ANNOUNCER: Welcome to Creating Wealth with Jason Hartman. During this program, Jason is going to tell you some really exciting things that you probably haven’t thought of before and a new slant on investing. Fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine self-made multi-millionaire who not only talks the talk but walks the walk. He has been a successful investor for 20 years and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason’s footsteps on the road to financial freedom. You really can do it. And now, here’s your host, Jason Hartman with the complete solution for real estate investors.
JASON HARTMAN: Welcome to the Creating Wealth show. This is your host, Jason Hartman. This is episode number 333 and we have an amazing rags to riches guest’s story today about a guy who really got big in real estate and he did it through a way that most of us won’t do and may not even be interested in doing and that is starting a fund and basically pooling money. I just wanna say something about this because it reminds me—I really do not understand why investors keep flirting with the idea. Investors who are followers of my show who have been listening maybe for years and years to the show [LAUGHING], and then someone comes along with an opportunity and it’s like they get a little bit seduced by it and interested in the opportunity. Pooled money opportunity of investing in a fund and I just don’t understand it.
Commandment #3 is really one of the most seminal commandments and it is thou shalt maintain control. Don’t invest in other people’s deals. Control your own investments and you won’t have someone skimming all the profits off the top. You won’t have to tolerate a manager of the money up front who is dishonest or who is paying themselves huge bonuses legally. Okay that’s not, that’s legal to do that. I mean you have heard me say over and over and over again so many times and cite probably hundreds of examples of the misuses of pooled money. Why should you put your money into something like that when you can control your destiny? When you can buy and own property directly and have complete control over it and you don’t have to be concerned that someone is paying for parties and travel – you know first class travel, dinners at swanky restaurants with expensive wine. All kinds of things like that on your dine. That’s what happens when you’re investing in some sort of pooled money investment. Maybe the only pooled money investment you should ever do is someday – this gonna sound funny if I ever open a fund myself – that’s the one you should probably do because I’ve been so adamant about how the fund managers abuse the privilege. They do it every time.
Be a direct investor. Maintain control. Don’t leave yourself susceptible to the three major problems. Remember what they are. God, I’ve said them so many times right? Number 1, you might be investing with a crook. Number 2, you might be investing with an idiot. And number 3, assume they’re honest, assume they’re confident, they take a huge management fee off the top and some of these management fees aren’t very apparent. You know, they can pay themselves a cut of the deal. They can pay salaries to their staff with the investors’ money. They can bill out business to contractors, to vendors, and then when they need something fixed in their house or they need something fixed on one of their other properties, the contractor does it for free, right? Because they give them so much business on the other deals that the investor is paying for. There’re just a zillion little ways that you just don’t see how your money is basically being whittled away, frittered away, and essentially stolen, legal fees.
A big area is accounting fees. So you invest in a fund, and the manager of the fund has to hire lawyers to do legal work for the fund, or accountants, and you know these professionals are very expensive. Well, what do you think is gonna happen when they need their own taxes done or they need some accounting work for their own business, or they need some legal work for their own business? They’ve billed so much money to this attorney or this law firm or this accounting firm. Well, they’re probably gonna get a favor, aren’t they? They’re probably gonna get that for free, right? There are just numerous ways that [LAUGHING] the money is being [INDISCERNIBLE], okay? I’d say if you’re interested in funds and pooled money, do what my guest did. Start your own fund, okay? [LAUGHING] That’s the way to make the money. Be the general partner, not the limited partner. That’s what I’d say.
But anyway, this guy has an amazing rags to riches story. He started doing individual direct investments, then raised money and probably managed the money very well, which is how he raised more money, so kudos to him. That’s great. That’s the way it should be, you know. There are a few very legit funds out there. I don’t know the internal workings but certainly maybe this one of them. I just had an investor ask me recently, who is following my work and who is looking at this and buying up properties around the country, being a direct investor, controlling those properties. I look at this deal that’s in a fund, you know, should I invest in it? What do you think I said? Come on folks. I mean, I’ve said my piece on this. I’m gonna stop talking about it. [LAUGHING] Maybe [LAUGHING] because I have to.
