No-Fluff Framework for Long-Term Wealth with Brian Alfaro

Not that every deal is a good deal and you should buy every deal, but there's a saying like, you know, scared money don't make money. You're going to always have, you know, a little bit of fear anytime you're doing something the first time.

And you got to push through that fear, especially if you're confident in your education and you're leaning on your mentors.

Welcome to Truly Passive Income. I'm Neil Henderson.

And I'm Clint Harris. And today's guest is Brian Alfaro. He's the director of investor relations at Houston based Headway Capital Investments.

After cutting his teeth flipping houses, Brian leapt into commercial real estate, helping headway grow to 500 million in assets under management and Steward of more than 100 million in investor capital.

He's known for turning a $5,000 tuition payment on a blown flip into the fuel that launched his first multifamily raise, and for his mantra that cash flow is king, but relationships are gold. I love that. Brian. Brian, thank you for being here today. We appreciate your time. How are you?

I am living the dream down here in Houston, Texas. I appreciate you guys having me on.

Absolutely. Happy to have you here. We talked about a lot of stuff already before we started. I just. I know this is going to be a great episode.

We're going to talk about some good, some bad, and some ugly. But first, tell us a little bit about your background, how you got started, and I'd love to hear more about this $5,000 tuition payment and.

And how that was a catalyst for your current journey.

Yeah.

So, like, a lot of people that get into commercial real estate or real estate in general, very few people that I meet are like lifetime real estate guys. Most of us aren't born and bred in real estate. We come from different backgrounds, like we were talking about before the show. And I'm the same way.

So I was in the.

The restaurant industry for a long time, worked for a large restaurant franchise, sort of helping them grow their footprint across the Houston market. I had my own coffee concept for a while, so was an entre. You know, have a very entrepreneurial spirit.

But while I was doing those two ventures, I was also starting to venture into residential real estate at first, because I had a. What I like to call limiting mindset. Right.

Anytime you're getting into anything new, you're kind of skeptical, you're scared, you want to dip your toe in the water. And I had that same mindset.

You know, I wasn't thinking like, oh, I'm going to be buying these $20 million businesses or $20 million buildings with, with a bunch of partners, why would somebody give me money, right? So I was thinking like, okay, real estate is find a building, put 20% down of your own money, and just rinse and repeat, rinse and repeat.

Not that there's anything wrong with that, but I didn't know what I didn't know. So I did that for a couple years. You know, I was educating myself on, on, on podcasts like this one. I was going to meetups and just networking.

You know, we've all heard of like, bigger pockets and being involved in, you know, that community or whatever.

And, and then a couple years in, I realized, I started looking around and realizing that the people that were really growing their net worth, people that were having a positive tax impact in their life and that were growing, accelerating faster, were, were in the commercial real estate space.

And I started, I learned about the, you know, the magic formula and how, you know, an NOI, changing your NOI by $1 on a 5 cap, you know, adds $20 of value to your property. And I was like, this is insane. Like, you can't do this in the single family space.

And I was looking at asset classes, and I know you guys are in, in storage, and I think there's a lot of phenomenal asset classes. I, I love storage, I love triple net retail, I love flex space, industrial.

But I was also looking around and at the time I was asking myself, what's the one thing that people always need? And it was housing, right? So I liked housing and just, I love the idea that, not that apartments are, you know, necessarily recession resistant.

People like to say they are, but everything can get hit one way or another if you really think about it. But people always need a place to live, right? So to me, there was always going to be a demand.

And we've all seen the data on whether it's 2 million, 3 million or 5 million, who knows what the number is accurate. But there's always been a shortage of housing, affordable housing in America, right? That's a, a fact. Who knows how big it is or how small it is?

Um, so I was like, I like housing. I'm in residential real estate. This just makes sense. So I got into multifamily, right?

Joined a mentorship group, which is a whole nother conversation.

I'm a big believer in finding mentors that can help you get to where you want to be, avoid stepping on landmines along the way, and started to learn how to raise capital from investors.

I'd never been in sales, never raised a dollar of money from anyone else, but if you want to learn something, you put your mind to it, you focus, you educate, you network, you make mistakes along the way. And here I am today. I joined Headway a couple years ago after being with some partners at more of a startup venture. And here we are today.

You know, we have quite, quite a number of real estate and quite a number of deals under our belt. And always taking pride in providing that best in class sort of white glove treatment to our passive investors. And then I know you probably have a.

You want to stop me there? But on the, to answer your question, specific for the tuition question, um, I, I like to call the education that I had tuition.

That's kind of like, you know, people go to college and they say, that's tuition. To me, if you make a mistake and you pay for it, it's tuition. Right? It's almost the same thing as going to school.

So on my first single family investment, it was a wholesale deal. I had a wholesaler, I liked the deal. I did all my due diligence.

It all checked all the boxes that I was, you know, trained myself, that was supposed to check. And this is my first deal. So I put $5,000 of earnest money on these single family wholesale deals.

You know, the earnest money is usually non refundable, but I chickened out, kind of. Long story short, I talked myself out of the deal. So I lost the $5,000, but I have my real estate license.

I kept an eye on the deal and ended up watching the deal for about, I think it took about three months. About three months later I see the deal hit the mls fully renovated.

So somebody else bought it, somebody else renovated it, somebody else was flipping it. And it was. If my calculation was correct and my forecasts were correct on the renovation costs, they were going to profit about 40, $45,000. Right.

So I lost the opportunity to make 40 or $45,000 because I was too scared. So that was my tuition, that was my $5,000 I lost. And I use that as motivation.

