Ep #139 – Salvatore Buscemi – Focus on Investors – How To Raise Money In a Tough Market!

  • Here’s some of what you will learn:
    • How to raise capital in a tough market.
    • What is a Family office?
    • Core principles when dealing with investors.
    • Treat your investors money like it’s your own
    • Be prepared to ask the hard questions.
    • Always do the right thing.
    • What are loan covenants?
    • Never buy based on the pro forma.
    • Learn how to analyze the numbers.
    • What are Pitch Books?
    • How to set up a Pitch Book.
    • How to acquire private lenders.
    • Why you should find investors first before you find a deal.
    • More info on developing an elevator pitch.
    • How to self manage a property.
    • Positions that should be part of your team.
    • What is a LTC (Loan To Cost)?
    • How to give investors extra value.
    • Learn more about Salvatore at http://thecommercialinvestor.com/
    • Connect with me on Facebook at Rod Khleif.
    • Text Rod to 41411 or visit RodKhleif.com for a FREE copy of my book, “How to Create Lifetime Cash Flow Through Multifamily Properties.”

Full Transcript Below:

Ep 139 – Rod Khleif with Salvatore Buscemi – How To Raise Money In a Tough Market
Rod Khleif:   Welcome to another edition of How to Build Lifetime CashFlow Through Real Estate Investing. I’m Rod Khleif, and I’m thrilled you’re here. I know you’re gonna enjoy today’s guest. He’s a friend of mine. We’re actually on a high dollar, high-end digital marketing mastermind together and that’s how we met. His name is Sal Buscemi, and he’s a Managing Director of Dandrew Partners.

Now, Sal knows how to find money and basically, he knows how to raise capital on demand even in a tough market. So we’re gonna dig in to that. As you guys know, we’re headed into a contraction, and it’s gonna be a tough market here before too long. Tough to get financing and so we’re gonna tap in to Sal to tell us how to find that money when that happens. Sal, thanks for being on the show, buddy.

Sal Buscemi:            Rod, it’s a pleasure and a privilege, thank you so much for having me on.

Rod Khleif:   Absolutely. Maybe you could take a minute and just tell us a little bit, fill in the blanks on your intro. How you got started in this business? Where you came from?

Sal Buscemi:            Sure.

Rod Khleif:   Who you are?

Sal Buscemi:            Yeah, I started out in this business early on after college. I got a job working at an investment bank on Wall Street. I started out working at Goldman Sachs. I started out in the late 90s. I was actually working on investment banking side doing several other things.

I just had mouth surgery, Rod. I apologize for this.

The key takeaway was that I learned from the best and brightest bankers at Goldman Sachs, how to be able to raise money, and place it in to assets. I learned long ago, when you work at an investment bank, you learn that the biggest names on all the biggest buildings around the world and I’ve been to small cities, to large cities, they all had the name of banks on them, not landlords. Not even Trump Towers for example.

We made the cognizant decision at a very young age, to be able to transition. I was working with some very sophisticated wealthy family offices, $200 million or more in net worth. Then after that I saw in 2007-06, the trees were actually not growing to the sky anymore. I used my, what I call intellectual capital or experience in my network, to be able to raise $30 million from another hedge fund.

We started a defaulted residential non-performing loan pool, we were principal bid, and we did pretty well with that. We became, basically, the kitchen sink for Barry Stern. We’d buy all their rough subprime loans, non-performing. I’m sure you’re familiar with what I’m talking about.

Rod Khleif:   Sure. Sure. Sure. Back in the day, in fact some of mine may have even got dumped in there when I imploded in 2008.

Sal Buscemi:            [laughter]

Rod Khleif:   You probably ended up with some of my houses, you rascal.

Sal Buscemi:            Probably.

Rod Khleif:   By the way, for my listeners, family office is when you have a very wealthy individual they’ll typically set up an office to handle their affairs. Everything from their finances to their taxes to their security on down the line. They can be a fantastic source of capital for your deals.

In fact I remember going to a family office conference in Miami a while back. They’re very high net worth anywhere from a few million to billions.

Sal Buscemi:            Real ones, the ones that I go to start out at a hundred million because…

Rod Khleif:   There you go.

Sal Buscemi:            ‘Cause they cost about a million dollars a year to operate it. Think about Paris Hilton, she has a private jet, her own lawyer when she gets into trouble, all that kind of stuff. But that’s really…

We’ve tapped into a lot of institutional capital. In 2010, we saw something happening with commercial so we bought a servicing company, raised $15 million around it and that got me to Las Vegas. We were buying a lot of hard money funds that were in receivership and bankruptcy. A lot of these private lenders were blowing up ‘cause subprime wasn’t there anymore and commercial loans weren’t being made.

