09 Feb February 11, 2020 – From Zero Eric Bowlin and Fanocracy David Meerman Scott
If you can find creative ways to increase the value of a property that
other people are not thinking of, you will always succeed.
Eric Bowlin is the founder of IdealREI.com, EJBowlin.com, and Bowlin Capital LLC. He is a real estate professional with hundreds of rental units and 10+ years of experience. As a thought leader in the industry, he’s been interviewed on a number of leading podcasts including Joe Fairless’ Best Ever Real Estate Investing Podcast, Rod Khleif’s Lifetime Cashflow podcast, BiggerPockets Podcast, Listen Money Matters, Millenial Real Estate Investor, Before the Millions, and many more. As a real estate professional, Eric has also been quoted, sourced, or featured in a number of leading publications including Forbes, Trulia, Inc, Wisebread, BiggerPockets, TheStreet, Yahoo Finance, and many more. Eric pioneered the Infinite Investing concept and using that was able to leverage a small amount of seed capital into enough income-producing assets he was able to retire at the age of 30. During that time he was recognized and thanked by multiple town officials and police for changing part of the town. Now Eric spends his time teaching others how to leverage their skills and assets to achieve financial independence. He also enjoys speaking at meetups and events, traveling the world, and spending time with his family.
David Meerman Scott – Marketing Strategist – Author of Fanocracy: Turning Fans into Customers and Customers into Fans– Read interview highlights here
Passion is infectious. Sharing what you are passionate about
draws people to you.
David Meerman Scott is a marketing strategist, entrepreneur, advisor to emerging companies, VC strategic partner, and bestselling author of 10 books, including Fanocracy: Turning Fans into Customers and Customers into Fans. As a strategist he teaches people how to use new real-time strategies to spread ideas, influence minds and build business. He serves on the advisory board to select emerging companies who are working to transform their industries by delivering disruptive products and services. And he’s a Strategic Partner at a VC firm, advising some of the most promising new businesses in the world. David has spoken on all seven continents, in over 40 countries, to some of the most respected firms, organizations and associations in the world. He customizes his keynotes and masterclasses for each audience, but the core of every event is an urgent call to action. Scale and media buying power are no longer a decisive advantage; what counts today is speed and agility. Real-Time is the mindset for the future – and content rules! He is the author of ten books, three of which became international bestsellers.
I was 24 when I bought my first property. So, I was trying to buy a home to live in. I wasn’t trying to buy an investment property, but I couldn’t qualify at the time. This was back during the recession; I was a full-time student and worked part-time jobs. But I discovered that if I bought a small multifamily of three or four units, it would help me qualify for a loan, because the extra rental income gets added to your income. And so that’s why I ended up buying. It was a three-family. And my plan was not to be an investor, my plan was to sell it after a few years and go be a normal person and get a regular job, but it didn’t really work out that way.
I don’t remember exactly how much I bought it for. It was very cheap, especially back then. I bought the house for just like $120,000 maybe. Back then, property values were like a third of what they are now. So, I only had $5,000. It was an FHA loan, because I was going to live in it, so it was about 3-3.5% down payment. So, it was like $5,000-$10,000 total to get into my first property. I do still own it, actually. It’s paying me ever since, and it’s worth something like $300,000 now, and I’ve been collecting rent on it. And the rents since then I’ve gone way up, so I’m earning way more than I ever put into it. And I lived in it for two or three years. I bought it in 2009 and I moved out I think in 2012, so that makes it about three years.
So, what happened is that I lived in one unit, and then the other two units paid my mortgage. And then I got a roommate, and the roommate paid a small amount of rent plus part of utilities, which covered everything. I was living completely for free. And I was able to take all that money that I was spending on rent and utilities and all that stuff, and then just save it to buy another property a couple years later when I bought my next one.
Massachusetts is a unique place, it’s the only state in New England Area that actually has population growth, and a lot of that is from immigration. Massachusetts has a lot of universities, and so people go there for school and a lot of them end up staying. While a lot of people are leaving the Northeast like me, there is a lot more people moving in there as well. It is the only state in that area that has good population growth. There’s a lot of other things to be concerned about, but I don’t think that particular thing applies to the Massachusetts’ market.
