CJOB Interview, Your Life Unlimited With Stephanie Staples and Stefan Aarnio
Money People Deal: The Success Triangle with Stefan Aarnio
Interview: Stefan Aarnio, Serial Entrepreneur, Real Estate Investor, Artist
Shaun: Welcome to the Millionaire Mentor Today show, I am here with Stefan Aarnio today. He is my first local guest. People always ask me do I just interview people that are local; I haven’t interviewed a single one yet. So Stefan, you are the first one.
This guy is a part of my team and my mastermind group, we do work together and he has got a very interesting story, and he is a serial entrepreneur. So Stefan, can you give us a bit of your background o who you are and how you got to the point where you are today. Let’s go right before I met you when you first started getting into real estate investing, and it was a point in your life when you were making about $10,000 a year.
Stefan: Yeah, I used to be a guitar teacher and making $10,000 a year and we met shortly after that. Now I’m controlling a couple of million dollars of real estate and I’m out of the rat race. I have a pretty good passive income and I get to do things the way I want and build my business further.
Shaun: So what was your process going from guitar teacher to you having a debt buying company, you have a joint venture real estate company, and all of your holdings. Then you are addicted to this challenge and have done a number of cool things. You have just taken up painting last year, and you monetise that immediately. Again you are doing that with some of the other things you are developing including software; I don’t know if you want to go into any details about that today. But you have the visibility to work your ass off and get to your goal. What was that process like going from guitar teacher to entrepreneur?
Stefan: I’ve always been an entrepreneur. I started out when I was 17 years old and my parents told me that I had to get a job. I answered a letter that came in the mail that said: make money teaching guitar. I didn’t even know how to play the guitar at the time, but I took this job as a guitar teacher. I was a musician, so I knew music, but I didn’t know guitar so I had to learn how to play really quick while I was teaching people. I grew that little basement business to a fulltime thing for a student. I was only working eight hours a week and it wasn’t a lot of work, but at the end of the day I was making about 10 grand a year my parents said to me “you have to get a job you can’t just do this guitar thing.” I started looking at other options, and my first job after finishing university was working in a big chips company; I was putting chips on shelves. I think the funny number they give you there is 35 or 40 grand a year in Canada. The funny thing is I was earning more money teaching guitar than when I was doing the chips. Because getting up to that bracket of $40,000 a year you were paying taxes, cars, and all of these expenses what employees pay. Where you are self-employed making $10,000 out of your home, you are ahead of the game. When I started to get stuck I took seminars, you know, some of those very expensive seminars that people sell, I started writing about real estate and I did my first deal in 2009 and that was with just $1200 down. Since then I have built a little empire. I don’t know what the exact numbers are because I’m buying one property a month, so it’s hard to keep track and it’s probably a couple of million dollars of real estate that I’m controlling right now and I’ve only put $1200 down across all of them.
Shaun: That’s a really interesting story there. One thing I want to touch on and this is an uncommon business that we touch on and I just want you to give a bit of background. You had a debt buying company before we get into any of the real estate. How did you get into debt buying and what was that like for you.
Stefan: … I have a debt buying company and I buy charged off credit cards, which are non-performing credit cards for pennies on the dollar. Then, I outsource them to a collection company and it creates passive income. People always ask me, how to get into debt buying; it’s actually a pretty cool business. I spend you know, one minute a month or something and it sends me a cheque. I don’t do any work, and people always wonder how I got into that. How did I get into it? I was at a seminar and there was a guy who was teaching people how to buy debt. So I flew down to Palm Springs and I was a broke guitar teacher at the time and I started to learn how to buy debt and built up the business there. It has passive cash flow coming in and it has been doing it consistently for about three years. Now I’m in the process of converting that company to a different kind of company because like all opportunities, all opportunities change and you have to morph your company into the next thing – you can’t just let it get stagnant.
Shaun: Yeah, you have to adapt with the changes in the economy, industry and within the business. That’s interesting, so let’s take that shift and go into real estate here. Tell us about you first deal and how you got into real estate and then go through the process how you have gone into real estate with 1200 bucks down.
Stefan: Well my first deals… It’s funny… when you start out an entrepreneurship you make money from being stupid and taking risks. I remember I met some guys at total stranger’s house, who is a good friend of mine now, to play Cashflow 101, which is Robert Kiyosaki’s board game. We were all real estate enthusiasts, you know, a bunch of posers and wannabe’s who want to buy real estate. We were sitting around the table – six strangers, none of them really knew each other, and we play the game and we do two fake deals on paper and the phone rings. The real realtor says, I have this house this realtor is desperate – he has got a desperate seller; let’s buy this house. So the six of us said okay, let’s go six ways on this house. At the time I think we needed $8,000 to buy it. We had a property manager, a realtor, a guy with experience in renovation sitting at the table. We had a whole power team sitting around the table and I was the only guy who didn’t have any experience. So I said I’ll hold the mortgage; I wanted to get a piece of the pie so I held the mortgage. We went six ways and it was $1200 down each and we collectively bought a house. Sometimes when guys get together they get very macho and greedy and we said, lets steal this house. I think they wanted 115, 120 0r 130 asking; I can’t remember the exact list price. We said, let’s buy it for 80 grand because we read a bunch of stories about real estate, and we thought we could steal from this motivated seller. We said we were going to cut off our bidding at 100 grand ; long story short, I get a call the next day saying we just bought the house for 115. I said “115? I thought 100, what was the cut off?” So we bought this house for 15 grand more than we thought we were gonna get it for, it was still a good deal. We ended up buying it; six guys into it, and we gave it to the property manager. What happened was, in four to six months, we had a damaged house, with some tenants that broke the house and stole things and ran away. I was the one holding the mortgage and I had a damaged house and a mortgage ticking in my name… so that was my first real experience with real estate. I had to get in there and fix it up. Today I own that house.