Then fast forward to that, we saw an opportunity and we decided that we were going to raise $55 million for a fund, which would buy grocery anchored triple net lease retail stores. We raised $19 million before we all gave it back because we didn’t like… We weren’t comfortable with the prices at that point.

Rod Khleif:   When was this? What year was this?

Sal Buscemi:            This was 2015. We gave the money back.

Rod Khleif:   Okay. Okay, so you try to do a raise that didn’t come together. You weren’t happy with what you saw and you gave the money back, and moved on… That’s not a happy day.

Sal Buscemi:            No, it’s not but I’ll tell you it does wonders for your reputation. Right?

Rod Khleif:   Right.

Sal Buscemi:            Because even people are… This is our first mom-and-pop raise, non-institutional, so there are a lot of people out there who are trusting us with their life savings.

What is life savings? It’s savings after taxes. It’s like all the years you worked after taxes, this is what you’re left with. We learned a lot with that because a lot of people are sophisticates. They’re like, “You know what? You know what you’re doing. You’re mature. Whenever you want the money back, just give us a call. That’s maturity. A lot of hedge fund managers do that. That’s professional maturity.

Then you have the other people who are like, “Well, I thought you were gonna use it.” I thought this was Shark Tank money, and they were little upset and annoyed but I also know I’m never gonna call them back again because they’re not sophisticated and they were probably that wasn’t really their money to begin with. They’d probably refinanced their home or something like that.

Rod Khleif:   Right. Right.

Sal Buscemi:            I get really, really passionate about that. Making sure that when you’re managing other people’s money, you’re managing their life savings. I went to my bio pretty quickly but the point of the matter is that those are the things that I’ve learned on Wall Street, that those are core principles to me that I would never violate.

Rod Khleif:   Okay. To recap, those core principles could you do that?

Sal Buscemi:            Yeah, treat your investor’s money like it’s your own or it’s like your mother-in-law’s, you don’t wanna lose your mother-in-law’s money.

Rod Khleif:   [laughter]

Sal Buscemi:            Right?

Rod Khleif:   Right.

Sal Buscemi:            And always be prepared to ask the hard questions… Where is this money coming from? Can you afford to lose it? Because there’s no such thing as risk-free investments, you can lose money just buying treasuries and the prices change. But the point is, is that you wanna make sure that you’re alive and you always wanna do the right thing. If you can’t find a good opportunity don’t just invest on something and over pay for it just because you have the money available to you, and it’s not yours.

Rod Khleif:   Guys, those of you listening right now, with the market as hot as it is, and it’s frothing, that’s the one that you wanna be most careful with. Because just because you have people ready to give you money, you don’t take down a deal for that reason, it’s gotta be a valua-add deal. You’ve got to see opportunity. You gotta make sure your investors are protected.

Right now, we’re going into a phase where that is probably one of the most important parameter. It’s to make sure it’s actually a deal.

Sal Buscemi:            Yeah.

Rod Khleif:   That it can sustain a downturn, that the cash flow numbers are there, the debt service coverage ratio is safe enough if you’re bringing on debt.

Let’s talk about the topic, How to Raise Capital… I just interviewed somebody earlier today that was talking about how he couldn’t refinance his properties in 08 and 09 because of course the banks have locked up. He had these great cash flowing properties, he couldn’t pull his money out because… Banks are funny, when the market contracts it’s like they all go…

Sal Buscemi:            [chuckles]

Rod Khleif:   They all go hide, they’re like ostriches with their head in the ground and it really causes more damage than… Not just typically to them, but to the economy as a whole. So who do you raise capital when that happens? ‘Cause it’s gonna happen soon.

Sal Buscemi:            It is. What you have to do is you have to lean more towards the private investors. You see, I come from a school, but I don’t follow sports, I follow the markets. These are my passion I mean obviously, this is what I do. You and I talk about this all the time, and AJ was a poster child for this.

When you’re looking at properties, I assume you’re talking about multi-family. What happened was is that when you get a multi-family loan from anyone, you have to deal with loan covenants. This isn’t getting a residential loan or anything else. There’s covenants there, there’s got to be a good DSCR, debt service coverage ratio. There’s gotta be some things that you need to apply.

If those aren’t being held, then the bank can call the loan due. Right now, what you’re gonna see and I’m gonna get to answer your question…

Rod Khleif:   Okay.

Sal Buscemi:            It’s that there are a lot of loans that were underwritten, that were underwritten off of the pro forma, which is basically a lie.

Rod Khleif:   Right.