Wow. I’ve been recording shows like crazy lately. I recorded eight shows just yesterday. Eight [INDISCERNIBLE] so we just have a huge pipeline of shows coming up for you so I’ll keep this intro pretty short. I just wanted to share with you and comment real quickly on a couple of headlines, because it’s amazing to see how people don’t learn from history. How nations and the entire world really doesn’t learn from history. How you see these signs in the market place of frothiness, of where things might be getting a little silly again, or even a little stupid again, like they did before the last financial crisis. The one that we’re still paying for and recovering from and, you know, you see it in the headlines here. I’ll just read to you some of the headlines I got in an e-mail this morning. ‘Existing Home Sales Climbs 6.5% as Housing Recovers.’ Well, that’s great. Median prices were 14% higher than last year. That’s a USA Today article. Here’s one and this one that’s a sign of frothiness and maybe possible stupidity. Now you know, a long time ago, I warned you that FHA and I’ve been also saying this about FTIC by the way, you know, I’ve also predicted this quite a while though that FTIC is – there’s not [LAUGHING] enough money in the insurance fund to pay claims if we start seeing banks go under. We are woefully under insured. So, what does that mean? That means be careful about keeping your money in banks but, yeah, you’ve got to do it. I’m saying, “I’m in control of hard assets,” you know, invested in properties but, but look at this one. Back to the FHA thing, okay? FHA is on the verge of having some very serious financial problems, surprise, surprise, right? “FHA Trims Waiting Period For Borrowers Who Have Experienced Foreclosure.” So, FHA, that’s the Federal Housing Administration. They insure loans, the government-insured loans, and they’re allowing borrowers who went through bankruptcy, foreclosure, or deed in lieu foreclosure or short sales – they are now trimming the waiting period so that they can buy more quickly. Well, this is good for the sales market because there’s more financing available. It’s likely to cause upward pressure on prices but overall, that may not be a prudent decision because why? Well, they’re making it easy again, aren’t they? Just like they did the last time around and we’re seeing signs of this all over, I mean, barely a week goes by but I don’t see a headline about how, you know, lending requirements are softening. They’re getting easier and that’s gonna push prices up probably, but in the long term, it is likely to lead to more foreclosures on the next cycle. We’ll probably see that next cycle in five to seven years, right? And here’s another headline: “Rising Mortgage Rates Haven’t Slowed the Rebound in US Housing – Yet.” So, we’re still seeing people buying like crazy. Business is very strong. Investors are out there, just gobbling up everything they can get. Home buyers are trying to buy if they can and this is causing upward pressure on prices. Ultimately though, as rates go up, the market will, at some point, start to cool off. That’s fine with us because we understand that income property is a multi-dimensional asset class, and we’re not just investing for price. We’re investing mostly for cash flow. Price is the market of the gamblers. It’s the market of the speculators. It’s the capital gains market and it’s the icing on the cake. It’s great when it happens and when your properties appreciate dramatically but, hey, that’s not what we invest for. That’s just a bonus. We don’t depend on that. We are cash flow investors and that’s the prudent non-gambler type of investing. So, if we see rates continue to rise, we have seen that, the market will ultimately cool. It will price people out of the market, so investors and regular home buyers won’t be buying as much. If investors buy less what does that mean to us? Well, it means fewer rental properties on the market competing for the tenant base. If buyers don’t buy, well, what are they gonna do? They’ve got to continue to rent and that means more renters for us, which causes upward pressure on rents which, by the way, I read another headline yesterday about how rents have exceeded the rate of inflation and that’s pretty strong. That’s pretty impressive and I’ll tell you why. In frothy markets, sales prices tend to go up rather quickly, I mean, we’ve seen it over and over again through the decades. The cycles in the real estate market. They just get stupid. I mean, they just go up stupid fast sometimes, and of course, in those cyclical markets where they go up really, really stupid fast – okay, kind of misusing the grammar there, obviously, It sort