My niche has changed over the years. I started in the university niche because I was going to school and I bought a property near where I was going to school at the time, and I did that for a while. And I moved away from that because of the amount of effort it takes. The more effort you put into something, the more money you can make. But then as I grew as a business owner and investor, I wanted to do less work, so I moved away from that. My niche is and kind of has always been, I add a lot of value. I find properties that need a lot of work, or have a lot of opportunity. It doesn’t necessarily need like a happy rehab in order to add value. Sometimes properties are under market value or low-value because of the people that live in there, for example, maybe they’re really bad tenants and the owner just wants to walk away and nobody wants to buy because of those tenants. That’s one way you can do it.
But anything that needs to be improved to bring up to market value is really what I’m focused on finding. Now I do have two apartment complexes, with me and some investors and other partners as well. Those aren’t all owned entirely by me. But absolutely, as you get more real estate, you start looking at ways that you can buy more at one chunk rather than trying to buy them two or three at the time. When I’m picking other people’s money and people are investing with me, I don’t do properties that generally need as much work, because there’s more risk and investors don’t necessarily want to take all of that risk. But we are still looking for properties that you can add that value to, that you can get those rents up for, that you can do some rehab or improvements to, but they’re not as bad as the ones that I buy for myself and I’m just using my own money or just friends-and-family’s money.
It is safe to say that my empire was built on saving and a frugal lifestyle, at the beginning, at least. That was a journey that took many years to figure out. I’m a pretty frugal person in general, but I was really good at making money in real estate and I was spending a lot of money. And so, I had more money, but I was spending it in buying expensive stuff. And one day I just realized that if I cut my expenses down and went back to my older lifestyle, that I didn’t need to really work anymore. And so, I cut my lifestyle down. Rather than having like $60,000 vehicle or whatever, I cut those down to less expensive things and then I didn’t have to work so hard, and that’s when I considered myself retired. I didn’t have to grind for money anymore by controlling that lifestyle inflation.
After many years, my wife got onboard and is on the same page. Whenever we want something or need something, we talk about it and say, is this something we need or is this something we want. And then anything that we want that’s expensive, the philosophy is we go buy a property that covers that. Like I wanted to send both of my kids to private school and that was about $2,000 a month, and I could afford it but I didn’t want to come $2,000 a month out-of-pocket. So, I went and I bought a five-family property that pays me roughly $2,000 a month. I took some savings, put it in there, and now their schools are paid for!
After I stopped working hard in real estate, I got kind of bored. And I realized one of my passions is teaching. Because I was going to school to be a professor, I was working on my PhD, but I got into real estate instead and dropped out of that, but I still have a passion for teaching. And so, I started my blog 3 or 4 years ago, and that’s “idealrei.com”, and I talk a lot about this stuff for free. So that’s really what I do. I do events now, I do podcasts, and I’m just always sharing the lessons I learnt. And one of the biggest lessons that I can tell right now for people – because this is just what everybody’s thinking about, they’re thinking about the market, and if the market is too hot, it’s a bad time to get into real estate.
I’d say the number one lesson when I look back over the last 10 years is, every single year, there was always a reason not to be investing or buying real estate. Like you can go, 2009: the economy’s too bad, and so on. You can list every single year and say why you should not invest. So that tells me that it’s always the right time to invest if it’s always the wrong time to invest, as long as you’re buying the right properties, and that’s what I talk about; how to identify the right properties that have the good cash flow, that are going to get you through good times and bad times.
That’s really the key. The ability to add that value into the property is really the key. So, you can walk into a property getting $600 a month for rent or whatever, and you can find a way to improve that property a little bit and maybe up it to $900-$1,000 a month, and you get to keep that. You didn’t pay for that upfront, you paid for a property that paid you that smaller amount. But by doing just a little bit of work, if you can get that up, you get to keep that difference. For a little bit of an investment, you can get very high returns by finding that value to add; maybe changing tenants out, or improving the property, etc. That’s really the key, is to have the cash flow that covers all the expenses, covers all the mortgages, and has a ton of money left over, just in case the economy turns – which it will eventually happen; maybe tomorrow, or could be in five years, but eventually it’ll happen – and you need to be able to cover all your expenses.
