James Ray - The Untold Stories of Real Estate Podcast - Outwork the Competition in Real Estate

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Welcome to the Untold Stories of Real Estate Investing. This is your host, Wayne Courageous. Today I'm excited to connect with James Ray. James oversees regional commercial real estate acquisitions, developments and joint ventures for an institutional investment manager where he has overseen more than $2.5 billion of investments across all major product types. James spends much of his free time teaching the fundamentals and and tools used by experienced real estate investors. He has taught undergraduate and MBA courses for more than 10 years and also co teaches a boot camp style open enrollment training program called Fast Track which strives to give professionals the absolute best industry training at a fraction of the cost of traditional education methods. You can learn more about fast track@creanalyst.com welcome to our show, James. Thanks for being with us.

Thanks for having me. I appreciate you inviting me.

Yeah, I'm excited to have the discussion and learn from you. So where do you live and work and how did you get there?

So I work out of Dallas, Texas. I was actually born here and then moved away. It's kind of a random story, but moved away, went to undergraduate school in Arizona, grad school in New York, and then randomly got an opportunity to move back to Texas. I wasn't necessarily looking to get back to Texas, but it's really been one of the best things that ever happened to me and I love it and oversee acquisitions in Texas and the surrounding states for my company.

Nice. So what do you focus on in real estate?

One thing I love about my perch is that I'm not product type specific and so I'm more geographically oriented, which I think is great. It's a great way. And it's also frankly, it's a great fit with my personality which tends to be I don't want to have handcuffs on. I want to be able to dive in and understand the entire market. And so I basically just cover Texas and the surrounding states and all product types. And so it's my job to know where there's value in Texas, primarily with respect to commercial real estate. I love it. I love that perch and it gives me a good opportunity to just focus on where things might be mispriced, which areas are growing faster and which product types may have better risk adjusted returns. And so I focus on all property types but tend to focus on the larger ones with an increasing focus lately on alternative classes. And so I would call the larger ones office, retail, multifamily industrial, some hotels. And then on the alternative side, pretty familiar with self storage. I really like single family lot development and single family rental as an emerging asset class. I think that that's catching on a couple others in the kind of niche sectors. But I love just focusing on Texas and it kind of makes you focus on where there's value.

Yeah.

As an institutional investment manager, is there a certain threshold? You know you're doing a bunch of product types, but is there typically like a certain money threshold that you're looking at or is it across the board?

That's a great question. And I think if you ask 10 people that are in the institutional space, you might get two or three different answers at least. And the real answer is, even if it's informal, is yes, typically there is a threshold. And it feels to me that big institutions don't like cutting checks that are less than $15 or $20 million. On the other hand, a lot of times we'll do deals all equity, so there's not a whole lot of debt. And so maybe that's a total deal size. Increasingly, though, where there's value is where we're going to go. And I say we as a sector, not as one. Institutional investors, they'll try to focus on where there's value. So I think that there's probably been a whittling away at that. I think if you asked that question 10 years ago, the answer with a lot of big companies is 20 million and up. And now it's probably lower than that.

Well, it's great that you buy a lot of real estate and I really want to dig into that. But what is. Tell us more about the teaching gig because that's really unique that I really would like to talk more about. So how did you come across teaching and tell us more about.

Yeah, yeah, I appreciate you asking. And it's an interesting thing because I love teaching and I never would have thought that I would love it as much as I do or that it would be as rewarding as it is in terms of being able to get to meet all these great people. But basically I backed into it. I was a TA in grad school and then ended up Teaching a class with a mentor and learned a lot about that when I was pretty young and just kept doing it. So I was a TA for a long time until I moved back to Dallas and then so taught at NYU with that mentor and then moved back, wasn't looking to get back into teaching, taught at UNTD for a semester and then was like, basically it's hard to just teach one class because you don't get to spend that much time with students. You're only with them for about six months, which I really appreciate it, but it's hard to really promote long term growth. And then kind of a mutual friend of another friend and a contact took over the real estate program at SMU and he and I talked about me teaching again and I plugged in and have been teaching undergraduate MBA classes there ever since. Six years ago. And then a couple years ago I basically started teaching on the side of that all nights and weekends. And a friend of mine and I started a program because we were basically saying, look, this is great that people can get access to super high quality professional education if they go back and get an MBA or if you happen to be lucky enough if you want to get to real estate to major in real estate as an undergrad. Which I don't think they had that when I was in college. If they did, I certainly wasn't paying attention to it, but it would have been interesting. That's great that that's there for the right folks, but it's such a small percentage of the people who are out there. And so consequently what happens is you get a certain type of folks that's coming into commercial real estate constantly.

Right.

