Listen to Neal’s most recent podcast guesting, an interview with Brandon Elliot of  Ready. Set. Go. Real Estate Investing

Neal Bawa - Mad Scientist of Multifamily and Founder of MultifamilyU

by Neal Bawa | Capital Hacking

Josh: Welcome back to capital hacking. Oh, hello. This is Josh, and that’s Eric Kabral over there. We are here to kick off a show. Now we’re in the studio today. That’s why the mikes are so awesome. But, and Eric, we were not in the studio when we recorded this next show,

Eric: Right, We, we, we created an amazing Mo mobile. Capitol hacking studio in Nashville, Tennessee. At the bigger pockets conference.

Josh: We did, a lot of people were talking about it. Seriously. It was legit. It had its own room.

 Eric: We had lights and mikes and cameras. It was, it was legit. And everybody that stepped into our suite, Josh Macallan. Got a suite for us, which only makes sense because you don’t want to ask people to

Josh: come to a bedroom. A bedroom. Exactly. That’s all the inside baseball we can handle right now. So, we’ve got Neal Bawa coming up on this episode and Neal was a fast friend. It took two days and now I feel like I know Neal very well. He’s invited you and all of the pod Maccers out to the West coast. Right. Neal will be out there soon.

 Eric: Will be in LA soon. Yes.

Josh: But Neal Bawa, here’s why we like them. The guy puts his money where his mouth is and his whole program. Is extremely generous education. That’s how he attracts good people into his network by going to be giving value first. So, the first incredible resource he’s going to tell you about is multifamilyU.

You wait till you hear about it, and of course the. Usually popular grocapitus, which is his is syndication company. So, you’re going to have a great time getting to know Neal.

Eric: Here comes Neal Bawa.

Josh: Welcome back. This is Josh McCowen, the host of capital hacking. So happy to be on assignment.

We’re on assignment, right Eric.

Eric: Absolutely. What I like to call capital hacking X or assignment, because this is an extension all….  It’s all about branding. I’m always like repositioning.

Josh: It always wants to make the expression sexier. So, we are at the bigger pockets conference within another, another, um, field trip of capital hackers.

Eric: Yes.  Yes. We loved what we were doing so much on the road at the real estate guys radio. Syndication that we wanted to continue doing it because we had this trip coming.

Josh: Well, and this is where it gets exciting. By the way, Justin gets to be on Capitol hiking next because he’s with us as one of the best capital hacking team members. Welcome to the show Justin.

Justin: I’m back. So excited to be here, guys. Love co-hosting with you guys. You know, it’s always fun and I’m really excited about the guest that we’re for, man, brother. We had a great. Great conversation yesterday, and I’m so excited to introduce a man who is known in real estate circles as the mad scientist of multifamily.

Talk about branding, right? Uh, besides being an entertaining speaker, Neal Bawa is a data guru, a process freak, and an outsourcing expert. He has a $200 million multifamily portfolio, and he treats it as an ongoing experiment in efficiency and optimization. He lives by two mantras. The first that we can only manage what we can measure.

The second is that data beats gut feels by a million miles. These mantras and a dozen other disruptive beliefs drive profit for his 500 plus investors. Guys, please welcome Neal Bawa.

Josh: Neil, welcome to the show.

Eric: Welcome to the studio.

Neal: I am just to be on here. Thanks for having me on the capital hacking podcast, guys, we appreciate you.

Josh: We, um. We grabbed you last night. We’re all sitting there networking, and this is the behind the scenes or inside baseball is Eric calls it that we’re with. We’re with all these famous speakers that traveled the country, and Neal’s like, well, I just flew here from Denver. We’re in national tennis fee, but I just flew in from Denver because I was speaking. A day ago, right? In Denver.

Neal:  Well, actually, that was two days ago. So, I asked you, this is my third conference in three days. Guys talk about being a glutton for punishment, but you know, so I, um, the, there was a huge conference in Denver, 550 people. Adam Adams is this insane, you know, kind of, um, kind of marketer.

He’s a, he’s incredible, incredible with, with Facebook, right? So, as this huge. You know, a base, and this cat conference was about, you know, you guys would love to be there because it’s about capital raising, right? So, everybody there is talking about capital raising and, and so I get there and I’m really excited that they picked me as the first capital raising speaker.

And then when I get up on space stage, I’m really deflated because they stuck me behind the star lawyer who just through like the rule book at everybody. So, you know, like the whole audience is super deflated and I have to, you know, so I spend 10 minutes pumping them up before I get started with the capital raising nuggets.

But anyway, that was Denver and that was Friday. And then Saturday I presented at the. M fame conference. We said the multifamily investing conference in Boston at the Western Copley, which is where Dave Lindahl does all of his events for the last 10 years and then here. So yeah.

Josh: Now we’re in this. This is a little, probably a relaxing state. This is relaxing for you. This is a great community of people, bigger pockets, people.

Neal: This is so exciting. I think that one of the. The big questions in our community for the last 10 years is, why the heck doesn’t bigger pockets do a conference? What are they going to figure this out?

This is a good thing to do,

Josh: Right, as well, you know? And you might say, well, I know Josh Dorgan a little bit, and I know he was very protective and we always say, yes, it’s a great idea to be protective of your culture, but boy, it’s good for all of us to meet each other because we like what they’re doing and we want to connect with each other and them.

Right, right. No, Justin loves that.

Justin: I’ve been asking for one since I joined Bigger Pockets like six years ago. I mean, it’s, I’m so excited to actually be here doing it. Meeting everyone.

Neal: It such a great place. Right? This is the best place that they could have picked for their inaugural conference.

Josh: What do you mean get the grand old Opry?

Neal: Exactly. Yeah. The Opry, the Gaylord. I mean, this place is incredible,

Josh: It’s actually incredible.