Not that every deal is a good deal and you should buy every deal, but there's a saying like, you know, scared money don't make money, you know, so you're going to Always have, you know, a little bit of fear anytime you're doing something the first time, and you got to push through that fear, especially if you're confident in your education and you're leaning on your mentors and you're like, yeah, man, this thing looks pretty good. Go for it.

I love that. A lot to unpack there.

But I think one of the funny things is I've always been pretty cavalier, and I'm kind of a ready, shoot, aim guy when it comes to my money and my investments. Completely different story when we are using investor dollars. You have to be. Learn to be very careful and conservative.

But I've had so many conversations. People that have that classic analysis paralysis. You can run the numbers upwards, backwards, left, right, and.

And ultimately, people are just scared to pull the trigger lot of times because they have a primary job and this is on the side, and they're worried about being distracted or overwhelmed or whatever.

And that if you really look closely at how do you break analysis paralysis, it can come by surrounding yourself with a group of people that are doing bold things and eventually, like you. You work that risk muscle enough till you feel strong enough that you can do it yourself.

But the, the most, the fastest way that I've seen people change, it is through jealousy and disappointment.

Somebody else pulls it off, or somebody else goes after a deal that you looked at and you passed on or you didn't do it, and then you see somebody else pull it off and you're like, that could have been me. Now I know that I can trust my gut in recognizing a good deal. I was right, and that was the question is, I didn't know.

Am I right, Am I wrong, Am I going to lose money? But someone pulled it off, and you still have to be able to operate. But once someone does it, that's validation.

And it's like I'm a little bit jealous of the success they had. I recognize the deal and I'm strong enough to do it. And I'm disappointed in myself that I didn't, and I don't want to feel that again.

And so that's kind of what I've seen. People that go from being a spectator to being in the man in the arena. It comes from some sense of loss. Right. That's awesome.

And I know also how you're raising money. You said you never done it before. You didn't have background.

Well, I know how you're doing, and it's because I believe that you're likely living by your mantra, which is cash flow is king. But relationships are gold, right? The way that you're doing it is the way that you're speaking to us.

It's candor and it's honesty and it's transparency. Right. People invest with people that they know like and trust. You need to know the deal, you need to know what your own personal goals are.

I know because I was trying to build a house and close on it at the time. And I was pushing, pushing, pushing to get that 3% interest rate. And we locked it in finally at five and a half.

But talk to me about, you know, especially across the multifamily space, that space has really taken on the chin over the last few years because a lot of people were using variable rate debt that shot up super fast and it was hard to reposition. How did you guys handle the challenges of the market? What was that like for you?

And what was the best way that you found a deal with investors that had concerns?

Yeah, and that's a great question. I think it's a good pivot as well because it's similar to the story we were just talking about.

I think the reality is, and this is to your point, I think it being harsh saying like the harsh truth and being honest is really important.

If you're planning on getting in real estate, whether you're a passive investor, you're an operator, or you're just buying single family houses, nothing wrong with any of the three. The reality is, is you are not going to make money on every single deal.

They're not going to all be home runs, they're not going to all be slam dunks. Some might be, some might be base hits, some you might lose some money on. Now, hopefully you don't get wiped out in any of them, right?

That's sort of worst case scenario.

But if you invest in a hundred deals over the course of your real estate investing career, and let's say 90 of them do pretty good, you have a 90% hit rate and 10 of them, you might, you might lose your shirt on, right? You might lose all your money, you might not make what you thought you were going to make, something might happen that's pretty good.

If you were to ask somebody like, hey, what's your tracker? I have a 90% success rate, sign me up, where do I wire my money? Right? But the reality is it's not going to go well.

And when things don't go well, I think what's really telling for, for anybody in life is, is how you react to it, right?

So for us, when, when things started to not go well, I think the moral of the story is if you're in a situation like that is you really want to try to have as good of communication as you possibly can with your investors, right? So these deals that we're doing, both your deals and our deals, you know, we've got investors, right?

It might be 5 or 10 people, or might be 50 people, or might be 100 people. Just depends on the size of the deal. And the last thing people want, whether it's the good news, the bad news or the ugly, is to be in the dark.

They want to make sure that, I like to use this analogy, that you have both hands on the wheel, right?

A lot of people bought a lot of deals very really fast and were more focused on acquisition fees or maybe they were focused on just growing their aum. You know, guys like to talk about how many aum they have or how many doors they have or how many units they have or whatever, whatever.

And like, that's all great. You know, it's, it's like a, a bragging, right? At a, at a cocktail party. Like, you know, sounds cool, right? Like I have 10,000 doors.

Like, okay, great. How many of them are cash flowing? How many of them are making money? How many of them are going well?

So people, I think, lost sight of that a little bit. But the communication side of things is super important.

And when things are going good and performing well, it often feels really easy to communicate. But the sponsors that stay active communicating when things aren't going well are the ones that have a higher likelihood of long term success.

Because to me, you're right. These are all relationships, right? We raise money based on relationships.

People are gonna, they're gonna meet us whether it's at a conference or they have, they find us on social media, they see me on a podcast, whatever it is, they're going to reach out, we're going to have a conversation. Hopefully it goes really well. They feel like there's some synergies there. So they've gone through the.

No, they, they, they like what they're we're saying. They maybe like me, they like, you know, one of our partners. And now there's the trust factor, right? The klt, the know, like and trust.

Well, you can really quickly lose somebody's trust after they wired their money if you stop communicating and you Just go blank right now.

Often it's very common that if the dividends and the distributions are being paid and you're not communicating, sometimes you can get away with that because people don't pay attention when they're getting paid. They're like, ah, that must be going pretty well. I'm getting my distributions.