And he and I said, number one, I think we can be really good at this if we try to come up with a training program because it's hard to find people who have done as many deals as we have and are relatively young, frankly. So they have a Runway ahead of them. And we also both have experience with teaching, so maybe we can, maybe we've got a mousetrap here that would be helpful in terms of helping other people learn the real estate business and really learn it. Not in a sticky kind of get rich quick way, but essentially graduate school education for people who don't have the time, money, bandwidth to go back to grad school, just make it laser focused and offered a fraction of the cost. So we just kind of did it as an experiment in that way and said, look, we're not going to worry about making money, frankly, we're just going to try to be the best and see what happens. We. And it's been unbelievable the last. I mean, we've been doing it for a little over a year. And I think the thing that surprised me the most is just the network of folks. And so it's all, especially with Zoom. We do it all on Zoom and then we have personal in person networking. We'll have meals together in a post Covid world like we did pre Covid. But Zoom is awesome because we do so much in an exercise based kind of way. And so we're really trying to get through real world problems in the class. And we also have several instructors, so he and I teach it together, but we have six teaching assistants, we have eight instructors for a class of 40 or 50. And Zoom has been incredible, you know, because it just pulls in more people than we would be able to pull in otherwise. We get great guest speakers. So it's just really allowed us, I think, to lower the barrier to entry into our world, into the tools that it takes to succeed. And that's hard. It's really hard to get those tools. And we're just making that a lot easier, I think. And hopefully that'll be continue to have positive impacts with respect to level on the playing field.

Yeah, I agree especially with the Zoom because we have a meetup, a monthly meetup focused on multifamily. But when I did it, I was just thinking about, hey, we can't meet in person, so let's do this virtually. But what I'm seeing is so many people outside Texas are coming to it. And I say that really because probably your programs probably benefit from the same where if they're not in Dallas, that's okay. They can be anywhere now. Right. So are you seeing that?

Yeah, totally. Yeah, 100%. I think it lowers the barriers to people being able to plug in, but, you know, more than geographic, although it definitely is diversifying us geographically. I think the thing is like, so you have what, three or four kids? How many kids do you have?

I have three.

Yes, you have three kids. You're super busy. You work your butt off during the day, you do a podcast at night on the weekends, and you're busy. Right. And so I'm not selling you my class, but I'm saying that someone like you, there's zero percent probability that you would ever stop what you're doing, come to Dallas, sit in a class from 6 to 9pm on a Wednesday night, which means you have to leave at 5, which means it's harder for you to do your job. Then you get home at 9:30 or 10 at best, and you know, your partner's like, hey, I'm glad that you get to go off and kind of benefit your career. But I'm kind of holding everything down while you're away. And it's just easier, I think, and more accessible. So it makes a big difference. Now, I think the trap with that, though, is if you're teaching in a traditional way, which in my mind is a three hour lecture, you're going to get smoked on Zoom. And you're going to know it because it looks. One of the things I love about Zoom is you may have a class with 30 people in it, but I can see each one of your faces and you can see mine. If I am not doing a good job of holding your attention, you're telling me whether you want to or not, with the bored look on your face. I think that's a big difference with our program and what Richard and I, the guy that I teach this with, what we focus on is just we spend roughly a third of it lecturing, then we spend a third working on things together. Real world problems as a class. And then we break out into sections and each section has a section leader and we do a very specific exercise that's pretty much akin to what it would be like to intern with an acquisition shop or a development shop or an asset management shop where you have to negotiate a lease or you're looking at an apartment building or whatever. You have to work through that with your group. And then we come back together, share lessons learned, and kick off the homework for the next week. So it keeps it moving and it's just interesting. I remember in college and in grad school, when the class was over or close to over, everybody wanted to bail. It's like slam the books down and run out. We kind of have the opposite. People usually hang out 30 to 45 minutes after the class every Wednesday night and just have Q and A and kind of just catching up and doing some networking. So Zoom has been hugely helpful. And I think that doesn't apply just to teaching. I think it's just that you have to program it well and you have to be very deliberate about what you're trying to do. If you're just trying to lecture at someone and have a one way form of communication, it's not going to go well.

So for the listeners, what's like the curriculum, like, where are you hitting all classes of real estate? Are you. Is it really focused on people that are getting into investment sales or acquisition.

Yeah, great question. So I think the biggest problem with real estate education in general is there's no one really teaching the fundamentals. There are some that do pretty good surveys of here's the industry at large, so why do two guys that are practitioners by day. Neither of us really want to be real estate professors, right? Like, it's not our goal to be a full time professor. Our goal is really always going to be on the investment side. But what we've done is put together what we think are the eight critical fundamentals of commercial real estate, and we focus on them vigilantly. The method of which we teach them really runs through four transactions. So every single deal that any of us are working on has to do with at least one of only four things. We're either trying to buy or sell a property, either borrowing money or lending property. You're teaming up with someone else to do a joint venture. So partnerships end up being a big deal. Or probably the most common one is you're involved with the lease. Because of that, there's a set of documents tied to each one of those four transactions. What we try to do is make sure people understand the frameworks that professionals use to navigate those four frameworks. And you can use those in any property type rather than giving you things that you can memorize or really trying to build skills. And that's what we focus on. And it's those eight fundamentals. And it starts with here's the commercial real estate landscape. It's really important that you know who does what and why they do what they do so you can connect with the right folks all the way to valuation, which is probably the most important to joint ventures. Like how, you know, how do you look at a waterfall model?