Justin: It’s historic and if you want to create an experience for your guests, I mean, what better than to take. There’s only one better place in America. And now it’s just going to where?

Josh: No, we, uh, we’re really happy to be here. So, Neal, they, there’s a lot of reasons we wanted you to share with our guests. Okay? So, you’re ahead of us. You know, a lot of us in the audience here are listening because we. Have become very good at one element of real estate or just investing.

There are people on this show. We’ve even had entertainment producers on the show talk about how they raise capital for movies and shows. Yeah. So, we’ve, we’ve kind of range the gamut and we also. I hate to do this, but Neal is a famous speaker, so we’re going to share with him all about you guys, the community for one minute and ladies, gals.

So, this group of capital hacking people, we’ve all come to understand that you need human capital first and then the word, the more we work on each other and ourselves. The more the cash capital will find its way through our business plans.

Eric: Yeah,

Josh: and you are a great example of that. I know Eric always says, ask the origin story.

Eric: Yes. The origin stories. So, Neal, what we’d like to do is usually ask our guests, um, you know,

Josh: what was that entrepreneurial bug that bit you and, and got used to? Wasn’t, you know, it’s usually that lemonade stand or.

Eric: Yeah, exactly. So, what was it for you? Oh yeah.

Neal: no, no, no. Lemonade stands here.

So, you know, I, I’m, I’m not real estate royalty. I haven’t flipped a thousand homes. I haven’t, you know, done a hundred loans, nothing like that. Right? So, I’m, I’m a technologist. I’m a geek. I’m Silicon Valley, big fat, w two job, you know, living in taxa. Fornia paying 53% a year. That was my life.

Right? And right. And things are going along fine. Our tech company that I had a Sharon was growing and then in 2003 my senior partner who was the CEO of the company, I was chief operations officer, decided we are not going to rent an office anymore, Neal, you are going to build a campus for us.

And I’m like. I haven’t even built a single-family home. I don’t even have a single-family rental. I know exactly nothing about real estate, and he’s like, yeah, that’s good. That’s awesome. I just want a blank slate and you’ll figure it out. I’m like, really? You want me to buy and build a $5 million campus and figure it out along the way?

You see some potential problems here with like, like just ceiling falling in the day that we start. And he was like, no, no, I’m going to give you like a retired GC and I’m, I’m an expert at myself. And he was, and you know, we’ll help you through it. Right? And, and the problem was that our, our tenant, our landlord was general motors, you know, in the Bay area.

General motors had a building and we were in there and they hated us because we were a technology education business. So, we had students messing up their carpets and we were terrible tenant. And so, they were like, okay, you have nine months in, three days left in your lease. We just want to point out that there’s a clause in here that says, if you go over, it’s $10,000 a day and we intend to execute that particular clause.

So, you know what’s what, you know how much time you have left. And that was, yeah, I was terrified. Right? So instead of. Buying in a readymade office. My boss basically bought a 27,000 square foot shell, right? So 22 foot high ceilings, no walls in the middle is just, it’s about the size of a football, you know, you know, pitch and he’s like, let’s just build all of our classrooms cause we, we’re a tech company and H how hard can it be to build these classrooms?

Well, it turned out to be much harder than I thought and so in, I was in this constant state of terror for the next nine. Months and four days. So, we did pay a $10,000 fine one day, one day. Eh. But but I mean, and I was, I whined, and I bitched, and I complained to that entire process, right? I just was constantly telling him this is not my job.

And once it was done. I’ve been thanking him ever since. Because of what you learn when you build something like that from scratch is so insane that these, the skill level that you gain, the weight, the different ways that you use it is, is so absolutely astonishing. I’ve always been grateful to him for giving me that chance.

Josh: We call that, I mean, this is a new little catch phrase. We’re coming up with it. That’s human. Capital appreciation. You know it’s like appreciating your capital position, you’re getting an ROI on all that suffering.

Neal: Exactly. And what was funny was that campus was so beautiful and so perfect for our business that it volted us into the, to the next level.

Two years later, every single classroom, there are 27 classrooms in this place, all sold out.

Josh: Wow.

Neal: Right? We have no place to go. The building behind us is on sale, but it’s twice as expensive. It’s now 9 million bucks. And we’re like, well, you know, we were doing really well, but we don’t. Have 9 million bucks.

What did we do now? So, he says, you know, you’ve got all these doctor friends, these rich doctor friends here. Let’s get them all together and pitch them this other building. And so, we’re like,

Josh: Like a capital partner.

Neal: Exactly like a capital partner. Right? But you know, I, the word syndication was not in my dictionary back then.

I didn’t know what I was doing. But essentially, we put together a syndication. Of a bunch of rich doctors where we said, we’re going to buy a 33,000 square foot building and we’re going to buy the first 13,000 square feet and the remaining 20,000 we’re going to chop them up into 10 suites of 2000 each.

We will build them for you, and then as our company grows, we will rent them back from you. Right? And I was like, maybe, maybe one doctor out of 10 that I put in this room might actually say yes. Well. By the time we were done, all 10 checkbooks were out, and I’m like, okay, what am I missing here?

Right. Shortly, there’s, it made really that good a salesperson. The answer was No. Now, I know that in a typical syndication, you charge a 5% developer fee. And then a 30 70 split to give somebody a pitch like that. So, the doctors were laughing all the way to the bank, but I was still happy because I wasn’t a syndicator.

I wasn’t a real estate guy. I didn’t care about the fee. I cared about the fact that I ended up with 33 square foot, 33,000 square foot custom campus. So, it was still a win win though. Nobody charged a fee. So, people sometimes ask me, you know, when did you get into real estate? It’s like, well, after my company was sold in 2013 when did you do your first indication?