But the second you stop paying those distributions, which is what happened to a lot of sponsors, and we had to pause some distributions as well, right? Full transparency, and you stop communicating, that's where it can get really wild, really fast. And you get a lot of really angry investors.

And to your point, we were talking about this before the show, is how you handle that is really important. Because the cost of an investor, I don't have a number. It's super high.

Like the, the, you know, in marketing, you talk about, like, you know, customer acquisition costs, cost per click on Google, and things like that. I don't know what the cost of an investor is, but it's really high, right? To lose 20, 30, 40, 50, 100 people. Because they're all super angry.

Because you stop communicating. Even if the deal ends up pivoting and working out really well, right?

Let's say, you know, you go through a sort of bump in the road, you have to pause distributions for a year or two, market picks back up, you sell it, and you double everyone's money. It's like, I did what I said I was going to do. It just was rough along the way.

But if you didn't communicate for six months or a year and you just kind of ghosted everyone or didn't have answers to questions and they didn't feel like you had both hands on the wheel, the chances of them reinvesting even though you doubled their money is really low because they had a bad experience, right? It's kind of like I was in the restaurant industry for a long time.

We've all been to restaurants where the food is awesome and the service sucks, right? It's like, I love this. This meal is amazing. But the waiter was so bad. The wait was too long. They didn't bring me my drinks, the table was dirty.

It's whatever, right? You're like, I like the food, but I'm not coming back here because the service sinks. It's the same when it comes to the investment space.

It's like, yeah, I made a bunch of money, but the service was really bad along the way. So that's something we're always emphasizing.

And I think that's a message that a lot of people need to hear whether they're new getting into the service space and they're trying to be operators like we are, or if they're passive investors asking really good questions on these discovery calls. About, tell me about your communication. How do you communicate, how often you communicate? Tell me about deals you've had issues with.

Because if somebody's been in this space now for, I would say more than three years and they tell you all their deals are amazing, big red flag to me. It's, it's extremely unlikely that they haven't had some sort of challenge to talk about. Right.

And I want to hear how they muscle through it and how they communicated through it.

Well, all right, let's dig into this because I love this conversation. Let's talk about how you have communicated bad news to investors.

Yeah, I think it all starts with, so we use an investor management software. You know, most good sponsors that have a big list will use some sort of portal, right?

So we have investor updates that go through there again, whether it's good, bad or ugly. So, you know, we've had a, we've had properties that have had fires before, right?

It's like the second something like that happens, or if it's, you know, we have to pause distributions because the rates are going up and we're in floating debt or whatever it is message needs to go out in your portal and that's also going to send out an email.

And then the next thing we want to do is if there's something really major like that going on, is we want to try to schedule some sort of webinar, right? So let's schedule a webinar just to kind of talk through this. Let's address any concerns we may be having.

And then ultimately let's talk about the plan. Right? What's the plan now that this is happening? So if there's a fire, what's the plan?

You know, if there's a pause in distributions, what's the plan if we're trying to refinance out of this floating rate note into fixed rate debt, what's the plan? Is there going to be a cash call? Is it going to be a cash out refinance? Is it cash neutral? And what happens if we can't refinance? Right.

So talking through all the different scenarios so people understand like, okay, they're, they've got both hands on the wheel, they're going through all the exercise or they're, they're going through all the options and they're communicating well. So that I understand that these are all the options potentially on the table.

So email updates, portal updates, and then doing webinars is really important because our investors are all over the place. As much as I'd like to say I meet all of them in person, it's just not realistic. Right.

And then certain investors, of course, that you know that like, and you start to know like which are your investors? Like phone calls, which your investors are like a little bit more color. Personally, one on one, you make phone calls to specific people.

Sometimes it's your large repeat investors that are, you know, not just writing you a $50,000 check. Not that all of our investors are important, but we have a lot of repeat investors that are, you know, they come in at 200, 250, 300.

These are big checks. They often require a little bit more attention. So sometimes there may be personal phone calls involved as well.

And then we always invite everyone to reach out to us. They have my personal cell, they have our CEO, our founders, principals, personal cell. Reach out anytime.

And we'll, we'll schedule a call and try to be as responsive as we can to get with them within, you know, 24, 48 hours.

We're relatively new to syndication. We've been syndicating deals since October of 21. So really we've only been syndicated. We got 10 syndicated deals, maybe 11. I start to lose count.

We've made mistakes under communicating with investors and we've made mistakes over communicating with investors. So I'm curious how you view and how you decide like when to over communicate and when to under communicate.

That's a good question.

There's a saying, and in my head I think about this sometimes that, you know, some people like to eat the sausage, but they don't want to know how it's made.

It's really tricky and I'm not a storage expert, but obviously in like the multifamily side, you know, there's just some things that I would say this is not like I hate to say, they don't need to know.

I don't mean it and like we're keeping secrets, but it's like some things are day to day operations that you just like, you don't need to know how many toilets were clogged last week. You know what I mean? It's just like nobody cares about that type of stuff, right?

So for us, I think anything that can impact the performance of the investment is need to know information. Right? So a Fire, for example, that knocks down 10 units, right.

That's going to impact occupancy, maybe the maximum occupancy on a, you know, let's say you have a 100 unit property and 10 units or go down, not that they all burn to the ground, but you just have an issue and 10 are offline. Well now your max occupancy is, is 90% no matter what, right.

So if you're 9, if you're 90% occupied at 90%, that means your occupancy is actually like in the mid-80s, low 80s. Right. So knowing that to not cause panic. Right. Is really important.

