, etc. And they actually just honored us as the brokerage of the future a few months ago because they'd never seen a platform like this. And I think it's the only way that lets us turn on offices, turn on agents, just help us automate so many things and it gives us the backbone of everything that we do. So it's something that we built in house and we're very fortunate to have it work pretty well.

Okay. And give our listeners, I mean, that had to be a tremendous. I mean, software is a bear. I just bought a software company actually. And you know, software is a, you know, it's, it's not as simple as you'd think. You know, sometimes you think it's easier than having like a physical building. Right? But it's, it's complicated. What did you spend to build this platform? I mean, I'm sure you're constantly spending money refining, tweaking and fixing it, but what kind of capital investment are you talking about?

Yeah, good question. So I'll give you, I'll give you hard numbers old, but I want to actually share the process. Every year we actually have a new major release to the software as well. And Jason, I'll tell you this. Our software, basically our platform launch meetings kind of mimic the Apple product launches. And so we actually get more people to come to our platform launch meetings than we do to our holiday parties. Right.

So what do you, what do you get? You get outside agents. You probably use that as a recruiting event too. Right.

It ends up being a very good recruiting tool. Industry partners come. We, A lot of times we always invite broker, partner brokers from Northern California, Seattle, New York, etcetera, To come and join us because we, you know, they want to see what we're doing as well. But it's a. Last year we did it at one of these art, like, cinema theaters and we had, you know, standing room, only room on the aisles. But we do it every year in the fall, we launch a new. A new release building on the old one. So I'm actually in the process working with a team right now building our next release coming up in August. And I'd say every release, every release is roughly around quarter of a million dollars.

Wow. Wow. So you've spent, you know, about 1.3 million on it so far, is that what you're saying?

Yes, something like that. And that doesn't also involve, I mean, that's just, you know, that's the checks that we write that doesn't involve just, you know, my time and our teams and all of them kind of putting the intrinsic cost as well. Right. But it's, it's from a culture perspective. There are three things that we always talk about. Hey, we need to build stuff that increases sales performance. We need to build stuff that provides decision support. Meaning, hey, should I farm? Should I not farm? Do I contact this client? Do I not contact this client? And the third one, we are calling it culture in the cloud. Most of our agents barely come into our offices. The amount of money we spend on we have several hundred thousand square feet of space, class A space in our locations. And.

You know, agents are in and out of the offices. And we think it's really important to build culture. And now that they don't come in, you got to have culture in the cloud. And so that $250,000 is an opportunity for me to say, hey, how can I, how can I build and tie into the culture and keep the culture together? And you got to put culture in the cloud. And so that's why we think that investment is focused. And with the whole. And Jason, you've seen this with the whole print and digital advertising kind of struggle and everyone trying to play the print wars. We are not, we're, we're not a very print focused firm. We are very digital, very social in our experiences and that drives significant results and that's the agents we attract. But that's been a very fortunate thing for us to build and grow with.

Yeah, yeah, definitely. Okay, so let's switch gears and let's talk about investing. So I want to maybe have a debate with you on this. I have a feeling it's going to be a bit of a debate. You were talking about your buy and hold stuff. I know that you have an opportunistic fund where you do development and that's so complicated that it's kind of hard to talk about. But let's just talk about investing. And one of the questions I asked you off air before we started was I said, Sharon, how can you make a, you know, an income quote? Income, unquote, property in California, work, you know, they're so expensive. And you were saying, tell us about that.

Yeah. So, you know, I think that, so our focus, we do three things and I want to kind of say why we do three things because it allows you to take a little bit of risk on the income. Right. So number one, we do things that are, that are opportunistic, which is development or investment and stuff. That's number one. Number two, we do a lot of market cycle specific stuff. So, you know, during our crisis, we bought a lot of single family and trust deeds. After crisis, we bought a lot of entitlements. During recovery, we did a lot of fix and flip. Now we're buying a lot of income because when you have stable prices, low rates and high rents, you're able to really capture the spread significantly. But our income, specifically on our income plays.

