You're listening to the REI Marketing Nerds podcast, the leading resource for real estate investors who want to dominate their market online. Dan Barrett is the founder of Ad Words Nerds, a high tech digital agency focusing exclusively on helping real estate investors like you get more leads and deals online, outsmart your competition and live a freer, more awesome life. And now, your host, Dan Barrett.
Alright, hello everybody. Welcome to this week's REI Marketing Nerds podcast. As always, this is Daniel Barrett, here from AdWordsNerds.com. I hope you're having a wonderful time. It is getting into the Fall Season here in Connecticut and I am absolutely loving it, and this time of year always kind of brings some introspective time for me. [0:01:04.9]
This is the time of year I tend to really try to slow down, think about what's going on in my business, think about my long-term goals, think about what I want to try to achieve. This week's interview is really interesting because I talk with Erik Pinuelas. Now, he is the investor behind a company called Sero Developments. You can find them at SeroDevelopments.com. That's s-e-r-o and the thing that Erik does incredibly well is he balances a very active and very successful and growing real estate investment company with a full-time day job. He has designed his life to not only allow him to pursue the maximum amount of income from his investment business, but he's also using his day job and leveraging that position to grow his expertise in the real estate space. He's an incredibly smart guy; really, really talented; very technically savvy; very ambitious. This really got me thinking about, hey, like what is my ideal lifestyle balance look like? How do I balance, not just income, but also growing as a business owner and learning as much as possible. I think you're going to get a ton out of this conversation. So without any further ado, let's get into my interview with Erik Pinuelas from SeroDevelopments.com. [0:02:27.7]
Dan: Alright, everybody. This is Daniel Barrett. I'm here with Erik Pinuelas from Sero Developments.. Erik, how are you, man? How are you doing?
Erik: I’m doing great. I'm standing outside in a beautiful park, taking in the scenery and looking forward to our chat.
Dan: Awesome, man. Yeah, cool. I appreciate that. Always good to get some fresh air, so that's pretty cool. Let's dive into what you do because I think it's pretty interesting. You are an investor in the San Francisco Bay area, buying homes over there. People can check you out online at SeroDevelopments.com, which is spelled s-e-r-o developments.com. What don’t you tell people, like what got you into real estate investing? What was your entrance into this industry of ours? [0:03:16.1]
Erik: Well, I've always been entrepreneurially minded and I was being fed down a path in college. I was a civil engineering undergraduate at Cal Poly SLO in California here. You know, just wasn't really up for hopping into, you know, just the system and the corporate life, having to be a cog in the machine here. So you know, I was like, why don’t I do my own thing? Let's do something very impactful for the world because I'm … that's kind of my MO is to… a very service-minded individual and trying to understand how I can best serve my community. At first it was very outside-the-box thinking, like any young entrepreneur. [0:04:01.7]
I wanted to create an ag-tech company, which was quite a leap from civil engineering. So, that failed and I thought that real estate investing was a really nice path towards understanding the mechanics of running your own business, your own operation, raising money. You know, there's a lot of great education out there, a lot of great mentors. So that, coupled with me going into corporate life and you know, spending some time here and building multimillion dollar developments, I'm building my acumen. At the same time, I'm building my entrepreneurial skills. So that's what got me into real estate investing.
Dan: Awesome. So like what was your… what was your connection to real estate - because it's like I always think back to like when I got started working with real estate investors, I didn't even know what real estate investing was. So were you just kind of aware of it from like the business space? Like what was your in to that whole world? [0:05:00.8]
Erik: Yeah. That's a great question, Dan. I'd have to say probably BiggerPockets. I just started listening to their podcasts and it was very simple, very digestible. It's something I thought that I could achieve and just listened where I could in the car and on my commute. So, that really just opened my eyes to sort of the world of real estate investing and you know, I'm really happy to have met lots of great communities and mentors along the way.
Dan: Yeah. And did you say…so you're working a day job while you run your investing business?
Erik: That's correct.
Dan: Yeah. So how do you balance those two things? I think a lot of people… there are a whole lot of people who are kind of in your position, where they're …they want to get into investing, but they just feel like, you know, "I can't do that unless I quit my job" or you know, they don’t know how to balance the two. So, how do you kind of balance those things in your own life?
Erik: Yeah. It's a great question. There's a project management principle that basically goes "It's going to take as long for someone to do a job as they're allotted time for the task." [0:06:08.5]
If you're taking, you know, 2-5 hours a week and that's what you have available to get your business off the ground, then that's the time you have available. You'd be surprised at what you're able to get done in 2-5 hours. Now, I don't know if… this might resonate with other folks out there, you know, who have been through school and managed time to cram for a test. It's pretty amazing what you can do, you know, write an essay in a night, cram for that science exam. Everyone understands, you know, you can get things done in a short amount of time, but it has to do with the amount of time you're allotted. So, in terms of that balance, it is difficult. You know, I work more than 40 hours a week in my day job, but having prioritized and strategically selected tasks for my business and allotted amounts of time for those tasks enables me to take measurable steps forward. [0:07:02.4]
Dan: Yeah, I mean it sounds like…and I'd love for you to kind of break this down a little bit more. It sounds like for you to make it work, which you've done really well, is focus on the things in the investing business that absolutely have to get done, that they're real high leverage, kind of high impact tasks. So, like as you were getting started, like how did you kind of figure out what those were or what have those been for you, where you're like, "Hey you know, you know, maybe I only have a certain amount of hours this week, but I know if I focus on these few things, it's going to have a big impact down the line."