So that impacts noi, which can impact your ability to issue distributions potentially. So I think anything that could impact the financial performance in a big way of the deal is need to know information.

So whether that's good or bad, sometimes it's good, right. Like we did an announcement, I think our update, the four, the one maybe the one in March where we, we insurance got hit super hard in Texas.

We've probably all heard that story just across the U.S. but Texas got hit really hard. We had a new portfolio insurance provider come in and we're able to negotiate. I think it was 23% cost reduction across the portfolio in insurance.

Like that's awesome, right? That's like need to know information.

We put that in our updates, we announced it and investors were super excited because it strengthens our ability to cash flow cash flow better or to get back to a cash flowing position on some deals that maybe had pause distributions. Right. So um, I think anything that's sort of like high answer if it impacts cash flow, if it impacts noi, that's need to know information.

Anything that doesn't is, is sort of subjective based on the sponsor. Because I agree there is a such thing as over communicating.

And I always ask myself like, am I opening up a can of worms kind of talking about this stuff that maybe doesn't need to, you know, be known. Right. So I think there's a fine line and every sponsor is a little bit different and also every investor is a little bit different.

I find personalities not to knock anyone in particular, but like engineers, they love to know everything. They want all the data, they want all the reports. Send me the balance sheet, the P And L, the T12. They want to.

They probably have no idea what they're looking at, but they want to look at it anyway. Right?

And then you have like doctors who are way too busy and have no time to look at any of that and honestly don't care as long as they're getting paid. So it's just kind of like different personalities and it's not bad or good, but yeah, it's just like little things like that.

I love that.

Yeah.

So especially, I mean, you're the director of investor relations, so I'm curious to know how I know you get this all the time for, for listeners who've done the rentals and the flips and the active side of things.

How do you explain what you do today is from the director of investor relations standpoint and why someone like that, especially as they become a high earning income individual, they start making more money or get farther along in their career.

Why should those people start looking like, what are the ways that you show people that syndication has potential to outperform the DIY projects that they're doing on their own? Right. Like, we all know that the most important thing that we all have is time. And you know, it's time, it's experience and it's money.

And as you get down to the point of as you have less time, it becomes more valuable to you.

And a lot of times I think that people's ability to operate as an active investor is going to decrease over time, but their capacity to invest in syndication is likely to increase over time.

So for those people that are kind of on the fence and thinking about making the switch from being an active investor to start dabbling in passive investment strategies, what's that conversation go like for you?

That's a great question for, for me, I always, There's a. Obviously everyone knows what ROI is. It's. It's return on investment. Right.

I always like to talk about roe, which is return on effort or rot return on time. Right.

So the question I always ask an investor who's maybe on the fence or thinking about it, maybe they're trying to transition or maybe they're trying to do both. They've always been an active investor. That's sort of their bread and butter. That's how they put food on their table.

But they're starting to transition. They want to dabble in passive. Is like, look, what's your time worth? What's your effort worth? And is it worth it? Right.

Is really the question you have to ask yourself.

And do you have, especially somebody who's maybe trying to decide one or the other is do you have the knowledge, the expertise, the want desire to be full time? Because I think it is really hard. It's of course possible, we've all done it, you know, to kind of work on Some real estate projects on the side.

But if you're trying to make it something that is a big part of your, your, your financial success in life, guys like us that do this full time are always going to be guys that do it part time, like every single time, right? We have more time in the, this is all we do. We're 100% in, we focus on this. You know, definitely not 40 hours a week, way more than that.

You know, real estate never turns off. We're always going to beat the guy who works on it a couple hours after work, every day, every time, right?

So if you're that guy who wants to leverage real estate in your portfolio as a diversification piece, but you don't have the knowledge, you don't have the want, you don't have the desire or the skill set to go and start flipping houses or to try to be an operator, right? Then your best bet is to partner with somebody who already has all those tools in their belt and you can leverage their skill set, right?

So your return on effort, your return on your time goes way, way, way, way higher. You know, a thousand x, right? Versus trying to do it all on your own.

Because if they come to somebody like you, who's knowledgeable, experience, has a track record, has had success, they can plug right into the ecosystem, right? They get qualified, they get on a call, they see your investments, they invest in something and they're off to the races, right?

Versus trying to learn everything on their own and go buy their own, you know, storage deal, right? That could take six months, it could take a year, it could take more.

And then they're probably going to make all the mistakes that you guys have all talked about on your show, you know, along the way, like just like we have, right? So to avoid mistakes and accelerate your growth, passive investing is the way to go. Now if you. Now it goes the opposite way too.

And sometimes I talk to people like this. If you're young and if you have a lot of time, if you want this to be your full time career, if you want to get your hands dirty, right?

Or if you have a substantial. Because here's the reality about this business too. It's very, very, very cash intensive.

It's if you've got, you know, $10,000 in your bank account, of course you can. Lots of people have started from zero and are, you know, multimillionaires doing what we're doing.

But the reality is, is it's a very cash intensive business and you're likely to need a lot of partners and KP's and guys that are willing to bring cash to the table to get those deals done if you're not the guy.

But if you do have the cash and you do have the time and you have the net worth and you feel like you want to take a stab at it and make it your thing, then it's a great way to make a career out of it. It's a great, it can, it could be a great success story for you. Or there are other ways to help too. Right.

Like a lot of people often pivot towards being a capital raiser, right? They partner with guys like us. They come in as a fund. Right. Or they come in as a co gp.

And that could be sometimes a balance for some guys that are still full time W2, but they have a list of investors and they think they might be able to bring them into our, our deals. They trust you, they've invested with you before. They want to help raise some capital and get a little bit of equity in return for that.