Sal Buscemi:            I mean they were underwritten off the pro forma but they’re… And this is back in 2006-7-8, that are coming due now. That’s what we call a technical default. So there’s gonna be a tremendous amount of opportunities for people to get these properties at discounted or low bases due to the fact that these people can’t get out. Where’s the money? That’s the opportunity, so that’s your edge. That’s how you’re sourcing these deals.

Rod Khleif:   Let me, can I stop you one second.

Sal Buscemi:            Sure.

Rod Khleif:   I don’t wanna interrupt your train of thought.

Sal Buscemi:            That’s okay.

Rod Khleif:   But guys, if you’re buying property, you never ever, ever, ever buy based on the pro forma. You buy on actual numbers. There are brokers, particularly larger brokers, they all send out a pro forma and it is a wish. It is a guess. It is at best a guess so you never buy based on pro forma.

Sal Buscemi:            Yeah.

Rod Khleif:   You always look at actual…

Sal Buscemi:            Absolutely. I wrote a whole blog post on that too. But the point is that the brokers are trying to always make someone stupid, overpay for a property, due to the fact that it’s over leveraged. [chuckles]

Rod Khleif:   Right. Right.

Sal Buscemi:            That’s the way it is. So if you look at the… We have the five data points, if we’re looking at something, there’s a current NOI, the pro forma NOI, the current debt that’s on it, the debt structure, the sources and uses, and the exit strategy. I can tell you, the most important driver for value in any multi-family is the current NOI.

Rod Khleif:   Current NOI, yep.

Sal Buscemi:            That’s found on page 80 of the broker’s…

Rod Khleif:   [laughter] Right.

Sal Buscemi:            The current NOI…

Rod Khleif:   Right, and underneath, where’s the beef…

Sal Buscemi:            Yeah.

Rod Khleif:   It’s underneath the pickle.

Sal Buscemi:            Exactly. Exactly. But the pro forma’s on page one and it’s beautiful, and there’s a lot of trickery and tomfoolery, legerdemain whatever it is. When you look at these and you actually peel back the layer of the onion. Like this guy is offering a multi-family at it’s re-cap and this doesn’t make sense to me. But that’s what happens, and that’s financial Darwinism. That’s how a lot of doctors, dentists, chiropractors get fleeced. This is again… This is how the industry works.

Rod Khleif:   Nothing against doctors, dentists, and chiropractors but they love… They have money and they love to invest but they very regularly they don’t do their homework, or don’t align themselves with somebody who knows what they’re doing.

Sal Buscemi:            What they don’t do is they don’t look at the numbers dispassionately.

Rod Khleif:   Right.

Sal Buscemi:            Everybody who gets in with their emotions, they’re like, “This is great. I can’t wait to get in.” But you have to look at the numbers dispassionately. We use very rigorous models to do that. They’re not that complicated but they’re very, very strong models that I used on Wall Street.

When you’re talking to these guys, I’m gonna go out there, and I’m gonna say something that’s probably gonna be controversial, and you’re probably gonna spank me for it. But you’re a young guy, I’m around… Well not close to your age, but I’m a little younger. I’m 42, I don’t see any catalyst for rates to increase meaningfully in our lifetime.

If you look at the horrific events of 2001 when… 9/11, Alan Greenspan brought rates down to just about zero, at that point. there’s just no inflection point or reason where we can afford to have rates increase anymore. We can’t hike up our own interest rate on our own over-leveraged credit card bill. It’s not going to happen.

You’re gonna have a lot of opportunity where people are gonna be chasing you with money to put into these deals. And you need to know how to structure that. But the most important thing you need to do is you need to be able to talk to the investors as if they’re grown ups.

I can’t tell you, we had our associate Riley at the ISS conference over here to sell storage, and the paperwork, it’s embarrassing. It looked like the back of a Starbucks napkin that they…

[overlapping conversation]

Rod Khleif:   What paperwork, Sal?

Sal Buscemi:            Their pitch book, how they were pitching the deal.

Rod Khleif:   Oh, I see.

Sal Buscemi:            They didn’t know what they were doing. You’re talking about going up to these sophisticated family offices, they have a lot of money but they’re also very smart. And they have a CIO that looks like Rod, established, mature is the word I’m looking for. But like he’s gonna go through this and say whether this is crap or not. You have to be very careful about how you communicate the deal.

That’s the most important part. If you can communicate the deal correctly, you are almost guaranteed limitless amount of capital to be able to…

Rod Khleif:   So what is… Described a pitch book, Sal.