of sounds like a Forrest Gumpish way to say it. It’s just stupid fast [LAUGHING]. Life is like a bowl of chocolates. So, when they do that, of course, they crash really quickly too because those are cyclical markets, the ones that we don’t focus on, the speculative markets. We like the cash for markets and, by the way, we have just recently opened up another market and you might be surprised what it is. You’ll hear about this on maybe the next episode or two but they get really silly and then they come down really fast. So, that’s kind of a silly cycle that we’ve seen in the markets over the years and over the decades obviously. So, let me see another headline here: “Home Sales Surge in July Despite Higher Interest Rates” That’s what we’re saying. Oh, I don’t know if I finished my point on that whole thing about rents succeeding inflation. I probably didn’t, you know, I’ve only had one cup of coffee this morning. I need my second cup [LAUGHING] to get my brain really going. So, why it’s so significant because rents tend to go up slowly, where prices can go up in silly, stupid fast [LAUGHING] ways, right? Rents are slower, more steady increase and, of course, we’ve seen this in cycles. Rents don’t go up, usually, much beyond the rate of inflation than they are right now. That’s pretty amazing actually to see a headline like that, and it’s great news for us as investors because it’s making our cash deals better and that’s what we invest for. Capital gains, hey, appreciation, frosting on the cake. Wonderful when it happens but we don’t need it. We don’t depend on it. Now, I hope you’ll join us for our Austin property tour and, you know, I’m kind of wondering if maybe we made a little mistake on that [LAUGHING] frankly. I like to be very transparent and tell you what I’m thinking and what’s going on internally in our company because we’ve had a couple of people say, hey, you know, if I’m gonna come out for a tour, I really want to get some education and have a Creating Wealth seminar as we’ve traditionally done them. So, what we decided to do, and frankly, I don’t know why we didn’t do it this way in the beginning, but if you already signed up for the tour – and several of you have – we’ll get this to you. I will have Britney organize an e-mail so you get this as well, so don’t worry about it. We’ll take care of business here, but if you haven’t signed up for the Austin property tour yet in late September, you’ve really got to go. Number one, you’ll get education because we’re gonna be talking the whole time. We’re gonna be touring around and I’m going to be speaking with you and I’m going to be sharing my insights on this market that I really, really love so much. What a great city Austin, Texas is, but we usually do the formal Creating Wealth seminar when we do a tour. We did have some interest and some people ask about when you do a tour, a property tour, it’s hard to get the whole weekend, so we decided to do this executive tour thing where you can just come in and out, see the properties, and boom, boom make it happen really fast, right? So, what we decided to do is, hey, why not just give a free copy of the Creating Wealth home study course to everybody who attends the property tour, the executive property tour. We sell that course for $297. We’ve been doing that for quite a long time at that price at JasonHartman.com. Well, if you sign up for the Austin tour, which is also $297, you will get a free copy of the Creating Wealth course. It’s about five hours of audio. It’s a nine-hour day but it’s edited down so you don’t have to hear a lot of fluff and things like that. By the time it’s edited down, it’s about 5 hours long, I believe, and you get the workbook and the transcript with it, so you get two PDF files as well as the audio download, and that will be included for everybody who attends the property tour. In addition to that, of course, if you become a member at JasonHartman.com, you get 20% off. So, you’ll pay for half year use membership, $125 bucks a year and you’ll get $60 roughly off the tour. So, sign up as a member first, then sign up for the tour. Signing up for the tour, you’ll get a free copy of the Creating Wealth Home Study Course. So, you’ll have the chance to listen to that in advance of the tour and probably have a lot of great questions based on your listening to the Creating Wealth Home Study Course. Okay, that’s the way you should do it. Let’s get to our guest. You’ll hear how he basically turned some small property, a single family and duplex, triplex, fourplex type investments, into a big fund owning lots and lots of apartment units. All right, so we’ll be back with our guest in just about 60 seconds.