Erik: That's a good question. It is… it is a $1,000,000 question - to understand what are my most important next steps, and understanding that, you know, we're all starting at our own place. For myself, I had never done real estate investing, so I was… I understood I was quite ignorant to, you know, what the most important next step was going to be. I have certainly made mistakes, thinking that I should be spending my time on task A when it should have been B and I only knew in retrospect, but that's okay - you know, you learn. [0:08:10.5]
I think the most important thing is to surround yourself with knowledge, gather mentors around you, people you can trust. If there might not be anyone physically you can chat with over the phone or anything like that, there's lots of great folks out there, very…a plethora of resources are available to us all.
Dan: Yeah. So, why don’t you tell a little bit about Sero Investments or Developments, I should say - Sero Developments. What does that business look like today? What's your kind of business model in terms of types of deals that you're focusing on? Just kind of break down for people what you're doing.
Erik: Sure thing, Dan. So, Sero Developments is focused on bringing to market net zero energy homes. So, living in the San Francisco Bay area, it's quite entrenched in technology. [0:09:01.3]
We're trying to step into homes that are in dilapidated conditions and fix them up to become Smart, to become carbon neutral, to have a level of engineering caliber that reflects the geography they are located. So, our goal in doing that is to leverage a more sophisticated construction management process because that's probably the number that most investors struggle with most because to break it down, real estate fundamentals 101, for those of us out there that are still understanding the A, B C's, the three numbers of any Fix and Flip, which is our main business model at the moment - Fix and Flipping - is the ARV, the construction cost and the purchase price. Those are really the three main numbers you got to worry about. [0:10:02.1]
Yes, there's lots of details that fit in there, but that gives any investor the rough spread that you're working with. Now, the purchase price you have a lot of control over from the beginning; you get to decide what that's going to be. The ARV - you can get a pretty good idea because that's an appraised value and it's a science, run your comps; do a good job there. Don’t be overly optimistic. The construction number, that's a little trickier because sometimes you open the walls and you're not quite sure what's going to be going on in there. Maybe you missed an entire scope. Who's going to do all the caulking for the whole job? Oohp! There's another $3000. I didn't write that into the contract.
Dan: Right. Exactly.
Erik: Ohhh, I didn't know it was going to be that much length feet of baseboard. Oh, we're …we quoted half the amount. Oh, my gosh.
Dan: Right.
Erik: And so, it's those sort of pitfalls that create the old adage - "If you're going to estimate your construction costs, multiply it by 2."
Dan: Yeah. [0:11:04.2]
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Dan: When you look back at like things that either went really well for you or things that went really badly, like everyone's got horror stories, just like everyone's got like kind of like the sweetheart deal story - right - do you feel like the common thread there is like your estimation of things that you can't really know in the moment? Is it that kind of guesswork that you think undoes a lot of investors? Do you feel like a lot of your success is due to your kind of natural, you know, like you said, like "Multiply it by 2" - be a little bit more conservative? I don't know - I'm curious like to hear your thought on like how that all plays into how successful you are long-term. [0:12:21.1]
Erik: Okay. Maybe you could rephrase that question one more time?
Dan: Yeah, I'm…so you're saying - right -like one of the biggest problems that you run into or any investors run into is that you're kind of making a guess about what costs are going to be. Right? You're essentially estimating, but you don’t really know that in the future. Right? You can't really know and just like you said, like hey, that … you know, this one particular construction cost is double what I thought it was going to be and that bit me in the butt. Right? So do you think like a big part of your success or the big part of the problem that a lot of other investors have is not so much that their model is flawed or anything - it's more… it just comes down to how do they think about the future and how do they estimate, you know, the likelihood of certain good things or bad things happening? [0:13:07.7]
Erik: Sure. I would have to say that a huge component of my success would have to be thinking through the process. I am a construction professional, by background, I do have experience with commercial TIs and I understand that there is a construction management process that's been developed by those before me; you can get degrees in it. When you're heading into $1,000,000 job, which is the stakes out here in the Bay Area - I mean these residential jobs are practically at a commercial scale, out here in the Bay Area. Prices are so high. You really have to have a standardized process that is of the utmost professional caliber. In terms of developing that, you know, it's totally possible for folks to simply reach out to me. [0:14:07.1]
I love chatting with people, helping them with their CM processes. There's amazing softwares out there, like CoConstruct is one I can do off the bat. I have vetted out that software. I think it's a great one. You have to trust the folks around you, too; I understand that. Developing strong relationships with your superintendents and provide systems of accountability for the folks out in the field and make sure they're performing what they're saying they are performing. So, that's just kind of like a quick snapshot.