Well, 2006. So, they’re like, okay, how does that work? So, I was like, well, we ended up doing a syndication, not realizing that that’s what we were doing.

Josh: May we ask you a question about that.

Neal: Yeah.

Josh: Okay. So, the doctor’s indication, um, when you went with your pitch, the only part that I’m missing is, I know you said you didn’t charge your fee and you didn’t earn a profit on the work.

Neal: Right?

Josh: Did they own the building and you owned nothing?

Neal: No. So, we kind of mean condominiumized a building. So, everybody had their own Flat. Right. And so, they own their piece and they still own it. And even though we sold the business back in 2013 as of 2019 all those doctors are getting at rent paid by our company.

So, it was an incredible deal for them. They got somebody to build a. Office campus for them and rented it back from them in perpetuity without them paying a cent.

 How about your company though? Did your company get one of those condoms?

Neal: We, the 13,000 square feet was ours. Right. So, we, we had just enough cash to it to own it.

Josh: So, you actually had to end it up. You didn’t even get that for free.

Neal: No. This was an incredible deal for the doctors. Remember like 10 checkbooks out in 60 minutes.

Josh: And you never had to buy back any of those as you expanded.

Neal: We didn’t have a buyback option in there. The doctors didn’t want us to buy anything back. They were like, shit, rich company, man, they’re making loads of money.

I just wanted them as my land, a bite, my attendant forever.

Josh:  Now let’s, let’s dissect again. So back to those 10 doctors, these are, you know, this is who we work with now. Not necessarily doctors, but people in that situation. They are doctor sometimes who have a need. For what real estate provides for a portfolio.

Neal: Yes.

Josh: So, did those doctors, they were already enlightened to that, that that it’s sometimes it’s best to have not everything in the wall street.

Neal: Yeah. I think these were savvy guys. They were the sort of doctors that do invest in real estate, and I think that the biggest thing that they were interested in was the depreciation benefits.

Doctors, they know it. Basically, tech geeks and doctors are the ones that are really getting killed with taxes, right? I have paid 53.3% of my income in taxes, right? And people are like, no, no, no. That’s not even possible.

Josh: It’s almost impossible.

Neal: It’s 53.3% I can do the math and take it all the way to 53.3% because when I realized that, I was like, this is insane.

But as it happens, one of the doctors, you know, things fell through. So, I picked up that suite and I bought it, and for the first time in my life, my salary went up and my taxes went down, and that was the big aha moment for me. I was like, okay, I am no longer working for the IRS. This is the first year where my money is actually working for me.

Josh: Would you mind dissecting that? Because you know, we have people all across the spectrum listening to us. We’re like, we always say, we joke that we’re bigger pockets of people that are taking the next big step. That’s they’re still, we’re still learning as an audience. So, share with us a little more about depreciation.

Cause this is a magical thing that pers, a person who’s been flipping houses like a bigger pockets, Fran, Fran has not heard of this yet.

Neal: That’s right. So. Depreciation is essentially a way, it’s a paper-based way to reduce your taxation where they take the value of the building, right? And they chop it up into bits and depending upon what kind of asset it is, they’ll chop it up into 27 years or 37 years.

And then you can also do with multifamily, especially, you can do something known as accelerated depreciation. Right. Sometimes it’s called cost segregation. Um, and then in the 2017 jobs act, they made, well, not the jobs like the, the tax reform bill. They made everything simpler because they allowed you to take a hundred percent appreciation on a building in the first year, which is insane, but you can, it’s still not 100% because actually you continue taking depreciation in future years, just not that much.

Right? So, here’s a good example of just how much this can mean to people. So, I have, I have an Apple engineer. He makes $375,000 a year now, right? So last year I buy a property called Windward forest, and it’s $12 million. And we, we do something known as cost segregation versus depreciation under that 2017 taxation act.

And so, at the end of the year. We, we ended up giving three and a half million dollars worse worth of paper losses, completely fake paper losses on a property that’s cash flowing and giving, you know, checks to investors. Every quarter we send those checks out to Mr. Apple engineer, and now that guy was smart enough, by the way, to make his wife its real estate professional.

Right? So, he went through the process where she got her license and she sold some homes. She’s probably making like a fraction, a tiny fraction of what he’s making. But because she’s a real estate professional, he was able to take his portion, right? So, it was three and a half million dollars. He invested a hundred grand in the project, and we sent him in negative $106,000

Josh: More than a hundred.

Neal:  More than a hundred, right?

It depends on the property. This was an old 1972 property so that that level can be significantly higher. Right? So, it’s not uncommon that you will have somebody invest a hundred grand. And get more than a hundred thousand dollars in depreciation in year one and knock his salary down by basically more than what he just invested and he’s not done because there still going to be depreciation in year two and year three and year four before we run out of depreciation.

Isn’t that insane? To be able to do that completely legally. Not gray shade. stocks proven for the last 60 70 years.

Josh: And a person who just heard what you said for the first time was like, what was that? Some kind of loophole, but it’s not, and I want to home in on something. You’re the only other person, you and I are simpatico on this.

You called it fake losses. Now. Other. I thought we had Tom wheel right on the show this week. And you know, Tom from rich dad advisers, fantastic guy.

Neal: I’ve met him a number of times.

Josh: He said he is what I consider my favorite presenter on tax savings. Uh, he’s a CPA and we all know him a little bit.

Um, he said, don’t use the word fake Phantom because colon Phantom, but I liked fake better because when my family was. When my wife had the epiphany with me about this, she tried to explain it to her family, which is military teachers and educators and stuff, and they were like, what do you mean?

You’re going to get a check in the mail, which you can put in your bank, call it $40,000 call it a $5,000 dividend this

Neal: Right.

Josh: Right? It goes in your bank account. It’s cash. Yes. And then at the end of the year, instead of saying you made 5,000 the piece of paper says you lost 106.