And the way you do that is by improving the property and increasing the rents and adding that value. So, for example, you buy $100,000 property and put $8,000-$9,000 into the kitchen, and now it’s worth $120,000, and your rent goes up a couple of hundred bucks a month. Something like that. I can give you a real example. One of my earlier properties was a four-family, had really bad tenants, there was a heroin addict who was trying to be in charge of it, and he rented it out to like a convicted arson and a bank robber. It’s on a nice neighborhood, it’s in a decent street, but the guy just had a drug issue. And the owner who was at Florida just wanted to wash his hands off it. So, I bought it for $75,000. It didn’t really need any work because it was in decent condition, it just had bad people in it. So, I got rid of everybody. Just for the cosmetic stuff for four-family, I spent about $15,000, and it was worth around $170,000; the market value. I earned something like $70,000-$80,000 on it, and the rents went from like $500 a month to $1,000 a month because the guy was just renting it out for drug money. By being able to do that, I was earning $2,000 a month roughly just under that per month in income when I only had like $100,000 mortgage on it. My mortgage was like $600 a month or something I’ve had. So, all the income that I was pulling off of it covered all of my expenses by many multiples. That’s just a good example of what it means to add value, but not actually do any heavy rehab work type stuff.
Massachusetts is not known as a landlord-friendly state, it is very tenant-friendly. And every state is different so I can’t speak of every state, but what I found what I’ve done is, I’m very very tight on my documentation of everything; all of my documents, all of my leases and everything are 100% up to par for the state. But if you are honed in on every single rule and you’re an expert at that and make sure that you’re not like, “Whatever, I want it documented”, rather you document every single thing, then when you go to court, the judges are just following the law. The problem is when they make the law so difficult that it’s really hard for you to follow. But if you follow everything, you’re going to win every time, and I’ve never lost. Like it takes a while to get to court, but the court usually gives 10 or 14 days for them to move out. And I’ve been very good at that by following extreme levels of documentation. Well, the difficult thing is finding those great deals with crack houses and a little long-distance owners, and there’s a lot of ways to do that.
Nowadays, most of the stuff that’s just on the market is not necessarily good deals, because there’s so many people out there looking, unlike six, seven years ago. But they’re still out there. I just bought one in the year prior to the last year, that was on the open market. So, you just got to look, and you got to look every single day, and that’s where most people fail. 30 days, 60 days go by, and they don’t find anything, and they’re not looking every single day, and that’s not the way that you’re going to find something. I mean, you can also network with people, you can send out letters to people, you can have a website that when people want to sell the house they go online and they look. There’s a lot of ways to generate those leads, but the key is to just, every single day, be looking at deals, running the numbers on them and making offers.
I don’t personally pull down the street and just walk in and see what the deal is, just because it’s not in my personality to knock on stranger’s doors. I don’t really like that, but a lot of people do do that and you can be very successful doing that. Or you can just put in a note in their mailbox and see what happens. I actually like to send people a letter and have them reach out to me, just because it’s less obtrusive into their life. So that’s kind of my style. But there’s nothing wrong with knocking on their door, people do that all the time. So due to the market saturation, there are a lot of people now, and so that’s why you need to carve out a niche and you need to really hone in on that niche.
Most people are out there just doing the basics. They’re trying to find a basic three-bedroom, two-bath home, do just kitchen and floors and paint and try to flip it, and that doesn’t really work right now. It’s hard to find those. But if you can find creative ways to increase the value of a property that other people are not thinking about, you’re always going to succeed because most of the people aren’t being creative and most people aren’t really dedicated to it. Like the example I gave of the bad tenants, or maybe you can find ways to add bedrooms or convert space, things like that that are more creative and like outside-of-the-box type of things. That’s how you succeed in a hot market.
There’s a really interesting book with me and some great co-authors, and what it is called is “Don’t Quit: Stories of Perseverance, Courage and Faith”. It’s basically stories of perseverance where major life things happen to everybody, and even very successful people. So, people that you don’t even realize, they go through major life problems as well. And it’s really just connecting with regular people and be like, “You can do it. Look at these very successful people, people that are killing it in their fields, and the problems that they went through in order to get to where they are”.