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ANNOUNCER: Now, you can get Jason’s Creating Wealth in Today’s Economy home study course. All the knowledge and education revealed in a 9-hour day of the Creating Wealth boot camp created in a home study course for you to dive into at your convenience. For more details, go to JasonHartman.com
JASON HARTMAN: It’s my pleasure to welcome Al Goldstein to the show. He is the president of Pangea properties and the founder of AvantCredit. He has got a very interesting rags to riches story, starting as a Russian immigrant to the US back in, I believe 1988, and now owning and managing a – I believe thousands of apartment buildings – but we’ll let him tell the story. Al, welcome, how are you?
AL GOLDSTEIN: I’m doing great. Thanks, Jason, for having me on.
JASON HARTMAN: Well, the pleasure is all mine. Now, you’re coming to us from Chicago today, is that correct?
AL GOLDSTEIN: Yeah, [INDISCERNIBLE].
JASON HARTMAN: Fantastic. Give us a little background on your story. I heard a little bit off air, just real quickly before we started and it is amazing. I want to say congratulations on your success, but give us the background if you would.
AL GOLDSTEIN: Yeah, definitely. I’d love to. You know, being a Russian immigrant to this country – we came in 1988 before the fall of Soviet Union. I’ve got to say, the US is an amazing place to live, and it just lends itself to tremendous opportunities. My career, I started in investments, working on Wall Street, which I did for a very short period of time, like all of 13 months, graduating in 2002. I quit doing that and started my own company at the age of 23. It was an internet company doing online consumers loans, and you know, we had an amazing [INDISCERNIBLE]. We started with zero in 2004 and by 2006 had over 100 employees and anyway had a great business. We were operating in over 30 states in the US and went to the United Kingdom and expanded internationally in 2007 and ended up actually selling the company to a public company in 2008, which was a great run.
JASON HARTMAN: And can you share the name of that company?
AL GOLDSTEIN: Yeah, the company that bought us was the public company called Cash America International.
JASON HARTMAN: Oh no, but what was the name of the company you started?
AL GOLDSTEIN: Yeah, our company is called the Innova International.
JASON HARTMAN: Okay, fantastic. Okay, so you sold that company and, before the sale, were you doing some kind of personal real estate investments on a small scale?
AL GOLDSTEIN: I really wasn’t. I had wanted to do real estate before we even started that business but I never got a chance to do it.
JASON HARTMAN: So, you always liked real estate but were busy running the business and didn’t do it, but once you sold the company, then tell us what happened. How did you go forward after the sale.
AL GOLDSTEIN: Yeah, I mean, as we all know, 2007 and 2008 was not a great time for the financial market and the real estate in this country but at the same time, troubled time always create opportunity and so my business partner and I – who happens to be one of my best friends from high school and college – after we sold the company and left the prior business, we started just buying, you know, small apartment buildings in Chicago. I’m on the south side of Chicago where some of the more updated areas tend to be. We started with three-unit buildings and gradually up to six-unit buildings and then bought some 10 and 12-unit buildings, and bought a 19-unit, I believe, was our largest. Between late 2008 and early to mid 2009, we bought about 100 apartment units, you know, over 10 buildings.
JASON HARTMAN: Okay now let’s not go past the beginning stages too quickly because I really want to dive into that a little bit and then we’ll get to the big stuff. So, it was 2007 or 2008 when you started like, bought the first property for example?
AL GOLDSTEIN: We bought the first property in October of 2008.