Eric: Correct. That’s exactly right.

Right. And as absorbed as it sounds, breaks your brain. As absurd as it sounds, this is a typical scenario, right. So, no one on this show is talking about that one in a hundred property we’re talking about. All 100 properties having pretty much the same scenario, right? That 106 might end up being 90 K in some cases, but it’s not going to be 50.

Josh: Well I’m surprised you.

I mean, I think. Um, the only thing I would love to ask you is I thought over 100% of what you invest would be a pretty magical project. It’s going to be some significant portion.

Neal:  Yes.

Josh: In bonus depreciation.

Neal:  Yes, it usually right around 90 to a hundred percent of what you invest when you’re doing the, the, the, the doing this.

But again, old properties, you can do stuff, right? But some of the stuff that they do when they’re doing just think about what they’re doing, right. So, he. We hire a company and they charge five to 10 grands; they’re called a cost segregation company. What they’re doing is they’re accelerating the depreciation, right?

So, what these guys come in and do is they come into the property and they look at it and say, that computer can’t possibly last 27.5 years. It’s only got two years of value. And then that boiler over there clearly only has six months of life left. So, I’m going to depreciate it all this year, blah, blah, blah.

And they go through this process, right? Well, here’s the funny thing. At the end of the time when that computer is fully depreciated, right? Because its value is now down to zero. That depreciation is not going to get recaptured because it has a value of zero, but it’s still working. It’s still working at the property, right.

It’s just, oh my God, what I figured this out. I was like, there, there are, there’s two. Classes of people in America, right? The people that take benefit, you know, these depreciation benefits and grow their wealth and the people that don’t we are a divided class society.

Josh: Eric, Eric, I wouldn’t mind when you share your story about the rich dad, poor dad epiphany’s because what you just described is what a lot of people started to get their head around with the four quadrants of income from rich dad, poor dad. Remember that book?

Neal:  Yes, absolutely.

Josh: When you move from being the employee. Yup. Which is where the government theoretically needs to earn its tax, but they need a lot of employees.

Neal:  Right.

Josh: So, they let those who build or build companies pay less tax. Now, let’s back up. Since you’re such a great teacher and I know you own multifamily university and we’re going to get into that, you are a phenomenal teacher.

It’s been really good to sit with you. Tell us why you think the government. Let’s us who develop or build or invest, save on taxes. What’s the logic in your opinion?

Neal:  I think there’s a good logic there in my mind. You know, I, when I started out, I used to think, you know, this is all basically it real estate guys are really rich and they’ve got their own, you know, kind of, um, uh, lobbying groups and they basically, you know.

put depreciation in. No, there’ve been a lot of administrations that didn’t like real estate people, and they’ve let these benefits be the key thing is that what drives America right? In so many different ways. Is the development of capital through real estate. Trillions of dollars are being developed.

That capital gets used once you make, you know, this hotel, for example, Gaylord, right? There’s gotta be three, 4,000 people working at this hugely insane place. The key is that the government basically almost in a way, subsidizes some of the real estate taxation. To allow for places this massive to be built because I don’t think the Gaylord would have ever been built if those tax benefits did not exist.

Josh: Right.

Neal:  Because there’s a risk that you take when you build a building like this, right? Could get stuck, could take 10 years and sort of to all kinds of bad things could happen. And that incentive to real estate investors of, Oh, I’m still getting depreciation, even if I’m not getting cashflow yet. Is really what allowed us to get over the hump and build a building like the empire state building projects like that would not get billed if that incentive didn’t exist. So, in the end, it was one of the best decisions that they could have ever made.

Josh: Uh, you say you are, you are the multifamily university. You are definitely a great teacher, brother.

Neal:  Thank you!

Josh: We, um, we, we, go ahead Justin. I know you’re dying to get in there.

Justin: I got questions. Um, uh, I, I actually want to continue from your origin story.

You, you were talking about, um, doing real estate development during your full-time job and you mentioned your first deal was in 2013.

Neal:  Uh, yeah, yeah. Around that time.

Justin: So, is that when you left your day job, can you just talk us through that process and get us to, to where you are now?

Neal:  Yeah. I’m going to actually go back just a teeny meter for that. Right. So obviously 2006, 2007, I’m watching this building and watching my taxes go down. So, I’m bitten by the real estate bug. But I’m still running a technology company and I know I have a huge payday coming at some point in the future.

I don’t know what it was. It ended up being 2013 but I know that the company’s profitable and had heading towards an exit. So, I don’t want to leave, but I want to grab hold of these tax benefits. Right? So, in 2008 great timing, right? Everyone else is thinking the sky is falling is the worst time to buy real estate.

And my family’s telling me, why are you doing real estate? Real estate is the worst thing in the world at this point. And I’m, I’m. A data scientist. I’m a math geek and I’m looking at the mathematics and it’s like. To me, it seems like that this is the best time to invest in real estate, right?

So, if I have a w two income that’s provable, and everything that I buy is cash flowing like crazy on day one, then why do I matter if its value goes down further. The cashflow is still there. The dollars are still there. So, my, you know, and, and the, the other thing that I was looking for at is every time I would go and look at real estate, I, and I would read books.

There would be this statement stuck with me. I don’t know what book it came from, what was really well written. What they said is, real estate is one of those asset classes that when it goes up, when a bubble bills, it goes way beyond where it showed, right? The bubble always extends way beyond.

But here’s the important thing to remember that when real estate crashes. It goes down way below where it should. So, it goes down below cost to construction. So, I started researching cost to construction and I realized that all these palms that they built in 2006 we’re now selling at one half of their cost of construction.