You’re not a real entrepreneur until you’ve had failure. It’s really not about what you’re doing to succeed, it’s how you deal with failure, how you deal with the problems and the losses, which will eventually happen. I started in a bad market. And that maybe a great time to start in 2020, but back then in 2009, 2010, 2011, and 2012, that was the worst time to get started. Because although there were a lot of deals out there, nobody had money, everybody’s scared, the world is collapsing. Even if you could get it, nobody can pay their rent because nobody has got jobs. So, you can barely tread water when you are trying to buy properties during this time. And sure, if you could survive through that, then you’re going to make a lot of money, but the hard part is surviving while you’re in it. And if you remember, as you’d do like everybody who was around at that time, how difficult life was for people at that time to do anything. And yeah, it paid off now, but back then was really, really difficult.
I remember times when my wife was crying because we couldn’t afford groceries when we were buying property and doing these things. So, it was a really challenging time to be in real estate. She does survive just about anything that she wants, and so she’s been rewarded many times over for those.
So, the best way to reach out to me directly or just to get on is to go to idearei.com. And I’m giving away the five-step system that I use and that we talked about a little bit here today; to invest in real estate and buy property.
People asked me for coaching for years, and I always said no because I don’t want to be that guy. And then I realized a few years ago that I can help people and not be that guy, so I can be the anti-guru kind of person that’s out there, and that’s exactly what I do. Actually, several people applied to work with me, I rejected them. And I said, “I don’t think you’re in a position to take advantage of what I can teach you. I think you need to work on your personal finances right now and come back to me in six months or a year when you’re in a position to really take action. Because if I take your money now, I’m just taking it from you and you can’t make progress”. And so that’s kind of my style and my brand.
Let’s look at an example, a band that created a fanacracy. The Grateful Dead did a remarkable thing from a marketing point-of-view. Every other band used Ticketmaster, I think it was Ticketron in the early days, to sell their tickets. The Grateful Dead said, “We’re going to take over this because we want the tickets to get in the hands of the true fans.” So, they were building a real fan culture way back then with tickets, by controlling their own tickets.
The other thing they did which is absolutely remarkable is, they were the only band that allowed fans to record their concerts. And that was really interesting because with every other band, when you got your ticket or when you were walking into the venue, there were signs that said, “No recording allowed. No video, no cameras”. The Grateful Dead said, “Sure, why not?” They even provided a taper section right behind the mixing board and you could bring in professional-level recording gear, and that was back in the day of cassette tapes. All they did was said, you can share the tapes, you can give them away to friends, you just can’t sell them; that was the only rule.
So that built a social network of people like us who loved the Grateful Dead and shared those tapes before Mark Zuckerberg was even born, and that built a true fanocracy. This new book that I wrote with my daughter, it’s this idea of creating a tribe of people who absolutely love what you do, and then that serves as your marketing engine. And for entrepreneurs, it’s just a fabulous way to grow business.
I wrote the book with my daughter, Reiko, who is now 26 years old. When we first started to investigate this idea, she was 21; five years ago. We started doing this because we’re driving a car, and we looked at each other when we were talking about this idea that we were fans of things. I geeked out about the Grateful Dead and my live music, and she’ll absolutely love it. And then she talked about Harry Potter; her love. She has read every book multiple times, seen every movie multiple times, gone to the Wizarding World of Harry Potter in Orlando theme park, went to the UK studio tour. And then she also wrote an alternative ending to the Harry Potter series where Draco Malfoy is a spy for the Order of the Phoenix, and put that on a fanfiction site; 80,000-word alternative ending. Thousands of people downloaded it and hundreds of people commented on it. Reiko is a neuroscientist. She graduated with a degree from Columbia University. She’s currently in her final year of medical school.
So, we looked at the neuroscience behind what goes on when we’re a fan of something, we wanted to know what’s going on in the brain. What it turns out is the most important thing is, when you’re a fan of something, you’re together with like-minded people; you are part of a tribe. We know from Grateful Dead, that was an absolute tribe, it was a group of people. The music was great and I love it, but it was part of being a group of other people who liked that music. So, we can have a natural conversation with anyone else who loves the Grateful Dead. The idea is how can you bring people together within your business to form that tribe. That’s the neuroscience behind it: the idea that our brains are hardwired to want to be part of a tribe of like-minded people because that’s actually a survival technique that’s baked into our DNA and it goes back tens of thousands of years. Because when you’re with your tribe, you’re safe. If you’re not within your tribe, you face potential danger. And we can’t stop our brains from thinking that way.