Shaun: So you bought out your partners?
Stefan: I had to buy out my partners; two of them are still good friends of mine, three of them I don’t speak to too much. But I had to buy them out and now I control that asset; it’s in my portfolio. It’s a pretty good deal today and probably made off that one deal made $35,000 - $40,000 of equity and it makes wonderful cash flow. But it was one of those things that is every investor’s nightmare. You buy the house; you have a property manager on it and say to him “you’re a pro look after it”. Next thing you know, you have a vacant house and the tenants have skipped town and you have a bill for $3,000 of damages. What do you do? most people quit. I went and bought a bigger problem after that.
Shaun: I don’t remember that, that was when I met you. This property was the biggest headache that I’ve seen you deal with, and it was a nightmare. Tell us about that and then how you get into this property, what was some of the headaches associated with it and the second part was how do you monetise the relationships, or how did you build the relationships and then monetise them.
Stefan: So I finished that little house and then I said to myself I want to do something bigger; I want to do a four plex… and I bought this burned property in downtown Winnipeg that if I were to do again, I would never buy it. But at the time I was a young dumb hungry guy that would do far too much work for too little return – I mean the house makes great return, but for the amount of work it’s a tough deal. I bought this house on the basis that it had a parking lot downtown and the parking could carry the mortgage. That’s how good of a deal it was as a fire sale. I started calling up contractors and getting quotes on how much it would cost to fix this house up and make it operate. So I started doing that. One of the things that I learned in my debt buying business is: in every business you learn more lessons and you learn how be better at the next venture. My debt buying business, is not my favourite business because it doesn’t have enough control, but I learned how to raise money. I learned how to do a business plan and a loan proposal and sit down with an investor to show them how to get their money back and how much of a return they will be getting. So I put together a business plan and a loan proposal to start soliciting money from people. People always ask me “how do you raise money? Who do you talk to?” Well you probably have a dentist, doctor, you have family members. Money is everywhere; everybody has money.
I put together this debt buying business proposal and I started shopping it to people and the interesting thing was, initially I wasn’t getting a very good reaction because I was a brand new guy and nobody wanted to work with me and then I happened to peak the interest of my dentist and doctor. As soon as they were interested, the social status of having a dentist and doctor interested in my deal, made more people interested in me. I ended up getting two investors on board and doing the deal with them. It’s interesting it turned out for the best because when two people agree on a something like a price, the price becomes real. So those two people agree that this deal is real and someone else wants it. As soon as someone else want’s it that’s when it becomes a real thing and people buy and you can monetise it. You asked about monetising relationships; well monetising relationships is easy because if you have good relationships they are easy to monetise. If you have bad relationships, you are never going to monetise them and that’s how it goes.
It’s the same with products, with rental suites; I like to have the best rental suites on the market. I’m a big fan of Donald Trump and he likes to have the best suites on the market, so I like to do the same and have the best suite.
If you have the best suite it’s very easy to monetise - It’s easy to sell. If you look good and are easy to make a relationship with - you’re easy to sell. You’re easy to monetise. I decided I was going to do a joint venture business this year and I wanted to buy one property a month. My first property I bought with that mindset, actually, was while I was playing on my computer on a Sunday afternoon and raised the money for a deal while playing StarCraft.
If you are good at relationships and good at putting a deal or a proposition together, there is absolutely no reason why you can’t monetise a relationship, or even raise money out of it or make a sale. In the end, it all comes down to your brand, and I have kind of built a little bit of a brand here in Winnipeg, people know my deals and my suites. Even renters, when they go on Kijiji looking at suites, they know which ones are mine because they all look the same. It’s the same brand; same paint, same kitchen and I get much higher market rents because I have a little bit of a brand.
It’s the same with investors, I get about one investor approaching me a month. I don’t call investors any more, they call me and every month I have someone approaching me who is interested and enquiring in investing some money with me. When people work with me, I don’t call them investors - I call them partners. That’s another tip for your business: you want to create partners. You want to make everyone a partner in your business and not just an investor. You don’t want to be transactional.
Shaun: Yeah, you want to have someone who is on your team working with you, they feel like part of it at that point.
Stefan: Absolutely, I said that to all my investors. I’ve been doing a deal a month the last couple of months; they are small deals, but the goal of doing the small deal is to create a relationship an investor so that 10 years down the road I can now expand my network with these people and say look, “I’ve shown these people success.” They have shown their networks success and I can get another 25 investors out of one good one. Giving creates more wealth for everyone, you become very wealthy when you are able to give and create good relationships.
Shaun: I totally agree with that. It’s like the law of reciprocity; the more you give, the more that comes back to you. In real estate it’s all about increasing the value of something and that’s something that you can do quite easily. I mean on your tree house property, the second one you did, had you increased the value. You put another suite in it, you rezoned it, and you put in a parking lot, three story deck. Those are all things that you can do to increase the value and you have much higher market rent.
Stefan: I think one of the key things I did on that deal that most investors don’t do, especially at the beginning stages of their career is pay for an interior designer; I paid a couple of thousand dollars to create a good design. Once you have a good design, you can use the design over and over again. I think it’s worth it if you are going to be in real estate and own suites. You might as well have a design or a design person that creates a design, good look and brand for you. Your suites become easy to sell, easy to rent, easy to move, easy to recognize, easy to raise money for because they look good. Everything gets easier when you do it at a higher level.
Shaun: I like that, let's talk about raising the money. You said you learned in the debt buying business how to put together a loan proposal and raise money. What would be the steps that you would have to take as a new investor to become or to raise that money? You have always said it doesn't matter what you do, you just have to get that one deal, that first deal. It doesn't matter if it's a good deal or not, you just have to have one property under your belt. So let's start from there, you get one property under your belt.