JASON HARTMAN: Okay, that was the time where you really had to be contrarian, right Al? I mean, people, it was gloomy. I mean, that was – I would venture to say that was the gloomiest time of all where things just looked really bad. To people remembering that time, it seemed like the world was going to collapse. You know, economies all over the planet. We’re just [LAUGHING] you know, there were videos of Chinese workers getting laid off en masse from Chinese factories, going back to the country side. Of course, in the US, things were devastated. Tell us about that. What was the vibe? What were you thinking then and what was everybody thinking and saying around you?
AL GOLDSTEIN: [LAUGHING] Yeah, well, it really was pretty scary. I think most people around us thought we are crazy, but I tell you, it just felt like an over reaction, because it was so severe, and like you said, everyone is terrified that world is going to come to end, and the financial markets were going to collapse and are –
JASON HARTMAN: And they were collapsing [LAUGHING].
AL GOLDSTEIN: They were! I believe October of 2008 they were collapsing. Our view was pretty simple. It was not really that complicated. We just had – eventually people are always going to need a place to live and eventually these markets are going to stabilize, but we were the only people buying. Everybody else was selling and so it was really scary. The question is, are you the smartest or are you the dumbest?
JASON HARTMAN: Yeah, yeah. So you had to take the risk and had it not turned around about three years later, really I mean it. It started turning around because you bought pretty much in the [INDISCERNIBLE] at the lowest point, but had it not turned around, you could have lost it all, right? I mean that could have been the end, you know, where you really would not have cash to start another company or do something else. You could have lost all your capital, right?
AL GOLDSTEIN: Well, it was definitely pretty risky but originally we did not have any leverage. We were buying properties entirely unleveraged or for cash and so because of that, I think, the risk was lower in terms of losing all of your capital.
JASON HARTMAN: Right, right. Well, I kind of want to just sort of talk about that for a minute if we could. I say that when you put down all the money, you actually got the most risk. When the lenders puts up 80% of the money, they got 80% risk. You only got 20. But you know, I know you can slice and dice and look at that a couple of different ways. Do you have any comments on that one?
AL GOLDSTEIN: Yeah. No, definitely, Our view was even if real estate prices failed by another 10% or even 20%, which obviously would have been a huge fall, we are always looking at the cash flow idea being that we can rent out the properties, and we knew what price we can rent out the properties at. We thought that, over time, the rent prices are going to be strong.
JASON HARTMAN: Right.
AL GOLDSTEIN: And hopefully go up, and so our view was, if you can generate cash well, it is okay because we’re okay, never having this out.
JASON HARTMAN: Right, exactly. I know, I couldn’t agree with you more, Al, on that because appreciation is unreliable and speculators, the gamblers, they all seem to get burnt at some point, but the people that just invest conservatively and invest for income, and income is pretty reliable, that cash, the rents don’t vary. I mean, rents are often tightened, the rental market tightens and the landlord gets more. You know, sometimes the landlord get less. It varies a little bit, but this does not have these huge swings like prices can in some very valuable cities. Some markets are more linear with prices that don’t swing that much, but you invested in a prudent manner for cash, well, and that’s really one of the keys, I think. You saw the homeownership rate falling, you saw a massive foreclosures, you saw massive defaults. People are still talking about it but certainly then they were talking about it too. They are all out of Fannie Mae, the largest mortgage lender basically, a mortgage insurer and if Fannie Mae goes out the business, a lot of people say, oh gosh, it will kill real estate. Well, I actually think it will help real estate if you already own it because the cash flow will probably increase because the homeownership rate will decline.
AL GOLDSTEIN: I think that is an interesting. I actually [INDISCERNIBLE] I agree.
JASON HARTMAN: I mean, it may put more pressure on prices for sure, at least initially, but will ultimately put more pressure on rents. I mean, more renters, same amount of supply, right?
AL GOLDSTEIN: I agree.
JASON HARTMAN: Yeah. Yeah –
AL GOLDSTEIN: I totally agree.