There’s one neuroscientist named Edward T. Hall, who suggested that levels of proximity can be identified: further than about 20 feet is called “public space”, from 20 feet to about 4 feet is called “social space”, and inside of 4 feet is called “personal space”. Now, can you get your potential customers inside of social space or personal space? Can you get close to them? So personal space is cocktail-party-distance. Is there a way you can bring people together; maybe have a conference for your potential customers? All of these are ways to build that tribe to get those people together. It’s a personal connection.
So one of the things that we wanted to research is, are these ideas applicable to all kinds of businesses? And the answer is, absolutely yes, even businesses where everybody hates the product. My favorite example of this is automobile insurance because everybody hates auto insurance. It’s something you don’t want to spend money on. Furthermore, you absolutely don’t want to use the product because it means you’ve crashed your car. So, we found an automobile insurance company called Hagerty Insurance. They do classic car auto insurance. And I spoke with Maciel Haggerty, the CEO and entrepreneur who founded a company. He said, “David, when I found this company, I realized I couldn’t market like the other auto insurance companies. I couldn’t spend a boatload of money on advertising and try to compete with the geckos and the lizards that are advertising on TV. I didn’t want to become the low-cost provider. So, we specifically went out to build fans. But I’m a product everyone hates, so building fans, how could I do that?”
So, it turns out what he did was, they specifically decided they were going to meet with people physically. They went to over 100 classic car auto shows where people who have classic cars hang out, and they met with those people personally. They have a YouTube channel with over a million subscribers. They have a driver’s club where there’s a virtual community of people: 650,000 members now, where they can share ideas and their love of classic cars. He reached out to me recently and said, “David, I didn’t have to invent the car or create the passion around classic cars, I just needed to tap into it”. And he’s now the largest classic car auto-insurance company in the world. They’re going to grow by 200,000 new customers this year, and they have been growing by double-digits every single year since he founded the company. So that’s an entrepreneurial company that started up from scratch, specifically around the idea of growing fans, and in a business that everybody hates. What’s really interesting is, we didn’t look at hemorrhoids, but we find all kinds of different organizations that have built fans in interesting ways.
I’ll give you another example. Duracell, they’re battery company. And people think, we can’t build fans in a commodity business. There are tons of small startup commodity businesses too: your landscape architect, your hairdresser, your real estate agent; every single organization can build fans. So, what Duracell did was they recognized that they don’t sell batteries, they sell power. And they have a program called “Power Forward” where they go to natural disaster sites: hurricanes, floods, tornadoes, fires, when the power has gone out, they have these four-wheel-drive vehicles included that can get into tough situations, where they give away free batteries to people who are victims of natural disasters. This is a time when batteries are in the most demand. Lots of people would think that they could sell the batteries; they could even sell them for double, triple, quadruple the price, they don’t. They give them away for free. And what that does is it builds people who become fans of Duracell for life, because they remember, when the power went out for a week, Duracell gave them free batteries, and all of a sudden, they were able to use the flashlights or power the radios. And this was incredibly powerful. So, the idea that fans can be created around any business is something that we just found to be fascinating.
I mentioned earlier this idea of how it’s really important to meet personally with customers and have physical contact with customers. So, one of the things we looked at is, some companies actually aren’t able to get close; maybe you’re in a virtual business, maybe you have customers all over the world. There’s another concept called mirror neurons, which are the part of our brains that fire when we see or hear somebody do something as if we’re doing it ourselves. As I mentioned earlier, the idea of physical proximity is really important to develop fans because you are part of the same tribe. But this idea of mirror neurons allows you to be virtually close to people even if you can’t be physically close to them.
I’m going to demonstrate the idea of mirror neurons for you, Jim. What I’m going to do is, I’m going to take out a lemon and I’m going to take a bite of this lemon. And when I do take a bite of this lemon, “My gosh, it’s so powerful! My eyes close instinctively and they are tearing a little bit. My mouth puckers up, my saliva glands are doing their thing. It’s a really powerful thing to bite into a tart lemon”. And just by hearing me say that, I’m betting that you’re feeling a little bit of lemon on your mouth as well, Jim.