They want to help with asset management. So obviously making sure you're following SEC compliance and all that, you know, fund versus COGPS or certain rules. But yeah, that's kind of.

I talk people through the options and then most of the time, most of the time people are already on a call. They're already very interested in the passive side of things.

But oftentimes it's not uncommon that, you know, one out of ten they're like, yeah, you know, I think I want to be an active operator. And we have, you know, we just take the conversation path that way.

Yeah, I love that. The reality is you're not trying to sell anyone anything. The best thing to do is just explain and educate.

If it fits in with what the goals they're looking for for what they want for their family, that's great. And if not, that's fine.

There's no amount of money that makes it worth bringing on a partner that doesn't fit with what you're trying to accomplish because you're the director of Investor Relations. At the end of the day, if three years later they're ticked off, you're still the one that has to take the phone call, right?

So better to get that right up front. So talk to me about you. You mentioned capital raisers and fund of funds and things like that.

So what's the average deal size that you guys are working on and are you utilizing COGP's fund of funds? What percentage of the capital are you guys raising? And on average, what Percentage do you think is coming from the market, from other sources?

Good question. So yeah, so on average, I would say it definitely varies.

You know, we're typically looking for deals that very minimum are 100 units, but more than likely they're in the 150 plus range.

And then where we're at in the market and with Fannie Freddie or even if you're using bridge debt, you know, it's really challenging to get 80% leverage right now. You know, if you're getting fixed rate debt, unless you get a slam dunk deal on a great basis, you're probably getting 60% leverage, maybe 65. Right.

So our capital raises are, you know, 8 to 6 to 8 million, sometimes more depending on the deal. So for us we are pretty good at raising capital. We've been around now for seven years.

We have a list of investors that invested with us before that are. A lot of our investors are repeat investors, are in two, three, four of our deals. Right. Sometimes more. So that's a great place for us to start.

So we are able to raise definitely a large majority of the capital on our own.

I don't have like the exact number, but it's gut feels like, you know, 70 to 75% of the capital gets raised in our by us, not, you know, not partners. But we do often go out and try to find or build relationships with people that are fund managers first, code GP second.

And for us we've really made that pivot, you know, a few years ago, probably when you guys were getting started too, in 21, code GPS are super popular, right? It's like be a code GP, that's kind of how you eventually graduate to being your own operator.

But there's been a pivot in the market the last few years where a lot of people that were co GPS realized like I don't actually asset manage, so I'm technically like breaking the law here. And we don't need to go down a conversation about like SEC law. But if you're a co gp, you're required to be active in a lot of ways.

You know, the best way to do that is to be involved in the acquisition, put down some earnest money, help with the capital raise and then help with the asset management, have an active role in the job. That's legally the way COGPs are supposed to work. Even signing on the loan note, potentially. Right.

But that's often not happening where the guys are just raising money and then they're kind of like, you know, walking away and they're saying like, I'm a co. GP well, if you got audited, you can get in big trouble doing that, right?

So the fun part is a little bit different where if you're a fund manager or you create an spv, which is a special purpose vehicle or single purpose vehicle just for one particular deal, then you're technically one big LP. And LPs we all know don't have the same requirements that a COGP has.

So you're, you're technically, let's say you raise a million dollars for a deal, you come in as one big lp, it's one big check. But you're the rate, you're the fund manager, so you're, you're still managing all your investors. All your investors are private.

So I actually think it's better as a code GP I get to see all your investors. Even though we're going to be ethical and we're not going to reach out to them and all that stuff.

You get to have your own little, you know, box that you play in. You raise all the money, you send me one check.

So for us, we are always building relationship with guys that feel like they can bring, you know, half a million dollars or more to the table.

And when we have an investment offering, let's say we're raising 10 million, you know, for a deal, and we know pretty confidently we can raise seven, seven and a half of it, you know, we start picking around guys that we know can, can raise some money and say, hey, we're looking to raise a couple million bucks to get this deal over the finish line. And if I can go find like two guys to bring me a million dollars each, that keeps the, the team really small.

We don't ever want to have, you know, I've seen these deals where there's like 12, 12 capital raisers in it. And I'm like, this is nuts. Who, you know, too many cooks in the kitchen kind of thing.

Even though they all understand who's in charge, theoretically, it's just, if there's ever an issue, it just makes it really hard to get things done. So we try to keep the team, you know, us, and maybe two Maybe three other people depending on the size of the deal.

We have explored fund to funds.

We've had a lot of conversations with people and one of the things that always gives us pause is that you need to realize that whoever that person is, the fund to fund manager is, their reputation is going to transfer to you whether you like it or not.

And so we're always a little bit, you know, there's a lot of fun to fund guys out there that are, you know, jumping from, jumping from operator to operator. And I'm not, I'm not saying that they're absolutely doing things the wrong way. That's that I can't make that blanket statement.

But we're always, we're very, we guard our reputation very jealously because that's what's going to keep us in business for a long time.

I'm curious how you, how you vet those potential fund to fund managers and you know, and maybe some times where you've decided, yeah, no, no, well, a.

Fund to fund manager is just like an LP or a code GP in my opinion. It's like you have to first ask yourself, do I want to get in bed with this person for five years, maybe longer, you know, maybe less, maybe longer.

Right.

It's kind of like a short term marriage and if you get on a call, sort of like an introductory call with them or you're having a second call or you meet him in person, whatever, and you're just not vibing, I mean, let's just not waste each other's time, right? And it's not that they're bad, you're good, you're bad, they're good. It's just not a great personality fit. Right.