JASON HARTMAN: Okay, so you got, you bought one unit, you bought a three-unit building, what did you say, a 20-unit building or 19-unit building or something?
AL GOLDSTEIN: Yeah. Exactly, we bought about 10 buildings and on average 10 units per building.
JASON HARTMAN: Okay, and you worked your way up to about to 100 units.
AL GOLDSTEIN: That’s right.
JASON HARTMAN: And then what?
AL GOLDSTEIN: Well, at that time, I think we started to see – and this was probably June or July of 2009 – we started to see that there was going to be a huge opportunity. Because initially, we did not know how big the opportunity was. We thought we could buy maybe a building a month or maybe two buildings a month and create a nice little business with the cash flow stream, but what we started to see was that the opportunity to buy apartments at distressed prices was going be gigantic. There really was not a lot of capital during that time and so we came up with an idea to try to raise some capital in a fund, in a private equity fund to take advantage of opportunity, and that’s what we did. We went back to our original investors in our first company and we put in our own capital and we were able to raise the small private equity fund and close within August of 2009.
JASON HARTMAN: Now, when it came to raising money, many of those investors came from your prior business. You had to success there so they wanted to be on the same resources, is that accurate?
AL GOLDSTEIN: Oh, that’s 100% accurate. Our [INDISCERNIBLE] was actually pretty funny. We went back and then said, we don’t much about real estate so we knew even less about that online lending experience.
JASON HARTMAN: [LAUGHING]
AL GOLDSTEIN: We are going to figure it out for you.
JASON HARTMAN: Yeah, right, right.
AL GOLDSTEIN: Yeah and by the way, we are putting our own money to work along [INDISCERNIBLE]
JASON HARTMAN: Um-hum. Yeah good. That reminds me of something else that you mentioned that, you didn’t know much about online lending and you made a successful business there and sold it and did well and those investors did well along with you. You told them, well, we don’t know much about real estate either but were going to figure it out. It reminds me of the ready, fire, aim concept, and just generally, I’d love to hear your thoughts as a successful person on this. Michael Masterson’s book Ready, Fire, Aim as a philosophy is really one of our favorites. Because I find that you’ve just got dive in and have faith. Just figure it out as you go. You’re not gonna know everything beforehand. The stars are never going to align perfectly. The paralysis of analysis, the people that have that affliction, I never see those people successful. They usually work for other people that don’t have that affliction. You correct your course as you go along, like you said to those investors. You’re gonna figure it out.
AL GOLDSTEIN: Yeah, I think that it is accurate. It’s honestly really, really hard because of that process of figuring it out is challenging but yeah, I think if you’re willing to work hard, you can figure out almost anything.
JASON HARTMAN: You raised some money and told us about how you were qualified to raise money. I mean, you know, you graduated from college is that correct?
AL GOLDSTEIN: I did.
JASON HARTMAN: And you were gonna be an investment banker, that was your original plan?
AL GOLDSTEIN: Yep, that’s right. I spent a solid 13 months of doing investment banking.
JASON HARTMAN: So you know, you’re familiar with the financial world in that sense and you know about raising money and so forth. Correct?
AL GOLDSTEIN: A little bit. A little bit.
JASON HARTMAN: So, you raised money for the first business, then you raised money for the apartment business in the form of the private real estate investment trust. This is correct?
AL GOLDSTEIN: That’s right.
JASON HARTMAN: If you care to share it, I mean –
AL GOLDSTEIN: Yeah, no I, I, –
JASON HARTMAN: How much did you raise?
AL GOLDSTEIN: We raised around 50 million dollars in our first venture. The one thing I’ll say is, because I was really young the first time. I was 23 years old when we started our first company, and I was 28 years old when we started renting properties. I think the key to operating capital figuring structures was always great advisers. We were always very lucky to have people around that had more experience, that were willing to help us both as investors and just advisers.