Stefan: Yeah, that's the first step you have to create some sort of track record for yourself. You have to create one deal. It doesn't really matter how you do it, as long as it's a good deal and it makes money. You need to prove you can make money and know what you're talking about then you have a little bit of track record.
The second thing you have to do is understand the three things that people need in real estate entrepreneurship or anywhere: you need money, the people, and the deal. What people always say is “I need money”, how do I find the money. Well you're never going to find money if you don't have a deal or if you don't have the people. So the rule is there are three things that you need and if you have two you will get the third, if you have nothing you get nothing.
Shaun: What if you have one?
Stefan: If you have one you have got nothing. One is nothing, two is something and three is a deal. So if I was a brand-new entrepreneur or if I was mentoring myself, I would say you need to go and find a deal and become a birddog or a wholesaler for an investor who knows what they are doing. Wholesaling or being a birddog passing on a deal to a competent investor, you are going to make good money doing that
Shaun: You did that yesterday. There was something you did yesterday; I got an e-mail about that.
Stefan: Yeah, I have a deal on wholesaling right now. You send out, you get something good on your contract and the key is value. You have to have some value, a good valuable deal and you can prove that as value. I sent out one e-mail and I have a guy who is apparently dropping off a cheque this afternoon and wholesaling that deal. It just took one e-mail and not even a phone call.
That's because there is a bit of a brand and a bit of “I know what I'm doing with deals” and people understand that and that's why I'm able to wholesale them.
But back to the money, people, deal Shaun, you need the three and if I was a new investor you need to get a deal that's the key. The deal drives the rest. The second thing you have to have is the team and the people and a team isn't very hard to put together. I mean, you are going to build a team in the beginning and you are going to sub out people and switch them around until you have a good team that works.
Then once you have the deal and people, the money comes every time. All you have to do is get two people interested and then you will raise the money every time if you have the deal and the people. Some people, I know some investors who just raise money without a deal and they can do that because they have a great relationship with someone, but I don’t think it’s duplicate-able. I think It’s much more duplicate-able to have a good deal and a good proposal, a good team built, a good track record and then look for the funding once you have everything together because I see it all the time, investors come up to me and say, “hey I've got a good deal, I need… uh… 250 K for… this thing” and I say send me over a proposal. They never sent me a proposal and they never send me their team, I never get any information and then the money never gets raised.
Shaun: I guess it's not just pride in your work it sets you apart. It sets that in stone sort of, when you have a proper proposal together or as Don Campbell calls it, is sophisticated investor buyer. It sets something that's real, it’s tangible. You flip through the pages, this is your property, these are your numbers, these are comparable and I think it gets a lot easier to raise money as you do that. Now would you agree?
Stefan: Absolutely, I wouldn’t even try without it. I love the name sophisticated investor proposal because that's a big fancy name for a binder. I do a binder for every deal; I bring my binder of past deals, it’s a 10 tab binder and it shows a credit report, my history, past deals, branding that I've done. It shows everything.
Shaun: Does it show your media mentions as well, like when you are in the paper?
Stefan: Yeah, I bring my Winnipeg Free Press Articles, I was in the paper, I was in Style Manitoba for my Art; I bring anything about me that makes me credible. I put it all in a binder, it’s a 10 tab binder, and I sit down with someone and they flip through it and at the end and it’s a yes or no decision: “Do you want to do it?, “Is this right for you?” and “does this make sense?”
Then you don’t have to do follow up calls and chase people around. Chasing money around is a really dumb thing to do. You are better off to attract money. It’s just like chasing girls is dumb, you’re better off to attract girls. If you don’t chase; you attract. So make sure you can attract it but it comes back to building a brand and how do you look and speak… and how are you able to attract the money; Because you don’t want to make “raising money” into “chasing money”. You want to be attracting money. Attracting is so much nicer than chasing it.
Shaun: So you have to make yourself valuable and grab the attention.
Stefan: Yeah, I know a lot of brand new investors; they come out into the investment world and are dressed like bums. They have a business card that says; “get 200 free business cards at Vista Print”, terrible shoes that are dirty, they don’t show up on time, they are not well groomed. If they are rolling around like that, they have signs on them that they are broke or they are never going to raise the money. You have to show you have some money to raise some money. You know, it’s the little details, it’s your brand.
Shaun: Here is a question that you asked me about a month ago and I thought you had a really interesting answer for it. What would you do if given $10,000 today?
Stefan: It’s a great question Shaun, Kiyosaki says that, if you gave $10,000 to someone, statistically, most people would end up with nothing. A certain percentage would have a small return, and then a very small percentage would have infinity return on their money. I had asked you the question a while ago, and what did you say?
Shaun: You asked me the question. I said I would keep some of it and roll the rest into investments, so probably real estate.
Stefan: That shows where your mentality is at. Your mentality is definitely in investor; you want to invest it in real estate. Since I started and if you asked me years ago, in 2008 when everything was on sale and there was a huge crash I could have bought houses in Winnipeg for 50 grand, which is about they a third of they are worth today, I could have bought silver at $11 an ounce, I could have bought Apple for $70 a share. Instead I had a GIC, because that was where my mentality was because I was making 2% with the GIC. And $10,000 I would have bought a GIC. If you asked me in 2009 I would have bought a house or I would have bought silver. Two years ago I would have paid interest on a monster loan for 200 grand. Now I’m becoming more sophisticated and I would take 200 people out for lunch.
Shaun: Why would you do that as opposed to all of the other ones? This is the interesting answer here.