Yeah, I had an opportunity on a couple of years to you do like mock interviews and just been really impressed with the quality of student, but also what they've learned during the program. So, you know, one thing I wanted to ask you is, you know, what differentiates students that are really succeeding and doing extremely well in their career? You know, what's the difference in the students that you're seeing who are taking.

It to the next level or just going on?

That's a great question. So since I've been teaching for a while, especially at undergrad and undergraduate and MBA programs, I've seen a lot of people come through and I try to keep in touch with folks. It's been fascinating. I mean, it is such a fortunate perch that I get well worth the time investment because I get to see these kids come through, and occasionally they'll follow up and be like, hey, I really appreciate your class, and I really care about them and them accomplishing things in their career. I think it makes their lives a lot better. Right. And hopefully my time with them is not over just because the class ends or the semester ends or whatever. And so I try to keep in touch with folks. And there is such a big difference between the classes. Right. I would say the first thing that I learned is that the difference between the best kid and the third best kid is five times. It's not 5%, you know, I mean, and look, I probably wasn't the best kid in my class. You know, I'm just saying that there is the high flyer and that that person is just wired differently, you know? And so from a recruiting standpoint, if you're looking to find people, which has been quite a bit of time doing, there's a big difference if you can get one of those. And it's not all positive, a lot of it is. But it's helpful to know where you stand in that regard. Right. If you're a student. But the good thing is that you don't have to be that student to kill it in commercial real estate. In fact, the vast majority of students aren't that student, obviously. And what we're doing is not rocket science, so it's not brain surgery. What I think differentiates, folks is the people who do the best have a clear path. Like they know. The ones that know what they want to do the soonest, with specificity, tend to do the best. And frankly, they realize. I think a lot of times they realize they're not that high flyer. But they say, I love real estate because I don't have to be that high flyer. But no matter what, I'm going to do well in this sector, and I'm just going to outwork everybody. That's usually the person that's super basic. Right. But they don't make excuses. I think you see a lot with that mindset. They're much more humble. They appreciate that they're not the high flyer in some ways, which is kind of interesting, because they've become that higher flyer. Because I'd much rather have someone who's experienced and knowledgeable and works hard and gets up early and goes to bed late and all that, but knows that they know they want a career in this space. Those kids kill it, and they do it consistently. That's another thing. The market for talent over the long haul is incredibly efficient. If you're really good, you're going to get to the spot you need to be at almost regardless of what you do. Even if you go out on your own, I think that things are just going to follow you because you're doing it the right way. It goes the other way, though. If you're not really good or you don't invest in yourself, you don't try to build these legit skills, you hit walls 100% of the time. I've learned a lot about that, which has been awesome to watch.

I like what you said there, where I've said this before on the show and others that are looking to get in real estate, you got to love it. It's got to be a passion because it's brutal, emotional high lows, a lot of work, a lot of relationship buildings and networking, et cetera, a lot of finance, a lot of underwriting, lots of properties. And also, I mean, it makes sense where if a student has that passion and the grit to work hard and get through it. But one thing is, is like, what are you seeing? Those that are trying to get into the real estate profession, especially in your class, what is typically the most difficult? Is it the finance side? That's the part that I've struggled with a lot was on the finance side. But for me it's always bringing, you know, when you're weak at something, you, you bring in a team that offsets you. So, you know, I'm curious on, you know, what are you seeing what is typically the, the weak Guest?