Some people are too controlling and they feel like, you know, just because I'm bringing the capital, I control the show or vice versa. Right. So if there's a bad clash of, you know, two personalities, let's just, you know, not waste time there. Right.

So that's the first thing is we want to vet the people. You know, I have a saying, no a holes allowed in any of our deals. Whether you're a vendor or code GP or an lp.

We just want to work with people that are easy to talk to, easy to get along with and irrational. Right. So um, that's sort of step one, two.

A lot of our, our, our, our fund of fund people that we have partnered with as of late were previously our co gps and we've sort of helped them learn about fund of funds and why we think they're a little Bit safer compared to say like a COGP side. So we already have a, a pre existing relationship with them. They've worked with us for years. We've known them for years.

We've had many lunches, many dinners, coffees, things like that. So we know that their character's high. Because you're right, it works both ways too. Right?

So like for example, the thing that always makes me nervous is let's say I send my monthly investor updates out on time every month.

Well, if they decide they want to stop sending their updates out because they're on vacation or they just don't care anymore, then that makes us look bad because they're going to think like, hey, you know, headway is not sending their updates. Well, it's like, no, here's a proof. I've sent this email out every month.

Your guy just stopped communicating with you because I don't have access to their investors as a fund to fund. I can't go around their back and find out who invested in their deal and say, hey, I'm sorry they didn't send you the update. Here's the update.

Don't, you know, don't, don't get mad at us. So there's a reputation on sort of both sides. So I like asking those types of questions.

And they, of course, you know, they, they always take the angle like I'm vetting you and if you want my money, like you got to check all the boxes. Well, to me it's, it's both ways, right? It's like, I have the deal, you have some money.

Like, you know, we have to figure out how, if this is a good fit for each other.

So for us, it's about, not only about their capital raising ability because, you know, a lot of times people will promise the world and you know, sort of under, over promise, under deliver, right?

So if somebody, if I talk to somebody and they're like, I'm going to raise $2 million for your deal and they're, they've never done it before, they've never raised capital, they don't have a track record. I'm like, you're out of your mind. You know, there's no way I'm, that's a big red flag for me. Right?

But if they've done it before and they have success and they've raised for people before, I like asking questions about, well, how many other sponsors have you raised for? Right.

If they've got this laundry list like of 20 sponsors, okay, that means they're just speed dating and they're kind of willing to work with whoever has a deal. That's probably a red flag for me if they're not vetting their sponsors. Tell me about your vetting process. Like what type of list do you have?

What type? They're obviously vetting me, but I ask about it anyway. Tell me about your communication. You know, we, this is how we communicate.

How would you pass that on to your investors? Have you ever had communication issues? What's your investor portal or platform that you're using?

So those things are all important to us is to ask those types of questions. And then I like asking just about, like, tell me about your investors. What type? Not that I want to see your list, but what type of people are there?

They. Are they engineers? Are they doctors? Where you get your list from? Making sure that they're doing things in a compliant way as well.

And then tell me about the deals that you've raised capital from. Not that I need a laundry list again, but are they all performing? Are they not performing? Are they multifamily? Are they not multifamily?

Just so we can have a feel for. Are their investors happy? Are they not happy?

And then really, you know, for us, it's about trying to get them to understand that we want to build a long term relationship. If you're coming to us and you want to raise capital for one deal and then move on to the next sponsor, you know, it's your business.

You have the right to do what you want to do. But that's not how we want to do things. Not that you have to raise for every deal that we have.

Of course, sometimes there's timing issues or bandwidth issues, but we want to do multiple deals with you, right? We want to do 3, 4, 5, 6, 7, 10 deals with you. I don't want to do one deal with you and then, you know, not have a relationship from that.

So if they're, if they're not thinking sort of long term about the fit and the alignment there, and they've got, you know, 20 other multifamily guys that are raising money for them. I'm number 21. You know, it's probably not the best fit.

I love that you just articulated a lot of what's been going through our head and in conversation so well. So that, that was really helpful. Glad we recorded that. All right, selfish question time for me.

So the first time I raised capital for one of our deals, made 15 phone calls and 12 people said yes. And I was like, oh, this is easy, right? Well, that's that circle of trust, when you're calling people, you know, like, and trust.

I was calling physicians that I was still working with in surgery at the time, and literally 15 phone calls, 12 people said yes. And as we have grown, we did another deal, then another, then a couple more, then a couple more.

And eventually we got to the point of doing our first small fund, which was $10 million. And at that point, you. You have to raise enough money fast enough that you can't do it in your network, right?

So we have to grow that trust transfers. About once people say, hey, you should talk to Clint. He's got this thing, he's. I vouch for him. Whatever.

That person can't tell someone that they know it, it doesn't transfer the same. It drops off very quickly. And so we used to do something we called fire arrows.

Like, I'm looking for someone out there that I think would be a great at this, that would be excited about what we're doing, that I can get access to their network, and together we can put something good together. And I was looking at these different populations that I had in life, right?

College friends, med school friends, doctors have, we have college buddies, they have med school buddies, and then fellowship buddies, and then surgery buddies and residency buddies and whatever. But the reality is, eventually you have to get out to where the cold leads are and you're putting it out there.

So for us, we did meta ads, Instagram, Facebook.

We've had a lot of success with that, has an increased cost of capital, but you're capturing those leads and then they're repeat investors in the future. One of the things we've looked at over and over that we have not leaned into yet is LinkedIn.

And I know that LinkedIn is something that you have a really high ROI. So I'm curious to hear your brief, ish overview of what you think about LinkedIn. What are you doing?

Like, are you going to try to make individual connections with people? Because it feels a little bit like standing at the top of the Grand Canyon and screaming into the void and hoping someone hears you.