The LA income plays are very interesting because you can buy in la.

Yeah.

In Los Angeles. In Los Angeles, the income plays are interesting because you're not going to be able to buy anything that is, you know, a duplex, for example, is not if you want it in a, in an area where you think you can have high. Manage the rent. Well, you're talking, you know, 800 to 1 2, 800,000 to 1.2 million at least.

But you need a portfolio of those to actually manage the income around it. But people in Los Angeles right now are willing to pay the higher rents. You can push the envelope on the higher rents right now.

Oh yeah, I know, I know. The LA market's been crazy and I grew up in Los Angeles. So give us an example. Tell us, you know, what you Buy something for what you rent it for and how it all works and maybe, you know, what kind of property it is just so we have some perspective on what you get for what price.

Yeah. So I'll tell you, I'll actually tell you stuff that, you know, we're actively looking at right now. So we, and stuff that we've bought before. We're actively looking at a community, a retirement community in San Diego. You can buy stuff for 350,000, which is, which is well below, I mean.

From a value that's super cheap for San Diego. Yeah. And what can you rent it for? So you buy it for 350. Is it a single family home or a condo?

It's a condo and you can rent it. You can rent based on, based on the, based on how it's the.

Condition. You can rent it for somewhere, you know, between 1800 and 2100.

Okay, so $350,000 condo will rent for 18 to 20 $100. That sounds about right. With my metrics you were talking about, I think, Mar Vista, where I used to live on Caswell Avenue many years ago when Mar Vista was a bad area. Now it's sort of become gentrified and kind of nice, I hear. I haven't been back there lately. But tell us about that deal, you know, what are you buying?

Yeah, so we, we currently have a duplex. Right now. We bought two duplexes that are zoned for triplexes. And they're, we're on the process of actually going to the, you know, they're, they're rented and they're a, they're an income play, but they're, they're a break even income play at this time. Because we, we're waiting for.

Don't go with break even. Just tell us the price and the rent.

So we bought them for like 675, just shy of 700. And we rent them for, you know, 2,900. We rent each of the duplexes for 2,900 total.

Okay. So about a little less than half a percent of the value per month. But you're going to add a unit to each of those. Right. Make it a triplex.

Correct.

Okay, and how much will it cost you to add a unit?

It'll roughly cost us 5,300 foot, you know, like $600,000.

What was that calculation you just did? $300 per square foot.

We're gonna, yeah, we're gonna do, we're gonna kind of trash the whole thing down and rebuild.

Yeah, and what's, what's your building cost. I found that interesting, so I want you to share that with the listeners.

Yeah, so. So in that market, we, the two triplexes that we were quoted and we're working with our crews on are roughly in the. All in $300 a foot cost, not including land. Correct.

Wow, that is expensive. I mean. Yeah. Or tell us about the spec. Are. I mean, are these nice? That's a lot of money. $300 per square foot.

You're also including. It's not only construction costs, you're also including entitlement, kind of the plans and permits process and the architectural process and all of that with it.

Right. Okay. Okay. But, you know, that's part of building any new home. So, you know, that's. But you know, it's just like rebuilding a new home. So you're going to pay $300 per square foot. And what will be the total cost of that project upon completion? I mean, of course it's an estimate. You know, things vary. But you know, just approximately.

Yeah. So I mean, those, those will, you know, I think each of those triplexes will probably will sell, you know, will sell for kind of 1.8 each.

1.8 million?

Yeah.

Okay. And. But you're not going to sell them. You're going to keep them as income plays. So your income on those will about the same ratio, about 9,000 per month on each one once you get them finished.

Yeah, so. But, but with the, with the newer finished product, you, you could, it commands a much higher. You can write it for much higher.

Right. I know. No, I definitely know that. So I think you said you were getting like 2700amonth now for each one, and they're duplexes. But what about when it becomes a triplex and it's all nice and new? Do you think you'll get the same ratio, which is. Would put you at about 8,500 to 9,000 per month on each triplex? Is that about what you'll get?