And I, in my mind, I said, there’s no way to lose when you buy something at one half the cost of construction, because at some time, at some point in the future. That has to correct. And you have to again, start going about the cost of construction. So I go, I go to a Zillow, which is a, you know, back then, a very small website, and those 10 people know Zillow back then, and they published a list of all 2000 cities in the U.S and there, they’re dropped from peak in 2005 or 2006 so they publish it, uh.

You know that, that data, but the problem is that data is on every single page, not on one page. It’s, it’s unlike 2000 pages. So, I go and hire a Ukrainian hacker and I say basically spider the Zillow website without crashing it. Go through every single page and grab this information, stick it in Excel.

And I’m like, you know, it’s probably going to take him 30 days to do that. And he basically sends me an email the next day with an Excel spreadsheet. And then I realized, wow, the power of technology is insane, right? Cause he did it all overnight, right? So, he sends me this Excel spreadsheet, which is the entire Zillow website scraped, right?

And then I get to click on the sort button, and I figure out which city in America has had the largest crash. And as it happens, it was in California. I live in California, right? So, it was Madera, California, 20 miles North of Fresno. A company called Kaufman and broad, basically built 6,000 homes there.

And Bay had farm workers signing loans saying that their incomes were hundreds of thousands of dollars stated income. Right? So, by 2008 all the farm workers left, so their entire half of the city was empty with beautiful, you know, stone front for, for, you know, four-bedroom model homes. And I look at that and I go.

I’m buying these, right? So, I go there, I buy 10 of these homes cause that’s the maximum you can buy. And when single-family side. So, I buy 10 and I’m buying them at 90 grand each. And now I think there are about two 60 each. And so, I buy nine 10 for 900 and the banks like me, cause I’m like, here’s my cash.

Right. You know, we’ll talk about loans. They’re all refinanced, but the banks are like, oh yeah, yeah, 90 kids just take them off our hands do it. We got so many of these rights, but it wasn’t, it wasn’t Crazy time. I couldn’t believe what people were saying, and at the same time, my family’s telling me, you’re an idiot.

You’re an idiot. You’re an idiot. Right? Every day they’re saying that. I’m like, no, no, no. You listen to math, and they’re like the ordinary that nobody’s looking at the mathematics of this. And I’m like, the math is insanely good, guys. The stuff that you’re investing is not even 5% as good as this mathematics.

Nobody’s listening to me. So, I go buy 10 of those and immediately come up with a problem, right? Tenants. At that point in time, Fresno was 20 miles away, so I realized. I have to somehow convince the Fresno people that come to these beautiful homes in Madeira, which is only 20 minutes away.

And so, I buy a home in Fresno as my Cedar home, so I go stick that home on 29 different websites. I started getting a bunch of leads for that particular home. I don’t lease it out. I tell people, here’s this home in Fresno, it’s three bed, two baths for $1,350 or. Here’s 10 homes, beautiful website, 20 minutes away for 995 each.

Look at how gorgeous these homes are. One fills up to fill up. Three fills up. Before I know it, all 10 of my homes are filled up. I’m making $10,000 in Cash.

Josh: We got to dissect that.

Justin: The ultimate capital hack.

Josh: So, you’re saying you found something that looked like one of your Fresno houses, but it was in. I’m sorry, one of your Madeiras.

Neal: It wasn’t even, no, it was worse. It was older. So, this is a 1994 property in a not so good part of Fresno, and I’m basically promoting the heck out of it on every engine. Right. So, I go back to the Ukrainian and he basically finds me a list of every single apartment listing website and writes a spider in a language called now, now called Python.

It used to be called something else back then, basically, which pushes my listings there and refreshes them every hour on the hour. Right? And so now I’m getting 20 times as many leads as anybody else. And all those leads are for one single property.

Josh: You built a system that you could sell for $1 million, that one system you probably could have sold, but you used it to rent.

Neal: I now use it; I have a team of 10 full time people in the Philippines now using it to rent out 2000 property. So, this year we are going to process 36,000 tenant leads using that system. So, I never sold it. I never sold it because it’s a $200 million portfolio. The system only works if not everyone knows about it.

Josh: I love you.

Neal: Right? So, I, yeah, I’ve never sold it. I’ve never given it away. So, at this point, right, I have this one home that everybody in Fresno wants cause there, you know, it’s on 59 39 different websites. I’m getting huge numbers of leads. I’m just redirecting everybody to 20 miles away.

And so, all of my properties fill up. Before you know it, I’m making crazy amounts of money. And then my family is like, maybe we should go by in Madera.

Josh: Wow,

Justin: That’s crazy. That’s such a good tactic to attract people from the other town over. Send him your way.

Josh: Right after this. Are you going to give the top secret you’ve ever done in your life of real estate?

Stay tuned right after this break.

Yes, Neil. Thanks again for coming to our makeshift studio, here.

Josh: This is Capitol Hacking

Justin: It’s a beautiful place, but we wanted to get more into your, where you are now, what you’re striving for, what’s your future like in the next few years? What, uh, what are you building in? Let, let’s talk about your company

Neal: So. I read this book, I think it was in 2011 or 20 2012 and, and I don’t remember the book, but sometimes, you know, you read a book and you get energized and something sticks with you.

Right? So, the book said, capital raising is the alpha skill of the world. And then the, then, then the book went on to say, this has nothing to do with real estate because it was a real estate book. They said, there’s no skill greater. In life. Then capital raising, no other skill compares because the way you can leverage your time as a capital raiser.

Is insanity compared to anything else. What they said is once you become a super capital raiser, and you know, I’m on my way there, but I’m not, I haven’t raised 1 billion bucks here. Basically, said capital raisers get paid better than rock stars. A rock star can fill Wembley stadium with 75,000 people and not get paid as well as a kid, as a capital raiser for their time.