JASON HARTMAN: Yeah. It makes sense. It makes a lot of sense to me. Okay so, you raised that large amount of money and then you went on another acquisition [INDISCERNIBLE] right?
AL GOLDSTEIN: We did.
JASON HARTMAN: What did you buy then?
AL GOLDSTEIN: Well, so our plan when we raised the money was to spend it over a three year period and buy 3000 apartment units in and around the Chicago area, predominantly on the south and west sides of the city where the opportunities were still good. We decided to buy 2000 units in 12 months, actually 2500 units, so what we did was we bought all of the units pretty much that we had expected to buy, except we bought them by June of 2010 instead of over a three year period. We bought predominantly large portfolios instead of one building at a time. We bought large portfolios of mortgages or notes rather than real estate.
JASON HARTMAN: Then you foreclosed on the note and ended up owning the building, right?
AL GOLDSTEIN: Typically, yes and typically, we would try to – as opposed to banks that realty can’t do this – we tried to just work out deals with borrowers to make sure that they were happy and the foreclosure could be stopped and we take ownership of the properties.
JASON HARTMAN: Right, right. Now, what is your strategy in terms of product type and how did you pick it? I mean, are you doing class D, class C, Class B, Class A, or are these rough neighborhoods or are they good neighborhoods? Give us some view of that.
AL GOLDSTEIN: Definitely. We are focused on doing work force housing, which is another way of saying affordable housing. 90 plus percent of our tenants pay their own rent. so it’s market housing but we are focused in areas that are underserved.
JASON HARTMAN: When you say that, I don’t want to go forward without explaining that.
AL GOLDSTEIN: Yeah.
JASON HARTMAN: When you say market based, you say 90% of your tenants pay the room rent that means as opposed to the government or Section 8 paying the rent.
AL GOLDSTEIN: Correct.
JASON HARTMAN: Okay.
AL GOLDSTEIN: Correct, 100%.
JASON HARTMAN: Go ahead.
AL GOLDSTEIN: That’s right, and so in terms of a [INDISCERNIBLE] system, I would put it in a B, C, or C+ category in terms of the real estate that we were targeting. Really the idea being is providing a better product in markets that don’t typically have that product. Our asset, when we buy our property, we actually spend a lot of money investing into the property, so our asset quality is actually probably B+ or maybe an A- as a quality.
JASON HARTMAN: Um-hum, so you’re buying it and improving it.
AL GOLDSTEIN: Yeah, we were spending a lot of money. We typically spend at least as much on the improvement as acquisition.
JASON HARTMAN: Right, and what is your average deal size, the price of a note you’re buying for example, or is there an average? Maybe there is not. Maybe it’s all over the board, big or small.
AL GOLDSTEIN: It’s kind of all over the board. I can tell you what we did is we did three large transactions that made up 1500 apartment units in total, so they were large in an average transaction size of 5 to 10 million dollars in acquisition size.
JASON HARTMAN: Okay. Yeah, fantastic, and what have been some of the secrets to success? You picked the product type, you bought with a contrarian view, you took a big risk frankly. You have a lot of confidence, a lot of guts or maybe a lot of stupidity. [LAUGHING] No insult intended to do this in a time when you knew others thought you were crazy. Are there any other nuggets that you want to share with people?
AL GOLDSTEIN: Yeah, definitely. I think this holds true for my first company in Pangea Properties. We were really very lucky to get really good people. I think that’s really what let us be successful. From day one we tried to attract people that were just as motivated as we were and get them incentivized to try to built the business over time instead of just doing one thing or doing their job. I think that has allowed us to really invest in a business and build things like technology and systems and processes because everyone was focused on the longer term instead of just today. I really think that’s kind of magic if anything.
JASON HARTMAN: Fantastic. You know, I was gonna ask you just sort of a damn obvious question. I mean, why real estate? You were an investment banker for a short time. You could have gone the Wall Street route and just invested in stocks, traded options, you could have been a Avant trader. There are all kinds of businesses you can theoretically make money. Why do you like real estate? What brought you to that?