Yeah, that's a, that is a really, really good question and a common one because if you didn't come up through a background where you happen to learn that it's really common for people to be intimidated by that. Right. So people say, I don't understand waterfall models. Right. I am 100% sure that if you give it a couple weeks and you focus on the modules the way they should be taught, you can. Anyone can pick up waterfalls and more than I've helped folks learn the waterfall modeling kind of thing since I was in grad school. And one of the things I noticed really early on is people rarely have Excel problems. They really have thinking problems. They don't know what we're trying to get done. And so then they'll go take a modeling class and there's some really great modeling classes out there. But it's the not understanding how partners fit together that causes them problems. Right. So I'm 100% sure that that is curable, that that deficiency, if you want to Call it that is easily remedied. And also that's not the most common setback I see. The most common setback I see is the inability. I think it's a marriage of two things. Number one, a lack of awareness about shortcomings. So the fact that you even ask it in that way tells me you don't have it. Which I think is a really great sign. It's something, frankly, I would want in a partner. I don't want people who act like they know everything, so no one knows everything. We all are just a consequence of what we chose to invest our time and energy into in the past. And probably some luck that came our way as well with good mentors and good teachers and so on good experiences. I think what I see a lot is that the fatal flaw is the way I would say it tends to be a lack of awareness about what you're not good at, which then if you have that lack of awareness, you won't invest in it, right? And you don't realize that more than you need air. If you want to survive in this space, you need to build these skills. And so then the next thing that kind of marries up with that is they just don't have another fatal flaws. They don't have the just go get it done. They think that it's the same kind of kid who's like, if you just put me in touch with the right person, I can get a job. And a lot of times my response is, dude, I could put you in touch with 200 people and you're never going to get a great job because you're not very good yet. You know what I mean? And you're thinking that it's just if you can just get the stroke of luck that everything will pan out. The market's pretty efficient. People aren't hiring you for a set of good reasons. And the good news is if you fix those reasons, they're going to hire you. Maybe not the first person you talk to, but it's a marriage of those two things. So it's not knowing your own weaknesses, which is very. I mean, that's a lesson I try to take to heart, right? And I try to be very aware of what I think my weaknesses are. And then also not doing whatever it takes to just grind through and fixing those weaknesses, but also just, okay, I've done the thought that it requires, and I'm just going to push and there's a real good chance I could fail in anything. We're all taking risk, but it's not going to be because I got, as I say in baseball terms, a bad at bat. Right. I'm just going to, I may strike out, but I'm going to get up there and I'm going to have a great at bat and do everything I can to have a great at bat.

Yeah, well said. So what are you, are you experiencing the results that you had hoped for starting the program? And then what is really unique about Fast Track?

Yeah. So I'd like to say there are a handful of things that are truly unique and I think that's very true. I'll try to boil that down. But the success has been way beyond what we thought and way faster we thought because truly as an experiment we just said, look what really got us off the two things, kicked us off the sidelines and wanted to get this done. Number one, the guy that I teach with and I really did start to think, I think that we might be the best people in the country to do this. They're probably not two other sub 40 year olds that have collectively decades teaching in a couple different environments and namely teaching adults and also have a lot of experience with deals and that we don't want to be professors. Like I'm not looking for a gig at a school. You know, I teach at SMU because I love SMU and I think it's great for Dallas. And I think frankly I think it's the best real estate program in the country and it's evolving and pushing the right direction. And part of that is because Dallas is such a big real estate town. But they're doing a great job there getting students what they need to know. And I love that program. But there's all these other people that don't have access to professional training. And so we really thought we could be the best. It was still sort of a academic idea though at that point it's like, oh, that's interesting. Wouldn't it be cool if we're the best? But then I was drafting a textbook because I never made my students and still don't to this day in academic programs or in this non traditional approach, I never make them buy a textbook. I think that's like such a gig, you know. And I value the textbooks I had to buy in grad school, you know, the thousands of dollars of stuff I had to buy. But frankly they're just not very usable. You got to read thousands of pages to get to the paragraph that matters. And half the time the paragraph that matters isn't in the book.

Right.