Capital raising is the alpha scale of the world. That really stuck with me and I was like, you know, I’m a, I’m a dork. I’m a programmer. I’m somebody that basically is in technology. How do I become a capital raiser? Right? And so, the first thing I realized was human capital. I’ve got to improve myself.

I’ve got to stop talking like the dorks and start talking, you know, I’ve got to basically for sure. And, and I saw, I started taking, you know, speeching speaking courses and those sorts of things. And I, every opportunity I wanted to get out there in front of people to improve myself. And so, this is 2011 remember that beautiful campus that I built, right?

It had 27 classrooms, right? And meetup groups love large classrooms with internet access and projectors and whiteboards. So, I opened a meetup group inside of my technology business, 2011

Josh: Wow, that’s capital acting right there.

Neal: And I’m like, you know what? I need to be in front of people. I need to learn all this stuff.

I can’t be the shy programmer hiding in the cubicle anymore. And I go out there and start teaching some of the techniques that I was learning from the Ukrainian hacker who helped me with the Madeira thing.

Josh: And that’s your secret from back from the break.

Neal: That’s right. Yeah. No, I’m going to give you more secrets, but, but all this, honestly, a lot of it is tied back to either programming and doing, you know, offshoring.

I have this huge team in the Philippines, right? People are like, Oh my God, you’re a real estate guy. Why do you have a huge team in the Philippines? The answer is. Once again, just like capital raising is the alpha skill of the world, I believe that. Outsourcing is a key skill. Regardless of what you’re doing in life.

It doesn’t really matter whether you’re in real estate or you’re in software. The tech guys know this. Well, there isn’t a technology company in America today not using outsourcing and technology together. I’m using outsourcing and technology together to the point where here’s what I’m I tell people I’m running a technology and outsourcing company that’s successfully masquerading as a commercial real estate company successfully masquerade.

Josh: This is really rock star style. This is a teaching.

Justin: So, during the break, you mentioned a number about how much money you’re raising right now. How much can you talk to us about what you’re raising for, how you raise it, talk us through the process.

Neal: So, so that’s a, that’s a good kind of, you know, segue to capital raising, right?

So, in our current run rate, right run rate, as you look back at the last four months or six months, is about $40 million a year. So, we definitely do waste. For three to $4 million a month and we’d raise a lot more if we had projects. So, the last four projects that we’ve done have lasted four days, and in every case, $5 million was raised.

In one case, $21 million came in from one webinar, right? And people are like, you must have some sugar daddy investors giving you millions of dollars. The answer is no. That entire 15 million, there wasn’t one $500,000 in it. It was all high volume, high touch capital raising over 100 investors invested in that $15 million.

So, we like high touch raising. We do not like family offices. We do not like institutional. We don’t have a bunch of ultra-high net worth investors. We raised money, one investor,

Josh: Which is so revolutionary to be able to reach scale of numbers. And keep it a retail model.

Neal: Yes.

Josh: And you know, you and I chatted about this whole retail versus going institutional.

Neal: Yes.

Josh: Now my wife’s favorite part about retail investing is that the families you and I are approaching, which are the doctors, the business owners, they have assets But they’re not able to jump all the way up to the world of creating their own deals, like a family office, right? So, they don’t have access to the deals you create unless you provide those deals.

So, you’re providing a valuable service to that whole group of, of, of normal, hardworking families.

Neal: We are, and what they love about us is the mad scientist formula. Every day on the web, we are posting videos about our experiments, all of the things that we’re doing. We just posted a video experiment that Justin watched about a two-day huddle where we brought in every single operating partner, and we talked about asset management, right?

So, investors are dumb. They understand that buying buildings doesn’t make them money. They know that those buildings have to be managed. Today to the nth degree to double their money in five years or four years or whatever you’re trying to do because it’s an expensive market. And so, we, we, we do an app, a two-day asset management summit, which obviously is where the value is and, and, and, but the key thing is this.

I’ve got my capital raising hat on all the time. So, I create a one-minute video of that two-day capital raising summit, and I put that on Facebook, right? And on all of my channels, we are extremely multichannel, right? So, we can’t say we use all, you know, social outlets, but the ones that we do use, we use to the maximum ability of those outlets.

And I can give you tips on how LinkedIn can be maximized. And Facebook right.

Josh: Yeah. Like a quick little trip. They’ll memory

Justin: There’s so much talk now with, with concern around how much do I put on social media and can I, can I advertise my deal? And, and what, you know, the real estate investor sort of towing a line between sharing too much and sharing too little to share enough to get people interested.

Can you talk us through that a little bit?

Neal: That was a very painful decision. We made a decision last year. We said either we can choose to do five or six B deals, which means we can take nonaccredited investors. And stick 35 up to 35 of them in our deals. Um, or we can walk away from that completely and do five or six seed deals.

In our world, in the syndication world, 93% of all deals are five or six And I can tell the people that are listening to this podcast that that 93%, there’s, there’s a few good reasons to be doing five or six but for the most part, the people that are doing those deals. Are doing them because they’re afraid they cannot find enough accredited investors.

My data, my research suggests overwhelmingly that when you switch away from five or six B to five or six, C if your network, your approach, your multichannel pushes high enough. You get 20 or 30 new accredited investors from every push. And those investors give you a lot more money. So I had to walk away from the world of non-accredited investors to the world of accredited investors, and I, and I’ve never regretted that decision because every single raise that I do, I actually ended up getting 30 to 50 new people because our push is so multichannel.

It’s so out there. And. You know, projects get sold out in a day. So, and I feel bad about the 700 non-accredited investors that I have in my database that might never see a deal. But my job is to grow the velocity of my company. And, and being able to grow that through a credit investor is the way to go.

So, we, the short answer is I’m not worried about what’s out there. Because I’m only doing accredited only deals.