Sal Buscemi:            A pitch book talks about the deal. It’s different from an investment memorandum. Remember, there’s a lot of these investment memorandums but they’re written from the sale side. They’re meant to sort of… I’m trying to use a word that doesn’t say lie. But it’s meant to sort of pull the veneer over the building and it’s the way for them to distract you into what’s important.

Rod Khleif:   So you’re talking about the offering memorandum from a broker.

Sal Buscemi:            Correct. Yes.

ROD KHLEIF:          Right. Okay. So that’s step one, the offering memorandum.

Sal Buscemi:            Yes… We don’t look at that.

Rod Khleif:   So describe the pitch book. What are the components of a pitch book? By the way guys, there will be a link to get Sal’s free Done For You Pitch Book in the show notes. I highly recommend you get that ‘cause it’s a great example.

Sal Buscemi:            Yeah.

Rod Khleif:   But I wanna go, let’s talk about the components of that pitch book.

Sal Buscemi:            Sure. Number one, the first part is deal sourcing. How are you sourcing these deals?

Rod Khleif:   Okay.

Sal Buscemi:            Okay, that’s important. I have a theory that the wider an opportunity is marketed and made available the less worthwhile it is. You maybe, you have an in, you have a brother-in-law that works at a bank, maybe he’s a bankruptcy attorney. Title companies, you have relationships, you have certain relationships, that’s where you are able to source the deal from.

Rod Khleif:   Let me pause you. I’m gonna pause you a couple of times here.

Sal Buscemi:            Sure. This is important.

Rod Khleif:   So I can explain. So deal source is obviously where you find the deals. That’s why we do everything off market. It’s very difficult to find a deal on LoopNet or some of these other MLS sites. I’m not gonna say they’re never there because sometimes, deals are there that people don’t fully analyze but they’re much more difficult.

Have a mailing campaign. Have the relationships with the brokers for off market deals. Have the relationships with the bank, like Sal just described. You’re gonna actually put your deal sourcing in the pitch book?

Sal Buscemi:            Yeah.

Rod Khleif:   Okay.

Sal Buscemi:            This is you totally exposed. “Here’s where I found the deal. It’s off market. I have a relationship with the bank and the guy’s giving me first look. And the opportunity…” I’m just gonna go through this and then you can interrupt it again.

Rod Khleif:   Sure.

Sal Buscemi:            But this is what you wanna remember, and I hope this is being transcribed because I’m just flying this off the top of my head.

Rod Khleif:   [chuckles]

Sal Buscemi:            Number one, you wanna say that this is an opportunity because the prior owner-operator defaulted on his loan. So now you’re able to buy this at a discount from the bank. They’re looking to sell off the note, or they’re looking to sell off the property itself. That’s number one.

Number two is what you wanna talk about is where the area is; a little bit of demographic information and why it’s strong.

Number three, comparables. If these things are all trading, say like an A cap in Tampa Florida. Okay, you wanna show that you’re buying it for higher than an A cap in Florida. You wanna show some comparables of recently traded product that’s the same.

Now you’re establishing the value equation. Now you’re saying, “There’s real value here, I’ve been able to show value. I’m doing it through comps. By the way, I might have an Excel spreadsheet that I’ll show you later.” But you’re saying, “Hey, I’m actually buying this at a discount and here’s how you can tell.”

Number four, and this is something that’s so important, people screw this up. If I give you a dollar today, where does it go and how does it comeback? I like doing this like sort of a transactional life cycle where you can actually see the dollar comes here, it’s in an LLC or in a holding company, other capital comes in here. This is where your money is. This is how secure you are. And this is all in that that tool that I’m giving you.

But the point is, you wanna tell your investors where the money’s going. How are they secured? Are they debt or they equity? Are they preferred equity? If you don’t know what that means don’t worry about it. But the point is, is that where are they in the capital structure, and how are they secured, and how are they remedied?

Meaning, if you default are they gonna take the loan back, or do they step into your shoes? There’s all sorts of things that you can do but you wanna be able to detail that and that’s very important there.

That’s the four components I think to a great pitch book. Fifth one is how are you getting out? How are you gonna get out?

Rod Khleif:   An exit strategy. Okay.

Sal Buscemi:            Yeah, what’s the exit strategy?

Rod Khleif:   Of course, I assume that you’ll have bios of all the principles on the team.

Sal Buscemi:            Absolutely, yes.

Rod Khleif:   You’ll speak to your experience, their experience and their credentials.

Sal Buscemi:            Correct.

Rod Khleif:   And all that business pictures, all of that, cause basically, a pitch book is just that. It’s you pitching yourself to a source of money.

Sal Buscemi:            Yup.

Rod Khleif:   Be it… And you would use this for a regular lender as well, not just private lenders.