Yeah, I think so. I think so. So that would be. With that level of construction, it being in kind of the Playa Vista corridor with all the tech companies coming in, it easily commands something like that.

Yeah. You know, I'd be interested to know your perspective, having been a Wall street guy and now you live in California, you basically lived in two social socialist states.

The Socialist Republic of New York and the Socialist Republic of California. And I love to tease California. And I can because it's my home state. Lived here for the vast majority of my life, and I live in San Diego. Now, what do you think about the overall economy? I mean, you know, there are certainly forces for growth and you know, there are businesses that still dare to start up in California. California. But there's a lot leaving at the same time. Like, what's your forecast? And are you at all concerned about the fact that, you know, your eggs are all in this high end California basket? You know, and, and that can change. Now, you came into it upon recovery in 2010. And to give some perspective, the people you bought out in Telus Properties, when did they start the company? Was that started in like 0305 or before that?

No, they started right at the crisis, right at the tail end of 2007, early 2008.

Oh, wow. Okay. Okay. So they've always been kind of in recovery mode where it sort of couldn't get much worse.

Right.

They've always been on the upswing. You know. What do you think about that question, though, about being concentrated in this high end Southern California basket?

So, Jason, you asked a good question, I think, which is why we are actually dividing. We don't want a lot of concentration risk. And in our portfolio, we think about it two ways. We think about geographical diversification as well as.

Category diversification. That's why we have the different plays, maybe income or opportunistic or market cycle stuff. But my partner actually lives up in Carmel in the Carmel Monterey area. And that market actually quacks very differently than the Southern California market. So we have a significant number of investments up there. So we like up to the up and down the coast, the northern and the Southern California market. But over the years, if you look at it, Jason, there's been. These markets recover much faster in a much more healthy way than most of the markets in the US and just given the fact that we have.

Boots on the ground, the ability to have agents in each of these marketplaces give us intelligence and clients in each of these marketplaces where we actually own and operate the business. That intelligence is super specific for us because I'd say without actually having the access to the Telus agents across all our marketplaces, we might not have the edge to do things and take the concentration risk that we actually need to take. That's from our side. But broadly speaking.

There is still.

The Silicon Valley market is very strong. The LA market as far as organic demand goes, anything that comes on the market in the.

700,000 to 2.2 million range gets gobbled up so fast. So there is significant demand. And we're seeing that happen in San Diego. We just launched our San Diego presence six months ago. And it is my personal focus to build and grow San Diego this year. And there is going to be more and more push towards San Diego. I think over the next five to 10 years, San Diego is going to become a very, very strong player in the California marketplace. And given the fact that it's, you know, it's been the stepchild for a long time and it's San Diego's time now. But I think we are very fortunate to play in some of the strongest real estate markets in our country where people want to live, where the weather is great, they're actually looking past the tax disadvantages or structural integrity issues, if you will. But at the end of the day when you walk outside and you can have your kid ride their bike around the cul de sac and you can be, come, you know, you know that up or down markets, your home, the value of your home will recover. It's a pretty powerful thing knowing that, you know, that you live in a pretty structurally integrity oriented marketplace.

Okay? So Sharon, I think you ought to be investing with my company because we could get you, we can get you double the cash flow. And interestingly, you know, when we look at these different markets around the country, you know, I was 10 years ago, well, 12 years ago, I was just like you in the sense that I thought California was the holy grail. Okay. And I thought that all the time before that too. What I've learned, it's just interesting, you know, when you say this market recovers, well, well, I agree with you. But it also has bigger downturns because it's a cyclic, it's a very cyclical market and the swings are very big. Whereas if you look at some of these boring linear markets that we like to recommend, you know, where you can get 1% per month rather than point 4 to half a percent per month in income from the property. And you can totally avoid condos, which I'm not a condo fan at all because I just don't like having another third party in there called an hoa. And the HOA gets into lawsuits and then the lenders don't want to lend in the conditions complex and oh my God, that's a complex, hard to control element.

Hey, we, you know, we, I run a brokerage firm. I go through that every day.