Justin:  I have a question though. Uh, transitioning from especially, you know, from us in this room, uh, and some of our listeners, five Oh six B two five Oh six C do you think that’s an unnecessary step that needs to be taken or can somebody leap directly to a five Oh six C investment.

Neal: I think it’s a mental thing. Uh, I also think that when you’re building your database, you want to just take every investor that comes at you and the allure of, Hey, I’m talking with you and you’re not accredited. I don’t want to stop talking with you that that allure is too strong. So, I’d say, yeah, fine, go, go do a five or six B.

What I think is that I still see investors, they’re syndicators, they’re on their fifth project doing five or six B. Well, that’s wrong. That’s just a confidence issue. By now, you’ve got a track record, a database, you’ve got social channels are running in. You should be able to switch. You absolutely should be switching beyond your second or third deal to five or six C.

Because that’s when you come to my, my method of marketing, which is extreme. Multichannel marketing. Totally brand based. I never sell a project. I’ve never had to sell a project because we’re always selling our brand and we built it out so many different ways, and I can give you the list of channels.

I mean, it is massive.

Justin:  When did you come to that realization?

Neal: Well, I started reading. Uh, books like, you know, the, like Ryan, DCIS books about, you know, the, basically the, the, uh, marketing machine, the ultimate marketing machine and books like that. And I realized that. Investors first have to believe in.

You have to, like you have to identify with you, and then the process of investing $100,000 that decision is actually a very short, very quick decision. Right, right. It’s the process of do I like and believe this guy Neal Bawa, that’s long and, and so what I realized is that multichannel marketing was giving people in many, many, many, many times where they could say, yes, I like him.

Once their mind shift happens, where they’re like, I think this guy is good, the next project, I mean, they’re, they’re ready. Whenever their cash is ready, they’re ready. So, we never push a deal. We’re always basically selling the brand.

Justin:  Right.

Josh: I mean, that’s, um, you know, Eric of course, is a genius at branding. He has been doing it for the big corporate pharmas for giving away all your great secrets and gifts for 30 year, 20 years, and now you do it for us investors and podcasters. By the way, I gotta give this guy a plug similar to you. He’s created a whole channel called on air brands network, which is what our podcast is part of.

And pod max. And this is the kind of guy. Eric, who would have gotten pod max from the beginning. And pod max is similar to how you do multifamilyU.  its education based. I mean, for, for Eric, he runs this organization called pod max where people come who have brands but have to create exposure.

So, they pay a fee to get into a big room of Wonderful podcasters and be the entrepreneur interviewed. It’s kind of like an expo of podcasting.

Justin:  Yeah. It’s very efficient.

Neal: It makes, makes so much sense, and I mean, you’re, you’re benefiting from their halo. They’re benefiting from yours. Yeah.

Josh: Yeah. Well, that’s an abundant mindset and that’s why, by the way, before you leave, you got to get in front of our screen here.

Neal: Wow. This is really well-branded in this room, there’s pod max.

Josh: Well, there’s pod max is a capital hacking’s a proud partner of pod max. But pod max is. Then to take over the world because it’s such an official.

Justin:  Exactly. Thank you. It’s very efficient. It’s a machine. You come in, you’re, you’re refreshed. You have day experience, and you come out feeling like, wow,

Neal: Why I haven’t met you guys before. Where have you been all my life.

Josh: Well your East coast were west coast, right?

Neal: Right.

Josh: Well, we’re coming. We’re going to bring pod Max California. Yeah. We’ve got to work with you

Neal: That’s a huge database in California.

Josh: I think we travel. Yeah, we call it an X studio.

Justin:  We’ll do pod max X on the room.

Josh: But anyway, Neal, there’s like another half a day’s worth of content. Would you mind being a regular on the show? We’ll grab you another time.

Neal: I would love to be on the show, and I want to talk, talk about like the deep strategies in every area to, you know, I’m on a capital raising podcast.

I want to give one quick nugget. So, the flavors, right? People say LinkedIn’s much more difficult to monetize than Facebook and you, you know, you have trouble with interaction, blah, blah, blah. I get that. But first you’ve got to find people, right? So, here’s a simple tip that anyone listening to this show can use.

Immediately. All right. And you have to follow the steps. Exactly. Because it will not work if you don’t follow them. Exactly. So, go get a LinkedIn account and make sure your profile is good. Put nice, nice pictures in there. Make sure you know that there’s all these nice YouTube videos on how to build a beautiful LinkedIn profile.

Do that. Okay. And get a few hundred people in there. So, you know, just to get you going. Then what you can do is go to the internet and type in accredited investor lists. Or accredited investor databases, right? And you’ll find a whole bunch of companies, all of them somewhat shady, that are basically selling accredited investor lists and go bargain with them and make sure that they’re not giving you junk and they’d replace all the, the ones that are bad, yada, yada, yada.

But for a few thousand dollars you can buy a list of 10,000 accredited investors that are local to you, right. I don’t think, I don’t know if there’s 10,000 in the list in Nashville. But there’s definitely a 10,000 in the list. In the San Francisco barrier, you can get 20,000 the list, right? So now all of these people are accredited investors, and probably 60% of the email addresses and the phone numbers in the list are bad, but that’s okay.

So, you still have 4,000 which is still an insane number right now. How do you get these 4,000 people to connect with you on LinkedIn? Because that’s a nurturing mechanism. It’s a social media mechanism, right? Well, here’s the answer. So, you take the, so he gives you an Excel spreadsheet. Now you take the Excel spreadsheet and you open a new g-mail account, not your Gmail account, a new one to open a fresh g-mail account for free.

And then you go there, and Gmail allows you to import contact records into your, your contacts, right? So, you take the list and stick those people in there, and then an hour later, boom, you see 4,000 or 10,000 however many people you have in your Gmail account. Now log into your LinkedIn account and go to the add contact section and there’s a button that they’ve managed to hide there.