Sal Buscemi:            Absolutely.

Rod Khleif:   You could use this for a banking institution, financial institution but definitely, if you’re going to family offices, if you’re going to hard money, of course they wanna know everything about the deal. But they also wanna know about you.

Let’s dig deeper. As things slow down, financially, as it becomes harder and harder to find money, for my listeners. Let’s say you’ve got a listener that doesn’t have great credit, maybe they don’t have significant income. They want to get into this business. They wanna find the money to do deals. That maybe they found a deal or they know how to find deals, or they’re willing to do whatever it takes to find deals. What would you tell them about how to source the money?

Sal Buscemi:            I would say, number one, today with the Internet it’s easier than ever before to be able to source of money. I told you earlier on, we raised $19 million for a fund that we’re putting together. Now, I have a pedigree. I have a certain background…

Rod Khleif:   Sure.

Sal Buscemi:            That a lot of people don’t have. I’m assuming everybody here does not have that.

Rod Khleif:   Right.

Sal Buscemi:            What you need to do is you need to go out there and you need to do the quiet pitch. You need to go out there and say, “Look, I’m seeing a lot of opportunities happen right now, Rod. I think that banks are gonna come into trouble. There’s a new treasury secretary he’s a deal guy. Nobody’s gonna mince any words. He’s probably gonna make the banks flush out. There’s gonna be a lot of opportunity there.

But that’s like the conversation you have during the holiday weekends the barbecues, things like that. That’s how you start to build notoriety for yourself. And then at that point, then you start saying, “Well, here’s… It was great talking to you, Rod, at this barbecue. Here’s a pitch book of a similar deal that we’ve done before.” And it could be a fake deal.

That’s fine you’re not misleading anyone, but you’re just preparing them. These are the type of assets we like: multi-family, less than 200 units, whatever it is. Then you say, “When something else comes up would you be interested in looking at this opportunity and investing as a private lender pooled with other private lenders into this deal?” And the answer’s gonna be yes. Because they like you, because they trust you, and you’re not running around like a chicken with his head cut off.

A lot of times people run around, they’ll find a deal then scramble to find the investors, and then they spook the investors because they’re desperate. They don’t know what they’re doing. And there’s a lot of pressure for them to close on time.

Here, what you’re doing is that you’re actually finding the date to the prom first before you pick the prom dress and that’s really the most important part to do there.

Rod Khleif:   No question. And guys make sure that you develop an elevator pitch. Basically, it’s something you can say in two minutes about, “Hey, I’m finding these great deals. I’m always looking for partners or investors or lenders.” You used a lender example.

Sal Buscemi:            Yup.

Rod Khleif:   You could also say, “I’m looking for an investor or partner that wants some equity in a deal.” And start those relationships because that’s really what it is, relationship.

Sal Buscemi:            It’s all relationships.

Rod Khleif:   Then once you have a deal, or an example of a deal, you show them that and it’s gonna take developing that relationship before they’re gonna trust you enough to give you money. But you start those conversations, like you said, over a barbecue, at a local meet-up group, friends of friends, and you get the greed glands going. “I’m getting these great returns on these deals…”

Sal Buscemi:            Oh, yeah.

Rod Khleif:   “And I’m always looking for partners so if you ever know anybody that’s interested in getting involved let me know.”

Sal Buscemi:            Yeah.

Rod Khleif:   “Well, I might be.” “Okay. Well, super. I’ll let you know when I find something or I’ll show you the example of one I did.”

Sal Buscemi:            Yeah.

Rod Khleif:   Right?

Sal Buscemi:            Yeah. That’s the example. That’s what it is. These are the type of things that we’re looking at. This one…

Rod Khleif:   Yeah.

Sal Buscemi:            We closed or just gone on, or something like that.

Rod Khleif:   Right.

Sal Buscemi:            But this is the type of things, here’s what’s going to happen next. I’m gonna follow up with you, I’m gonna send you an e-mail. It’s gonna be a PDF of the pitch book. And you’re gonna use that to communicate the deal that you have.

Rod Khleif:   Sure.

Sal Buscemi:            And the best part is that you have professionals. There’s a lot of problems where I think people get really worried. The last thing, and I would tell you this specifically, and you and I have talked about this, Rod, a couple of times. Make sure you tell them that there’s professionals involved.

Don’t take their money and put it into your hip pocket. Make sure you’re opening escrow with the title company or something, when it comes to that point. Make sure you’re using a property management company that’s collecting rents and it’s not you doing it, because you’re not saving your investors any money. It’s not.