So how are you utilizing that platform and what's it working? What's it doing for you?

Yeah, that's. That's a question I actually get asked pretty often.

So we take a little bit, or I take a little bit of a counterintuitive approach, and there's no right or wrong. I'll just tell you my opinion on these things.

So there's a lot of LinkedIn influencers out there, and you see their posts and they're posting about real estate, they're posting about this. And I've had some really interesting conversations.

Sometimes I reach out to people, you know, they're like, their posts all have like a hundred plus comments on them. Like, man, this guy's a celebrity. He must be crushing it.

I remember I had a call with somebody who gets like a hundred, 200 comments every time he posts. And I was like, hey, man, how much money have you raised from this? And he's like, none, right? So I think it was kind of a paradigm shift for me.

And it's something to remember is just because somebody is famous on the Internet or, you know, getting a lot of likes and comments, there's some somebody. I can't remember who it was. Somebody I saw, like, either on LinkedIn or Twitter back in the day had said, you know, likes ain't cash.

And I always stuck with me, which is true. It's like, comments don't mean you're getting money, whether you're selling a product or raising capital, right?

So because of that, I'm not saying I don't post content. We still try to post content to stay relevant, and it's a great way to sort of nurture your audience.

But I take a kind of counterintuitive approach, and we kind of operate in the shadows is what I like to describe it as.

So even though, you know, I might not post seven days a week and, you know, trying to look like I'm an influencer and, you know, doing things like that, and not that there's anything wrong with that, I think you can have a tremendous. A tremendous amount of success doing that.

What I started to notice, especially on all the real estate guys, is, you know, LinkedIn, if you kind of peel back the onion and really look at what's going on there, and I know it pretty well. Like, first of all, there's a lot of Ghost writers on LinkedIn.

There's a lot of guys, especially in the real estate space or in each industry that are paying, like, three guys that are, like, dominating the ghost writing space, and they're writing all the content for, like, all the real estate influencers, right? So it starts to look very generic. And I'm like, all right, I think I know who wrote this, which is kind of funny, right?

And then some people are using AI and that's always very obvious as well.

And then you can see in the comments, the comments often get, they're sort of empty comments, like, you know, people saying things just to say something, liking things just to, like, Something and not really networking and adding value. So to me, the way I look at it counterintuitively is like social media. Social media is designed to be social, right? So I want to be social.

So we operate in the shadows in the sense that what I do is a very sort of strategic approach or very surgical approach, I should say, is, you know, we use tools like Sales Navigator, which is the premium version of LinkedIn, to get really specific on who our investor avatar ideally is. Right? So you can be engineers, can be doctors, can be business owners, people that have been in their position for a certain amount of years.

You can get really granular on your filters on, on LinkedIn. And we essentially build a list of people that we think might be a good avatar for what we have to sell, right?

And we start reaching out to them one by one by one, individually, right? So saying, okay, this guy checks the boxes, he's a surgeon, he's in Houston. So I have a higher likelihood of making small talk with him.

Cause he's local. I'm going to. Our CEO's wife is a physician by the way. So there's some commonalities there that helps a lot.

Saying, hey, one of our business partners is a physician. It opens, kind of opens the door to conversations.

They've been in their career for at least 15 years, so they're not, you know, still probably, they might still be in student loan debt, but they probably still make good money and they're probably very busy and qualified to invest into passively as a real estate investor. Right? So we reach out to somebody like that person by person, by person. And we've all been there before.

Again, kind of counterintuitively, LinkedIn has unfortunately, and it always has been that way. It's become very salesy by a lot of people. They take the approach that I'm just gonna, I'm just gonna fire, right?

You get, you accept a connection request and you instantly get a message saying, hey, I've got a deal launching 7% cash on cash 15 IRR 2x multiple. Here's a link to subscribe, let me know if you wanna invest. And I'm like, hello, nice to meet you, where are you from?

You know, it's like, I always look at it like if I was at a cocktail party, would you walk up to somebody at a cocktail party when you walked in the door, you just met, walked up to them, shake their hand and say, hey, I have a great self storage deal that I'm launching next week. You know, like, no, you would say, hey, how's it going? How are you? Where are you from? Where you work at? How do you know Bob over there?

Oh, that's awesome. How many kids do you have? Oh, you have two kids? I have two kids too. Like, there's a bunch of small talk that happens, right?

And then it goes into like, well, what do you do? Well, I'm a real estate investor. Oh, real estate. What are you doing? Real estate. And then it goes into the rabbit hole, right?

And that's how you sort of hook people at a party, right? You wouldn't just throw the deal out there when you walked in.

So social media, we do the same thing where if I connect with somebody, I want to have a conversation with them first, right? It's like, hey, thanks for accepting my connection request. What? I like asking the question, like, what made you decide to connect with me? Right?

So like, if a doctor connected with me, I want to know why they connected. Why did they accept? Did it just say accept because it was easy or sometimes today we say accept because they have interested in real estate.

So we try to make small talk. Oh, I see you. Like, I went to University of Houston. I see you went to University of Houston. That's awesome. What year did you graduate?

Oh, you graduated? And they say, oh, I. I have a friend that graduated that year. I saw, I saw you did this.

Like, trying to go through their profile very strategically, try to see if you can find some commonalities to make a conversation happen. The goal is to have a conversation, be social, right? I might share links to articles that may be of value to them.

How doctors are retiring faster or burning out faster. Right? Things like that. Maybe it's on our website, maybe it's not on our website. So trying to create. Build that. That know like and trust.