So I had started Drafting a textbook for my students, because I never required them to have textbooks, but they need something to read. And I met a guy. A big part of what I'm trying to do is level the playing field for people of color, for women, and for veterans. And I met a guy who was so interested in commercial real estate. He knew that he wanted to be in real estate, but he also have the fatal flaws I mentioned earlier. He knew that he didn't have the skills he needed to be able to add value. So I bumped into the guy. He's like, hey, I heard. And he talked to you. I really want to break into real estate. And I said, that's cool. That's awesome. Nice to meet you. If you really want to break in, why don't you give this a read? So I tossed a book at him because I had finished the valuation chapter. I said, let's have breakfast. I'll grab my buddy Richard, who I teach with, or who I'm talking about teaching this class with, but you should meet him anyway. We cover very different things. He's a developer, I'm a capital guy. Let's all get together. I'm sure he'd love to meet you as well. So we'll have breakfast next Saturday morning. We got together, and that book that I threw at him, kind of as an afterthought, he came back, and this thing was beat to hell. I mean, he had 100 questions scribbled in it. There are highlights all over the place. I have a picture of it now. I got him to send me a picture of it because it really is, like, sometimes it'll kind of get you choked up because you're like, gosh, we built all of this. Literally on that Saturday afternoon, Richard and I looked at each other and were like, damn, I guess we got to go. I mean, because this guy's going to push us, you know, he's kind of calling our bluff. And I mean, that guy's an asset manager now, and he was selling educational software a year ago. The bigger thing is his chances of doing really, really well as an investor are exponentially higher now than they were before. And he adds a lot of value where he is, and he's going to continue to add value, but truly able to level the playing field with that. That's what got us started. And so I say all that because we kind of backed into it, and it was an experiment. We didn't really have a goal, literally, other than we want to be the best. And so when we have an issue, like we Used to teach the first couple rounds of this class. We've gone through five full rounds now of the class. They're 10 weeks. We've done five of them over a year and a half a year plus a little less than a year and a half or something like that. But the first two were in person after the second one Covid hits. And so we have to adjust. Well, when you're not worried about money or something being a pain in the butt, you just say, look, we need to be the best. What does it take to be the best? We need to hire some teaching assistance. We need to get the students teacher ratio more in balance if we're going to try to do this interactively. And then we were favorably surprised, Right. We actually like it a lot better on zoom. As long as you do it that way, where you have eight instructors for a class of 40 or 50 people, that's just hard to do. And most programs don't think that way, you know, because they're not. Their sights are not set on the. Literally the only thing we want to do is be the best because that will allow us to level of playing field. And so the results have just been there. I mean, over half of the people who have taken the class, we've had about 150 people come through it, have either found a job that they're looking for in commercial real estate or gotten promoted in their existing jobs. And they're big promotions. A lot of them are now partners and stuff like that. So we track that reasonably well and it's off the charts. I mean, they've all. And they've gotten those jobs during COVID which is pretty good. And our thing is that it's not a certification. We don't want you to get the job because someone sees CRE analyst on your resume. We want you to get the job because you know your stuff and someone can ask you about it and you know those skills. And so it's just. It's working. It's not rocket science, right. If you do it in a focused way. And I think a big thing is that you get the right people in the class. As much as I'd love to say that we're like the best. I mean, Richard and I are the best real estate teachers ever. Realistically, half the battle is just getting the right people in the right seats, right? Because that's the part that's been the gift that keeps on giving, which has been just the network because you have 30, 40, 50 people in each class and they are just killers they all are 100% certain that they need these skills to thrive in real estate. It just builds a really cool collection of people who are aligned. I feel like you have very close friendships come out of this, which is great. It's been a. Yeah, the results have been there and we expected them to be, but it was, like I said, it was an experiment.

Well, like I said, the people that I've met through your program and just knowing you, I'm really glad that we went through all this because Fast Track and CRA analysts I know has a lot to benefit, especially our listeners out there who are looking to get into real estate investing. You gave an example of one of your students who was what, selling software and so anybody can do it. But going back to what we talked about earlier with having that grit, that passion for doing it, and not really getting caught up on potential weaknesses, but just realizing, hey, we got to start somewhere and let's just be the best at bat, like you mentioned. So I want to shift gears and really talk more about your experience in real estate investing. So what's an investment experience where you really struggled but you dug in and showed grit and were able to make it work out?

Yeah, that's a really, really good question. And I think most people don't want to talk about hard times. You know, it's like, it's like the interview question, you know, what is your weaknesses? I just try too hard, you know, it's something like that. And I, it's like I said, I think that's a fatal flaw of folks. It's been a fatal flaw of mine in the past where I wouldn't acknowledge my own weaknesses, you know. And you think that just grit, determination and being hard headed will get you through. That's true a lot of the times, but you have to do it in a strategic way. Can't be a bull in a china shop. I actually really take some sort of odd pleasure in diving into what were the hardest situations and at my fault, or maybe especially when they weren't my fault. The hardest situation I've gotten into is something that was totally bad luck, which actually makes me appreciate all the good luck I've had. I am so far ahead in the luck game, I shouldn't ever go to Vegas because I'm just ahead of the game. Lucked out with mentors, lucked out with opportunities, lucked out with friends. Like really, Really. I mean, I think you're a good example. This. I've just lucked out. Right. But I've gotten a couple Bad, bad cards. And one of them was on a project that was. Just ended up being a disaster. And it was hard, and it would have been really easy to just stick my head in the sand and turn and look away and just be like, well, that's a bad deal. We just. We got a bad card, you know, and it stinks. But my team and I really worked exceptionally hard to leave it in the best possible shape, and we saved a lot of money doing that. Right? And so that's an example, which is just the details don't matter. What matters is that I don't care who you are. If you invest for long enough, you will absolutely have bad experiences. And if someone's telling you something different, they're lying. It's a Ponzi scheme, and you should get out. And it really doesn't take that many investments. I would say even if you're a great investor, you do five deals, one or two of them are not going to go as well as you wanted them to. And you've got to wrestle that sucker across the finish line, right? And it's more about mitigation than it is about creating this massive wealth that you might have shot for. It's really what those people do in those times that matter, because they don't talk about it, you know? And so I always say that life's too short to have bad partners. And I want partners who. And I want to be a partner who looks at it this way, is that once we're in the game together, it's. I mean, you're getting someone who will grind on those. And I'm not selling you anything. Right. I'm just saying, as a general ideal for a partner, it's just, are you gonna. When you get into the mess, are you really gonna put your head down and grind on it when you don't have a lot to benefit other than your own pride? I think that's a telling thing. And I've had to do that once or twice in one case in particular, and I'm most proud of that. And nobody even knows about it because you don't brag about those types of situations. But I think that's a great. A really good question, because, frankly, I probably wouldn't want to invest with someone if had they not gone through times like that.