I told AJ one time, he used to manage his stuff at one point. He has a substantial portfolio in Iowa where he’s from. He said he finally…

Rod Khleif:   By the way guys, AJ is Sal’s right hand man. He’s a great guy that that I happen to know as well.

Sal Buscemi:            Oh, yeah.

Rod Khleif:   So people know who AJ is.

Sal Buscemi:            But it’s funny, I was telling one guy like, “Oh, I manage it all myself.” I’m like, “You must really hate your spouse and children.”

Rod Khleif:   [laughter]

Sal Buscemi:            He’s like, “No, what are you talking about?” [chuckles]

Rod Khleif:   Alright. This is a topic where Sal and I kinda disagree. I’m not sure if we’re actually on the same page with our definition of self-management. Sal believes in outsourcing all management. My definition of self-management, Sal, for your purposes is…

Sal Buscemi:            Sure.

Rod Khleif:   Hire a property manager, if you have enough infrastructures. Do it yourself until you can hire somebody to do it for you.

Sal Buscemi:            Sure.

Rod Khleif:   But have them on your payroll. Not hiring an outside management company, that’s my definition. I’ve interviewed on my show people that have had a few hundred units to tens of thousands, and all the big hitters seem to manage their own. Now I will tell you though, with one caveat where I do agree with you, and that is when you are in acquisition mode, and you don’t have the bandwidth to screw with it, then I would definitely hire outside management while you’re acquiring.

But once you settle in, I’m a big proponent for self-management and again my definition is, have a team. Your own team, which is what I wanna talk to you about next…

Sal Buscemi:            Yeah.

Rod Khleif:   But as it relates to buying, but as it relates to managing I got a full-time property manager across the office here from me right now.

Anyway, back to team. Let’s talk about team.

Sal Buscemi:            Sure, of course.

Rod Khleif:   You said, “Have professionals with you.” What does that mean to you?

Sal Buscemi:            To me that means having a real estate attorney.  Not your brother-in-law who’s a divorce attorney or an ambulance chaser…

Rod Khleif:   Right.

Sal Buscemi:            Personal injury. These guys, they’re not that expensive but depending on the deal, they should have experience. Good transactional experience where they can actually put the deal, paper the deal together, an offering agreement, or whatever. You can define what that is Rod, later.

Rod Khleif:   Right.

Sal Buscemi:            But the point of making sure that they are… Everybody trusts a lawyer at some point. Say you’re getting a lawyer involved, it means something’s going serious. Whether you’re on United Airlines, or whether you’re raising money that usually has some sort of notoriety.

Number two is, I like to, again, a property manager. If you’re just starting out and you’re in acquisition mode you’re not gonna have the luxury of, what you have, Rod, of getting a property… Hiring someone. And that’s fine.

Rod Khleif:   Agreed. Agreed. And the second reason in acquisition… By the way, sorry to interrupt.

Sal Buscemi:            That’s fine.  Sure.

Rod Khleif:   Unfortunately I’m real good at that. The second reason is, if you don’t have the skill set or the experience in the size property that you’re taking down, the bank’s gonna require you to hire one anyway.

Sal Buscemi:            That’s exactly right.

Rod Khleif:   And that’s the best way to learn is through an expert property management company.

Sal Buscemi:            Correct. Yeah.

Rod Khleif:   So we’re in agreement.

Sal Buscemi:            Yeah.

Rod Khleif:   Definitely transactional attorney. Definitely syndication attorney if you’re syndicating for sure.

Sal Buscemi:            Correct.

Rod Khleif:   They may not be the same person and then property management, okay, what else?

Sal Buscemi:            Yeah, and then what I like to do is I like to… It’s usually made because it’s me I’m sort of the name of this but we moved on to people internally who do all the paperwork and the post-closing stuff. That means it’s like after you close. Okay, the money goes where and how does that get distributed?

For example, we did an offering not too long ago where we’d be raising what we call private lender money but we call it your Wall Street private credit.

Rod Khleif:   Okay.

Sal Buscemi:            Everybody would… we leveraged it 100% LTC, and we did this for somebody else’s deal. What we did was, we are partners in that deal; we have the equity but we were able to get in at a good discount. Now, it’s one thing to buy something but what happens afterwards?  You have to communicate with the investors.

Rod Khleif:   Okay, let me stop you. Let me stop you…

Sal Buscemi:            Sure.

Rod Khleif:   For one second.

Sal Buscemi:            Okay.

Rod Khleif:   Because you’ve said a lot and I wanna catch up. So LTC, is obviously guys, loan to cost. Basically, he got it at 100% loan to cost which it doesn’t get any better than that. Unless you’re over leveraged. So that’s another conversation.