Stefan: My mentality has changed so many times; I am more of a business owner mentality. You know if I can take 200 people out for lunch and let's assume they are quality people, I would have 200 contacts on a list, and out of that list one of the things you have got to learn in being an entrepreneur is how to make money off of everybody. You have to learn how to make money off of the brokest guy ever who walks in the door. He can be a birddog, wholesaler or part of a referral program. Then you have got to learn how to make money off of people who have lots of money; those are people that you raise money from. People at your level you can do jointly venture or some sort of contra deals with.
Shaun: Here's another interesting one, he was what Alex Mundosian said to me. He said you have got to learn how to make money off of the people who are stealing from you. If you are an internet marketer, you need to be able to track the people that are stealing from you and learn how to monetise that.
Stefan: Yeah, it's like networking. Some people don’t like to do networking and say, “it’s all broke MLM guys”. One of the best deals that I ever did, I think I made $60,000 profit, my partner and I is a very short time. That was from a guy, a broke MLM networking thing.
It's funny because everybody has value and everybody can be integrated into your business somehow. Your challenge as an entrepreneur is to figure out how to monetise a relationship with anybody, you know, rich, poor or whatever. How can you create mutual benefit? How can you create value out of a relationship?
Shaun: That's really interesting, so tell me how that process works. When did this happen and who was the person who came to you and what was that deal like.
Stefan: At the time I was working for a private equity firm and I was on stage raising money for Darren Weeks and I had a guy approach me for a JV opportunity. He had a good deal and I kind of said “yeah, yeah, yeah”. He wanted to partner with me but he had no money and no team. So what I ended up doing was buying the deal from him and then I became the deal owner. I already had a team and I went raise the money. The first person I called I wasn't even asking for money it was actually a relator of mine and I called him and I said can you get me some comps and I'll pay you $500 to get me some comps because we were looking for a deal at the time. He said “Oh, that sounds like a good deal I would like to get in on that!”. So I raised the money without even looking for the money. I just attracted the money because I attracted the good deal. I paid for the deal and there was nothing wrong paying for a deal. Some of the best deals you pay for and there is nothing wrong with that and it takes time, effort, and energy to locate those things.
So long story short, we bought this deal, no money down and we never even walked into a bank for it, because the vendor financed the whole thing. Then we were able to make a very nice profit.
Shaun: Okay, so that is another thing I want to talk about, explain vendor finance and how do you find these deals where the vendor will hold the loan against the property.
Stefan: I think the best way to find those deals is to attract them; you can't just put out an MLS and say, hey I hope I'm going to find a VTB deal today (vendor take back). As soon as you get relators involved they really screw things up, because when it comes to realtors - all they care about is their commission
Shaun: You should talk to Hauni about that one she was on the short couple of weeks ago. She is creating a program for realtors to learn how to deal with investors.
Stefan: I saw Kiyosaki in Vegas a couple weeks ago and he said a pretty funny thing: “you have to be retarded to be a” realtor or something like that. “I pay my realtor 2.5% and I pay my waiter 20%.” Most guys who are realtors, they don't know anything about property. They don’t own property, they don't look at property in their spare time, they don't care about properties I mean, most of them should not be realtors, and most of them don't make money.
So when the realtors get in there, all they care about is their commission and they want a quick turn. They don't want VTB’s, they don't want any terms, they just want you to put down a deposit and walk away… and the deposit had better equal their commission so if you walk away they still get paid that's all they care about. So if you want a VTB deal, I think the best thing you can do is attract motivated sellers. This comes back to your brand, if you create a pretty good brand you’re able to attract motivated sellers. You see those “We Buy Houses” signs, well guess what, they work… they work very well and you know, you get someone calling you who says, hey, I want to sell this house it’s a big problem. A great line that I use sometimes is, “you know I’m sure you want $200,000 for your house Mr. Furman, but how would you feel about making even more money?” Most vendors’ eyes will pop, and say “of course I'd like more money!” Of course they get more money if they would like to become the bank and take the money the bank would be lending me, you can get paid even more. Depending on the timeframe you can get $250,000 - $300,000 over a set timeframe with the VTB. So it comes under value; “can you show value to the vendor?”. I recommend that you deal directly with the vendor and don't even have the realtors involved. Have a realtor, buy some property and keep them happy and sent him a couple of hundred bucks for looking up comps and stuff so he is happy. But you don't get a VTB deal through a realtor very often in residential real estate. If you are in commercial it is a totally different thing.
Shaun: Yes, it's pretty common in commercial as far as I understand; I'm not a commercial investor by any means. But it's your turn to shine; it's your time to get a free plug here. Say as much as you want.
Stefan: Well I've got a little website, a little blog http://www.freedomwayjointventures.com please check it out. I'm always looking for more joint-venture partners. If you are interested in becoming a money partner, that would be great, if you have deals I'm always looking at deals. I'm creating a WordPress site to expand the business, and create a list and get more branding going. So check the website out.
And add me on Facebook, we can definitely start a relationship if you need mentoring I'm always happy to help people. I always find the best people to help and there are people who I mentor and they bring a lot of value to my business.
Shaun: Do you have any final words before we go?
Stefan: Life is a game you learn to win by losing. So don't be afraid of losing and it's something that Kiyosaki always says will always make mistakes when you play the entrepreneur game. Make mistakes and learn how to lose and when you learn how to lose you also learn how someone else won.
So that's very smart, I learned how to raise money for concerts by losing my time and money learning how to sell vacuums. You know, it's always learning how to lose and when you lose someone else won. So you also learn how to win. You just have to have a healthy mentality when you go into it.
Shaun: You have to be introspective, you have to reflect on it and understand what's going on.
Stefan: Yeah, and you have to admit when you make a mistake, that's the key too. Most people don't like to admit they made a mistake and they don't get the lesson.