Did you have to. Did you have investors that you had to communicate? I mean, how did they respond? And how did you get them to realize that, hey, we've got partners, general partners that are working around the clock.

And, yeah, in that Case I didn't. Yeah. That didn't have those dynamics as much. Yeah. So it's a little different. Good.

So what are some of the overlooked aspects of real estate investing that you've seen in your career?

Oh, that's a really good question also. So there's so much that's overlooked because I think the normal. However most people learn real estate, it's, you know, it's a relatively simplistic approach. It's cap rates are X, interest rates are Y. You can't lose money in commercial real estate. Buy land, God's not making any more of it, blah, blah, location, location, location, whatever. All the cheesy things are. Right. I want to say that all these things are bs, but they are not. They just aren't digging. They're so superficial. And so there are correct frameworks, in my opinion, to understand. And I think a lot of people don't understand those. And so the most important one is, I think, valuation. I think one thing that I'm good at is whether you give me a piece of raw land in New Braunfels or a million square foot building in midtown Manhattan, I think I could come up with a good value for both of those assets. And that's because I've been working my butt off for 15 years to try to get good at that. Right. And you can't really trust anybody to say, hey, here's, you know, what am I going to trust a broker? He's telling me, buy, you know, this million square foot building, midtown Manhattan for a billion dollars. Now I got to come up with my own value. Or someone's trying to sell me a piece of land in new Braunfels for 2 million bucks. Maybe it's worth 5, maybe it's worth 500,000. You really have to come up with your own value. And I think that's where people shortcut it and shortchange themselves a lot. And I think the best partners possible would be as a sponsor, would be people who know how to generally value something so they can talk the language. Right. And vice versa. I certainly wouldn't want to invest with a sponsor who wasn't a great valuation person. So if I had to pick one, I think there are a handful. If I had to pick one, I would say valuation skills.

I'm really glad you mentioned that because if you just go off the broker's offering memorandum, everything works on a broker's om.

Right.

And you do make a great point, like you have to go in and underwrite and get in. You know, look at the Comp set, look at everything from the expenses and the revenues, et cetera, to come up with your own valuation. So I would say that, you know, a lot of people get burned when they go in and they trust the broker's om, or maybe they don't know the market as well, and they buy in an area that they're thinking they can turn the property around, but it's hard to turn the neighborhood.

The good news also is that it's really simple. Once you get the framework down, you don't have to be afraid of all this stuff you don't know, because even though there's definitely a set of things that you don't know, you're going to be unaware about. What I find those frameworks to be is really almost therapeutic in the sense that they, they let me know that I'm covering the critical stuff. And it's so basic. So a good example, I mean, really how you and I have come together. You know, one of my first jobs, asset managing something in Dallas, was an office building in Austin. I was pretty intimidated. I, you know, I didn't know like what office space in Austin lease for, you know, and pretty young. I don't like being wrong. I don't like failing. So I basically got thrown out of every. Literally, I got thrown out of every building in our peer set for going in there, taking pictures of vacant space. And it was a little more lax back then than it is now. Now they didn't have security and key cards and stuff to get up in the elevator banks. So literally I'm just like, I don't know the space. There's only 8 or 9 million square feet of space I'm competing with. I just better get the walking buildings. And so I think real estate really lends itself well to people who think in those terms. Like, I don't need to be Dr. Ray, the real estate professor. I just need to be someone who outworks everybody. Because I'll go walk the comps and I'll come up with. I literally take pictures and put them in a Excel spreadsheet. And I have my. Here's what I think this space is worth. Here's the comp. And it's pretty basic in that way. And those basics never go away. And I just love that whether you're doing a billion dollar deal or a million dollar deal, the mechanics still hold. And so I think you're exactly right. That's why getting back to that original fatal flaw, the people who won't just grind their way through really is hurtful. And they won't do that because they'll start buying the stuff. They get a book from a broker. I don't blame the broker. They represent their client. They're trying to get the best price possible. So they're trying to get the most aggressive set of assumptions that a reasonable person could buy or they could reasonably sell to me. That's what they're trying to get me to buy. Not what I want, but what I will accept. That's their job. They're supposed to do that. It's my job to come up with what I'm actually willing to accept. And there's no shortcut to that.