Sal Buscemi:            I can assure you, we’re not. Right. Okay. [chuckles]

Rod Khleif:   If you’re buying really well…

Sal Buscemi:            Yeah. That’s it.

Rod Khleif:   Then you can finance 100% of it. Alright, continue. You’re talking about investor relations, right?

Sal Buscemi:            Yeah. I’m talking about investor relations.

Rod Khleif:   Right.

Sal Buscemi:            Okay, Now, we’re married. Now, we’re going on our honeymoon.

Rod Khleif:   Right.

Sal Buscemi:            So here it is. I have all these people. They’ve trust me with their money; their life savings. I have Riley over here, who you haven’t met but you will.

Rod Khleif:   Right.

Sal Buscemi:            He’s the one putting together the investor package. “Here’s what’s happening next. Thank you very much. Your money will be wired to you through an ACH, whether it’s to yourself direct at IRA, to you as a beneficiary, or a taxable account. Whatever it is, we have a lot of people who use trusts… “

Rod Khleif:   Right.

Sal Buscemi:            Which is fine.

Rod Khleif:   Sure.

Sal Buscemi:            And that’s what happens. You can expect this quarterly. Here’s a calendar when the payments are coming out. This is what’s happening. Here’s the amortization schedule of 10 years of what it looks like. It’s basically telling them what happens next.

Rod Khleif:   Yeah.

Sal Buscemi:            That gives them, the creature of comfort, of like, “Okay, this is great. There’s a real operation here. It’s not just some lawyer or something.” Like, “Okay, I’ve given you my money.” Now, let’s give them extra value so that when they pull the covers over their head at night they know that they’re getting paid on May 20th or something like that.

Rod Khleif:   Sure. Sure, and I will take that even further. I’ll take that even further like Robert, my CFO is also CPA, is my investor relations person and partner. We send out a monthly newsletter to people, and we communicate with them regularly. If we’re looking at a particular market, say we’re gonna go into Dallas or Atlanta, we’re gonna send our investors information on that market. Kinda keep them warmed up.

It’s a warm and fuzzy, “Hey there” communicating with me. Most problems in just about any business come from a lack of communication.

Sal Buscemi:            Absolutely. I agree with you wholeheartedly.

Rod Khleif:   So whoever you bring in, if it’s you to start, if you’re handling, you’re gonna wear multiple hats when you get started. You may wear the investor relations hat. You may have to, to get started.

Sal Buscemi:            Oh, yeah.

Rod Khleif:   Then you’re gonna be that person, and maybe you do a PowerPoint webinar thing online. It’s so easy to do that. Now, you just talk about the deal, maybe you talk about the specific property, and then you talk about what’s going on the area. Then these investors feel they get the warm and fuzzy. They can sleep at night like you said, Sal, with their blanket pulled over their head. But that’s another piece of this. What’s the next piece?

Sal Buscemi:            The next piece is to go out there and be the guy who’s what we call aggregating all the capital. You’re talking to the private investors. That is the biggest value or bang for the buck you can do. No matter where you are because if you’re raising money, and you don’t have the confidence or the experience you can bet you could find someone who does. Like Rod, that you can parlay those funds and to leverage his reputation, leverage his experience to do that until you get the confidence to do so.

If you’re out there raising money and talking to private investors and that is the most important thing you can do. There’s always gonna be deals out there but what you’re doing is that your building a reputation or what I call a ‘leverageable’ brand for yourself by going out there and talking to private investors and networking amongst them. Then when the time come, when Rod has something, you’re there to do that.

Rod Khleif:   Now, there are people that I know, you train people in that, and there are people that do that for a living. They basically bring the money to the deals. You’re exactly right. So I agree with you. Finding the money is probably one of the most important pieces. If you’re out there with your elevator pitch developing relationships, and sourcing money, and then you connect with an operator like myself…

Sal Buscemi:            Yeah.

Rod Khleif:   There are a lot of great operators out there. You connect with an operator, if you bring the money, you’re gonna get a piece of the deal…

Sal Buscemi:            Oh, absolutely.

Rod Khleif:   Or you’re gonna get a hell of a paycheck.

Sal Buscemi:            Absolutely.

Rod Khleif:   That’s a fantastic way, if you don’t have the experience or the pedigree, or the financial resources to take down the deal. Because, I’ll be candid, if you’re gonna buy a 50 or 100 unit apartment complex, you’re gonna need some money to do the due diligence. You’re gonna have to buy the third-party reports and all these things. They’re gonna take a little bit of money, and if you don’t have any money, go find the money.

Sal Buscemi:            Yeah.