Yeah, you, you, you know how it works. Yeah, I, I, I remember it when I was in traditional real estate and I admit and agree with you that the California, the high end market, I don't want to Say California, I should say. The high end market recovery has been pretty astounding, whether it be in New York, you know, in Manhattan especially, or in South Florida, or in any of the northeastern markets like Washington D.C. the, you know, the city of government handouts and bailouts. You can tell I'm not a socialist, I'm sure.

Hey, man, I'm a libertarian. I appreciate it.

Well, I'm right there with you. I'm libertarian too. And you know, Boston and all of these markets have had pretty, you know, in the high end segments of those markets, they've had pretty incredible recoveries, really, in my eyes. But that's because the concentration of wealth has become so significant. I'm sure you saw this floating around in the media last week, you know, like that 62 people now have literally half of the planet's wealth. They have as much wealth is 3.6 billion people. I mean, that is, that is insane. It really is insane. And just a few years ago that number was like three or four hundred people had the same as. So it's even getting more insanely concentrated, you know, and, and I don't mind that. I mean, I'm, you know, in the way, in a way, on one hand I think it's great. I mean, I'm all for people becoming successful, but the fact is they're not really doing it through capitalism. And you know that because you worked on Wall street and that's not exactly capitalism, that's cronyism. But you know, like maybe that concentration of, of wealth won't stay that way. And that's really what's fueling all these high end markets. I mean, I'm sure you saw the movie the Big Short probably by now. And that was awesome, by the way. I want all my listeners to see it. It's a great movie. You know, I just, I read this article in Business Insider today and it talked about how so many of these characters from the Big Short, the real live people, live in this one building, you know, on Central Park. And one of them is, you know, the movie star. God, what's his name now? I'm gonna tell you in a second, but you know, he pays 125 grand a month rent. Okay. And, and you'd think he's nuts. Oh, Robert De Niro. Sorry. So Robert de Niro pays 125 grand a month to live in this building. And it is now listed by a company called street easy for $55 million.

Are you kidding me? That's insane. And it's a condo nonetheless. So I mean the high end market has been insane. I mean the money flowing into that and all of these, you know, I've interviewed some Manhattan brokers and they say the money flowing in from like the Ukraine and Russia, all the rich mobsters, I'm sure they're not all mobsters but you know, a lot of them are, you know, they're just looking for a safe haven. Wealthy Chinese people are looking for America as the safe haven, the Brinks truck. And so that's fueled this. But will it stay that way? I don't know. You know, I mean eventually, you know, the have nots they get, you know, they get upset about this. You know we have the Occupy movements and you know, I don't know if the uber rich can stay that way.

Well, Jason, I think you're right on. And I also think there's going to be some geographical distribution. Right. So we talk about it, you know, on the fund level we say hey, let's not make, let's not make future decisions based on our present mindset. Right. And so that's why we have the 25 year charter, because you're giving yourself that time period relaxation associated with it. So I'll tell you, there are three or four markets around the country that we're extremely excited about that we're doing a significant amount of research and are going to deploy some cash in.

I love, before you say that, I'll bet you none of these markets are these like linear boring markets like Atlanta, Memphis, Indianapolis.

So let me run through this. So let me give you my favorite, my three top favorites. Number one, I love Rochester, Minnesota. Absolutely love Rochester, Minnesota.

It's lefty though.

Yeah. The state of Minnesota has made a commitment that over the next 10 years they're going to try to get Rochester to look very similar to Minneapolis St. Paul. You've got the Mayo Clinic, you've got IBM, you've got. I mean that market is seeing, I mean talk about demand, supply imbalances there. I mean that market is. I love that market. The second market that I absolutely love is Huntsville, Alabama.

I love. Oh yeah, we like Huntsville. Yeah.

And from just a structural integrity, the ability to just generate cash flows, you know, simple boring stuff. Huntsville is amazing, especially given all the government contractors, aerospace contractors and that in that marketplace, Raleigh, Durham is fantastic. We've been looking a lot in the tech triangle.