One thing I've been noticing recently, taxes, so not all brokers, but just some I've seen on the oem, is they'll use taxes based on the current tax value instead of the. What you're buying it at.

Right.

So something, you know, for the listeners out there when you, when you do, like the om, really dig into taxes and find out that tax rate and, and what really is behind, you know, their, their underwriting.

Yeah, I think that actually might be worth, I don't know how much time you have, but I think that's worth a quick dive in because taxes are so critical and Texas is different. So I'm guessing that some of your listeners from Texas. Texas is a non disclosure state, which means that when something sells that the documentation around that is not necessarily available, especially with respect to price. But Texas also does not have a state income tax. And so the governments get most of their income from property taxes or a big chunk of it. And so they care a lot about that property tax system. And they essentially have to reassess every building in Texas every year as of January 1st. And then there's a process by which they value it, they debate it with you. And it goes up a lot. Right.

Often.

And it's something that has really differentiated investors over the long haul, their ability to accurately project where taxes are going to be. Because the tax rates in Texas are roughly 2 1/2 to 2 1/4% depending upon where you're looking. So that means 2.5 to 2, 3/4% of the assessor's value is going to be owed every year, which is a big hit. Right. It's important to understand that because it's very common or has been over the last 10 years. I see taxes go up 20% in the first year, so sometimes a lot more. And so you really have to have a good idea about that. I think that's Something that differentiates people, they're understanding. I mean, that's one good thing about you, especially is your background on that. I mean, you've been in a place where taxes, because of how property values have been going up in Austin, you're very, very familiar with that. So it's something that you're going to be very knowledgeable about. So it doesn't surprise me that you focus on it. And it's an important thing to focus on. I think that if I had to say the place where people make the biggest mistakes in multifamily investing, it's that in Texas especially, they miss on taxes, they could be right on everything else. You miss on taxes and your returns are gone.

Yeah, well, we fight them, as you know, every year and they're getting more and more aggressive. So it's better to underwrite conservatively, Even if that's 100% of value, which kills deals.

But at the end of the day.

You want to be sleeping at night, not worried that you can't make it work. Hey, shifting gears, James, on passive investors.

What'S your experience on the passive investing.

Side and what do you recommend they look for when looking at real estate opportunities?

Yeah, good question. So I try to. This is just my own personal opinion and it kind of, I mean, I basically invest in my 401k and then I try to make big bets with my private money so I don't have to. First of all, I don't have a lot of money, so it's kind of small change to a certain extent, but I've tried to be very targeted in it. So to me, it's like I want three to five things that I think are great. The goal, you know, hopefully I don't lose that money. So I am risk averse in some ways, but I'm also willing to take some risk in that. So for example, my mom and I invested in a franchise in Houston a couple of years ago. Right. So that was a fairly big one for me at least. And then have done things kind of similar to that. But basically I don't want to be one of these people who, I know, people who, they spend so much of their time on Robinhood or wherever else, like day trading. To me, that is not my, that is just not my deal. I don't want to be checking my portfolio at one o' clock every day. I mean, I can't be in 10 different places at the same time. And so I try to make it the kind of thing where I can do a lot of work. On the front end to get into investment in an investment and then you kind of let it go and make a strategic call and just make sure that it's not getting messed up. And so my advice, I say all that because my advice, I mean I tailor it because you should know how I'm coming at it. Right. It's a relatively passive approach in some ways. The first thing I'd say is to not, I don't want to say don't trust people, but you got to be your own arbiter effect, right? So I'm not an investment advisor. Don't trust me. The same way that we're talking about brokers. There's nothing wrong with an investment sales broker trying to get you to a higher value. You want an investment sales broker doing that if you're the seller. But you need to really understand who the players are and what their motivations are and be your own arbiter of fact and opinion. The second thing I would say is pick a spot. I cannot be good at everything. So what I've tried to do, I told you I technically cover 10 or 15 different property types, but really, I try to be really, really good at like three, you know, and they're the mix. Some of them are alternative classes, some of them are the big stodgy institutional ones. And I really prime same way that the class I want to be the absolute best person at X and it's a race because it's hard to be the best. How do you differentiate? No one will ever be able to tell you I was the best, whatever self storage investor, but I want to be, which means that's my standard. So I really tried to understand that asset class intimately well and so I think that's been helpful to pick a spot. Now I had reasons for picking the spots that I picked and I would encourage you to find your rationale. Do some homework before you pick a spot, but pick a couple spots even as a passive investor. Third one might be the most important one is find a partner who's good. I mean, I have been rewarded by, rather than being the guy that needs credit, just team up with someone who has overlapping strengths and covers your weaknesses and hopefully is better at things than you are and bet on them and then measure yourself. This is what I try to do, measure myself as a good partner rather than being the one who's smart and helping you find things. It's like, no, my job is to be a good partner. I obviously trust you. I wouldn't be a partner with you if I Didn't I picked you? Right. So it's not like I just went with a random partner. So I picked you for a set of reasons that I did my homework on, but a lot like the franchise I mentioned that I bought with my mom, I want to do all the work up front and then kind of get out of the way. So in that situation, my mom ran it and I was basically the equity and sort of the person that negotiated the lease. And that was one of the first things that taught me, like, hey, maybe I actually know more about this commercial real estate stuff than I thought because I had seen a bunch of leases at the time. So I would say find a partner. I mentioned the valuation thing. I would throw that in there as well. Know how to value properties. And then another topic that I think is critically important, and this is one that I borrowed from. MBA Top curriculum. You really have to understand what drives positive versus negative financial leverage. When it's a good time to borrow, when it's not. I mean, that's like kind of very 101 old school type stuff. But it is so important to understand that leverage can be fantastic or it can be absolutely terrible. And it's important to understand it so not just the mechanics of it, but what recourse is and who's providing it. And I look at that as like, when and how much are you required to put into a deal? You know, if a deal costs 20% more than you thought it was going to be required, do your limited partners have to put up that money? If a bank calls on a guarantee, do they have to put up that money? I mean, and then also understanding, is it a good idea to put on leverage for everybody or is it only good for the sponsor? You want to be able to have that conversation with the sponsor. Right. So I think people misunderstand leverage.