Rod Khleif:   Go source money and do that as a business model on your first deal or two, and partner with an operator.

Sal Buscemi:            That’s how you add value.

Rod Khleif:   Right.

Sal Buscemi:            There’s a whole industry around that. It’s called real estate placement agents, and it’s a prestigious image. All you do is go out to dinner and talk to rich people. That’s about it.

Rod Khleif:   Right. Right.

Sal Buscemi:            It’s great.

Rod Khleif:   Absolutely, you can make a fortune doing it. In fact, I interviewed a guy on the show that does that for a living. He just connects with operators and brings the money. He gets a big chunk.

Sal Buscemi:            He doesn’t worry about toilets or tenants, or anything like that.

Rod Khleif:   He doesn’t do anything else, except bring the money. So there’s a definite benefit to having that as a business model.

Alright, so somebody’s brand new, they’re listening to the show. They listen to the podcast. Maybe they’ve read my book on multi-family investing so they’ve got some framework. What would you tell that person to get started, to actually take the plunge? What advice would you give them?

Sal Buscemi:            That I would tell him, right now, first of all, don’t be scared of anything, of talking to people. But what I would do is, I would go out there. If this was me starting over again, I’d be talking to private lenders. I’d be talking to private investors saying, “Hey, rates aren’t going…” I usually start off with something controversial because I all tell him that I’m in real estate. They’re like, “Really?” Like, “Yeah.”

I’ll ask him a question, I’m like, ”The market’s trading kind of high right now, what do you think?”  “Well I don’t know where else to put it. That’s interesting.” Then I’ll say something being Sal, as in, “I don’t think rates are gonna increase, yields, rates. They’re two different things but you’re not going to see anything… Rates aren’t gonna increase ever again in our lifetime. What do you think about that?”

Then you just start off, you tee off the conversation and then you go through with it. Give him a copy of the pitch book with the deal, “Here’s some of the things we’re looking at. It could be one of your deals, whatever.” But you really got to start talking to people. That’s the most important part.

Then, with LinkedIn today, it’s free. It’s never been easier to do this. When I worked on Wall Street, there wasn’t a LinkedIn. It was very clubby, very private, and your business card wouldn’t get passed around.

Today, as long as you’re wearing the right clothes to the party you’re gonna be fine.

Rod Khleif:   Right.

Sal Buscemi:            We’ve had people who have actually made a lot of money just by doing what you’re talking about. I don’t want people to worry about not having money, not having experience. Intellectual capital is 80% of the game; what you know and what you’re saying. Everything else will just come to you as it comes together.

However, there’s plenty of guys like, Rod, out there, like you, who are gonna be able to put the capital you raise securely as an experienced operator to these deals and that’s exactly what you wanna be looking at.

You wanna be focused on talking to people. Just get out there, talking to people. Don’t worry about analyzing deals. Let other people do that for you but talk to people to raise money. Because I will tell you, that’ll get you much further, much faster, by doing it that way rather than trying to find a deal, then finding the investors, then managing it yourself. Just start off being the money guy and then that’ll give you the opportunity you need.

Then pretty soon after while you’re collecting a lot of what we call these equity kickers. In the industry, the sexy cocktail term or hope certificates, and then that… There’s just no such thing as a bad day when you go through your filing cabinet and see all the K1s and the deals you’re in. I mean I love that stuff. The really, really…

Rod Khleif:   Right. Right. Right. Now, I wanted to get Sal in the show because he brings that unique perspective of ‘forget the deals focus on the money’.  That’s a very unique perspective. I will add one thing to the intellectual capital comment you just made. The other piece that anybody that listens to my show knows I talk about regularly is the mindset. 80% of your success in anything is your psychology.

Sal Buscemi:            Yeah.

Rod Khleif:   Just act as if. That’s one of my episodes, just act as if.

Sal Buscemi:            Yeah.

Rod Khleif:   Go out there and talk to people and you’ll find people willing to invest. Then you can match them up with it with an operator with a deal, and you either make a big paycheck or a piece of the deal. It doesn’t get much better than that.

Sal Buscemi:            Yeah. Absolutely.

Rod Khleif:   Well Sal, listen, thanks for being on the show, buddy. I’m very grateful. Just so you guys don’t forget, check the show notes. He’s got an offering; a free Done For You Pitch Book that I’m sure will add a ton of value because you guys need a pitch book. You’ll be able to get that.

Sal, I’ll look forward to seeing you at the next Mastermind, brother.

Sal Buscemi:            Thank you, Boobie. I’ll talk to you soon.

Rod Khleif:   Alright.

Sal Buscemi:            Take care.

Rod Khleif:   Alright. See you.


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