You're still getting the pop from the tech, but you're not. It's still the south and it's the boring going to grow and climb in a steady pace. Environment and a couple of the up and coming markets. I like the outskirts of Dallas. People are starting to move away from the hub of Dallas, Fort Worth. And there's a lot of what we call micro market imbalances that we're trying to take advantage of. Those four markets we're actively looking at right now.

Dallas has gotten a little bit expensive. I mean, we've done hundreds of transactions in Dallas and Houston and Austin and a little less in San Antonio. So, you know, we've been in all those cities and they've been great. Houston, we stopped recommending because of the oil prices. It's interesting. Okay, so you're in touch with some of the more boring markets now. The ones you picked though, aren't. Those, aren't super cheap, you know, those are, those all are a bit. Well, I don't know about all of them, but they're a bit on the more hybrid side between like we like the true linear and we'll dabble in the cyclical or not cyclical, sorry, the hybrid markets. But you like the cyclical and the hybrids. We like the linear and the hybrid. So we kind of meet in the middle there, right?

Yeah, we should, we should add some linear to our portfolio. So I'd love to talk to you more about it.

Yeah, yeah, definitely. Okay, good. See listeners, maybe we'll pick up a client during this event interview. Hey, I'm curious. How do you raise your money for your fund? I mean, is that all Wall street type stuff or is it just, you know, you go to your clients with Telus, your wealthy clients, and say, hey, you know, we've got a private placement memorandum or what do you do?

Yeah. So we are fortunate to the. For now it's been from, for now it's. I'd say about close to 80% of what we've done is private capital, just hours. But how we raise it is we just, we do standard GP LP syndications. So when we find a deal, it's a 25 or to the GP and then we syndicate the rest of the LP out and we manage the GPLP process. And the folks that we raise from are typically.

Ultra high net worth and family offices. And I'd say we have a, we have kind of a Rolodex, if you will, that we spin. And generally I say the last deal that we put together, like I said in Mar Vista, we had it funded and over subscribed in 24 hours. So it's. The capital raises is very fortunately never been a problem. Just because of, you know, we've put just a personal track record into it, but it's ultra high net worth of family offices are our kind of go to.

Yeah, right, right. The family office thing has become a really big deal. What's your minimum on your investments, usually for your fund. And tell us how it works. I mean, what's the cut for the general partner and then for the other limited partners?

Yeah, so generally most of the time we found we do $100,000 slugs for the Limited as a minimum. Right, 100,000. A lot of times if they have been a consecutive investor, they've invested in several of our deals. If they want to share, we might let them share a slog. But 100,000 is generally the minimum. And based on the deal and how we put it together.

We do all the work as we do all the legal work, the DOC, the entities, everything associated with it. So it's generally a 75 to the LPs, 25 to the GP. And normally there's always a preferred return of say 6 to 8% in there. So 6 to 8% preferred with, you know, with the rest with 25% of the GPS.

Good stuff. Give out your website and just share anything else you want to know as we wrap up.

Well, thank you for having us. Our website is telusproperties.com so t e l e s properties.com we have 19 offices as far north as Carmel, as far south as Coronado, and our goal is to just be good advisors to our clients. So regardless of whether you work with us or not, if we can be helpful in any way, we'd love to. You can reach out to me directly on my cell phone and all the information is on the website. But just want to make sure that everyone knows that what Jason does is so powerful because it's not easy to find the right folks to talk to, have the tough questions, provide great content every single time, and over 3,000 episodes is a lot. So, Jason, I want to thank you for what you do and the content that you put out there.

Hey, my pleasure. And thank you so for coming on and I just wish you continued success. Awesome.

Thank you, Jason.

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This show is produced by The Hartman Media Co. All rights reserved. For distribution or publication rights and media interviews. Please visit www.hartmanmedia.com or email mediaartmanmedia.com Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate or business professional for individualized advice. Opinions of guests are their own and the host is acting on behalf of Platinum Properties Investor Network, Inc. Exclusively.