A lot of those are all really good points. And as we close here, what are some of your proudest moments in real estate?

And then how can people find you?

Yeah, I appreciate you asking that. I would say, I mean, I'm really proud of the wins. Obviously it's hard not to be proud of those. But like I told you earlier, I'm proud of in the losses, thankfully, I've had more and more profitable wins and losses, but I'm proud of the way I carry myself and the losses. And I would say, you know, it's strange is I've spent so much time building this career, like I'm really wanting to be excellent. And the thing that I'm probably the Most proud of just, I kind of backed into because of a friend said we ought to do this where I think we can be the best. And it's a teaching gig. I mean, I think that I can be. I'm not like this. I'm not like the chummy country club type, right? That's gonna, like. I don't really like golf that much. I don't really care about, like, you know, hanging out with the bros for hours and hours on end. And I wouldn't say I'm prickly, but I'm probably closer to prickly than I am chummy in a lot of ways. But teaching has, I think, given me framework where people can see that I really do care about them and their careers, and it ends up building these really, really close friendships. And I think I'm proudest of that because so few people actually stop and say, I've learned these frameworks and I want others to learn them as well. And I'm not trying to take anything from you. We're not trying to maximize profits. I just want you to take it. Level the playing field and let's just grow the pie together and let the chips fall where they may. I think I'm proudest of that. And honestly, I think I'll be exponentially more proud of it 10, 20 years from now because I didn't expect to be churning out 150, 200 kids a year out of my teaching investments. And so I'm proudest of that today. And I appreciate you asking that question. It really means a lot to me. And then I think I'll be even more proud of that in the future, which is awesome. It's a fun thing to be a part of. And then you can contact me. I mean, I'm on LinkedIn, but it's probably easiest just to email me. My email is James d as in davidrayremail.com so sometimes it takes me a while to get back, but if you ping me, I'll do everything I can to get back to you. I kind of checked that email last, but I'll keep an eye on it after this show. But I'm pretty accessible. You can look me up, especially if you're interested in breaking into the industry or if you just want to gut check on something. I'm always happy to. I love this industry. I think there's a place for everybody in real estate and I'm so thankful that I kind of backed into it and I'm always happy to brainstorm with people about it. So I appreciate you having me on the show, man. And I did say this earlier, but you were one of the first believers in that class. And I appreciate what you do and how much you care about veterans in particular. And I appreciate you taking time to do the mock interviews. I mean, you interviewed the guy that got the job first. And actually you interviewed all the guys that got the jobs first. And it wasn't just guys, but you. I mean, it's really valuable that you did that. And I appreciate your support and just, you know, frankly, just being a friend in that way, saying, hey, I think this is a good idea. I think people are going to benefit from it. And I like what you're doing, man.

It's awesome.

And I appreciate you spending some time with me.

Yeah, James, I really enjoyed it and thank you for all that you're doing and if I can do anything for you, just let me know. But a lot of great value here and for all those. Again, want to know about James? You know, go to the creanalyst.com website, what he's got going on. It really is a good program for those trying to get into the industry.

So thank you, James. Sweet.

Thanks a lot, man. Take care.

That's all for this episode. We hope you subscribe, share and leave a review of the show. For more information about passively investing in multifamily apartments, check out Wayne's free ebook by going to c r eipartners.com ebook Also, follow us on Facebook by searching CREI partners. This was the UN.