Dan: Yeah, like what's an example of a system of accountability that you think is important?
Erik: Okay. So if you were conducting a job, you've just received a draw request, construction draw request from your casework sub. They're saying that they finished the kitchen out and they sent a photo and that's good enough for you, and then you let it go. [0:15:05.5]
Maybe you don’t have any retainage on it, and retainage is kind of like that hold-back amount to make sure that a sub completely finishes out a job and doesn’t just quite say they're done and then walk away. And so, a picture might not be the right amount of accountability to provide that subcontractor.
Dan: Yeah.
Erik: Maybe you should have a superintendent on staff or on retainer, someone with a strong residential construction background - just a suggestion of how I would set up a system of accountability - that could go in and walk that casework, check every drawer and if there's a problem, chat with the foreman out there and say, "We need to fix this up," and have all that be written into the scope of their contract so that you didn't just write "casework" in their contract to them. [0:16:01.3]
You laid out exactly the level of detail and quality that yourself, as an investor, is expecting from them.
Dan: Got it. So, how do you feel about where your business is at? I mean, I think it's easy for all of us to kind of get caught up in the constant grind of growing it. When you take a step back and think about where you want it to ultimately be, I don't know - what do you want that future to look like for you? What's the kind of end goal for Sero Developments?
Erik: You know, the end goal for Sero is probably just to automate it and create a beautiful system and culture of a company that's just able to turn out beautiful, highly engineered, technological healthy homes for families out here in the Bay Area. It's just turning them out one after the other, you know, multiple projects a year, maybe 5-7 a year, and you know, then I could just sort of focus on other passion projects. [0:17:00.0]
Dan: Yeah. Like what? Like what would you use that extra time for?
Erik: Sure. So, we want to step into multifamily after that; I think it's a natural progression.
Dan: Yeah.
Erik: I have some tech start-up ideas, softwares and you know, potentially farming, getting into that. There's a huge space opening up, from my perspective, in the ag-tech space where you can put an acreage of farm land into a cargo container and there's not a whole lot of food in Tokyo or farmland or organic farmland at that. So, just thinking outside the box.
Dan: Yeah, that's awesome, man. Well, I mean, it sounds like you're definitely on your way. The automation stuff is definitely up my alley as well. So, you know, if you were going to talk to somebody, an investor that's you know, maybe in a situation similar to you - they're looking to get started and they're …you know, they're not going to quit their job. They're going to make sure that they're making money first. What would your advice be to them, if they're saying like, "I just want to get started. Where do I start?" [0:18:02.5]
Erik: I think the best place would be to find a podcast and just listen to it in your car. Find a great local investing group around you, if there is one, and meet up with them. Make some friends. Something that I've found really beautiful about the real estate investing community is that it is highly supportive. There is not a whole lot tic for tac from my experience. People just give this to that. It's…people are just kind of rooting each other on and pushing each other forward because everyone understands that, you know, a rising tide rate is boats. So I think the best place would just be to listen to some podcasts, build up your lingo, your knowledge base and reach out and make some friends.
Dan: That's awesome, man. That's really good advice. If people wanted to follow up with you online or sort of check out what you're doing, what's the best place for them to find you?
Erik: You can find me personally at my Facebook, Eric Pinuelas - p-i-n-u-e-l-a-s, and also, reach out to me via the contact on the website. [0:19:07.8]
Dan: Yeah, sure, and for people that were listening to this, you should definitely check out Erik's website. He's at SeroDevelopments.com, which is s-e-r-o developments.com. He's buying houses over in the San Francisco Bay area and doing a really good job. Erik, thank you so much for the interview, man. This was really interesting and I think it is a really, really good case study for people that are thinking about, oh, you know, "I want to get into investing, but maybe I'm not ready to leave my job." I think you're doing a really amazing job at balancing those two things, and I really appreciate you sharing that with our audience.
Erik: Thank you, Dan. I really appreciate you bringing me onto the show. It's just been an amazing conversation.
Dan: Alright. Thanks so much, man. I will be talking to you soon.
Erik: Cheers. [0:19:52.9]
Dan: Thanks for checking out this episode of REI Marketing Nerds. Hey, if you are not a member of our free Facebook group, you are missing out because I am posting… I mean, I am posting pure fire in there every single week. We do trainings. I do these podcast recordings. I answer questions. I give tech support. It is an incredible resource and it is absolutely free. So, what are you waiting for? Go to AdWordsNerds.com/group. That's AdWordsNerds.com/group and you will get forwarded directly to the Facebook group. Go ahead and request to join. We would love to have you in there. So without any further ado, people, I will talk to you next week. Hope you're having an awesome, awesome autumn season. I will be talking to you very soon. Cheers.
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