So what’s happening in those cases is your brain is firing as if you’re doing something yourself. Here’s how we can use this as business people or entrepreneurs. The way we can use it is to use photographs and videos in our work, and use those photos and videos cropped as if you’re in close physical proximity with people within about four feet, and you’re looking directly at the camera. What this does is, people’s brains tell them that you’re actually in close physical proximity even though you’re not, and you can use this to build a tribe of people. So, this is exactly why we feel we know a movie star. We don’t know that movie star, but you can see them on a screen and your brain tells that you know them because when those scenes are cropped close, you feel as though you’re in close physical proximity with them. And again, that’s hardwired into our brains as humans; to want to have that close physical proximity to people because we feel we’re part of the same tribe, just like people who love Grateful Dead or Harry Potter. So, this is I believe the most important step in the steps that we have for building fans, is the idea of either actual close physical proximity, or virtual proximity using photographs and videos.
For stage events or webinars, you can tell the cameraman to go ahead and zoom in to show your face from about the distance that you and I would normally converse. And it’s not mutually exclusive. It’s not as if you only do that close-up shot but you do it sometimes. And what it means is, on your website specifically, or social media, or brochures, or wherever you use photographs, don’t use stock photos out of a catalog but use real pictures of real people: your employees and your customers, cropped as if it’s sort of cocktail party distance; like four feet or so, looking directly at the camera. Interestingly, that’s the same as a selfie. For a selfie, when you’re looking at the camera, your arm is about four feet or a little bit less depending on how tall you are. That is really powerful. Many people dismiss the selfie as frivolous and for kids, but when in fact it’s a really powerful way to communicate because our brains tell us that we’re in close physical proximity with that person who has just taken a selfie and posted it. So, these kinds of photos are really powerful as ways to build fans.
What’s interesting is we looked at the ideas around different cultures, and the actual distances might be a little bit different. So, it’s not four feet in some cultures, people are a little bit closer when they’re at a cocktail party; three feet or so. And in some cultures, they’re a little bit farther apart. But the same idea of physical proximity being important is true of all human beings because it’s hardwired into us as humans. And again, that’s why the more you can use these photographs and videos and actual physical human connection, the better. It’s really interesting how powerful that is. We’ve had people test it and they’ve changed, and all of a sudden, their social media exposure, their website conversions explode.
One of the things that we looked at was this idea of passion. It became really important for us to understand the importance of people who are passionate about something. It can be something in private life, it doesn’t have to be something related to business. But people who are passionate about something, that passion is infectious. So, sharing what you’re passionate about, that is something that draws people to you. Our strong suggestion is, and it’s really important if you want to build fans for your business, share the things that you love to do in your life; even if it’s something of a personal nature. You love to go fishing or snowboarding or knitting or whatever it might be, that is infectious, and people love to do business with other people who are passionate about their life.
We met a dentist whose name is Dr. Marashi. He’s a dentist who loves to skateboard, and he also loves bow ties. He now has a bunch of photographs and ways that he shares the idea. In his practice, he actually has skateboards on the wall. He’ll skateboard from one of the exam rooms to another on one of the skateboards. And all of his patients know that he’s this crazy dentist who loves to skateboard and wears bow ties, but the idea of doing that which he started a couple of years ago, has actually helped to grow his business by 30% per year. Because people don’t want just a dentist, they want a dentist who has passion. So, building passion into your life, building passion into your business, is super powerful, and it’s a great way for people to be able to build fans. I know we’ve only been able to scratch the surface and look at a couple of the prescriptions, but a whole bunch more in the book itself.
It’s exactly the same thing no matter what business you’re in, and that’s the thing that we found so interesting; my daughter Reiko and I, my co-author in the book Fanocracy. The idea that when you share in that way, something of you as a human being, you elevate yourself above most businesses that are just talking about products and services. If you’re talking about things that are important to people, sharing your passions, those are the businesses people want to do business with, those are the businesses that build fans, those are the businesses that ultimately become tremendously successful.
The book is available wherever books are sold. We’ve got a website at “www.fanocracy.com” with a bunch of free downloads and videos and other information you can check out. On social networks such as Twitter, it’s “@dmscott”.