Shaun: Well thank you Stefan for being on the show and this was a great time and I hope to have you on the show again, and we can talk about a few other projects you're working on.
Stefan: I’ll bring them on when they’re ready! Thanks so much Shaun.
This guy is a part of my team and my mastermind group, we do work together and he has got a very interesting story, and he is a serial entrepreneur. So Stefan, can you give us a bit of your background o who you are and how you got to the point where you are today. Let’s go right before I met you when you first started getting into real estate investing, and it was a point in your life when you were making about $10,000 a year.
Stefan: Yeah, I used to be a guitar teacher and making $10,000 a year and we met shortly after that. Now I’m controlling a couple of million dollars of real estate and I’m out of the rat race. I have a pretty good passive income and I get to do things the way I want and build my business further.
Shaun: So what was your process going from guitar teacher to you having a debt buying company, you have a joint venture real estate company, and all of your holdings. Then you are addicted to this challenge and have done a number of cool things. You have just taken up painting last year, and you monetise that immediately. Again you are doing that with some of the other things you are developing including software; I don’t know if you want to go into any details about that today. But you have the visibility to work your ass off and get to your goal. What was that process like going from guitar teacher to entrepreneur?
Stefan: I’ve always been an entrepreneur. I started out when I was 17 years old and my parents told me that I had to get a job. I answered a letter that came in the mail that said: make money teaching guitar. I didn’t even know how to play the guitar at the time, but I took this job as a guitar teacher. I was a musician, so I knew music, but I didn’t know guitar so I had to learn how to play really quick while I was teaching people. I grew that little basement business to a fulltime thing for a student. I was only working eight hours a week and it wasn’t a lot of work, but at the end of the day I was making about 10 grand a year my parents said to me “you have to get a job you can’t just do this guitar thing.” I started looking at other options, and my first job after finishing university was working in a big chips company; I was putting chips on shelves. I think the funny number they give you there is 35 or 40 grand a year in Canada. The funny thing is I was earning more money teaching guitar than when I was doing the chips. Because getting up to that bracket of $40,000 a year you were paying taxes, cars, and all of these expenses what employees pay. Where you are self-employed making $10,000 out of your home, you are ahead of the game. When I started to get stuck I took seminars, you know, some of those very expensive seminars that people sell, I started writing about real estate and I did my first deal in 2009 and that was with just $1200 down. Since then I have built a little empire. I don’t know what the exact numbers are because I’m buying one property a month, so it’s hard to keep track and it’s probably a couple of million dollars of real estate that I’m controlling right now and I’ve only put $1200 down across all of them.
Shaun: That’s a really interesting story there. One thing I want to touch on and this is an uncommon business that we touch on and I just want you to give a bit of background. You had a debt buying company before we get into any of the real estate. How did you get into debt buying and what was that like for you.
Stefan: … I have a debt buying company and I buy charged off credit cards, which are non-performing credit cards for pennies on the dollar. Then, I outsource them to a collection company and it creates passive income. People always ask me, how to get into debt buying; it’s actually a pretty cool business. I spend you know, one minute a month or something and it sends me a cheque. I don’t do any work, and people always wonder how I got into that. How did I get into it? I was at a seminar and there was a guy who was teaching people how to buy debt. So I flew down to Palm Springs and I was a broke guitar teacher at the time and I started to learn how to buy debt and built up the business there. It has passive cash flow coming in and it has been doing it consistently for about three years. Now I’m in the process of converting that company to a different kind of company because like all opportunities, all opportunities change and you have to morph your company into the next thing – you can’t just let it get stagnant.
Shaun: Yeah, you have to adapt with the changes in the economy, industry and within the business. That’s interesting, so let’s take that shift and go into real estate here. Tell us about you first deal and how you got into real estate and then go through the process how you have gone into real estate with 1200 bucks down.
Stefan: Well my first deals… It’s funny… when you start out an entrepreneurship you make money from being stupid and taking risks. I remember I met some guys at total stranger’s house, who is a good friend of mine now, to play Cashflow 101, which is Robert Kiyosaki’s board game. We were all real estate enthusiasts, you know, a bunch of posers and wannabe’s who want to buy real estate. We were sitting around the table – six strangers, none of them really knew each other, and we play the game and we do two fake deals on paper and the phone rings. The real realtor says, I have this house this realtor is desperate – he has got a desperate seller; let’s buy this house. So the six of us said okay, let’s go six ways on this house. At the time I think we needed $8,000 to buy it. We had a property manager, a realtor, a guy with experience in renovation sitting at the table. We had a whole power team sitting around the table and I was the only guy who didn’t have any experience. So I said I’ll hold the mortgage; I wanted to get a piece of the pie so I held the mortgage. We went six ways and it was $1200 down each and we collectively bought a house. Sometimes when guys get together they get very macho and greedy and we said, lets steal this house. I think they wanted 115, 120 0r 130 asking; I can’t remember the exact list price. We said, let’s buy it for 80 grand because we read a bunch of stories about real estate, and we thought we could steal from this motivated seller. We said we were going to cut off our bidding at 100 grand ; long story short, I get a call the next day saying we just bought the house for 115. I said “115? I thought 100, what was the cut off?” So we bought this house for 15 grand more than we thought we were gonna get it for, it was still a good deal. We ended up buying it; six guys into it, and we gave it to the property manager. What happened was, in four to six months, we had a damaged house, with some tenants that broke the house and stole things and ran away. I was the one holding the mortgage and I had a damaged house and a mortgage ticking in my name… so that was my first real experience with real estate. I had to get in there and fix it up. Today I own that house.
Shaun: So you bought out your partners?