I mean, LinkedIn, please wake up and move the button to the top of the goddamn page. It’s called contact sync. And when you click on it, it gives you an option to log into your Gmail account. Now make sure you’re logged into this new Gmail account, not your regular Gmail account, right. Cause otherwise they’re not going to find those contacts.

Josh: Right.

Neal: So, the only way to get thousands and thousands, thousands of people instantly into Gmail is to click on that button, log into that Gmail account, and our Gmail. On its own, but now you know what and will happen is LinkedIn will say, Oh, would you like to send an invite to 7,000 people at the same time?

LinkedIn would never let you do that. Even if you buy a paid account, they would never let you send an invite to more than 20 or 30 people because that’s considered spam, except in this case, they think that those people are in your Gmail list. And now it’s one leg click. You are sending an invite to five or 10,000 accredited investors.

Justin:  That is an ultimate Capitol Heights.

Neal: Its insane works all the time.

Josh: May I throw one more hack on top of that?

Neal: Yeah, go for it.

Josh: Change your profile to match that list.

Neal: Exactly.

Josh: So, your profile, yo, you know you have that entry. My name is Josh McCowen and this is what I do. You’re allowed to change that every day.

Neal: Yes.

Josh: So, the week or the two weeks or the three weeks, you’re going to be going through this sync, change it to a tailored description of what that market needs to hear

Neal: And put some videos in your profile because these people are like, who the heck is this guy?

And people tend to click on videos because they were kind of a. You know, add culture now. So, you’ve got to have some one-minute video snippets on your profile that basically explain what you do

Josh: In the article section or in the, where would you put.

Neal: I stick em on every session that I can and right.

So, the feed obviously, but they may not get to the feed cause they’re still looking on your main profile page. And on the main profile page, you can stick videos in the articles section. Right. Right. So, because I, because I’m afraid they’re not going to get to my feed. Right, right. So, so everywhere that I can, yes.

Josh: Yeah, that’s genius brother. Wow. See what I’m saying? You got to have Neal back. It’s gotta to join your regular classes.

Neal: I’ll give you a dozen of these for a dozen different channels.

Josh: That’s why you had to stay through the, uh, the commercial break. Remember. Thank you, Justin for that teacher.

Justin:  Excellent intro. No problem. Neil. It’s been awesome having you here.

Josh: Wait, so how can people reach you? What’s the best places to?

Neal: One of the things that I found was people like value. And they care about value more than anything else, and brand is tied to value. So, we built an independent portal, kind of like bigger pockets, but more specific to multifamily and it’s called it’s multifamily university,

For the letter U and we started to invite, invite people in that we knew were not like Pitchfest people, right? So, we were very, very nitpicky about that, and very often will reach their pitch deck and save your pictures too long. You’ve got to shorten it to 30 seconds, and you got to add more content.

So, it’s deep dive in ours. So, you go to you’ll see a bunch of things. Number one, you’ll get a link to a YouTube me course where in 90 minutes for free. I’m teaching you how to pick the best cities and neighborhoods in the U.S for real estate investing. The course is very numbers driven.

New step A at this website. Pick this number, plug it into the spreadsheet. Go to website B. This is a jobs website. Do this population website, do this. Home price growth. Do this. Go to all these websites, plug in these numbers. Look at, look, look to see if the numbers are green or red. Pick your favorite cities that way.

So, you get access to that course for free. Second, you get access to about 50 deep dive webinars from superstars in our industry. Everybody from real estate forecasters to lawyers, syndicators, uh, people that raise huge amounts of capital. All of those webinars are there, and then we’ve got live webinars running every single week, so every week there’s a new webinar there, and then we’ve got resources.

We’ve got a real estate toolkit that gives you mind-blowing amounts of information and people are like, why do you give this stuff away for free, Neal? The answer is brand, right? To me, charging $100 for that was not the goal. The goal was I wanted 2000. Accredited investors. So, we’ve been giving everything away for free to build our database, and it’s worked beautifully for us.

So is the best way to connect with me. And my email addresses, Neal, N, E, A,L the Irish spelling at multifamily U. Dot com.

Josh: I knew there was an Irish.

Neal: Yeah, there you go. It was in there somewhere. Yes. In Indian Irish mix. You know, I don’t know. I don’t know what part it is.

Josh: I love it. No, it’s a pleasure to know your brother and thank you so much appreciate you.

Josh: Wow. Wow. You made it everybody. Thank you so much. Eric and I have always said that the people who join us at the end get the Pearl and the prize.

Eric: Awesome.

Josh:  Folks, don’t forget to like and share and love what we’re doing on social media.

If you want to hit up, Josh, you want to hit me up? Those are the best places to find us. We are always camped out and ready to talk and turn. With

the fire and by on social media. But by the way, I know we’re on Capitol hacking it. Instagram capital hacking on Facebook and Capitol hacking on my personal favorite LinkedIn.

Eric: Yes, because you can always find major players on LinkedIn. Your favorite is some power players on LinkedIn.

Josh: Oh, Gary V my boy.

Eric: But Gary V also talks about the power of Instagram, so if you also want to find us there, we’re doing a lot of really cool. Sexy things on Instagram, so always you can reach out and DM us on Instagram if you have any questions or you want our time, we are always camped out and, and living there as well.

Josh: We will get right back to you and just like we always say, you are now part of the team. This is a team that’s here to add value to your life and thank you for adding so much value to our life. Remember. To share this podcast helps us grow it bigger and bigger each week. And we appreciate you posting a review on iTunes.

You cannot believe how powerful that absolutely.

Eric: Like and share this with anyone and everyone that you think it will add value to. And we appreciate all of that love and support and do not forget with great power comes great responsibility.