AL GOLDSTEIN: I think it is interesting because my first business was more of an online company, somewhat intangible. I think the beauty of real estate is that it is so tangible. You can feel it, you can touch it, and you have a before photo and an after photo. The value you’re creating is so visible because you know all you have to do is go and see that your tenants are living in the apartment and they’re happy. That, I think, is somewhat unique, where you get to really, you know, you buy dilapidated property that has been vacant for 10 years maybe, and it is hurting the neighborhood and the community around it. You fix it up and then all of the sudden it becomes a shining star of the community. There’s a lot of personal enjoyment that I’ve gotten and I think our team gets that too.
JASON HARTMAN: Yeah. I think, that’s a great thing because you’re really creating something, and you can see that you’re really serving people. In many ways, I’m very pessimistic about things. I mean I’m not, it’s not my personality be pessimistic but when I say that, here’s what I mean. I think that the future ain’t what it used to be as Yogi Bear would say. We’ve got Generation Y with huge student loan obligations. The country has massive debt on each shoulder. Several European countries are on the verge of collapse. Japan is probably shortly after them. There are a lot of problems out there [LAUGHING] if you look it at this way, but at the very same time, you look at it like a Gen Y issue and you look at the demographics coming into rental housing over the next decade and, I mean, that is nothing short of phenomenal. Yes, Gen Y will put off the family formation longer than any other generation in history. They’ll be saddled with student loans that are not dischargeable in bankruptcy. They’re going to rent for a lot longer than their parents or their parents parents did, in my opinion. And someone needs to serve them. Someone needs to provide them that rental housing, and you know, when you say real estate, it’s as the name would imply – it’s real and that’s one of the great things about what we do. You know, you talked about that before and after picture. I mean, you’re really changing peoples’ lives, aren’t you?
AL GOLDSTEIN: Yeah. I think that demographics show rental housing is very strong, which is why apartments have gone up in value faster than single-family homes, and all the public apartment companies are doing so well but I’d do think there’s still a lot of opportunity.
JASON HARTMAN: What’s next for you?
AL GOLDSTEIN: Ah, Pangea is great. We’ve been around now for a little over four years and we own over 8000 apartment units now in multiple markets. I’m really excited for the long term time horizon and, you know, I’d love to continue our goals. Our goal is 15,000 apartments by 2015 and hopefully bigger and better after that. Personally, I just love entrepreneurship. I love being part of a young, ongoing company and being surrounded by young and smart people. It’s so much fun.
JASON HARTMAN: Yeah, yeah, fantastic. Well, that is fantastic, Al. Congratulations on your success and thank you again for coming on the show and sharing some of the inner secrets to your success with everybody listening and just keep up the good work. Keep doing what you do. It’s a great thing and a great service and we appreciate having you on the show. Give out your web sites if you would.
AL GOLDSTEIN: Our web site for Pangea is www.pangeare.com, and thank you for having me on. I loved it and it was great to talk to you.
JASON HARTMAN: And I just wanted to say to our listeners because you told me. I said, “What is Pangea?” Pangea, if you don’t know, here’s your trivia for the day. It was the original big continent before the tectonic shift and the continents spread apart. Right? Am I explaining that correctly?
AL GOLDSTEIN: Yeah, that’s definitely correct.
JASON HARTMAN: Yeah, fantastic. Al Goldstein, thanks for joining us today.
AL GOLDSTEIN: Thank you Jason.
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ANNOUNCER: This show is produced by The Hartman Media Company. All rights reserved. For distribution or publication rights and media interviews, please visit www.hartmanmedia.com or e-mail [email protected]. Nothing on the show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate, or business professional for individualized advice. Opinions of guests are their own and the host is acting on behalf of Empowered Investor, LLC. exclusively. (Image: Flickr | NCinDC)
Transcribed by Joseph
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