Stefan: I had to buy out my partners; two of them are still good friends of mine, three of them I don’t speak to too much. But I had to buy them out and now I control that asset; it’s in my portfolio. It’s a pretty good deal today and probably made off that one deal made $35,000 - $40,000 of equity and it makes wonderful cash flow. But it was one of those things that is every investor’s nightmare. You buy the house; you have a property manager on it and say to him “you’re a pro look after it”. Next thing you know, you have a vacant house and the tenants have skipped town and you have a bill for $3,000 of damages. What do you do? most people quit. I went and bought a bigger problem after that.
Shaun: I don’t remember that, that was when I met you. This property was the biggest headache that I’ve seen you deal with, and it was a nightmare. Tell us about that and then how you get into this property, what was some of the headaches associated with it and the second part was how do you monetise the relationships, or how did you build the relationships and then monetise them.
Stefan: So I finished that little house and then I said to myself I want to do something bigger; I want to do a four plex… and I bought this burned property in downtown Winnipeg that if I were to do again, I would never buy it. But at the time I was a young dumb hungry guy that would do far too much work for too little return – I mean the house makes great return, but for the amount of work it’s a tough deal. I bought this house on the basis that it had a parking lot downtown and the parking could carry the mortgage. That’s how good of a deal it was as a fire sale. I started calling up contractors and getting quotes on how much it would cost to fix this house up and make it operate. So I started doing that. One of the things that I learned in my debt buying business is: in every business you learn more lessons and you learn how be better at the next venture. My debt buying business, is not my favourite business because it doesn’t have enough control, but I learned how to raise money. I learned how to do a business plan and a loan proposal and sit down with an investor to show them how to get their money back and how much of a return they will be getting. So I put together a business plan and a loan proposal to start soliciting money from people. People always ask me “how do you raise money? Who do you talk to?” Well you probably have a dentist, doctor, you have family members. Money is everywhere; everybody has money.
I put together this debt buying business proposal and I started shopping it to people and the interesting thing was, initially I wasn’t getting a very good reaction because I was a brand new guy and nobody wanted to work with me and then I happened to peak the interest of my dentist and doctor. As soon as they were interested, the social status of having a dentist and doctor interested in my deal, made more people interested in me. I ended up getting two investors on board and doing the deal with them. It’s interesting it turned out for the best because when two people agree on a something like a price, the price becomes real. So those two people agree that this deal is real and someone else wants it. As soon as someone else want’s it that’s when it becomes a real thing and people buy and you can monetise it. You asked about monetising relationships; well monetising relationships is easy because if you have good relationships they are easy to monetise. If you have bad relationships, you are never going to monetise them and that’s how it goes.
It’s the same with products, with rental suites; I like to have the best rental suites on the market. I’m a big fan of Donald Trump and he likes to have the best suites on the market, so I like to do the same and have the best suite.
If you have the best suite it’s very easy to monetise - It’s easy to sell. If you look good and are easy to make a relationship with - you’re easy to sell. You’re easy to monetise. I decided I was going to do a joint venture business this year and I wanted to buy one property a month. My first property I bought with that mindset, actually, was while I was playing on my computer on a Sunday afternoon and raised the money for a deal while playing StarCraft.
If you are good at relationships and good at putting a deal or a proposition together, there is absolutely no reason why you can’t monetise a relationship, or even raise money out of it or make a sale. In the end, it all comes down to your brand, and I have kind of built a little bit of a brand here in Winnipeg, people know my deals and my suites. Even renters, when they go on Kijiji looking at suites, they know which ones are mine because they all look the same. It’s the same brand; same paint, same kitchen and I get much higher market rents because I have a little bit of a brand.
It’s the same with investors, I get about one investor approaching me a month. I don’t call investors any more, they call me and every month I have someone approaching me who is interested and enquiring in investing some money with me. When people work with me, I don’t call them investors - I call them partners. That’s another tip for your business: you want to create partners. You want to make everyone a partner in your business and not just an investor. You don’t want to be transactional.
Shaun: Yeah, you want to have someone who is on your team working with you, they feel like part of it at that point.
Stefan: Absolutely, I said that to all my investors. I’ve been doing a deal a month the last couple of months; they are small deals, but the goal of doing the small deal is to create a relationship an investor so that 10 years down the road I can now expand my network with these people and say look, “I’ve shown these people success.” They have shown their networks success and I can get another 25 investors out of one good one. Giving creates more wealth for everyone, you become very wealthy when you are able to give and create good relationships.
Shaun: I totally agree with that. It’s like the law of reciprocity; the more you give, the more that comes back to you. In real estate it’s all about increasing the value of something and that’s something that you can do quite easily. I mean on your tree house property, the second one you did, had you increased the value. You put another suite in it, you rezoned it, and you put in a parking lot, three story deck. Those are all things that you can do to increase the value and you have much higher market rent.
Stefan: I think one of the key things I did on that deal that most investors don’t do, especially at the beginning stages of their career is pay for an interior designer; I paid a couple of thousand dollars to create a good design. Once you have a good design, you can use the design over and over again. I think it’s worth it if you are going to be in real estate and own suites. You might as well have a design or a design person that creates a design, good look and brand for you. Your suites become easy to sell, easy to rent, easy to move, easy to recognize, easy to raise money for because they look good. Everything gets easier when you do it at a higher level.
Shaun: I like that, let's talk about raising the money. You said you learned in the debt buying business how to put together a loan proposal and raise money. What would be the steps that you would have to take as a new investor to become or to raise that money? You have always said it doesn't matter what you do, you just have to get that one deal, that first deal. It doesn't matter if it's a good deal or not, you just have to have one property under your belt. So let's start from there, you get one property under your belt.