Trying to create value, trying to give value, trying to make small talk. And then we pivot into offering something of value. Like, hey, I've got this. You know, we've been chatting back and forth.

I've got this great newsletter. I'd love to add you to it. We talk about some real estate projects that we work on.

If it's not of interest to you, feel free to unsubscribe at any time. But would love to add you to the list, right? So getting their emails so they can then go through your nurture sequence.

Or if you have a webinar coming up, right? Let me invite you to our webinar.

Or if you guys recorded a podcast that was talking a lot about healthcare professionals and how investing in your asset class could be tremendously valuable for them. Send them the link to that podcast, right? It's like, hey, I, we've been chatting.

I just thought, like, I have this episode I recorded a few months back. It's a little old, but check it out. I think you're going to get a lot of great nuggets from it.

Just give it a listen, let me know what you think, right? And let them, give them a few days. Let them listen, then ask like, hey, did you get a chance to listen to it? Right?

Or sometimes they'll reach back out to you, right? And then you can ask for like the phone call, right?

But if you just go straight into the deals, straight into the phone call, without actually building rapport and trying to socialize with people, that's where you're going to often find very low traction. So for us, that's our strategy. I like to say it's very low leverage. You know, you just said you're kind of blasting it to avoid.

So it would be much easier just to post seven times a week. Start just blindly messaging thousands of people and pitching them, you know, on my first message, pitch, pitch, pitch, pitch, pitch.

But to us, it would have a much lower success rate. So that's the strategy we use when it comes to LinkedIn. In particular, we're not running any ads currently.

Not that we're against it, but it's a little bit more of a granular, strategic approach.

I love that. I think we were so turned off by the first forays we had into the LinkedIn space because it was so spammy.

It was so just like throwing it, everything at the wall, see what sticks. Let's automate messages, which are clearly automated messages, and blast it out to 10,000 people. And it just felt.

I've always been in a relationship sales role with my medical sales degree, like these, building relationship with these physicians.

We're going into surgery together for 16 years and the whole like throwing it out there, direct message, spam messages, pitching a deal was a real turn off for us. And I think the way that you're, you're verbalizing it makes it sound a lot more appealing.

And it's validating that we know that that is a really good source to go for capital and strategic partnerships with people that we want to be in business with. But sometimes it's not, it's not about what you do, it's about how you do it that really reflects and it.

Can be a tremendous tool.

It's just, it's low leverage, it's slow, it's you know, people think that it's social media and it's, you know, gonna get a thousand, you know, new investors every month. But I have never ran into somebody personally and maybe I'm, I'm sure maybe there's somebody out there to prove me wrong.

I have never ran into somebody personally in the multifamily space. And they were like, yeah, I raise all my money on LinkedIn. Like, I'm pretty sure you guys have never heard that either. Can it be a tool?

You know, to me, if I, you know, If I'm raising $10 million and I get a million dollars of it from investors I met on LinkedIn, that's a huge win for me. Right. But I'm not looking at it as it's my primary source. I prefer low leverage sources for capital.

And those are going to be your in person events where you're shaking hands with people, you're meeting people, because there's just something about that you can't replace.

Yeah, absolutely. Relationships are gold. Right?

Well, this has been fantastic and we've, we've gone way over time, but, but we've, we both, I think we've all really enjoyed it. It's fun talking shop with somebody who faces a lot of the same challenges we do.

Our last question that we ask all of our guests is, is there any book that you find yourself recommending again and again to friends and colleagues?

The book that I like to read every year is Stephen Covey's 7 Habits of Highly Effective People. It's a timeless book. I don't remember when it was written. I want to say it was in the 80s. It's definitely at least 30 years old.

And to me, if you can find a book that is that old, but every time you read it still hits, you know, it still has some nuggets and value. That means it's just timeless information. Right? So that's a really popular book in my, I read it once a year.

I've, I think I've already read it once this year. I actually finished it late last year, so I need to finish it, read it again this year. I think I finished it in November.

But once a year I go back to that book and it's one of those books that I read it when I was young and it didn't really hit. And then I read it like three years later and it hit totally different.

And it feels, it feels like every time I read it as I've aged because I think the first time I read it I was like 23, right? Every time I read it, as I've aged, I find something new that I missed the last time I read it.

Because as you get more mature, you get older, just things start to, you know, hit differently.

Isn't it so funny how that happens? And sometimes like, you, you read a book and you just hear exactly what you needed to hear right then.

And then the next year you're in a different place and you hear something totally different that just really hits you where you are. And I, I let's point out the value of rereading books that had a big impact on you the first time. There's other st there that you missed.

I promise that there is. So I started the same thing. Like, I've got a list of books that I try to listen to once a year.

The problem is it's now ballooned from it was 6 and then it was 12 and now it's like 15. And I, I struggle to get through it, but the, the point is there.

Like the value is in there and you know that it's, it's worth dedicating the time to that. So anyway, for the sake of time, we'll call it there. Brian Alfaro, please.

And thank you so much for coming on board with us today, sharing us what you have. But please tell us if anyone wants to hear more about you, your journey, what you're up to with Headway Capital Investments.

What is the best way for them to connect with you and do that?

Yeah, they can. LinkedIn. I'm really active on there. Go look me up. Brian with an I, last name Alfaro. A L F A R O.

Send me a connection request, tell me you heard me on the podcast. That'd be awesome. You can also send me an email. Brian, again with an I@headway capital.com us and I'd love to chat with anybody.

Whether you're an lp, GP or vendor. I'm always down to connect.

Sounds great. Thank you so much, Brian. We really appreciate your time.

Thanks guys.

Thank you so much for listening and watching the Truly Passive Income podcast.

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