Stefan: Yeah, that's the first step you have to create some sort of track record for yourself. You have to create one deal. It doesn't really matter how you do it, as long as it's a good deal and it makes money. You need to prove you can make money and know what you're talking about then you have a little bit of track record.
The second thing you have to do is understand the three things that people need in real estate entrepreneurship or anywhere: you need money, the people, and the deal. What people always say is “I need money”, how do I find the money. Well you're never going to find money if you don't have a deal or if you don't have the people. So the rule is there are three things that you need and if you have two you will get the third, if you have nothing you get nothing.
Shaun: What if you have one?
Stefan: If you have one you have got nothing. One is nothing, two is something and three is a deal. So if I was a brand-new entrepreneur or if I was mentoring myself, I would say you need to go and find a deal and become a birddog or a wholesaler for an investor who knows what they are doing. Wholesaling or being a birddog passing on a deal to a competent investor, you are going to make good money doing that
Shaun: You did that yesterday. There was something you did yesterday; I got an e-mail about that.
Stefan: Yeah, I have a deal on wholesaling right now. You send out, you get something good on your contract and the key is value. You have to have some value, a good valuable deal and you can prove that as value. I sent out one e-mail and I have a guy who is apparently dropping off a cheque this afternoon and wholesaling that deal. It just took one e-mail and not even a phone call.
That's because there is a bit of a brand and a bit of “I know what I'm doing with deals” and people understand that and that's why I'm able to wholesale them.
But back to the money, people, deal Shaun, you need the three and if I was a new investor you need to get a deal that's the key. The deal drives the rest. The second thing you have to have is the team and the people and a team isn't very hard to put together. I mean, you are going to build a team in the beginning and you are going to sub out people and switch them around until you have a good team that works.
Then once you have the deal and people, the money comes every time. All you have to do is get two people interested and then you will raise the money every time if you have the deal and the people. Some people, I know some investors who just raise money without a deal and they can do that because they have a great relationship with someone, but I don’t think it’s duplicate-able. I think It’s much more duplicate-able to have a good deal and a good proposal, a good team built, a good track record and then look for the funding once you have everything together because I see it all the time, investors come up to me and say, “hey I've got a good deal, I need… uh… 250 K for… this thing” and I say send me over a proposal. They never sent me a proposal and they never send me their team, I never get any information and then the money never gets raised.
Shaun: I guess it's not just pride in your work it sets you apart. It sets that in stone sort of, when you have a proper proposal together or as Don Campbell calls it, is sophisticated investor buyer. It sets something that's real, it’s tangible. You flip through the pages, this is your property, these are your numbers, these are comparable and I think it gets a lot easier to raise money as you do that. Now would you agree?
Stefan: Absolutely, I wouldn’t even try without it. I love the name sophisticated investor proposal because that's a big fancy name for a binder. I do a binder for every deal; I bring my binder of past deals, it’s a 10 tab binder and it shows a credit report, my history, past deals, branding that I've done. It shows everything.
Shaun: Does it show your media mentions as well, like when you are in the paper?
Stefan: Yeah, I bring my Winnipeg Free Press Articles, I was in the paper, I was in Style Manitoba for my Art; I bring anything about me that makes me credible. I put it all in a binder, it’s a 10 tab binder, and I sit down with someone and they flip through it and at the end and it’s a yes or no decision: “Do you want to do it?, “Is this right for you?” and “does this make sense?”
Then you don’t have to do follow up calls and chase people around. Chasing money around is a really dumb thing to do. You are better off to attract money. It’s just like chasing girls is dumb, you’re better off to attract girls. If you don’t chase; you attract. So make sure you can attract it but it comes back to building a brand and how do you look and speak… and how are you able to attract the money; Because you don’t want to make “raising money” into “chasing money”. You want to be attracting money. Attracting is so much nicer than chasing it.
Shaun: So you have to make yourself valuable and grab the attention.
Stefan: Yeah, I know a lot of brand new investors; they come out into the investment world and are dressed like bums. They have a business card that says; “get 200 free business cards at Vista Print”, terrible shoes that are dirty, they don’t show up on time, they are not well groomed. If they are rolling around like that, they have signs on them that they are broke or they are never going to raise the money. You have to show you have some money to raise some money. You know, it’s the little details, it’s your brand.
Shaun: Here is a question that you asked me about a month ago and I thought you had a really interesting answer for it. What would you do if given $10,000 today?
Stefan: It’s a great question Shaun, Kiyosaki says that, if you gave $10,000 to someone, statistically, most people would end up with nothing. A certain percentage would have a small return, and then a very small percentage would have infinity return on their money. I had asked you the question a while ago, and what did you say?
Shaun: You asked me the question. I said I would keep some of it and roll the rest into investments, so probably real estate.
Stefan: That shows where your mentality is at. Your mentality is definitely in investor; you want to invest it in real estate. Since I started and if you asked me years ago, in 2008 when everything was on sale and there was a huge crash I could have bought houses in Winnipeg for 50 grand, which is about they a third of they are worth today, I could have bought silver at $11 an ounce, I could have bought Apple for $70 a share. Instead I had a GIC, because that was where my mentality was because I was making 2% with the GIC. And $10,000 I would have bought a GIC. If you asked me in 2009 I would have bought a house or I would have bought silver. Two years ago I would have paid interest on a monster loan for 200 grand. Now I’m becoming more sophisticated and I would take 200 people out for lunch.
Shaun: Why would you do that as opposed to all of the other ones? This is the interesting answer here.
Stefan: My mentality has changed so many times; I am more of a business owner mentality. You know if I can take 200 people out for lunch and let's assume they are quality people, I would have 200 contacts on a list, and out of that list one of the things you have got to learn in being an entrepreneur is how to make money off of everybody. You have to learn how to make money off of the brokest guy ever who walks in the door. He can be a birddog, wholesaler or part of a referral program. Then you have got to learn how to make money off of people who have lots of money; those are people that you raise money from. People at your level you can do jointly venture or some sort of contra deals with.
Shaun: Here's another interesting one, he was what Alex Mundosian said to me. He said you have got to learn how to make money off of the people who are stealing from you. If you are an internet marketer, you need to be able to track the people that are stealing from you and learn how to monetise that.
Stefan: Yeah, it's like networking. Some people don’t like to do networking and say, “it’s all broke MLM guys”. One of the best deals that I ever did, I think I made $60,000 profit, my partner and I is a very short time. That was from a guy, a broke MLM networking thing.
It's funny because everybody has value and everybody can be integrated into your business somehow. Your challenge as an entrepreneur is to figure out how to monetise a relationship with anybody, you know, rich, poor or whatever. How can you create mutual benefit? How can you create value out of a relationship?
Shaun: That's really interesting, so tell me how that process works. When did this happen and who was the person who came to you and what was that deal like.
Stefan: At the time I was working for a private equity firm and I was on stage raising money for Darren Weeks and I had a guy approach me for a JV opportunity. He had a good deal and I kind of said “yeah, yeah, yeah”. He wanted to partner with me but he had no money and no team. So what I ended up doing was buying the deal from him and then I became the deal owner. I already had a team and I went raise the money. The first person I called I wasn't even asking for money it was actually a relator of mine and I called him and I said can you get me some comps and I'll pay you $500 to get me some comps because we were looking for a deal at the time. He said “Oh, that sounds like a good deal I would like to get in on that!”. So I raised the money without even looking for the money. I just attracted the money because I attracted the good deal. I paid for the deal and there was nothing wrong paying for a deal. Some of the best deals you pay for and there is nothing wrong with that and it takes time, effort, and energy to locate those things.
So long story short, we bought this deal, no money down and we never even walked into a bank for it, because the vendor financed the whole thing. Then we were able to make a very nice profit.
Shaun: Okay, so that is another thing I want to talk about, explain vendor finance and how do you find these deals where the vendor will hold the loan against the property.
Stefan: I think the best way to find those deals is to attract them; you can't just put out an MLS and say, hey I hope I'm going to find a VTB deal today (vendor take back). As soon as you get relators involved they really screw things up, because when it comes to realtors - all they care about is their commission
Shaun: You should talk to Hauni about that one she was on the short couple of weeks ago. She is creating a program for realtors to learn how to deal with investors.
Stefan: I saw Kiyosaki in Vegas a couple weeks ago and he said a pretty funny thing: “you have to be retarded to be a” realtor or something like that. “I pay my realtor 2.5% and I pay my waiter 20%.” Most guys who are realtors, they don't know anything about property. They don’t own property, they don't look at property in their spare time, they don't care about properties I mean, most of them should not be realtors, and most of them don't make money.
So when the realtors get in there, all they care about is their commission and they want a quick turn. They don't want VTB’s, they don't want any terms, they just want you to put down a deposit and walk away… and the deposit had better equal their commission so if you walk away they still get paid that's all they care about. So if you want a VTB deal, I think the best thing you can do is attract motivated sellers. This comes back to your brand, if you create a pretty good brand you’re able to attract motivated sellers. You see those “We Buy Houses” signs, well guess what, they work… they work very well and you know, you get someone calling you who says, hey, I want to sell this house it’s a big problem. A great line that I use sometimes is, “you know I’m sure you want $200,000 for your house Mr. Furman, but how would you feel about making even more money?” Most vendors’ eyes will pop, and say “of course I'd like more money!” Of course they get more money if they would like to become the bank and take the money the bank would be lending me, you can get paid even more. Depending on the timeframe you can get $250,000 - $300,000 over a set timeframe with the VTB. So it comes under value; “can you show value to the vendor?”. I recommend that you deal directly with the vendor and don't even have the realtors involved. Have a realtor, buy some property and keep them happy and sent him a couple of hundred bucks for looking up comps and stuff so he is happy. But you don't get a VTB deal through a realtor very often in residential real estate. If you are in commercial it is a totally different thing.
Shaun: Yes, it's pretty common in commercial as far as I understand; I'm not a commercial investor by any means. But it's your turn to shine; it's your time to get a free plug here. Say as much as you want.
Stefan: Well I've got a little website, a little blog http://www.freedomwayjointventures.com please check it out. I'm always looking for more joint-venture partners. If you are interested in becoming a money partner, that would be great, if you have deals I'm always looking at deals. I'm creating a WordPress site to expand the business, and create a list and get more branding going. So check the website out.
And add me on Facebook, we can definitely start a relationship if you need mentoring I'm always happy to help people. I always find the best people to help and there are people who I mentor and they bring a lot of value to my business.
Shaun: Do you have any final words before we go?
Stefan: Life is a game you learn to win by losing. So don't be afraid of losing and it's something that Kiyosaki always says will always make mistakes when you play the entrepreneur game. Make mistakes and learn how to lose and when you learn how to lose you also learn how someone else won.
So that's very smart, I learned how to raise money for concerts by losing my time and money learning how to sell vacuums. You know, it's always learning how to lose and when you lose someone else won. So you also learn how to win. You just have to have a healthy mentality when you go into it.
Shaun: You have to be introspective, you have to reflect on it and understand what's going on.
Stefan: Yeah, and you have to admit when you make a mistake, that's the key too. Most people don't like to admit they made a mistake and they don't get the lesson.
Shaun: Well thank you Stefan for being on the show and this was a great time and I hope to have you on the show again, and we can talk about a few other projects you're working on.
Stefan: I’ll bring them on when they’re ready! Thanks so much Shaun.